9911796707
TMI Blog1997 (5) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... order and/or direction in the nature of certiorari calling upon the respondents to certify and forthwith send to this Hon'ble court its entire records culminating in the order dated 11th February, 1997 so that the same be quashed and conscionable justice done. (d)A writ of and/or order and/or direction in the nature of prohibition prohibiting and restraining the respondents from giving any effect or further effect to the said order dated 11th February, 1997 in any manner whatsoever." 2. It may be stated that prayer (a) of the writ petition has not been pressed. 3. The petitioner No. 1 which is an existing company made a right issue of full convertible debenture, the underwriter whereof was one Smifs Capital ("Smifs"). Hong Kong & Shanghai Banking Corpn. Ltd. was the lead manager therefor. The said issue was opened on 11-9-1996 and closed on 11-10-1996. 4. According to the petitioner the said issue did not reach the minimum 90 per cent subscription to make the same valid which was intimated to the underwriter. Allegedly underwriting agreement by and between the petitioner and the aforementioned underwriter provided that the under-writer itself would take up debenture or would p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, were raised but without making any further communication to the petitioner the im- pugned order dated 11-2-1997 was passed by the Chairman, SEBI. 9. According to the respondents the unilateral action on the part of the petitioners is in contravention of the 1994 Regulations, and, thus, it was entitled to issue the directions in terms of the impugned order in exercise of its power under section 11B of the Securities and Exchange Board of India Act, 1992 ('the Act'). It is contended that conditions contained in 1994 Regulations are not conditions precedent but conditions subsequent and thus the question of the offer becoming void on 15-11-1996 as was alleged by the petitioner does not arise. According to the respondents the petitioners were under a statutory obligation to inform the SEBI which could take an action as the matter involved interest of the investors. 10. Mr. S. Pal, the learned counsel appearing on behalf of the petitioners, inter alia, submitted as follows : "(1)(a) the show-cause notice is illegal and void as no formal procedure is prescribed in terms of section 11A of the Act. (b) The proposed action does not come within the purview of section 11B in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 10-10-1996 the Smifs informed the company that they had received commitment from their clients subscrib- ing to 7 lakh STDs, which was procured by Smifs from Vasundhara under the standby underwriting arrangement. It is stated that the obligation of the underwriters to contribute directly or procure offers to the extent of the shortfall is an admitted fact. The 1994 Regulations made under the Act, provides by clause 6(1) that one who acquires more than 5 per cent shares in a company, shall disclose the aggregate of his shareholdings to that company and to all stock exchanges where shares are listed which was made by Vasundhara by a letter dated 12-11-1996 and in terms of that letter similar intimation was also given to other stock exchanges. 12. According to Mr. Gupta, clause 9(1) occurring in Chapter in of 1994 Regulations provides that company shall through negotiations acquire more than 10 per cent or more of the shares of a company unless the acquirer makes a public announcement to acquire shares at a minimum offer price from other shareholders of the company in accordance with the 1994 Regulations which the petitioner was well aware of as would be evident from the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel it is not a case where no notice, no opportunity or no adequate hearing has been given. Assuming that had such materials been disclosed they would not have made any difference, it is submitted that paragraphs 3 and 15 of the affidavit-in-reply merely complains of non-disclosure but it has not been specified therein as to how the same would satisfy the prejudice test. It is further submitted that in view of the unchallenged evidence in the form of statement to the press the petitioners must be held to have notice of every facet of the matter. It is submitted that the show-cause notice is not ex facie bad in law inasmuch as the petitioner was asked as to why its decision to cancel the issue which was taken unilaterally on its part without complying with the formal procedure prescribed on this regard as the petitioners were aware of the procedure as would be evident from paragraph 42(iv) of the writ petition. It is submitted that there is no infirmity in the show-cause notice subject to the applicability of section 11B and, thus, the impugned order is not ultra vires. It was urged that section 11B not only applies to a company but also to person referred to in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice, circular, advertisement or other document (inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate." "56 Matters to be stated and reports to be set out in prospectus.- (1) Every prospectus issued - (a)by or on behalf of company, or (b)by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall state the matters specified in Part I of Schedule II and set out the reports specified in Part ft of that Schedule; and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule." 18. Schedule II which referred to the matters to be specified in prospectus and reports to be set out therein includes statements/declaration about refund of the issue if minimum subscription of 90 per cent is not received within 90 days from disclosure of the issue. 19. Relevant SEBI guidelines being guideline No. 9/92 is in the following terms : "(a)Underwriting is mandatory for the full issue and minimum require-ment of 90 per cent subscription is also mandatory for each issue of capital to public. Number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (1) No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the (regulations) made under this Act: Provided that a person buying or selling securities or otherwise dealing with the securities market as a stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market immediately before the establishment of the Board for which no registration certificate was necessary prior to such establishment, may continue to do so for a period of. . . ." 21. Section 11A and section 11B were inserted by the Securities Laws (Amendment) Act, 1995 with effect from 25-1-1995 whereas 1994 Regu-lations came into force with effect from 1994. The said R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word 'company' used in section 11B must be held to be the 'company offering rights issue and does not come within the purview of 'other persons' interested. Thus, in absence of any regulations, the question of any action being taken as against the company by directing the company in respect of matters specified in section 11A does not arise. 24. So long no Regulation is made the petitioner-company was bound by the provisions of the Companies Act and other relevant provision and it had made a statutory declaration as noticed hereinbefore in terms thereof. It was not necessary on its part either in terms of a provision of statute or otherwise to bring it to the notice of the SEBI. It is admitted that except taking a unilateral decision to cancel the issue, the petitioner has not committed any other wrong, if any. Evidently, the words, 'shall be disclosed by the companies' qualify both sub-clauses (a) and (b) of section 11A. As no regulation in terms of section 11A has been made, there is no escape from the conclusion that there is no 'specification of matters which would come within the purview of section 11A. 25. It is true that heading of a section cannot be taken recourse t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny action at the hands of the investors but, section 11B would have no application in this regard, in absence of any formal procedure having been specified therefor. A procedure when required to be laid down, must clearly state as to what are the procedures and what would be the violations, section 11B is a penal provision. The same, thus, has to be strictly construed. From a perusal of the impugned order further it appears that the respondent No. 3 failed to take into consideration the explanation on the part of the petitioners as also the fact that refunds have already been made and accepted by all concerned. It also failed to take into consideration that the very self-same question was pending consideration in a suit before this Court. The respondent No. 3 should not have taken a decision in the matter as the self-same question was sub-judice in a suit particularly in view of the fact that Vasundhara had failed to obtain in interim injunction and further during pendency of the suit, has also accepted the subscription money. Non-approaching SEBI by the petitioner before cancellation of the whole issue may send a wrong signal based on its perspective of irregularity committed by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Had an opportunity been given to the petitioner, they could have shown before the respondent No. 3 that the legal opinion obtained by 'Vasundhara' was not correct and/or was capable of being interpreted differently. Even an admission of a party which was not in the proceeding should not be taken into consideration without bringing the same to the noticee's attention as even an admission can be withdrawn or explained away. 31. It is now well known in view of the decision of the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851 that where quasi-judicial authority passes an order, the correctness thereof cannot be tested upon taking into consideration an affidavit used in support thereof. In such a case prejudice suffered by the petitioner shall be presumed inasmuch as the law deprecates a tendency on the part of the quasi-judicial authority having a high power even to pass penal order to consider certain documents behind the back of a party and, thus, trying to shake the very foundation of the principles of natural justice. In paragraphs 13 and 14 of the affidavit-in-opposition the respondents clearly state that clarification provided by Vasundhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. v. Union of India AIR 1964 SC 1643, the Apex Court while considering a matter relating to the power of the Central Government to pass an order. Rule 57(2) and rule 59 of Mineral Conces-sion Rules, 1949, held : ". . . Where the Central Government passes an order without giving opportunity to the petitioner to meet the case against him the order is vitiated as being contrary to the principles of natural justice, in that the decision is rendered without affording to the petitioner a reasonable opportunity of being heard which is sine qua non of a fair hearing." (p. 1643) 36. In B. Surinder Singh Kanda v. Government of the Federation of Malaya [1962] AC 322 Lord Denim, J observed : "If the right to be heard is to be a real right which is worth anything, it must carry with it a right in the accused man to know the case which is made against him. He must know that evidence has been given and what statements have been made affecting him; and then he must be given a fair opportunity to correct or contradict them. This appears in all the cases from the celebrated judgment of Lord Loreburn LC in Board of Education v. Rice Down to the decision of their Lordships' Board in Ceylona Univ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being affected by the process, he would be afforded reasonable opportunity of hearing and also to meet the cause against him. 41. In De-Smith's Judicial Review of Administrative Action 5th edn., at p. 403 the learned authors have referred to various decisions while emphasising the need to comply with the principles of natural justice in a case of forfeiture or deprivation of some right as also in the cases where applications are required to be filed as for example the cases of licence. 42. In S.K. Sharma's case (supra) upon which Mr. Gupta has placed strong reliance, a two-Judge Division Bench was examining a service matter where under the regulation 68 of the State Bank of Patiala (Officers) Service Regulation, 1979 fell for consideration in terms whereof copies of the statement of the witnesses were required to be supplied but the delinquent officers instead were given inspection thereof and he took copies therefrom and further did not raise any objection whatsoever, was held not to be entitled to question the order of punishment on the ground of violation of principle of natural justice as he was not substantially prejudiced. Each case as is well known, must be considered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what is necessarily involved in it. It does not mean that this Court is bound by the various reasons given in support of it, especially when they contain 'propositions wider than the case itself required'. This was what Lord Selborne said in Caledonian Railway Co. v. Walker's Trustees 1882 7 AC 259 and Lord Halsbury in Quinn v. Leathem. Sir Frederick Pollock has also said: 'judicial authority belongs not to the exact words used in this or that judgment, nor even to all the reasons given, but only to the principles accepted and applied as necessary grounds of the decision.' 19. In other words, the enunciation of the reason or principle upon which a question before a Court has been decided is alone [binding] as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based on the test or abstract from the specific peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the fact of the case and the process of reasoning involving the major premise consisting of pre-existing rule of law, either statutory of judge-made, and a mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years now. To ask the petitioner to avail alternative remedy at this juncture in my opinion would be wholly improper." In Miss Maneck Custodji Surjarji v. Sarafazali Nawabali Mirza AIR 1976 SC 2446, the Apex Court has held : ". . . It is true that this principle is not rigid and inflexible and there can be extraordinary circumstances where despite the existence of an alternative legal remedy, the High Court may interfere in favour of an applicant, but this was certainly not one of such extraordinary cases. . . ." (p. 2450) In L. Hirday Narain's case (supra), the Apex Court has held : ". . . But Hirday Narain moved a petition in the High Court of Allahabad and the High Court entertained that petition. If the High Court had not entertained his petition, Hirday Narain could have moved the Commissioner in revision, because at the date which the petition was moved the period prescribed by section 33A of the Act had not expired. We are unable to hold that because a revision application could have been moved for an order correcting the order of the Income-tax Officer under section 35, but was not moved, the High Court would be justified in dismissing as not maintainable the petition, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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