TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1439
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ameya Gokhale, Mr. Rishabh Jaisani, Ms. Karishma Rao, Mr. Harit Lakhani and Mr. Ansh Kumar i/by. Shardul Amarchand Mangaldas and Co. for the Petitioners in WP No.3977/2024 and for Applicant in IA No.2566/2024. For the Petitioners: Mr. Janak Dwarkadas, Senior Advocate a/w. Mr. Ameya Gokhale, Mr. Rishabh Jaisani, Mr. Harit Lakhani and Mr. Ansh Kumar i/by. Shardul Amarchand Mangaldas and Co. in WP No.4828/2024 and for Applicant in IAL No.9433/2024. For the Petitioners: Mr. Ashish Kamat, Senior Advocate a/w. Mr. Ameya Gokhale, Mr. Rishabh Jaisani, Mr. Harit Lakhani and Mr. Ansh Kumar i/by. Shardul Amarchand Mangaldas and Co. for the Petitioners in WP (L) No.2325/2024 and for Applicant in IAL No.9266/2024. For the Respondent: Mr. J. J. Bhatt, Senior Advocate a/w Mr. Vishal Kanade, Mr. Mihir Mody, Shreyans Menkudale i/by. K. Ashar and Co. for Respondent No.1 (SEBI) in WP No.3977/2024, WPL No.2325/2024 and WP No.4828/2024. For the Respondent: Mr. Gaurav Joshi, Senior Advocate a/w. Mr. Kunal Katariya i/b Garima Mehrotra for Resp nos.26 and 27 in WP 3977/24, for Respondent nos.25 and 26 in WPL 2325/24 and Respondent Nos.22 and 23 in WP No.4828/2024. For the Respondent: Mr. Navroze H. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dyog Limited Companies registered, which also raise challenge to the impugned order. 3. Opposing the Petition, on one hand stands SEBI, the Regulation and on the other hand are the Minority Shareholder Group headed by Ashok Dayabhai Shah (known as 'Ashok Shah Group') as well as 'Pina Pankaj Shah Group', all of whom being impleaded in WP No. 2326/2024 as Respondent Nos.5 to 23 in terms of the amendment permitted to be carried out by order dated 08/02/2024 and 15/02/2024. The Respondent Nos. 5 to 23 are the minority shareholders in BNL, who had approached this court by filing separate Writ Petitions viz. WP No. 447/2023 and WP No. 530/2023 respectively challenging the Settlement Order of SEBI and the postal ballot notice issued by it. We will refer with the Petitions and the orders passed therein as and when the occasion arises. 4. The three Writ Petitions, face opposition at the instance of SEBI as well as private respondents, minority shareholders of BNL, who were aggrieved by the Settlement Order passed in favour of the 8 Petitioners and as it is their specific contention that the Settlement Order must fail as it has resulted into breach by the Petitioners and they find justif....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the proceedings. The aforesaid resulted into filing of Settlement Applications by each of the Petitioners separately, along side the response to the show cause notice, so as to settle the purported allegations in the show cause notice. 8. Neither the show cause notices nor the Applications for settlement or the replies submitted, form part of the Petition as it is the pleaded case of the Petitioners that they are confidential documents under Regulation 29 of the Regulations. It is however worth to note that the Settlement Applications preferred on distinct dates were registered under different numbers and they were placed before the Internal Committee (IC), a body of SEBI. Thereafter, meetings were held between IC and the representatives of the Companies on various dates to deliberate on each of the Settlement Application and to discuss and negotiate the terms of settlement. As per Petitioners, during this process, various queries were raised by IC from time to time and the Petitioners responded resulting into filing of revised Settlement Terms, based on the interse deliberations. The IC finalised the terms of settlement in respect of each of the Petitioner and in terms of Regu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the matter to ascertain whether there had been any misrepresentation of the shareholding of promoters as public shareholding and the possible non-compliance with the minimum public shareholding norms. Based on the findings of the investigation, enforcement proceedings were initiated resulted into show cause notice alleging lapses separately against each of the eight Noticee, which came to be settled by a common order. 11. The Settlement order dated 12.09.2022, specifically referred to the meeting of the representative of the Applicants with the IC and that the applications being placed before HPAC, which considered the Settlement Terms proposed by the Applicants and recommended the case for settlement on distinct following terms, formulated against each of the Petitioners and referred to the recommendation of HPAC in its meeting held on 09.06.2022. The order of Settlement further stated that upon acceptance of the recommendations by the panel fo WTM in terms of Regulation 15(2) of the Settlement Regulations, notices of demand were issued to the Applicants, on 20.07.2022 and the Applicants informed about the remittance of the respective settlement amounts and SEBI has confirmed cre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dated 10.11.2023 is communicated to each of the Petitioner through separate communication and find annexed to each of the Petition. The communication resulting into revocation of the Settlement Order is signed by one Shri L. KAGIO MAO on behalf of SEBI. 14. The impugned order is assailed in the three Petitions, by setting out distinct grounds, the foremost ground advanced being that no case is made out for revocation of the order under Regulation 28, as it permit revocation of Settlement Order only in the contingencies stipulated therein viz. if there is failure to comply with the settlement order or if at any time after the settlement order is passed it comes to the notice of the Board, that the Applicant has not made full and true disclosure or has violated the undertakings or waiver and only upon such happening, the order of settlement shall stand revoked and withdrawn and thereupon the Board shall restore or initiate the proceedings with respect of which the the Settlement Order is passed. It is the case of the Petitioners before us that the order of settlement was withdrawn by SEBI alleging that there is failure to comply with the Settlement Order. The decision is clamped by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and accessing the securities market and /or prohibiting from buying, selling or otherwise dealing in securities directly or indirectly and associating with the securities market in any manner, for a specified period. The procedure contemplated for settlement as set out in Chapter V is a three tier system according to Mr. Dwarkadas involving a High Power Advisory Committee (HPAC), Internal Committee(s) (IC) and the panel of Whole Time Members, which ultimately is the authority either to accept or reject the recommendation to settle the specified proceedings. 16. Inviting our attention to the procedure for passing settlement orders, as specified in Regulation 23, the learned Senior Counsel would submit that the WTM, adjudicating officer or the competent officer of the Board before whom the proceedings are pending, shall dispose of the respective proceedings, by an appropriate order on the basis of the approved settlement terms. Focusing his attention on Regulation 28 pertaining to revocation of Settlement order, according to Mr. Dwarkadas, the revocation is permissible only upon the contingencies occurred, stipulated in Sub Rule 1. Further Sub Rule 2 of Regulation 28 categorically ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall take enforcement action forming part of the settlement order. Though according to Mr. Dwarkadas, on 05.09.2023, SEBI made a categorical statement before the High Court that since there was a change in its WTM members, it would take an appropriate decision upon revocation of the settlement order. 18. Referring to the order dated 13/09/2023, Mr. Dwarkadas would submit that the Court was called upon to deal with prayer clause (g) of the Petition filed by the minority shareholders of BNL who had complained to SEBI, of violation of various provisions of Securities Laws. As before hearing of the Petitions of the Petitioners therein, they insisted for prayer clause (g), in form of a direction to direct SEBI to produce copies of investigation report, show cause notices, minutes of meetings of IC, HPAC and panel of WTMs, order/communication, noting vide which the settlement applications filed by the eight applicants were approved by SEBI. By order dated 23.10.2023, the Division Bench of this Court directed SEBI to furnish the necessary documents, as the Court was of the opinion that all actions taken by SEBI and its various bodies constituted under the Act and the Regulations are r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Mr. Dwarkadas is a gross illegality. It is also his specific contention that assuming for a moment that there was some default on part of BNL, why should the other Applicants suffer, as the terms of settlement clearly contemplate different monetary terms and except for BNL the settlement order did not contemplate any non monetary term. According to him, only when the High Court directed disclosure of certain documents at the instance of Ashok Shah Group, as a knee jerk reaction, SEBI sprung into action and without following the procedure contemplated under the Regulation of 2018, deemed it appropriate to revoke the settlement order despite there being no breach of Undertaking or default to comply with any of the terms stipulated in the Settlement Order by his clients. It is also an arguments advanced by Mr. Dwarkadas that when SEBI filed SLP being aggrieved by the order of 23.11.2023 passed by the High Court which directed it to disclose to the minority shareholders the documents sought in terms of prayer clause (g) of their Petition the SLP do not contain any averment about a process being initiated by SEBI revoking the Settlement Order and according to him it was not therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sultantly violating the MPS norms as well as the circular providing the manner of achieving MPS as well as the accusations being levelled as per the SEBI (Prevention of Fraudulent and Unfair Trading Practices Regulation 2003). According to Mr. Kamat, applications were filed to settle purported allegations contained in the show notice against the petitioners and it was followed by separate meetings being held between the representatives of the petitioners and the members of the internal committee of SEBI, which resulted in submission of revised settlement terms based on interse deliberations. According to him, when SEBI informed the petitioners that it had in principle agreed to accept the terms of settlement and calling upon them to pay their respective settlement amounts, the petitioners tendered the respective settlement amounts to SEBI, which was a pre requisite for passing of the settlement order. On the settlement order being passed on 12/09/2022, as far as the petitioners are concerned, which comprise of monetary and non-monetary settlement terms, the petitioners complied with both. 25. Mr. Kamat concurred with Mr. Dwarkadas in bringing to our attention the stand of SEBI, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in 15 days of passing of the settlement order). According to him BNL had complied with the said direction on 27.09.2022, and therefore, SEBI was quite clear and conscious about the compliance which it intended to have when it considered the application for settlement by BNL. In addition, according to him, the revocation of settlement order can be only on the grounds which are stated in Regulation 28 and in absence of any of the contingency being attracted in the present case, the impugned order can only be stated to be based on extraneous contention and that to at the instance of Ashok Shah Group, the minority shareholders. According to him, the BNL the petitioners and others have complied with the settlement order and merely because the minority shareholding group is of the opinion that there is no compliance as BNL was required to give an exit offer and not a buyback, the different approach adopted by SEBI cannot be justified as the decision taken by SEBI now find its root in the contentions advanced by Ashok Shah Group when it raise challenge to the validity of settlement order, which is completely irrelevant. Apart from this, Mr. Kamat would submit that the settlement order is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding provisions. He is extremely critical about the revocation order which is a non-speaking and unreasoned order, having been passed without following the principles of natural justice, due process and conduct of necessary inquiries and investigations. In addition, it is also his submission that the revocation order has not been passed by an appropriate authority under law which makes the order without jurisdiction. Adopting the arguments advanced by Mr. Dwarkadas as well as Mr. Kamat, for the other two Petitioners, Mr. Dhond has also urged that the timing of the revocation order is full of suspicion and contrary to SEBI's stand adopted in previous litigation, challenging the settlement order. 28. Mr. Dhond would submit that the settlement order passed by SEBI involving BNL, prescribed that it shall provide an exit offer to its public shareholders for a period of three months, in addition to the monetary terms of which the compliance was already ensured by BNL as early as on 27.09.2022. According to him, the settlement order did not specify the mode of exit to be provided by BNL and in any case BNL was already moved to the dissemination board in February, 2019 and was no longer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the exchange of communications placed on record is clearly reflective of the fact that SEBI was conscious of the steps taken by BNL and it never contemplated the compliance in a particular fashion. 31. The submission of Mr. Dhond is that SEBI was aware of the steps taken by BNL to comply the non monetary terms specified in the settlement order, as it had set out the manner of compliances by BNL. BNL also sought in person meeting with SEBI to explain the matter in detail and it addressed a detailed representation on 08.09.2023, requesting for a hearing and this representation, according to Mr. Dhond, categorically amounted to its written submission, as it apprehended that SEBI was likely to take a decision on revocation of settlement order. BNL categorically highlighted, in its representation that the buy-back process for 30 days would be followed by the Proposed Exit Offer by TM Investments Ltd., Sanmati Properties Ltd., and Vineet Jain for a period of 60 days at the same exit price in two steps. It also stated that there was statutory limitation in implementation of buy-back, in the wake of the restraint order dated 17.10.2022 and a request was made that SEBI must keep in mind t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....part of the law, such a charge has to be excused particularly when performance of the formalities prescribed by a statute is rendered impossible by circumstances over the person's concern had no control and in such a case it has to be taken as a valid excuse. In addition he would also place reliance upon the decision in the case of Reliance Industries Limited vs. Securities and Exchange Board of India & ors. 2022 (10) SCC 181 in support of his submission that SEBI is a regulatory body and is cast with a duty to act fairly while conducting proceedings or initiating any action against the parties and it must act in accordance with the Rules prescribed by law. Further reliance is placed upon the decision of the Bombay High Court in case of Milind Patel vs. Union Bank of India & Ors. 2020 (4) SCC OnLine Bom 745 with reference to the orders of proceedings of the settlement commission. Mr. Dhond has also placed reliance upon the report on the settlement mechanism by the High Level Committee to review the enforcement and settlement mechanism, and it is intended to encourage settlement. 34. Learned Senior Counsel, Mr. Bhatt, representing SEBI, the statutory body, has rebutted the argu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the effect that SEBI had resorted to all possible efforts not to comply with the order of 23.10.2023 and to the effect some more observations to paragraph 29, it is a specific contention of Mr. Bhatt that SEBI never objected to furnishing of the documents, as when the said order was passed, SEBI put its firm stand that principal prayer clauses of the Petition i.e. prayer clauses (a) and (b) do not survive for adjudication as the settlement order itself was revoked by SEBI. This argument according to him was supported by the Counsel representing Respondent Nos. 2, 7, 8 and 9 as they unanimously contended that the settlement order dated 12.09.2022 stood revoked and therefore the show cause notice issued to Respondent nos. 2 to 9 are now required to be taken forward and decided on merits. 37. It is in the wake of these peculiar circumstances, the Learned Senior Counsel would vehemently submit that SEBI never adopted a stand of confidentiality of the documents and in fact it was always ready and willing to place all the relevant documents involving the settlement proceedings before the Court. Mr. Bhatt would also submit that even SEBI filed a Special Leave Petition before the High Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nputs from the IC as well as the HPAC, which considered the settlement terms proposed by the applicants and recommended the case for settlement. According to Mr Bhatt, the order of settlement made it clear that the exit offer shall be given to its shareholders within a period of 15 days and it would be kept open for a period of three months. The order made it very clear that if there is no compliance, SEBI reserved its rights under Regulation No. 28. He has also placed before us a compilation of documents which is comprise of the communications exchanged between SEBI and BNL. According to him, there were two options open, either to buy-back or provide an exit offer to buy-back the equity shares of the company and, according to him, BNL passed a resolution to be compliant with the SEBI settlement order, thereby resolving to buy-back of up to 30,958 fully paid up equity shares of Rs. 10/- each of the Company, representing 1.06 percent paid up of equity shares of the Company (exit offer) at a price of Rs. 11,229/- per equity share, being the same exit price at which an exit offer was given in 2019, payable in cash for an aggregate amount of up to Rs. 34,76,27,382/- equivalent to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso informed that since the buy-back offer has been kept on hold in the Bombay High Court by the interim order, it is posing a difficulty in taking any further steps with respect to the Proposed Exit Offer. The statutory body was therefore informed that the company is unable to complete the buy-back offer and the Proposed Exit Offer in the wake of the interim orders issued by the Bombay High Court. 40. According to Mr. Bhatt, when SEBI querried with BNL, with specific reference to its public announcement, as it proposed to buy-back up to Rs.1.067 of the paid-up equity capital through buy-back offer and, with reference to the three public shareholders who had indicated their willingness to provide an exit offer to the remaining shareholders for a period of two months following the buy-back offer. However, it was clearly indicated that the said shareholders had put up a maximum ceiling on the amount that can be deployed towards the purchase of the shares, and this amounted to Rs. 105 crores. First of all, according to Mr. Bhatt, computing on the basis of the said disclosure, SEBI indicated that the aforesaid three shareholders can purchase maximum of 3.22% paid-up capital of BNL, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plying with the terms of settlement. SEBI continued with its stand when on 26.05.2023, it sought a list of shareholders who had tendered their shares in the buy-back offer announced by BNL, vide public announcement dated 2.09.2022 in the format which was also furnished. It also sought compliance in respect of remaining 6,11,868 shares as BNL was required to provide exit offer in respect of 29,00,132 shares (100%), whereas BNL received undertaking to continue as shareholders in respect of 22,57,307 shares. 42. On 08.09.2023, BNL once again addressed a communication to SEBI in form of a representation regarding compliance of the settlement order dated 12.09.2022 since SEBI had made a statement before the High Court in the pending Writ Petitions in its order dated 05.09.2023, to the effect that since there was a change in the Whole Time Members of SEBI, SEBI would now be in a position to take a decision as to whether settlement order in question has stood revoked, and if it has, in that case, adjudication of the proceedings is not called for. In this communication, which has been projected as a stand as BNL, where a huge cloud has been raised about the proposed decision to revoke the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y were not afforded an opportunity of hearing before the decision to revoke has been taken as all the facts involved are admitted and not denied, as it is admitted that a settlement order was passed which was subject to ensuring certain compliances and there has been no compliance of the non-monetary terms by BNL. Further, according to Mr Bhatt, BNL is not in a position to comply and nor did they ever offer a plausible explanation or a road map to SEBI as to how they would ensure compliance of the settlement order. At the end of the entire correspondence, ultimately BNL raised its hand and categorically stated that it is not possible for it to comply with the order and therefore, according to Mr Bhatt, there is no question of violation of principles of natural justice as the Petitioners are now harping upon the sacrosanct principle of non-observance of principles of natural justice and therefore the decision having been rendered void, which is a non-acceptable argument. 45. Another limb of argument of Mr Bhatt is the statutory provisions and the Regulations formulated thereunder. He has invited our attention to Section 19 of the SEBI Act 1992, which is a provision as regards the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his reason that BNL's share presented a lucrative investment opportunity for the Respondents (the minority shareholders) and they invested in BNL. He would unfurl before us the true nature of control over BCCL's holding companies as he would submit that it is owned and controlled by certain companies in which Mr. Vineet Jain, Mr. Sameer Jain and their immediate family members have direct and indirect holding. According to him, Vineet Jain group along with BNL Arth Udyog Limited TM Investment Limited and Sanmati Properties Limited, has 50% shareholding in BCCL whereas Mr. Sameer Jain along with Vineet Jain and four other limited companies have 50% shareholding in BCCL. The entities in Vineet Jain Group and Sameer Jain Group are owned and controlled through a complex web of cross-holding and once this is eliminated the ultimate beneficiaries are Vineet Jain and Sameer Jain and he would accuse that despite the fact that BNL is owned and controlled by Vineet Jain, it has falsely represented itself as a promoter-free company and the company sans any promoters has only public shareholders, which claim is absolutely false. According to Mr. Seervai the minority shareholders have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2019. 48. Alleging violation of NPS norms and disclosure requirement inter alia by BNL and other connected entities under the control of Mr. Vineet Jani along with other members of the Jain family he would submit that Delhi Stock Exchange de-recognized BNL pursuant to SEBI circulars in the year 2014 and BNL obtained listing on Calcutta Stock Exchange. However, in 2015, BNL came to be placed on dissemination board of Bombay Stock Exchange, which provided a platform where transaction could take place between the buyer and seller on trade for trade basis. The placement of BNL on dissemination board resulted in self operating disadvantages, but BNL preferred to remain so and ultimately, in the year 2019, BNL was moved to dissemination board of NSE. In the year 2019, it issued a postal ballot notice seeking shareholder approval for buy-back up to 21,791 equity shares and this prompted the minority shareholders to file a complaint on SEBI SCORES portal whereby issues relating to non-disclosure of promoter shareholdings of DNL and violation of minimum public shareholding requirement were raised. This complaint was however summarily closed by SEBI which emboldened BNL to continue with its....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... SEBI as it did not initiate any action against BNL, he accused SEBI that the Petitioners are turning deaf ear in complaints filed by the minority share holders from time to time. He would submit before us that SEBI initiated action for violation of its Regulations after thirteen years and despite this, permitted a settlement, thereby condoning serious lapses of the Petitioners. 50. Having unconditionally accepting the terms and conditions set out in the order of settlement which were routed through the IC as well as the HPAC of SEBI, according to Mr. Seervai, there is no question of going back on the order of settlement. According to him, the buy-back was made only to 1.044% of the shareholders, which was clearly in breach of the stipulations in the settlement order as the buy-back was intended for all shareholders and not for a miniscule percentage. It is his specific contention that the offer was being kept open for three months and the BNL kept it open only for one month and therefore the consequences are res ipsa loquitur as there was a breach in stipulations of the settlement. Mr. Seervai has invited our attention to Regulation 28, which has been invoked while revoking the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aware of regulatory limitations posed by buy-back. Thus, according to Mr. Seervai, BNL adopted a half-hearted approach and when it addressed communications to the three entities, Sanmati Properties, TM Investments and Vineet Jain taking their expression of interest to provide exit to the shareholders, they replied indicating their willingness, for a period of two months, after closure of BNL's buy-back offer at the exit price of Rs. 11.229 per equity share for aggregating amount of Rs.50 crores and Rs. 10 crores respectively. Thereafter, when the Writ Petition No. 447 and 530 of 2023 was filed before the Bombay High Court by his client, an ad-interim order was passed on 17.10.2022 directing BNL to proceed with the buy-back by inviting offers but not to finalise the same. Once again, on 02.11.2022, BNL issued a public announcement informing that the buyback would be kept open from 04.11.2022 to 03.12.2022 and a public announcement was also issued in Financial Express and Jan Satta informing inability to finalise the buy-back offer on 18.12.2022. On 19.12.2022, BNL informed SEBI that it cannot take any further steps with respect to the Proposed Exit Offer due to the interim ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the parties who have abjectly failed to comply and abide by the settlement order. According to him, natural justice does not necessarily or invariably contemplate a personal hearing and in cases where facts are undisputable/admitted, it is the duty of the Court to determine if prejudice has been caused on account of a party not being afforded a personal hearing. He has placed reliance upon K. K. Chari v. R. M. Seshadri (1973) 1 SCC 761, as also decision in case of S.L. Kapoor v. Jagmohan & Ors (1980) 4 SCC 379, in support of his contention. He would also rebut the contention of civil consequences having been entailed upon passing of the impugned order, which necessarily require an opportunity of hearing, as he would submit that there is no vested right of settlement in the Petitioners, as it is the submission of Mr. Seervai, that no civil consequences follow the revocation of the settlement order, as to entail civil consequence to an action, the effect must be demonstrable and material, and it must affect the party's civil right. He would therefore distinguish the decision relied upon in case of Rajesh Agarwal (supra) as well as Zha Developers Pvt. Ltd. (supra). In short, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....holders of Bennett Coleman and Company Limited (BCCL) holding 21.41% shares. Similarly, the other noticee also held shares in BCCL in the following percentage : Sr. No Name Percentage 1 Sanmati Properties Limited 9.75 % 2 Arth Udyog Ltd 9.31 % 3 TM Investments Ltd 5.96 % 4 Vineet Kumar Jain 0.57 % 54. The investigation revealed that BNL was under the control of eleven Directors which included Mr. Vineet Jain from 28.04.2003 to 16.07.2014 along with Mr Amit Jain and Mr Revati Jain, the close family members of Mr Vineet Jain. In response to the complaint, BNL asserted that it had no identifiable promoters but the investigation revealed that six entities along with an individual Mr Vineet Jain held 77.31% shares of BNL and as on 31.03.2017, Vineet Jain was holding 20.21% of shares whereas Matrix Merchandise Limited had a shareholding to the extent of 20.55%. As on 31.03.2019, the share holding of the noticees in BNL was found to the following extent : Sr.No. Name 31-March-2018 Shares held % of shares held 31-March-2019 Shares held % of shares held 1 Matrix Merchandise Ltd 600000 20.55 600000 20.55 2 Vineet Jain 590000 20.21 590000 20.21 3 Sanmati Pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of Ashoka Marketing were employees of BCCL and one Director, was a non-independent Director as well Director of Times Journal India Limited (BCCL). Similarly, three Directors on the audit committee and nomination and regulation Committee was shown as independent Director associated with BCCL. Similarly, in Arth Udyog Ltd., three out of five Directors were employees/consultant of BCCL. It was thus concluded that majority of Board of Directors of Ashoka Marketing Limited (AML) and Arth Udyog Ltd. (AUL) were employees of consultants of BCCL and Shri Vineet Jain, who was MD of BCCL, held 20% shares in AML and 33.67% in AUL leading to an inference that through the share holding and directorship, he had direct/indirect control over the companies and could influence its decision making. 59. In addition, as per the disclosures made by BNL under Regulation 31(1)(b) of SEBI (Listing Obligations & Disclosure Requirement) 2015, clause 35 of the listing agreement, the entire share holding of BNL was shown as held by public shareholders which was a completely incorrect. For wrong disclosure of promoter holding, it was alleged that BNL had failed to comply with the Regulation of 2015 as well a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 12-A(a) and (b) of SEBI Act, 1992 read with Regulations 2003 relating to prohibition of fraudulent and unfair trade practices relating to securities market. 62. Coming to the statutory regime, it is to be noted that SEBI established under SEBI Act, 1992, is cast with a duty to protect the interest of securities and to promote the development and to regulate the securities market by such measures as it think fit is a competent body to regulate the business stock exchanges and any other security markets. It is also cast with the function of prohibiting fraudulent and unfair trade practices relating to security markets as well as prohibiting insider trading in securities. The Board constituted under the SEBI 1992, is also empowered to carry out investigation, if it has reasonable ground to believe that the transactions and securities are being dealt with in a manner detrimental to the investors or the securities market. 63. The Act of 1992 contemplate imposition of penalty for failure to furnish information, written, etc., as directed by the Board and similarly by virtue of Section 15C, if any listed company or person register as intermediary, after having been called upon by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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;" 67. Chapter IV contemplate the terms of settlement and Regulation 9, categorically prescribe that the settlement terms may include a settlement amount and/or non-monetary terms, in accordance with the guidelines specified in Schedule II and the non-monetary terms may include suspension or cessation of business activities for a specified period, exit from management, law in all securities, submission to enhance internal audit and reporting requirement, etc. While arriving at the settlement terms, the Board may consider the conduct of the applicant during the specified proceedings, investigation, inspection or audit and also the nature, gravity and impact of the alleged defaults as well as the extent of harm and/or loss to the investors and/or gains to the applicant as well as the compliance schedule proposed by the applicant. 68. Regulation of 2018 provide a three tier system before a decision is taken on an application for set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Regulation 25 and shall also be published on the website of the Board, subject to the confidentiality clause. 71. Regulation 28, which is most crucial for determination of the dispute before us pertains to revocation of the settlement order and it reads thus : "28.(1) If the applicant fails to comply with the settlement order or at any time after the settlement order is passed, it comes to the notice of the Board that the applicant has not made full and true disclosure or has violated the undertakings or waivers, settlement order shall stand revoked and withdrawn and the Board shall restore or initiate the proceedings, with respect to which the settlement order was passed. (2) Whenever any settlement order is revoked, no amount paid under these regulations shall be refunded." Regulation 29, categorically provide that all information submitted and discussions held in pursuance of the settlement proceedings under these regulations shall be deemed to have been received or made in a fiduciary capacity and the same may not be reduced to public, if it prejudices the Board and/or the applicant. 72. It is in the backdrop of the aforesaid Regulations of 2018, the settlement order was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bject to any enhancement of such exit price if so directed by the High Court of Delhi and (ii) to refrain from accessing the capital markets by issuing prospectus, offer documents or advertisements soliciting money from the public for a period of 24 months from the date of the settlement order and refrain from accessing the capital markets by issuing prospectus, offer documents or advertisements soliciting money from the public for a period of 24 months from the date of the settlement order Bharat Nidhi Limited. Mr. Vineet Jain Rs. 1,12,01,300/- (Rupees One Crore Twelve Lakh One Thousand Three Hundred Only) as settlement amount in respect of Mr. Vineet Jain. Ashoka Marketing Limited Rs. 2,37,40,200/- (Rupees Two Crore Thirty Seven Lakh Forty Thousand Two Hundred Only) as settlement amount along with voluntary undertaking to refrain from accessing the capital markets by issuing prospectus, offer documents or advertisements soliciting money from the public for a period of 24 months from the date of the settlement order in respect of Ashoka Marketing Limited. Arth Udyog Limited Rs. 2,24,21,300/- (Rupees Two Crore Twenty Four Lakh Twenty One Thousand Three Hundred Only) as settle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt to all the applicants and it was also published on the website of SEBI. 75. In the wake of the rival contentions advanced, without going into the aspect whether in passing the settlement order, SEBI was justified, we are restricting our deliberation only on the issue whether on the revocation of the order, by SEBI was justified. It is not in dispute that in all eight noticees were served the show cause notice were accusing them of violation of the provisions of SEBI Act as well as various Regulations. By following the procedure prescribed in the Regulations of 2018, upon each of the applicant filing separate settlement application, a common settlement order was passed on 21.09.2022. The order itself reveal that the procedure prescribed under Regulations 2018 was strictly followed as initially the meetings were held between the representative of the applicants/the noticee with the IC when they deliberated on the terms of settlement and upon deliberation, the terms were revised and they were placed for consideration before the High Powered Committee which accepted the settlement terms proposed by the applicants and recommended their case for settlement. 76. A close reading of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the deeming provision contained in Regulations 28, without affording it an opportunity of hearing. 78. In order to ascertain whether SEBI was justified in revoking the settlement order on the ground of non-compliance, we have carefully gone through the exchange of communication between BNL and SEBI. SEBI's stand apart from the arguments advanced by Mr. Bhatt as featured before us through its affidavit filed by one L. Kajio Mao, Deputy General Manager, SEBI affirmed on 28.02.2024, which has offered an insight into the procedure i.e. followed by SEBI when it issued the impugned order revoking the settlement. The affidavit attributed non-compliance to the applicants when it categorically averred to the following effect - "I say that the impugned Communication dated 10th November 2023 was made after adhering with the procedures required under the SEBI Act, 1992 (the said Act), the Settlement Regulations framed thereunder including SEBI Delegation of Powers Order. It is submitted that as the Settlement Applicants had not taken effective steps to provide exit opportunity to all the public shareholders, as stipulated in paragraph 5 of the Settlement Order as undertaken by them....
X X X X Extracts X X X X
X X X X Extracts X X X X
....desire not to exit BNL and to ascertain their willingness to continue to remain the share holders of BNL. 80. It is worth to note that under Section 68(2)(b) of the Companies Act, 2013, a special resolution is contemplated authorizing the buy-back and BNL could only buy-back a maximum of 25% of its total paid up capital and free reserves, amounting to approximately 1.067% of its share holdings. Section 68(2) which imposes the embargo, reads thus : "Section 68 - Power of company to purchase its own securities (1) ... (2) No company shall purchase its own shares or other specified securities under sub-section (1), unless-- (a) the buy-back is authorised by its articles; (b) a special resolution has been passed at a general meeting of the company authorising the buy-back: Provided that nothing contained in this clause shall apply to a case where-- (i) the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the company; and (ii) such buy-back has been authorised by the Board by means of a resolution passed at its meeting; (c) the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and free reserves of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... public shareholders with a cap of INR Rs.10 crores Rs.50 crores and Rs.40 crores respectively, cumulatively offering an exit to 3.224% of shareholders. The proposed buy-back offer given was approved by the shareholders of BNL and BNL who made a public announcement, whereby shareholders were informed that buy-back would be kept open for a period of 30 days and even letters were issued to the shareholders. This step was compliant with Rule 17(5) of the Companies (Share Capital and Debenture) Rules 2014. However, upon the order being passed by the Bombay High Court in the Writ Petitions filed by the minority shareholding groups i.e. Ashok Shah and Pina Shah Group, on 17.10.2022, BNL was restrained from finalizing the buy-back offer. The buy-back period however expired on 03.12.2022 and 4.046% of shares were tendered by the interested shareholders which were kept in an escrow account. 83. As per the submission of BNL, it was able to provide an exit to 4.291% of shareholders i.e. 1.067% by way of buy-back and 3.224% through way of TM Investments, Sanmati Properties and Vineet Jain. However, the tender shares only amounted to 4.046% and therefore BNL would have been in a position to pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Sanmati Properties and Vineet Jain, with the cap indicated by them. 86. From the correspondence placed on record, it is seen that SEBI addressed a communication to BNL on 06.04.2023 inter alia calling upon BNL to disclose the name of the share holders who had indicated their willingness to provide an exit to the remaining shareholders of BNL and also the update on exit offer compliance as well as the documentary evidence reflecting the exit price offered in 2019. Pursuant thereto, according to Mr. Dhond, BNL provided to SEBI the requisite information and reiterated its commitment to provide exit to all public share holders. It also clarified in its communication dated 11.04.2023 that after the buy-back, another exit offer by certain share holders of BNL i.e. Proposed Exit Offer, shall be given for a period of 60 days and if it find that there are any intending share holders who wish to exit the company, BNL shall take adequate steps for the purpose of offering the exit. BNL also specified the names of the share holders who would provide the Proposed Exit Offer i.e. TM Investments Ltd., Sanmati Properties Ltd and Vineet Jain with a cap of INR 10 crores, 50 crores and 45 crores re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exit process, received a response from BNL on 26.05.2023, where BNL made it clear that only 4.046% shares were tendered during the 30 day period and exit could be only offered to those shareholders, through buy-back (1.067%) and Proposed Exit Offer (3.224%) but a step wise process would be followed by BNL to provide an exit to the shareholders who are willing to exit. There is further exchange of communications between BNL and SEBI, in form of emails. However, when on 05.09.2023, SEBI made a statement before the Bombay High Court that there was a change in the panel of WTMs of SEBI and SEBI would be in a position to take a decision as to whether the settlement orders be revoked, BNL got alarmed and it addressed a detailed response in form of representation on 08.09.2023 to SEBI, where it clarified its stand as regards the invocation of Regulations 28, of the Settlement Regulations on the pretext of non-compliance of the terms of settlement. 88. The whole background scenario after passing of the settlement order could be garnered through series of communication between BNL and SEBI, as SEBI has resorted to Regulation 28 on account of alleged non-compliance which stands on two purp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....back as it was in the interest of the shareholders and when it floated buy-back, it received letters from three buyers, Sanmati Properties Ltd, T.M. Investments and Vineet Jain addressing/expressing interest for providing an exit to the public shareholders of BNL and by Vineet Jain to the extent of INR 45 crores, 50 crores and 10 crores respectively after closure of the buy-back offer. The buyers were categoric in communicating their interest for providing an exit, since BNL had proposed an exit offer to its public shareholders through a buy-back offer upto 1.067% of its total paid up equity share capital being the maximum permissible limit under the relevant law as shareholders holding an aggregate 77.83% of the total paid up share capital of BNL had provided confirmation to BNL that they will not be participating in the buy-back offer and expressed their willingness to continue to remain as its shareholders. Therefore, the buyers gave an offer to its remaining shareholders (shareholders left after the closure of buy-back offer and all other exit offers, if any), for a period of two months after closure of BNL's buy- back offer at an exit price of INR 11,229/- per equity sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... capital. All public shareholders were given buy-back offer and amongst those who accepted the buy-back offer, BNL would have brought their shares aggregating to 1.067% of the total shareholding but because of the interim order passed by the Bombay High Court, it could not complete the process. 93. Coming to the timeline for which the buy-back could be kept open, there is a statutory fixed limit of maximum thirty days as per Section 68 of the Companies Act and accordingly the buy-back offer was structured keeping it open for the window of thirty days. BNL clarified to SEBI that considering the aforesaid constrain on buy-back of share under the Companies Act, it developed a methodology, by which its shareholders who desired to exit the company would be in a position to sell their shares and exit, without BNL buying them and BNL would identify the shareholders in BNL who would purchase the shares of other shareholders, who desired to buy, offering it at the same price and the offer to be kept open for a further period of sixty days, after the thirty days buy-back period was closed. BNL in its representation addressed to SEBI clarified that the shareholders who were desirous of acce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....warkadas as well as Mr. Dhond in arguing before us that when the Bombay High Court in the Petition filed by minority shareholders, ordered disclosure of its internal documents/notice, etc., which led to the passing of settlement order, BNL felt rattled and therefore decided to revoke the settlement order, we do not intend to ascribe this intention to a statutory body like SEBI, which is cast with an important duty of protecting the interest of investors and securities and to promote the development and regulate the securities market. At this juncture, we must however express that all the while after passing of the order of settlement till the passing of the impugned order revoking the same, not a single act is indicative of the intention of SEBI to revoke the settlement on the ground of non-compliance and we have noted Mr. Dhond arguing before us that all the while BNL was taken a garden path and all of a sudden, it is attributed of a failure to comply with the terms of settlement. 97. Regulation 28 empowered the board to revoke the settlement on failure to comply with the conditions in the order and in such case the settlement order would stand revoked and withdrawn and the board....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iple in form of doctrine of Impossibility of Performance has been gainfully applied by the Indian Courts and has been invoked by BNL by urging before SEBI, that it is excused from performing what it could not perform legally. This principle has found its way in the Constitution Bench decision in the case of Indore Development Authority (LAPSE- 5J.) vs. Manoharlal & Ors. (2020) 8 SCC 129 with the following observations : "314. The maxim "lex non cogit ad impossibilia" means that the law does not expect the performance of the impossible. Though payment is possible but the logic of payment is relevant. There are cases in which compensation was tendered, but refused and then deposited in the treasury. There was litigation in court, which was pending (or in some cases, decided); earlier references for enhancement of compensation were sought and compensation was enhanced. There was no challenge to acquisition proceedings or taking possession, etc. In pending matters in this Court or in the High Court even in proceedings relating to compensation, Section 24(2) was invoked to state that proceedings have lapsed due to non-deposit of compensation in the court or to deposit in the treasury....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... single communication to BNL or any of the Petitioners that they were not proceeding in accordance with the terms of settlement, its stand in the affidavit that since the Petitioners were not able to fully comply with the settlement order, SEBI decided to revoke the same and therefore it issued the impugned communication is nothing but a flip flop, in our view. For reaching this conclusion, SEBI has relied upon the communication dated 19.12.2022, where the Petitioners (BNL) had stated that it would not be appropriate to proceed with the exit offer at that stage. The affidavit therefore make a reference to the communication from BNL addressed to the Settlement Division on 19.12.2022 and also the affidavit of the Petitioners dated 09.03.2023 where it was categorically stated that by letter dated 19.12.2022, BNL informed SEBI that in the wake of the directions of the High Court with regard to buy- back process, it had become difficult for it to take any further steps with respect to exit proposed offer and it would not be appropriate to proceed with the exit offer at that stage and therefore SEBI was informed that Proposed Exit Offer was kept on hold, until it was permitted to final....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the BHC in the aforesaid ongoing judicial proceedings. We reiterate our commitment to take steps to finalise the Buy-back Offer as and when it becomes permissible for the Company to do so, in compliance with further directions of the BHC." 101. In terms of the affidavit dated 20.02.2024, SEBI has adopted a stand that in the wake of the admitted factual position when BNL itself had expressed its inability to follow the path chartered by it and clearly stated that it has become difficult for it to take any further steps with respect to the proposed exit order, it has resulted into failure to comply with the settlement order. Based upon this stand, SEBI has pleaded that there was no necessity of affording of hearing to the Petitioners as the Petitioners did not comply with the non-monetary terms and there was no requirement of ensuring compliance of the principles of natural justice as in any case neither Section 15JB of SEBI Act, 1992 and SEBI (Settlement Proceedings) Regulation 2018 contemplate so. 102. It cannot be disputed that SEBI continued to entertain the Petitioners and specifically BNL, when it kept it informed about the steps taken for ensuring a compliance with the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mulae. As said in Russell v. Duke of Norfolk [(1949) 1 All ER 109 : 65 TLR 225] way back in 1949, these principles cannot be put in a straitjacket. Their applicability depends upon the context and the facts and circumstances of each case. (..As pointed out by this Court in A.K. Kraipak v. Union of India [(1969) 2 SCC 262], the dividing line between quasi-judicial function and administrative function (affecting the rights of a party) has become quite thin and almost indistinguishable - ..." 104. In no uncertain terms, the importance of adopting transparency in the judicial process was highlighted in paragraph 48 of the decision by observing that keeping a party abreast of the information that influenced the decision promotes transparency of the judicial process which was discussed in T. Takano vs. Securities and Exchange Board of India (SEBI)18 with the following observations : "27. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These....
X X X X Extracts X X X X
X X X X Extracts X X X X
....audi alteram partem, meaning that a person affected must be heard before a decision he is visited with an advise. By expansion of the said principle, which it is equally made applicable to the administrative as well as quasi judicial actions, it is considered mandatory to provide for an opportunity of being heard, when an administrative action results in civil consequence to a person or an entity and every such action which involves civil consequences must be consistent with the rules of natural justice. 107. Right from the decision of the Apex Court in the case of A. K. Kraipak & Ors. vs. Union of India & Ors. (1969 (2) SCC 262 till the recent decision in case of SBI vs. Rajesh Agarwal (supra) on which strong reliance is placed by the Petitioners, it is a well settled norm that a party who is prejudiced by an order intended to be passed, is entitled to hearing, applying alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every person is protected against exercise of arbitrary authority by the State or its officers and if there is a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne SC 1905] restraining the lender banks from taking any precipitate action against the borrowers for the time being. In pursuance of our aforesaid reasoning, we hold that the decision by the lender banks to classify the borrower accounts as fraud, is violative of the principles of natural justice. The banks would be at liberty to take fresh steps in accordance with this decision." Finally it is held that application of audi alteram partem, principle cannot be impliedly excluded under the Master Directors of Frauds and the principles of natural justice demanded that borrowers must be served a notice, given an opportunity to explain the conclusion of the forensic audit report and be allowed to be represented by the banks before their account is classified as 'fraud' under the Masters Directors of Fraud. In addition, the decision to classify in the borrowers account as fraudulent must be preceded by a reasoned order. A specific direction was issued to read the principle of audi alteram partem, into the provisions of Master Directors on Frauds, which do not contemplate an opportunity of hearing to the borrower before classifying their account as fraud. 109. Another aspect which also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence of reason has rendered the impugned order unsustainable, when such order is subject to challenge before the higher forum and in this case, particularly when BNL was all the while in contact with SEBI and have complied with each of its directions to submit the documents and information from time to time, the one line order revoking settlement, justly arrived, order definitely defeats the principles of natural justice, as the reasoning in an order ensure transparency and fairness in decision making and particularly when SEBI, a Regulator is expected to act fairly while conducting proceedings or initiating any action against the parties. 111. Reliance by Mr. Bhatt in State of U.P. vs. Sudhir Kumar Singh (Supra), in our considered opinion do not apply to the facts before us. There may be situations where fair hearing would make no difference, meaning that hearing would not change the ultimate conclusion reached by its maker and in such situation, there would arise no legal duty to offer hearing. In such situation, fair procedure appear to serve no purpose since the right could be secured without according such treatment to the affected party/person and, therefore, it may not be n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vided it would have served no useful purpose. The opportunity of hearing will serve the purpose or not has to be considered at a later stage and such things cannot be presumed by the authority." 112. The decision making authority therefore itself cannot dispense with the requirement of natural justice on the ground that affording such opportunity will not make any difference as no prejudice will be caused to the person. Whether an opportunity of hearing will serve the purpose or not cannot be presumed by an authority but it is only for the Court to consider whether any purpose could be served in remanding the case keeping in mind whether any prejudice is caused to the person against whom the action is taken. In the facts before us, we find great prejudice caused to the Petitioners and though Mr. Bhatt has vehemently urged before us that principles of natural justice need not be made as a shield, as in the present case since the facts are admitted and not denied and specifically that BNL did not comply with the undertaking of providing an exit offer and even today they are not in a position to comply and do not tell the Court or to SEBI as to how they are going to ensure its compl....