Back
2008(4) Supreme 269
SUPREME COURT OF INDIA
S.B. Sinha, J.
Ritesh Agarwal & Anr. — Appellants
versus
Securities & Exchange Board of India & Ors. — Respondents
Civil Appeal No. 4681 of 2006
Decided on : 13-05-2008
(b) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 – Regulations 3 to 6 – The Regulations came into force 25.10.1995-A penal statute will not have any retrospective effect or retroactive operation- If commission of fraud was complete prior to the said date, the question of invoking the penal provisions contained in the said Regulations including Regulations 3 to 6 would not arise. (Para 16)
(c) Constitution of India,1950 – Article 19(1)(g) – A citizen of India has a right to carry on a profession or business – It is a Constitutional right – Any restriction imposed thereupon must be made by reason of a law contemplated under Clause (6) of Article 19 – In absence of any valid law operating in the field, there would not be any source for imposing penalty – By imposing the penalty the Board took away the said constitutional right for a period of ten years which was impermissible in law as the FUTP Regulations were not attracted. (Para 16)
(2001) 31 SCL 485: (2001) 45 CLA 195 (SAT); (2002) 38 SCL 310 (SAT); (2002) 38 SCL 422 – Relied upon.
(d) Indian Contracts Act – Section 11 – Ritesh Agarwal and Deepak Agarwal being minor at the relevant point of time could not have entered into any contract and hence they could not be penalized for such contract – Therefore the ban of ten years could not be binding on them. (Paras 19 and 20)
Facts of the case :
1. Ritesh Polysters Ltd. (Company) was a company incorporated and registered under the provisions of the Companies Act, 1956.
2. One Surender Kumar Agarwal was shown to be a promoter in the brochure issued by the Company. However, his wife Rookprekha Agarwal and their two sons Ritesh Agarwal and Deepak Agarwal (Appellants, who were said to be minors at the relevant time) also purported to have made contributions. The Company came out with a public issue of 30 lakh equity shares of Rs. 10/- each at a premium of Rs. 5/- per share aggregating to Rs. 450 lakhs. 15 lakh shares of Rs. 10/- each for cash at a premium of Rs. 5/- per share were reserved for firm allotment to the promoters and directors of the company and their friends and relatives. A sum of Rs. 2.25 crores (Rs. 225/- lakhs) was to be invested by the promoters. The issue went through.
3. It later transpired that Pratha Investments, Ritesh Capital and Ritesh Agarwal asked for issuance of duplicate shares contending that the shares allotted in their favour had been misplaced. An advertisement was issued. A notice was also sent to the Stock Exchange. The Stock Exchange, however, on an enquiry made in that behalf, came to learn that the alleged lost shares had in fact been sold in the market. The trading in the scrip of the Company was suspended.
4. The matter was referred to the Securities and Exchange Board of India. which directed M/s. Ritesh Polyster Limited and its promoters, viz., Ritesh Exports Ltd., Sh. Surendra Kumar Agarwal, Smt. Roop Rekha Agarwal, Sh. Ritesh Agarwal and Sh. Deepak Agarwal to disassociate themselves in every respect from the capital market related activities and not to access the capital market for a period of ten years.
5. The Tribunal negatived the plea of the appellants Ritesh Agarwal and Deepak Agarwal that they were minors at the relevant time.
6. The Tribunal opined that the Company and its promoters played fraud on the public and the Board was justified in debarring the promoters and the Company from having access to the capital market for a period of 10 years. It also agreed with the other directions of the Board.
Finding of the Court :
FUTP Regulations are not applicable in the case.
Result : Appeal allowed.
JUDGMENT
S.B. Sinha, J. —
1. Ritesh Polysters Ltd. (Company) was a company incorporated and registered under the provisions of the Companies Act, 1956.
One Surender Kumar Agarwal was shown to be a promoter in the brochure issued by the Company. However, his wife Rookprekha Agarwal and their two sons Ritesh Agarwal and Deepak Agarwal (Appellants, who were said to be minors at the relevant time) also purported to have made contributions. The Company came out with a public issue of 30 lakh equity shares of Rs. 10/- each at a premium of Rs. 5/- per share aggregating to Rs. 450 lakhs. A prospectus therefor was issued. The issue opened on 12.06.1995. It closed on 22.06.1995. 15 lakh shares of Rs. 10/- each for cash at a premium of Rs. 5/- per share were reserved for firm allotment to the promoters and directors of the company and their friends and relatives. A sum of Rs. 2.25 crores (Rs. 225/- lakhs) was to be invested by the promoters. The issue went through. It later transpired that Pratha Investments, Ritesh Capital and Ritesh Agarwal asked for issuance of duplicate shares contending that the shares allotted in their favour had been misplaced. An advertisement was issued. A notice was also sent to the Stock Exchange. The Stock Exchange, however, on an enquiry made in that behalf, came to learn that the alleged lost shares had in fact been sold in the market. The trading in the scrip of the Company was suspended.
2. The matter was referred to the Securities and Exchange Board of India (for short “the Board”). In an enquiry conducted by the Board, it was discovered that only 7.96% of the public issue had been subscribed by the public till the closing date and the promoters who were required to subscribe Rs. 225/- lakhs had invested a sum of Rs. 35/- lakhs only. A large number of other irregularities were also found. As the Board has noticed the said irregularities in great details, it is not necessary for us to repeat the same once over again. The Board, by its order dated 9.02.2004, directed:
“40. Therefore, in the interest of the investors and safety and security of the capital market, in exercise of powers conferred on me under Section 4(3) read with Section 11 and 11B of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995, I, hereby, direct M/s. Ritesh Polyster Limited and its promoters, viz., Ritesh Exports Ltd., Sh. Surendra Kumar Agarwal, Smt. Roop Rekha Agarwal, Sh. Ritesh Agarwal and Sh. Deepak Agarwal to disassociate themselves in every respect from the capital market related activities and not to access the capital market for a period of ten years.
41. Further, in light of the facts and circumstances of the case, it is already made out that the public issue by the promoters was hoax with an intention to perpetrate fraud on investors. Therefore, I am of the view that it would be appropriate to pass a direction under section 11B of the SEBI Act as a remedial measure. I hereby direct the above named promoters of Ritesh Polyster Ltd. to buy back the shares from the allottees/ shareholders offering an amount at which the shares were issued i.e. Rs. 15/- per share if the shares are fully paid or @ Rs. 7.50 per share if the shares are partly paid and delist Ritesh Polyster Ltd. from the stock exchanges.”
3. An appeal was preferred thereagainst before the Tribunal. However, none of the findings of fact were in question. The said findings of fact, therefore, had attained finality. The Tribunal, by reason of the impugned judgment, negatived the plea of the appellants Ritesh Agarwal and Deepak Agarwal that they were minors at the relevant time, stating:
“The appellants in appeal no. 43/2004 have taken a plea that they were minors at the time when the company went in for the public issue and, therefore, the Board was not justified in issuing any direction to them. We are unable to accept this plea. We are informed that the Board has launched prosecution against the company and
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
