IN
THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 388/2004, 388A/2004 &
388B/2004
|
Date of Hearing
|
24.6.2005
|
|
Date of Decision
|
5.9.2005
|
In the matter of:
|
Sterling Investment
|
Appellant � Represented by
|
|
Corporation Ltd.
|
Mr. I.M. Chagla, Sr. Advocate
Mr. D. Madan, Mr. L. Pereira, Mr. P.N. Kapadia,
Advocates
|
|
Shapoorji Pallonji & Co. Ltd.
|
|
Cyrus Investments Ltd.
|
|
Versus
|
|
|
Securities & Exchange Board
|
Respondent �Represented by
|
|
of India
|
Mr. Dipan Merchant,
Advocate
|
Coram:
����������� Justice
Kumar Rajaratnam, Presiding Officer
����������� C.
Bhattacharya, Member
����������� R.
N. Bhardwaj, Member
Per:� Justice
Kumar Rajaratnam, Presiding Officer
1.
Appeal is taken up
with consent of parties.�
2.
This is a rather
unusual prayer sought for by the appellant by which the appellant seeks to
quash the adjudication proceedings that is sought to be initiated against the
appellants for the delay in complying with the provisions of SEBI (Substantial
Acquisition of Shares and Takeover) Regulation, 1997 (hereinafter referred to
as �the Takeover Regulation�).
3.
The facts very
briefly are that a show cause notice dated 29.5.2003 was issued to the
appellants by SEBI stating that the appellants had violated the Takeover
Regulations.� The show cause notice
further directed that action will be taken against the appellants under
Regulation 44, Regulation 45 of the Takeover Regulations and under Section 11,
11B, 15H and 24 of the SEBI Act, if no public offer is made.�
4.
It is not necessary
to deal in detail the facts of the case since even before the impugned order was
passed the appellants complied indeed with the show cause notice dated
29.5.2003 by making a public offer as required by the show cause notice by treating
reference date as 15.10.2001.�
5.
Notwithstanding the
public offer made by the appellants, the Whole Time Member passed the impugned
order dated 31.8.2004 stating that the appellant has in fact made a public
offer in accordance with the Takeover Regulation but still be liable for action
for the delay.�
6.
It would be
interesting to read the concluding part of the order of the Whole Time Member
at paragraph 4.14 and 5.1 which reads as follows:
�4.14�
I have noted that despite their stand the acquirers did make a public
announcement on October 11, 2003 to acquire 20% of
the shares of FIL, too.� According to the
draft letter of offer submitted to SEBI, the acquirers had made the public
announcement, by way of �abundant caution� in the wake of issuance of the show
cause notice by SEBI.� Furthermore, the
said public announcement was described as �voluntary� in nature.� The said offer opened on January 22, 2004 and closed on February 20, 2004.� While the offer was open, the merchant banker
to the offer informed SEBI that the acquirers had purchased 9,41,286 shares
(20.65%) of FIL from the Tata Group on February 6, 2004.� As
per the 45 day report with reference to the final status and the post offer
shareholding of the acquirers, it is noted that the post offer shareholding of
the acquirers stood at 78.63% and the balance 21.37% being with the public.
5.1� The facts and circumstances of the case lead
to reasonable conclusion that consequent on acquiring of control of FGL, the
acquirers namely Sterling Investment Corporation P. Ltd. Shapoorji Pallonji and
Company Ltd. and Cyrus Investments Ltd. acquired control over FAL Industries
Ltd. (FIL) as well.� It is noted that
notwithstanding the fact that acquirers were contesting the allegations
contained in the show cause notice issued by SEBI for violation of Takeover
Regulations, the acquirers have since �voluntarily� made open offer for
acquiring shares from the public in accordance with the Regulations on October
11, 2003 and the price offered for the shares to be acquired has been
determined reckoning interest from October 15, 2001 taken as reference date for
calculation of the offer price.� Thus,
the acquirers have complied with the regulatory requirement in so far as it
relates to public announcement for acquiring shares from the public consequent
on acquiring control over FIL.� However,
the said public offer ought to have been made within the time specified in the
Regulations.� It was only after issuance
of show cause notice and initiation of regulatory proceedings by SEBI that the
acquirers have made the open offer to the shareholders of FIL.� In the process, the open offer has been made after
almost 2 years of delay.� It can be
reasonably inferred that but for the show cause notice issued by SEBI, the
acquirers would not have made the public offer.�
In the circumstances, the delay in compliance with the regulatory
requirement needs to be appropriately dealt with.� I under Section 15H of the SEBI Act for delay
in compliance with provisions of Regulation 10 and 12 read with Regulation
14(1) and 14(3) of the Takeover show cause notices.� The order for appointment of adjudication
officer in this regard will be issued separately. �
����������������������������������������������������������� (Emphasis
by Court)
7.
Mr. Chagla, the
learned senior counsel for the appellant vehemently submitted that the
appellants as soon as they received the show cause notice complied with the requirement
of law under the Takeover code, even before the impugned order was passed.� Therefore, it was submitted that the question
of harassing the appellant by the respondent resorting to the adjudication
proceedings will not in any way enhance the reputation of SEBI or sub-serve the
interest of the securities market.� An
affidavit was also filed by the appellants dated 22.6.2005 stating that they
have more than fully complied with the Takeover Code before the impugned order
was passed and there was no need for the appellants to face further action.�
8.
In the affidavit it
is stated that the public offer was made voluntarily by the appellants without
prejudice to their contention that they had not violated the Takeover
Regulations.� The affidavit further
stated at paragraph 3, 4, 5 & 6 as follows:
�3.� As disclosed in the said public
announcement and in the letter of offer dated 16th January 2004,
(annexed as Exhibit �J� to the Memo of Appeal) the price per share paid by the
appellants to the shareholders of FIL in the said public offer was Rs.
25/-.� As stated in the said public
announcement, the price per share, taking 15th October, 2001 (the date which SEBI alleges is when the public offer ought to have
been made) as the reference date, would have been Rs. 19.02.� Adding interest at the rate of 15% p.a. for
the period of the alleged delay in making the public, the price per share would
have been Rs. 24.57.� As aforesaid the appellants paid a price of
Rs. 25/- per share.� N.M. Raiji &
Co., CA, have vide their Valuation Certificate dated October 9. 2003, given the
fair value of FIL at Rs. 15.33 per Equity Share with reference date of October 9, 2003.
4. In the said public offer, the appellants acquired 8,54,023 equity shares
of FIL at a price of Rs. 25/- per share.�
This constituted 18.73% of the total equity share capital of FIL.� The total amount spent by the appellants for
acquiring shares in the said public offer was Rs. 2,13,50,575/-� (Rupees two crore thirteen lakhs fifty
thousand five hundred seventy five only).�
Of this, a sum of Rs. 51,07,057.54 (Rupees fifty one lakh seven thousand
fifty seven paise fifty four only) would have been by way of interest, if
interest was computed at 15% per annum on the said price of Rs. 19.02 per share
for the said alleged delay in making the public offer.�
The
Hon�ble Supreme Court, in its judgment in the case of Clariant International
Ltd. vs. SEBI [AIR 2004 SC 4236], has laid down certain principles
regarding payment of interest in case of delay in making a public offer under
the Takeover Regulations.� They are as
follows:
a.
The normal rate of
interest should be 9% p.a.� In the present case, the appellants have
effectively paid interest at the rate of 15% p.a.� had the appellants paid interest at the rate
of 9% p.a. the amount payable in respect of each equity share would have been
Rs. 22.35 and the total sum expended by the appellant to acquire the said
8,54,023 equity shares of FIL would have been Rs. 1,90,87,414.46 (Rupees one
crore ninety lakhs eighty seven thousand four hundred fourteen and paise forty
six only).
b.
Interest is payable
only to such persons who were shareholders of the target company on the
triggering date.� In
the present case, the appellants paid the said price of Rs. 25/- to all
shareholders who offered their shares and therefore the appellants have
effectively paid interest to all shareholders of FIL who offered their shares
in the said public offer, and not just the persons who were shareholders of FIL
on 15th October, 2001, the alleged triggering date.
c.
If any amount has
been received by the shareholders by keeping the shares till a public offer was
made, the amounts so received by him by way of dividend should be set off.� In the present case, the
appellants have not set off the amount received by the shareholders of FIL by
way of dividend between 15th October, 2001
and 10th
October 2003.� I say that in respect of the financial year
2001-02, FIL paid a dividend at the rate of 10% per equity share of the face
value of Rs. 10/-.� In respect of the
financial year 2002-03, FIL paid a dividend at the rate of 10% per equity share
of the face value of Rs. 10/-.� If the
said amounts of dividend were to be set off, the amount payable in respect of
each equity share would have been Rs. 20.35 and the total sum expended by the
appellants to acquire the said 8,54,023 equity shares of FIL would have been
Rs. 1,73,79,368.05 (Rupees One crore seventy three lakhs seventy nine thousand
three hundred sixty eight and paid five only).
From
the above, it is clear that the shareholders of FIL have benefited far more
from the voluntary public offer made by the appellants than they would have
benefited had the appellants been directed by SEBI to make a public offer,
which public offer would have been� in
accordance with the principles laid down by the Hon�ble Supreme Court in the
above mentioned judgment.� To use the
words of the Hon�ble Supreme Court, shareholders of FIL have got a �windfall�
and have been �unjustly enriched�.
6.� By the impugned order, SEBI
has referred the case to adjudication after recording a finding that the
appellants initially failed to comply with Regulation 10 and 12 of the Takeover
Regulations.� The said finding is based
entirely on an alleged admission in a disclosure under Regulation 8(1) and 8(2)
made by a subsidiary of the appellants.�
I say that the said finding was not arrived at on merits, and was
recorded without appreciating the facts of the case.� By the impugned order, SEBI has failed to
consider and/or deal with the explanation for the alleged admission continued
in the appellants reply to the show cause notice and an affidavit of Mr. A.T.
Shah (annexed as Exhibit �K� to the Appeal) the person who signed the said
disclosure.� Mr. A.T. Shah was not sought
to be cross-examined although he was present at the hearing before SEBI.�
�������������������������������������������������������������� (Emphasis
by Court)
9.
Mr. Dipan Merchant,
the learned Senior Counsel for the respondent vehemently submitted that it is
the prerogative of the respondent to take whatever action that is necessary
even if the show cause notice has been complied with, and submitted that there
is no need for the Court to interfere with the adjudication proceedings.� He further submitted that although a
reference date was calculated with effect from 15.10.2001 in terms of
Regulation 10 & 12, and although interest was paid to all the shareholders
at the rate of 15% p.a., it still does not preclude SEBI from proceeding with
the adjudication proceedings and taking such action as is necessary.� It was further submitted that it did not
matter whether the appellants paid interest to all the shareholders with the reference
date as 15.10.2001 and what matters according to the learned counsel for the respondent
was that the public offer was made only after the issue of the show cause
notice and therefore the appellant should be punished.
10.
Mr. Chagla, the
learned counsel for the appellant in our view rightly submitted that if no public
offer was made, the Whole Time Member could have directed the appellants to
make a public offer if it was found that the appellants had violated the
Takeover code.� But he submitted that
this is exactly what the appellants have done before the impugned order was
passed.� The interest has been paid at
the rate of 15% p.a and no deductions were made for shareholders� who had received dividend.� The appellants, according to Mr. Chagla, have
gone beyond the relief granted by the Supreme Court in their pronouncement in
Clariant case (AIR 2004 SC 4236)� Mr.
Chagla submitted that although the dividends could have been deducted from the
offer price, it was not done and the interest for the delayed payment was made
@ 15% p.a. in lieu of 10% as stipulated in the Clariant�s case.� It was submitted that nothing more could have
been done by the appellant.� It was also submitted
that although the appellant had a good case on merits, they were ready and
willing to comply with the show cause notice.�
That having been done, any further action by the respondent would be
vindictive and cursed and malafide in law.�
11.
We have considered
the submissions of both sides.� The
question ultimately depends on the facts of each case whether to commence
adjudication proceedings or not.� �
12.
It cannot be ruled
out that if a person voluntarily complies with the show cause notice and has
paid interest on the delayed payments with effect from 2001 in accordance with
the law laid down by Supreme Court, he should be spared the ordeal of the
wasteful expenditure of going through a trial before the adjudicating
officer.� It will also save SEBI valuable
time in avoiding vanity litigation merely because the law does not prohibit it.
13.
We have held in a
number of cases that where compliance to the show cause notice has been
reported or where a direction to make a public offer has been complied with in
toto with payment of interest, in such cases, it would not be prudent to pursue
with the adjudication proceedings.�
14.
This view has also
been accepted by SEBI in recent cases and rightly so in our view.
15.
A perusal of the
impugned order would indicate that the Whole Time Member in exercise of the
powers under Section 11 and 11B read with Regulation 44 and 45 of the Takeover
code , the matter has been referred to adjudication. It is this portion of the
impugned order which is under challenge.�
16.
Chapter VIA deals
with penalties and adjudication.� It was
introduced by Act 9 of 1995 with effect from 25.1.1995.
17.
A comprehensive
amendment was made in the year 2002 w.e.f. 29.10.2002.� By the 2002 amendment penalties were
substantially increased and certain other class of cases were also brought into
the ambit of Chapter VI A.� They were - Section
15C which was a penalty for failure to redress investors� grievances, - 15 HA
Penalty for fraudulent and unfair trade practices & - 15 JA which dealt
with crediting sum realised by way of penalties to Consolidated Fund of India.
18.
A perusal of the
various sub-sections of Section 15 would indicate without any doubt that the
penalties by their very name are penal in nature.� If the penalties are penal in nature, then
there must be an element of proof of wilful default or wilful disobedience of
the Regulations.� Mere erroneous
interpretation of Regulations cannot give rise to adjudication
proceedings.� It must be wilful and
deliberate defiance of the Regulations.�
The concept of strict liability can have no application in such matters
which ultimately can lead to criminal prosecution as well.
19.
We say that there
should be wilful disobedience as a necessary ingredient of any adjudication
proceedings under Chapter VI A because the person against whom adjudication
proceedings are commenced can also be prosecuted under Section 24 of the Act, which
may end in a term of imprisonment which may extend to 10 years or with a fine
of Rs. 25 crore or with both.
20.
Section 24 reads as follows:
�24. Offences � �(1) Without prejudice
to any award of penalty by the adjudicating officer under this Act, if any
person contravenes or attempts to contravene or abets the contravention of the
provisions of this Act or of any rules or regulations made thereunder, he shall
be punishable with imprisonment for a term which may extend to [ten years, or
with fine, which may extend to twenty-five crore rupees or with both].
(2) If any person fails to pay the penalty
imposed by the adjudicating officer or fails to comply with any of his directions
or orders, he shall be punishable with imprisonment for a term which shall not
be less than one month but which may extend to [ten years, or with fine, which
may extend to twenty-five crore rupees or with both].�
(Emphasis by Court)
21.
The Supreme Court in
Hindustan Steel Ltd. vs. State of Orissa 1970 (57) AIR 253� pronounced while dealing with the Orissa
Sales Tax Act, 1947, in a case where the company failed to register itself as a
dealer under the provisions of the Act and held that the liability to pay
penalty for not registering as a dealer does not arise merely upon proof of
default in registration as a dealer.� The
Supreme Court pronounced on this aspect of the matter at paragraph 8,
which reads as follows:�
�8. Under the Act
penalty may be imposed for failure to register as a dealer - Section 9(1) read
with Section 25(1)(a) of the Act. But the liability to pay penalty does not
arise merely upon proof of default in registering as a dealer. An order
imposing penalty for failure to carry out a statutory obligation is the result
of a quasi-criminal proceeding, and penalty will not ordinarily be imposed
unless the party obliged either acted deliberately in defiance of law or was
guilty of conduct contumacious or dishonest, or acted in conscious disregard of
its obligation. Penalty will not also be imposed merely because it is lawful to
do so. Whether penalty should be imposed for failure to perform a statutory
obligation is a matter of discretion of the authority to be exercised
judicially and on a consideration of all the relevant circumstances. Even if a
minimum penalty is prescribed, the authority competent to impose the penalty
will be justified in refusing to impose penalty, when there is a technical or
venial breach of the provisions of the Act or where the breach flows from a
bona fide belief that the offender is not liable to act in the manner
prescribed by the statute. Those in charge of the affairs of the Company in
failing to register the Company as a dealer acted in the honest and genuine
belief that the Company was not a dealer. Granting that they erred, no case for
imposing penalty was made out.�
����������������������������������������������������������� (Emphasis
by Court)
22.
In a recent case the
adjudicating officer by a order dated 30.8.2005 in the matter of Citigroup
Global Market has also rightly followed the pronouncement of the Supreme Court
by holding that mere unintended technical violations cannot be a subject matter
of adjudication proceedings in cases where there is a technical breach of
provisions of the Regulation or where the breach flows from a bonafide belief
that the offender is not likely to act in a manner prescribed by the
statute.� This is also the view taken by
the Tribunal in Cobat International Capital Corpn. vs. SEBI in reported
2004(51) SCL 307.
23.
Therefore, we hold
that it would be a sheer wasteful expenditure on the part of the respondent to
start adjudication proceedings at the drop of a hat in spite of the fact that
the appellant complied with the show cause notice and paid interest for the
delayed payment.
24.
The object of the
exercise in this case was to direct the appellants to make a public offer and
to pay interest on the delayed payment.�
25.
The show cause
notice also indicated this and in response to the show cause notice the
appellants have voluntarily come forward and made a public offer which was more
advantageous to the shareholders than what was required under law.�
26.
The appellants
having done that, no useful purpose will be served by the protracted
adjudicating proceedings that is contemplated under the SEBI (Procedure for
Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995.
27.
In similar circumstances,
this Court in 138/2004 dated 17.11.2004, held at paragraph 4 & 5, which
reads as follows.�
�We have carefully gone into the facts of the case and we
find ourselves completely satisfied with the bonafides of the appellants. As
promoters they had every reason to believe that acquisition of further 31.5%
shares over and above their holding of 30.04% of was not going to materially
affect the management and control and voting rights in the company which were
already overwhelming in their favour. Yet, when it was pointed out to them that
they were nevertheless in breach of Regulations 10 and 11, they faithfully
complied with the orders of Chairman, SEBI dated October 23, 2002 directing
them to make a public offer and also to fix the offer price by adding interest
@ 15% per annum� from April, 1997 onwards
till the date of actual payment of consideration to the shareholders. According
to the appellants the public offer with such a high rate of interest on the
issue price has cost them as much as Rs. 60 lakhs and this figure has not been
contested by the respondents.� The
Adjudication Officer has also treated this compliance by the appellants as a
strong mitigating factor.� In any case
with the compliance of this order, the interests of the investors have been
fully taken care of and the question that remains is only of imposition of a
penalty for default. The Adjudicating Officer has arrived at the figure of Rs.
5 lakhs in the belief that any matter referred for adjudication must result in
imposition of some penalty.� This
Tribunal has held in a number of cases that this proposition is not correct.
When a matter is referred to adjudication, what is under adjudication is not
only the quantum of penalty but also the questions as to whether the penalty is
leviable under the law at all and even if it is leviable whether a penalty
needs to be levied in the facts and circumstances of a particular case. These
questions have to be determined by the Adjudicating Officer judicially with due
application of mind. This view of this Tribunal has also been upheld by the
Hon�ble Bombay High Court in Cabot International Capital Corporation Vs.
SEBI, appeal No. 7/2001 in SEBI appeal No. 24/2000.� The impugned order does not reveal that
the appellants acted deliberately in defiance of law or were guilty of conduct
contumacious or dishonest or acted in conscious disregard of their
obligations.� On the contrary the
appellants have faithfully complied with the orders directing them to make a
public offer and have thus assisted the regulator in safeguarding the investor
interest at a considerable cost to themselves. Reference was made during
argument to the order of SEBI dated 31/03/2003 where a penalty of Rs. 5 lakhs
was imposed on M/s. VLS Finance Limited in lieu of requiring VLS Finance
Limited to make a public announcement under SEBI (SAST) Regulations, 1997. This
order was confirmed by the Tribunal in Appeal 61/2003. There was broad consensus
during the hearing of Appeal 61/2003�
between the parties that SEBI should either direct the party to go for a
public announcement if the party is in violation of Regulation 10 of SEBI
(SAST) Regulations or proceed under Section 15H(2) of the SEBI Act, 1992 for
imposing a penalty. Rightly, SEBI in appeal No. 61/2003 took the stand that the
ends of justice will be met if action is taken either to make a public offer or
to impose a penalty but not both.� This is
in consonance with fair play, justice and equity. We commend this approach of
SEBI which is in keeping with the spirit of Article 20 of the Constitution of India. The
present case is not the one warranting a departure from this salutary practice.
In the circumstances we have come to the conclusion that no specific penalty is
called for under Section 15H(2) of SEBI Act, 1992, in the facts and
circumstances of this case since the earlier order directing a public offer has
been fully complied with thus safeguarding the interests of the minority shareholders,
which is the main objective of SEBI (SAST) Regulations, 1997.
5.
Accordingly
the appeal is allowed and the impugned order is set aside. Any amount paid by
the appellants pursuant to the impugned order shall be refunded within four
weeks from the date of this order. There shall be no order as to costs.�
����������������������������������������������������������������������� (Emphasis
by Court)
In other words, this Tribunal held that relying on
an earlier order of SEBI that ends of justice will be met if action is taken
either to make a public offer or� impose
a penalty but not both.
28.
SEBI also by an
order dated 9.6.2005 in the case of Colour Chem Ltd. held that there was no
need for adjudication proceedings if interest of shareholders of the target
company have been addressed to by payment of interest for the delayed
period.� In that case SEBI held that
Section 15J was not attracted.� The
operative portion of the order reads as follows:
�As the acquirer had made a PA pursuant
to the order of the Chairman dated 16.10.2002 and also agreed to pay interest
to the shareholders of the target company as finally determined by the Hon�ble
Supreme Court vide its judgement dated 25.8.04 and as the interest of the
shareholders of the target company have been addressed with the payment of
interest for the delayed period,� none of
the factors contained in Section 15J of SEBI Act, 1992� are attracted in the present case.� Therefore, following the judgement of the
Hon�ble Bombay High Court in Cobot International case and also the order of the
Hon�ble SAT in Contact Consultancy case cited supra, it would not be fair, just
and proper to impose any penalty under Section 15H(ii) of SEBI Act, 1992 on the
acquirer.
Accordingly, no
penalty is imposed for the aforesaid reasons.�
�������������������������������������������������������������� (Emphasis
by Court)
We commend such robust common sense orders by SEBI.
29.
Taking these two
precedents into account, we feel that there is no need to proceed against the
appellant by way of adjudication proceedings since the appellants have complied
with the requirement in the show cause notice and have paid 15% interest to all
the shareholders with effect from 15.10.2001.�
30.
�In the peculiar facts and circumstances of the
case and taking into account an earlier view of SEBI by its order dated
9.6.2005, we set aside the impugned order in so far as the adjudication
proceedings� are sought to be initiated
against the appellant for the reasons stated above.� No costs.
31.
Before we part with
this case, a reference was made by Mr. Chagla to the unreported Division Bench judgement
of the High Court of Karnataka dated 8.4.2004 in MFA 4795/2002 in the matter of
Jindal Power Thermal vs. Karnataka Power Transmission and Ors.� �Mr.
Chagla, the learned senior counsel for the appellant relied on the division
bench judgment and submitted that the role of a regulator in an appellate Court
�should be to assist the Court in
arriving at the truth.� No more no less
is required from the Regulator.� �Since this is the only judgement that has been
cited before us with regard to the role of a Regulator in an appellate Court, it
would be useful to refer to the Karnataka High Court Division Bench judgement
in so far as it applies to the role of the Regulator in appeals since the
Karnataka High Court judgement specifically deals with the role of a Regulator
in an appellate Court.
32.
The facts of this
case are briefly stated are set out at paragraph 6 of the judgment, which reads
as follows:
��6.�
When the matter stood thus, the PPA was reviewed by the Commission and
by its order dated 22nd May, 2002
(First Impugned Order), the contractual rate of Rs. 2.60 per unit was
reduced by the Commission to Rs. 2.36 per unit with escalation of 2.5% each
year.� The Commission also held that the
appellant is CPP and not IPP.� Certain
terms were given to the parties by the Commission to renegotiate the tariff on
the basis of the guidelines laid down in the First Impugned Order.�
33.
The submissions of
the learned counsel of the appellant is set out at paragraph 12, the relevant
portion of which reads as follows:
�12.� Dr. Singhvi, at the
threshold, would contend that 3rd respondent Commission cannot be
impleaded as a party to the appeal inasmuch as it is neither proper nor
necessary party to the appeal.�
Alternatively, Dr. Singhvi would contend that even assuming that the
Commission can be impleaded as a party to the appeal because its orders
are� impugned in the appeal,
nevertheless, the Commission cannot be permitted and is not entitled to contest
the appeal on merits.� Elaborating the
above contention, Dr. Singhvi would contend that that Commission being a
statutory adjudicatory authority cannot take sides with the contesting parties
on merits and it should leave it to the concerned parties to work way of appeal
or otherwise.� Dr. Singhvi would
emphasise that if the Commission is allowed to contest the issue brought before
this Court on merits, its image as an impartial statutory authority which is
vested with power to determine tariff affecting the rights of the parties would
be impaired and its integrity would be doubted.�
Looking from that angle also, Dr. Singhvi would contend that is it
highly improper, unfair and unjust for the Commission to put in appearance through
a counsel in this appeal, file statement of objections and contest the appeal
on merits with abnormal tenacity and contentiously.�
(Emphasis
by Court)
34.
It was contended on
behalf of the Regulator of the Jindal Power Thermal case that the Commission
was created under the Act as a Regulator with extensive power and regulates or
empower to regularly appear before the Court to defend the orders passed by
them.� One of the issues raised in the judgement
was whether a Regulator is entitled to defend the impugned order on merits.
35.
The contention of
the appellant in that case is further briefly set out in paragraph 21, a
portion of which reads as follows:
�21.
It is the contention of the appellant that the role of the Commission in
approving the PPA is not legislative, but quasi-judicial.� Therefore, a quasi-judicial authority cannot
take side when its quasi judicial order is assailed before the appellate Court
and it should leave it to the parties to work out legal remedies available to
them.� It is highlighted that if a
quasi-judicial authority is permitted to defend its own order before the Court
above, it would send a wrong signal to all the concerned that the
quasi-judicial authority is taking sides and that it is abnormally interested
in upholding the correctness and legality of its order.�
36.
The Karnataka High
Court held as follows:
�24.� It is well settled by the judgments of the
Supreme Court in UDIT NARAYAN SINGH v. BOARD OF REVENUE, MUHAMMED ENAMUAL
HAQUE v. MUHAMMED J. HUSSAIN, PEPSI FOODS LTD. v. SPECIAL JUDICIAL MAGISTRATE
AND OTHERS, JASBIR K. SEHGAL v. DISTRICT JUDGE, DEHRADUN, MD. OMER v. S.
NOORUDIN, R.T.AUTHORITY v. SRI RAM and PUZHAKKAL EDAM ALIAS PUTHEN EDON v. KUNCHAPPAN
that when an order of a Court or quasi-judicial body is assailed before an
appellate Court or an appellate Forum, such Court or quasi-judicial body need
not be made as a party to the proceedings.
25.� The Supreme Court in UDIT NARAYAN SINGH�S case
(supra) held that in an appeal against the decree of a subordinate Court, the
Court that passed the decree need not be made a party.� The Supreme Court made a distinction between
an appeal against a decree or an order and a writ of certiorari to quash the
order of a Tribunal or authority.� Since
this appeal is a regular statutory appeal preferred to this Court under Section
41 of the Act against the order of the Commission, on the same parity of
reasoning, it can be said that the Commission need not be made a party to the
appeal.�
37.
The Court further
held on the role of a Regulator that the Regulator being a statutory authority
is duty-bound to act judiciously in performing its functions whether such functions
are administrative or quasi-judicial.�
This position is well settled by the judgment of the Supreme Court in INDIAN
NATIONAL CONGRESS v. INSTITUTE OF SOCIAL WELFARE.� It is also well settled that if a statutory
authority is required to take a decision only after holding an enquiry, such
statutory authority is required to act judiciously and the decision that
may� be given by such statutory authority
will be quasi-judicial in nature, even in the absence of any lis or contest
between the contending parties before it.�
The Court further held that the Regulator functioned as a quasi-judicial
forum while passing the impugned orders.�
Inasmuch as by virtue of the judgments of the Supreme Court in PROVINCE
OF BOMBAY v. KUSHALDAS ADVANI and BOARD OF REVENUE v. VIDYAWATI, the
Regulator is required to act judiciously in fixing tariff for a generator and
supplier of electricity, the Regulator has to be treated as a quasi-judicial
authority.� Since the Regulator was
required to act judiciously in passing the impugned order and since that order cannot
be regarded as a purely administrative order, the Regulator need not be
impleaded as a party to the appeal.
38.
The Court on this
aspect of the matter pronounced that the validity of an order� of a quasi-judicial authority or of an order
of an authority which is required to be made judiciously is assailed in a Court
of law or an appellate forum, it is healthy and fair that such authority should
not take side and it should leave the validity of its order to the Court or
appellate forum, as the case may be, for determination unless the statute which
has created the authority itself directs the authority to put in appearance
before the Court or the appellate forum and defend its order.� The Act does not direct the Commission to do
so in an appeal preferred against its order under Section 41 of the Act.� Be that as it may, even otherwise, we do not
find any justification for the Commission to file on its own quite extensive
pleadings, engage a senior counsel and contest the appeal exhibiting an abnormal
interest normally unknown to the statutory authorities performing
quasi-judicial functions and expending its considerable resources as if it is
more affected than the affected interests thereby meaning the consumers of
electricity and the KPTCL.
39.
On the question of
remand to the Regulator, the Court held at paragraph 33 as follows:
�33.� We also find considerable force in the contention
of Dr. Singhvi that if ultimately this Court decides to remand the proceedings
to the Commission for fresh consideration in exercise of its appellate
jurisdiction, the Commission having contested the matter before this Court with
abnormal interest and psyche of a private contesting litigant, cannot be fair
enough to decide the issue with impartiality and disinterestedness required of
it and that the confidence reposed by the appellant on the impartiality of the
Commission will be lost.� It is true that
if this Court in exercise of its appellate jurisdiction remands the proceedings
to the Commission for reconsideration of evidence, there will be likelihood of
the appellant entertaining apprehension that the Commission is not impartial in
the decision making and that will not do justice, ad in that event, it cannot
be said that is apprehension is baseless or imaginary.�
40.
Ultimately, the
Court held that the Karnataka Power Transmission Corporation Ltd. is not a
necessary and proper party to the appeal since there are no allegations of bias
against the Chairman or the Members of the Commission.
41.
Although the
Karnataka High Court judgment is of some relevance on the role of the Regulator
in the appellate court, it cannot be said by any stretch of imagination that
the SEBI is not a necessary or proper party in the appeals as respondent.�
42.
But as stated by the
Supreme Court in Clariant International Ltd.�s case, the Regulator must
aid and assist the Court in arriving at the truth and not act as a litigant in
that sense of the word before the Court.�
This would greatly enhance the reputation of SEBI as a Regulator.
43.
Let us before we end
this case, remember what the Supreme Court has said regarding the function of
an expert body like SEBI.�� In Clariant
International Ltd. & Anr. vs. SEBI reported in AIR 2004 SC 4236, the
Supreme Court pronounced as follows:
�62. The modern
sociological condition as also the needs of the time have necessitated growth
of administrative law and Administrative Tribunal. Executive functions of the
State calls for exercise of discretion. The executive also, thus, performs
quasi-judicial and quasi-legislative functions and, in this view of the matter,
the administrative adjudication has become an indispensable part of the modern
State activity.
63. Administrative Tribunals
may be called a specialized court of law, although it does not fulfil the
criteria of a law court as is ordinarily understood inasmuch as it cannot like
an ordinary court of law entertain suits on various matters, including the
matter relating to the vires of legislation. However, such a Tribunal like
ordinary law courts are bound by the rules of evidence and procedure as laid
down under the law and are required to determine the lis brought before it
strictly in accordance with the law.
64. O. Hood Phillips in his
"Constitutional and Administrative Law", 8th
edition, at p. 686 under the Chapter "Tribunals" has stated as
follows :
"These are independent
statutory tribunals whose function is judicial. The tribunals are so varied in
composition, method of appointment, functions and procedure, and in their
relation to Ministers on the one hand and the ordinary courts on the other,
that a satisfactory formal classification is impossible."
65. Reasons for creating
special tribunals, according to the learned author, are : (i) Expert knowledge,
(ii) Cheapness, (iii) Speed, (iv) Flexibility, (v) Informality. At para. 30-021
at page 692 of the said treatise, it is stated :
"Appeals from
tribunals - A party to proceedings before most statutory tribunals, who is
dissatisfied with the tribunal's decision on a point of law, may either appeal
to the High Court or require the tribunal to state a case for the opinion of
the High Court. Appeal lies by leave of the High Court or of the Court of
Appeal to the Court of Appeal, and thence to the House of Lords (section
11)."
66. In "Environmental
enforcement : The need for a Specialist Court" by Robert Carnwath
published in (1992) Journal of Planning and Environment Law at page 799,
the requirements of having an environment court in place of the ordinary courts
were highlighted. The author had submitted a report known as �Enforcing
Planning Control� and on referring thereto, it was noticed :
"Most of the report's
substantive recommendations for reform of the planning enforcement system were
adopted by the Government and incorporated in the Planning and Compensation Act,
1991. There was no formal response to the suggestions for a unified court
system. This was hardly surprising, since reform of the court system is not
within the remit of the Department of the Environment.
Last year, however, the idea
was given a new impetus from an unexpected quarter. Sir Harry Woolf gave his
Garner lecture to U.K.E.L.A. on the theme 'Are the Judiciary Environmentally
Myopic?� He commented on the problems of increasing specialization in
environmental law; and on the difficulty of the courts, in their present form,
moving beyond their traditional role of detached 'Wednesbury' review. He went
on to discuss the benefits of :
��... having a Tribunal with
a general responsibility for overseeing and enforcing the safeguards provided
for the protection of the environment.... The tribunal could be granted a wider
discretion to determine its procedure so that it was able to bring to bear its
specialist experience of environmental issues in the most effective way.�
A key feature of this
Tribunal would be flexibility. Possible innovations would be the involvement of
expertise from other professions (architects, surveyors, etc.);
'multidisciplined adjudicating panels'; broad discretion over rights of
appearance; power to instruct independent counsel on behalf of the Tribunal or
members of the public; resources for direct investigation by the Tribunal
itself; and incorporation into the Tribunal of the existing inspectorate to
deal with 'cases of a lesser dimension'."
67. The Board is
indisputably an expert body. But when it exercises its quasi-judicial functions
its decisions are subject to appeal. The Appellate Tribunal is also an expert
Tribunal. Only such persons who have the requisite qualifications are to be
appointed as members thereof as would appear from sub-section 2 of section 15M
of the said Act which reads thus :
"15M. Qualification
for appointment as Presiding Officer or Member of the Tribunal. - �.
(2) A person shall not be
qualified for appointment as Member of a Securities Appellate Tribunal unless
he is a person of ability, integrity and standing who has shown capacity in
dealing with problems relating to securities market and has qualification and
experience of corporate law, securities laws, finance, economics or accountancy
: Provided that a member of the Board or any person holding a post at senior
management level equivalent to Executive Director in the Board shall not be
appointed as Presiding Officer or Member of a Securities Appellate Tribunal
during his service or tenure as such with the Board or within two years from
the date on which he ceases to hold office as such in the Board."
68. The conflict of
jurisdiction between an expert tribunal vis-a-vis the courts in the
context of the doctrine of separation of powers poses a problem even in other
countries. [For a detailed discussion see the article "Powers of the Takeovers
Panel and their Effect upon ASIC and the Court" by Barbara Mescher [2002]
(76) Australian Law Journal, p. 119.
69. In Australia, the
Takeover Panel has also a function of identifying and notifying the third
parties who are affected by a decision. The Takeover Panel created under the
Corporate Law Economic Reform Programme Act, 1999, as amended by the
Corporation Act, 2001, is also an expert panel.
70. Throughout the world,
specialized adjudicators are performing numerous roles. There are diverse
specialized tribunals in America as
also in the Commonwealth countries. In certain States, statutes have been
enacted authorizing appeals to the administrative division which jurisdiction
used to be exercised by the High Court alone. The appeals range from questions
of law to selected questions of fact, to full rehearing of all issues. (See Stephen
Legomsky's Specialized Justice).
71. Had the intention of
Parliament been to limit the jurisdiction of the Tribunal, it could say so
explicitly as it has been done in terms of section 15Z of the Act whereby the
jurisdiction of this court to hear the appeal is limited to the question of law.
72. The jurisdiction of
the appellate authority under the Act is not in any way fettered by the statute
and, thus, it exercises all the jurisdiction as the Board. It can exercise its
discretionary jurisdiction in the same manner as the Board.
73. The SEBI Act confers a
wide jurisdiction upon the Board. Its duties and functions thereunder, run
counter to the doctrine of separation of powers. Integration of power by
vesting legislative, executive and judicial powers in the same body, in future,
may raise a several public law concerns as the principle of control of one body
over the other was the central theme underlying the doctrine of separation of
powers.
74. Our Constitution
although does not incorporate the doctrine of separation of powers in its full
rigour but it does make horizontal division of powers between the Legislature,
Executive and Judiciary. (See Rai Sahib Ram Jawaya Kapur v. State of
Punjab AIR 1955 SC 549).
75. The
Board exercises its legislative power by making regulations, executive power by
administering the regulations framed by it and taking action against any entity
violating these regulations and judicial power by adjudicating disputes in the
implementation thereof. The only check upon exercise of such wide ranging power
is that it must comply with the Constitution and the Act. In that view of the
matter, where an expert Tribunal has been constituted, the scrutiny at its end
must be held to be of wide import. The Tribunal, another expert body, must,
thus, be allowed to exercise its own jurisdiction conferred on it by the
statute without any limitation.�
(All Emphasis by this Court)
44.
The judgment of the
Supreme Court is a clear signal for the Regulator to be extremely careful in
making submissions before the Tribunal and avoiding combative submissions and should
instead assist the court to arrive at the truth as fast as possible so that the
valuable time of the Tribunal is not lost.�
This is particularly so since SEBI is vested with legislative, executive
and judicial power, as pronounced by the Supreme Court in Clariant
International�s case.� SEBI also has
other wider and enormous responsibility in protecting and safeguarding the
securities market, which we may add, is being done in an efficient and
excellent way.
Justice Kumar Rajaratnam
Presiding Officer
|
|
R.N. Bhardwaj
Member
|
C. Bhattacharya
Member
|
Place: Mumbai
Date: 5.9.2005
//SR9055
