TaxTMI 
TaxTMI 
2010 (10) TMI 90
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.... of India as leading writ petition with the consent of all the learned counsel for the parties. 3. The aforesaid writ petition has been filed with the following prayers :- "(i )The section 11(4) and section 11B of the Securities & Exchange Board of India Act, 1992 (for short 'the SEBI Act') be declared invalid and ultra vires to the Constitution of India. (ii )The impugned order dated 8-3-2010 passed by the respondent No. 2 being illegal and arbitrary be quashed and set aside. (iii)This Hon'ble Court may be pleased to issue a writ of certiorari or in the nature of certiorari or any other appropriate writ, order or direction calling for the records and papers pertaining to the impugned order and investigation of the respondent No. 2 in the matter of Bank of Rajasthan. (iv)Any other appropriate writ, order or direction which may be considered just and proper in the facts and circumstances of the case may kindly also be issued in favour of the petitioner." 4. Perusal of aforesaid reveals that while challenging the order dated 8-3-2010 passed by the respondent No. 2 - Securities and Exchange Board of India (for short 'the SEBI'), the constitutional validity of section....
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....sing of the impugned order. The impugned order mainly discloses allegations regarding incorrect disclosures to Stock Exchange for promoter shareholding. It is by presuming that shareholding by Yadav Group and Silvassa Group represents violation of takeover regulations. The petitioners were accordingly restrained from accessing security market and prohibited from buying, selling and dealing in securities. 7. Learned counsel appearing on behalf of the petitioners, at the first instance, submitted that sections 11(4) and 11B of the SEBI Act are unconstitutional. The provisions aforesaid are hit by Articles 14 and 19 of the Constitution of India. It imposes penalties in the garb of remedial measures, that too, without providing procedural safeguards. The Board has been empowered to pass punitive order without following the principles of natural justice. The petitioners have been restrained from accessing security market and prohibited from buying, selling and dealing in securities though, as per the fundamental rights guaranteed under Article 19(1)(g) of the Constitution of India, the petitioners are entitled to carry on any occupation, trade and business. To substantiate the argu- ....
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....preliminary objections. It is submitted that the impugned order was passed by the SEBI at Mumbai. The petitioners are also residing at Mumbai, hence, no cause of action arose within the territorial jurisdiction of this Court. The retrain order was even conveyed to the petitioners outside territory of the State of Rajasthan. Reference of the following judgments have been made to substantiate the arguments: (i) Eastern Coalfields Ltd. v. Kalyan Banerjee [2008] 142 Comp. Cas. 731 (SC); (ii) Kusum Ingots & Alloys Ltd. v. Union of India [2004] 120 Comp. Cas. 672 (SC); (iii) Alchemist Ltd. v. State Bank of Sikkim [2007] 11 SCC 335^2 and (iv) National Textile Corpn. Ltd. v. Haribox Swalram AIR 2004 SC 1998. 11. Other preliminary objection is regarding availability of efficacious alternative remedy. Referring to the provisions of section 15T of the SEBI Act, it is urged that any order passed by the Board can be challenged by maintaining an appeal to the Securities Appellate Tribunal. Further appeal lies before the Hon'ble Supreme Court. The petitioners without invoking the jurisdiction of the Securities Appellate Tribunal, directly approached this Court though grounds raised for challen....
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....ice was made. Therein, it was not held to be unconstitutional. A reference of the judgment in the case of Union of India v. Tulsiram Patel [1985] 3 SCC 398 has been given apart from the judgment in the case of Ajit Kumar Nag v. General Manager (PJ), Indian Oil Corpn. Ltd. [2005] 7 SCC 764. A further reference of the judgment in the case of Swadeshi Cotton Mills v. Union of India [1981] 1 SCC 664 has been given to substantiate the argument aforesaid. 15. Coming to the facts of this case, it is submitted that if the impugned order is looked into, it comes out to be interim in nature and therein petitioners have been called to submit their objections within a period of 21 days. This is to provide an opportunity of hearing. The impugned order has been passed only as an interim measure to protect interest of investors. Few petitioners herein failed to raise their objections before the Board within the stipulated period and straightaway approached this Court. second proviso to section 11(4) of the SEBI Act does not eliminate principles of natural justice, rather it provides for an opportunity of hearing to the intermediaries or persons concerned. In the light of aforesaid fact, a case....
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.... have also adopted arguments of learned counsel for respondent No. 2-SEBI. 19. We have heard learned counsel appearing on behalf of the parties and scanned the matter carefully. 20. Since constitutional validity of sections 11(4) and 11B of the SEBI Act is under challenge, we are dealing the aforesaid issue first. It is mainly on the ground that it is hit by Articles 14 and 19(1)(g) of the Constitution of India. Aforesaid provisions do not provide an opportunity of hearing, thus, are violative of Article 14 of the Constitution of India and it otherwise puts restriction on trade and business by the person, thus, are hit by Article 19(1)(g) of the Constitution of India. This is more so when orders are punitive in nature and not the remedial. 21. The first issue is as to whether provisions of sections 11(4) and 11B of the SEBI Act are hit by Article 14 of the Constitution of India. We are reproducing aforesaid provisions for ready reference:- "11. Functions of Board.- (1) to (3)****** (4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the inter....
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....t 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 being conducted in a manner detrimental to the interests of investors or securities market; or (iii)to secure the proper management of any such intermediary or person, it may issue such direction - (a )to any person or class of persons referred to in section 12, or associated with the securities market; or (b )to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market." 22. Perusal of the provisions of sections 11(4) and 11B shows that the Board is given powers to take few measures either pending investigation or enquiry or on its completion. The Second Proviso to section 11, however, makes it clear that either before or after passing of the orders, intermediaries or persons concerned would be given opportunity of hearing. In the light of aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice. Even if, the facts of this case are looked in....
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....unal which has to decide particular matter and rules by which such Tribunal is governed. There is no difference in this respect between the law in England and in India. It is unnecessary to refer to various English decisions which have held so. It will suffice to reproduce what Ormond, L.J., said in Norwest Hoist Ltd. v. Secretary of State for Trade and others L.R. [1978] 1 Ch. 201 (at page 227) : 'The House of Lords and this Court have repeatedly emphasised that the ordinary principles of natural justice must be kept flexible and must be adapted to the circumstances prevailing in any particular case. One of the most important of these circumstances, as has been said throughout the argument, is, of course, the provisions of the statute in question: in this case sections 164 and 165 of the Companies Act, 1956.' (98) In India, in Suresh Koshy George v. The University of Kerala this Court observed (at page 322) : 'The question whether the requirements of natural justice have been met by the procedure adopted in a given case must depend to a great extent on the facts and circumstances of the case in point, the constitution of the Tribunal and the rules under which it functions....
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.... of natural justice having been expressly excluded by a Constitutional provision, namely, the second proviso to clause (2) of article 311, there is no scope for reintroducing it by a side-door to provide once again the same inquiry which the Constitutional provision has expressly prohibited. Where a clause of the second proviso is applied on an extraneous ground or a ground having no relation to the situation envisaged in that clause, the action in so applying it would be mala fide, and, therefore, void. In such a case the invalidating factor may be referable to Article 14. This is, however, the only scope which Article 14 can have in relation to the second proviso, but to hold that once the second proviso is properly applied and clause (2) of Article 311 excluded, Article 14 will step in to take the place of clause (2) would be to nullify the effect of the opening words of the second proviso and thus frustrate the intention of the makers of the Constitution. The second proviso is based on public policy and is in public interest and for public good and the Constitution - makers who inserted it in Article 311(2) were the best persons to decide whether such an exclusionary provision ....
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....rticle 14. The Court, however, held that the principles of natural justice had no application when the authority was of the opinion that it would be inexpedient to hold an enquiry and it would be against the interest of security of the Corporation to continue in employment the offender workman when serious acts were likely to affect the foundation of the institution. The Court also noted that a similar provision was held valid and intra vires by this Court in Mathura Refinery Mazdoor Sangh v. Deputy Chief Labour Commissioner & Others. 37. It is well settled that a provision which is otherwise legal, valid and intra vires cannot be declared unconstitutional or ultra vires merely on the ground that there is possibility of abuse or misuse of such power. If the provision is legal and valid, it will remain in the statute book. Conversely if the provision is arbitrary, ultra vires or unconstitutional, it has to be declared as such notwithstanding the laudable object underlying. 44. We are aware of the normal rule that a person must have a fair trial and a fair appeal and he cannot be asked to be satisfied with an unfair trial and a fair appeal. We are also conscious of the general ....
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....ted that statutory provisions are to be assumed to be constitutional, that constitutionality is to be considered only where absolutely necessary, that a statute cannot be struck down unless notice has been given to the Attorney General in the case of a Central statute, as here, or the Advocate General in the case of a State statute. According to learned counsel for the husband-appellant, the contention that section 125(2) was unconstitutional had not even been raised in the pleadings. There is no doubt that the judgment must be set aside insofar as it holds that section 125(2) is unconstitutional." 27. The question now comes as to whether aforesaid provisions are hit by Article 19(1)(g) of the Constitution of India. According to learned counsel for petitioners, provisions of sections 11(4) and 11B of the SEBI Act do not impose reasonable restriction to fall within Clause (6) of Article 19(1)(g) of the Constitution of India. We have considered aforesaid argument also. Before appreciating the argument of the petitioners, it is necessary to refer the objects for which the SEBI Act was enacted. It provides establishment of Board to protect interest of the investors in securities and....
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....rs. It is a well-known canon of construction that when the court is called upon to interpret provisions of a social welfare legislation the paramount duty of the court is to adopt such an interpretation as to further the purpose of law and if possible eschew the one which frustrates it. Keeping this principle in mind if we analyse some of the provisions of the Act it appears that the Board has been established under section 3 as a body corporate and the powers and functions of the Board have been clearly stated in Chapter IV and under section 11 of the said Act. (35) A perusal of section 11, sub-section (2)( a) the said Act makes it clear that the primary function of the Board is to regulate the business in stock exchanges and any other securities markets and in order to do so it has been entrusted with various powers. Section 11 had to be amended on several occasions to keep pace with the "felt necessities of time". One such amendment was made in sub-section (4) of section 11 of the said Act, which gives the Board the power to restrain persons from accessing the securities market and to prohibit such persons from being associated with securities market to buy and sell or deal i....