2022 (3) TMI 1226 - SC - SEBI

Statutory appeal under Section 15Z limited to questions of law; factual findings and record-based inferences upheld

SECURITIES AND EXCHANGE BOARD OF INDIA Versus MEGA CORPORATION LIMITED

SC held that its statutory appeal under Section 15Z is confined to questions of law, not routine factual reappraisal, and will not disturb Tribunal ... Violation of provisions of the Act and the PFUTP Regulations - What is the scope and ambit of statutory appeal to the Supreme Court under Section 15Z of the Act against an order passed by the Securities Appellate Tribunal? - HELD THAT:- Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate. Not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z. Whether the advertisements dated 07.04.2005, 20.04.2005, are in violation of Regulations 3 (a), (b), (c), (d) read with Regulation 4 (1), (2) (k) and (r) as amounting to misleading and defrauding the investors? - As per the first advertisement dated 07.04.2005, it was alleged by SEBI that in violation of Regulation 4 (2) (k) and 4 (r) of the PFUTP Regulations, the Company proceeded to announce on 07.04.2005 the launch of the worldwide outbound package tour services. These services were intended to operate across 25 cities in India and were expected to achieve a revenue of ₹ 1000 million with a net profit of ₹ 200 million in its first year. SEBI alleges that this announcement was made for the sole purpose of misleading the investors. This finding is reversed by the Tribunal based on an agreement between the Company and M/s Gem Tours and Travels Private Limited to establish a subsidiary company called ‘Mega Holidays Ltd.’ to handle the tour services. The Tribunal also noted the bank statement supporting the Company's transaction with M/s Gem Tours and Travels Private Limited. Tribunal has reversed the findings of SEBI on the basis of its own inferences drawn from the documents on record. The decision of the Tribunal is fact-based and does not give rise to any question of law for invoking the jurisdiction of the Supreme Court under Section 15Z. For this reason, we are not inclined to interfere with the finding of fact, which must rest with the conclusions drawn by the Tribunal. Second announcement dated 20.04.2005 is concerned, it relates to the allegation of announcing the commencement of business in foreign exchange with the launch of ‘Mega Forex Brand’ as alleged that the Company made false statements such as that it is expected to grab 5-10% of the market share in the forex market, “which is at 5-6 billion dollars” in a span of one or two years. Here again, the Tribunal concluded that the application for a license to deal with foreign exchange which is alleged to have been made in September 2005 was only a revised application. The revised application is said to have been made in as a reply to the queries of the Reserve Bank of India on their original application, which was in fact made on 14.04.2005, that is even before the announcement. The Tribunal, therefore, was of the opinion that the announcement is not imaginary but is based on specific steps taken before the date of announcement, lending credence to the said activity. the conclusion is drawn by the Tribunal, being factual, not giving rise to any question of law, the jurisdiction of this Court under Section 15Z cannot be invoked. For this reason, we affirm the finding of the Tribunal and there is no occasion for this court to interfere with the decision of the Tribunal. The issue is answered against the appellant. Whether the company has violated Regulations 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2) (r) of the SEBI (PFUTP) Regulations, 2003 by manipulating the share prices and accounts? - The Tribunal in its appellate jurisdiction came to the conclusion that the connectivity could not be established and that the conclusions drawn by the Board were insufficient - The findings are based on the Tribunal's inferences drawn from the material available on record. The conclusions drawn by the Tribunal do not give rise to any question of law warranting interference of this court under Section 15Z of the Act. This issue is answered against the appellant. Whether there is a right to cross-examine the author of a letter if the SEBI seeks to rely on that letter, adverse to the company? - There is a right of disclosure of the relevant material. However, such a right is not absolute and is subject to other considerations as indicated under paragraph 62(v) of the judgment above referred. In this judgment, there is no specific discussion on the issue of a right to cross-examination but the broad principles laid down therein are sufficient guidance for the Tribunal to follow. There is no need for us to elaborate on this point any further. Coming back to the facts of the present case, we have noticed that the Tribunal has arrived at its conclusions based on independent facts concerning (a) the allegations under Regulation 4 relating to the issuance of misleading advertisements dated 07.04.2005 and 20.04.2005 as well as (b) allegations relating to manipulation of scrip prices and profits to lure investors. As indicated earlier, the Tribunal concluded that the allegations could be proved. As we are not interfering in the findings of fact arrived at by the Tribunal the Company’s claim for cross-examining would pale into insignificance. This question presents itself merely as an academic issue. We are also of the opinion that, there was no necessity for the Tribunal to lay down as an inviolable principle that there is a right of cross-examination in all cases. In fact, the conclusion of the Tribunal based on evidence on record did not require such a finding. We, therefore, set aside the findings of the Tribunal to this extent while upholding its decision on all other grounds. We would also leave the question of law relating to the right of cross-examination open and to be decided in an appropriate case by this Court. Issues Involved:1. Scope and ambit of statutory appeal to the Supreme Court under Section 15Z of the SEBI Act.2. Whether the advertisements dated 07.04.2005 and 20.04.2005 violated SEBI (PFUTP) Regulations.3. Whether the Company manipulated share prices and accounts in violation of SEBI (PFUTP) Regulations.4. Right to cross-examine the author of a document relied upon by SEBI.Issue-wise Detailed Analysis:ISSUE 1: Scope and Ambit of Statutory Appeal to the Supreme Court under Section 15Z of the SEBI ActThe Supreme Court's jurisdiction under Section 15Z is confined to questions of law. The Court emphasized that the Tribunal has wide powers to re-examine all questions of fact and interpret laws under Sections 15T of the Act. The Supreme Court will exercise jurisdiction only when there is an erroneous construction of legal provisions or general principles of law. The Court referenced the UK Supreme Court's pragmatic approach to distinguishing between questions of law and fact, emphasizing that the Tribunal's expertise should be respected. The Supreme Court will be measured in its approach, ensuring the Tribunal's freedom to evolve and interpret laws for regulatory clarity and consistency.ISSUE 2: Violation of SEBI (PFUTP) Regulations by Advertisements Dated 07.04.2005 and 20.04.2005The Tribunal reversed SEBI's findings on the advertisements, concluding they were based on legitimate business activities. The first advertisement announced the launch of tour services, backed by an agreement with M/s Gem Tours and Travels Private Limited. The second advertisement related to the launch of 'Mega Forex Brand,' supported by an application to the Reserve Bank of India. The Tribunal's conclusions were based on factual inferences, not giving rise to any question of law. The Supreme Court affirmed the Tribunal's findings, stating there was no occasion to interfere with the decision.ISSUE 3: Manipulation of Share Prices and Accounts in Violation of SEBI (PFUTP) RegulationsSEBI alleged that the Company manipulated its accounts for the year 2004-05 to show inflated profits and lure investors. The Tribunal found no evidence of a definite link between the Company and the traders allegedly involved in manipulative trading. The Tribunal concluded that there was no material to establish that the manipulation of accounts was intended to lure investors. The findings were based on the Tribunal's inferences from the available material, not giving rise to any question of law. The Supreme Court upheld the Tribunal's decision, answering the issue against the appellant.ISSUE 4: Right to Cross-Examine the Author of a Document Relied Upon by SEBIThe Company sought to cross-examine a stockbroker whose letter contradicted the Company's defense. SEBI denied this request, leading to the Company's claim of a violation of natural justice. The Supreme Court referenced the recent judgment in T. Takano v. SEBI, which emphasized the right to disclosure of relevant material but noted that this right is not absolute. The Tribunal's conclusions were based on independent facts, making the cross-examination issue insignificant. The Supreme Court set aside the Tribunal's general observation that there is a right to cross-examine in all cases, leaving the question open for future consideration.Conclusion:The Supreme Court dismissed the appeal, upholding the Tribunal's decision on all grounds except the general observation regarding the right to cross-examine. The Court emphasized the limited scope of its jurisdiction under Section 15Z, focusing on questions of law rather than factual determinations made by the Tribunal.