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TMI Blog2025 (4) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... elay in the filing of Civil Appeal (Diary) No. 42829 of 2019 is condoned. 2. Considering the twists and turns that this litigation has taken since its inception in 2005, these appeals put to test the saying that the scales of justice may be slow to tip but when they do, let them tip in favour of what is right Nancy Taylor Rosenberg, American author. 3. M/s. Vital Communications Limited, New Delhi (hereinafter, 'VCL'), is a public limited company whose shares were listed on the Bombay Stock Exchange, the Delhi Stock Exchange and the National Stock Exchange. While so, the Securities and Exchange Board of India (hereinafter, 'SEBI') issued show-cause notice dated 24.05.2005 to VCL and its promoters and directors under Section 11(4) read with Sections 11 & 11B of the Securities and Exchange Board of India Act, 1992 (for brevity, 'the Act of 1992'), in relation to alleged misleading advertisements issued by VCL with regard to buyback of its shares, issue of bonus shares and preferential issue of shares within 30 days. Details of the advertisements published in the newspapers between 27th May, 2002 and 24th June, 2002 were furnished therein and these advertisements were stated to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Shubha Jhindal, Director of VCL, whereby she was restrained from accessing the securities market and prohibited from buying, selling and dealing in securities in any manner for a period of six months. As regards the remaining noticees, i.e., VCL and its other directors and promoters, SEBI restrained them from accessing the securities market and prohibited them from buying, selling and dealing in securities in any manner for a period of two years. 5. Aggrieved by this order, VCL and its promoters and directors filed Appeal Nos. 61, 65 and 81 of 2008 before the Securities Appellate Tribunal, Mumbai (for brevity, 'the Tribunal'). By common order dated 28.08.2008, the Tribunal allowed their appeals. The Tribunal held that the impugned order passed by SEBI failed to deal with the issues properly and set aside the order dated 20.02.2008. The matter was remanded to enable SEBI to issue fresh show-cause notices, afford an opportunity of hearing to the noticees and to pass an order in accordance with law. 6. Parallelly, one Ram Kishori Gupta and her husband, Harishchandra Gupta, who allegedly purchased shares of VCL on the basis of the misleading advertisements, separately filed Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants on purchasing the shares in question with appropriate interest and as per law. 8. Review Application No. 8 of 2013 was moved by SEBI in Appeal No. 207 of 2012 filed by the aforestated two investors. This review petition was disposed of by the Tribunal on 19.12.2013. Therein, the Tribunal clarified as follows: 'Similarly, we also clarify that while observing that consideration and imposition of penalties or the direction to a company to refund an amount collected by that company against the law is different matter and falls within the domain of SEBI, we have directed only consideration of such an issue, if any, as per the provisions of law and only if the circumstances so require. To this extent, the abovesaid order of this Tribunal dated April 30, 2013 in appeal no. 207 of 2012 stands clarified.' 9. While so, pursuant to the remand by the Tribunal, fresh show-cause notices dated 06.07.2012 and 12.07.2012 were issued by SEBI. The noticees therein, including VCL, were 24 entities in all. Thereafter, through a WTM, SEBI passed order dated 31.07.2014 in exercise of power under Sections 11 and 11B of the Act of 1992, read with Regulation 11 of the Securities and Exchange Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , believing its false advertisements, and suffered a loss of Rs.13,83,274/-. He also took note of their prayer to direct VCL to refund the actual amount spent by them on purchasing the shares in question along with appropriate interest and penalties. He found merit in their argument that SEBI was under a mandate to protect the interest of investors and should, therefore, take appropriate measures to exercise such mandate. He also opined that no person could be allowed unjust enrichment by way of wrongful gain made on account of fraudulent, manipulative and unfair trade practices, but noted that, in the instant case, the ill-gotten gains, if any, made by the entities mentioned in the order dated 31.07.2014 had not been quantified during the investigation and, therefore, the same was not considered in the said order. He concluded that this was a fit case to examine the feasibility of quantifying the ill-gotten gains, if any, and disgorgement of the same and, thereafter, consider restitution to the complainants in accordance with the provisions of the Act of 1992 and the Regulations framed thereunder. He noted that, insofar as the relief of compensation was concerned, it could only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In consequence, it concluded that, in the absence of any disgorgement, SEBI could not order refund of their monies. Stating so, the Investigation Team ended by requesting Ram Kishori Gupta and Harishchandra Gupta to inform SEBI if they wished to avail a personal hearing in the matter before the WTM. 14. Aggrieved by the Report dated 15.06.2015, Ram Kishori Gupta and Harishchandra Gupta again approached the Tribunal by way of Appeal No. 189 of 2015. However, on 27.08.2015, this appeal was disposed of by the Tribunal as withdrawn, noting that the appellants were afforded an opportunity of hearing before a WTM of SEBI in connection with the Report dated 15.06.2015. The WTM of SEBI was, accordingly, directed to pass appropriate orders on merits, after hearing the appellants, as expeditiously as possible. 15. Pursuant thereto, a WTM of SEBI, after giving due opportunity of hearing to all concerned, passed order dated 01.04.2016. Therein, noting the claim of Ram Kishori Gupta and Harishchandra Gupta that they had suffered a loss of Rs.51,53,190/-, the WTM opined that SEBI had failed to consider the observations in the order dated 16.12.2014 and failed to calculate the losses caused by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , they were restrained from buying, selling or dealing in the securities market in any manner whatsoever or accessing the securities market directly or indirectly for a period of 5 years. Insofar as the issue of restitution is concerned, SEBI's WTM noted the decision in the earlier order dated 30.04.2013 passed by the Tribunal and held that restitution of the losses suffered by Ram Kishori Gupta and Harishchandra Gupta was outside the scope of SEBI. Referring to the observation of the Tribunal therein that SEBI may pass a direction to compensate their losses either against VCL or the entity concerned, the WTM opined that such a direction was not feasible for a variety of reasons. The fraud committed had not only affected Ram Kishori Gupta and Harishchandra Gupta but also a large number of investors who had traded during the relevant time; and the shares held by the complainants were not directly issued to them by VCL but were purchased by them in the secondary market and it would be unfair to only compensate them selectively, as there would be many others who suffered similar losses by trading in the scrip. Lastly, the complainants could not deny the fact that investment in the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arishchandra Gupta filed Civil Appeal (Diary) No. 42829 of 2019. 19. Two years later, by the order dated 20.12.2021, the Tribunal disposed of the other appeals. Therein, the Tribunal noted the contention of VCL and the other appellants that the disgorgement order dated 28.09.2018 was barred by the principle of res judicata. This argument was founded on the premise that the show-cause notices dated 06.07.2012 and 12.07.2012 had already culminated in the final order dated 31.07.2014, whereby they had been barred from accessing the securities market for specified periods and, as this order had attained finality, there was no cause for the SEBI to pass a fresh order for disgorgement pursuant to the very same notices under the very same provisions, i.e., Sections 11 and 11B of the Act of 1992. The Tribunal then noted its earlier order dated 30.04.2013, passed in the context of the prayer of Ram Kishori Gupta and Harishchandra Gupta, and observed that no direction had been issued to SEBI therein to consider the feasibility of quantifying ill-gotten gains or to initiate proceedings for disgorgement against the appellants and the other entities. Ergo, the Tribunal concluded that the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 11, 11A, 11AA, 11B, 11C and 11D. Section 11(1) provides that it shall be the duty of SEBI to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market, by such measures as it thinks fit. Section 11(2) details such measures under clauses (a) to (m). Section 11(4) details some more measures that can be taken by SEBI, either pending investigation or enquiry or on completion of such investigation or enquiry. Section 11A of the Act of 1992 empowers SEBI to specify, by way of Regulations, the matters relating to issue of capital, transfer of securities and others matters incidental thereto; and the manner in which such matters shall be disclosed by companies. SEBI is also empowered under Section 11A(b), by general or special orders, to prohibit any company from issuing a prospectus, offer document or advertisements soliciting money from public for the issue of securities; and specify the conditions subject to which the prospectus, offer document or advertisement, if not prohibited, may be issued. Section 11B of the Act of 1992 empowers SEBI to issue directions and levy penalty. It presently reads as under: '11B. Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r associated with the securities market; or (b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market. 22. The scheme of Section 11B of the Act of 1992 is that SEBI, in the interest of investors in securities and the securities market, may make or cause to be made an enquiry in that regard and, if it is satisfied that it is necessary to do so, SEBI may issue such directions, be it to a person or a class of persons, referred to in Section 12, or associated with the securities markets or to any company in respect of matters specified in Section 11A, as may be appropriate in the interest of investors in securities and the securities market. The Explanation, which was inserted therein with effect from 18.07.2013, makes it clear for the removal of doubts that the power to issue directions under Section 11B shall include and always be deemed to have included the power to direct disgorgement of an amount equivalent to the wrongful gain made or loss averted by indulging in any transaction or activity in contravention of the provisions of the Act of 1992 or the Regulations made thereund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors and other entities, and the financial implications thereof. Despite the same, no order was passed by him in relation to disgorgement of any ill-gotten gains made by them as a consequence of such transgressions. The Explanation, inserted in Section 11B thereafter, puts it beyond the pale of doubt that the power to direct disgorgement was deemed have always been included in the general power of issuing directions thereunder. 24. In any event, it was only owing to Ram Kishori Gupta's and Harishchandra Gupta's complaint that the order dated 31.07.2014 did not take into account the directions in the earlier order dated 30.04.2013 in their Appeal No. 207 of 2012, that the Tribunal passed the order dated 17.11.2014 recording the concession of the learned counsel for SEBI that the WTM would pass an additional order dealing with such directions. This, in turn, led to the passing of a fresh order by SEBI on 16.12.2014, which reopened the exercise undertaken earlier that had culminated in the order dated 31.07.2014. This order completely ignored the negation by the Tribunal, in the earlier order dated 30.04.2013, of the prayer of Ram Kishori Gupta and Harishchandra Gupta against SEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and states that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and shall have the power to regulate its own procedure. Significantly, this provision does not cover proceedings before the SEBI and its WTMs under the Act of 1992. Therefore, SEBI cannot claim exemption from the applicability of the principle of res judicata thereunder. 28. In Hope Plantations Ltd. vs. Taluk Land Board, Peermade and another (1999) 5 SCC 590, a 3-Judge Bench of this Court affirmed that the principle of res judicata is based on public policy and justice. It was pointed out that the rule of res judicata prevents the parties to a judicial determination from litigating the same question over again, even though the determination may be demonstrably wrong. It was held that when proceedings attain finality, parties are bound by the judgment and are estopped from questioning it. They cannot litigate again on the same cause of action, nor can they litigate any issue which was necessary for decision in the earlier litigation. It was pointed out that Section 11 of the Code of Civil Procedure, 1908, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r well for a statutory body enjoined with the duty of protecting investors and regulating the securities market which, by its very nature, is volatile, to drag its feet and indulge in unwarranted and unjustified delays. 31. Viewed thus, we are of the opinion that the entire exercise undertaken by SEBI after the passing of the final order dated 31.07.2014, resulting in the disgorgement order dated 28.09.2018, was unsustainable in law. Further, as the compensation claim of Ram Kishori Gupta and Harishchandra Gupta against SEBI stood decided by the Tribunal's order dated 30.04.2013, which also attained finality, it was not open to them to reopen the same and seek to pin such liability upon SEBI once again. The directions in that regard by the WTMs of SEBI in the orders dated 16.12.2014 and 01.04.2016, culminating in the direction for restitution by the Tribunal in its judgment dated 02.08.2019 in Appeal No. 44 of 2019, cannot be sustained. It was not for the Tribunal to interpret its earlier order dated 30.04.2013 and give it a different colour, contrary to its plain meaning. Finally, it has been contented before us by SEBI that as only 4 entities, including VCL, out of 22 entities, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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