TaxTMI 
TaxTMI 
1997 (2) TMI 434
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....o transaction is entitled to receive and for whom which is an actionable claim, under the existing provisions of law under which SEBI functions. This issue is similar to one raised in [Special Civil Application No. 5483 of 1996] DM. Investment. SEBI, which also has been heard along with this petition. 3. The petitioner is a company registered under Indian Companies Act, 1956 and is having its registered office at Ahmedabad. As per the case set out in the petition, in pursuance of notice No. B. 20 of 1996 dated 7-2-1996 issued by the Bombay Stock Exchange ('the Stock Exchange') inviting from the members of the Exchange offers for sale of shares of Magan Industries Ltd. (for short, "MIL") because transaction of purchases of shares of MIL, remaining outstanding for want of availability of adequate number of shares with the sellers to fulfil their corresponding selling obligation. In response to the said notice dated 7-2-1996 (Annexure A), the petitioner who was holding shares in MIL offered 50,000 shares for sale at auction to the Stock Exchange through its member, respondent No. 3 Inderlal Agarwal. The transaction of sale of petitioner's shares at auction was at Rs. 118 per share ....
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.... only an interim measure. The petitioner had raised a very fundamental issue whether even in case investigation results in indiction of petitioner, SEBI has a jurisdiction to make a final order for confiscating or depriving the petitioner of consid-eration which has already become due in respect of transaction about its scrips and which has been received by Stock Exchange from respective parties from whom consideration was to be received, without there being any specific provision of law to that effect. 6. Keeping in view the pleadings and respective contentions on 6-5-1996 it was directed by way of interim relief that SEBI shall complete the investigation in respect of the share transactions of MIL latest by 3-6-1996 (which was extended later on an application being made in this behalf). Respondent No. 1 was also directed to consider whether the petitioner has any role to play in the alleged irregularities in the transaction under investigation. It was also stated in the order that if the petitioner is not involved in the alleged malpractices and irregularities, respondent No. 2 shall modify its order pertaining to retention of the amount in question by the Stock Exchange an....
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.... Stock Exchange and such representations were to be decided by a committee to be set up by SEBI, which would exclude the members of the investigating team to be on adjudicating committee. Though this order was made on 4-7-1996 the same was not communicated to the petitioner or any of the affected parties. However, on the direction of the court a copy of the order was delivered to the counsel for the petitioner by the counsel for the respon- dent in the court during the course of hearing, and thereafter amendment was sought by the petitioner for challenging the order dated 4-7-1996 as well, on various grounds to be noticed hereafter. 9. However, before proceeding further, the learned counsel for respon- dent No. 1 raised preliminary objections which may be considered at this stage. Firstly, it has been urged that as no part of cause of action has arisen within the State of Gujarat, petition under Article 226 challenging the impugned orders are not maintainable, in the High Court of Gujarat. Clause (2) of Article 226 provides that the power conferred by clause (1) to issue directions, orders and writs to any Government, authority or person may also be exercised by any High Court e....
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....dia upon which the plaintiff asks the court to arrive at a conclusion in his favour." 12. This principle has been approved by the Supreme Court in Oil & Natural Gas Commission v. Uptal Kumar Basu 1994 (4) SCC 711, wherein the Court said after quoting the aforesaid principle: "Therefore, in determining the objection of lack of territorial jurisdiction the court must take all the facts pleaded in support of the cause of action into consideration albeit without embarking upon an enquiry as to the correctness or otherwise of the said facts. In other words the question whether a High Court has territorial jurisdiction to entertain a Writ Petition must be answered on the basis of the averments made in the petition, the truth or otherwise whereof being immaterial. To put it differently, the question of territorial jurisdiction must be decided on the facts pleaded in the petition." 13. If we examine the pleading of the petitioner in this respect, the salient features which may be called bundle of facts of which claim for relief of the petitioner is founded are (1) that on 7-2-1996 petitioner offered 50,000 shares of MIL for sale at auction as per invitation by the Stock Exchange; ....
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....Exchange as a result of auction transaction in pursuance of notice dated 7-2-1996 is not disputed and the facts about service of summons, recording of statement, and recovery of documents in connection with the said investigation against the petitioner company at Ahmedabad on 2-4-1996 are also not disputed. 15. In these circumstances, the conclusion is irresistible that holding of investigation in the affairs of buying and selling and dealing with the shares by the petitioner company qua the shares of MIL, is an integral part of the whole cause of action giving rise to the present claim of the petitioner and therefore citus of investigation will obviously be a citus of at least a part of cause of action giving territorial jurisdiction to the court exercising jurisdiction over that citus. On the facts averred by the petition-er, which remain undisputed, lending additional support to the pleadings about investigation, if part of investigation at least has been held at Ahmedabad and the investigation being the foundation of the impugned order and such investigation in the case of petitioner for bringing into existence the impugned order has taken place at Ahmedabad, which undispute....
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....oner at all. What is argued is that since the SEBI itself was not to serve the order but it was to be served by Stock Exchange its furnishing copy in the court will not furnish cause of action. 18. Once it is held that, as it must be, that the order was required to be served on petitioner, the fact whether author of the order itself effects the service or someone else is directed to discharge the ministerial duty of service will not affect the position. What is required to be seen is where the order was required to be served on person whose rights are affected by it. If the order was required to be served within the territory, where this Court exercises jurisdiction, it will not alter the situation if the order has been served in Court during proceedings at Ahmedabad. Position may be otherwise, if but for court proceedings the order on the affected party would not be served at a place within the court's territorial jurisdiction. 19. In the present case, it is not disputed that petitioner's registered office is at Ahmedabad within the territorial jurisdiction of this Court. The notice of investigation were served at Ahmedabad. Statements in pursuance of that were recorded at A....
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....nquiry at Ahmedabad, but where order itself has been served at Ahmedabad in Swaika Properties 'case (supra) was not a case of service of final order. Nor it was a case where final order was required to be served, nor was it a case of quasi judicial order, which unlike a statutory order of acquiring land does not depend on its efficacy on service. The Court found as a matter of law that order under section 52(2) became effective as soon as it was published inasmuch as the property affected by it vests in State on its publication. A judicial order pronounced in open court becomes effective as soon as it is pronounced. Where the order made by quasi judicial authority, and is not made in the presence of parties ordinarily becomes effective, when served on affected parties. 23. Moreover present case, the order has been made as a result of enquiry. It had been made without hearing of affected parties. It envisaged post- decisional hearing to affected parties. Therefore service of the order, in the very nature of things, was an essential part of whole gamut. To save it from being void for want of fair procedure, in fact, the order itself made it requisite for its effectiveness, that it....
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.... termination of service was communicated to the concerned employee." 25. The petitioner company has its registered office at Ahmedabad. Citus of its movable property is at Ahmedabad. By impugned order the right of the petitioner company arising out of transaction of that movable proper- ty are affected. Thus applying the test in Modern Food Industries ( India) Ltd.'s case (supra) it can well be said that consequence of the impugned order fell on the petitioner at Ahmedabad where the order was served, where the citus of petitioner's property in share was situated. The princi-ples applicable to determine the jurisdiction of court in a suit for recovery of movable property cannot be applicable, obviously because this lis is not for recovery of movable property. The petition is to protect petitioner's right in movable property which has been impaired not by a person possessed of such property but by an act of statutory authority in purported exercise of its powers under the Act. The citus where such right is affected or where the effect of such order to affect the right becomes the relevant consideration. 26. In Damomal Kausomal Raisinghani v. Union of India AIR 1967 Bom. 355, th....
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....ood and the machinery of assessment has been set in motion and the impact of that motion is felt by the petitioners within the territorial limits of this State. We have therefore no hesitation in holding that a part of the cause of action has arisen in the State of Tamil Nadu." (p. 161) 28. This decision gives a clear indication that wherever issuance of a notice is necessary part of setting a machinery in motion for the purpose of affecting the rights of the person against whom the machinery is to be mobilized and the service of the ultimate order affecting the rights of the person concerned, forms part of cause of action, in relation to a dispute challenging the final order affecting the rights affected by that order. Mere issuance of a notice to a person concerned may not be a necessary part of cause of action but where issuance of such notice is a pre-condition for setting the machinery in motion and not the conditions subsequent for the purpose of furthering the cause which has already been set in motion, the service of notice itself becomes part of cause of action. It has also been noticed that the place ultimately where the order is served affecting the rights of the pers....
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.... order has to be accepted. Thus service of the order itself furnished part cause of action for raising objections against the impugned order. The fact that the petitioner instead of availing of the opportunity of post-decisional hearing before the Committee has chosen to challenge the order by invoking extraordinary jurisdiction of this Court does not detract from the fact that order itself envisaged service of the order to furnish a cause of action for challenging the same. 32. In this connection the plea that if the petitioner were to file a suit for recovery of the claim, he might have to file a suit at Bombay has no bearing on the question of jurisdiction in the present case. It has to be borne in mind that present is a case which concern relief about impairing of the right of the petitioner in movable property distinct from a suit for the recovery of the money simpliciter. 33. Hence where suit for recovery of suit against his would lie cannot ipso facto govern the question of jurisdiction about claim where right to such recovery has itself been affected, not by debtor but by an act of statutory function. In the latter case what furnishes ground for impairing such right f....
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....r it could be equated with the service of the final order which affects the person's rights effectively at the place of service, as is the case in the present case, as discussed above. Therefore, for the reasons discussed above, the case is clearly distinguishable on facts. 37. I therefore find no substance in the preliminary objection about lack of territorial jurisdiction and the same is hereby overruled. 38. Another contention is that the petitioner has no privy of contract with respondent No. 1 SEBI. He has dealt in Stock Exchange only through respondent No. 3, a member of Stock Exchange. All dealings having been done through respondent No. 3, and respondent No. 3 having accepted the position that all disputes relating to dealing at Bombay Stock Exchange are subject to Bombay Courts, the petition can avail of remedy only at Bombay and not any where else. Argument look felicitous but is fallacious. The petition is not to enforce the agreements. What is the subject matter of the petition? According to petitioner transaction of 50,000 shares of Magan Industries offered by him for sale at auction has culminated in certain right accruing to him in the form of a right to action....
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....eedom. 39. The next preliminary objection which has been raised by the learned counsel for the respondents is that the impugned order dated 4-7-1996 be treated only as an interim order until decision is taken on the representa- tion made before it by respondent No. 1, the petition is premature and must not be entertained. Having carefully read the impugned order, I am unable to sustain the objection. Firstly, the order read as a whole leaves no room of doubt that the authority has reached its conclusion finally about the course of action to be adopted by it of impounding that part of auction proceeds received by Stock Exchange on completion of transaction in question could be used as per its (SEBIs) directions which represents the difference between the price which it considers to be the fair market price to be paid to the petitioner for the shares offered by him at auction for sale, to complete the pending transaction and the actual price received by the Stock Exchange by concluding the pending transactions by delivering those shares to the purchasers on recovering the purchase price from the purchasers at the transaction rate and difference from the short sellers, which accord....
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....of adhering of the affected parties and has after making final order left it open for those who are aggrieved to seek post-decisional hearing. Thus, post-decisional hearing has been offered to those who are desirous of availing the opportunity of post-decisional hearing for review of their cases but is not an interim order as such subject to final decision after hearing all concerned. It may be noticed that so far as SEBI, it has not even thought it fit to inform about this order to affected parties when it admits of the fact that members as well as other persons are affected, nor even discloses who are the affected parties but left it to Stock Exchange to find out and inform such parties about the order. 41. Secondly, the contention which has been raised and requires consid-eration in the present petition and the other petition which has been heard along with it is whether SEBI had authority of law to make such order which results in depriving a person of his property. If it is not authorised by law, the authority cannot have such power to bring this result by way of interim order as well. Without going into the merits of the contention at this stage, suffice it to say that the....
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....ling of alternative remedy before entertaining the petition under Article 226. 45. In this connection enunciation of principle by the Apex Court in A.V. Venkateswaran, Collector of Customs v. Ramchand Sobhraj Wadhwani AIR 1961 SC 1506 may be usefully referred to. The Court said: "The rule that the party who applies for the issue of a high prerogative writ should, before he approaches the court, have exhausted other remedies open to him under the law is not one which bars the jurisdiction of the High Court to entertain the petition or to deal with it, but is rather a rule which courts have laid down for the exercise of their discretion. The wide proposition that the existence of an alternative remedy is a bar to the entertainment of a petition under Article 226 of the Constitution unless (1) there was a complete lack of jurisdiction in the officer or authority to take the action impugned, or (2) where the order prejudicial to the Writ Petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est and that in all other cases, courts should not entertain petitioners under Article 226, or in any event not grant ....
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....on the common question of law having substantial importance. In the other petition, the impugned order passed by SEBI has been challenged before the appellate authority, and the appellate authority has sustained the authority of respondent No. 1 SEBI to impound proceeds of a transaction recovered by the Stock Exchange whether as a result of having recourse to auction or on closing up of transactions as a whole or in part on the ground of not permitting the holders of security, excess profits which tainted with illegality or are result of abnormal market conditions in the view of SEBI. Thus apart from the fact that ordinarily after matter has been argued fully on merit, it is not desirable to throw out the petition solely on the ground of availability of alternative remedy, insisting upon the present petitioner to avail of alternative remedy, before the appellate authority whose views are already known will be a futile exercise. 51. In my opinion, therefore in the circumstances of the present case, it is not a case, in which discretion ought to be exercised in favour of the objectors. Therefore this preliminary objection is also overruled. 52. It was faintly urged in both the ....
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....ational Stock Exchange was Rs. 345 between 18-10-1994 to 24-10-1995, the petitioner with the help of Lloyds Finance Limited and with the help of others purchased in all 94,800 equity shares of the RIL and during the same period he sold 32,900 shares of the RIL through Lloyds Brokerage Ltd. As a net result of these transactions petitioner was to receive delivery in all of 61,900 shares of RIL through Lloyds Brokerage Limited at an overall price of Rs. 471.06. Because of the failure of sellers in honouring their commitment about the delivery of shares, petitioner received only 5,200 shares resulting into transactions for purchase for remaining 5,6700 shares remain outstanding, for which petitioner was to pay consideration of Rs. 2,67,09,102. On 25-10-1995, that is to say after the date when petitioner had already entered into transac- tions of purchases and sales SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Security Markets) Regulations, 1995 (herein after called the Regulations of 1995) were promulgated. On 30-10-1995, Chairman of the Board directed that an investigation about buying and selling of the RIL shares is to take place. It also directed that no no....
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....ted in adherence of circular dated 30-10-1995 be transferred to investor protection fund of the concerned Stock Exchange. It also recorded that the investigation has been completed, necessary auction is being taken against the persons involved in the price manipulation under sections 1 IB and 24 of the Act for violation of the Regulations of 1995, and the trading in RIL was allowed to continue from 29-1-1996. The petitioner was not named as a person responsible for alleged manipulated market condition. This order was made without affording an opportunity of hearing to the petitioner and resulted in forfeiting his claim to get the difference price collected by the Stock Exchange as a result of closing up of a transaction at Rs. 565. 57. The petitioner appealed before the Central Government who by its order dated 22-5-1996 (Annexure A) were rejected. The appellate author- ity did not decide the question raised by the petitioner that since Regula-tions of 1995 promulgated and came into force after the close of trading period, during which the transactions aforesaid were conducted and therefore had no application to these transactions on the ground that since the impugned order of t....
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....itioner has been contending that while SEBI directed per its order dated 30-10- 1995 to conduct the auction or close out the transaction at the last highest price, the Stock Exchange has violated these directives by closing out the transactions at Rs. 565, the price prevailing on 24-10-1995 instead of at Rs. 669, the highest price prevailing before the date of closing out. Suffice it to say that so far as this contention of the petitioner was concerned, another investor has on earlier occasion come before this Court challeng- ing fixation of the price at which squaring up has taken place by way of Special Civil Application No. 9450 of 1995 which was rejected by order of this Court dated 22-1-1996. Moreover, that act of violating the SEBI direction is attributed to National Stock Exchange which is not a party before us in this Special Civil Application. 62. In its reply the facts about the issuance of direction of SEBI on 30-10- 1995, the transactions having been ultimately settled by way of closing out at the price referred to above, and collection of the difference in transac- tion price and the closing up price from the short sellers by the Stock Exchange, the passing of order....
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....that in view of the increased volume of activities of members of National Stock Exchange of India Limited, in view of its nation wide operations has with the permission of SEBI linked to offices of its members at various cities including Ahemdabad whereby the members have been provided full-fledged trading facilities through National Stock Exchange terminal installed in the offices of the respective members situated in various cities including the cities of Ahmedabad, Calcutta, Delhi, Madras, etc., it was under the said set up the petitioner placed his orders for purchase of share of RIL with Lloyds Brokerage Limited, Ahemdabad, a member of NSE at Ahmedabad only it was in furtherance of the said orders of the petitioner that the said member of National Stock Exchange through its National Stock Exchange Terminal at Ahmedabad entered into a contract for pursuance of 94,800 equity shares on behalf of the petitioner against the payment made by the petitioner at Ahmedabad for the said equity shares. Respondents have not thought it fit to deny these averments in the rejoinder affidavit of B.A. Gandhi which was furnished with the permission of the Court, by any counter. In view of the afo....
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....f the SEBI and if the directions failed, the consequence would follow automatically. Therefore, this objection is also not sustained. It is further made clear that in case petitioner succeeds he is free to pursue his remedies in accordance with law to enforce his claims in appropriate forum if occasion for the same arises. 66. It was also urged that at best the impugned order can be treated to be cancellation of the transaction of purchase entered by the petitioner and by cancellation of transaction he has suffered no loss, nor he has deprived of any of his property because he has never acquired shares or right in the shares delivered of which was not available. At best if the order of transferring the price recovered by the Stock Exchange is held to be illegal, the persons entitled to refund would be short sellers. 67. Arguments on the fact of it though felicitious does not stand the test of scrutiny. Firstly, this cannot be termed as preliminary objection but concerns the merit of the order. Secondly, orders having come into existence as a result of holding an enquiry and/or subject to further appeal it does indicate the quasi-judicial nature of the orders. It is now well e....
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.... deals with closing out. Clause 9.1-1 states that a contract for securities made subject to rules, bye laws and regulations of the exchange may be closed out by buying in or selling out against a clearing member on his failure to comply with any of the provisions relating to delivery, payment and settlement of deals or on any failure to fulfil the terms and conditions subject to which the deal has been made. Closing out for deals settled through Clearing House is dealt with in clause 9.3 which entitles Stock Exchange to close out the transactions against any party in default on behalf of the receiving or delivering member as the case may be. Clause 9.8 says that the closing out by buying-in or selling-out shall be effected by Exchange initiated auction or by any other method which the Executive Committee or delegated authority may decide from time to time. Clause 9.9 makes it clear that save as otherwise provided the member at whose instance or on whose behalf the buying-in or selling-out is effected by the Exchange for the purpose of closing-out shall be responsible for the deal made and no liability or responsibility shall attach to the Exchange or its employees for any deal made....
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....sists of the recoveries made from the purchasers at the transaction price and short sellers of the difference becomes payable to the person who is entitled to purchase the security under transaction, if available. That is to say he not only gets refund of his part of consider-ation paid but also the difference recovered from short sellers. 70. Auction procedure or closing out is a method by which outstanding transactions are concluded, and not a process of cancellation of transac- tion and the purchaser who is entitled to buy the securities becomes entitled to such amount as a result of conclusion of his contract of purchase by closing out. It also clearly indicates that price at which closing out is to take place is highest prevalent price during last six months, that is to say on failure of short sellers to deliver the scrips, the ingredient of earning profit at the difference of highest price prevailing during last six months and the transaction price is the legitimate expectancy of profit, in case of close out. No ground for assuming a windfall of illegitimate profit can be attributed to a person who enters the market, unless he himself is found to be guilty of fraud, or unf....
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....ion by the offerer of shares at auction or right of purchaser to receive differential amount received by the Stock Exchange as a result of closing out of the transaction or non availability of scrips for delivery is an actionable claim of the offerer of scrips at the auction or the purchaser whose transaction has not been honoured and forms his property which as a result of directives of the Board to retain that amount to be utilised at the directions of the Board instead of it being paid to the persons who are entitled to it. As the rights of the petitioner to enforce such actionable claim is adversely affected by intervention of SEBI, their locus standi to maintain this petition cannot be doubted. 73. Before proceeding further to the discussions, it may be noticed common premise about which there is no dispute between the parties. Firstly, on the culmination of the transactions in the manner they have been culminated, the amount affected by the impugned orders would be property of the respective petitioners as their actionable claim which they were entitled to recover, but for the orders under challenge. Secondly, the impugned orders results in depriving the petitioners of tha....
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.... With the 44th Amendment of Constitution, right to property lost its place as fundamental right guaranteed under part III of the Constitution. It did not lose its recognition nonetheless as a right which was protected. While Article 19(1)(f) and Article 31 both were omitted by 44th Amendment. Article 31 clause (1) was re-enacted by inserting it as Article 300A reproduced hereinabove. This omission from part III and insertion as Article 300A affected the remedies available to citizen against its violation and took the right away from the inhibition of Article 13. At the same time, it did not alter the precondition required before a person is deprived of his property that there must exist authority of law. The scope and ambit of this requirement, did not alter with aforesaid amendment. 77. First question that calls our attention is what is meant by deprivation of property. Deprivation of property may take place in various ways. It may take place by way of destruction of property, by way of confiscation; by way of revocation of property rights granted by a private proprietor; it may be by way of seizure of goods or immovable property from the possession of an individual or it may r....
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.... It was pointed out by the Supreme Court as early as in 1954 in Wazir Chand v. State of Himachal Pradesh AIR 1954 SC 415: "that State or its executive officers cannot interfere with the rights of others unless they can point to some specific rule of law which authorises their acts." 82. In Rai Sahib Ram Jawaya Kapur v. State of Punjab [1955] (2) SCR 225, Mukherjee, C.J., speaking for the court while considering the provisions of Article 266(3) of the Constitution which provides that no money out of the consolidated fund of India or consolidated fund of the State shall be appropriated except in accordance with law opined: "...Under article 266(3) of the Constitution no moneys out of the consolidated funds of India or consolidated fund of the State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution. The expression 'law' here obviously includes the Appropriation Act...." (p. 238) 83. In Bishan Das v. State of Punjab AIR 1961 SC 1570 the Court reiterated its view in Wazir Chand's case (supra) that State or its executive officers cannot interfere with the rights of citizens unless they can point to some sp....
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....controversy of the like nature again came up before the Supreme Court in a different circumstances in R.S. Joshi v. Ajit Mills Ltd. AIR 1977 SC 2279. That was in relation to section 37 of the Bombay Sales tax Act which provide for forfeiture of sum collected by dealers by way of sales tax though not exigible to the public exchequer punitively. The Court, while generally agreeing with the principles enunciated in R. Abdul Quader & Co.'s case (supra) , drew a distinction between the ratio laid down in Abdul Quader & Co. 's case (supra) on the ground that while it was construing a provision providing for recovery simpliciter, the case is Bombay Sales tax arose out of a provision for forfeiture of sum collected by a dealer which was not tax payable under the Act was construed as punitive measure for something done by the dealer contrary to the provisions of sales tax concerning the authority of the dealer to collect the amount of tax payable to the State exchequer of sales transacted by him from the purchasers. The Court opined that since the authority of the dealer to collect the tax payable on a transaction was a part of substantial law authorising levy and collection of tax, if a ta....
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.... case (supra) that even if there is no Legislation in support of the impugned act, as the State has Legislative power to enact in respect of the subject matter in respect of which the State action has been challenged, hence, it has necessary authority to support the action while exercising its executive power which is coexten-sive with legislative power. The Court repelled the contention and explained the observation made in Rai Sahib Ram Jawaya Kapur's case (supra) by pointing out that though the action in Rai Sahib Ram Jawaya Kapur's case (supra) was not supported by legislation but it did not operate to prejudice of any citizen and the court had held that by the action of State Government no rights of the petitioners were infringed since a mere chance of having particular customers cannot be said to be a property or to any interest or undertaking. It is clear that the State of Punjab had done no act which infringed a right of any citizen; the State has merely entered upon a trading venture, it did not infringe their rights and concluded: "...Viewed in the light of these facts the observation relied do not support the contention that the State or its Officer may in exercise of....
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....e Constitution. It is, therefore necessarily subject to Art. 300A. The word law in the context of Art. 300A must mean an act of Parliament or of a State Legislature, a rule or a statutory order having the force of law, i.e., the positive or state made Law." 93. The Court also reaffirmed the view stated in Wazir Chattel's case (supra) and Bishan Das's case (supra) that an illegal seizure amounts to deprivation of property without authority or law. It clearly spells that an order of seizure of property by any authority dealing with enforcement of law or as an investigating agency as a measure of making law effective amounts to deprivation of property and unless such seizure is authorised by statute under which it is acting, the seizure will be illegal and cannot be considered authorised by law which could be saved, merely because it can be said to be to fulfil the object of the enactment as being remedial against breach of law. 94. From the aforesaid authorities it is abundantly clear that whether it is a question of finding whether a tax is authorised by law or a person is deprived of his property by authority of law or appropriation of consoli-dated fund is in accordance with....
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....ule was sought to be defended on the basis of the generality of the powers of framing the rules for the purposes of the Act. Whether such delegation satisfy the test of article 265 of a tax imposed to the authority of law. The Court negatived the contention by holding: "10. Now with regard to the suggested wide amplitude of section 62(2)( h) and section 28 and condition of licence, all we need to say is that though under section 28 licences are issued on the prescribed forms and on payment of such fee as prescribed and licences containing such particulars as the State Government may direct etc., this power even though wide is yet confined within its frame and can in no event assume the power to impose or levy a tax or excise duty by means of a rule without the sanction of the Act...." (p. 1397) 98. In Ahmedabad Urban Development Authority v. Sharadkumar Jayantikumar Pasawalla AIR 1992 SC 2038, affirming the view taken by this Court in Sharadul Kumar Jayanti Kumar Pasawala v. Ahmedabad Urban Development Authority AIR 1984 Guj. 60 held that since there is no express provision for imposition of fee and the State Government has not delegated any power to the Development Authority....
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....mal v. State of Bombay AIR 1954 SC 496, the Court approved the opinion of Lord Macmillan in Berriman's case (supra) by holding: "It is not competent to the court to stretch the meaning of an expression used by the Legislature in order to carry out the function of the Legislature." 103. These were with reference to interpreting existing penal provision. It is a clear indication that even where a provision for levy of penalty exists and is ambiguous in its expression a person cannot be subjected to such provision by stretching the same. Therefore, it is not possible to subject a person to penal consequences of his acts without there being a specific provision at all on the basis of intendments alone. 104. Decision in Indian Council for Enviro Legal Action v. Union of India, AIR 1996 SC 1446 was also referred to, where the Apex Court in a petition under article 32 directed the Central Government to recover costs of remedial measures from Companies to urge that recovery of cost from polluting company amounted to depriving the company of its property under general power of taking remedial measures to prevent pollution. In my opinion, their contention is not well founded. It is ....
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....ffected area...." (p. 1465) The Court further said: "67. The question of liability of the respondents to defray the costs of remedial measures can also be looked into from another angle, which has now come to be accepted universally as a sound principle, viz., the 'Polluter Pays' Principle. 'The polluter pays principle demands that the financial costs of preventing or remedying damage caused by pollution should lie with the undertakings which cause the pollution. Under the principle it is not the role of Government to meet the costs involved in either prevention of such damage, or in carrying out remedial action, because the effect of this would be to shift the financial burden of the pollution incident to the taxpayer......."(p. 1466) 105. Thus the obligation to defray the cost of remedial measures of removing pollution was held to be of the polluter under common law. Issuing directions for recovery of such cost was therefore held to be implicit in provisions of sections 3 and 4 of the Environment Protection Act, 1986. 106. Thus liability to incur cost being already implicit in existing law no new or fresh authority was required in this regard. It was not a case whe....
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....to physical thing, as right to possess, use and dispose of it in accordance with law...." (p. 160) It reiterated: "The word "property" used in article 300A must be understood in the context in which the sovereign power of eminent domain is exercised by the State and expropriated the property. No abstract principles could be laid. Each case must be considered in the light of its own facts and setting. The phrase 'deprivation of the property of a person' must equally be considered in the fact situation of a case. Deprivation connotes different concepts. Article 300A gets attracted to an acquisition or taking possession of private property, by necessary implication for public purpose, in accordance with the law made by the Parliament or of a State Legislature, a rule of a statutory order having force of law... Public interest has always been considered to be an essential ingredient of public purpose. But every public purpose does not fall under article 300A nor exercise of eminent domain an acquisition or taking possession under article 300A. Generally speaking preservation of public health or prevention of damage to life and property are considered to be public purposes. Yet de....
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....d to deprivation of property and unless authorised by specific law could not be sustained under article 31(1)/300A. 112. The decision rather reaffirms and reiterates the principle above the necessary requisites of authority of law laid down by Supreme Court in each case as discussed above, and has also drew attention to effect of omission of clause (2) of article 31 in resuscitated provision of article 31 in article 300A on the question of requirement of payment of compensation on assuming eminent domain of any property by way of acquisition. The question of finding the ambit and scope of deprivation through taking possession or acquisition of property by assuming eminent domain not arising in this case. The question, whether impounding, full or part of amount, otherwise recoverable in law from a person, amounts to depriva-tion was not the subject matter of issue in Jilubhai Nambhai Khachar's case (supra) . However, this much can be said that decision in Jilubhai Nambhai Khachar's case (supra) reaffirms the principle firstly that there cannot be deprivation of property without authority of law, secondly what amounts to deprivation of property cannot be subject to any abstract pr....
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....265, the imposition of tax has not been held to be deprivation of property to be governed by article 300A. 114. The learned counsel for the respondent placed reliance in this connection on decisions in District Council of the Jowai Autonomous District Jowai v. Dwet Singh Rymbai AIR 1986 SC 1930 and in Khargram Panchayat Samiti v. State of West Bengal 1987 (3) SCC 82 distinguished in the decision in Ahmedabad Urban Development Authority on the ground that the Supreme Court itself has distinguished the two cases relied on by the Ahmedabad Urban Development Authority in its favour to come to a different conclusion. The fact that the decision in Ahmedabad Urban Development Authorities case distinguishes the two authorities does not lead to the conclusion that it supports the respondents plea about inferring an authority of law without there being specific provision merely from the entitlement of the Board to take appropriate measures without actually taking such measure which can properly be permitted as law prescribing the deprivation of property which could be permitted as a legislative measure prescribing for such consequences by law. As pointed out by the Supreme Court itself th....
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....ability of the case to such require-ment of a specific provision has been stated by the Supreme Court in the following words: "That the decision in Khargram Panchayat Samiti also deals with exercise of incidental and consequential and the same does not impose tax and fee the same can be said with respect to the present proviso. Here we are concerned with the power of authority to deprive a person of the property and in exercise of power in the field of administrative law by way of making orders incidental or ancillary power actually conferred on it." 117. In view of the consistent view taken by the Supreme Court as discussed above whether under article 265 or article 31 as it existed prior to its deletion in Constitution 44th Amendment Act, 1978 or under article 300A it is not possible to accept the plea of distinguishing the scope and ambit of authority of law required under article 300A by separate rules of construction. 118. The authority of law envisaged under the constitutional provisions has a pre-condition before imposition of tax or sustaining said action depriving a person of his property there must exist an authority of law in the form of a positive or State made....
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....nner prevent the State from imposing the tax on the sales or purchase of goods which are the products of such industry and which are referred to in Entry 33 of list 3. As seen above, the taxing power of the State under Entry 21 of the power of control, Sahai, J. concurring with Justice Thomas held: "Therefore the entire basis for striking down the levy that even though the State had plenary power to impose tax on sales/purchase of goods it can exercise taxing power under Entry 54 of List II so long as it does not militate against the legislative field occupied by the Central Government under the IDR Act or any other enactment made under Entry 53 of List I proceeded on complete misconception of taxing powers of State. In fact as stated earlier the entire theory of occupied field or State legislation being repugnant to Central Legislation is available when the two legislatures exercise their powers under Concurrent List. Therefore, the order of the High Court striking down the levy cannot be upheld." 120. The decision in Synthetics & Chemicals 'case (supra) nowhere against the earlier views expressed by the Apex Court about the requirement of specific provision of law whether o....
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....ution and for bringing about that desired result, the authority of law is needed. It is also not in serious dispute that the authority of law required must be an authority conferred by legislative process and not by way of administrative discre-tions. In fact the learned counsel in his written submissions has candidly stated that authority of law envisaged under article 265 for the purpose of imposing tax requires a specific power before it can be imposed. What is contended by the learned counsel is that interpretation of a taxing provision, with this well accepted principle of being strictly construed and requiring of a specific power before a tax can be imposed, is a different proposition compared to the interpretation of a remedial legislation concerned inter alia while taking action to remedy a breach of Regulation and Act. Pausing here it is the constitutional mandate that no tax shall be imposed without authority of law. It is also constitutional mandate that no person shall be deprived of his property unless authorised by law. So far as this requirement of the Constitution of existence of authority of law before tax can be imposed or a person can be deprived of his property,....
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....ground that such hypothetical construction is more consistent with the alleged object and policy of the Act. 126. It was further pointed out that the material provisions of the statute must be interpreted in their plain grammatical meaning and it is only when such words are capable of two constructions that the question of giving effect to the policy or object of the Act can legitimately arise. When the material words are capable of two constructions, one of which is likely to defeat or impair the policy of the Act whilst the other construction is likely to assist the achievement of the said policy, then the Courts would prefer to adopt the latter construction. It is only in such cases that it becomes relevant to consider the mischief and defect which the Act purports to remedy and correct. 127. In a recent case from House of Lords in Maunsen Olins 1975(1) All ER 16, Lord Simon explained that the rule in Heydon's case is available at two stages primary and secondary. The primary rule of construction is to consider the plain meaning and if there is no plain meaning mischief rule is the most important rule amongst the secondary cannons of construc- tion. 128. As we shall pre....
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....ender the termination of a service of the workman void ab initio and would make it invalid and inoperative that the Court without setting aside the termination of the services of the workman on the ground of failure to apply the provisions of workman with full backwages may would the relief to reinstatement with payment of suitable compensation. Parity was drawn between the cases under sections 33 and 33A of the Industrial Disputes Act. 132. It is in the context of the said contention, the court made it clear: "... the Court is not to make inroads by making etymological excursions. 'Void ab initio', 'invalid and inoperative' or call it what you will, the workmen and the employer are primarily concerned with the consequence of striking down the order of termination of the services of the workmen. Plain common sense dictates that the removal of an order terminating the services of workmen must ordinarily lead to the reinstatement of the services of the workmen. It is as if the order has never been and so it must ordinarily lead to backwages too...." (p. 424) The Court further made it clear: "... But there may be exceptional circumstances which make it impossible or wholly....
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....jnath Kedia v. State of Bihar AIR 1970 SC 1436. The Parliament enacted thereafter Validation Act, 1969 which provides the laws specified in the laws and objects as valid as if the provisions contained therein has been enacted by Parliament. The Act also validated the action taken under the Rules which have been declared invalid by the above referred decision of the Supreme Court. The Court held: "If a validating law by Parliament merely validates invalid State law which is outside the State list, such a Validating Act would be invalid. It is for the Constitution, not Parliament, to confer competence on State Legislatures. But where Parliament which has power to enact on a topic actually legislates within its competence but, as an abbreviation of drafting, borrows into the statute by reference the words of a State Act, not qua State Act but as a convenient shorthand, as against a long hand writing of all the sections into the Central Act, such Legislation stands or falls on Parliament's legislative power, vis-a-vis the subject. The distinction between the two legal lines may sometimes be fine but always is real." (p. 1389) 136. In its Validation Act, the Parliament clearly sta....
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.... ordinary statute is not any the less true in the case of a constitutional provision, and the same rule applies equally to both. But if the words of an instrument are ambiguous in the sense that they can reasonably bear more than one meaning, that is to say, if the words are semantically ambiguous, or if a provision, if read literally, is patently incompatible with the other provisions of that instrument, the court would be justified in construing the words in a manner which will make the particular provision purposeful...." (p. 2328) 139. In saying so that Court referred to its earlier decision in M. Pentiah v. Muddala Veeramallappa AIR 1961 SC 1107, wherein the court quoted with approval the words of Lord Denning's illustrating the role of interpreter in such cases by holding that: "... A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases...." (p. 1115) 140. In the context of the present controversy, it is not the contention of the any of the parties that any provision or Act, Regulation or Rules is not compatible with each other and requires harmonious construction requi- ring the ironing out of creases with reference....
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....t, 1952 was existing under section 14(2A) of the Act where such exempted establishment has contravened any of the conditions subject to which exemption was granted. A question has arisen in the circumstances on such contravention of conditions exemption certificate has been cancelled, whether cancellation of such exemption amount to levy of another penalty envisaged under section 14(2A) so as to render section 14(2A) inapplicable to such exempted establishment. The Court after referring to the principle enunciated by Lord Denning referred to above, and considering the meaning of penalty has stated categorically that while considering the scope of section 14(2A) they have proceeded adhering to the language of the section: "We are therefore satisfied that some of the conditions subject to which the exemption was granted have been violated. So this part of section 14(2A) is satisfied. Now we shall see whether the cancellation under section 17(4) is a penalty provided by or under the Act." (p. 1297) 143. The Court did not read existence of a provision providing conse-quence in the clause providing for breach itself. It looked for another provision for supporting the consequential....
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....t there being an existing rule of discipline or Code of Conduct having force of law authorising making of such order. 146. It will be necessary in the context to note some facts in the RBI's case. It related to challenge to validity of direction contained in paragraph 4-A inserted in Residency Non-Banking Companies (Reserve Bank) Direc-tions, 1987 by notification dated 19-4-1993 as under as ultra vires the RBI Act, 1934. "4A. No residuary non-banking company shall take from any depositor/ subscriber to any schemes run by the company, with or without his consent, any amounts towards processing or maintenance charges or any such charges, by whatever name called, for meeting its revenue expenditure: Provided that a company may charge to a new depositor a one time initial sum not exceeding Rs. 10 towards cost or expenses for issuing brochures/ application form, servicing the depositor's account, etc." 147. The background of this controversy was that in order to regulate the activities of non-banking companies in receiving deposits from public on large scale, RBI Act, was amended by Act No. 55 of 1963 by inserting Chapter 11B containing sections 45H to 45Q. Section 45J of th....
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....ve, the Supreme Court was dealing with a case where a direction issued by it inserting paragraph 4A, designed to have force of law, laying down the Code of Conduct for the institutions covered by it was challenged on the ground of it being ultra vires the Act. Whether laying of such a Code of Conduct was within the authority of RBI under the Act or not, the court answered the question in affirmative by referring to sections 45K and 45L of the Act. Likewise if SEBI were to lay down a code of conduct to be applied by persons who could be dealt with by it under the Act, and also prescribes consequences of breach thereof, the question will be SEBI's competence to lay such code of conduct with all ancillary and necessary incident which is quite distinct from and the question whether the SEBI could act in a manner affecting rights of people in a manner without affecting rights of people in a manner without prescribing such provision which results in depriving any person of his property. While the former may be sustained with reference to section 11, the latter cannot be. 150. In this context statement of law in State of Kerala v. P.J. Joseph AIR 1958 SC 296 may be usefully referred to....
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....duciary relationship may not exist in the present case nor is it a case of a holder of public office, yet, it is found that someone has acquired properties by defrauding the people and it is found that the persons defrauded should be restored to the position in which they would have been but for the said fraud, the Court can make all necessary orders. This is what equity means and in India the Courts are not only Courts of law but also Courts of equity." 154. However, one is unable to find any support for the plea of the learned counsel to read the provision of statute to include power to forfeit even if the same does not exist or to confer power on the statutory authority created under the Act or by other courts in India. The court clearly observed that provisions of forfeiture of property of those in office indulging in corrupt practice is needed to make part of law. It said: "May we say in parenthesis that a law providing for forfeiture of properties acquired by holders of public office (including the offices/posts in the public sector corporations) by indulging in corrupt and illegal acts and deals, is a crying necessity in the present state of our society. The law must e....
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.... such a power cannot be deemed to exist merely on the ground that action taken by the authority can be related to the purposes of the Statute for which the power has been in fact, exercised unless Statute under which power has been exercised, also authorises such action which has the effect of depriving a person of his property. 158. When we speak about the law under article 300A or under article 265 or under article 266(3), it means the statutory law or rules or code of conduct prescribed by the legislative process. Legislation itself signifies the act of giving or enacting laws, the function of the Legislature is to frame and enact laws or formulation of rules for the future, that is to say, in the first place, rules governing a particular course of conduct are framed and thereafter any conduct which is governed by the sphere of such rules is to be adjudged, whether it is valid or ultra vires of the rules on the touch stone of those rules. 159. In Black's Law Dictionary Vth edition, the word 'legislative' has been stated to mean making or giving laws pertaining to definition of law given or to the process of enactment of law. It also says actions which relates to subject of....
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....y or through which such knowledge can be acquired with the exercise of due and reasonable diligence. The thought that a decision reached in the secret recesses of a chamber to which the public have no access and to which even their accredited representatives have no access and of which they can normally know nothing, can nevertheless affect their lives, liberty and property by the mere passing of a Resolution without anything more is abhorrent to civilised man. It shocks his conscience. In the absence therefore of any law, rule, regulation or custom, we hold that a law cannot come into being in this way. Promulgation or publication of some reasonable sort is essential...." (p. 468) 166. The fact that law is to be published and made known in someway, before it become operative to affect the subjects implies that before any action can be subjected to test of Code of Conduct provided by law and he visited with consequence that may follow breach of such Code of Conduct or law, Code of Conduct which is required to be followed, and consequenc-es that are to follow on its breach, both must be made known. This inhers in it specific provision for depriving one of its property by forfeitu....
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.... thinks fit subject to provisions of this Act. Sub-clause (2) provides that without prejudice to the generality of the foregoing provisions, the measures referred to in sub-section (1) may provide for various specified matters enumerated therein which includes under clause (e) 'prohibiting fraudulent and unfair trade practices relating to securities markets'. Section 11B empowers the Board to issue such directions as may be appropriate in the interest of investors in securities and securities market, if after making or causing to be made an enquiry, it is satisfied that it is necessary in the interest of investors or orderly development of the securities market or to prevent the affairs of an intermediary or other persons referred to in section 12 being conduct- ed in a manner detrimental to the interest of investors or securities market or to secure the proper management of any such intermediary or persons. The persons referred to in section 12 are stock brokers, sub-brokers, share transfer agents, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, under writer, portfolio manager, investment advisor and such intermediary which may be associated with....
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.... adopt and take such measures as it think fit embraces within its fold in appropriate cases to forfeit the profit which it considers are result of a manipulated market, particularly in respect of those persons about whom it is satisfied that they are respon- sible for such manipulation, and the contention at its narrower point is two fold that in regulation 12, there has been specific empowerment of depriving a person of his profits arising out of such manipulated market and even if it is not covered by Regulation 12, such power is to be read in provision of section 11B which empowers the Board to issue such direc-tions as may be appropriate in the interest of the investors in securities and the securities market to any person which include any person associated with the securities market where the Board is satisfied after making or causing to be made an enquiry about the necessity of issuing such directions. In this context, it has also been urged that the Regulations framed under section 30 are a specific of subordinate legislation and have binding force as statute after the same are laid before the Parliament and have not been modified and not disapproved by the Parliament and i....
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....ons of the Act or rules framed thereunder or even if authorised by any other law for the time being in force as envisaged under section 32 of the Act. However, before action in terms thereof is taken in order to be a touchstone to which any actions of persons to be dealt with by the Board are to be tested and action of the Board to dealing with such persons can be tested. Such plan or course of action which the Board may adopt to achieve its object, shall obviously have to be delineat-ed. Such plan or action or measure envisaged may be in the form of a legislative act or direction which may be issued on arising of such a situation having relation to the objectives of the Statute. Obviously, in the former case, if a plan or course of action has been chartered which can be said to have force of law, it must satisfy the test of being a valid law enforceable. In latter case, where action is guided subsequent to happen- ing of the event to deal with a situation arising from such happening to be collated to the plan adopted by the Board, as a remedial act to repair the breach, or to create situation conductive to the plan. Former falls in the sphere of adopting legislative measure for ac....
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....sure passed by National Assembly of the Church. This distinction was clearly made in Halsbury's Law of England, IVth Edition, 44th Volume in Para 802 where it said that a general Synod measure is not a Statute. However, if such a measure is laid before the Parliament and is then presented to the Queen in pursuance of the resolution of each House of Parliament, it has the force of law. It has force and effect of the Act of a Royal assent being given to it. 180. In 34th Volume Para 1226 of Halsbury's Law of England stated the proposition about power of General Synod of the Church of England to take measures as under: "1226. General Synod Measures. The General Synod of the Church of England may frame and pass legislative proposals, termed Measures, concerning the Church of England. A measure agreed to by the General Synod is submitted by its Legislative Committee to the Ecclesiastical Committee of members of both Houses whose duty it is to report to Parliament upon the nature and legal effect and expediency of the Measure. The report and the text of the Measure are laid before Parliament, and a resolution is submitted to each House directing that the Measure, in the form laid be....
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....age when he opined: "The Crown in my opinion cannot here succeed except by maintaining the proposition that where statutory authority has been given to executive to make regulations controlling acts to be done by Her Majesty's subjects or some of them may without express authority so to do demand and receive money as the price of exercising power of control in a particular way, such money to some public purpose to be determined by the Executive." 182. Thus it is apparent that House of Lord did not agree with the contention of Attorney General, that wide executive power to regulate and make any order it deem appropriate and expedient to achieve the objec- tive include the authority to burden the subject with monetary liability without express provision of statute to that effect. The fact that the action has nexus to achieve the objective for which authority is conferred on Board, does not absolve the requirement of an express statutory authority in that regard, when it comes to deprive a person of his property. The view found its approval in A Venkata Subbarao v . State of Andhra Pradesh AIR 1965 SC 1773. 183. Here we may notice one of the contention of the learned counsel ....
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.... the tenor of orders and pleadings it is apparent that primary object of the orders in present case is to reach the funds generated as a result of close up/auction transaction by carrying them to Investor's Protection Fund. On specific query it was stated that as on that day no such Fund has been created or is existing which is administrated by SEBI. That is to say action of the Board was clearly directed to object of getting funds for the purpose of establishing a fund for the protection of investor's interest, which is one of the object for it to fulfil. It betrays that action was not collated as ancillary to regulating stock market but primarily to get funds for its activity. That is in the nature of raising money. This amounts to levy of fees or tax. The Act does not authorise levy of fees on tax, for any purpose. The delegation of authority under parent statute does not get such power by necessary intendment, which is not even authorised by parent of statute. 189. It is to be seen that in its order dated 5-7-1996 in Special Civil Application No. 2224 of 1996 the Board has ordered to impound the proceeds with Stock Exchange by directing that the auction proceeds and close ou....
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....f has not provided for any such prohibition of fraudulent or unfair trade protection, nor has defined the same, but has left such measure to be taken by the Board. Hence, some positive act by the Board providing prohibition of such practices must precede before any action could be taken against any person for alleged crossing the prohibiting lines. Only on breach of such prohibition by such person question would arise for determining whether the act of that person is in breach of such prohibitory measure and for taking a decision on what consequences to be visited on defaulter. Since prohibition itself is not part of main provision, ancillary authority conferring power to deprive a person of any property on acting against prohibitory measure, which is ancillary to mean power cannot be inherently inferred in the enabling provision. Such provision can only follow the prescription of prohibiting measure. Obviously measure here refers to legislative measure in the sphere covered by section 11(2)(e ). 193. For the purpose of adopting measures of legislative character, Board has been conferred with power to frame Regulations under section 30 which in order to be effective, has to be p....
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....n to executive power of State to do and act in all the fields to which legislative power of the State or Union, as the case may be extends. 197. In such cases, the executive authority extends to entire field not covered by statutory provisions. However, that is subject to one inhibition. If doing of certain act or exercise of certain power in particular field is required by constitutional provision to be sanctioned by legislative pro- cess, the exercise of authority in that field can only be subject to existence of such legislative sanction and cannot be traced to its wide powers to act in the entire field of State authority left uncovered by legislative enact-ments. Hence, contentions of Mr. Shelat cannot be accepted in abstract, where the question is in the context of deprivation of property of a person, which under Constitution can only be sustained if authorised by law, law in the context means positive statutory law. Therefore unless the power to make any order or issue direction which results in depriving a person of his property, is traceable to some specific provision of law, the same cannot be upheld. 198. It may further be pertinent to notice if conferment of such e....
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....s. It was in that context, the Court had observed that the recognition of the fact that the Board can introduce rationing amounts to concession that Board has power to enforce ration- ing and to enunciate the principles for determining the scheme of such rationing, and the source of power to introduce rationing flew from the Act itself. For exercise of that power framing of Regulation was not necessary. It may be noticed that when power to rationing was given under the statute and power to frame Regulations was also given, the question was whether the incidental power could be exercised only by framing a Regulation. The Court negatived this contention and held it is manifest that if the power existed it must be exercised according to valid principles consistent with the provisions of the Act and the language of section 49 showed that the power was exercised without making any Regulation. As discussed above, the question was not about absence of power but the manner of exercise of power according to the provisions of the Act. Prescribing higher rate for consumption of excess quota on introduction of rationing, was considered to be part of the existing power. Power to impose ration w....
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....dication by way of imposing penalty or bringing civil consequences to an affected party as a result of adverse finding in an enquiry in particular, but for commanding a person to do certain act or to forebear from doing such an act, such commands for the purposes of furthering the interest of investors in the securities in general or further- ing the interest of the orderly development of securities market or for preventing the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the investors in the securities market or to secure a proper management of such intermediary or persons. As such, section 11B does not envisage the adjudication and making an order adverse to a person having a casual connection between the finding recorded against that person and consequences to be visited upon that person. For that, under the scheme of the Statute, separate provision have been made for imposing penalties and visiting the con-cerned person with punishment of imprisonment and fine by making such an act as an offence punishable with imprisonment and fine after appro-priate trial. 203. Chapter VIA provides for penalties and adjud....
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....ch are incidental and ancillary for levy and collection of tax. 206. The context in which the power to issue directions have been conferred on the Board under section 11B to any person or class of persons referred to in section 12 or persons associated with the Securities Market or to any company in respect of matters specified in section 11A further goes to show that while section 11 authorises, empowers and enables the Board to lay down whether an action plan to be adopted for the various purposes whether in the form of guidelines by way of executive instructions or regulations by way of legislative measures by itself or by incorporating such measures in rules through Central Govern- ment in exercise of its power to frame rules, section 11B empowers the Board to issue such guidelines for the purposes, of regulating conduct of the persons named in section 11B with reference to its satisfactions about the matters referred therein, on the basis of an enquiry which has been conducted by itself or which it has caused to be conducted. In other words it can be said while section 11 operates in the field of laying down general regulatory measures as a matter of policy section 11B oper....
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....g; a guiding or authoritative instruc- tion or command. 211. In view of the above, it cannot be said that section 11 by itself or section 11B by itself or both read together furnish specific authority of law needed before a person could be deprived of his right to recover the sale price of scrip sold by him which has been recovered and reached the Stock Exchange, in terms of article 300A, though it can be said that by adopting legislative method which may result in coming into force of a regulation or force of law, such a measure may be supportable by the SEBI on the anvil of its power to take measures for achieving the objects stated in section 11 if the same can be treated as ancillary and incidental to achieve the main objective and are otherwise within other constitutional limits. 212. The next question that arises is whether the Regulations of 1995 of the SEBI provide for such ancillary measure. It has been pointed out by the learned counsel for the respondent that Regulations 11 and 12 read together confer such specific authority of depriving the person of consid-eration of the completed transactions. For the ready reference Regula- tions 11 and 12 are quoted below: ....
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....tatus quo ante with each of class as a purpose for which direction can be issued. Another way of reading the provision is to limit the condition of issuing directions for the purpose of restoring status quo ante only to sub-clause (d) and other sub-clauses of Regulation 12 to operate independently. We shall examine from both the points of view. 214. At the first instance it was urged that clause (a) of Regulation 12 empowers issuing of directing of a person not to deal in security in any particular manner which may include power not to deal in securities above a particular price and therefore it must be deemed that when petitioner was paid a part of the consideration received by the Stock Exchange it was a direction to the petitioner not to sell his securities above that price. As a corollary of this argument, it was further contended that if contention to this extent is acceptable then what happened to excess price received by the Stock Exchange is no concern of the petitioner and therefore issue of direction to pay the petitioner a part of the price received by the Stock Exchange should be deemed to be governed by clause (a) and rest of it namely impounding of the excess price....
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.... securities as it would directly amount to selling of the scrips at price 'A' and then split it between the seller and the Board; whether by way of imposing penalty on the seller or sharing the proceeds earned by him. In either way, such a direction cannot be a direction for the concern to deal securities in any particular manner, but is a clear case of sharing consideration, or profit. Therefore, the contention that clause (a) spells the authority of law for issuing directions of the nature with which we are concerned cannot be accepted. 219. It was strenuously urged that at any rate it is governed by clause (d) which authorise the Board to direct the person concerned to dispose of any such security acquired in contravention of these regulations in such manner as the Board may deem fit. This provision in its clear term applies only to the securities acquired in contravention the regulations. In respect of securities acquired by a person concerned, he can be directed to dispose of it in a manner so as to restore status quo ante. The directives envisaged under clause (d) cannot go beyond these two limits. This also clearly envisages that pre-condition of this are as a result of c....
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....ading of the provision and also in the context of the facts and circumstances raised before me it is not possible to accede to the contention of the learned counsel for the respondents that under clause (d) the Board could issue directives in respect of consideration of securities arising out of a com- plete transaction, by treating the proceeds of a complete transaction as 'security' for the purpose of clause (d). 222. Assuming for the sake of argument even if the sale proceeds could be dealt with under clause (d) the same can only be for the purpose of restoring status quo ante and not for the purposes of visiting the contra-vener with a penalty by forfeiting his rights in such proceeds right to which has vested in him. Such direction cannot be considered to be a direction to deal with proceeds by the person concerned but amounts to exaction of money by the Board. Direction to deal with envisage something to be done by person concerned with the subject of direction to bring status quo ante but cannot be an authority exact money for itself. That is not a dealing with proceeds by person concerned. 223. I need not dwell much on clause (b) or (c) of regulation 12 inasmuch as ne....
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....h the transfer of shares had taken place, and there will be no occasion for recovery of additional consideration which could be avail- able for impounding. The question can only arise in a case of completed transaction and proceeding have reached someone's hands. Thereafter, if the impounding of any sum is to be made, in the event such impounding would be of the property of person concerned who is entitled to such consideration. It would assume the character of penalty, if not a tax on profit therefore, in no circumstances, the authority to impound full or part of consideration received under a completed transaction which cannot but be by way of penalty by forfeiture or exaction of profits is authorised under any of the regulations referred to by the respondents. 226. Considering the act of impounding as a casual consequence of any breach of regulation the question may be viewed from yet another angle. 227. The statute itself has provided for penalties and transaction, for committing breach of the regulations. Section 24 makes contraventions or attempt to contravening the provisions of the Act, Rules or Regulations as offence punishable with imprisonment with fine and as prov....
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....s particularly framed Regulations of 1995 in the field of providing for prohibition of a fraudulent and unfair trade practices. These regulations also provided for certain consequences to flow to a person concerned who are found to be concerned with fraud or unfair trade practices as a result of enquiry held under Regulation 8. Therefore, the field of providing consequences of breach of Regulation particularly prohibiting fraudulent and unfair trade practices is occupied. In that event as per the principle enunciated in Newabjanj Sugar Mills Co. Ltd. v. Union of India AIR 1976 SC 1152 which lays down that 'if Regulations were made such regulations would have to be in conformity with section 49(4) of the 1948 Act and in exercise of its power the Board would have to abide by regulation'. Exercise of executive power within the province of administrative discre-tion of the authority extends only to the extent the field is not occupied by statutory provision is well established by decisions of Supreme Court in Sant Ram Sharma v. State of Rajasthan AIR 1967 SC 1910 and State of Haryana v. Shamsher Jang Shukla AIR 1972 SC 1546. On this view of the issue also the Board is not entitled to a....
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.... SEBI. It is also clear that action under regulation does not reach any person who is not person concerned with the alleged irregularities. Therefore, it is difficult to hold that there exists an authority of law whether under Regulations or under the Act in favour of the Board to retain the amount of completed transactions in accordance with the prevalent Stock Ex-change Practices and its Bye laws which have been received by the Stock Exchange for the purposes of third parties. 233. The order in Special Civil Application No. 2224 of 1996 concedes that the security offered at auction had some value and holder thereof is entitled to its price. What is found objectionable is that offerers should not get undue or ill gotten profits arising out of rigged/manipulated price. Reach of the order, is clearly intended to curb the extent of profits that are earned by a party to transaction. Likewise in Special Civil Application No. 5483 of 1996 though order of Board does not say anything like that, the Central Government in its appellate order speaks that while in the normal course the purpose of investment is to make financial gains, when the conditions prevalent are abnormal the denial o....
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....ute the other will be collated to levy of tax. Former may be justified exercise of legislative authority delegated under the Act the latter may not be except as a levy of tax authorised by law under appropriate entry, by parent Legislature. 235. In Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328, the court held the provision of Bombay Labour Welfare Fund Act for constitution of a Labour Welfare Fund and which provided notwithstand-ing anything contained in any other law for time being in force the sum specified in sub-section (2) of section 3 to be invalid, nor protected under article 31. It was so because that amounted to not mere deprivation of property by authority of law, but amounted to tax or fee. So also in State of Madhya Pradesh v. Ranojirao Shinde AIR 1968 SC 1053, the court drew the distinction between deprivation of property and taxing powers and held that power under article 31 cannot be utilised for enriching the coffers of the State. 236. The purpose of the aforesaid discussion about Board's authority to take legislative measures is confined to question whether there exist authority of law for the Board to make the order like the impugned order....
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....he rights of parties. On the contrary it will be seen presently that there is express mandate in the parent statute itself as well as in the regulations for affording an opportunity of hearing before orders can be made. However, two alternative pleas have been raised by the respondent to save the situation. Firstly, it has been urged that in the circumstances of the case by necessity the principles of natural justice have been excluded. The principle enunciated by the Supreme Court in the matter of cancellation of examinations on account of mass scale use of unfair means in conduct-ing examinations by Education Authority or for selecting candidates for offering employment, the entire examinations were cancelled without affording an opportunity of hearing to the affected students or candidates. Particular reliance was placed on Union Territory of Chandigarh v. Dilbagh Singh AIR 1993 SC 796; Krishan Yadav v. State of Haryana AIR 1994 SC 2166; Union of India v. Anand Kumar Pandey AIR 1995 SC388 and alternatively it was urged that at any rate the Board is prepared to give post decisional hearing now therefore illegality, if any, in the procedure adopted by the Board in making the impug....
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....6) SC 515 also was a case in which the principle of natural justice was held to be excluded where cancellation of entire selection was directed as a result of mass malpractice. The Court observed: "That in the case of selection of an individual his selection is not found correct in accordance with law, necessarily, a notice is required to be issued and opportunity be given. In a case like mass malpractice as noted by the Tribunal, as extracted hereinbefore, the question emerges; whether the notice was required to be issued to the persons affected and whether they needed to be heard? Nothing would become fruitful by issuance of notice. Fabrication would obviously either be not known or no one would come forward to bear the brunt. Under these circumstances, the Tribunal was right in not issuing notice to the persons who are said to have been selected and given selection and appointment." The case is on par with Krishan Yadav (supra) . 244. Another case relied on by the Counsel Hanuman Prasad v. Union of India JT 1996 (8) SC 510 was also a case where examinations/selections were cancelled after perusal of CBI report disclosing mass scale malpractices in writing examinations. ....
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....t the results en mass as a result of mass scale irregularities, without fixing individual liability or responsibility on person concerned so as to charactise it as a penalty cannot be applicable to present circumstances. 246. As has been seen earlier in such an event orders can either in the nature of inflicting penalty on the person concerned or it amount to levy of tax on profit, if the nature is not punitive. In either case, there is no room for holding that application of rules of natural justice have been excluded by necessary implication arising from the circumstances of the case. 247. It would be to quote from Charan Lal Sahu's case (supra): "Audi alteram partem is a highly effective rule devised by the Court to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power. The rules of natural justice can operate only in areas not covered by any law validly made. The general principle as distinguished from an absolute rule of uniform application is that where a statute does not in terms exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full revie....
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.... hearing was not necessary part of statutory requirement and statutes also enabled the authority to act even without notice. It is in these circumstances court held that it being enabling provision conferring power on the commissioner to cause an encroachment to be removed with or without notice. The court did not infer exclusion of rules of natural justice but stressed that discretion to exclude notice has to be exercised in a reasonable manner sparingly and in exceptional cases only. 252. In Mrs. Maneka Gandhi's case (supra) the court emphasised that rule of natural justice be applicable in the exercise of power of impounding a passport, even in the absence of specific provision. It was not held to be excluded by necessary implication notwithstanding emergent nature of action required to be taken. It was also taken to be well settled that rules of natural justice are not inflexible and can be moulded being sufficiently flexible to permit modifications and variations to suit exigencies of myriad kinds of situation which may arise. In the circumstances of emergent nature of taking action in impounding passport to prevent a person from leaving country the Court countenanced post ....
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....rtunity of he aring the parties, and revoke the earlier directions. We do not wish to disclose our mind on what, in the critical circumstances, should have been done for a fair play of fair hearing. This is a matter pre-eminently for the Election Tribunal to judge, having before him the verified totality of all the factors. All that we need emphasize is that the content of natural justice is a dependent variable, not an easy causality." 255. This is ample indication of the fact that post decisional hearing as fulfilling requirement of natural justice is only an exception to general rule of pre-decisional hearing only in cases of very exceptional circumstances of need for prompt and emergent action failing which the very purpose of exercising power is likely to fail. That too in cases where the rule of natural justice are required to be followed as an inherent ingredient of fair play and not as a part of statutory requirement. All the cases relied on by the respondent are cases where the need to adhere to principles of natural justice was read into requirement to act with reasonableness even in the absence of any statutory requirement. Also the Court did not permit the prehearing....
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....n Regulation 10 i.e., the report of the investigation officer and after giving a reasonable opportunity of hearing to person concerned, issue directions specified in Regulation 12. However, unlike Regulation 8 it does not provide for suspending with the requirement of pre-decisional hearing before issuing directions in any circumstances. As have been noticed in the observations of the Supreme Court referred to above in Charandas case (supra), the post decisional hearing is not a cure where pre-decisional hearing is a statutory requirement. In view of the aforesaid contention that the impugned orders are not vitiated for want of pre-decisional hearing and by offering post-decisional hearing the defect is cured cannot be accepted in the facts and circumstances of the cases under consideration and it is held that in the present cases, post-decisional hearing cannot cure the invalidity attached to the impugned orders having been made for want of adherence to principles of natural justice. 257. It cannot be doubted that post decisional hearing itself is fraught with danger of inherent unfairness of procedure and can be resorted to only in exceptional circumstances. Ordinary rule of n....
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....tunity of hearing before the appellate authority who is competent to set aside that order. 261. There is ample authority for the proposition that if natural justice is violated by the original authority that right of appeal is not a remedy which can correct the initial lack of fair trial by the original authority, as it would result in unfair trial followed by a fair trial as a substitute for fair trial followed by appeal. Dealing with the question of post decisional hearing by way of appeal Wade in his 'Administrative Law' observed: "In principle there ought to be an observance of natural justice equally at both stages, and if natural justice is violated at the first stage, the right of appeal is not so much a true right of appeal as a corrected initial hearing; instead of fair trial followed by appeal, the procedure is reduced to unfair trial followed by fair trial." 262. In Leary v. National Union of Vehicle Builders 1971 Ch. 34 Megarry, J. said: "If one accepts the contention that a defect of natural justice in the trial body can be cured by the presence of natural justice in the appellate body, this has the result of depriving the member of his right of appeal from....
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....l substitute for the original proceedings." 264. The impugned orders therefore suffer from the vice of procedural unfairness inasmuch as they have been made in breach of principles of natural justice. 265. It was also urged that the impugned orders also suffer from vice of being non-speaking orders. As the reasons for impounding the consider-ation received by the respective Stock Exchange are not stated in the order and the reasons cannot now be supplied by way of affidavit. 266. This contention on behalf of the petitioners does not appear to be well founded. Both the orders primarily proceed on the ground that the prevalent high market price of the scrips in question was a result of certain manipulatory activities which has resulted in windfall profits to persons operating in the market, besides the fact whether the persons concerned are themselves responsible for the prevalent market conditions or not, since it has resulted in windfall profits, the parties who are entitled to receive such profits otherwise cannot be allowed to retain the same. This reason is very much apparent on the face of the impugned orders. If the matter rests with the correctness of the reasons alo....
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....l transaction therefore the principle of unjust enrichment can be applied for refund of the amount to someone at whose cost the alleged unjust enrichment has taken place or not permit- ting a person to retain the same, in order to bring a situation that it can be made available for return to rightful claimant. But certainly this cannot be applied to money retained by a person in trust for the rightful claimant by not permitting its return to the claimant and exacting of it by the State for its public purposes unless the law by competent legislature has been validity enacted or framed which may properly be termed as a positive law to reach it within constitutional limits. The principle of unjust enrichment cannot be invoked for the purpose of conferring upon the Board an authority to exact such enrichment by executive authority. 270. The principle of unjust enrichment has been applied where the money has already been recovered by the State authority under the existing provisions of law which may ultimately be held to be ultra vires and such money in fact is given circumstances may not belong to a person who has actually paid but belong to third persons who are entitled thereto or....
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.... same principle was reiterated in the context of commercial transaction Renusagar Power Co. Ltd. v. General Electric Co. reported in 1994 Supp (1) SCC 644: "The principle of unjust enrichment proceeds on the basis that it would be unjust to allow one person to retain a benefit received at the expense of another person. It provides the theoretical foundations for the law governing restitution." 274. The court refused to consider the case of the appellant for recovering the sum from the other side which was founded on the ground that if applicant are not allowed the sum it would result in retaining unjust enrichment to the respondents. This also supports that apart from the plea of restitution the recovery of damages even by a party to transaction is not permitted to be founded on the basis of unjust enrichment, and the retention by the statutory functionary in the public interest is counte- nanced only where the sum in question does not belong to the person from whom it has been recovered. 275. Circumstances of the present case reveals obvious lack of circum stances in which doctrine of unjust enrichment does not arise in this case at all. As has been noticed that the impug....
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.... an undue enrichment. No power has been either conferred under the statute on the Board to limit the margin of profits which a scrip holder can earn by his own estimation of the market conditions or he can be hauled up for securing returns of his legitimate profits for default of others on the principle of unjust enrichment when such transaction itself is outcome of the directives of the statutory body itself. If the plea of the respondents about it being illegal or void transac-tion is to be considered it would mean that any transaction which had come into existence as a result of violation of Regulations of 1995 must be deemed to be void bearing no fruits, in that event, so far as the completion of transaction itself would not take place. In such circumstances question of receiving any price/difference by Stock Exchange will not at all arise. Nor Stock Exchange receives such amount for itself. Nor it is anybody's case that amount impounded rightfully belong to short sellers. In the case of auction sale transaction of sell and purchase has actually taken place in which scrips of offerer has been sold by Stock Exchange at a particular price and recovered the same from those who wer....
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....in whose transaction difference in price has been recovered from shortsellers only for the benefit of buyer. In either case for reaching such proceeds to brand the same to be illegal gotten is nothing but an order of exaction of money which have become part of actionable claim of the person who are entitled to it under law but for the impugned orders. Impugned order do not propose to or purport to act for the benefit of those to whom the gains rightfully belong, and it could not be because, it rightfully belonged to receiving party to contract. The impugned orders directly purport to deprive the petitioners or persons like petitioners of the property which belongs to them under law. 277. Moreover this is not a case where a person is claiming refund or return of money which has come in possession of State the paramount repository of public interest and it does not want to return for individual benefit, which lawfully does not belong to him. It may be noticed that denying relief on principle of unlawful or unjust enrichment has been enunciated with respect to cases where a person has either collected taxes from persons which were not leviable or prices in excess of regulatory pric....