9911796707
TMI Blog2023 (7) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... sued a show cause notice to Binny Ltd on 24th November 2022. A copy of that show cause notice, running to some 28 pages, is at Exhibit 'A' from page 66. The notice mentions in paragraph 12 that under the SEBI (Settlement Proceedings) Regulations, 2018 ("Regulations"), there is a settlement mechanism provided. Should Binny wish to opt for a settlement process, it could apply in the manner given in these Regulations under intimation to SEBI. Binny was put to notice that the filing of a Settlement Application did not confer any right to seek the settlement of the proceedings. The Settlement Application, which we will examine in detail a little later, is at page 95. It was filed on 24th December 2022. Binny was afforded a personal hearing on 20th February 2023. In parallel, on 31st January 2023. it filed a reply to the show cause notice. On 16th March 2023, SEBI rejected the Settlement Application. A copy of that email intimation is at Exhibit 'D' at page 104. 3. The hearing on the show cause notice having concluded, SEBI gave Binny a final opportunity to file post-hearing written submissions by 15th March 2023. A further extension followed till 27th March 2023. On 25th March 2023, Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financials of Binny Limited has caused losses to a large number of investors and also affected the integrity of the market. 2. Based on the same, the Board was of the considered opinion that the proposed settlement of specified proceedings as requested by you cannot be acceded to since the alleged default attracts the provisions of Regulation 5(2) (ii) and 5(2)(iii) of the SEBI (Settlement Proceedings) Regulations, 2018. 3. In view of the above, the subject settlement application has been rejected by the Board in terms of Regulation 5(5) of the Settlement Regulations. 4. The reason(s) rendered at paragraph 1 above, are intended only for the limited purpose of disposal of the subject settlement application and shall not have any bearing on the pending specified proceeding against the applicant." 7. This cannot be read in isolation. We will not reproduce the 28-page show cause notice in full, but there is no doubt that there was an investigating authority and a forensic audit. There is a case in the show cause notice of a massive diversion of funds of several hundreds of crores. There is also a case in the show cause notice itself, yet pending this final decision, of loss to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) whether the applicant is in compliance with securities laws or any order or direction passed under securities laws, to the satisfaction of the Board; (d) any other factor as may be deemed appropriate by the Board. (4) Without prejudice to sub-regulations (1) and (3), the Board may not settle the specified proceedings where the applicant is a wilful defaulter, a fugitive economic offender or has defaulted in payment of any fees due or penalty imposed under securities laws. (5) Nothing contained in these regulations shall be construed to restrict the right of the Panel of Whole Time Members to consider or reject any application in respect of any specified proceeding without examination by the Internal Committee or the High Powered Advisory Committee. 6. Rejection of application. (1) An application may [also] at any time be rejected on the following grounds: (a) Where the applicant refuses to receive or respond to the communications sent by the Board; (b) Where the applicant does not submit or delays the submission of information, document, [Revised Settlement Terms,] etc., as called for by the Board; (c) Where the applicant who is required to appear, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 terms may include suspension or cessation of business, exit from management, disgorgement on account of the action or inaction and so on. 11. Two committees are contemplated in Chapter V. There is an Internal Committee under Regulation 12 and a High Powered Advisory Committee under Regulation 11. Chapter VI then sets out the procedure for settlement. Regulation 13 deals with proceedings before the Internal Committee and Regulation 14 deals with the proceedings before the High Powered Advisory Committee. 12. Mr Dhond's submission is that the Board cannot simply invoke Regulation 5(2)(ii) and (iii) saying that loss has been caused to the investors or that the integrity of the market has been affected but must consider the Settlement Application 'on merits' and follow the procedure set out in the Regulations. He and Mr Sundaresan who appears for the Petitioner in the companion matter argue that this is the mandate of the statute as seen from Section 15( JB) of the SEBI Act which says in sub-section (2) that the Board may after taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entiality and other factors require the evolving of a settlement process for effective enforcement. A settlement is required to avoid protracted litigations and in particular, while dealing with settlements, care must be taken to avoid prolonging a dispute. For this, pertinent questions as to what would constitute a serious violation and who may be permitted to apply for the settlement process remain a challenge. 17. We should take a step back to consider the impact of what it is that is being canvassed by these Petitioners in the context of the allegations in the show cause notice. There is a specific finding based on a forensic audit report of an alleged diversion of funds, and even SEBI says that this is only alleged, of Rs 851.27 Crores. There is also a reference to loss to investors. What is being proposed is that while this Settlement Application, (one that proposes absolutely nothing) wends its way from one committee to another committee and then results in some decision, the show cause notice will remain pending because of the provisions of Regulation 8(1), which says in terms as noted above that a final order will be held in abeyance. That seems to be the game plan: file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to insist that the dispute be resolved in terms of a consensual settlement: that would denude the Board of discretion to reject any settlement application no matter how sterile and worthless. 22. Mr Doctor, learned Senior Advocate for SEBI, has invited our attention to a Division Bench judgment of this Court in Shilpa Stock Broker Pvt Ltd v Securities and Exchange Board of India [2012 SCC Online Bom 58.] It is true that this is a decision rendered before the Regulations came into force. But substantially, the submission there parallels the one that is made before us today. Paragraphs 12, 13 and 15 of the judgment in Shilpa Stock Broker are as relevant now as they were then. That decision is not diluted by the introduction of the Regulations. To say otherwise would be unthinkable. The reason is that the paragraph 12 of Shilpa Stock Broker sets out a general standard in such matters. Paragraphs 12, 13 and 15 read thus: "12. Whether a dispute should be resolved or whether the wider public interest in ensuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket 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 person who is alleged to be in breach of the Regulations or statutory provisions which are designed to protect the public interest can have no vested right either to insist upon SEBI settling a dispute or in enforcing compliance of the terms of a proposed offer of settlement. 13. If the matter is considered from this perspective, it is evident that the High Court in the exercise of its jurisdiction under Article 226 of the Constitution would not be justified in issuing a mandamus to SEBI to act upon a settlement or to accept a settlement as proposed. The guidelines which have been framed by SEBI are administrative in character. Since the judgment of the Supreme Court in G.J. Fernandez v. State of Mysore it has been a settled principle of law that if administrative guidelines issued by an authority have no statutory force, they can confer no right on an individual that could be enforced by a writ of mandamus. This principle was reiterated in a subsequent decision of the Supreme Court in J.R. Raghupathy v. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer 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 even a prayer for a direction to SEBI to reconsider the Settlement Application. In other words, an order on this Writ Petition would effectively put an end to all SEBI action as a regulator. That is simply unthinkable.
25. 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.
26. The Petitions are rejected with an accompanying order of costs of Rs 2.5 Lakh in each Petition payable equally (i.e., Rs.1.25 lakhs each) to:
(a)
The Society for the Rehabilitation of Crippled Children
A/c No.
00051450000144 (Savings)
Bank Name
HDFC Bank Ltd.
Branch
Bhulabhai Desai Road, Mumbai 400026
RTGS/IFSC/ NEFT Code
HDFC0000005
(b)
St. Jude India ChildCare Centres
A/c No.
02402320004130
Bank Name
HDFC Bank Ltd.
Branch
Sandoz House, Dr AB Road, Worli, Mumbai 400 018
RTGS/IFSC/ NEFT Code
HDFC0000240
27. Costs are to be paid within a period of ten days from today. X X X X Extracts X X X X X X X X Extracts X X X X
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