AI Drafter 
TaxTMI 
TaxTMI 
2021 (7) TMI 986
X X X X Extracts X X X X
X X X X Extracts X X X X
....e disposal of the appeal are as follows; 2. Appellant is a fellow member of the Institute of Chartered Accountants of India and he has been appointed as a debenture trustee from 5.1.2007 in respect of certain private placement of non-convertible debenture (NCD) issued by BRD Securities Limited, apparently a company incorporated under the Companies Act, 1956 - the 4th respondent. The 4th respondent is a non-banking financial company (NBFC), regulated by the Reserve Bank of India (RBI). Exhibit P3 show cause notice was issued by SEBI on the appellant for acting as debenture trustee in respect of amounts collected from 2007 to 2013. The case of the appellant is that the said show cause notice has been issued on the erroneous presumption that the amounts have been collected through public issue of non-convertible debenture, however, the amounts have been collected through private placements. Therefore, according to the appellant, the matters concerning private placement of such debentures are regulated by the RBI through its instructions since SEBI had not issued any instructions under section 67 (3A) of the Companies Act, 1956, hereinafter called, 'Act, 1956'. That apart it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns 117B or 67(3A) of the Act, 1956; that section 117B(1) mandates the appointment of debenture trustee, which includes an individual, where the company intends to issue a prospectus or a letter of offer to the public as opposed to private placement which does not require issue of a prospectus. Therefore, it is contended that section 117B has to be interpreted in conjunction with SEBI (Issue and vesting of Debt Securities) Regulations, 2008, wherein the terms 'private placement' and 'public issue' have been defined under regulations 2(1)(h) and 2(1)(i), however, regulation (3) provides that the said regulation extends only to public issue. 6. That apart a predominant contention is raised that the Deputy General Manager of SEBI has invented the phrase, "Deemed Public Issue" in order to bring it under the category of public issue and therefore, according to the appellant, the issues raised in the show cause notice cannot be sustained under law and the learned single Judge ought to have exercised the discretionary power conferred under Article 226 of the Constitution of India and quashed the proceedings. In fact various other contentions are also raised in the writ a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt bonds is concerned, it is the bounden duty of SEBI to protect the interest of investors in securities. It was also found that as long as the non-banking financial companies are not specifically excluded from the purview of SEBI Act, 1992, the Board will have jurisdiction over the securities transaction of the non-banking financial company including the debenture trustees. The contentions so raised are stoutly opposed by learned senior counsel appeared for SEBI. 8. We have heard Sri. Sukumar Ninan Oommen for the appellant, Sri P. Vijayakumar ASGI for the Union of India and learned Senior Counsel Sri.Raju Joseph, assisted by Adv. K.M. Jamaludheen for the SEBI and perused the pleadings and materials on record. 9. The basic issue raised by the learned Counsel for the appellant revolves around the provisions of the SEBI Act, 1992, the Regulations thereto, the Reserve Bank of India Act, 1934, the Companies Act, 1956 and the Companies Act, 2013. The SEBI Act, 1992 is an Act introduced to provide for the establishment of a Board to protect the interest of the investors in securities and to promote the development of, and to regulate the securities market and for matters connected ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x x x x x x x x x x x x x (i) calling for information from, undertaking inspection, conducting inquiries and audits of the 4[stock exchanges, mutual funds, other persons associated with the securities market] intermediaries and self-regulatory organisations in the securities market; 5[(ia) calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board;]" 11. Therefore, on a reading of the said provisions it is clear that the specific powers constituted under section 11(2) is without causing any manner of prejudice to the general powers conferred under section 11(1). That apart section 11(4) provides that 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 interests of investors or securities market, take any of the measures delineated thereunder, either pending investigation or inquiry or on completion of such investigation or inquiry viz., direct a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Reserve Bank of India Act, 1934. Chapter III B of the Act deals with non-banking institutions receiving deposits and financial institutions. Section 45-H specifies that the provisions of Chapter III shall not apply to the State Bank or a banking company as defined in section 5 of the Banking Regulation Act, 1949 or a corresponding new bank as defined in clause (da) of section 5 of the Act or a subsidiary bank as defined in State Bank of India (Subsidiary Banks) Act, 1959 or a Regional Rural Bank or a Co-operative Bank or a Primary Agricultural Credit Society or a Primary Credit Society. Section 45-I(bb) defines deposit which includes and shall be deemed always to have include any receipt of money by way of deposit or loan or any other form but does not include certain amounts raised by way of share capital etc. Section 45-I(a) defines "business of a non-banking financial institution" to mean, carrying on the business of a financial institution referred to in clause (c) of section 45-I and includes business of a non-banking financial company referred to in clause (f) of section 45-I. Clause (c) defines "financial institutions" to mean, any non-banking institution which carrie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mean that the provisions of the said Act is in derogation of the powers conferred on SEBI under the SEBI Act, 1992. 16. On a comparison of the objects and reasons of both the statutes, it is clear that both operates on different fields. To put it otherwise when the SEBI Act, 1992 deals with enabling provisions to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto, the Reserve Bank Act, 1934 regulates the issue of Bank Notes, currency, credit system etc. of the country. Which thus means merely because for the violation of the Act, 1934 the authority thereunder is enabled with powers to impose fine for violation of the provisions of the said Act, that will not in any way interfere with the powers enjoyed by SEBI to protect the interests of the investors in securities market and the matters connected therewith or incidental thereto. 17. Learned counsel for appellant could not bring to our notice any provision under the Act, 1934 though it has undergone amendment successively upto 2014 and even subsequently to our knowledge, prohibiting the SEBI to car....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion and deliberations made above would make it clear that such an eventuality is not existing in the case at hand. In Carona Limited supra the Apex Court was considering an issue in respect of a jurisdictional aspect vis-a-vis exemption from the operation of a Rent Act, wherein the Apex Court has drawn a distinction by and between a "jurisdictional fact and adjudicatory fact" and it was held that if it is an adjudicatory fact which is a fact in issue, it can be determined by a court, or authority on merits. The relevant portion of the said judgment is extracted hereunder: 29. But there is a distinction between "jurisdictional fact" and "adjudicatory fact" which cannot be ignored. An "adjudicatory fact" is a "fact in issue" and can be determined by a court, tribunal or authority on "merits", on the basis of evidence adduced by the parties. It is no doubt true that it is very difficult to distinguish "jurisdictional fact" and "fact in issue" or "adjudicatory fact". Nonetheless the difference between the two cannot be overlooked. 30. In Halsbury's Laws of England (4th Edn.), Vol. 1, Para 55, p. 61; Reissue, Vol. 1(1), Para 68, pp. 114-15, it is stated: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot vested in it, the High Court could interfere with the order. The Court stated (at AIR p. 498, para 21) that "once it had the power it could determine whether the question of the date of construction was rightly or wrongly decided". (See also Arun Kumar v. Union of India [(2007) 1 SCC 732]. 34. But, in Roshan Lal Mehra v. Ishwar Dass [AIR 1962 SC 646 : (1962) 2 SCR 947] this Court held that the Rent Controller had jurisdiction to fix standard rent for new construction made after 24-3-1947. The question was as to when the construction was made. The Rent Controller recorded a finding of fact that the construction was put up after 24-3-1947. The finding was confirmed by the District Judge. But the High Court interfered in revision. 35. Setting aside the decision of the High Court, this Court stated: (Roshan Lal Mehra case [AIR 1962 SC 646 : (1962) 2 SCR 947] , AIR p. 659, para 17) "17. ... It is clear from the orders of the Rent Controller and of the District Judge in appeal that the question whether the second floor was newly constructed or not was really a question of fact, though undoubtedly a jurisdictional fact on which depended the power of the Rent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he issues raised in regard to the power of the Deputy General Manager of SEBI, the question of limitation etc. are all aspects to be considered by the statutory authority in terms of the provisions of Act, 1992 and the regulations thereto discussed above. That said, the issues raised by the appellant in respect of the power of the authority under the Companies Act, 1956 vis-a-vis the Companies Act, 2013 are all matters, which can be raised before the statutory authority. This we say because, from the show cause notice it is clear that the violations are relating to the years 2007-2013 during which period the Companies Act,1956 was in force. 20. Yet another point raised by learned counsel for the appellant is that the learned single Judge has entered into certain definite findings in respect of the role of the debenture trustee which may stand in the way of contesting the proceedings on the basis of Exhibit P3 show cause notice. There, we are of the view that it may be a finding rendered in view of the questions raised by the appellant and it will not have any bearing while contesting the proceedings in Exhibit P3 show cause notice. This we say because while dismissing the writ p....