Advance ruling cannot be refused on mere suspicion of illegality; clear record-based fraud or breach must be shown.

The Bombay High Court held that an advance-ruling authority, after admitting an application, cannot refuse to answer the questions merely on a suspicion that the transaction is illegal or contrary to SEBI guidelines. Any discretion to decline a ruling can be exercised only where fraud or illegality is clearly established on the record, not on conjecture. As SEBI's communication indicated that the agreement had not been acted upon for commercial reasons and that full disclosure had been made in the IPO documents, the refusal lacked factual basis. The impugned order was set aside and the matter was remitted for fresh decision on the original questions.

---

---

Issues: Whether the Authority for Advance Ruling could refuse to render a ruling at the final hearing on the assumption that the transaction was in breach of SEBI guidelines and contrary to public interest, and whether the impugned order could be sustained in the absence of any established contravention.

Analysis: The Authority had admitted the application under the statutory scheme and later declined to answer the questions only on a suo motu view that the underlying transaction was illegal and amounted to circumvention of SEBI guidelines. The subsequent communication from SEBI clarified that the agreement had not been acted upon for commercial reasons and that full disclosure had been made in the IPO documents, indicating no breach of the guidelines. In that situation, refusal to pronounce a ruling could not rest on a mere suspicion of illegality. The power to decline a ruling, even if assumed to exist in an appropriate case, could be exercised only where fraud or illegality was ex facie evident or established on record, and not on conjecture. The suggested recourse to modification or rectification was also inapplicable because no ruling had been rendered at all.

Conclusion: The refusal to give a ruling was unsustainable, and the impugned order was set aside with a direction to the Authority to decide the questions afresh.

Final Conclusion: The petition succeeded, the adverse advance-ruling order was annulled, and the matter was restored to the Authority for adjudication on the questions originally raised.

Ratio Decidendi: A statutory authority empowered to give an advance ruling cannot decline to decide a properly admitted application merely on suspicion of illegality; such discretion, if available, can be used only where fraud or illegality is clearly established on the record.

---