PC:-

1. The Petitions challenge a rejection by Securities Exchange Board of India (“SEBI”) of what is called a Settlement Application. The facts in the two Petitions are identical and we will therefore refer to the record in Writ Petition (L) No. 11717 of 2023. The Petitioner in the second Writ Petition is a director of the Petitioner in the first Writ Petition.

2. The background is this. SEBI issued a show cause notice to Binny Ltd on 24th November 2022. A copy of that show cause notice, running to some 28 pages, is at Exhibit ‘A’ from page 66. The notice mentions in paragraph 12 that under the SEBI (Settlement Proceedings) Regulations, 2018 (“Regulations”), there is a settlement mechanism provided. Should Binny wish to opt for a settlement process, it could apply in the manner given in these Regulations under intimation to SEBI. Binny was put to notice that the filing of a Settlement Application did not confer any right to seek the settlement of the proceedings. The Settlement Application, which we will examine in detail a little later, is at page 95. It was filed on 24th December 2022. Binny was afforded a personal hearing on 20th February 2023. In parallel, on 31st January 2023. it filed a reply to the show cause notice. On 16th March 2023, SEBI rejected the Settlement Application. A copy of that email intimation is at Exhibit ‘D’ at page 104.

3. The hearing on the show cause notice having concluded, SEBI gave Binny a final opportunity to file post-hearing written submissions by 15th March 2023. A further extension followed till 27th March 2023. On 25th March 2023, Binny sought yet another extension of four weeks and on 29th March 2023 sought a further extension till 12th April 2023.

4. By this time, of course, the Settlement Application had been rejected and Binny filed this Writ Petition on 25th April 2023 (and one of its directors filed the companion Writ Petition). Curiously, this Petition was not served on SEBI until 12th June 2023 and then applications were made for an early hearing. We passed orders allowing the filing of Affidavits in Reply and Rejoinder.

5. On behalf of Binny, Mr Dhond’s assault on the impugned Settlement Application rejection is that it falls afoul of the applicable SEBI Regulations. It merely recites the reasons in the show cause notice but does not independently give any reasons for rejection of the Settlement Application. It is, in his submission, cryptic and without a proper application of mind.

6. Before we turn to the Regulations, it would be useful to know two factual aspects. The first is the four paragraph content of the rejection of the Settlement Application at page 104:

“Madam/Sir, 1. With reference to the subject settlement application, you may note that the same was examined by the Board and following was noted:

a. Binny Limited has allegedly employed deceptive devices for diverting the funds and understating revenue during the investigation period, and adopted dubious practices in drawing up accounts for manipulating the financial results of Binny Limited to present a distorted picture to its shareholders and to the public at large. It was noted that such alleged acts and omissions were fraudulent on the part of the Company and such acts of serious irregularities have affected the integrity of the market.

b. The share price fell by 4.62% (from Rs. 216.60 on 18/11/2021 to Rs. 206.20 on 22/11/2021) on the first day, i.e. November 22, 2021, post dissemination of the information regarding the appointment of a forensic auditor on the exchanges. The price thereafter reached a level of Rs. 211.65 by November 26, 2021.

c. The alleged diversion of funds of Rs. 851.27 crores to other parties including related parties amounted to a loss to the investors, thus impacting a large number of investors (10507 public shareholders as of the quarter ended December 31, 2021).

d. In view of the above, it was noted that the aforesaid alleged diversion of funds and misrepresentation of the financials of Binny Limite