TaxTMI 
TaxTMI 
2006 (8) TMI 322
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....ited ('CSX') has filed the writ petition along with the second petitioner who is its shareholder/member, challenging the show-cause notice dated 17-4-2006 issued by the respondent. 4. The case of the first petitioner, in nutshell, is as follows : It was established on 9-7-1991 as a public limited company under the provisions of the Companies Act, 1956. It was granted recognition as a Stock Exchange under section 4 of the Securities Contracts Regulation Act, 1956 ("the SCRA") on 18-9-1991 for a period of three years and the recognition is being renewed on application by CSX annually under rule 7 of the Securities Contracts Regulation Rules, 1957 ("the Rules"). CSX initially proposed to operate as a Stock Exchange in view of the then felt necessity for a Regional Stock Exchange in Coimbatore since it was a city where a Regional Stock Exchange would benefit various companies that required listing at the Stock Exchange as well as the investor public. However, subsequent thereto, there has been a sea change in the manner in which Stock Exchanges operate. In India, there were initially two broad Groups of Stock Exchanges with 20 Stock Exchanges being set up as Companies and 3 Stock Exc....
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....ty in CSX and by 2004-05, on a review of the trading patterns of the other RSEs and the reach and popularity of the NSE and BSE, it became apparent by 2004 that, having a Stock Exchange in Coimbatore would serve no purpose and all the efforts of the members would be in vain, since many of the members themselves had already expressed the view and had stopped paying their fees. In addition thereto, in view of the coming to end of trading activities ever since 1999, even companies refused to get themselves listed before CSX and hence, it was felt that it would be in the best interest of everybody concerned since the investing and trading public did not require a RSE in Coimbatore and members of CSX were also not interested in pursuing further with the recognition to operate as a Stock Exchange and they wanted to find out some alternatives. In the beginning, CSX was established by receiving huge contributions from members and these funds had been utilised principally for creating infrastructure, including purchase of land and building for starting a Stock Exchange and provision of office space to all members as also heavy investment that went into the setting up of the trading mechani....
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.... as proposed, were unanimously passed and it was resolved to surrender the recognition and also to the effect that CSX would cease to function with immediate effect as recognised Stock Exchange. Consequently, the new Articles of Association were also adopted at another EGM held on 31-3-2006 whereby, only members of the Exchange could hold position of a Director and the same was also duly communicated to SEBI, by a letter dated 8-4-2005. Thus, CSX had resolved to surrender its recognition and not to seek its further renewal as there is absolutely no negative impact on the interests of the investors or the securities market in view of the absence of any trading in it. However, to the shock and surprise of the CSX, instead of taking further steps consequent upon communication for surrendering or recognition, the respondent, by the impugned order dated 17-4-2006, purportedly under powers granted under section 12A of the SCRA read with sections 11, 11B and 19 of the SEBI Act, issued certain directions against the rights of CSX without as much as holding an enquiry that is required to be done under the provisions of the SCRA. 5. According to CSX, the main grounds of challenge to the re....
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.... 1999 as a RSE since it has found it impossible to carry on any activities and that the investors have sufficient avenues through the trading terminals of NSE and BSE available throughout the country; (h)the impugned action of the respondent is clearly an abuse of power inasmuch as by issuance of the impugned directions, the respondent is seeking to exercise powers that are not available to it. The impugned order can be passed only under section 11 of the SEBI Act since it is effectively supersession of the governing body of a recognised Stock Exchange and is not in the nature of directions, as contemplated under section 12A of the SCRA inasmuch as not granting a hearing; (i)there is no ground for urgency to pass an ex parte order and if even if such power is available, no grounds have been set out and even a show-cause notice procedure as mandated has been dispensed with; (j)the impugned order is liable to be set aside since even if section 12A of SCRA is available to the respondent in the facts and circumstances of the case, it could only be to issue directions to a Stock Exchange or the person referred to in section 12A(b) and section 12A does not, in any manner, grant rights....
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....otification dated 13-9-1994 and almost all the powers of the Central Government have been delegated to SEBI from time to time as SEBI was considered to be an expert body to deal with and regulate the securities market as a whole including the Stock Exchanges. (d)CSX is a Company incorporated under the provisions of the Companies Act, 1956 as a joint stock company limited by guarantee and as per the original Memorandum of Association, the main object is as follows : "To apply for and obtain from the Government of India recognition of the Exchange as a recognised Stock Exchange within the meaning of the SCRA and to facilitate, assist, regulate and control the trade and businesses in all kinds of securities with a view to safeguard and further the interest of brokers, jobbers, dealers and the investing public." (e)A Stock Exchange performs economic function and is the barometer of the national economy and plays a vital role in the nation's economic development. The Stock Exchange is also a place where savings of the public are monthly channelled towards productive purposes. Stock Exchange grants listing approval to the various companies which intend to get their shares listed. Stoc....
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....05. Further, it can be seen from the words of the resolution wherein instead of mentioning that the recognition may be surrendered, the words "the recognition stands surrendered and the Stock Exchange ceases to function as a recognised Stock Exchange" have been used. Further, in the EGM held on 31-3-2006. CSX had passed a resolution to amend its Memorandum and Articles of Association ousting Public Representative Directors/SEBI Nominee Director from its Council of Management and thereby perpetuated the illegality in its resolutions dated 15-2-2006. (d)After the submission of corporatisation and demutualisation scheme by CSX, SEBI officials had a meeting with the CSX officials and suggested to carry out certain changes, taking care of the financial implications to the Exchange and submit the revised scheme for its approval which has not been done (by) CSX. Therefore, the process of corporatisation and demutualisation which began in 2004 could not be completed as SEBI is yet to receive the revised scheme from the Exchange and in fact, the issue is pending before CSX for re-submission of the scheme. The elected Directors/Members have unilaterally decided to surrender the recognition ....
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....ble to other public limited companies and having obtained the recognition to perform the public function of Stock Exchange, CSX is different from any other public limited company and cannot abruptly stop its public functions leaving the listed companies and investors of that region in lurch and therefore, has to comply with the provisions of the Companies Act. (g)After receipt of the reply dated 6-12-2005 from CSX requesting for a personal hearing, the respondent had issued a letter dated 13-2-2006 scheduling a personal hearing on 9-3-2006 at the former's premises. However, obviously with ulterior motives, on 15-2-2006, CSX had hurriedly convened an EGM to pass a resolution regarding surrender of the recognition granted to it and that it would cease to function with immediate effect as a recognised Stock Exchange within the scope and meaning of the SCRA and SEBI Act and thereafter, on 4-3-2006, CSX forwarded the copy of the minutes of the EGM, dated 15-2-2006 and on 9-3-2006, a personal hearing was given to the entire Council of Management of CSX. On 17-3-2006, the respondent had replied to the letter dated 4-3-2006 of CSX confirming that voluntary surrender of recognition was not....
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....be conducted in a proper manner and in accordance with law. It is only the members such as the second petitioner who are interested in stripping the assets of CSX by changing the basic structure of the Memorandum of Association of CSX, changing the authorised signatory of the bank accounts and changing the personnel of CSX with the singular interest of disposing of the assets of CSX and it also appears that the second petitioner and other members are interested in doing real estate business instead of concentrating on the business as a Stock Exchange. (m)The respondent had originally issued a show-cause notice on 22-11-2005 for which CSX had sought for personal hearing and even before the personal hearing could be conducted, the second petitioner and other members had sought to amend the Articles and sought for voluntary surrender and passed the resolution illegally making the recognition as surrendered. It is therefore clear that the entire exercise by the second petitioner and other members has been only to sabotage the efforts of the respondent pursuant to the show-cause notice dated 22-11-2005. (n)CSX cannot be equated with other Companies especially so since CSX has more tha....
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....et and to secure proper management and a plain reading of the above section itself shows that the respondent has to protect the interest of the investors in securities and to regulate the Stock Exchanges and securities market by such measures as it thinks fit. As such, SEBI has the statutory duty and authority to pass interim orders, pending enquiry and these powers do not mandate a pre-decisional hearing by the very nature of the situation and circum-stances in which it is required to be invoked and the interim measure is only to prevent further possible mischief of tampering with the affairs of the Stock Exchange and securities market in order to ensure protection, orderly and health growth of securities market so as to make the respondent's control over the capital market effective and meaningful. Since exigencies and requirements may arise while regulating Stock Exchanges, it has been entrusted with the duty and function to take such measures as it thinks fit and this enabling provision has been enacted to empower the respondent to regulate stock markets and securities markets, in order to protect the interests of the investors and to subserve the purpose for which it has been ....
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....bject itself to SEBIs jurisdiction, in which event, the interest of all concerned could have been adequately safeguarded. (s)Though it is true that power has to be exercised by the respondent only after satisfaction that the directions are being issued in the interest of the investors and orderly development of the securities market, prima facie, the impugned order would make it clear that the action by the respondent has been consistent with the statutory powers. The contention of CSX that some of the RSEs would have to be closed down as per Justice Kania Committee Report cannot be held good since the recommendations of the Justice Kania Committee Report were accepted by SEBI, which, in turn, has issued a circular addressed to all the Stock Exchanges to submit their corporatisation and demutualization scheme. However, the recommendations of the Committee have not been transformed into an Act since the Bill introduced in the Lok Sabha could not be passed as the then Lok Sabha was dissolved. In respect of demutualization process, certain information were being awaited from CSX and this being the position, without completing the process, CSX is seeking to convert itself into a real ....
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....e expenditures in respect of the petitioner is unsustainable and only an arbitrary exercise of power. 10. According to Mr. Datar, the impugned order is a result of the intimation to the respondent that the petitioner, in view of the unviability of carrying on a Regional Stock Exchange has been recognized in two high powered Committee reports namely, the Report of the Group on Corporatisation and Demutualisation of Stock Exchanges headed by former Chief Justice M. H. Kania, 2002 (Kania Committee Report) and the Report of the Committee to study the future of the Regional Stock Exchanges, 2006 headed by Mr. Anantharaman (Anantharaman Committee Report). From the Anantharaman Committee Report, it can be seen that there is "zero" turnover in respect of CSX since 1999 which specifically observes that the respondent has not formulated clear guidelines for exist route for Stock Exchanges but which endorses the steps taken by CSX and particularly, the Committee has been headed by the very same person who has passed the impugned order. 11. Mr. Datar has further contended that CSX is a guarantee company under the Companies Act, 1956 and it has acted strictly in terms of the Companies Act, am....
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....ll recognized principle of law. Granting recognition is provided under section 4 of the SCRA and there is no provision against getting de-recognised under the Act and in fact, under rule 7 of the Rules, it is for the Stock Exchange to apply for renewal if it desires to do so. The recognition itself, under rule 6, unless it is granted on a permanent basis, is for a period of one year to be renewed from time to time and unless there is an express prohibition under a specific enactment, it cannot be read into a statute and prohibitions cannot be presumed. (c)By introduction of sections 4A, 4B and substitution of section 5 based on Justice Kania Committee's Report, all Stock Exchanges including RSEs like CSX were required to submit their scheme of Corporatisation and Demutualisation which CSX has done and consequent upon several discussions with the respondent's officials, submitted in final scheme in July, 2005 and the respondent, instead of passing orders on it has proceeded to pass the impugned order. The notified date for completing the process in terms of Press Note 9 of 2005 was 31-3-2006 and CSX not having been corporatised or demutualised by virtue of section 5(2), its recogni....
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....ious allegations of striping of assets cannot be made. It is CSX which is safeguarding the assets and in fact, one of the nominees of the respondent who was the Registrar of Companies is trying to strip the assets of CSX. (h)The impugned order can be passed only on the satisfaction of SEBI whereas in the case on hand, the order has been passed not by the Board but by a single member. Unlike the SEBI Act which permits under section 19 for the SEBI to delegate its powers and functions to any member, the SCRA, under section 29A, specifically permits delegation only in respect of the Central Government's powers to the SEBI and there is no further power of delegation provided for and therefore, it follows that (a) the SEBI, unlike under the SEBI Act, cannot delegate its power under SCRA to any member and (b) even the Central Government's powers can be delegated only to SEBI and SEBI cannot further delegate it and in nutshell, the power of delega-tion cannot therefore be read to permit a further delegation other than what is provided for under the Act. Further, the delegation power under SCRA is contained in notification dated 30-7-1996 and the same does not provide for delegation of po....
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....y upon the earlier show-cause notice issued on 22-11-2005 while conveniently failing to state that a reply to the same in great detail was sent as early as 6-12-2005 in respect of which no order was subsequently passed and instead, the respondent has passed the present order in violation of statutory powers and seeks to perpetuate its arbitrary exercise of powers. 15. Per contra, Mr. T. V. Gopalan, learned Additional Solicitor General of India, appearing for the respondent, during the course of his exhaustive arguments has argued that the writ petition has been filed against the show-cause notice dated 17-4-2006 in and by which for the reasons stated therein, certain interim directions had been made in order to prevent the affairs of CSX being conducted in the manner detrimental to the interests of the investors and also to secure proper management of the Stock Exchange. It is his case that there are two issues involved in the said show-cause notice, namely, (i) whether a writ petition can be entertained against the show-cause notice and (ii) whether pending adjudication of the show-cause notice, certain interim directions of the nature stated in the said show-cause notice be issu....
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....e nature of the functions of a Stock Exchange involving a great amount of public interest. It has been held that such Stock Exchanges also should be regarded as a "State" within the meaning of article 12 of the Constitution. Once the company had become a Stock Exchange, they could be superseded by an order made under SCRA by the SEBI under the powers delegated to it and there is no question of a Stock Exchange ceasing to do its business as such by unilateral withdrawal of their license. Despite the statutory inhibitions, they have deliberately adopted the course in the shape of resolutions of 2 EGMs the substance of such resolutions militating against the object and purpose of the two enactments and posing an affront to the statutory duties and functions of SEBI. In such a situation, the interim arrangement of the nature specified in the show-cause notice made by SEBI for the purpose of preserving the integrity of CSX cannot be taken exception to. 18. In support of his contention of the power to make such interim direction pending disposal of show-cause notice, the learned ASG has relied on two decisions of Division Bench of the Bombay High Court in the case of Ramrakh R. Bohra v.....
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....ointed out that under section 11(1), there is a generality of the functions and duties cast upon the SEBI i.e., to protect the interest of investors in securities and to promote the development of and to regulate the securities market, by such measures as it thinks fit. Under sub-section (2) of section 11, without prejudice to such generality of power, by section 11(2)(j), the powers delegated to SEBI under SCRA by the Central Government also becomes part and parcel of the duties and functions of the SEBI. In the said provision, the power under section 11 and section 29 of SCRA have been incorporated by reference and to this extent, they became part of SEBI and when once such a delegation had taken place, it becomes a statutory function and duty of the SEBI under section 11(2)(i) which could be validly delegated under the provisions of SEBI itself namely section 19 of the Chairman or any of its officers. Therefore, the delegation is statutorily authorized by the Parliament in the Act itself and as such, the complaint that a delegate cannot further delegate will not apply to the facts of the case. 21. In this connection, the learned ASG has relied on a decision of the Supreme Court....
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....ned by a whole time member under section 12A of SCRA read with sections 11, 11A and 19 of the SEBI Act, 1992. In the impugned order, it is stated as follows : "SEBI conducted an inspection of the Exchange during August 27-30, 2003 and on the basis of the findings indicating certain deficiencies and irregularities in the functioning of the Exchange, granted conditional renewal of recognition for a period of one year commencing on 18-9-2003 and ending on 17-9-2004 and the said conditions were as under:" 25. After discussing the various issues involved in the passing of the impugned order SEBI has issued directions in paragraphs 28 to 30 of the order which read as under : "28. I am of the considered view that, in view of the imminent urgency and in order to safeguard the integrity of the securities market, the previous notice to show cause can be dispensed with and it will be in the interest of justice to pass an ex parte interim order. As the irregularities that have taken place subsequent to the show-cause notice dated 22-11-2005 may also call for supersession of the Council of Management of CSX, the allegation mentioned herein may also be treated as a fresh show-cause notice in ....
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....the SEBI Act : "Functions of Board.-(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for- (a )regulating the business in stock exchanges and any other securities markets. (b)to (h)****** (i )calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organisations in the securities market; (j )performing such functions and exercising such powers under the provisions. . ." Section 11B of SEBI Act "Power to issue direct.-Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,- (i)in the interest of investors, or orderly development of securities market; or (ii)to prevent the affairs of any intermediary or other persons referred to in section 12 bei....
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.... recognised Stock Exchange, as may be appropriate in the interests of investors in securities and securities market." Section 29A of the SCRA "Power to delegate.-The Central Government, may, by order published in the Official Gazette, direct that the powers (except the power under section 30) exercisable by it under any provision of this Act, shall, in relation to such matters and subject to such conditions, if any, as may be specified in the order, be exercisable also by the Securities and Exchange Board of India or the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934)." 27. Having dealt with above provisions of SEBI Act and SCRA, let me now consider the various rulings of the Supreme Court and High Courts relied on by the learned counsel on either side. 28. On the side of the petitioners, reliance has been placed on the following decisions : (a) A four Judge Bench decision of the Supreme Court in the case of Hukam Chand Shyam Lal v. Union of India AIR 1976 SC 789 : "18. It is well-settled that where a power is required to be exercised by a certain authority in a certain way, it should be exercised in that manner or not at ....
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....f justice in India.' 18. We only intend to invoke the spirit of the principle behind the above dictum in support of our view that every Court or judicial body or authority, which has a duty to decide a lis between two parties, inherently possesses the power to dismiss a case in default. Where a case is called up for hearing and the party is not present, the Court or the judicial or quasi-judicial body is under no obligation to keep the matter pending before it or to pursue the matter on behalf of the complainant who had instituted the proceedings. That is not the function of the Court or, for that matter, of a judicial or quasi-judicial body. In the absence of the complainant, therefore, the Court will be well within its jurisdiction to dismiss the complaint for non-prosecution. So also, it would have the inherent power and jurisdiction to restore the complaint on good cause being shown for the non-appearance of the complainant." (p. 945) (d) Yet another decision of the Supreme Court in the case of H.L. Trehan v. Union of India AIR 1989 SC 568 : "12. It is, however, contended on behalf of CORIL that after the impugned circular was issued, an opportunity of hearing was given to t....
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....n taken, there is a tendency to uphold it and a representation may not yield any fruitful purpose. Thus, even if any hearing was given to the employees of CORIL after the issuance of the impugned circular, that would not be any compliance with the rules of natural justice or avoid the mischief of arbitrariness as contemplated by article 14 of the Constitution. The High Court, in our opinion, was perfectly justified in quashing the impugned circular." (p. 572) (e)The decision of a Constitution Bench of the Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 : "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to Court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J. in Commissioner of Policy v. Gordhandas Bhanji AIR 1952 SC 16 (p. 18) : 'Public orders publicly made, in exercise ....
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.... case. This is also the intention of section 68 as interpreted in the context of the several delegated powers. This is apparent from the fact that the order of the delegate amounts to an order by the Commissioner and is appealable as such. If it were not so the appeal to the Bombay City Civil Court would be incompetent and the order could not be assailed. The order of the delegate was the order of the Commissioner and the control envisaged both in section 68 and the order of delegation was not control over the decision as such but over the administrative aspects of cases and their disposal. No allegation has been made that the Commissioner intervened in the decision of the case or improperly influenced it. In these circumstances, the order impugned in the appeal cannot be sustained." (p. 1488) (g) one more ruling of the Supreme Court in the case of Sahni Silk Mills (P.) Ltd. v. Employees' State Insurance Corpn. [1994] 5 SCC 346 : "From section 94A, it does not appear that Parliament vested power in the Corporation to delegate its power on any officer or authority subordinate to the Corporation, and also vested power in the Corporation to empower such officer or authority, to auth....
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....[2006] 4 SCC 2781 : "25. The prayer for the issue of a writ of prohibition restraining the authorities under the Act from proceeding with the adjudication and the prosecution is essentially based on the constitutional challenge to the relevant provisions of the Act on the ground that they violative articles 14 and 21 of the Constitution. Once we have held, as the High Court did, that the provisions are constitutional, the basis on which the writ of prohibition is sought for by the appellants disappears. It is settled by the decisions of this Court that a writ of prohibition will issue to prevent a Tribunal or authority from proceeding further when the authority proceeds to act without or in excess of jurisdiction; proceeds to act in violation of the rules of natural justice; or proceeds to act under a law which is itself ultra vires or unconstitutional. Since the basis of the claim for the relief is found not to exist, the High Court rightly refused the prayer for the issue of a writ prohibition restraining the authorities from continuing the proceedings pursuant to the notices issued. As indicated by this Court in State of UP v. Brahm Datt Sharma AIR 1987 SC 943 when a show-cause....
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....ld be validly exercised by the Chairman of the Board by an order made in pursuance of a rule enacted by the Central Government under section 642(1) read with section 10E(5), that the exercise of the power does not violate any fundamental right of the company, that the opinion to be formed under section 237(b) is subjective and that if the grounds are disclosed by the Board the Court can examine them for considering whether they are relevant. In the case before us they appear to be relevant in the context of the matter mentioned in sub-clauses (i) to (iii) of section 237( b). Though the order could be successfully challenged if it were made mala fide, it has not been shown to have been so made. The attack on the order thus fails and the appeal is dismissed with costs. ****** 36. But the maxim 'delegatus non-potest delegare' must not be pushed too far. The maxim does not embody a rule of law. It indicates a rule of construction of a statute or other instrument conferring an authority. Prima facie, a discretion conferred by a statute on any authority is intended to be exercised by that authority and by no other. But the intention may be negatived by any contrary indications in the l....
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....rities, viz., the Registrar and the Government, provide powers which are different in extent and nature, exercisable in sets of circumstances and in a manner different from one another. Therefore, there is no question of discriminatory power having been vested in the Government under these sections to pick and choose between one company and the other. The challenge under article 14, therefore, must fail." (pp. 305-329) (d) A Division Bench judgment of the High Court of Bombay in the case of Anand Rathi v. SEBI [2001] 32 SCL 227 in which the order was made by A. P. Shah, J., on behalf of the Division Bench and the relevant portions are as under : "13. . . .It is only an interim measure to prevent further possible mischief of tampering with the security market. He submitted that SEBI has certainly a power to regulate the Stock Market and to intervene in volatile and serious situations where orders can always be passed as interim measures pending further investigation and enquiry. He submitted that section 11 casts a duty on the SEBI Board to protect the interest of the investors in securities to promote the development and regulate the securities market by such measures as it think....
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.... enough to issue post decisional notices providing for an opportunity. It may not even be necessary in some situations to issue such notices, but it would be sufficient but obligatory to consider any repress- entation that may be made by the aggrieved person and that would satisfy the requirements of procedural fairness and natural justice. . . It may and indeed it must vary from statute to statute, situation to situation and case to case. Again, it is necessary to say that pre-decisional natural justice is not usually contemplated when the decisions taken are of an interim nature pending investigation or enquiry. Ad interim orders may always be made ex parte and such orders may themselves provide for an opportunity to the aggrieved party to be heard at a later stage. Even if the interim orders do not make provision for such an opportunity, an aggrieved party has, nevertheless, always the right to make an appropriate representation seeking a review of the order and asking the authority to rescind or modify the order. The principles of natural justice would be satisfied if the aggrieved party is given an opportunity at his request. There is no violation of a principle of natural jus....
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....n no material. In our view, the submission of Dr. Singhvi based on article 19(1)(g) is equally untenable. The decision of Jammu and Kashmir High Court and Allahabad High Court have no application to the facts of the present case. What is laid down in these cases is that where the effect of a restrictive legislation is to totally prevent a citizen from carrying on trade, business or profession, such a restriction is unreasonable and void. In the instant case, the order impugned is of interim nature which is passed by SEBI in a pending enquiry. The question of any violation of Article 19(1)(g) does not arise." (e) Another Division Bench judgment of High Court of Bombay in the case of Ramrakh R. Bohra v. SEBI [1998] 18 SCL 543 and the relevant paras are as under : "8. . . .The same is an interim arrangement so as to protect the interests of the investors and the securities market. The said directions have been issued after a preliminary inquiry has been conducted by recording statements of various witnesses, including those of the petitioners. One of the report in respect of the inquiry has been furnished to the Board and investigation into the other is in progress. As far as the i....
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....wer which has been conferred by section 11B to issue direction are of a widest possible amplitude and are exercisable in the interests of investors and in order to prevent inter alia, a broker from conducting his business in a manner detrimental to the interests of the investors or the securities market. The said power to issue directions under section 11B must carry with it, by necessary implication, all powers and duties incidental and necessary to make the exercise of these powers fully effective including the power to pass interim orders in aid of the final orders. The provision of section 11B, it is to be noted, has been introduced by an amendment brought about in 1995 and the same seeks to confer additional power on the Board, by way of interim measures, pending inquiry, the same is intended for the protection of the interests of the investors and the securities markets." (pp. 555-561) 30. From a plain reading of the impugned order it is seen that there were two inspections conducted by SEBI, the first one during August 27-30, 2003 and the second one during July 19-21, 2004 and the final inspection report comprising 20 observations/suggestions allegedly not complied with by ....
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....he region at large. The recognition of CSX was last renewed for a period of one year ending on 17-9-2006, subject to the conditions (a) and ( b) stated supra. The renewal was also subject to the Exchange complying with the suggestions stated in the Report of the Inspection of the Exchange conducted by the SEBI during the period July 19-21, 2004 and communicated to the Exchange on 11-8-2004. Due to non-compliance of the observations/suggestions stated in the Inspection Report, SEBI found that there was serious financial implication, non-fulfilment of basic membership requirement, etc. which were detrimental to the smooth functioning of the Exchange. 33. Apart from the above, non-compliance by CSX also includes (a) non-submission of the revised Corporatisation and Demutualisation Scheme, (b) Depletion in the contribution for Infrastructure Development Fund, (c) non-submission of the report on allegations pertaining to sale of land & building, in spite of undertaking given to SEBI and (d) deadlock between Public Representative Directors/SEBI Nominee Director and the Elected Directors of the Exchange on the aforesaid issues which includes removal of Executive Director of the Exchange,....
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....r 31-3-2006. The respondent, after examining the issue, issued a letter dated 13-3-2006 to CSX informing that the SCRA provides for the scheme of grant of recognition and withdrawal of recognition and under the statutory mechanism provided in the SCRA, voluntary surrender of recognition as resolved in the abovementioned resolution is not provided and not permissible. A recognized Stock Exchange can cease to function as such if recognition granted to such Stock Exchange is withdrawn in accordance with the SCRA and therefore, it cannot cease to function as a recognized Stock Exchange pursuant to any resolution passed by its members in this regard. The status of CSX is exclusively governed by the provisions of the SCRA and therefore, the resolution passed in the EGM held on 15-2-2006 appears to be ultra vires the SCRA in view of the above, CSX was advised that the resolutions passed in the EGM held on 15-2-2006 cannot be acted upon by it. 37. It is also seen from the impugned order that SEBI was informed by the Registrar of Companies, Coimbatore who is also the SEBI Nominee Director on the Council of Management of CSX vide his letter dated 29-3-2006 that the members of CSX have resol....
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....bversive of regulatory discipline and SEBI is charged with the duty of securing proper management of the Stock Exchange and to prevent the affairs of such Exchange from being conducted in a manner detrimental to the interest of the investors in the securities market and it is bad that CSX has adopted a course of extreme defiance and confrontation, despite being reminded that its actions are illegal and ultra vires of SCRA. By disallowing the Public Representative Directors/SEBI Nominee Director from attending the Board Meetings of CSX, the elected Broker-Directors have attempted to seize full control of the administration and control over the movable and immovable properties of the Exchange with a view to frustrate the on-going proceedings. 40. As a Stock Exchange is a "State" within the meaning of article 12 of the Constitution of India, SCRA was enacted to prevent undesirable transac-tions in securities by regulating business or dealings therein and the Stock Exchanges are credible building blocks of the economy and fulfil a vital function in the economic development of the nation. The proper working of a Stock Exchange essentially depends not only on the calibre of the members ....
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....ate arrangement to serve collateral purposes which are not in public interest. 43. Considering the sensitivity of the securities market and the possible impact of such pernicious activities of the Member-Directors of CSX on the investors in general and the securities market in particular, it becomes imperative to take immediate action, pending the proceedings pursuant to the show-cause notice dated 22-11-2005 to ensure that the assets and properties of the Exchange are not brazenly usurped by a few, in a manner as would constitute a threat to the regulatory discipline and the integrity of the securities market. 44. The impugned order further highlights that unless a stringent preventive and remedial measure is taken immediately, there will be a grave jeopardy to the very functioning and management of the Exchange including control of its assets, which have been sedulously nurtured over a long period of time in the interest of the investing public and orderly development of the market and such an eventuality is fraught with the grave risk of the control being taken over by a few for their own benefit to the detriment of the larger public cause. SEBI, in exercise of its powers unde....
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....ordinarily that person must place his case before the authority concerned by showing cause and the Courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. In the instant case, it cannot be said that the notice has been issued palpably without the authority of law. Applying the principle laid down in the said judgment, there is no total lack of jurisdiction in the issuance of the said show-cause notice and even the facts canvassed one way or the other would only relate to the limits on the exercise of power which will not warrant any interference at the threshold. Therefore, in the given circumstances and in view of the power exercised by the respondent and on verification of the materials and records placed before this Court, the petitioner, instead of agitating the issues which are canvassed before this Court before SEBI, has approached this Court and filed the writ petition on hand invoking jurisdiction under article 226 of the Constitution, which in my opinion is premature and cannot be sustained. Even assuming that the writ petition can be sustained, there are also other points w....
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....had been illegally removed by the petition (petitioner) but in law continued as such Directors have been placed in charge of the CSX, pending adjudication of the show-cause notice. If exclusion of certain Directors from the management of the society could be called supersession, then, it is only CSX which had superseded the Stock Exchange by unilaterally removing the nominated Directors. Therefore, there is no substance in the contention that supersession had been made by a nominated member of SEBI without hearing CSX. 51. On the principle of delegatus non-potest delegare, delegation and further delegation are only matters of interpretation of the relevant provisions. In order to answer the issue whether such delegation has been authorized, one has to necessarily look into the relevant statutory provisions under section 11 of the SCRA. The power to supersede has been vested with the Central Government and such power to supersede could be validly delegated by the Central Government to the SEBI under section 29A of SCRA. Under section 11(1), there is a generality of the functions and duties cast upon the SEBI i.e., to protect the interest of investors in securities and to promote th....
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.... forestall any order of supersession which might be passed against CSX that CSX had chosen to pass such resolutions in the EGM and has filed the present writ petition to avoid further action pursuant to the impugned show-cause notice. Therefore, there is no bona fide in filing this writ petition. 54. It was further argued by Mr. Datar that the impugned order is a classical verbosity without any substance. It was pointed out that till the change in the Memorandum consequent to the EGM resolutions, when the petitioner ceased to operate as a Stock Exchange, the petitioner was being managed by its governing body which consisted of public representatives and SEBI nominees. Therefore, the ground for emergent situation could only have been after the said period and no grounds have been set forth in the order. According to him, the petitioner's only assets are its infrastructure or building and therefore, it is but natural that its object would include a real estate business and merely because an object is to carry real estate business, grave and serious allegations of stripping of assets cannot be made and it is a mere ipse dixit of the respondent and it is the petitioner which is safegu....