Bombay High Court
Ashok Dayabhai Shah And 16 Ors vs Securities And Exchange Board Of India ... on 23 October, 2023
Author: G.S. Kulkarni
Bench: G. S. Kulkarni
wp530-23-reserved-note.doc
PVR
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 530 OF 2023
Ashok Dayabhai Shah And Ors. ..Petitioners
Versus
Securities And Exchange Board of India And Ors. ..Respondents
WITH
WRIT PETITION NO.447 of 2023
Pina Pankaj Shah ..Petitioner
Versus
Securities And Exchange Board of India ..Respondents
_____________
Mr. Navroz Seervai, Senior Advocate with Ms. Aarti Raghavan, Mr.
Vikram Raghani, Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar, Mr. Deepank
Anand and Mr. Shourya Tanay i/b JSA Advocates & Solicitors, for
Petitioner in WP/530/2023.
Mr. Gaurav Joshi, Sr. Adv. a/w Mr. Kunal Katariya and Ms. Garima
Mehrotra, for Petitioner in WP/447/2023.
Mr. J. J. Bhatt, Sr. Adv. a/w Mr. Mihir Mody and Mr. Arnav Misra i/b K.
Ashar & Co. for R. No. 1 in WP/530/2023.
Mr. Vishal Kanade with Mr. Mihir Mody and Arnav Misra i/b K. Ashar &
Co., for Respondent No. 1 in WP/447/2023.
Mr. Venkatesh Dhond, Sr. Adv. a/w Mr. Ameya Gokhale, Mr. Vaibhav
Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul
Amarchand Mangaldas & Co., for Respondent No. 2 in WP/530/2023.
Mr. Ashish Kamat, Senior Advocate with Mr. Ameya Gokhale, Mr.
Vaibhav Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b
Shardul Amarchand Mangaldas & Co., for Respondent No. 2 in
WP/447/2023.
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Mr. Rahul Narichania, Sr. Adv. a/w Mr. Ameya Gokhale, Mr. Vaibhav
Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul
Amarchand Mangaldas & Co., for Respondent No. 7 & 8 in
WP/530/2023.
Mr. Janak Dwarkadas, Sr. Adv. a/w Mr. Ameya Gokhale, Mr. Vaibhav
Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul
Amarchand Mangaldas & Co., for Respondent No. 9 in WP/530/2023.
Mr. Ameya Gokhale, Mr. Vaibhav Singh, Ms. Radhika Indapurkar and
Mr. Manas Kotak i/b Shardul Amarchand Mangaldas & Co., for
Respondent No. 7, 8 & 9 in WP/447/2023.
______________________
CORAM : G. S. KULKARNI &
JITENDRA JAIN, JJ.
RESERVED ON: OCTOBER 20, 2023.
PRONOUNCED ON: OCTOBER 23, 2023.
Oral Order (per G.S. Kulkarni, J.).:
1. We had commenced the hearing of the present proceedings to be disposed of at the admission stage.
2. The petitioners in both these writ petitions are minority shareholders of respondent No.2 - Bharat Nidhi Ltd. (for short 'BNL').
They had complained to the SEBI of violation by BNL of various provisions of the Securities laws, including violations pertaining to the minimum public sharing norms ("MPS") as also violations in respect of the promoters disclosure in shareholding in BNL. It is the petitioners' case that the complaints as made by the petitioners were considered and Page 2 of 32
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wp530-23-reserved-note.doc investigated by respondent No.1 - Securities and Exchange Board of India (for short 'SEBI'), pursuant to which a show cause notice came to be issued to respondent No.2 - BNL. It is their contention that BNL was earlier listed on the Delhi Stock Exchange and after the same ceased to be functional, BNL had sought listing of its share at the Calcutta Stock Exchange, which is also not functional. BNL is now stated to be on the Dissemination Board of the National Stock Exchange.
3. It is the case of the petitioners that they are severely prejudiced due to several illegalities being committed by BNL at the instance of its majority shareholders who are respondent No3 to respondent No.9. The petitioners contend that they are the victims of BNL not being listed on a recognized stock exchange, which has adversely affected their interest as investors in BNL. The petitioners contend that BNL is a majority shareholder of a reputed company known as Bennett, Coleman & Co. Ltd. (for short 'BCCL') in which BNL and respondent Nos.3, 4, 7 to 9 have approximately 68% shareholding.
4. The case of the petitioners is that there are several reasons for the BNL to undertake such actions and resort to illegalities of suppression to the prejudice of the petitioners of the nature as complained namely of violations of the MPS and violation of the promoter shareholding as per Page 3 of 32
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wp530-23-reserved-note.doc SEBI norms. It is contended that on complaints being made by the petitioners to the SEBI and the SEBI after having undertaken an investigation, a show cause notice was issued inter alia to the BNL, on the SEBI being satisfied of serious irregularities and breach of rules and regulations committed by BNL. According to the petitioners, the same ought to have been taken to the logical conclusion. However, before the show cause notice proceedings could be taken forward against respondent Nos.2 to 9, respondent No.2 moved an application for settlement of the show cause notice by invoking the provisions of the Securities and Exchange Board of India (Settlement Proceedings) Regulation, 2018 (for short '2018 Regulations'). It is the petitioners' contention that the complaints subject matter of the show cause notice, which could never have been settled, were sought to be settled by the BNL. Such settlement is impugned in the present proceedings, namely the Settlement order dated 12 September 2022 passed under the 2018 Regulations.
5. In so far as the issue relevant to the present order is concerned, as noted above, the same is in regard to the contention of the petitioners in relation to the documents which need to be made available to the petitioners, and being subject matter of prayer clause (g) of both the petitions.
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6. Such relief as sought for by the petitioners in their capacity as shareholders is by prayers which are for interim reliefs to the effect that the SEBI be directed to produce copies of the Investigation Report, Show Cause Notices, minutes of meetings of the IC Committee, HPAC and Panel of WTMs, order/communication/ noting by which the settlement application filed by Respondent Nos. 2 to 9 was approved by the SEBI and all other documents relevant to the proceedings in connection with the impugned Settlement Order.
7. In support of such contention, we may refer to the petitioners' case as set out in paragraphs 41, 42, 43, 48 and 52 of Writ Petition No.530 of 2023, and in the context of which prayer clause (g) has been made. The case in the companion petition is not different. The averments in the said paragraphs of the petition and prayer (g) can be noted which read thus:
"(g) That pending the hearing and final disposal of the present Petition, this Hon'ble Court be pleased to direct SEBI to produce copies of the Investigation Report, Show Cause Notices, minutes of meetings of the IC Committee, HPAC and Panel of WTMs, order/communication/ noting vide which the settlement application filed by Respondent Nos. 2 to 9 was approved by SEBI and all other documents relevant to the proceedings in connection with the Impugned Settlement Order."
"41. The Petitioners have not been provided with copies of the SCN, and consequently the findings and observation on the basis of which the SCN has been issued and the violations alleged therein, which have been subsequently settled vide the Impugned Settlement Order, are not known to the Petitioners.Page 5 of 32
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wp530-23-reserved-note.doc From the Impugned Settlement Order the following can be made out:
i. SEBI conducted an investigation for the period between January 01, 2013 and December 31, 2019 i.e., a period spanning more than 6 years, to ascertain whether there had been any misrepresentation of shareholding of promoters as public shareholders and possible non-compliance with minimum public shareholding norms.
ii. SEBI prima facie observed the following violations in respect of BNL, Respondent No. 2:
a) Regulation 31(1)(b) of the LODR Regulations r/w SEBI Circular dated November 30, 2015 r/w Regulation 2(za) of the ICDR Regulations and Clause 35 of the Listing Agreement in terms of which listed entities are required to submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities i.e., Promoter and Promoter Group, Public and Non-Promoter Non Public shareholding within time period specified;
b) Rule 19A(1) of the SCRR r/w Regulation 28 of LODR Regulations r/w Clause 2(II) of SEBI Circular dated December 16, 2010 r/w November 30, 2015 in terms of which every listed company is required to maintain a minimum public shareholding of at least 25% and the manner of achieving such minimum public shareholding;
c) Section 12A (1) and (b) of the SEBI Act r/w Regulations 3(b), (c), and 4(1) of the SEBI (Prohibition of Fraudulent an Unfair Trade Practices relating to the Securities Market) Regulations, 2003 ("PFUTP Regulations").
iii. SEBI prima facie observed the following violations in respect of Respondent Nos. 2 to 9:
8) Regulation 30(2) of the SAST Regulations and Regulation 7(1)(a) of the PIT Regulations in terms of which promoters of a company are required to disclose their shareholding as on date of becoming a Promoter;
b) Clause 2(II) of SEBI Circular dated December 16, 2010 r/ w SEBI Circular dated November 30, 2015 which Prescribes the manner of achieving minimum public shareholding:
c) Section 12A (a) and (b) of the SEBI Act r/w Regulation 3(b),
(c) and 4(1) of the PFUTP Regulations.
42. Thus, admittedly, and as recorded in the Impugned Settlement Order, SEBI observed prima facie violations of (i) Page 6 of 32
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wp530-23-reserved-note.doc MPS Norms and (ii) Disclosure Requirements in respect of promoter shareholding of BNL against Respondent Nos. 2 to 9.
43. Bearing in mind the specific violations that have been purportedly settled vide the Impugned Settlement Order, the scheme of the Settlement Regulations has been set out below. A copy of the Settlement Regulations has been annexed hereto as Exhibit BB.
48. In the circumstances set out above, the Petitioners submit that this Hon'ble Court be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records of the settlement proceedings in respect of Respondent No. 2 (culminating into the Impugned Settlement Order passed in respect of Respondent Nos. 2 to 9), and after going into the legality, validity and propriety of the same, to quash or set aside the Impugned Settlement Order. (Exhibit A).
52. In the aforesaid circumstances, the Petitioners submit that pending the hearing and final disposal of the present Petition:
(i) it is necessary, proper and in the interest of justice, equity and good conscience that SEBI be directed by an order and direction of this Hon'ble Court to produce copies of the Investigation Report, Show Cause Notices, minutes of meetings of the IC Committee, HPAC and Panel of WTMs, order/communication/noting vide which the settlement application filed by Respondent Nos. 2 to 9 was approved by SEBI and all other documents relevant to the proceedings in connection with the Impugned Settlement Order; (ii) that this Hon'ble Court be pleased to stay the effect and operation of the Impugned Settlement Order: (iii) that this Hon'ble Court be pleased to stay the 2022 Postal Ballot Notice."
8. The petitioners' contention of these documents not being made available to the petitioners was urged by Mr. Gaurav Joshi, learned Senior Counsel appearing for the petitioners in Writ Petition No.447 of 2023 during the course of his arguments on 19 October 2023, which was supported by Mr. Seervai, learned Senior Counsel appearing for the petitioners in Writ Petition No.530 of 2023. We have heard the learned Page 7 of 32
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wp530-23-reserved-note.doc counsel for the parties on such issue on 19 October 2023 when the arguments on the same remained part heard. In our order passed on the even day, we recorded the fair stand as taken by the SEBI on 19 October 2023 of agreeing to produce the documents, if so directed by the Court. We had accordingly passed the following order:-
"1. At the midst of the hearing of the present proceedings, we have considered a submission as made by Mr.Gaurav Joshi, learned Senior Counsel appearing for the petitioner in WP/447/2023 in regard to the interim prayers as made in the petition which, according to him, would have a material bearing on the issues as falling for adjudication in the present proceedings. The submission is in relations to the documents as set out in prayer clause (g) of the petition not being supplied by the SEBI.
2. On such issue, the private respondents have taken a stand of confidentiality under Regulation 29 of the Securities and Exchange Board of India (Settlement Proceedings) Regulation, 2018. On such issue we have heard Mr. Dwarkadas, learned Counsel appearing for Respondent No. 9 in WP/530/2023, Mr. Dhond, learned Senior Counsel appearing for Respondent No. 2 in WP/530/2023, Mr. Narichania, learned Senior Counsel appearing for Respondent No. 7 & 8 in WP/530/2023 and Mr. Kamat, learned Senior Counsel appearing for Respondent No. 2 in WP/447/2023, on the objection to such prayer as made by the petitioners. They have concluded their submissions on this issue. We would now hear Mr. Seervai, learned Senior Counsel appearing for the petitioner in WP/530/2023 and Mr. Gaurav Joshi, learned Senior Counsel appearing for Petitioner in WP/ 447/2023 in response to the objections as urged on behalf of the private respondents, on the adjourned date of hearing.
3. We may observe that in pursuance of our request which was made to Mr. Bhatt, learned Senior Counsel for SEBI, Mr. Bhatt has placed before us copies of Show Cause Notice dated 28 October 2020 as also application for Page 8 of 32
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wp530-23-reserved-note.doc settlement as filed by respondent No.2 - Bharat Nidhi Ltd. We direct that till we pass appropriate orders on the issue as noted by us above, let the copies of the said documents be placed in a sealed cover with the learned Prothonotary and Senior Master of this Court, which shall be subject to further orders to be passed on such issue, as noted by us above.
4. Mr.Bhatt, has fairly stated that in the event the Court directs for any further documents to be placed before the Court, the SEBI shall do so.
5. Part Heard. Stand over to 20 October 2023 at 10.30 a.m."
9. The arguments on such issue thereafter were extensively heard on 20 October 2023 when we concluded the hearing on such issue, for pronouncement of the present order.
10. Both Mr. Gaurav Joshi and Mr. Seervai for the petitioners have argued that non supply of the documents by the SEBI as set out in prayer clause (g) of the petition has a material bearing on the issue which falls for consideration in the present proceedings and more particularly, considering the case of the petitioner on the challenge, they have mounted to the impugned settlement order passed under the provisions of the 2018 Regulations. It is the petitioners' contention that it would not be correct for the respondents not to provide/supply such documents to the petitioners, who are the shareholders of BNL.
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11. On behalf of the petitioners, learned senior counsel have submitted that the settlement which is brought about by the BNL is a consequence of the complaint as made by the petitioners and received by the SEBI, on which an investigation was undertaken by the SEBI and thereafter, a show cause notice was issued by the SEBI inter alia to BNL and the majority shareholders, who, according to the petitioners, are controlling the BNL. It is contended that the show cause notice was replied, and considering the imputations as made, on the basis of an investigation undertaken by the SEBI, a proposal for settlement was submitted by the BNL to settle the irregularities, which could not have been settled and which were sought to be settled by the impugned settlement order, which according to the petitioner was manifestly illegal on several counts.
12. The petitioners submit that considering the nature of the allegations and the violations, such settlement could not have been brought about by BNL. The petitioners thus submit that for such reason, it was not only relevant, but of immense significance, that SEBI in its public character ought to have, at the outset, provided and/or made available the documents as demanded by the petitioners and subject matter of its prayers.
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13. It is submitted that the petitioners challenge is to the decision making process leading to the impugned settlement order. It is for the very reason a prayer for a writ of certiorari has been made. It is submitted that it is a settled principle of law that documents cannot be withheld and/or not furnished to the petitioners, on the basic premise that there is no privilege claimed in a manner known to law so as to not produce / furnish the documents. It is submitted that in any event, once the SEBI has agreed to produce the documents before the Court, then there is no question of the documents being withheld and not furnished to the petitioners. The conduct of the respondent nos.2 to 9 in objecting to handing over of the documents to the petitioners even by the SEBI, is wholly untenable. It is submitted that in the present case, the petitioners have a serious objection to the settlement, inter alia on the ground that such settlement could never have been entered into so as to settle the show cause notice, when the settlement was hit by the provisions of Regulation 5(2) of the 2018 Regulations. It does not lie in the mouth of the private respondents to first actively suppress such documents and later on before the Court take a stand of confidentiality. The case of the petitioner in regard to the disclosure of such document is replete in paragraph 35 at page 372. Thus, the objections as raised on behalf of the private respondent Nos.2 to 9 are required to be rejected. Page 11 of 32
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14. On behalf of BNL and the majority shareholders who are arrayed as respondent nos. 2 to 9 in the present proceedings, who are represented by the learned Senior Counsel Mr. Dhond, Mr. Janak Dwarkadas, Mr. Rahul Narichania, Mr. Ashish Kamat, the contentions as urged on behalf of the petitioners are being vehemently objected. Such objections are as follows:-
(i) that the confidentiality clause being Regulation 29 of the 2018 Regulations would not permit SEBI to provide those documents.
(ii) that so far, during the course of hearing of the present proceedings, the need for having such documents, was not pressed or urged, and at the fag end of the proceedings it ought not to be granted. This would also show that no prejudice was caused to the petitioners, as the absence of such documents would not perceive any prejudice to the petitioners.
(iii) The petitioners are adversaries to the private respondents and hence, such documents can never be granted. The object and purpose of the confidentiality clause (Regulation 29) itself is to the effect that documents, which are part of the Page 12 of 32
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wp530-23-reserved-note.doc settlement proceedings, be not provided to the public. The petitioners case of a challenge to the Settlement order is a jurisdictional issue, hence, such issue ought to have been raised at the very first instance and/or at the beginning of the hearing. It is submitted that under the garb of challenging the decision making process, the petitioners are in effect challenging the decision itself.
(iv) It is submitted that the issue before the Court for adjudication in the present proceedings is a legal issue namely whether the show cause notice could have been settled, which is required to be tested only on the provisions of law / rules as applicable. Hence, if the documents in relation to the settlement are provided, the whole purpose of settlement itself would be lost and it would create a chaotic situation. The sanctity of the settlement order would be lost. It is for such reason, Regulation 29 prohibits providing of any information / documents in regard to the proceedings of settlement.
(v) The case of the petitioners is purely a case on Page 13 of 32
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wp530-23-reserved-note.doc the MPS norms and the disclosure requirement in respect of of the promoters shareholding of the BNL and hence, there is no requirement for any information as contained in the documents to be supplied to the petitioners.
15. The above rival contentions fall for our consideration on the question as to whether the interim prayers as made by the petitioners for furnishing of the documents can be granted.
16. At the outset, we may observe that Mr. J. J. Bhatt, learned Counsel for the SEBI in his usual fairness has stated, that if so directed the SEBI is ready and willing to furnish to the petitioners any documents as may be directed by the Court.
17. Now coming to the objections as urged on behalf of the private respondents. We may observe that on behalf of respondent nos.2 to 9, much emphasis has been laid on the Regulation 29 of the 2018 Regulations, to contend that Regulation 29 prohibits supply of the documents which are in relation to settlement process. To appreciate such contentions, we need to note Regulation 29 which reads thus:-
"CHAPTER XI MISCELLANEOUS Confidentiality of information.Page 14 of 32
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29. (1) All information submitted and discussions held in pursuance of the settlement proceedings under these regulations shall be deemed to have been received or made in a fiduciary capacity and the same may not be released to the public, if the same prejudices the Board and/or the applicant. (2) Where an application is rejected or withdrawn, the applicant and the Board shall not rely upon or introduce as evidence before any court or Tribunal, any proposals made or information submitted or representation made by the applicant under these regulations:
Provided that this sub-regulation shall not apply where the settlement order is revoked or withdrawn under these regulations.
Explanation. - When any fact is discovered in consequence of information received from a person in pursuance of an application, so much of such information, whether it amounts to an admission or not, as relates distinctly to the fact thereby discovered, may be proved."
(emphasis supplied)
18. We may observe that Regulation 29 forms part of the 'miscellaneous provisions' as contained in Chapter XI of the 2018 Regulations, which would become applicable in the context of an application for settlement, which would be made by the persons against whom any specified proceedings have been initiated. Some of the relevant definitions as contained in the 2018 Regulations read thus:-
"Definitions.
2. (1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below and their cognate expressions shall be construed accordingly, -
(a) "Act" means the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) "alleged default" means an alleged or probable contravention of any provision of the securities laws;
(e) "securities laws" means the Act, the Securities Contract (Regulations) Act, 1956 (42 of 1956), the Depositories Act,1996 (22 of 1996), the relevant provisions of any other law to the extent it is administered by the Board and the relevant rules and regulations made thereunder;Page 15 of 32
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(f) "specified proceedings" means the proceedings that may be initiated by the Board or have been initiated and are pending before the Board or any other forum, for the violation of securities laws, under Section 11, Section 11B, Section 11D, sub-Section (3) of Section 12 or Section 15-I of the Act or Section 12A or Section 23-I of the Securities Contracts (Regulation)Act, 1956 or Section 19 or Section 19H of the Depositories Act, 1996, as the case may be."
19. The provisions governing an 'application for settlement; are contained in Regulation 3 of the 2018 Regulations which reads thus:-
"CHAPTER II APPLICATION FOR SETTLEMENT Application.
3. (1) A person against whom any specified proceedings have been initiated and are pending or may be initiated, may make an application to the Board in the Form specified in Part-A of the Schedule-I. (2) The application made under sub-regulation (1) shall be accompanied by a non-refundable application fee as specified in Part-B of Schedule I and the undertakings and waivers as specified in Part-C of Schedule-I:
Provided that the rejection or withdrawal of the application shall not affect the continued validity of the undertakings and waivers given in respect of limitation or laches in respect of the initiation or continuation or restoration of any legal proceeding and the waivers given under sub-paras
(d), (e), (f) and (g) of para 12 of the undertaking and waivers as provided in Part-C of the Schedule-I and subject to such undertakings and waivers, the Board or the applicant, shall be free to initiate or pursue such proceedings as may be appropriate in accordance with law.
(3) The applicant shall make full and true disclosures in the application in respect of the alleged default(s):
Provided that the facts established against the applicant or admitted in any ongoing or concluded proceedings in India or outside India, with respect to the same cause of action, under any law, shall be deemed to be admitted by the applicant in respect of the proceedings proposed to be settled. (4) The applicant shall make one application for settlement of all the proceedings that have been initiated or may be initiated in respect of the same cause of action. (5) An application that is not complete in all respects or does not conform to the requirements of these regulations Page 16 of 32
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wp530-23-reserved-note.doc shall be returned to the applicant.
(6) The applicant whose application has been returned under sub- regulation (5) may, within fifteen days from the date of communication from the Board, submit the complete and revised application that conforms to the requirements of these regulations:
Provided that no further opportunity shall be given to the applicant to make an application in respect of the alleged default at the same stage of the proceedings, as indicated in Table I in Schedule-II.
(7) Where the applicant is an association or a firm or a body corporate or a limited liability partnership, the application and undertakings and waivers shall be executed by the person in charge of, and responsible for the conduct of the business of such firm or association or body corporate and the same shall bind the firm or association, the body corporate and any officer who is in default.
Explanation. - For the purpose of this sub-regulation, the expression 'officer who is in default' shall have the same meaning as provided in sub-Section (60) of Section 2 of the Companies Act, 2013.
(8) An application for settlement of defaults related to disclosures, shall to the extent possible, be made after making the required disclosure."
(emphasis supplied)
20. Chapter III of the 2018 Regulations pertain to Scope of Settlement. Chapter III providing for "Scope of Settlement Proceedings"
which reads thus :-
"CHAPTER III SCOPE OF SETTLEMENT
5. Scope of settlement proceedings.
(1) No application 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 Page 17 of 32
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wp530-23-reserved-note.doc 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 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."
(emphasis supplied)
21. The form of application for settlement has been set out in Schedule I which contemplate several details which are required to be Page 18 of 32
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wp530-23-reserved-note.doc furnished. What is important is that such an application is required to be made on oath. It would be appropriate to note the contents of the form as contained in Schedule I of Regulation 3 which reads thus:-
"SCHEDULE-I (See regulation 3) Part-A FORM Application for settlement (To be filed only after conclusion of investigation, inspection, inquiry or audit, as the case may be) ________________________________________________________ (For Office use only) Date of receipt of the application:
Application Registration Number:
________________________________________________________ (Instructions: All particulars, including submission regarding details of loss caused to investors, profit made and proposed settlement amount must be filled, else application shall be returned. Put 'NA' only where NOT APPLICABLE.) ________________________________________________________ Before the Securities and Exchange Board of India In the matter of ................................
1. Name/Trade name of the applicant/co-applicants:
(a) Registration no., if applicable :
(b) Date of Registration, if applicable :
(c) PAN/DIN/CIN number, as available:
(d) Paid-up capital of applicant:Page 19 of 32
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2. If stock broker, name of the stock exchange:
3. If sub-broker/authorised person, name of stock broker with whom affiliated and name of the stock exchange:
4. Name of the segment (Cash/derivative etc.):
5. Form of organization: corporate body/ sole proprietorship / partnership / LLP/ financial institution (if listed co., details of listing):
6. Names of promoters/directors/proprietors/partners:
7. Key management personnel(s):
8. Address/correspondence address, contact no./fax no. and email (any changes in aforesaid details shall be communicated to the Board promptly):
9. Name and contact details (including e-mail) of the contact person
(s):
10. Other registration(s) with the Board, if applicable:
(a) Trade name :
(b) Registration type :
(c) Registration no. :
11. Case(s) pending with the Board/SAT/Court (Pl. specify):
12. Case(s) pending under 11B/Adjudication/Enquiry/others (pl.
specify):
13. Stage at which pending:
14. Interim order(s) in the pending proceedings (gist of the orders passed), if any:
15. Other actions pending with/concluded by the Board, if any (with their details):
(a) Against the applicant :
(b) Against its associates :
(c) Against its key management personnel(s) :
(d) Against its other promoters/directors:
(e) Other details, if any:Page 20 of 32
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16. Date of show cause notice/summons/communication indicating probable cause of action, if any, against which the settlement is sought (PLEASE ENCLOSE COPIES)*:
17. Full and true disclosure of facts (including the loss caused, profit made, loss avoided, gross fees, brokerage, commissions, etc., in respect of the cause of action, with manner of calculation thereof):
[APPLICANT TO TAKE INTO ACCOUNT THE GUIDELINES PROVIDED IN SCHEDULE-II]
18. Specific charges alleged:
19. Submissions in respect of sub-regulations (2), (3) & (4) of Regulation 5:
20. Terms of settlement proposed by the Applicant:-
(a) Monetary terms, with manner of calculation:-
(b) Non-monetary terms, including manner of calculation of terms of disgorgement due:-
21. Original documents to be enclosed:
(a) Undertakings and waivers (as per Format specified in Part C).
(b) Authority letter/Board resolution.
22. List of other enclosures:
(a) A copy of the notice to show cause/ summons/communication/other notices indicating the probable cause of action, if any, against which the settlement is sought;
(b) Complete Annual Reports / other relevant financial details for the last three financial years and the quarterly audited financial results of the current year;
(c) A statement showing net worth of the applicant (only for those applicants who are required to comply with the networth requirements as specified by the Board or by the stock exchanges), gross annual income before tax, the amount of gross profit made/loss avoided, including the gross brokerage, fees, management/performance/transaction fee, carried interest, compensation, etc., in respect of the said default;
(d) Copy of PAN card/ DIN/CIN details;
(e) Complete Income-tax Returns of the applicant for the last three financial years;
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(f) In case of a foreign body corporate applicant, include details relating to incorporation, place of business, registration details with any non- Indian financial sector regulatory authority.
(g) In case of a non-resident applicant, include details relating to passport and national identity document, if any.
(h) Any other relevant document (s)/submissions.
(Signature of the applicant) (Stamp and Seal of body corporate applicant) Verification I, ......................................................son/daughter/wife of (Name in block letters) Shri .........................................being the applicant/authorised representative (in case of body corporate) of ......................... do hereby verify and affirm on oath that this application and the contents thereof are true to my knowledge and belief and as per the records and that I have not suppressed any material facts and shall keep the Board informed without delay, of any other relevant information that may come to my notice.
(Signature of the applicant) Date:
Place :
(emphasis supplied) Part-B Every applicant under Chapter II of these regulations shall pay a non- refundable processing fee of fifteen thousand rupees, by way of a demand draft in favour of 'Securities and Exchange Board of India' payable at Mumbai or by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by RBI.
Provided that, where the applicant is a body corporate, the non- refundable processing fee shall be Twenty-five thousand rupees.Page 22 of 32
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wp530-23-reserved-note.doc Part-C Undertakings and Waivers Format Undertaking to be submitted by each applicant, along with the application with stamp duty duly paid and duly notarized at the time of execution.
I/We, ....................., the applicant(s) herein, as a condition for making the enclosed application to the Board for examining and consideration of the application, hereby declare that I/we agree and undertake that:
(1) I/We admit the jurisdiction and right of the Securities and Exchange Board of India to initiate appropriate proceedings in respect of the alleged default.
(2) I/We further agree and undertake that the time spent during the settlement proceedings shall be excluded for computing the limitation period or laches, if any, for initiating or continuing or restoring any legal proceedings, if any, against me/us, and waive any objections in this regard.
(3) The Securities and Exchange Board of India may enforce any claims against me/us arising from or/in relation to any violation of the settlement order passed pursuant to this application.
(4) Nothing in the settlement order shall preclude any other person from pursuing any other legal remedy to which such person may be entitled against me/us as per law.
(5) The settlement proposed by me/us does not limit or create any private rights or remedies for any person who is not a party to these proceedings, against me/us.
(6) The settlement amount including legal costs, if any, shall be paid by me/us to the Board within the period stipulated by the Board.
(7) The settlement order shall be construed and enforced in accordance with the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, as amended from time to time.
(8) I/We agree that subsequent to the passing of the settlement order, I/ We shall not take any action or make or permit to be made any public Page 23 of 32
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wp530-23-reserved-note.doc statement denying, directly or indirectly, any finding of the Board including that recorded in the settlement order or creating impression that the settlement order is without factual basis. (9) I/We hereby declare that nothing in the waiver and undertaking given by me/us shall affect my/our (i) testimonial obligations, or (ii) right to take legal or factual positions in defence of litigation or in defense of a claim or in any other legal proceeding in which the Board is not a party.
(10)I/We for the limited purpose of settlement under these regulations 'admit the findings of fact and conclusions of law' or 'neither admit nor deny the findings of fact and conclusions of law' (strike off whichever is not applicable), and agree to abide by the settlement order as may be passed in accordance with the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 and guidelines and circulars issued by the Board in that regard:
Provided that, in relation to defaults related to disclosures other than relating to a prospectus or a letter of offer or a similar such document required to be made in relation to an issue of securities, I/we do not deny the alleged default.
(11)I/We waive my/our right of taking any legal proceedings against the Securities and Exchange Board of India concerning any of the issue covered in the settlement order that may be passed.
(12)I/We further waive the following:
(a) the findings of fact and conclusions of law;
(b) the proceedings before the Board or any officer of the Board;
(c) the right to all post-hearing procedures;
(d) appeal/review before the Tribunal/courts;
(e) any plea relating to such provisions of the regulations or other requirements of law, including conflict of interest, as may be construed to prevent any member or officer of the Securities and Exchange Board of India from participating in the proceedings, including settlement proceedings or assisting or advising the Internal Committee, High Powered Advisory Committee or Panel of Whole Time Members, as to, any order, opinion, finding of fact, or conclusion of law, etc.;
(f) any plea of bias or pre-judgment by the Securities and Exchange Board of India, the officers or the High Powered Advisory Committee, based on the consideration of or discussions concerning settlement of all or any part of the internal proceedings; and Page 24 of 32
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(g) any plea of limitation or laches for initiating or restoring of the proceedings, if the applicant violates the settlement order. (13)I/We undertake as a condition of settlement to not seek, directly or indirectly, any set-off, reimbursement by way of indemnification, insurance coverage or any other form of non-tax reimbursement. (Signature of the applicant with stamp and seal of the body corporate) Before me.
Notary."
(emphasis supplied)
22. The contents of the aforesaid form would indicate that the same is required to be filed only after conclusion of the investigation, inspection, inquiry or audit, as the case may be. There are several material details which are required to be furnished, the purpose and intent of which appears to be to ascertain as to whether a settlement when tested as per the regulations is at all acceptable. Some of the material details which are required to be furnished are found in paragraphs 15, 16, 17, 18 and 22 of the said form which we have underscored in the extract of the form, as set out hereinabove. Hence, we do not reiterate its contents.
23. We may observe that when filing of any application for settlement falls for consideration of the committee as Constituted under the 2018 Regulations, it would be required to be tested and considered on the touchstone and perspective of the requirements of the 2018 Page 25 of 32
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wp530-23-reserved-note.doc Regulations as also the provisions of the Act and the other regulations, the compliances of which may be mandatory, having substantive requirements to be fulfilled for any settlement to be considered under the 2018 Regulations.
24. We also note that the 2018 Regulations are quite comprehensive provisions inter alia in regard to Limitation (Regulation 4), Scope of Settlement Proceedings (Regulation 5), Rejection of Application (Regulation 6), Withdrawal of Application (Regulation 7), Effect of pending application on specified proceedings (Regulation 8). There is a complete chapter on 'Terms of Settlement', being Chapter IV inter alia containing Regulation 9 providing for Settlement Terms, Regulation 10 providing for factors to be considered to arrive at the settlement terms. Chapter V provides for constitution of the Committees namely High Powered Advisory Committee as also Internal Committee to be constituted by the Board. Chapter VI providing for Procedure of Settlement which provides for proceedings before the Internal Committee, proceedings before the High Powered Advisory committee and actions on the recommendation of High Powered Advisory Committee. Chapter VII providing for Summary Settlement Procedure. Chapter IX provides for Settlement with Confidentiality. However, as agreed on behalf of respondent nos.2 to 9, the provisions of this chapter were not invoked, Page 26 of 32
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wp530-23-reserved-note.doc hence, they are not relevant for the present proceedings. Chapter X provides for Settlement Orders. Chapter XI provides for Miscellaneous provisions under which there is 'confidentiality of information' as contained in Regulation 29 (supra) which is the trump card of the private respondents, which can now be discussed.
25. Regulation 29 providing for 'Confidentiality of information' stipulates that "all information submitted" and "discussions held" in pursuance of the settlement proceedings, under these regulations, shall be deemed to have been received or made in a fiduciary capacity and "the same may not be released to the public", if the same prejudices the Board and/or the applicant.
26. Hence, on its bare reading and plain application, first and foremost, Regulation 29 cannot be read to apply to materials which are part of the SEBI's record prior to the commencement of the settlement proceedings. In the present case, such materials would be documents inter alia like the investigation report, show cause notice (with annexures), and the reply to the show cause notice.
27. The contents of Regulation 29 to the effect "may not be released to the public" is with a further rider that "only if the same prejudices the Board and/or the applicant". These contents are quite, Page 27 of 32
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wp530-23-reserved-note.doc significant, by virtue of which Regulation 29 cannot be read as a blanket or a mandatory bar on non supply of documents and information. The provision itself is directory when the phrase is used as "may not be released" and on the further test to be applied of prejudice to the Board and/or the applicant. Thus, information can be released when there is no prejudice to the Board or to the applicant. There cannot be two opinions that the test of prejudice is the test which is required to be pleaded and ascertained on the facts as may be involved in the case, and only after considering the degree of prejudice and the likely damage, the provisions for confidentiality of information in a given situation as contained in Regulation 29 can get triggered.
28. This apart what is further significant is that the bar as contained in Regulation 29 is only for such information not to be released, "to the public". By no stretch of imagination, can it be said that the petitioners in the present case, who are minority shareholders and in such capacity, being part owners of the company to the extent of their shareholding, are persons who are alien/outsiders to the company (BNL), moreover they are integral to the company, having an inextricable concern and interest in the functioning and management of the company. Thus the word 'public' as used in Regulation 29 can in no manner be made attributable to shareholders of BNL like the petitioners. This apart, if such Page 28 of 32
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wp530-23-reserved-note.doc contention as urged on behalf of the respondents that the petitioners are 'public' and therefore, they are not entitled to receive information by the applicability of Regulation 29, if accepted, the same yardstick and parameters become applicable to respondent Nos.3 to 9, who are also shareholders of BNL, who are hence not a different class, than that of the petitioners. The petitioners as also respondent Nos.3 to 9 belong to the same species as shareholders. It thus cannot be countenanced that some shareholders can take shelter under Regulation 29 to plead confidentiality of settlement information, against a group of other shareholders, so as to bring about an effect that information in relation to settlement be not supplied to such persons of their own class who are similarly situated. No shareholder can take a position that he cannot disclose any information on the affairs of the company to other shareholders. This would bring about a situation of disharmony, distrust causing damage to the management and functioning of the company. Also such proposition as urged by the private respondent if accepted, would amount to doing violence to Regulation 29 and would result in a patent absurdity.
29. Thus none of the contentions as urged on behalf of respondent nos.2 to 9 in opposing the prayer of the petitioners to furnish documents would persuade us to hold that there was any embargo legal and/or factual for such documents not to be furnished/supplied to the Page 29 of 32
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wp530-23-reserved-note.doc petitioners. The objection of such respondents that the petitioner ought not to have raised such plea on the documents at the midst of the final hearing, as this itself would show that no prejudice was caused to the petitioners, in our opinion, is certainly not a tenable contention, for more than one reason. Firstly on such case the petitioners have made a specific interim prayer as noted by us above. They have also supported such prayer, by pleading a case of a serious prejudice being caused to them in the capacity of being the shareholders of BNL. It is also not the case that they had in any manner given up their case on their necessity and entitlement to have such documents. In any event, the petition is being heard finally at the admission stage, which would not mean that a situation is brought about, that the specific contentions on documents, as urged by the petitioners and subject matter of specific prayers would stand given up by the petitioners much less on the law would understand. Moreover, as observed above, the case of the petitioners is that the very basis of the SEBI undertaking investigation on the complaints as made by the petitioners of BNL violating the rules, regulations and norms as prescribed by SEBI, being violated by BNL and the same forming subject matter of investigation by SEBI and the resultant show cause notice were foundational facts, hence, in such context, it was the petitioners' entitlement to receive all the documents in that regard. Such documents Page 30 of 32
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wp530-23-reserved-note.doc therefore have all relevancy as law would contemplates in the present lis between the parties. Thus, the impression of respondent nos.2 to 9 that the petitioners should not be provided with such documents, is not acceptable. Once it is the entitlement of the petitioners in law to receive such documents, they need to be furnished such documents, unless furnishing of these documents would stand prohibited in law, which is certainly not a situation in the present facts.
30. We may also add that the regulations are framed under the SEBI Act, 1992. The avowed object and intention of the Act is to protect the interests of investors in securities and to promote the development of, to regulate the securities market. Thus, all actions which are taken by the SEBI and through the various bodies as constituted under the Act and the regulations are required to act considering the paramount interest of the investors. For such reasons as well, we do not find as to why the petitioners ought not to be entitled to the documents. We do not find that there is any impediment whatsoever in law or otherwise for the documents, as demanded, to be supplied to the petitioners.
31. In the light of the above discussion, we are inclined to grant to the petitioners interim relief in terms of prayer clause (g). Page 31 of 32
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32. SEBI is directed to furnish to the petitioners copies of all such documents within a period of three weeks from today.
33. List the proceedings for further hearing on 29 November 2023 (Part Heard).
[JITENDRA JAIN, J.] [G. S. KULKARNI, J.] Page 32 of 32 ------------------------- ::: Uploaded on - 23/10/2023 ::: Downloaded on - 24/10/2023 08:55:44 :::