1997 Supreme(Guj) 104

Gujarat High Court
Judgename :R.BALIA
Alka Synthetics Ltd. - Appellant
Versus
Securities and Exchange Board of India (SEBI) - Respondent
S.C.A. 2224 of 1996
Decided On : 02/19/1997

Headnote:(a) Constitution of India, 1950 - Art. 226(1) & (2) - [As inserted as Clause (1-A) by Constitution (Fifteenth Amendment) Act, 1963 & renumbered as Clause (2) by the Constitution [Forty Second Amendment] Act, 1976 - Order to Securities Exchange Board of India to impound and/or confiscate whole or part of consideration of transaction - Jurisdiction of Court challenged to entertain petition as no part of cause of action has arisen within the State of Gujarat comprising territorial jurisdiction of the Court - Court discussing the scope & object of incorporation of Clause (2) to Art. 226 held that it was not correct to say that no part of cause of action has arisen within the jurisdiction of the Court - Affairs of buying & selling of petitioner companys shares which is the foundation of the impugned order has taken place at Ahmedabad - Petitioners registered office is at Ahmedabad & notices of investigation were served on petitioner at Ahmedabad - Statements in pursuance of that were recorded at Ahmedabad - As a result of said investigation impugned order came into existence affecting petitioner - Order is required to be served at Ahmedabad & in fact the same has been served at Ahmedabad - In the facts it can not be said that no cause of action has arisen within the territorial jurisdiction of the Court - Held, contention with regard lack of jurisdiction of the Court is therefore rejected as having no force.

       It has been urged that as no part of cause of action has arisen within the State of Gujarat, petition under Art. 226 challenging the impugned orders are not maintainable, in the High Court of Gujarat. Clause (2) of Art. 226 provides that the power conferred by Clause (1) to issue directions, orders and writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories. Clause (2) of Art. 226 was inserted as Clause (1-A) by the Constitution (Fifteenth Amendment) Act, 1963 and was renumbered as Clause (2) by the Constitution (Forty- second Amendment) Act, 1976. The amendment in the Constitution was brought as a consequence of difficulties arising out of decisions rendered prior to such insertion that the writs issued by any High Court do not run beyond the territories in relation to which each High Court exercises jurisdiction. As a result of the insertion of the said provision any government or authority or person became amenable to the jurisdiction of the High Court notwithstanding that the seat of such Government or authority or the residence of such person happened to be beyond the territories in respect of which the High Court exercises its jurisdiction if cause of aciton for issuing any writ, direction or orders whether wholly or in part has arisen within the territory in respect of which the High Court is exercising its jurisdiction.

       [Para 9]

       The conclusion is irresistible that holding of investigation in the affairs of buying and selling and dealing with the shares by the petitioner company qua the shares of MIL, is an integral part of the whole cause of action giving rise to the present claim of the petitioner and therefore citus of investigation will obviously be a citus of at least a part of cause of action giving territorial jurisdiction to the court exercising jurisdiction over that citus. On the facts averred by the petitioner, which remain undisputed, lending additional support to the pleadings about investigation, if part of investigation at least has been held at Ahmedabad and the investigation being the foundation of the impugned order and such investigation in the case of petitioner for bringing into existence the impugned order has taken place at Ahmedabad, which undisputedly and undeniably is within the territory over which this Court exercises jurisdiction. This alone is sufficient to hold that the High Court of Gujarat had territorial jurisdiction to examine the issue and issue appropriate directions in respect of the impugned orders which have been founded on an investigation part of which have taken place at Ahmedabad within its territorial jurisdiction.

       [Para 15]

       It is not disputed that petitioners registered office is at Ahmedabad within the territorial jurisdiction of this Court. The notice of investigation were served at Ahmedabad. Statements in pursuance of that were recorded at Ahmedabad. As a result of said investigation impugned order came into existence affecting petitioner will also be required to be served at Ahmedabad, and in fact the same has been served at Ahmedabad.

       [Para 19]

       Moreover in the present case, the order has been made as a result of enquiry. It had been made without hearing of affected parties. It envisaged post decisional hearing to affected parties. Therefore service of the order, in the very nature of things, was an essential part of whole gamut. To save it from being void for want of fair procedure, in fact, the order itself made it requisite for its effectiveness, that it be served on all members of Stock Exchange and other affected parties. Therefore, in the circumstances of the present case service of order, as distinguished from service of notice prior to enquiry as was the case before, the Supreme Court in Swaika Propertys case is an integral part of cause of action. Rather service of it itself furnished cause of action to seek remedy against it. As discussed, the order was required to be served at Ahmedabad and was in fact served at Ahmedabad, the decision in Swaikas case does not further the case of objections.

       [Para 23]

       The place where the order is served on the person affected affecting his rights at that place is a part of cause of action, and gives territorial jurisdiction to the courts within whose territory the place at which service of the order has been effected affecting the rights of the person concerned is situated or to say the court within whose territorial jurisdiction lies citus of right which is affected by the impugned order and that right is actually affected by service of impugned order within that territory has the jurisdiction to entertain challenge as to validity of such orders.

       [Para 29]

       (b) Constitution of India, 1950 - Art. 226 - Order of Securities & Exchange Board of India impounding and/or confiscating of whole or part of consideration of a completed transaction - Nature of order - Same can not be accepted as interim order till finally decided after considering representation made - Order expresses itself in no uncertain terms that authority has reached final conclusion about its decision.

       It is abundantly clear that there is no way in which the impugned order can be treated as interim order, it expresses itself, in no uncertain terms the authority has reached final conclusion about its decision to impound the part of consideration received by Stock Exchange by dispensing with the requirement of a hearing of the affected parties and has after making final order left it open for those who are aggrieved to seek post-decisional hearing. Thus, post-decisional hearing has been offered to those who are desirous of availing the opportunity of post-decisional hearing for review of their cases but is not an interim order as such subject to final decision after hearing all concerned. It may be noticed that so far as SEBI, it has not even thought it fit to inform about this order to affected parties when it admits of the fact that members as well as other persons are affected, nor even discloses who are the affected parties but left it to Stock Exchange to find out and inform such parties about the order.

       [Para 40]

       Without going into the merits of the contention at this stage, suffice it to say that the contention which goes to the root of the matter about authority to make any order of impounding at all whether by way of intrim order or final order and concerns the very existence of jurisdiction with the SEBI to deal with the proceeds which have reached Stock Exchange as a result of concluded transaction and has become actionable claim of respective parties, cannot be shut out solely on the ground of the order being interim in character. It is not the case of respondents either that decision about authority of SEBI to pass such order is subject matter of post decisional hearing and revisable on reaching other conclusion after hearing.

       [Para 41]

       (c) Constitution of India, 1950 - Art. 226 - Existence of alternative remedy - Does not bar jurisdiction of court in appropriate cases - Matter vests with the discretion of the court - Two accepted principles, one when order based on complete lack of jurisdiction and second when order made in violation of principles of natural justice are not the only exception and by no means exhaustive - In the instant case however both the accepted exceptions are pleaded & if either of contention is sustained petition is maintainable irrespective of the fact that alternative remedy by way of appeal was available to the party - That apart both parties have argued the matter fully & in that view of matter petition can not be thrown out solely on the ground of availability of alternative remedy.

       The wide proposition that the existence of an alternative remedy is a bar to the entertainment of a petition under Art. 226 of the Constitution unless (1) there was a complete lack of jurisdiction in the officer or authority to take the action impugned, or (2) where the order prejudicial to the Writ Petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est and that in all other cases, courts should not entertain petitions under Art. 226, on in any event not grant any relief to such petitioners cannot be accepted. The two exceptions to the normal rule as to the effect of the existence of an adequate alternative remedy are by no means exhaustive, and even beyond them a discretion vests in the High Court to entertain the petition and grant the petitioner relief notwithstanding the existence of an alternative remedy.

       [Para 45]

       In the present case as has been noticed challenged to the impugned order is founded on lack of inherent jurisdiction in the form of lack of authority of law for making such order, and orders having been made in breach of principles of natural justice have been made ground of attack. If either of the contention is sustained it would render the orders impugned void or non est and the case comes under two propositions generally accepted as normal exceptions to the general rule against entertaining the petitions under Art. 226 in the face of availability of alternative remedies

       [Para 47]

       Thus apart from the fact that ordinarily after matter has been argued fully on merit, it is not desirable to throw out the petition solely on the ground of availability of alternative remedy, insisting upon the present petitioner to avail of alternative remedy, before the appellate authority whose views are already known will be a futile exercise.

       [Para 50]

       (d) Constitution of India, 1950 - Art. 226 - Locus standi - Finding as to - Difference of money recovered from short sellers as a result of closing out on non-delivery of scrips is payable to purchaser - It is an actionable claim of purchaser whose transaction has not been honoured & forms his property - As the rights of petitioner to enforce such actionable claim is adversely affected by impugned order of Securities & Exchange Board of India they could not be held to have no locus standi to maintain this petition.

       Transaction had in fact been concluded on non delivery of scrips by shortsellers as per Stock Exchange bye laws, in consonance of which SEBI also issued directions, by recovering of the price from short sellers. Therefore as per the regulations of the Stock Exchange on such recovery it became an amount payable to the purchaser. In fact as per the averments made by the petitioner in this petition his part of the consideration which has been made good to the Stock Exchange for concluding the transactions by auction were paid to him but the balance money, the difference recovered from the short sellers, as a result of closing out had not been made to him. If as per the regulations the money becomes payable to the purchaser on being closing out. Any order which affects such right of the purchaser cannot be said to be an order which does not result in affecting the rights of the petitioner adversely so as to keep him away from the category of person aggrieved or a person who has suffered loss. Plea of want of locus standi in the petition for the reason of non-existence of any loss or any order adverse to him cannot be sustained.

       [Para 71]

       Right to receive the full consideration by the offerer of shares at auction or right of purchaser to receive differential amount received by the Stock Exchange as a result of closing out of the transaction or non-availability of scrips for delivery is an actionable claim of the offerer of scrips at the auction or the purchaser whose transaction has not been honoured and forms his property, which as a result of directives of the Board to retain that amount to be utilised at the directions of the Board instead of it being paid to the persons who are entitled to it. As the rights of the petitioner to enforce such actionable claim is adversely affected by intervention of SEBI, their locus standi to maintain this petition cannot be doubted.

       [Para 72]

       (e) Words & Phrases - Law - As used in Art. 300-A of Constitution - Meaning of - It means an Act of Parliament or of State Legislature, rule or statutory order having force of law.

       The word `law used in Art. 300-A must be an Act of Parliament or of State Legislature, rule or statutory order having force of law.

       [Para 112]

       (f) Constitution of India, 1950 - Arts. 300-A, 265 & 263(3) - Depriving a person of his property save by authority of law - Meaning & Scope of - Pronouncing of law must precede the act referable to such authority is not the only requirement but law must be created by clear, unambiguous & express enactment - There can not be any room for inferring the existence of necessary authority of law by attributing inferential intention.

       This establishes in no uncertain terms that not only that pronouncing of law must precede the act referable to such authority of law and that law which results in depriving a person of his property by way of liability in the form of penalty must be created by clear, unambiguous and express enactment, there cannot be any room for inferring the existence of necessary authority of law by attributing inferential intention.

       [Para 128]

       (g) Securities & Exchange Board of India Act, 1992 - Secs. 11, 11-B - National Stock Exchange Capital Market Trading Regulations, 1955 - Rules 11 & 12 - Depriving a person dealing at stock exchange on considerations which have crystalised in an actionable claim - Validity - Board has no authority under any of the provisions of the Act, Rules or Regulation to justify it action of impounding whole or any part of consideration of the completed transaction to which the person is entitled to receive.

       The Board had no authority under any provisions of the Act, Rules or Regulations under which it functions to impound whole or any part of consideration of a completed transaction to which the person entitled to receive consideration have acquired right to claim.

       [Para 237]

       (h) Natural Justice - Impugned orders made without affording an opportunity of hearing on ground that orders are not by way of penalty but for restoring the market condition - Court having considered the facts of the case held that impugned orders affects the petitioners adversely and in absence of any statutory provisions to exclude the application of principle of natural justice, ordinarily this lack of opportunity of hearing to petitioners would alone be sufficient to vitiate the order - Post decisional hearing including appeal against the order can not cure the invalidity attached to the orders having been make for want of adherence to the principle of natural justice.

       There is ample authority for the proposition that if natural justice is violated by the original authority that right of appeal is not a remedy which can correct the initial lack of fair trial by the original authority, as it would result in unfair trial followed by a fair trial as a substitute for fair trial followed by appeal.

       [Para 261]

       The Central Government while hearing appeal has found it unnecessary to afford an opportunity of hearing at all in respect of the impugned order, because in its opinion it did not at all affect the petitioner adversely to raise any grievance about it. Since I have reached conclusion that the orders do affect petitioners adversely, ordinarily this lack of opportunity to the persons affected by order would alone be sufficient to vitiate the order and render them void ab initio unless adherence to principles of natural justice can be deemed to have been excluded by statutory provisions expressly or by necessary implication. In the instant case, there is no plea, nor it can be that there is any such exclusion of applying the principles of natural justice before making orders affecting the rights of parties. On the contrary it will be seen presently that there is express mandate in the parent statute itself as well as in the regulations for affording an opportunity of hearing before orders can be made.

       [Para 239]

       It is held that in the present cases, post-decisional hearing cannot cure the invalidity attached to the impugned orders having been made for want of adherence to principles of natural justice.

       [Para 256]

       It cannot be doubted that post decisional hearing itself is fraught with danger of inherent unfairness of procedure and can be resorted to only in exceptional circumstances. Ordinary rule of natural justice, whether under statute or on general principle is that an opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order. Post decisional hearing is only a substitute of predecisional hearing in cases where requirement of hearing is not part of express provision of statute, in very emergent and exceptional circumstances.

       [Para 257]

       (i) Principle of unjust enrichment - Applicability - Principle proceeds on the basis that it would be unjust to allow one person to retain a benefit received at the expense of another - Facts in the present case are not open to be interfered on ground of unjust richment because no profit has arisen at the cost of some body elses cost & no manupulation on the part of any of parties is even alleged - Instead in the case by its own action Board has permitted the windfall profit to come into existence & has deprived the persons entitled to receive it - Relief on ground of unjust enrichment cannot also be disallowed because it is not case where refund has been claimed from the State which lawfully does not belong to him.

       The principle of unjust enrichment has been applied where the money has already been recovered by the State authority under the existing provisions of law which may ultimately be held to be ultravires and such money in fact is given circumstances may not belong to a person who has actually paid but belong to third persons who are entitled thereto or at whose cost he has become unjustly rich. It is in such cases or where tax is assumed to have been passed on to consumers or to the persons from whom actually the tax payer is assumed to have collected so that by retaining such amount there is no deprivation of the property of the person concerned by the State which is not authorised by law, inasmuch as an amount which is held not to be belonging to the claimant and who is claiming refund on the ground that he may be refund it to the actual claimants really do not result in depriving that person of anything which can be said to be a property of the claimant.

       [Para 270]

       It is not the case that such invitation by Stock Exchange was in any way part of manipulation. It was open to Stock Exchange not to intervene. Therefore, so far as the transaction in question was concerned, no manipulation on the part of any of the parties concerned is even alleged, nor profit arising out of such transaction can be said to be an unlawful enrichment at somebody elses cost. Moreover, it was open, assuming that it had power to do so, for the Board, to have cancelled the transaction altogether and obliterated the unlawful profits, and prevented the alleged windfall profits to have arisen at all. Instead by its own auction it has permitted the windfall profits to come into existence which in its opinion should not at all have arisen and then proceeded to exact it for its own purposes and deprived the person who were otherwise entitled to receive it. This does not warrant the invocation of principle of under enrichment in the present case.

       [Para 275]

       The transactions out of which the proceeds have arisen and reached the hands of Stock Exchange were as a result of lawful culmination of outstanding transaction of purchases for want of availability of delivery with shortsellers, through the intervention of Stock Exchange by adopting well established practice, recognised by regulations of Stock Exchange itself, of squaring up transaction either by auction call or by closing up. On such lawful conclusion of squaring up process, the proceeds recovered by Stock Exchange lawfully belongs to deliverer of scrips/purchaser of shares as the case may be. The amount held by Stock Exchange was only for the benefit of those in respect of whose transactions it has acted. The buyer of the scrips or deliverer of scrips at auction sale, does not receive or hold consideration proceeds for benefit of anyone else. The consideration also did not reach SEBI. If the transaction were to be cancelled, no proceeds will at all arise to give occasion for applying doctrine of unjust enrichment. If transactions are allowed to be completed in regular manner then only person lawfully entitled to receipts made by Stock Exchange is the person who has offered the shares at the auction of Stock Exchange or of the buyer in whose transaction difference in price has been recovered from short sellers only for the benefit of buyer. In either case for reaching such proceeds to brand the same to be illegal gotten is nothing but an order of exaction of money which have become part of actionable claim of the person who are entitled to it under law but for the impugned orders. Impugned order do not propose to or purport to act for the benefit of those to whom the gains rightfully belong, and it could not be because, it rightfully belonged to receiving party to contract. The impugned orders directly purport to deprive the petitioners or persons like petitioners of the property which belongs to them under law.

       [Para 276]

       Moreover this is not a case where a person is claiming refund or return of money which has come in possession of State the paramount repository of public interest and it does not want to return for individual benefit, which lawfully does not belong to him. It may be noticed that denying relief on principle of unlawful or unjust enrichment has been enunciated with respect to cases where a person has either collected taxes from persons which were not leviable or prices in excess of regulatory prices fixed under statutory orders, which lawfully othewise did not belong to him, or was an illegal exaction in the hands of person himself. Where such amounts had already reached public coffers and a claim to such amount was laid on the ground that levy having been held to be unauthorised, the State has no power to retain it and the same may be returned to the person who has paid it into State exchequer, irrespective of the fact whether he himself is entitled to it or not.

       [Para 277]