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2021 (2) TMI 913 - KERALA HIGH COURTDebenture Trustees liability in default - Violation of SEBI Act - Company issued Debentures which are deemed public issues, without complying with the statutory requirements for public issue - Company failed to provide the details as to whether the consent of the Debenture holders has been obtained, for extending the tenure of the Debentures - whether by acting as Debenture Trustees of the Company without having registration as required under Section 12 of the Securities and Exchange Board of India Act, 1992 read with Regulation 7 of SEBI (Debenture Trustees) Regulations, 1993, they have violated law. Section 12(1) of the SEBI Act, 1992? - HELD THAT: - No Debenture Trustee can deal in securities except under, and in accordance with, the conditions of registration obtained from the SEBI, in accordance with the SEBI (Debenture Trustees) Regulations, 1993. Regulation 7 of the said Regulations, 1993 mandates that no person shall be entitled to act as a Debenture Trustee unless he is either - (a) a Scheduled Bank carrying on commercial activity; or (b) a public financial institution within the meaning of Section 4A of the Companies Act, 1956; or (c) an insurance company; or (d) body corporate. The petitioners, who are allegedly acting as Debenture Trustees, are members of Institute of Chartered Accountants of India. The petitioners have no case that they are holding registration to act as Debenture Trustees. Therefore, there is prima facie violation of Section 12(1) of SEBI Act, 1992. Petitioners have a case that the Company being a NBFC, is regulated by, apart from the Companies Act, by RBI Act and Regulations only and is not amenable to the jurisdictional authority of SEBI and hence Ext.P2 show-cause notice is ultravires. This Court is unable to accept the said proposition. Even though the Company is an NBFC, as far as regulation of issue of Debentures and Non-current Bonds is concerned, it is the bounden duty of SEBI to protect the interest of investors in securities. As long as NBFCs are not specifically excluded from the purview of SEBI Act, 1992, the Board will have jurisdiction over securities transactions of an NBFC, including the Debenture Trustees. Proceedings of SEBI are only at the show-cause stage. The petitioners have the opportunity to establish their case before the Board. As rightly pointed out by the Standing Counsel for the SEBI relying on the judgment of the Hon’ble Apex Court in Peerless General Finance and Investment Company Limited v. Reserve Bank of India [1992 (1) TMI 337 - SUPREME COURT] the function of the court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. This Court does not find any reason to interfere with Ext.P2 proceedings initiated by the SEBI at this stage.
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