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7. In counter affidavit dated 11th July 2008 filed on behalf of the SEBI a preliminary objection was taken that the Petitioner is not an investor in the securities market and therefore, has no locus standi to file this petition. It was contended that SEPL is an unlisted company and therefore, is not amenable to the SEBI regulations and guidelines. It is pointed out that the alleged misstatement in the prospectus is not a matter which is covered by Section 55A of the Companies Act 1956 („Companies Act‟). It is stated that the DRHP filed by the Respondent No.3 DLF Limited was made public for a period of 21 days from 2 nd January 2007. In terms of clause 5.6.1 of the SEBI Guidelines complaints/ comments, if any, had to be filed during the said period of 21 days. The Petitioner did not make any complaint during that period. Thereafter, the SEBI issued its observation on the DRHP on 7th May 2007 and the RHP dealing with the observations was filed by DLF Ltd. with the Registrar of Companies (ROC) on 30th May 2007. It is stated that the Petitioner‟s complaint dated 4 th June 2007 was received only thereafter on 15th June 2007 by the SEBI. Since as on the date of DRHP, i.e. 2nd January 2007, on the basis of the information available with the SEBI, SEPL was not a subsidiary of the Respondent No.3 DLF Limited or associated with it in any manner, there was no occasion for the SEBI to take action to prevent the public issue.

10. In response to the preliminary objection raised by SEBI that there was no provision under the SEBI Act for any complaint to be entertained concerning the misstatement made in the prospectus, Mr. Amit Sibal, learned counsel for the Petitioner, referred to Section 55 A (1) of the Companies Act which requires the SEBI to deal with matters concerning the issue of securities and misstatement in the prospectus issued prior to a public issue of shares. In addition a reference is made to Section 11-B of the SEBI Act which vests the SEBI with power to make an inquiry and issue directions to any company in respect of matters specified in Section 11-A of the SEBI Act. Mr.Sibal submits that this has to be read along with the SEBI Guidelines. In particular a reference is drawn to Clause 6.10.3.3 which requires disclosure of reasons if the promoters cease to be associated with any of the companies or firms during the preceding three years. A reference is made to Clause 6.11.1.3 concerning outstanding litigation involving the promoter and group companies. Emphasising the mandatory nature of the above provisions, Mr. Sibal relies on the judgment of the Supreme Court in Securities & Exchange Board of India v. Ajay Agarwal 2010 (2) SCALE 680.

11. Appearing on behalf of the SEBI Mr. Neeraj Malhotra, learned counsel submitted that the SEBI acted on the basis of the information given by the merchant bankers of Respondent No.3 and the decision taken by the SEBI was in the circumstances a reasonable one which did not call for interference by this Court under Article 226 of the Constitution . He nevertheless on instructions stated that the SEBI was empowered in terms of Sections 62 and 63 of the Companies Act read with Section 55A thereof to initiate action in respect of a misstatement in a prospectus.

20. The above provision includes the provision makes a reference to Section 62 which talks of civil liability for misstatement in prospectus and Section 63 which talks of criminal liability for misstatement in prospectus. While enforcing the civil liability for any loss or damage under Section 62 may be restricted to persons who subscribed for shares on the faith of the prospectus, Section 63 can be set in motion by any person including SEBI. The purpose of inserting Section 55A in the Companies Act was to empower the SEBI to take both corrective and preventive action. This is perhaps because as a regulatory body SEBI gets to see the draft prospectus preceding a public issue by a company even before the public gets to see the RHP. SEBI is enabled and empowered to examine the DRHP and insist on complete and truthful disclosure of all relevant facts therein. The very purpose of having an independent regulatory authority like SEBI, and vesting it with statutory powers of inquiry, is to enable it to take prompt action in matters relating to issue and transfer of shares. Particularly, SEBI is expected to be the sentinel, read the fine print of prospectuses keeping the investors‟ interests in view. It has both a preventive and corrective role to perform. Therefore, it is not possible to place a narrow interpretation on the words "issue and transfer of securities" occurring in Section 55-A of the Companies Act. Given the object and purpose of the provision, it should be broadly construed. In any event, the word "securities" is defined under Section 2(h)(i) of the Securities Contracts (Regulation) Act 1956 to include shares.