Civil Litigation

The details of cases that were filed in the courts during 1997 - 98 where the SEBI was a party are given in Table - II.26.

Table II.26 : Status of Litigation where SEBI was a party

 
Source: SEBI

Appeals

Persons aggrieved by an order of the SEBI passed under the SEBI Act can prefer an appeal to the Central Government under section 20 of the SEBI Act. Table- II.27 gives details of such appeals that were filed before the Appellate Authority in the financial year 1997-98.

Table II.27: Appeals filed under section 20

Source: SEBI

Appeals before the Securities Appellate Tribunal

Persons aggrieved by an order of Adjudicating Officer passed under the SEBI Act can prefer an appeal to Securities Appellate Tribunal (SAT) under section 15T of the SEBI Act. Table II.28 gives details of such appeals that were filed in the financial year 1997 - 98.

Table II.28 : Appeals filed in 1997-98 under section 15 T of the SEBI Act

 
Source: SEBI

Important Court Pronouncements Relating to Securities Laws

High Court of Mumbai - Vinay Bubna Vs. Stock Exchange of Mumbai

The question raised before the Court was whether membership card of a share broker can be regarded as his personal property or not. It was held that membership card of a share broker is not at all a personal property of a share broker but it is only a personal privilege conferred by a stock exchange on a share broker. Rule 16 of The Stock Exchange, Mumbai provides for recovery of dues to it from consideration of sale of membership card as first priority and rule 45 which gives first and paramount lien to exchange on security provided by member-broker are valid and there is nothing illegal or wrong in it. Since rules 16 and 43 are not arbitrary, unreasonable or violative of articles 14 and 19(1)(g) of the Constitution of India, Rules 16 and 43 are not contrary to law of insolvency. Court has no power to give direction to exchange to amend / alter / delete rules framed by exchange though such rules, could be declared as unconstitutional or violative of Constitution of India.

High Court of Gujarat - Rich Paints Ltd. Vs. Vadodara Stock Exchange Ltd. and the SEBI.

The company Rich Paints Ltd. preferred an appeal under section 22 of the SCR Act, 1956 against the refusal of The Stock Exchange, Mumbai to list its shares for its failure to obtain minimum subscription of 90 per cent of the issued amount. Some investors also petitioned the SEBI alleging that company accepted fictitious stockinvests to make up minimum subscription and hence sought refund of application money. The SEBI as an Appellate Authority held that condition of minimum subscription was not fulfilled by the company. The finding of appellate authority was challenged by the company before the High Court of Gujarat and the Court upholding the order of the Appellate Authority (SEBI) held that all monies received from the applicants for shares offered to the public for subscription shall be deposited and kept deposited in the bank/s which are bankers to the issue until the company has complied with the requirements of the Section 69 and Section 73 of the Companies Act, therefore the court concluded that stockinvests received from 6 applicants were not deposited with or encashed by either of the bankers to the issue, therefore, the said amount cannot be said to be paid and received by the company as required by sub-section I of section 69 of the Companies Act thus allotment of shares was illegal and invalid.

The Court further held that, even if one stock exchange as mentioned in prospectus, refuses to give permission for listing, allotment cannot be made and application money has to be returned. Pending permission for listing of shares on stock exchange, application money collected should be kept deposited in a separate accounts with bankers to the issue and not with any other bank. Appellate Authority hearing company’s appeal against refusal of listing permission by stock exchange is not only empowered, but also duty bound to satisfy itself that company has complied with mandatory statutory requirement of minimum subscription.

High Court of Rajasthan, Jaipur Bench Smt. Shanti Vijay Vs. Lan Esida Ind. Ltd.

Company had neither allotted shares to applicant nor returned application money - Later another company which is respondent’s sister concern offered transfer of shares allotted to it in favour of applicant for which applicant was not agreeable. Applicant was entitled for refund of application money with interest at the rate of 15 from due date till actual payment.

High Court of Mumbai Mr. Shivashankar Jatashankar Joshi Vs. SEBI & Ors.

Petitioner prayed that the affairs of the companies, which are listed below par i.e. at Rs.10/- per share 1,500 companies have listed their shares below par viz., at Rs. 5/- per share the affairs of the Securities and Exchange Board of India and those of the officers and authorities of the Department of Company Affairs also be investigated. It was held by the Court that this type of petitions cannot be considered as public interest litigation. It further observed that petition for a prayer that the Central Bureau of Investigation, Mumbai, be directed to investigate into the affairs of 900 companies which have decamped with the funds of shareholders is required to be rejected.

High Court of Karnataka Prof. Babu Mathew & Ors. Vs. Union of India & SEBI.

It was held that Courts will not examine policies and implementation of policies except to find out whether there is any violation of, or inconsistency with, any constitutional or statutory provisions. Courts will not hesitate to interfere where the policy is sound but in the process of implementation, it is diluted, twisted, mangled and rendered unrecognisable and meaningless. On the facts, Government policy of disinvestment in public sector undertakings held not to violate any constitutional or statutory provisions.

Court stated that in the case of disinvestment by Government in public sector undertakings (PSEs) the intention is to make PSEs more efficient and competitive and perform better. Disinvestment neither affect interests of employees nor does it have any adverse effect on conditions of service at present or in future. Therefore, prior consultation with the employees of the company is not necessary. Policy of disinvestment neither offends the fundamental or statutory rights guaranteed to a worker, nor runs counter to any of the directive principles, much less article 43A of the Constitution. Employees of a public sector undertaking have neither any constitutional nor any statutory right, nor legitimate expectation to require the majority shareholder to sell 26 of the shares to the employees or to work out a stock options scheme for employees. The Court on the basis of above reasoning advised the Union Government to evolve a satisfactory and appropriate scheme for successful and meaningful implementation of disinvestment.

High Court of Delhi - M.R. Goyal and Anr. Vs. Usha International Ltd. and Anr.

The main thrust of suit instituted before the Civil Court was that the impugned notice calling for extra ordinary general meeting of company for preferential allotment of shares to promoters was in violation of the SEBI’s Takeover Regulations. Authorities under SEBI Act seized of the matter on a complaint. Main thrust of suit being that improper notice calling for EGM of the company is in violation of SEBI regulation. The court was of the view that jurisdiction of Civil Court in present suit is barred. In the case of extraordinary general meeting - notice and explanatory statement attached to it are ‘tricky’ if they are likely to mislead shareholders or if there is suppression of material facts. On the facts, explanatory statement prima facie did not lack requisite particulars. In the present case, in any event, lack of particulars was not such as to justify stay of decisions taken in EGM, which had already been passed and approved by overwhelming majority of shareholders. Hence the impugned notice and explanatory statement upheld. The matter is pending before the High Court for final disposal.

National Consumer Disputes Redressal Commission, New Delhi - Unit Trust of India Vs. Ms. Kavita Gupta

Respondent had applied for certain units in a scheme floated by the Unit Trust of India and paid required amount in time - Even before the receipt of units by the respondent but after listing of units on stock exchange, respondent contracted to sell units at a fixed price to another person. As they had not received unit certificates, they could not deliver units as contracted and incurred loss of profit which they would have earned and had also to pay cancellation charges to broker. Subsequently, units price also fell. Respondent claimed loss of profit suffered, cancellation charges paid and presumptive loss on account of fall in price of units. District Forum while directing issue of unit certificates denied compensation claim. Unit certificate was issued with retrospective effect. It was held that respondent was entitled only to loss on account of non-delivery of certificates after they had entered into a transaction to sell, and cancellation charges paid and not for any presumptive loss based on principle of lost opportunity.

High Court of Delhi: Yugantar Vs. Union of India

Respondent Bank issued advertisement for public issue of shares under caption ‘India’s highest profit-making nationalised bank’. Bank’s balance sheet, however, showed debit balance. According to the bank, losses were due to revised accounting standards of RBI, otherwise it had made operating profits. Loss was set off against capital with permission of Government. Above facts were clearly mentioned in offer document. Necessary approvals for issue had been obtained. Advertisement made by the bank could not be said to be deceptive and misleading. It was held that the SEBI, RBI and stock exchanges being expert bodies of financial accounting and economic matters, the matters relating to accounting method adopted or fixation of premium at which share can be issued or determining rates at which premium should be allowed in public issues, fall within their domain and Court cannot embark on these issues. The usual disclaimer clause in offer document that the SEBI has not recommended or approved securities and the SEBI did not guarantee accuracy and adequacy of offer document could not be ground to note that issue was not approved.

High Court of Madhya Pradesh - Madhu Sudan Agarwal and others vs. MP Stock Exchange and others.

The Hon’ble High Court has held that the Stock Exchange is not a "State" within the meaning of Article 12 of the Constitution of India and consequently it would not be amenable to writ jurisdiction invoking Article 226 of the Constitution.

Central Government - Jahanvi Securities Pvt. Ltd & Ors. Vs. SEBI

The SEBI suspended the share stock brokers of Pune Stock Exchange for indulging in carry forward transactions in the PSE. The said brokers of PSE challenged the SEBI order before the appellate authority on the ground that the SEBI has failed to appreciate the distinction between squaring up of the transactions in the settlement and carry forward transactions. The Central Government dismissed the appeal and agreed with the finding of the SEBI. The Central Government held that having closed transactions at the end of one settlement period, they reopened the same in the beginning of the next settlement period with the same party and hence the transaction was carry forward activity and thus illegal. Writ petition against the order of the Appellate Authority has been filed before the Mumbai High Court and stay has been granted pending disposal of the said petition.

Central Government - Bhagwandas Gordhandas Financial Services Pvt. Ltd. Vs. SEBI

On failure of the underwriters to honour underwriting commitment in the issue of Ritesh Polyesters Limited, SEBI suspended the underwriters who failed to honour their underwriting commitment. The order of SEBI suspending the underwriters was challenged by filing appeal before the Central Government. The Central Government upheld the decision of SEBI holding that honouring of underwriting commitment is a pre-requisite of a developed and matured capital market and the underwriting commission to the underwriter is the compensation for the risk undertaken by them.

Harinarayan G. Bajaj Vs. SEBI

The Central Government agreed with the finding of SEBI that the provisions of the Takeovers Regulations, 1994 do not cover change in the control and management requiring public offer. The concept of indirect acquisition has been more explicitly introduced in the new Code. It was held that Finco was all along holding 51 per cent shareholding of Sesa Goa and no change in the shareholding of Sesa Goa have taken place. The acquisition of Finco and Mitsui from the Riva group has not affected the change in the management of Finco and Sesa Goa. So far as the Indian shareholders in Sesa Goa are concerned, no change in control of the management of the company has taken place. Appeal has been filed before High Court against the said order of Central Government. The appeal has been admitted.