IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Original Side
Present:
The Hon’ble Mr. Justice Jayanta Kumar Biswas
W. P. No. 1933 of 2004
Raj Kumar Kishorepuria…………….petitioner.
v.
General Manager, Securities & Exchange Board of India & Ors……respondents.
For petitioner : Mr. Sudir Kumar Mehta.
For respondents : Ms. Sutapa Dutta.
Heard on : February 16th & 23rd, 2005
Judgment on : March 23rd, 2005
Jayanta Kumar Biswas, J. – The petitioner in this writ petition is aggrieved by the notice issued by the General Manager, Securities and Exchange Board of India dated August 26th, 2004.
By the notice he was asked to show cause why proceedings should not be initiated against him under the Securities and Exchange Board of India Act, 1992, s.11B, read with the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, regn.12, and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, regn.11, for the role he played in the process of irregular allotment of preferential shares by a Padmini Technologies Ltd. in the year 1999.
Section 30 of the Securities and Exchange Board of India Act, 1992 empowered the board to make regulations for carrying out the purposes of the Act. In exercise of such power it first made the 1995 regulations, which were repealed by the 2003 regulations (now in force), providing by their regn. 13 that notwithstanding the repeal violations of provisions of the repealed regulations shall be investigated and proceeded against, and any investigation pending, at the date of their commencement, shall be continued and disposed of, according to the procedure laid down in them.
Counsel for the petitioner argues that provisions of regn. 12 of the repealed regulations and regn. 11 of the new regulations, both being substantive provisions of law, as opposed to procedural ones, while, in view of provisions of regn.13 of the new regulations, the board is empowered to follow the procedural provisions of the new regulations for concluding the pending investigations, it does not possess the power to take any action against or punish the petitioner under regn. 11 of the new regulations, though, if occasion arises, it can do so under regn. 12 of the repealed regulations.
Counsel for the respondents argues that since sub-regns. 2 & 3 of regn. 13 begin with non obstante clauses, even for the violations of provisions of the repealed regulations by the petitioner, the board would be empowered to take action in terms of regn. 11 of the new regulations. She refers me to passages from treatise and the decisions in : Union of India & Anr. v. G. M. Kokil & Ors. (AIR 1984 SC 1022), Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (air 1987 SC 117), Narcotics Control Bureau v. Kishan Lal and Ors. (AIR 1991 SC 558), and M/s. Orient Paper & Industries Ltd. & Anr. v. State of Orissa & Ors. (AIR 1991 SC 672).
With due respect to the counsel, I just do not see how the authorities cited to me can be of any assistance in deciding the question raised by the petitioner. It is not his case that because of repeal of the old regulations the board lost its power to conclude the pending investigation. This is the reason why I am not dealing with the authorities which command great respect and explain unexceptionable propositions of law regarding effect and interpretation of non obstante clause in an enactment.
The new regulations are divided into three chapters. The first chapter, headed: preliminary, contains regns. 1 and 2 dealing with short title and commencement, and definitions respectively. The second chapter, with the heading: prohibition of fraudulent and unfair trade practices relating to the securities market, again has only two regulations (regns. 3 and 4). While regn. 3 enumerates what a person dealing in securities shall not do directly or indirectly, regn. 4, after saying that no person shall indulge in the fraudulent or an unfair trade practice in securities, says that dealing in securities shall be deemed to be a fraudulent or an unfair trade practice, if it involves fraud, which may include all or any of the acts and omissions mentioned in clauses (a) to (r) of its sub-regn.(2).
Chapter III and the last chapter of the new regulations is relevant for the purpose of this case. With the heading investigation, it comprises the rest of the regulations, i.e. regns. 5 to 13. Counsel for the petitioner concedes that regns. 5 (power of the board to order investigation). 6 (powers of investigating authority), 7 (power of the investigating authority to be exercised with prior approval), 8 (duty of co-operate, etc.), 9 (submission of report to the board), and 10 (enforcement by the board), being procedural provisions, shall apply without any qualification also to an investigation that was pending at the date of repeal of the old regulations. Regulation 12 conferring power on the board to warn or censure an intermediary, and also to suspend or cancel his registration, does not need any comment, as that is not in issue in the case.
I find that provisions in cls. (e) to (h) of regn. 11(1) of the new regulations are nothing but improved versions of the old provisions in cls. (a) to (d) (there was nothing more) of regn. 12 of the repealed regulations. The new regulations, in fact, do not enlarge the scope of power of the board as to the things mentioned in cls. (a) to (d) of its regn. 11 (1). The measures indicated in cls. (a) to (d) of regn. 11 (1) are, in substance, identical with the already existing ones mentioned in cls. (a) to (d) of s. 11(4) of the Act. In the clauses some powers of the board were enumerated specifically, without prejudice to the general power given to it by ss.11 and 11B of the Act. They are powers to suspend, restrain and impound; by their very nature, powers to be exercised as interim measures. They are not punishments or penalties proper, as the terms denote in the context of a legally punishable offence or misconduct.
It seams to me that actions taken and directions issued under regn.11 of the new regulations are only to advance the purposes of the Securities and Exchange Board of India Act, 1992, which conferred very extensive and wide power on the board by its s.11B, which is:
“11B. Power to issue directions
Save as otherwise provide in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary-
(a) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors of securities market; or
(iii) to secure the proper management of any such intermediary or person, it may issue such directions,-
(a) to any person or class of persons referred to in section 12, or associated with the securities market; or
(b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.”
After examining the provisions of the Act and the regulations (both the repealed and the new ones), I am minded to hold that interpretation given by the counsel for the petitioner to regn. 11 of the new regulations, that it being a piece of substantive law shall not apply to the investigation started against the petitioner under the old regulations (since repealed),, is not acceptable. In my reading and understanding nothing in regn. 11 of the new regulations falls in the field of substantive law.
It seems to me that regn. 11 of the new regulations prescribes the manner
in which the board shall take the interim measures till the time it takes the final decision under ss. 11(1), (2), (2A) and (3), and 11B of the Act. The several different preventive measures mentioned therein are intended chiefly to ensure a purposeful investigation, which is nothing but a process to reach a conclusion. The actions can be taken and the directions can be issued, even pending the investigation.
To my mind, a provision of law of this nature, usable both at post and pending stages of an investigation, since provides only the means and instruments to achieve the end product of the administration of justice, must be regarded as procedural, irrespective of the consequences it produces as to curtailment or extinguishment of any existing right or freedom of the person likely to be affected by it. It provides one of the stages through which the investigation attains finality, and thus through the prescribed procedure sets the stage ready for the substantive law to play its role.
It is therefore my view that changes effected to the situation in this case are nothing but mere procedural changes, and that they shall apply with full force to the case of the petitioner in view of specific provisions of regn.13 of the new regulations.
Moreover, it is apparent from the impugned post investigation show cause notice that the board contemplated actions against the petitioner under s.11B, which empowers it to issue all or any of the directions specified in regn.11 of the new regulations. I say so, because s.11B confers power on the board to issue such directions as may be appropriate in the interests of investors in securities and securities market. Therefore, to my mind, in any case, the petitioner cannot say that the measures mentioned in regn.11 cannot be taken against him, if there are good and sufficient reasons for taking any of them.
For these reasons I conclude that there being no merit in the sole contention raised to challenge the show cause notice, the writ petition is liable to be dismissed; and accordingly I dismiss it.
On the facts of the case, I am not inclined to make any order for costs in favour of the respondents. Hence there will be no order for costs in the writ petition.
Urgent certified xerox copy of the judgment and order shall be supplied to the parties, if applied for.
(Jayanta Kumar Biswas, J.)