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TMI Blog2023 (7) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... on this Writ Petition would effectively put an end to all SEBI action as a regulator. That is simply unthinkable. These Petitions have taken an inordinate amount of time when our dockets are already overcrowded. We believe these Petitions are now fit cases for orders of costs. - G. S. Patel And Neela Gokhale, JJ. For the Petitioner in WPL/11717/2023 : Mr. Venkatesh Dhond, Senior Advocate, with Shruti Rajan, Anubhav Ghosh, Vivek Shah Hari Shankar, i/b Trilegal. For the Petitioner in WPL/11721/2023 : Mr. Somasekhar Ssundaresan, with Shruti Rajan, Anubhav Ghosh, Vivek Shah Hari Shankar, i/b Trilegal. For Respondent No. 1- SEBI in both Writ Petitions : Mr. Mustafa Doctor, Senior Advocate, with Suraj Chaudhary Shivani Kumbhojkar, i/b The Law Point. ORDER PC:- 1. The Petitions challenge a rejection by Securities Exchange Board of India ( SEBI ) of what is called a Settlement Application. The facts in the two Petitions are identical and we will therefore refer to the record in Writ Petition (L) No. 11717 of 2023. The Petitioner in the second Writ Petition is a director of the Petitioner in the first Writ Petition. 2. The background is this. SEBI issued a show cause notice to Binny Ltd o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed deceptive devices for diverting the funds and understating revenue during the investigation period, and adopted dubious practices in drawing up accounts for manipulating the financial results of Binny Limited to present a distorted picture to its shareholders and to the public at large. It was noted that such alleged acts and omissions were fraudulent on the part of the Company and such acts of serious irregularities have affected the integrity of the market. b. The share price fell by 4.62% (from Rs. 216.60 on 18/11/2021 to Rs. 206.20 on 22/11/2021) on the first day, i.e. November 22, 2021, post dissemination of the information regarding the appointment of a forensic auditor on the exchanges. The price thereafter reached a level of Rs. 211.65 by November 26, 2021. c. The alleged diversion of funds of Rs. 851.27 crores to other parties including related parties amounted to a loss to the investors, thus impacting a large number of investors (10507 public shareholders as of the quarter ended December 31, 2021). d. In view of the above, it was noted that the aforesaid alleged diversion of funds and misrepresentation of the financials of Binny Limited has caused losses to a large n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for settlement of any specified proceedings shall be considered, if: (a) an earlier application with regard to the same alleged default had been rejected; (b) the audit or investigation or inspection or inquiry, if any, in respect of any cause of action, is not complete, except in case of applications involving confidentiality; or (c) monies due under an order issued under securities laws are liable for recovery under securities laws. (2) The Board may not settle any specified proceeding, if it is of the opinion that the alleged default,- i. has market wide impact, or ii. caused losses to a large number of investors, or iii. affected the integrity of the market. (3) Without prejudice to the generality of the foregoing provisions, for settling any specified proceeding the Board may inter alia take into account the following factors,- (a) whether the applicant has refunded or disgorged the monies due, to the satisfaction of the Board; (b) whether the applicant has provided an exit or purchase option to investors in compliance with securities laws, to the satisfaction of the Board; (c) whether the applicant is in compliance with securities laws or any order or direction passed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the applicant, such proceedings shall not be initiated till the application is rejected or withdrawn: Provided that, the filing of an application shall not prohibit the initiation of any proceedings, in so far as may be deemed necessary for the purpose of issuance of interim civil and administrative directions to protect the interests of investors and to maintain the integrity of the securities markets. Explanation. Where any proceeding is pending or to be initiated against several persons but the settlement application is filed only by one or more persons, but not all, the filing of such an application shall not affect the initiation, continuation and disposal of the proceedings against the person who has not filed the application for settlement and any adverse observations made in such proceedings against the applicant shall qua the applicant be subject to the outcome of the settlement application filed by such applicant. (Emphasis added) 10. Chapter IV then deals with the terms of the settlement and says, importantly for our purposes, that a settlement term may include a settlement amount or a non-monetary term or both in accordance with guidelines in Schedule II. Non-monetary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discretion. The reference to the statutory provisions is equally pointless because even those speak of the Board s discretion. 16. If we were to examine the reasons for or the background for the introduction of these Regulations, we should find them compactly stated in the elaborate report by the Justice AR Dave Committee. That is a report of 10th August 2018 on Settlement Mechanisms. The Settlement Regulations were introduced for the first time following this report. The raison d tre of the Regulations are compactly noted in the Report. The very first sentence of the Background section at internal page 8 (brief page 558) has the of quoted adage that justice delayed is justice denied. Mr Justice Dave went on to say that it was of the utmost significance, and that the constant struggle to uphold this legal maxim has been a bitter battle in every judicial system. There is then a discussion on methods of plea bargaining and finally the background says that the ever-growing requirements of a free market, concerns of confidentiality and other factors require the evolving of a settlement process for effective enforcement. A settlement is required to avoid protracted litigations and in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of India Anr, 2019 SCC Online Bom 1772.] is really of little assistance. If a delay application is not allowed, the principal cause is lost. Here the principal action is the show cause notice, not the Settlement Application. In fact, this submission tells us everything we need to know because it clearly implies that the Settlement Application is being used as a mechanism to block the final adjudication of the show cause notice. 21. The argument that every order needs the kind of reasoning as one might expect in a judgment is fundamentally fallacious. The reliance by the Petitioners on Madhyamam Broadcasting Ltd v Union of India and Ors [2023 SCC Online SC 366.] in paragraph 62 was in a completely different context. The observations made by the Supreme Court in the Madhyamam were in the context of the sealed cover procedure used by the Ministry of Home affairs while disclosing relevant material solely to the Kerela High Court. It was in this context that the Supreme Court observed that the non-disclosure of even a summary of reasons for denying security clearance to MBL does not share a rational connection with the purpose identified. The present Petitioners have no vested right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce schedule, economic benefits that have accrued from delayed or failure in compliance, conditions necessary to deter future non-compliance, satisfaction of claims of investors and compliance of civil enforcement action. These factors indicate that the question as to whether a dispute should be resolved by a consensual settlement does not merely involve a private lis between the violator and the regulator but involves a consideration of wider issues of public interest. The securities market impinges upon investor wealth. Investors as a body represent the collective wealth of numerous individual investors. Trading on the Stock Exchanges and the business conducted by Stock Exchanges has a material impact on investors, both institutional and individual. Actions of stake holders in the securities market have consequences not merely for the role and position of the stake holder and his relationship with SEBI as regulator. Those actions have serious consequences for the overall well being of the securities market and those whose wealth and investment is impacted by the stock market. SEBI is vested with the power to protect and streamline the functioning of the securities market. A perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI had attained finality before the Supreme Court; and (iii) A proceeding which has attained finality, cannot be reopened and the attempt to enforce terms of consent would result in nullifying the effect of the order of the Supreme Court which is impermissible. In the circumstances, we do not find any merit in the Petition. (Emphasis added) 23. Interestingly, Shilpa Stock Broker is cited specifically in the Justice Dave Report to which we have earlier referred. It is therefore impossible to say that this decision is of no relevance. 24. Viewed from any perspective, these Petitions, like the Settlement Application, are entirely without substance. We understand quite clearly now that the only purpose of the Settlement Application and indeed these Writ Petitions was to prolong and delay the adjudication of the show cause notice. If there was any doubt about this, it is surely put to rest by one look at the prayers in the Binny Petition, and in particular prayer clause (b) which is really the prayer that is being sought, for a stay of the adjudication on the show cause notice. Interestingly, although prayer clause (a) ought to be really for a certiorari not a mandamus, there is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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