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2012 Supreme(Bom) 113
High Court of Judicature at Bombay
D.Y. CHANDRACHUD & A.A. SAYED
Shilpa Stock Broker Pvt. Ltd. & Another
Versus
Securities and Exchange Board of India
WRIT PETITION NO. 2120 OF 2011
Decided on: 17-01-2012
For the Appellants:Janak Dwarkadas, Senior Advocate with Zerick Dastur, Ms. Sneha Sheth i/by J. Sagar, Associates, Advocates.
For the Respondent:Darius J. Khambata, Additional Solicitor General of India with Dr. Poornima Advani, Ajay Khaire i/by The Law Point, Advocates.
SEBI's Guidelines for Consent Orders and Composition of Offences are administrative in nature and do not confer a vested right in any person to insist on the acceptance of a proposed settlement. The guidelines are intended to enable SEBI to obviate time-consuming proceedings in appropriate cases, and SEBI cannot be compelled to settle a dispute.
Headnote:
SEBI - Consent Orders and Composition of Offences - Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996 - Guidelines for Consent Orders and Composition of Offences under SEBI Act, SCRA, and Depositories Act - The court discussed the validity of SEBI's Guidelines for Consent Orders and Composition of Offences, the distinction between pending and concluded proceedings, and the regulator's discretionary power to resolve disputes. The court emphasized that SEBI cannot be compelled to settle a dispute and that the guidelines are intended to enable SEBI to obviate time-consuming proceedings in appropriate cases.
Fact of the Case:
The case involved a petition challenging the requirement of the pendency of court proceedings or an adjudication in SEBI's Guidelines for Consent Orders and Composition of Offences. The petitioner, a stockbroker, sought a mandamus to strike down the requirement as arbitrary and violative of Article 14 of the Constitution, or to direct SEBI to read the requirement of pendency to mean and include pendency of enforcement proceedings post-adjudication. The petitioner also sought enforcement of a settlement application recommended by a High Powered Advisory Committee and approved by SEBI's Whole Time Members.
Finding of the Court:
The court found that SEBI's Guidelines for Consent Orders and Composition of Offences are administrative in nature and do not confer a vested right in any person to insist on the acceptance of a proposed settlement. The court held that the adjudication initiated by SEBI had attained finality before the Supreme Court, and a proceeding which has attained finality cannot be reopened. The court dismissed the petition, emphasizing that SEBI cannot be compelled to settle a dispute and that the guidelines are intended to enable SEBI to obviate time-consuming proceedings in appropriate cases.
Issues: The issues involved the validity of SEBI's Guidelines for Consent Orders and Composition of Offences, the distinction between pending and concluded proceedings, and the regulator's discretionary power to resolve disputes.
Ratio Decidendi: The court held that SEBI's Guidelines for Consent Orders and Composition of Offences do not confer a vested right in any person to insist on the acceptance of a proposed settlement. The court emphasized that the guidelines are intended to enable SEBI to obviate time-consuming proceedings in appropriate cases and that SEBI cannot be compelled to settle a dispute.
Final Decision: The petition was dismissed, and no costs were awarded. The court refused to grant a stay of operation of the judgment.
DR. D.Y. CHANDRACHUD, J.
1. The Securities and Exchange Board of India (SEBI) has framed on 20 April 2007 Guidelines for Consent Orders and for considering requests for composition of offences under the Securities and Exchange Board of India Act, 1992, The Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996. These proceedings under Article 226 of the Constitution have been instituted for issuance of an appropriate writ striking down the requirement of the pendency of the court proceedings or an adjudication, contained in clauses 8, 11 and 17 of the Guidelines as being arbitrary and violative of Article 14 of the Constitution. In the alternative, the Petitioners seek a mandamus directing SEBI to read the requirement of pendency to mean and include pendency of the enforcement proceedings post adjudication. A mandamus is also sought directing SEBI to enforce the willingness conveyed in a letter dated 18 August 2010.
2. The First Petitioner is a Stock Broker registered under the SEBI (Stock Broker and Sub Broker) Regulations, 1992. Sometime in October 2003 the Petitioner was charged by SEBI of having dealt with an unregistered Stock Broker while executing trades on behalf of one of its clients and of having carried out manipulative trades. By an order dated 30 December 2005 SEBI adjudicated upon the notice in exercise of powers conferred by Section 19 and suspended the certificate of registration of the First Petitioner for a period of one month. In a statutory appeal the Securities Appellate Tribunal by its decision dated 27 June 2006 held that the charge of engaging in manipulative trades was not sustained but upheld the finding of the Adjudicating Officer that the First Petitioner had dealt through an unregistered broker. The Tribunal substituted the penalty which was imposed by SEBI with a direction that the Petitioners shall be subjected to a monetary penalty of Rs. 1 lakh. SEBI carried the matter in appeal to the Supreme Court under Section 15Z. By a judgment dated 21 April 2009 the Supreme Court allowed the appeal. The order of the Tribunal was set aside and that of SEBI was restored. A Review Petition was filed by the First Petitioner before the Supreme Court. During the pendency of the Review Petition, the First Petitioner filed an application to the Executive Director of SEBI for a settlement. The Review Petition was dismissed by the Supreme Court on 31 March 2010 both on the ground of limitation and on merits. By a communication dated 18 August 2010 SEBI informed the First Petitioner that the application filed for a consensual resolution was recommended by a High Powered Advisory Committee and was approved by a panel consisting of Whole Time Members of SEBI. However, since the Review Application was dismissed by the Supreme Court, the First Petitioner was advised to take appropriate steps if it wished to settle the matter under the Consent Scheme. The First Petitioner thereupon filed an Application for permission/clarification before the Supreme Court specifically stating therein that though the procedure for a settlement had been initiated during the pendency of the proceedings in the Review Petition, the Review Petition was dismissed before the outcome of the Consent Application could be communicated. The Application which was moved before the Supreme Court was dismissed as withdrawn by an order dated 21 January 2011. Following this, proceedings have been instituted before this Court under Article 226 of the Constitution on 18 October 2011 seeking reliefs which have been adverted to above.
3. Counsel appearing on behalf of the Petitioners submitted that (i) Under clause 7 of the Guidelines the process for obtaining a Consent Order can be followed where a criminal complaint has not yet been filed but is envisaged. SEBI is vested with the power to institute a criminal prosecution under Regulation 25. The word “envisage” in Regulation 7 would cover a situation where SEBI has the power to i
