TaxTMI 
TaxTMI 
2023 (3) TMI 1334
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....d Ms. Sukanya Joshi, Advocates for Respondent No. 6 Mr. Anurag Ahluwalia, CGSC for respondent No.7 Mr. Mahfooz A. Nazki and Ms. Rajeswari Mukherjee, Advocates for Respondent No. 9 JUDGMENT PURUSHAINDRA KUMAR KAURAV, J. (ORAL) 1. The present petitions have been filed under Article 226 of the Constitution of India on behalf of the petitioners seeking the following reliefs:- "(a) issue writ of mandamus or any other writ, order or direction for preventing all Respondents from disposing off the Property in the shape of Securities and restoring the same to the Petitioners and other small investors; (b) issue writ of mandamus or any other writ, order or direction for constituting the Committee with its mandate as suggested in Paras 24 and 21 of the present writ petitions respectively and may kindly monitor the functioning of the Committee and the Special Investigation Team as suggested in Paras 24 & 21 as above; (c) the cost of the present writ petition may kindly be also awarded in favour of the Petitioners and against the Respondents; (d) pass any other or further order(s) as this Hon'ble Court deems and proper under the facts and circumstanc....
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....nt No. 3-NSE that under the applicable Bye-Laws, on receipt of the complaint, the NSE is to examine the same and if need arises, NSE has to declare the concerned stock broker as a defaulter. It is further submitted that if the concerned stock broker is declared as a defaulter, the NSE can further take a decision to expel and then to constitute a defaulter committee. It is, therefore, submitted that in the present cases after respondent No. 9-Karvy was declared as a defaulter, the NSE expelled it to undertake any business with respect to securities etc. and defaulter committee was also constituted. He, therefore, submits that the claim of the investors was considered by the defaulter committee and, if at all any of the investors has any grievance, the remedy would lie under Section 23L of the Securities Contract Regulation Act, 1956. 9. In rejoinder submission, learned counsel appearing on behalf of the petitioners submits that the decision so taken with respect to declaration of respondent No. 9-Karvy as a defaulter or to expel it, is with respect to investor protection fund and certain amount came to be refunded. However, the point which has been raised in the instant petition ....
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....he defaulter's committee for approval. 13. The Circular No. 4/2020 further provides for the investors to file a review against an order within a period of 90 days, furthermore, the investors also have a statutory remedy before Securities Appellate Tribunal (hereinafter referred to as 'SAT') against orders passed by NSE under Section 23L. 14. The counter affidavit filed by respondent No. 3-NSE would further indicate that the respondent No.9-Karvy was registered with NSE as a trading member in the Capital Market segment in May, 1995 and for Futures and Options segment in October, 2001 and Currency Derivatives segment in August 2008. In around January, 2017, the respondent No.3-NSE noticed certain discrepancies in the management of Securities by respondent No.9-Karvy and certain information was sought. On verification, the respondent No.3-NSE noted that there were 23,109 mismatches and respondent No. 9-Karvy could only provide clarification with respect to 14,876 mismatches. The respondent No.9-Karvy however, failed to provide details/clarifications for remaining 8,233 mismatches. The stand taken by respondent No. 3-NSE in its counter affidavit from paragraph Nos. 20 to 34 would....
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.... iii. 75 unreported depository participant accounts iv. Non-availability of client securities of around Rs. 415 crores as on 31 July 2019 and Rs. 271 crores on 22 August 2019. 23. After an inspection of Karvy's books and records, NSE coordinated with SEBI, the Bombay Stock Exchange, National Securities Depository Limited and other market infrastructure institutions to appoint a forensic auditor and conduct a joint inspection of Karvy's activities. Thereafter, on 22 September 2019, NSE sent a joint inspection report to SEBI with the following observations: i. Misuse of funds raised by pledging client securities to the tune of Rs. 728 crores. ii. Non-availability of client securities to the tune of Rs. 80 crores as on 08 September 2019. iii. Transfer of securities over and above the balance available with Karvy. iv. Non-availability of client funds to the tune of Rs. 161 crores as on 11 September 2019. 24. NSE also raised the issue before the Defaulter's Committee. In its meeting on 06 November 2019, the Defaulter's Committee advised NSE to monitor the situation closely and take synchronized action....
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....confirm its ex-parte ad interim order dated 22 November 2019, by which order SEBI had inter alia prohibited Karvy from taking new clients in respect of its stockbroking activities. Pertinently, the aforesaid order also directed that Karvy shall not alienate any of its assets without prior permission of the Answering Respondent until the settlement of all investor claims, unless directed to do so by any court or tribunal. Pertinently, the Whole Time Member also directed the stock exchanges and depositories (Respondents 3-6 herein) to initiate appropriate action against Karvy and its directions for violations of their respective byelaws. NSE was also directed to invite and deal with the claims of Karvy's clients, in accordance with its byelaws. The relevant portion of SEBI's aforesaid order is extracted below for convenient reading (with emphasis supplied): "... 31. Transfer of funds/securities made by KSBL to its clients subsequent to SEBI order dated November 22, 2019, would not absolve KSBL or its directors from violations of the provisions of the securities laws, as have been found in the forensic audit report received in the matter. It is clarified that confirma....
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....f about Rs. 341.18 crores for compensation from the IPF. 34. In view of the same, the Petitioners' contentions regarding the lack of action by NSE and their averments regarding the alleged need for the constitution of a special committee are entirely false and contrary to the record." 15. The respondent No.3-NSE also explains the steps taken by it with respect to the claim of the petitioners on merit. With respect to each of the petitioners, in the instant writ petitions, orders have been passed by NSE and the copies of those orders have been placed on record. Paragraph Nos. 35 to 41 are also reproduced as under:- "III. Petitioners ' claims on merits 35. As aforesaid, in the guise of a public interest litigation, the Petitioners have sought to challenge the Answering Respondent's rejection of their claims for compensation out of the IPF. While it is the NSE's case that the captioned Petition ought to be dismissed on the ground of maintainability, without prejudice to its other contentions, the Answering Respondent denies the Petitioners' averments regarding each of the claims as false and misconceived. 36. It is humbly stat....
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....o. 2 by way of a review application. By its said letter dated 30 March 2021, NSE's Defaulter's Committee upheld its original decision. Pertinently, by the aforesaid letter dated 30 March 2021, NSE informed the Petitioner that its claim may be payable based on the outcome of the proceedings before the Hon'ble SAT and in accordance with its directions. A true copy of the NSE's aforesaid letter to Petitioner No. 2 dated 30 March 2021 is annexed herewith and marked as Annexure R-4. Claim by Petitioner 3 40. Petitioner 3's claim before the Defaulter's Committee dated 03 December 2020 was for an amount of Rs. 63,13,603.25/- (Rupees Sixty-Three Lakhs Thirteen Thousand Six Hundred and Three and Twenty-Five Paise Only) towards the alleged value of 200 shares of Ashok Leyland Ltd. worth Rs. 18,670/-, 1024 shares of Reliance Industries Ltd. and 2250 shares of L&T worth Rs. 45,12,178.50/-, 100 shares worth Rs. 39,030/- of Minda Industries Ltd. as well as 630 shares of Torrent Pharmaceuticals Ltd. and 85 shares of United Spirits Ltd. worth Rs. 17,43,724.75. The aforesaid claim made by Petitioner No.3 was also held to be inadmissible for payment out of t....
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....ye-Laws. The cases of the individual investors including the petitioners have also been taken into consideration and appropriate orders have been passed therein. 18. So far as the argument made by learned counsel for the petitioners on the basis of the decision of the Hon'ble Supreme Court in the case of Vishal Tiwari (supra) and Indian Bank (supra) is concerned, it being that notwithstanding the steps being taken by respondent No.3-NSE with respect to individual investors, this court must consider the aspect of there being a larger conspiracy and form a committee of independent experts to take these matters to their logical end, the same does not have any substance and deserves to be rejected. 19. So far as the case relied upon learned counsel for the petitioners in the case of Indian Bank (supra) is concerned, the same relates to the investment made in a Co-operative Bank registered under the Cooperative Societies Act, 1912. Various directions were issued by the High Court in exercise of power under Article 226 of the Constitution of India and finally while considering the facts and situation involved therein, the Hon'ble Supreme Court, no doubt, has held that a writ petiti....