2021 (11) TMI 122 - HC - SEBI

Dismissed petition with costs to respondent. Petitioners to appear before WTM. No referral to cited judgments.

The court dismissed the petition with costs of Rs. 1,00,000 payable to respondent No.2 by 25.10.2021. The petitioners were directed to appear before the ... Collective Investment Schemes - Petitioners seeking quashing of the show cause notices issued to the petitioners calling upon them to adduce evidence and clarifications in support of their contentions - HELD THAT:- SAT condemned the conduct of the petitioners on several grounds. It was observed that the petitioners have made misleading statements in the information memorandum only to lure the small time investors to remain invested in the Scheme and the petitioners continue to operate its Collective Investment Schemes even after the SAT passing the interim order. The petitioners successfully dragged the matter regarding the submission of the information memorandum from 2006 to 2014. The contention that Annexures-H and H1 are the show cause notices deserve no merit on the apparent reading of those documents. After receiving Annexures-H and H1, the petitioners approached this Court in the above matter and by virtue of the interim order passed in this case, they have dragged the matter for another seven years. From the above facts, it becomes clear that the petitioners with an intention to avoid hearing of the matter before WTM have indulged in these proceedings. If according to the petitioners, the notice of information memorandum to the investors under RPAD is not required, it is open to them to appear before WTM and convince on the said aspects. If their contention is not accepted, they can avail whatever remedy is open to them. Since no right of the petitioners is affected by the notices Annexures-H and H1, no interference of this Court is required in the matter invoking Articles 226 and 227 of the Constitution of India. In the light of the above discussions, this Court does not find it necessary to refer to several judgments relied upon by both side. The contention that WTM has made up its mind to pass an order against the petitioners is a prematured contention. Issues Involved:1. Validity of the show cause notices (Annexures-H and H1) dated 09.12.2014.2. Alleged violation of the previous court order.3. Alleged malafides in the issuance of notices.4. Whether the notices constitute parallel proceedings.5. Petitioners' compliance with regulatory requirements.Issue-wise Detailed Analysis:1. Validity of the Show Cause Notices (Annexures-H and H1) dated 09.12.2014:The petitioners sought to quash the show cause notices on the grounds that these notices were arbitrary and malafide. However, the court clarified that Annexures-H and H1 were not show cause notices but hearing notices. These notices were intended to provide the petitioners an opportunity to adduce evidence and clarifications in support of their contentions. The court emphasized that these notices did not affect any rights of the petitioners and were merely procedural steps to ensure compliance with previous orders and regulatory requirements.2. Alleged Violation of the Previous Court Order:The petitioners argued that the issuance of Annexures-H and H1 violated the order of the court in W.P.Nos.9699-9700/2011. The court rejected this contention, noting that the notices were in line with the procedural requirements and aimed at safeguarding the interests of the investors. The court observed that the petitioners had been given ample opportunity to comply with the regulatory requirements and the notices were a continuation of the ongoing regulatory process.3. Alleged Malafides in the Issuance of Notices:The petitioners claimed that the notices were issued with malafides. The court found no merit in this argument, stating that the notices were part of the regulatory process initiated by the Securities and Exchange Board of India (SEBI) to ensure compliance with the Collective Investment Scheme regulations. The court noted that the petitioners had a history of non-compliance and had been given multiple opportunities to rectify their deficiencies.4. Whether the Notices Constitute Parallel Proceedings:The petitioners contended that the issuance of Annexures-H and H1 constituted parallel proceedings, ignoring the previous court order. The court dismissed this argument, stating that the notices were a continuation of the regulatory process initiated by SEBI. The court emphasized that the petitioners had been given multiple opportunities to comply with the regulatory requirements and the notices were aimed at ensuring compliance.5. Petitioners' Compliance with Regulatory Requirements:The court highlighted that the petitioners had a long history of non-compliance with the regulatory requirements. Despite being provisionally registered under the SEBI Act to deal in Collective Investment Schemes, the petitioners had failed to obtain permanent registration and had several irregularities in their dealings. The court noted that the petitioners had dragged the matter through various litigations and had not complied with the directions of the Securities Appellate Tribunal (SAT) and the Supreme Court. The court concluded that the petitioners' actions were aimed at avoiding compliance with the regulatory requirements and delaying the proceedings.Conclusion:The court dismissed the petition with costs of Rs. 1,00,000 payable to respondent No.2 on or before 25.10.2021. The petitioners were directed to appear before the Whole Time Member (WTM) on 25.10.2021 without any further notice. The WTM was instructed to hear the petitioners and pass orders in accordance with the law. The court found no need to refer to the judgments cited by both parties as the petitioners' contentions were deemed premature.