2011 (3) TMI 1476 - HC - Companies Law

Court upholds SEBI's authority, rejects petition invoking Article 226, directs appeal to Tribunal

Rose Valley Real Estates & Constructions Ltd. Versus Securities & Exchange Board of India

The court dismissed the petition challenging SEBI's order, emphasizing that the Tribunal under section 15T of the SEBI Act was competent to address all ... SEBI - proceedings initiated by Board, lowest in three-tier machinery, are supposed to travel, it cannot be said that remedy of appeal under section 15T is an alternative to article 226 remedy – Held that:- even if it is alleged that decision or order of Board is without jurisdiction or is vitiated by violation of principles of natural justice, a petition under article 226 should not be entertained for exercising power of judicial review, unless there are exceptional reasons, e.g., absence of a functioning Tribunal. where petitioner-company filed a writ petition against order of SEBI on ground that order passed was without jurisdiction and vitiated by violation of principles of natural justice, petitioner was entitled to appeal against order of Board to Tribunal that has been functioning and is competent to decide all questions including questions of jurisdiction of Board to pass order and violation of principles of natural justice and, therefore, High Court should not exercise power under article 226 of Constitution to review order of Board judicially and writ petition was to be dismissed Issues Involved:1. Jurisdiction of the Securities and Exchange Board of India (SEBI) to pass the impugned order.2. Alleged violation of principles of natural justice.3. Availability and exhaustion of alternative statutory remedies.4. Whether the petition under Article 226 should be entertained despite the availability of an appeal under Section 15T of the SEBI Act.Issue-wise Detailed Analysis:1. Jurisdiction of SEBI to Pass the Impugned Order:The petitioners questioned the order of SEBI dated 3-1-2011, which directed the company to stop collecting money from investors, disposing of properties, and diverting funds. The petitioners argued that SEBI's jurisdiction under the SEBI Act, 1992, applies only to listed public companies or those that have applied for listing. Since the company was neither listed nor had applied for listing, SEBI should not have made inquiries or passed the order. SEBI countered that the company was running Collective Investment Schemes (CIS) without registration, violating regulation 3 of CIS Regulations read with section 11AA of the SEBI Act.2. Alleged Violation of Principles of Natural Justice:The petitioners claimed that the order was passed without considering their request for an extension of time and without giving them an opportunity to show cause and be heard. SEBI argued that the order was based on the information provided by the company and that the principles of natural justice were not violated as SEBI had the discretion to decide when to provide a hearing.3. Availability and Exhaustion of Alternative Statutory Remedies:The court examined whether the availability of an appeal under section 15T of the SEBI Act was the only remedy or an alternative remedy to the Article 226 petition. The court held that the remedy under section 15T was not an alternative to the Article 226 remedy. However, the court emphasized that the High Court should not entertain an Article 226 petition unless there are exceptional reasons, such as the absence of a functioning Tribunal.4. Whether the Petition Under Article 226 Should be Entertained:The court noted that the Tribunal under section 15T of the SEBI Act was functioning and competent to decide all questions, including jurisdiction and violation of natural justice. The court concluded that it should not exercise its power under Article 226 to review SEBI's order judicially. The court found no extraordinary situation warranting the exercise of Article 226 in the interest of justice or to prevent a miscarriage of justice.Conclusion:The court dismissed the petition, stating that the petitioners should appeal to the Tribunal under section 15T of the SEBI Act. The court did not express opinions on the other questions involved, given its decision on the first issue. The petitioners were granted liberty to appeal from SEBI's order to the Tribunal, and no costs were awarded.