TaxTMI 
TaxTMI 
2025 (6) TMI 1439
X X X X Extracts X X X X
X X X X Extracts X X X X
....esh Dhond, Senior Advocate a/w. Mr. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Writ Petition, WP(L) No.2325/2024, the Petitioners are Ashoka Marketing Limited, alongwith Arth Udyog 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the Regulation though it was clarified that filing of settlement application did not confer any right to settle 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 inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding Enquiry and Imposing Penalties) Rules, 1995, the Settlement Order clearly noted that the SEBI conducted an investigation in 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 Applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....voked by SEBI on 10.11.2023 as regards all the 8 entities, by invoking Regulation 28 of the SEBI (Settlement Proceedings) Regulations, 2018 alleging failure to comply with it. The order 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cluding suspension or cessation of business activities for a specified period, Exit from Management, Loss of securities, submit to enhanced internal audit and reporting requirements, restraining 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 revocati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t it shall ensure that the terms of the Settlement Order are complied with in letter and spirit by BNL as well as the other Applicants forming part of the settlement order and in case of any breach it 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 Ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d after following the appropriate procedure of processing the Applications through HPAC which recommended its acceptance and therefore, the revocation of the settlement order against the Petitioners according to 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent settlement applications with SEBI in accordance with the Settlement Regulations, pursuant to a show notice being issued on 28.10.2020 alleging non-disclosure of promoter share holding in BNL by the petitioners and resultantly 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its understanding/interpretation of para 8 (iii) of the Settlement Order, which contemplated filing of an undertaking of complying with the terms of the settlement order, including providing an exit to the public shareholders (within 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of parties, leading to multiplicity of litigation, where settlement was already worked out. According to him, a body which has to decide the matters of settlement must bear in mind the larger picture and/or policy underlying the compounding 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 alr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has invited our attention to heap of correspondence entered with SEBI in order to support his contention that SEBI was kept in loophole throughout the said process when BNL was attempting to comply with the settlement order and according to Mr. Dhond, 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 Vinee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Enforcement & Ors. 2005(4) SCC 530, as regards principle of corporate criminal liability. Reliance is also placed on the decision of the Indore Development Authority vs. Manoharlal & Ors. 2020 (8) SCC 129 to submit that when there is a disability to perform a 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10.2020 and also the application for settlement filed by BNL and the Court directed that the documents be placed in a sealed cover. 36. It is on 23.10.2023, the Division Bench by a detailed order granted prayer clause (g) of the Petition and though in the said order, an observation of the Court is to 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 vehemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... promoters and who filed settlement applications proposing to settle, through a settlement order, without admitting or denying the findings and conclusions of law, in pursuance to the enforcement proceedings being initiated against them and the settlement was accepted, after following a procedure, by obtaining inputs 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted its response, submitting that the company had approached certain public shareholders, asking if they are willing to come forth and provide an exit offer to other public shareholders of the company, for a period of two months following the buy-back, (referred to as the 'Proposed Exit Offer'). However, it also 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 pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....BNL informed SEBI that their ability to complete the exit offer has been restrained and complicated on account of the litigation by the minority shareholders, who had asked for implementation of the exit offer and sought injunction. According to Mr. Bhatt, the pendency of the legal proceedings was put up as a shield for BNL not complying 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, S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a reasonable suspicion of a litigant, as the prejudice should be a matter of fact or be based upon a definite inference of likelihood of prejudice flowing from non-observance of natural justice. To elaborate his submission, Mr Bhatt would submit that in the present case, there has been no prejudice caused to the Petitioners because they 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-obser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ails of investments of the two companies the valuation exercise carried out by a category one merchant banker has valued BCCL at approximately 79,000 crores and BPHCL at 3226 crores and BNL's direct holding in BCCL is valued at approximately 20,000 crores and indirect holdings approximately at 40,500 crores. According to Mr. Seervai it is for this 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 ultimat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... price discovery. In addition to the minority share holders i.e. the Shah Group, various other groups had addressed numerous correspondence to SEBI alleging violations by BNL and other connected entities which had resulted into institution of proceedings before Delhi High Court including the case of Mr. Aditya Agrawal & Ors. vs. SEBI Writ Petition (C) 105 of 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment advanced on behalf of the Petitioners is a fanciful dishonest argument when they talk of 'buy-back', and they offer it only to one percent of the shareholders. It is his specific contention that the use of the word 'exit' was coined as an afterthought after the settlement order was passed. Mr. Seervai is critical of the lackadaisical approach of 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 shareholder....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... all the Petitioners from that date. He would submit that BNL cannot now contend that after issuance of the settlement order, its Board of Directors recognised purported legal difficulties in complying with the stipulations therein, as BNL was always aware of the consequences of undertaking to ensure compliance and in fact, BNL had previously done buy-backs and therefore it was 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld defeat the purpose of having brought the litigation to a quietus and in fact, it would impart to revisit or relocate the settlement terms through an adjury criteria process relating to revocation. He would also submit that Regulation 28 does not contemplate an opportunity of hearing and failure to provide a hearing would not render an action illegal or illegal as no prejudice is caused 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed an investigation which resulted in issuance of the show cause notice, as it focussed its attention on BNL, a company incorporated whose shares were listed at Delhi Stock Exchange ( DSC ) as well as Calcutta, Stock Exchange,(CSE) and in 2019, the scrip was transferred to the dissemination board of NSE, with its total shareholding of 29,19,722%. BNL was identified as one of the largest shareholders 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 Ja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce drawn to the effect that in case of all the eight noticee's, apart from the shareholding held by Shri Vineet Jain, the majority shareholding was held by BNL and other shareholders of BNL i.e. Arth Udyog Ltd, Matrix Merchandise Ltd, Mahavir Finance Ltd. The show cause notices attributed the lapse on part of each noticee separately. 58. The investigation by SEBI divulged, the control over Bharat Nidhi Ltd. through Ashoka Marketing Ltd. as well as Arth Udyog Limited and its connect with the BCCL to reveal that two out of four Directors 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lage the actual share holding of Shri Vineet Jain and this structured manner reflected a deliberate attempt on the part of the company/promoters of BNL to mislead the non-promoters investors of the listed entity, though the true nature of BNL indicated controlled by the noticees. It was alleged that the non-disclosure by the promoter entities of the Company having shareholding of 77.31% adversely effected the actual interest of the share holders and they were accused of perpetuating a fraud on promoter share holders of BNL and of violating Section 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 prohibit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the extent possible, is to be made after making the required disclosure. 66. Chapter III of the Regulations set out the scope of settlement by specifically prohibiting applications to be considered in certain situations prescribed. Sub-clause (3) of Regulation 5 prescribe guidelines for settling any specified proceedings pending before the Board and it require following factors to be considered: "(a) whether the applicant has refunded or disgorged the monies 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;" 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 m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contains provisions as regards the settlement order, in form of an appropriate order which shall dispose of the respective proceedings, on the basis of the approved settlement terms by the panel of WTMs. The settlement order passed under the Regulations is expected to contain the details of the alleged detail(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default as well as the admission made by the applicant, if any, and the terms of settlement. The settlement order as soon as it is passed, shall be served on the applicant as per 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 restor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....early stipulating conditions qua each of them and the settlement order dated 12.09.2022 categorically recorded the settlement terms formulated as per SEBI Regulations 2018. Name of the Applicant Settlement Terms formulated as per SEBI (Settlement Proceedings) Regulations, 2018 Bharat Nidhi Limited Rs. 2,43,10,000/- (Rupees Two Crore Forty Three Lakh Ten Thousand Only) as settlement amount along with voluntary undertaking: (i) to provide another exit offer to its public shareholders for a period of three months after Settlement Order at the same exit price as was offered in the offer given by it in 2019, subject 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t pending enforcement proceedings for the alleged default against all the applicants (Petitioners before us) were settled and the enforcement proceedings initiated by SEBI for the defaults stood disposed off and SEBI was restrained from initiating any enforcement action against the applicants for the said defaults. The settlement order also cast an onus on BNL to submit a report of compliance with terms of its undertaking given at paragraph 5, within fifteen days of passing of the settlement order, failing which, it contemplated that the settlement order shall cease to operate qua all the applicants. The copy of the settlement order was sent 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 prescri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts. Mr. Seervai and Mr. Bhatt are categorical in their submission when they submitted that Bharat Nidhi was under obligation to submit the report of compliance with the terms of its undertakings in paragraph 5 of the settlement order within 15 days of the passing of the order, failing which the settlement order ceased to operate qua all the applicants. Mr. Dwarkadas and Mr. Kamat representing Bharat Nidhi Limited, have advanced two-fold argument; first being, no case for non-compliance is at all made out as SEBI was all the while supportive of the steps taken by BNL in complying with the non-monetary terms but all of a sudden chose to revoke the settlement order by invoking 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement order. It is therefore necessary to examine as to what steps were taken by BNL to ensure compliance of this particular stipulation as it is violation of this part of the settlement order which forms the basis of its revocation. After the settlement order was passed on 12.09.2022, BNL convened a meeting of the Board of Directors when it passed a resolution for buy-back of 1.067% of shares of BNL at the price of INR 11,229/- per share. It also accorded approval of postal ballot to be issued to the share holders seeking their approval for buy-back and approval was also accorded to approach those share holders holding more than 1% shares of BNL, who had previously in 2019 expressed their 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... per BNL, SEBI was aware that 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 shareholders. Followed by this, on 30.09.2022, BNL addressed letter to all shareholders who were holding more than 1% of its share to ascertain their willingness to continue to remain its shareholders and its intention to provide exit to other public shareholders for a period of two months at the same price as that of buy-back offer (INR 11,229/-) (Proposed Exit Offer). 82. Pursuant to this step taken, TM Investments, Sanmati Properties and Vineet Jain expressed their interest to provide exit to the shareholders i.e. by participating in the Proposed Exit Offer and they provided their willingness to provide an exit to 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. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t order and as to how the restraint order has impacted its further steps. 85. An important milestone came when SEBI itself filed an affidavit before the Bombay High Court making a categorical statement that the settlement order did not provide the manner in which the exit offer was to be provided by BNL and that in the wake of the order dated 17.10.2022 passed by the Bombay High Court, BNL had not been able to finalize the exit offer by way of buy-back. It is thus evident that whatever steps were taken by BNL was all made known to SEBI and SEBI did not initiate any action, being was convinced that BNL was committed to provide exit to all public shareholders. BNL had also furnished to SEBI the names of the shareholders who would provide the Proposed Exit Offer namely, TM Investments, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....seeking an exit, through buy-back and Proposed Exit Offer. It also stated that BNL would follow a stepwise process to provide an exit to its share holders and ultimately reiterated its commitment to provide an exit to all its existing public share holders. BNL also highlighted that it shall ascertain if excess shares shall be tendered for an exit, since during previous buy-back conducted in 2019, only 0.68% out of 0.75% shares were tendered and the buy-back offer was under subscribed. 87. The entire communication placed on record between SEBI and BNL, where SEBI called upon BNL to submit the exit process for potentially willing shareholders and also calling upon it to submit letters by the remaining shareholders i.e. 77.83% shareholding indicating their willingness to participate in the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and as a step towards this, it initiated the process of buy-back of shares necessarily, in accordance with Companies Act, 2013 and the Companies (Share Capital and Debenture) Rules 2014. According to BNL, it opted for buy-back as a first step since it was one of the fastest mechanism to provide exit and even in 2019, BNL had resorted to the same mechanism. In any case, we find that there was no particular mode of exit which was specifically prescribed by SEBI in the order of settlement dated 12.09.2022 which left it open for BNL to adopt a mode which would achieve a target of providing exit and this was clarified by SEBI in the affidavit filed in the Petition by minority shareholders when it concurred the view of SEBI that no particular mode of exit was contemplated in the order. SEBI chose buy-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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chanism of buy-back which it offered in the year 2019 BNL found itself to be bound by Section 68 of the Companies Act read with Rule 17 which mandated that a company can buy-back only up to 25% of aggregate of its paid-up capitals and free reserves and in case of BNL, this aggregate as on 31.08.2022 was Rs.13,905.36 lakhs and 25% of it was computed as Rs.3,476.34 lakhs and it was therefore permissible for BNL to buy- back the shares only to this extent. Since the exit price was fixed by SEBI at Rs.11,229/- per share, the number of shares which could be brought back was estimated to be 30,958/- equity shares which aggregated to 1.067% of its shares. Any offer by BNL to buy-back share holding in excess of 1.067% could have been violation of law and therefore BNL is justified in restricting its buy-back to 1.067% of its share 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 ke....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this could have been ensured complete adherence to the terms of settlement. In fact what is worth to note is that the entire arrangement devised by BNL was discussed with SEBI and forms part of the correspondence exchanged and SEBI never raised any murmur in this regard thereby directly or indirectly indicating that it found the action of BNL to be not headed in tune with the settlement, which necessarily had to be complied with by keeping in mind the statutory regime. The exchange of communications between BNL and SEBI right from 27.09.2022 till 04.08.2023, is clearly indicative that BNL had kept SEBI informed about the manner in which it planned to comply with the settlement order and SEBI never indicated its dissatisfaction on the proposed compliance. 96. Though a serious attempt is made on behalf of learned Senior Counsel Mr. Dwarkadas 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 intenti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty of hearing to the Petitioners before the revocation order was passed as its action involved civil consequences and in particular when the breach alleged is not wilful but it is the case of BNL that it was disabled from completing its course of action leading to a full dressed compliance of the terms of settlement. BNL had three buyers before it which was part of its first step but was unable to complete the transaction in the wake of the order passed by the Court restraining it from finalizing the offer. The well known maxim "Lex non cogit ad impossibilia" - "The law compels no impossibility", being discussed in Bennion's Statutory Interpretation, IVth Edition at page 969, "when an enactment requires what is legally impossible, it will be presumed that parliament intended it to modify so as to remove the impossibility element" and this principle 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 Author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the common affidavit filed on behalf of SEBI, it is admitted that BNL undertook to provide exit offer to its public shareholders for period of three months after settlement order at the same exit price which was offered in 2019 and therefore it was imperative for it to provide an exit offer. In addition, it is the stand of SEBI that the show cause notice dated 28.10.2020 was a composite notice against all eight Petitioners and the Order dated 12.09.2022 was a composite order which bind all the eight entities. This order, according to the affidavit of SEBI was to be complied in letter and spirit by all eight entities and SEBI categorically state that it was continuously examining if they are complying with the directions contained in the settlement order and it so stated in its affidavit dated 13.03.2023. If this is the stand of SEBI and particularly when it did not address any 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 impugn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers, it has become difficult to take any further steps with respect to the Proposed Exit Offer. The petitioners to the Writ Petitions have challenged the terms of the Settlement Order and have inter alia sought quashing of the Settlement Order by the BHC. Therefore, pending directions from the BHC permitting the Company to proceed further in providing an exit to its shareholders by finalising the Buy-back Offer, it will not be appropriate to proceed further with the Proposed Exit Offer at this stage; accordingly, the Proposed Exit Offer has been kept on hold till the time the Company is permitted to finalise the Buy- back Offer. 8. We request your understanding and co-operation in considering that the Company has made its best efforts to comply with the Settlement Order, and the inability to complete the Buy- back Offer within the prescribed timelines is borne solely out of the Interim Orders 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act or Rules made or directions issued by it, it is expected to act in a fair manner and shall make no attempt to circumvent the Rule of law. As observed by the Apex Court in the case of Reliance Industries Ltd. v. SEBI17, there is a substantive duty on the Regulator to show fairness, in the form of public cooperation and deference. The observations of the Apex Court in paragraph 45 is worth to be taken note of : "45. The duty to act fairly by SEBI, is inextricably tied with the principles of natural justice, wherein a party cannot be condemned without having been given an adequate opportunity to defend itself. In State Bank of Patiala v. SK Sharma, (1996) 3 SCC 364, this Court while dealing with document disclosure and natural justice held as under: (SCC pp. 385-86, para 28) "28. The decisions cited above make one thing clear, viz., principles of natural justice cannot be reduced to any hard and fast formulae. 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 ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... adhere to the principles of natural justice. 106. Rival contentions are advanced before us whether it was necessary for SEBI to pass a speaking order, without any opportunity of hearing or being afforded on consideration of its representation, as according to the Petitioners, the order prejudices them and particularly when SEBI as a public authority has a duty to act in a fair and transparent manner and that the arbitrary and hasty decision taken by it fail to follow due process of law. It is trite position of law that principles of natural justice are not merely formalities but they constitute substantive obligations that need to be adhered to by the decision making and adjudicating authorities, it so a quasi-judicial authority. The adherence to the principles, act as a guarantee against arbitrary action, both in terms of procedure and substance and the two well known fundamental principles of natural justice cover a pivotal principal of 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 act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5. In light of the legal position noted above, we hold that the rule of audi alteram partem ought to be read in Clauses 8.9.4 and 8.9.5 of the Master Directions on Fraud. Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying their accounts as fraud. Therefore, the impugned decision to classify the borrower account as fraud is vitiated by the failure to observe the rule of audi alteram partem. In the present batch of appeals, this Court passed an ad interim order [Shree Saraiwwalaa Agrr Refineries Ltd. v. Union of India, 2022 SCC OnLine 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 bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not but observe that the said order is unreasoned and it do not satisfy the requirement of the order being compliant with the rules of natural justice, as reasons substitute subjectivity by objectivity. The rationale in passing a reasoned order is also being that the affected party know why the decision has gone against him and this being recognised as a statutory requirement of natural justice, the impugned order which fails to ensure its compliance cannot be sustained. The one sentence order revoking the settlement order without offering any explanation or detail to support and particularly having been passed 14 months after settlement order is passed, with a heap of correspondence entered into between the parties, in our opinion, the impugned order of revocation, which failed to give any reason for its conclusion by submitting that Regulation 28 contemplate automatic revocation if there is no compliance, is not an argument which would persuade us to be accepted. Absence 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 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, every violation of a facet of natural justice may not lead to the conclusion that the order passed is always null and void. The validity of the order has to be decided on the touchstone of "prejudice". The ultimate test is always the same viz. the test of prejudice or the test of fair hearing. ... 42. So far so good. However, an important question posed by Mr Sorabjee is as to whether it is open to the authority, which has to take a decision, to dispense with the requirement of the principles of natural justice on the ground that affording such an opportunity will not make any difference? To put it otherwise, can the administrative authority dispense with the requirement of issuing notice by itself deciding that no prejudice will be caused to the person against whom the action is contemplated? Answer has to be in the negative. It is not permissible for the authority to jump over the compliance of the principles of natural justice on the ground that even if hearing had been provided 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 pre....