TaxTMI 
TaxTMI 
2023 (10) TMI 1173
X X X X Extracts X X X X
X X X X Extracts X X X X
....447/2023 : Mr. Ashish Kamat, Senior Advocate with Mr. Ameya Gokhale, Mr. Vaibhav Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul Amarchand Mangaldas & Co., For the Respondent No. 7 & 8 in WP/530/2023 : Mr. Rahul Narichania, Sr. Adv. a/w Mr. Ameya Gokhale, Mr. Vaibhav Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul Amarchand Mangaldas & Co., For the Respondent No. 9 in WP/530/2023 : Mr. Janak Dwarkadas, Sr. Adv. a/w Mr. Ameya Gokhale, Mr. Vaibhav Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul Amarchand Mangaldas & Co., For the Respondent No. 7, 8 & 9 in WP/447/2023 : Mr. Ameya Gokhale, Mr. Vaibhav Singh, Ms. Radhika Indapurkar and Mr. Manas Kotak i/b Shardul Amarchand Mangaldas & Co., ORAL ORDER (PER G.S. KULKARNI, J.).: 1. We had commenced the hearing of the present proceedings to be disposed of at the admission stage. 2. The petitioners in both these writ petitions are minority shareholders of respondent No. 2 - Bharat Nidhi Ltd. (for short 'BNL'). They had complained to the SEBI of violation by BNL of various provisions of the Securities laws, including violations pertaining to the minimum public sharing norms (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever have been settled, were sought to be settled by the BNL. Such settlement is impugned in the present proceedings, namely the Settlement order dated 12 September 2022 passed under the 2018 Regulations. 5. In so far as the issue relevant to the present order is concerned, as noted above, the same is in regard to the contention of the petitioners in relation to the documents which need to be made available to the petitioners, and being subject matter of prayer clause (g) of both the petitions. 6. Such relief as sought for by the petitioners in their capacity as shareholders is by prayers which are for interim reliefs to the effect that the SEBI be directed to produce copies of the Investigation Report, Show Cause Notices, minutes of meetings of the IC Committee, HPAC and Panel of WTMs, order/communication/ noting by which the settlement application filed by Respondent Nos. 2 to 9 was approved by the SEBI and all other documents relevant to the proceedings in connection with the impugned Settlement Order. 7. In support of such contention, we may refer to the petitioners' case as set out in paragraphs 41, 42, 43, 48 and 52 of Writ Petition No. 530 of 2023, and in the contex....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Prohibition of Fraudulent an Unfair Trade Practices relating to the Securities Market) Regulations, 2003 ("PFUTP Regulations"). iii. SEBI prima facie observed the following violations in respect of Respondent Nos. 2 to 9: 8) Regulation 30(2) of the SAST Regulations and Regulation 7(1)(a) of the PIT Regulations in terms of which promoters of a company are required to disclose their shareholding as on date of becoming a Promoter; b) Clause 2(II) of SEBI Circular dated December 16, 2010 r/ w SEBI Circular dated November 30, 2015 which Prescribes the manner of achieving minimum public shareholding: c) Section 12A (a) and (b) of the SEBI Act r/w Regulation 3(b), (c) and 4(1) of the PFUTP Regulations. 42. Thus, admittedly, and as recorded in the Impugned Settlement Order, SEBI observed prima facie violations of (i) MPS Norms and (ii) Disclosure Requirements in respect of promoter shareholding of BNL against Respondent Nos. 2 to 9. 43. Bearing in mind the specific violations that have been purportedly settled vide the Impugned Settlement Order, the scheme of the Settlement Regulations has been set out below. A copy of the Settlement Regulatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioner in WP/447/2023 in regard to the interim prayers as made in the petition which, according to him, would have a material bearing on the issues as falling for adjudication in the present proceedings. The submission is in relations to the documents as set out in prayer clause (g) of the petition not being supplied by the SEBI. 2. On such issue, the private respondents have taken a stand of confidentiality under Regulation 29 of the Securities and Exchange Board of India (Settlement Proceedings) Regulation, 2018. On such issue we have heard Mr. Dwarkadas, learned Counsel appearing for Respondent No. 9 in WP/530/2023, Mr. Dhond, learned Senior Counsel appearing for Respondent No. 2 in WP/530/2023, Mr. Narichania, learned Senior Counsel appearing for Respondent No. 7 & 8 in WP/530/2023 and Mr. Kamat, learned Senior Counsel appearing for Respondent No. 2 in WP/447/2023, on the objection to such prayer as made by the petitioners. They have concluded their submissions on this issue. We would now hear Mr. Seervai, learned Senior Counsel appearing for the petitioner in WP/530/2023 and Mr. Gaurav Joshi, learned Senior Counsel appearing for Petitioner in WP/ 447/2023 in respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een settled and which were sought to be settled by the impugned settlement order, which according to the petitioner was manifestly illegal on several counts. 12. The petitioners submit that considering the nature of the allegations and the violations, such settlement could not have been brought about by BNL. The petitioners thus submit that for such reason, it was not only relevant, but of immense significance, that SEBI in its public character ought to have, at the outset, provided and/or made available the documents as demanded by the petitioners and subject matter of its prayers. 13. It is submitted that the petitioners challenge is to the decision making process leading to the impugned settlement order. It is for the very reason a prayer for a writ of certiorari has been made. It is submitted that it is a settled principle of law that documents cannot be withheld and/or not furnished to the petitioners, on the basic premise that there is no privilege claimed in a manner known to law so as to not produce / furnish the documents. It is submitted that in any event, once the SEBI has agreed to produce the documents before the Court, then there is no question of the documents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion itself. (iv) It is submitted that the issue before the Court for adjudication in the present proceedings is a legal issue namely whether the show cause notice could have been settled, which is required to be tested only on the provisions of law / rules as applicable. Hence, if the documents in relation to the settlement are provided, the whole purpose of settlement itself would be lost and it would create a chaotic situation. The sanctity of the settlement order would be lost. It is for such reason, Regulation 29 prohibits providing of any information / documents in regard to the proceedings of settlement. (v) The case of the petitioners is purely a case on the MPS norms and the disclosure requirement in respect of of the promoters shareholding of the BNL and hence, there is no requirement for any information as contained in the documents to be supplied to the petitioners. 15. The above rival contentions fall for our consideration on the question as to whether the interim prayers as made by the petitioners for furnishing of the documents can be granted. 16. At the outset, we may observe that Mr. J. J. Bhatt, learned Counsel for the SEBI in his usual fair....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... probable contravention of any provision of the securities laws; (e) "securities laws" means the Act, the Securities Contract (Regulations) Act, 1956 (42 of 1956), the Depositories Act, 1996 (22 of 1996), the relevant provisions of any other law to the extent it is administered by the Board and the relevant rules and regulations made thereunder; (f) "specified proceedings" means the proceedings that may be initiated by the Board or have been initiated and are pending before the Board or any other forum, for the violation of securities laws, under Section 11, Section 11B, Section 11D, sub-Section (3) of Section 12 or Section 15-I of the Act or Section 12A or Section 23-I of the Securities Contracts (Regulation)Act, 1956 or Section 19 or Section 19H of the Depositories Act, 1996, as the case may be." 19. The provisions governing an 'application for settlement; are contained in Regulation 3 of the 2018 Regulations which reads thus:- "CHAPTER II APPLICATION FOR SETTLEMENT Application. 3. (1) A person against whom any specified proceedings have been initiated and are pending or may be initiated, may make an application to the Board in the For....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... bind the firm or association, the body corporate and any officer who is in default. Explanation. - For the purpose of this sub-regulation, the expression 'officer who is in default' shall have the same meaning as provided in sub-Section (60) of Section 2 of the Companies Act, 2013. 8. An application for settlement of defaults related to disclosures, shall to the extent possible, be made after making the required disclosure." (emphasis supplied) 20. Chapter III of the 2018 Regulations pertain to Scope of Settlement. Chapter III providing for "Scope of Settlement Proceedings" which reads thus :- "CHAPTER III SCOPE OF SETTLEMENT 5. Scope of settlement proceedings. (1) No application for settlement of any specified proceedings shall be considered, if: (a) an earlier application with regard to the same alleged default had been rejected; (b) the audit or investigation or inspection or inquiry, if any, in respect of any cause of action, is not complete, except in case of applications involving confidentiality; or (c) monies due under an order issued under securities laws are liable for recovery under secur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ils of loss caused to investors, profit made and proposed settlement amount must be filled, else application shall be returned. Put 'NA' only where NOT APPLICABLE.) ________________________________________________________ Before the Securities and Exchange Board of India In the matter of ................................ 1. Name/Trade name of the applicant/co-applicants: (a) Registration no., if applicable : (b) Date of Registration, if applicable : (c) PAN/DIN/CIN number, as available: (d) Paid-up capital of applicant: 2. If stock broker, name of the stock exchange: 3. If sub-broker/authorised person, name of stock broker with whom affiliated and name of the stock exchange: 4. Name of the segment (Cash/derivative etc.): 5. Form of organization: corporate body/ sole proprietorship /partnership / LLP/ financial institution (if listed co., details of listing): 6. Names of promoters/directors/proprietors/partners: 7. Key management personnel(s): 8. Address/correspondence address, contact no./fax no. and email (any changes in aforesaid details s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd or by the stock exchanges), gross annual income before tax, the amount of gross profit made/loss avoided, including the gross brokerage, fees, management/performance/transaction fee, carried interest, compensation, etc., in respect of the said default; (d) Copy of PAN card/ DIN/CIN details; (e) Complete Income-tax Returns of the applicant for the last three financial years; (f) In case of a foreign body corporate applicant, include details relating to incorporation, place of business, registration details with any non-Indian financial sector regulatory authority. (g) In case of a non-resident applicant, include details relating to passport and national identity document, if any. (h) Any other relevant document (s)/submissions. (Signature of the applicant) (Stamp and Seal of body corporate applicant) Verification I, ......................................................son/daughter/wife of (Name in block letters) Shri .........................................being the applicant/authorised representative (in case of body corporate) of ......................... do hereby verify and affirm on oath that this application a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Board. (7) The settlement order shall be construed and enforced in accordance with the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, as amended from time to time. (8) I/We agree that subsequent to the passing of the settlement order, I/We shall not take any action or make or permit to be made any public statement denying, directly or indirectly, any finding of the Board including that recorded in the settlement order or creating impression that the settlement order is without factual basis. (9) I/We hereby declare that nothing in the waiver and undertaking given by me/us shall affect my/our (i) testimonial obligations, or (ii) right to take legal or factual positions in defence of litigation or in defense of a claim or in any other legal proceeding in which the Board is not a party. (10)I/We for the limited purpose of settlement under these regulations 'admit the findings of fact and conclusions of law' or 'neither admit nor deny the findings of fact and conclusions of law' (strike off whichever is not applicable), and agree to abide by the settlement order as may be passed in accordance with the Securi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purpose and intent of which appears to be to ascertain as to whether a settlement when tested as per the regulations is at all acceptable. Some of the material details which are required to be furnished are found in paragraphs 15, 16, 17, 18 and 22 of the said form which we have underscored in the extract of the form, as set out hereinabove. Hence, we do not reiterate its contents. 23. We may observe that when filing of any application for settlement falls for consideration of the committee as Constituted under the 2018 Regulations, it would be required to be tested and considered on the touchstone and perspective of the requirements of the 2018 Regulations as also the provisions of the Act and the other regulations, the compliances of which may be mandatory, having substantive requirements to be fulfilled for any settlement to be considered under the 2018 Regulations. 24. We also note that the 2018 Regulations are quite comprehensive provisions inter alia in regard to Limitation (Regulation 4), Scope of Settlement Proceedings (Regulation 5), Rejection of Application (Regulation 6), Withdrawal of Application (Regulation 7), Effect of pending application on specified proceedin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applied of prejudice to the Board and/or the applicant. Thus, information can be released when there is no prejudice to the Board or to the applicant. There cannot be two opinions that the test of prejudice is the test which is required to be pleaded and ascertained on the facts as may be involved in the case, and only after considering the degree of prejudice and the likely damage, the provisions for confidentiality of information in a given situation as contained in Regulation 29 can get triggered. 28. This apart what is further significant is that the bar as contained in Regulation 29 is only for such information not to be released, "to the public". By no stretch of imagination, can it be said that the petitioners in the present case, who are minority shareholders and in such capacity, being part owners of the company to the extent of their shareholding, are persons who are alien/outsiders to the company (BNL), moreover they are integral to the company, having an inextricable concern and interest in the functioning and management of the company. Thus the word 'public' as used in Regulation 29 can in no manner be made attributable to shareholders of BNL like the petitioners. T....