2025 (5) TMI 412 - HC - SEBI

Limitation / restriction upon SEBI for the purpose of termination of services of an Administrator appointed by it - Validity of communication withdrawing the petitioner s appointment as Administrator HELD THAT - In the present case the petitioner having acted as the Administrator for more than three years pursuant to his appointment on 31.05.2019 was duly relieved of his responsibilities vide the communication dated 09.03.2022. A perusal of the communication dated 09.03.2022 reveals that the same does not cast any stigma on the petitioner; rather the said communication acknowledges the efforts made by the petitioner during his term as an Administrator. Inherently the petitioner s appointment as Administrator is not indefinite and can be terminated by the SEBI. As such the prayer sought by the petitioner that the letter dated 09.03.2022 be declared as null and void and that the petitioner be restored as Administrator is untenable. There is no limitation / restriction upon SEBI for the purpose of termination of services of an Administrator appointed by it. It is the common case of the respective counsel for the parties that the petitioner s remuneration is governed by a circular dated 02.04.2019 issued by the Deputy General Manager Recovery Division-1 Recovery and Refund Department SEBI (respondent no. 2) which prescribes a graded payment mechanism depending upon the amount realized by the Administrator by way of sale of assets of the company in question (M/s. En Aromatic Petro Chemicals Pvt. Ltd.). The respondent is directed to consider the representation of the petitioner regarding payment of his remuneration; the same may be duly determined in terms of the stipulation contained in the appointment letter dated 31.05.2019 read with the aforesaid circular dated 02.04.2019. Let a reasoned order be passed by the respondent setting out the monetary entitlement of the petitioner and the time frame for payment of the same. Let the said order be passed within a period of eight weeks from today. In case any document/s is required from the petitioner for the purpose of assessing his remuneration the same shall be duly provided by the petitioner.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the Securities and Exchange Board of India (SEBI) had the authority to terminate the petitioner's appointment as Administrator in the recovery proceedings initiated under Section 28A of the SEBI Act, 1992;

(b) Whether the communication dated 09.03.2022 withdrawing the petitioner's appointment as Administrator is valid and sustainable in law;

(d) The entitlement of the petitioner to outstanding remuneration for services rendered as Administrator, including the applicable legal framework and procedure for determination and payment of such remuneration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Authority of SEBI to terminate the Administrator's appointment and validity of the communication dated 09.03.2022

The petitioner was appointed as Administrator in recovery proceedings against M/s. En Aromatic & Petro Chemicals Pvt. Ltd. pursuant to Regulation 4 of the SEBI (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018 ("the Regulations") and a circular dated 02.04.2019. The appointment was formalized by a letter dated 31.05.2019 issued by SEBI's Recovery Officer.

Regulation 4 of the Regulations states that the Board shall appoint an Administrator after attachment of the defaulter's properties by the Recovery Officer but does not prescribe any limitation or restriction on the termination of such appointment. The Court observed that the regulatory framework does not impose any bar on SEBI's power to withdraw or terminate the appointment of an Administrator.

The communication dated 09.03.2022, by which SEBI withdrew the petitioner's appointment, was examined. The letter explicitly stated the withdrawal of the appointment but did not cast any adverse reflection or stigma on the petitioner's conduct or performance. Instead, it acknowledged the petitioner's assistance and guidance during his tenure.

The Court noted that the petitioner had served as Administrator for over three years before the termination. Given the absence of any statutory or regulatory prohibition against termination and the non-stigmatizing nature of the communication, the Court held that SEBI was within its rights to relieve the petitioner of his duties.

The petitioner's prayer to declare the termination communication null and void and to reinstate him as Administrator was found to be untenable in law.

Issue (c): Entitlement to reinstatement as Administrator

Since the Court concluded that SEBI possessed the authority to terminate the appointment and that the termination communication was valid, the petitioner's claim for reinstatement was rejected. The Court emphasized that the appointment of an Administrator is inherently not indefinite and is subject to termination by SEBI at its discretion under the regulatory scheme.

Issue (d): Entitlement to outstanding remuneration and procedure for determination

The petitioner sought payment of outstanding remuneration for services rendered as Administrator. The terms of appointment, as per Regulation 6 of the Regulations, require that remuneration and terms be specified by SEBI on a case-to-case basis, considering the quantum of work, number of investors, and amount involved.

Both parties agreed that the petitioner's remuneration was governed by a circular dated 02.04.2019 issued by SEBI's Recovery Division, prescribing a graded payment mechanism linked to the amount realized through sale of the defaulter company's assets.

The Court directed SEBI to consider the petitioner's representation regarding remuneration and to pass a reasoned order specifying the monetary entitlement and timeline for payment within eight weeks. The petitioner was also directed to furnish any documents required by SEBI for assessment of remuneration.

The Court further clarified that if the petitioner was dissatisfied with SEBI's determination, he was free to pursue appropriate legal remedies.

3. SIGNIFICANT HOLDINGS

"It is apparent from the framework of the aforesaid regulations that there is no limitation / restriction upon SEBI for the purpose of termination of services of an 'Administrator' appointed by it."

"Inherently, the petitioner's appointment as Administrator is not indefinite and can be terminated by the SEBI."

"The said communication [dated 09.03.2022] does not cast any stigma on the petitioner; rather the said communication acknowledges the efforts made by the petitioner during his term as an Administrator."

"The respondent is directed to consider the representation of the petitioner regarding payment of his remuneration; the same may be duly determined in terms of the stipulation contained in the appointment letter dated 31.05.2019, read with the aforesaid circular dated 02.04.2019."

The Court's final determinations are:

(i) SEBI had the legal authority to terminate the petitioner's appointment as Administrator under the SEBI Act and the applicable Regulations;

(ii) The termination communication dated 09.03.2022 is valid and does not warrant being declared null and void;

(iii) The petitioner's appointment as Administrator is not a permanent tenure and can be lawfully withdrawn;

(iv) The petitioner is entitled to remuneration as per the terms of appointment and the circular dated 02.04.2019, and SEBI must pass a reasoned order on the same within eight weeks;

(v) The petitioner may seek further legal recourse if aggrieved by SEBI's determination on remuneration.

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