TaxTMI 
TaxTMI 
2023 (7) TMI 1491
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....ion. 2. The background is this. SEBI issued a show cause notice to Binny Ltd on 24th November 2022. A copy of that show cause notice, running to some 28 pages, is at Exhibit 'A' from page 66. The notice mentions in paragraph 12 that under the SEBI (Settlement Proceedings) Regulations, 2018 ("Regulations"), there is a settlement mechanism provided. Should Binny wish to opt for a settlement process, it could apply in the manner given in these Regulations under intimation to SEBI. Binny was put to notice that the filing of a Settlement Application did not confer any right to seek the settlement of the proceedings. The Settlement Application, which we will examine in detail a little later, is at page 95. It was filed on 24th December 2022. Binny was afforded a personal hearing on 20th February 2023. In parallel, on 31st January 2023. it filed a reply to the show cause notice. On 16th March 2023, SEBI rejected the Settlement Application. A copy of that email intimation is at Exhibit 'D' at page 104. 3. The hearing on the show cause notice having concluded, SEBI gave Binny a final opportunity to file post-hearing written submissions by 15th March 2023. A further extension followed ....
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....bove, it was noted that the aforesaid alleged diversion of funds and misrepresentation of the financials of Binny Limited has caused losses to a large number of investors and also affected the integrity of the market. 2. Based on the same, the Board was of the considered opinion that the proposed settlement of specified proceedings as requested by you cannot be acceded to since the alleged default attracts the provisions of Regulation 5(2) (ii) and 5(2)(iii) of the SEBI (Settlement Proceedings) Regulations, 2018. 3. In view of the above, the subject settlement application has been rejected by the Board in terms of Regulation 5(5) of the Settlement Regulations. 4. The reason(s) rendered at paragraph 1 above, are intended only for the limited purpose of disposal of the subject settlement application and shall not have any bearing on the pending specified proceeding against the applicant." 7. This cannot be read in isolation. We will not reproduce the 28-page show cause notice in full, but there is no doubt that there was an investigating authority and a forensic audit. There is a case in the show cause notice of a massive diversion of funds of several hu....
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....onies due, to the satisfaction of the Board; (b) whether the applicant has provided an exit or purchase option to investors in compliance with securities laws, to the satisfaction of the Board; (c) whether the applicant is in compliance with securities laws or any order or direction passed under securities laws, to the satisfaction of the Board; (d) any other factor as may be deemed appropriate by the Board. (4) Without prejudice to sub-regulations (1) and (3), the Board may not settle the specified proceedings where the applicant is a wilful defaulter, a fugitive economic offender or has defaulted in payment of any fees due or penalty imposed under securities laws. (5) Nothing contained in these regulations shall be construed to restrict the right of the Panel of Whole Time Members to consider or reject any application in respect of any specified proceeding without examination by the Internal Committee or the High Powered Advisory Committee. 6. Rejection of application. (1) An application may [also] at any time be rejected on the following grounds: (a) Where the applicant refuses to receive or respond to the c....
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.... the application for settlement and any adverse observations made in such proceedings against the applicant shall qua the applicant be subject to the outcome of the settlement application filed by such applicant." (Emphasis added) 10. Chapter IV then deals with the terms of the settlement and says, importantly for our purposes, that a settlement term may include a settlement amount or a non-monetary term or both in accordance with guidelines in Schedule II. Non-monetary terms may include suspension or cessation of business, exit from management, disgorgement on account of the action or inaction and so on. 11. Two committees are contemplated in Chapter V. There is an Internal Committee under Regulation 12 and a High Powered Advisory Committee under Regulation 11. Chapter VI then sets out the procedure for settlement. Regulation 13 deals with proceedings before the Internal Committee and Regulation 14 deals with the proceedings before the High Powered Advisory Committee. 12. Mr Dhond's submission is that the Board cannot simply invoke Regulation 5(2)(ii) and (iii) saying that loss has been caused to the investors or that the integrity of the market has been affected....
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....ice denied. Mr Justice Dave went on to say that it was of the utmost significance, and that the constant struggle to uphold this legal maxim has been a bitter battle in every judicial system. There is then a discussion on methods of plea bargaining and finally the background says that the ever-growing requirements of a free market, concerns of confidentiality and other factors require the evolving of a settlement process for effective enforcement. A settlement is required to avoid protracted litigations and in particular, while dealing with settlements, care must be taken to avoid prolonging a dispute. For this, pertinent questions as to what would constitute a serious violation and who may be permitted to apply for the settlement process remain a challenge. 17. We should take a step back to consider the impact of what it is that is being canvassed by these Petitioners in the context of the allegations in the show cause notice. There is a specific finding based on a forensic audit report of an alleged diversion of funds, and even SEBI says that this is only alleged, of Rs 851.27 Crores. There is also a reference to loss to investors. What is being proposed is that while this Set....
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....SC 366.] in paragraph 62 was in a completely different context. The observations made by the Supreme Court in the Madhyamam were in the context of the 'sealed cover procedure' used by the Ministry of Home affairs while disclosing relevant material solely to the Kerela High Court. It was in this context that the Supreme Court observed that the non-disclosure of even a summary of reasons for denying security clearance to MBL does not share a rational connection with the purpose identified. The present Petitioners have no vested right to insist that the dispute be resolved in terms of a consensual settlement: that would denude the Board of discretion to reject any settlement application no matter how sterile and worthless. 22. Mr Doctor, learned Senior Advocate for SEBI, has invited our attention to a Division Bench judgment of this Court in Shilpa Stock Broker Pvt Ltd v Securities and Exchange Board of India [2012 SCC Online Bom 58.] It is true that this is a decision rendered before the Regulations came into force. But substantially, the submission there parallels the one that is made before us today. Paragraphs 12, 13 and 15 of the judgment in Shilpa Stock Broker are as relevant....
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.... the business conducted by Stock Exchanges has a material impact on investors, both institutional and individual. Actions of stake holders in the securities market have consequences not merely for the role and position of the stake holder and his relationship with SEBI as regulator. Those actions have serious consequences for the overall well being of the securities market and those whose wealth and investment is impacted by the stock market. SEBI is vested with the power to protect and streamline the functioning of the securities market. A person who is alleged to be in breach of the Regulations or statutory provisions which are designed to protect the public interest can have no vested right either to insist upon SEBI settling a dispute or in enforcing compliance of the terms of a proposed offer of settlement. 13. If the matter is considered from this perspective, it is evident that the High Court in the exercise of its jurisdiction under Article 226 of the Constitution would not be justified in issuing a mandamus to SEBI to act upon a settlement or to accept a settlement as proposed. The guidelines which have been framed by SEBI are administrative in character. Since th....