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2019 (3) TMI 887 - HC - SEBIDeclaration or branding of shell company - non issue of notice and to have heard petitioner - maintainability of the writ petition -- authorisation of petitioner No.2 to initiate legal action on behalf of petitioner No.1 - delegation of authority -petitioner No.1 being under the corporate insolvency resolution process and resolution professional having been appointed by the Tribunal, petitioner No.2 has no locus or authority to represent petitioner No.1 and to file the writ petition - HELD THAT:- In the case of petitioner No.1, the circumstances and the context in which it has been declared as a shell company is a virtual condemnation but it is a condemnation without a hearing. That apart, there is also the question of the State or its agencies using an expression which is not defined in any law. Objective of the SEBI Act is to promote orderly and healthy growth of securities market on the one hand and on the other hand to protect the interest of investors. It has power to issue directions if it is satisfied upon enquiry that such direction is necessary in the interest of investors etc. Thus, the power of SEBI to enquire into any infraction of law by corporate entities or to conduct enquiry or to issue direction in exercise of its powers under the SEBI Act is not in dispute. Such a power SEBI undoubtedly has but that is not the question here. The question is whether a person, a juristic person in this case, can be condemned unheard. It goes to the root and is fundamental that no person can be condemned unheard. Therefore, before branding petitioner No.1 as a shell company, it was obligatory on the part of respondent No.1 to have issued notice and to have heard petitioner No.1. That having not been done, declaration or branding of petitioner No.1 as a shell company cannot be legally sustained. Maintainability of the writ petition at the instance of petitioner No.2 is concerned, Court is of the view that it is the company which is staring at being branded as a shell company with all its negative connotations; rather it has already been branded as a shell company. The interim resolution professional or resolution professional under the Code has a definite role to play as per the said Code. Its involvement is limited to that extent. Under the Code where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor. The corporate insolvency resolution process shall commence from the date of admission of the application filed in this regard. The adjudicating authority shall appoint an interim resolution professional and thereafter the resolution professional whose mandate is to conduct the entire corporate insolvency resolution process and manage the operation of the corporate debtor during the corporate insolvency resolution process period. But it is the directors of the company or persons who were at the helm of affairs of the company at the relevant time who would be directly affected by declaration of the company as a shell company as it is they who would have to face the consequences of such declaration. Therefore, to say that such persons do not have the locus standi to assail a finding of being branded as a shell company would be wholly untenable. As a matter of fact, Securities Appellate Tribunal entertained the appeal of petitioner No.1 so also SEBI entertained the representation of the petitioners. If they can file appeal before the Securities Appellate Tribunal and file representation before SEBI, it would be wholly illogical to take the stand that they would have no locus standi to challenge branding of petitioner No.1 as a shell company. It is in the above context that authorisation of petitioner No.2 to initiate legal action on behalf of petitioner No.1 has to be seen. The delegation of authority to petitioner No.2 has been placed on record as Annexure-A to the counter filed by the petitioners to the application filed by respondent No.2 SEBI for vacating the interim order dated 12-07-2018 which was registered as IA (C) No. 2932 of 2018. This delegation of authority was signed by the resolution professional for petitioner No.1 on 23-04-2018 Therefore, upon thorough consideration of the matter, writ petition is not only maintainable but deserves to be allowed.
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