Supreme Court: Minors not liable under SEBI Act for past actions. Promoters accountable. FUTP Regs not retrospective.

Ritesh Agarwal Versus Securities and Exchange Board of India

Ritesh Agarwal Versus Securities and Exchange Board of India - [2008] 84 SCL 373 (SC), 2008 AIR 268, 2008 (8) SCR 553, 2008 (8) SCC 205, 2008 (7) JT 289, ... Issues Involved:
1. Penalty on minors.
2. Identification of promoters.
3. Applicability of FUTP Regulations.

Issue-wise Detailed Analysis:

1. Penalty on Minors:
The appellants Ritesh Agarwal and Deepak Agarwal contended that they were minors at the time of the public issue and thus should not be penalized. The Tribunal rejected this plea, stating that the proceedings were civil in nature and that they had attained majority by the time the impugned order was passed. However, the Supreme Court found this reasoning unsustainable. The Court noted that minors cannot enter into a contract under the Indian Contract Act, 1872, and thus any act committed by them should be ignored. The Court held that if they were minors, they could not be subjected to penalty under the SEBI Act, and the person who committed the fraud in their names, Surender Kumar Agarwal, should have been proceeded against.

2. Identification of Promoters:
The appellants argued that apart from Surender Kumar Agarwal, others were not shown as promoters in the brochure. The Court examined the definition of "promoter" under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, which includes any person named as a promoter in any offer document or shareholding pattern filed by the company. The Court found that Rooprekha Agarwal, Ritesh Agarwal, and Deepak Agarwal, who made contributions, came within the purview of the term "promoter." The Court noted that Surender Kumar Agarwal suppressed the fact that Ritesh Agarwal and Deepak Agarwal were minors, indicating his significant role in the fraudulent activities.

3. Applicability of FUTP Regulations:
The appellants argued that the FUTP Regulations, which came into force on 25-10-1995, could not apply to the issue that opened and closed in June 1995. The Court agreed, stating that a penal statute does not have retrospective effect. Since the commission of fraud was complete before the FUTP Regulations came into force, the penal provisions of the said Regulations, including Regulations 3 to 6, would not apply. The Court emphasized that any restriction on the right to carry on trade must be made by a valid law, and in the absence of such a law, imposing a penalty was impermissible.

Additional Findings:
The Court upheld the findings of the Board and the Tribunal that the company and its promoters committed several violations, including not keeping the subscription amount in a separate account, fraudulent allotment of shares, and misuse of public issue proceeds. The Court noted that these findings were not in question and that the Board rightly proceeded to take action under the SEBI Act.

Conclusion:
The Supreme Court allowed the appeal to the extent that the impugned directions would not be binding on Ritesh Agarwal and Deepak Agarwal due to their minority status at the relevant time. The Court upheld other directions issued by the Board, including actions taken in respect of the offences committed. The authorities were granted liberty to proceed against the offenders under the SEBI Act, the Companies Act, 1956, and other penal statutes if applicable. The appeal was allowed to the aforementioned extent with no costs.