TMI Blog2013 (11) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... a proceeding, it would not be open to the respondent to re-agitate the issues by reviewing its earlier orders, unless there are compelling reasons to do so. The dispute in the present case, arises from a PIL filled before the Delhi High Court wherein it was alleged that the Board decisions of the respondent dated November 9, 2009 and February 2, 2010 interalia to treat the impugned decision dated December 4, 2008 as non-est was with a view to confer undue benefit to the appellant, because at the material Mr. Bhave, the then Chairman of the appellant had become Chairman of the respondent. Apex Court, had raised the above query in public interest, in the facts of present case, decision of the respondent to reconsider its earlier decisions taken on November 9, 2009 and February 2, 2010 cannot be faulted - respondent could have taken a stand before the Apex Court that after passing aforesaid resolutions on November 9, 2009 and February 2, 2010 SEBI Board became functus officio in relation to implementation of the impugned order dated December 4, 2008. However, in this case, since Apex Court having wide powers under Article 142 of the Constitution to pass such order as is necessary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o individual complicity, various remedial measures have been taken from time to time by the two Depositories on their own and also at the instance of the respondent. Therefore, at this belated stage directing the appellant to institute fresh inquiry to fix individual accountability to the exclusion of CDSL is wholly unjustified and unreasonable. Accordingly, we quash and set aside the impugned order dated December 4, 2008. This order, however, will not come in the way of the respondent to seek compliance of any other remedial measures that may be suggested by the respondent with a view to strengthen the Depository system - Therefore, the impugned order dated December 4, 2008 relating to IPO irregularities is quashed and set aside - Decided in favour of appellant. - 152 of 2011 - - - Dated:- 6-8-2013 - J.P. Devadhar AND A S Lamba, JJ. For the Appellant : Janak Dwarkadas, Somasekhar Sundaresan, Ravichandra Hegde and Paras Parekh. For the Respondent : Darius Khambata, Mihir Mody and Prateek Seksaria. ORDER:- PER : J.P. Devadhar In this appeal filed under Section 15T of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) the appellant seek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of his securities held by a depository. BP Accounts so held are credited and debited with securities bought and sold by security holders thereby eliminating the risk of handling paper share certificates and share transfer deals which consequently ensures clean, transparent and investor friendly framework for trading and settlement in the securities market. 5. Appellant and Central Depository Services (India) Ltd. ('CDSL' for short) are the only two depositories providing depository services in India. The basic function of depositories is to regulate the demat accounts opened by investors with DPs. Under the depository system, depositories do not deal directly with the individual investors who are demat account holders and it is DPs who have investors as clients to whom the said DPs serve directly. The transactions of individual investors are reflected in the demat accounts maintained by DPs on the basis of intimations given to the concerned DP. The detailed duties, responsibilities and obligations of the depositories and the DPs are laid down in the Depositories Act the Regulation framed thereunder as also under the bye-laws framed by the depositories which are duly appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out therein. This disgorgement liability was payable jointly and severally by those entities. 9. Subsequently, by a show cause notice dated November 23, 2006 appellant was called upon to show cause as to why inquiry should not be held and if found guilty, why penalty should not be imposed under Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and Depositories (Procedure for Holding Inquiry and Imposing Penalties By Adjudicating Officer) Rules, 2005, on account of alleged failures and irregularities on the part of the appellant in regulating/monitoring demat accounts as more particularly set out in the show cause notice. By its letter dated December 15, 2006 the appellant replied to the show cause notice wherein all the allegations set out in the show cause notice were denied. After giving personal hearing to the appellant, the Adjudicating Officer by an adjudication order dated April 27, 2007 held that the explanation offered by the appellant was not acceptable and accordingly for the reasons stated therein imposed penalty of Rs. 5 crore under Section 15HB of the SEBI Act read with Section 19G of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling/conduct of the said proceedings, neither Mr. Bhave nor nominee of the Ministry of Finance on SEBI Board will participate in the said proceedings and that a three Member Committee comprised of part time Members of the Board would oversee the proceedings pending against the appellant. 14. It appears that the said three member committee after considering the matter, recommended to the Board to consider establishing a general policy framework for dealing with matters involving a conflict of interest of the Chairman and to constitute a committee comprising of one or more members of the Board (from amongst members other than Whole Time Members and Chairman). 15. On August 13, 2008, SEBI Board accepted the recommendations and constituted a two member committee consisting of Dr. G. Mohan Gopal and RBI nominee on the Board in relation to the following matters: "i) The Committee will take over and dispose of the on-going quasi-judicial proceedings as on 18th February 2008 against NSDL, irrespective of its stage. The Legal Department of SEBI will provide necessary support for this purpose. ii) The Committee will determine the approach to be taken by SEBI in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by SAT and the adverse remarks made against the appellant in the two member committee decision dated December 4, 2008 in the Rajnarayan's case were expunged by consent of both the appellant and the respondent. 20. On September 6, 2010 a Public Interest Litigation ('PIL' for short) was filed by Social Action Forum For Manav Adhikar, before Delhi High Court interalia seeking investigation by an appropriate agency, regarding the alleged acts committed by Mr. C. B. Bhave in his capacity as Chairman of the respondent with a view to do undue favours to the appellant. In the said PIL, the petitioner therein had sought implementation of orders passed by two member committee of the respondent on December 4, 2008, quashing orders passed by the respondent on November 9, 2009 and February 2, 2010 and quashing order passed by SAT on June 22, 2010 in Appeal No. 21 of 2010. 21. Delhi High Court by its order dated September 29, 2010 dismissed the aforesaid PIL interalia on the ground that proper forum for challenging the decision of SAT dated June 22, 2010 was to file an appeal before Supreme Court under Section 15Z of the SEBI Act and not by way of PIL. 22. Challenging the aforesaid ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.7.2011, it has decided to accept and release the Orders/Reports dated 4.12.2008 of the Special Committee for compliance by NSDL. In pursuance of it, SEBI has also addressed a letter dated 28.7.2011 to NSDL calling upon NSDL to comply with the said two Orders/Reports. In view of the same, the prayer in the PIL in regard to orders dated 9.11.2009 and 2.2.2010 of SEBI, will not survive for consideration. 10. What remains for consideration is the challenged to the order dated 22.6.2010 passed by the Securities Appellate Tribunal in the appeal filed by NSDL, in regard to the Order/Report dated 4.12.2008 with reference to Rajnarayan Capital Markets Services Ltd. The Tribunal, by order dated 22.6.2010, observed that it was satisfied that no prejudice had been caused to the beneficial owners of the depository participant, namely, Rajnarayan Capital Markets Services Ltd. whose certificate of registration had since been cancelled, and in the interest of the securities market, it expunged the observations made in the impugned order, in so far as they were adverse to NSDL. 11. Learned counsel for the appellant submitted that the Orders/Reposts dated 4.12.2008 with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in such a case the Board could not once again reconsider the matter and decide to implement the impugned order passed by the two member committee. The issues considered by the Full Board represent conclusive determination of all issues involved in the matter and therefore, by applying the principle of issue estoppel, the respondent cannot be permitted to litigate on any issue set out in the impugned order. In support of the above contention counsel for the appellant relied upon the decision of the Apex Court in the case of Hope Plantations Ltd. v. Taluk Land Board, Peermade [1999] 5 SCC 590. (c) The Apex Court in its order dated September 5, 2011 has merely recorded the resolution passed by SEBI Board on July 28, 2011 to the effect that the Board has decided to accept the impugned order and release the same for compliance by the appellant, and the Apex Court has not expressed any opinion on the merit of impugned order and therefore the appellant is entitled to challenge the impugned order by filing the present appeal. (d) In view of SAT order dated January 14, 2009 (which has attained finality) the findings recorded against the appellant in the ex-parte ad-interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the aforesaid decision of the Board. The Apex Court in its order dated September 5, 2011 has clearly recorded that in view of the respondent accepting the impugned decision dated December 4, 2008, the contrary decisions of the Board dated November 9, 2009 and February 2, 2010 do not survive. Therefore, it is not open to the appellant to contend that the impugned order dated December 4, 2008 cannot be implemented on account of the Board resolutions dated November 9, 2009 and February 2, 2010. (b) There can be no dispute that on account of the IPO irregularities noticed during the period 2003-2005 the retail investors were deprived of their right to get allotment of shares. By the impugned order the appellant is directed to investigate and find out as to whether, IPO irregularities were due to systems failure or operational failure and to take remedial measures in this regard. Unless root cause for the IPO irregularities is found out and individual responsibility is fixed, it would not be possible to take effective remedial steps. The mere fact that two member committee in the impugned order dated December 4, 2008 has also attributed certain lapses on the part of the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute in the present case, arises from a PIL filled before the Delhi High Court wherein it was alleged that the Board decisions of the respondent dated November 9, 2009 and February 2, 2010 interalia to treat the impugned decision dated December 4, 2008 as non-est was with a view to confer undue benefit to the appellant, because at the material Mr. Bhave, the then Chairman of the appellant had become Chairman of the respondent. Although, Delhi High Court dismissed the PIL, on filing SLP, the Apex Court by its order dated March 28, 2011 called upon the respondent to consider as to whether the SEBI Board would reconsider its decisions taken on November 9, 2009 and February 2, 2010 relating to implementation of the impugned order dated December 4, 2008. Since Apex Court, had raised the above query in public interest, in the facts of present case, decision of the respondent to reconsider its earlier decisions taken on November 9, 2009 and February 2, 2010 cannot be faulted. 30. No doubt that the respondent could have taken a stand before the Apex Court that after passing aforesaid resolutions on November 9, 2009 and February 2, 2010 SEBI Board became functus officio in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffers from any infirmity and whether on the facts and in the circumstances of the case, the respondent was justified in deciding to accept and release the impugned order for compliance by the appellant. 34. By impugned order, the appellant is directed to carry out the following two directions: "(1) We direct the NSDL Board to conduct an independent inquiry, in accordance with terms of reference satisfactory to SEBI, to establish individual responsibility for the failure of NSDL to meet its legal duties and responsibilities identified above; and to take necessary action to ensure individual accountability for such failure. Such inquiry should be completed within six months of the date of this Order, an inquiry report should be provided to SEBI and to the NSDL Board and follow up action should be taken by the NSDL Board within three months of the receipt of the report, and SEBI should be duly informed. (2) We direct the NSDL Board to conduct an independent audit of the following systems and their operation to assess whether they are adequate to ensure the integrity of the overall depository system and the securities market; and identify any remedial measures needed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arte ad-interim order dated April 27, 2006 as well as the adjudication order dated April 27, 2007 were passed on the basis of detailed investigation carried out by the respondent. Neither in the investigation report of the respondent nor in the ex-parte ad-interim order dated April 27, 2006/adjudication order dated April 27, 2007 it is stated that the investigation carried out by the appellant is inadequate or there is any individual involvement which needs to be investigated. Therefore in the absence of any material on record to suggest individual involvement which has not been investigated, the two member committee could not have ordered the appellant to conduct fresh investigation with a view to fix individual responsibility, merely because, the investigation revealed certain lapses on the part of the appellant as also the respondent. 40. If lapses on the part of the appellant in discharging its regulatory responsibilities noticed during the course of investigation itself were sufficient to fix individual responsibility, then, by applying the same yardstick, the two member committee, in view of the lapses on the part of the respondent in discharging its regulatory responsibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in view the spirit of the observations made by Apex Court, had passed resolutions on April 26, 2011 and July 28, 2011, in our opinion, in view of the subsequent SAT order dated January 14, 2009 which has attained finality and in view of the decision of the Whole Time Member dated January 15, 2009 on the basis of which the proceedings against CDSL were treated as closed, the SEBI Board was not justified in accepting and releasing the impugned order for compliance by the appellant. 44. As noted earlier, the Depository system is regulated by both the Depositories and the respondent acts as the Apex regulatory authority. After noticing IPO irregularities, both the Depositories as also the respondent have carried out independent investigations. After ascertaining that there is no individual complicity, various remedial measures have been taken from time to time by the two Depositories on their own and also at the instance of the respondent. Therefore, at this belated stage directing the appellant to institute fresh inquiry to fix individual accountability to the exclusion of CDSL is wholly unjustified and unreasonable. Accordingly, we quash and set aside the impugned order dated D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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