Advance ruling discretion may be used to applications built on arrangements circumventing public-interest SEBI guidelines.

An advance ruling application based on a transaction structured to circumvent SEBI's public-interest guidelines could be declined. The Authority treated Clause 2.6.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 as a safeguard against public issues burdened by outstanding rights to receive equity after an IPO, and found the arrangements were designed to avoid an allotment obligation while facilitating the public issue. It held that, even apart from the proviso to Section 245R(2) of the Income-tax Act, 1961, it retained discretion to refuse a ruling in an appropriate case. Accordingly, the application was not entertained.

---

---

Issues: Whether the Authority should refuse to rule on an advance ruling application where the transaction was structured to circumvent SEBI guidelines issued in public interest.

Analysis: The transaction was found to be part of a series of arrangements designed to avoid an outstanding obligation to allot shares and to facilitate a public issue. Clause 2.6.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 was treated as a public-interest safeguard against public issues burdened by outstanding rights to receive equity after the IPO. The Authority held that, even apart from the proviso to Section 245R(2) of the Income-tax Act, 1961, it retained discretion to decline a ruling in an appropriate case. A transaction founded on circumvention of a guideline enacted in public interest was not one on which a ruling ought to be given.

Conclusion: The Authority could validly refuse to rule on the questions raised and decline to entertain the application.

Ratio Decidendi: An advance ruling may be refused where the application is based on a transaction structured to circumvent a public-interest legal prohibition or guideline, and the Authority is not bound to grant a ruling on such an arrangement.

---