2025 (6) TMI 1516 - HC - SEBI

Delhi HC dismisses petition challenging BSE surveillance action under GSM Stage IV for lack of territorial jurisdiction

Kairosoft Ai Solutions Limited & Anr Versus Securities And Exchange Board Of India & Ors.

Delhi HC dismissed the writ petition challenging BSE's surveillance action under GSM Stage IV, ruling it lacked territorial jurisdiction. The court held ... Entertainability of the writ petition on the ground of territorial jurisdiction, as well as, on the ground of availability of efficacious alternative remedy - ‘General Administrative Circular’ dated 24.02.2023 issued by BSE, implementing which, BSE without any statutory backing, placed the shares of the Company directly in GSM Stage IV on the basis of certain rank strangers uploading YouTube videos recommending the Company’s share scrips. HELD THAT:- In the present case, the surveillance action in terms of GSM Stage IV has been taken against the petitioners by issuing two impugned notices dated 03.04.2025 and 04.04.2025. The cause of action, thus, arose only when the said two notices were uploaded by the BSE headquartered at Mumbai, on its website. Therefore, it is misconceived to say that issuance of ‘General Administrative Circular’ dated 24.02.2023 by itself gave rise to any cause of action. At this juncture, reference may be had to the decision of the Hon’ble Supreme Court in M/s. Kusum Ingots [2004 (4) TMI 342 - SUPREME COURT] wherein it was held that cause action to challenge the constitutionality of a statute would arise only when the provisions of the Act or some of them which were implemented shall give rise to civil or evil consequences to the petitioner. It was further held that writ court would not determine a constitutional question in a vacuum. Even otherwise, for the reasons already discussed herein above, merely accessing of impugned ‘General Administrative Circular’ dated 24.02.2023 in Delhi is not an integral fact to the cause of action, which could be held determinative of jurisdiction of this Court. True it is that even if small fraction of the cause action arises within the jurisdiction of this Court, this Court would have territorial jurisdiction to entertain the petition. However, it is equally settled that the facts pleaded must constitute a material, essential or integral part of the cause of action Alchemist Ltd. and Anr. vs. State Bank of Sikkim and Ors. [2007 (3) TMI 382 - SUPREME COURT] The cause of action, thus, does not comprise of all the pleaded facts; rather it has to be determined on the basis of the integral, essential and material facts which have a nexus with the lis. Bharat Nidhi [2024 (1) TMI 985 - DELHI HIGH COURT] The facts pleaded by the petitioners to invoke the territorial jurisdiction of this Court, as noted above, cannot be said to be essential, integral or material facts so as to constitute a part of “cause of action” within the meaning of Article 226 (2) of the Constitution. Territorial jurisdiction - Mr. Sibal has relied upon Kusum Ingots [2004 (4) TMI 342 - SUPREME COURT] to canvass the proposition that when a part of the cause of action arises within one or the other High Court, it will be for the petitioner to choose his forum. The said decision does not advance the case of the petitioners, as present is not a case where a part of the cause of action has arisen within territorial jurisdictions of two High Courts. Likewise, the decision of this Court in A.S. Chaudhari [2015 (1) TMI 1521 - DELHI HIGH COURT] will not come to the aid of the petitioners inasmuch as in the said case it has been held that normally, forum conveninens is applied where the evidence or witnesses of a party are available in a territory outside the limits of a Court. However, in the present case this Court has not come to the conclusion that the present Court is forum non conveniens to the parties, rather the decision of this Court is premised on the finding that this Court does not have the territorial jurisdiction. In Larsen & Toubro Limited [2021 (7) TMI 1474 - DELHI HIGH COURT] - Court held that decision by respondent no. 1/PNB was taken at Delhi, therefore, part of cause of action having arisen within the territory of this Court, it would have territorial jurisdiction to adjudicate the writ petition. Unlike Larsen & Toubro Limited (supra), in the present case, the impugned ‘General Administrative Circular’ and Notices have been issued by BSE at Mumbai, and this Court has also come to the conclusion that no part of cause of action has arisen in Delhi for the reason that the averments made to invoke the territorial jurisdiction of this Court are not integral to the cause of action. Therefore, reliance placed by petitioners on Larsen & Toubro Limited (supra) is misconceived. Thus, the petition is dismissed. Liberty is, however, granted to the petitioners to approach the jurisdictional High Court. Issues Presented and ConsideredThe core legal questions considered by the Court include:1. Whether the Delhi High Court has territorial jurisdiction to entertain the writ petition challenging the impugned notices and the General Administrative Circular issued by the respondent stock exchange (BSE) and SEBI.2. Whether the impugned General Administrative Circular dated 24.02.2023 and the notices dated 03.04.2025 and 04.04.2025, placing the petitioner's shares directly under Graded Surveillance Measure (GSM) Stage IV without issuing any show cause notice or affording an opportunity of hearing, violate the principles of natural justice and Article 14 of the Constitution of India.3. Whether the impugned actions taken by the stock exchange under the GSM framework have statutory backing and are constitutionally valid.4. Whether the petitioners have an alternative efficacious remedy, and if so, whether the writ petition is maintainable.Issue-wise Detailed Analysis1. Territorial Jurisdiction of the Delhi High CourtLegal Framework and Precedents: The Court examined Clause (2) of Article 226 of the Constitution, which provides that a High Court may exercise writ jurisdiction if a cause of action arises wholly or partly within its territorial jurisdiction. The Supreme Court's decision in State of Goa v. Summit Online Trade Solutions (2023) was pivotal, emphasizing that 'cause of action' means material facts imperative to the petitioner's claim and must have a nexus with the subject matter of the challenge. The Court also relied on Kusum Ingots & Alloys Ltd. v. Union of India, Ashoka Marketing Ltd. v. SEBI, West Coast Ingots Pvt. Ltd. v. Commissioner of C.Ex., and ONGC v. Utpal Kumar Basu to delineate the parameters of territorial jurisdiction.Court's Interpretation and Reasoning: The Court analyzed the facts pleaded by the petitioners to invoke Delhi jurisdiction, including the registered office of the petitioner company being in Delhi, the petitioners accessing the impugned notices in Delhi, and complaints made to the Cyber Cell in Delhi regarding YouTube videos. However, the Court held that these facts were not material or integral to the cause of action challenging the impugned notices and circular, which were issued by BSE from Mumbai.The Court observed that the cause of action essentially arose from acts of omission and commission by BSE at Mumbai, including issuance and publication of the impugned circular and notices, correspondence with the petitioner company, and control over listing and trading of shares. The situs of shares or location of shareholders was held irrelevant to territorial jurisdiction.Key Findings: The Court emphasized that mere receipt of notices or accessing information in Delhi does not constitute a material part of the cause of action. The genesis of the action-the issuance of the circular and notices and the decision to place shares under GSM Stage IV-occurred exclusively in Mumbai. The Court rejected the petitioners' reliance on the presence of YouTube videos accessible nationwide as constituting a cause of action in Delhi.Application of Law to Facts: Applying the principles from the cited precedents, the Court concluded that no material or integral part of the cause of action arose in Delhi. The petitioners' claims about infringement of fundamental rights in Delhi were insufficient to confer jurisdiction, as the impugned actions were taken in Mumbai.Treatment of Competing Arguments: The petitioners argued that the effect of the impugned actions was felt in Delhi and that the registered office of the company was in Delhi, thus conferring jurisdiction. The respondents contended that the exclusive jurisdiction clause in BSE Rules and the locus of all relevant acts in Mumbai precluded Delhi jurisdiction. The Court held that exclusive jurisdiction clauses cannot oust writ jurisdiction under Article 226 but found that the facts pleaded did not establish a cause of action in Delhi. Hence, the Court declined jurisdiction on substantive grounds.Conclusion: The Court held that the Delhi High Court lacks territorial jurisdiction to entertain the writ petition as the cause of action arose exclusively in Mumbai.2. Validity of the Impugned General Administrative Circular and Notices under GSM FrameworkLegal Framework and Precedents: The petitioners challenged the impugned circular and notices on grounds of arbitrariness, lack of statutory backing, and violation of natural justice principles. The GSM framework was introduced by BSE in consultation with SEBI to monitor abnormal price movements in securities. The Listing Agreement and SEBI regulations were relevant to the obligations of the listed company.Court's Interpretation and Reasoning: Since the Court held it lacked territorial jurisdiction, it did not examine the merits of the challenge to the impugned circular and notices. However, the petitioners' grievance was that BSE placed the shares directly into GSM Stage IV without issuing any show cause notice or affording hearing, resulting in severe trading restrictions and additional surveillance deposits. They contended that this violated Article 14 and principles of natural justice.Key Evidence and Findings: The petitioners demonstrated that the impugned notices were issued based on certain YouTube videos recommending the company's shares by unrelated third parties, which the company disavowed and sought to counteract. Despite the company's compliance with BSE's directions to clarify its non-involvement, BSE proceeded with surveillance actions.Application of Law to Facts: Although the Court did not adjudicate the merits, the petitioners' contentions raised substantial questions regarding procedural fairness and the exercise of regulatory powers without statutory authority or adherence to natural justice.Treatment of Competing Arguments: The respondents argued that the company had entered into a Listing Agreement and was bound by BSE's rules and SEBI regulations, including surveillance measures. They contended that the GSM framework was a regulatory mechanism to protect market integrity and that the shortlisting under GSM should not be construed as an adverse action against the company.Conclusion: The Court refrained from deciding the validity of the impugned circular and notices due to lack of jurisdiction but recognized the petitioners' contentions regarding natural justice and arbitrariness.3. Availability of Alternative Efficacious RemedyThe respondents raised a preliminary objection regarding the availability of alternative efficacious remedies, suggesting that the petitioners ought to approach the appropriate forum in Mumbai. The Court did not decide this issue, leaving it open, since it had already dismissed the petition on territorial jurisdiction grounds.Significant Holdings'The expression 'cause of action' has not been defined in the Constitution. However, the classic definition of 'cause of action' given by Lord Brett in Cooke vs. Gill, (1873) 8 CP 107 that 'cause of action means every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court', has been accepted by this Court in a couple of decisions. It is axiomatic that without a cause, there cannot be any action. However, in the context of a writ petition, what would constitute such 'cause of action' is the material facts which are imperative for the writ petitioner to plead and prove to obtain relief as claimed.''Determination of the question as to whether the facts pleaded constitute a part of the cause of action, sufficient to attract clause (2) of Article 226 of the Constitution, would necessarily involve an exercise by the high court to ascertain that the facts, as pleaded, constitute a material, essential or integral part of the cause of action. In so determining, it is the substance of the matter that is relevant.''The facts pleaded in the writ petition must have a nexus on the basis whereof a prayer can be granted. Those facts which have nothing to do with the prayers made therein cannot be said to give rise to a cause of action.''The premise of challenge to the impugned 'General Administrative Circular' and 'Notices', relates to the acts of omission and commission by BSE at Mumbai. Thus, the integral part of the cause of action in the present case has arisen only in Mumbai.''The factum of the Appellants having their registered office at Delhi is not an integral fact to the cause of action for challenging the Impugned Revocation Order.''Mere receipt of the impugned revocation order at Delhi cannot alone be held determinative of the jurisdiction of this Court.'Core Principles Established1. Territorial jurisdiction under Article 226(2) requires that material, essential, or integral facts constituting the cause of action arise within the territorial jurisdiction of the High Court.2. Mere effects or consequences of an order felt in a jurisdiction, or mere presence of registered office, or receipt of notices in that jurisdiction, do not constitute cause of action for writ jurisdiction.3. Exclusive jurisdiction clauses in contracts or rules cannot oust writ jurisdiction but are relevant in determining forum appropriateness.4. The cause of action to challenge regulatory actions lies where the impugned acts or omissions occur, particularly where the regulatory authority is headquartered and issues the impugned orders.5. The writ jurisdiction is discretionary and courts may decline jurisdiction if a significant part of the cause of action arises outside their territorial limits and an alternative efficacious remedy is available.Final Determinations on Each Issue1. The Delhi High Court does not have territorial jurisdiction to entertain the writ petition as the cause of action arose exclusively in Mumbai.2. The Court did not decide on the merits of the challenge to the impugned General Administrative Circular and notices under the GSM framework due to lack of jurisdiction.3. The objection regarding alternative efficacious remedy was left open and not adjudicated.4. The petition was dismissed with liberty to the petitioners to approach the jurisdictional High Court in Mumbai.