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TMI Blog2024 (11) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation 11-A of the Settlement Regulations. However, no such provision exists in the copy of the Settlement Regulations handed over to us. In any event, no submissions were made in the context of this regulation 11-A. 4. The first petitioner is a publicly listed company incorporated under the Companies Act of 1956. It trades shares, currencies, and derivatives on all the leading exchanges in India. The second petitioner is a promoter of the first petition company, with a shareholding of 74.56%. 5. The respondent, the Securities and Exchange Board of India (SEBI), issued a show-cause notice (SCN) dated 29 August 2023 to the petitioners and seven others regarding the trading in the first petitioner's scrip. The executive summary on pages 3 to 11 of the SCN contains the gist of the allegations. 6. The SCN alleges serious violations by the petitioners and the other noticees. There are allegations about the petitioners and the other noticees acting in concert with each other through common directors, employees, signatories, bank accounts, etc. There are allegations about the noticees acting in concert while acquiring shares of Abans Enterprises Ltd. (AEL) without making the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preliminary issues raised. The petitioners also sought postponement of hearings before the Quasi Judicial Authority (QJA) by insisting on resolving pending issues like cross-examination of witnesses, inspection of documents, and the pendency of settlement applications. 11. Ultimately, the settlement division of SEBI issued the impugned rejection letter dated 31 July 2024, rejecting the petitioners' settlement applications. On 21 August 2024, the petitioners were again called to attend the personal hearings before the QJA on 06 September 2024. By communications dated 23 August 2024, 4th, 5th and 06 September 2024, the petitioners insisted on resolving allegedly pending issues and declined to participate in the personal hearing. This modus was followed regarding another personal hearing opportunity scheduled in mid-September 2024. 12. Finally, this petition was instituted on 15 September 2024 to challenge the validity of some of the Settlement Regulations' clauses and the impugned rejection letter dated 31 July 2024. Significantly, the interim relief in this petition is to direct the SEBI 'to maintain status quo and keep the personal hearing for adjudication of the SCN in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal, and to that extent, the impugned provisions are ultra vires the SEBI Act. 16. Mr Joshi submitted that the impugned provisions militate against the objective and purpose of the settlement mechanism provided by the Settlement Regulations and the SEBI Act. He submitted that the impugned provisions, by giving the IC overreaching powers at the very entry gate of the settlement proceedings, discourage the legislative mandate to encourage settlements and alternative methods of disposal of cases, which is the prime objective of the settlement provisions. He submitted that the prescription of Regulation 13 (2) (ba) is fundamentally at odds with the remit of the IC itself as it goes beyond examining the feasibility of a settlement proposal on the touchstone of Regulations 5 (2) to 5 (4) and traverses into the fundamental aspect of even consideration of the settlement application. 17. Mr Joshi submitted that the impugned provisions, by allowing the IC to impose "condition precedent(s)", have allowed the IC to act unreasonably and arbitrarily. He submitted that the impugned provisions are an instance of excessive delegation because the SEBI Act contains no provisions to guide the IC on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He submitted that the Settlement Regulations were an economic measure where expert bodies like SEBI are generally conceded with substantial latitude and flexibility given the complexities of the transactions they had to deal with. 23. Mr Daruwalla submitted that petitioners' applications were duly considered and rejected in terms of the law. He submitted that the petitioners have no unfettered right to insist upon accepting their settlement proposals on their own terms. He maintained that the petitioners' approach was only to stall the adjudication in the SCN by filing the settlement applications and, if possible, prolonging their pendency. He, therefore, submitted that this petition may be dismissed. Analysis and Conclusions :- 24. The rival contentions now fall for our determination. 25. The SCN dated 29 August 2023 issued to 8 noticees, including the petitioners, gives a glimpse into the allegations against the noticees. Since the adjudication of the SCN is in progress, it would be premature to comment one way or the other on the various allegations contained therein. However, we cannot help observing that the allegations in the SCN, if proven, are indeed grave. 26. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er some misconception that it is their right to avail of a settlement on terms offered by them or on terms that they would like to accept. This approach appeared apparent from the pleadings in this petition and the tenor of submissions made before us. At the highest, the petitioners have a right to have their settlement applications considered fairly and following the Settlement Regulations. However, the insistence that the SEBI accepts the petitioners' settlement proposals on terms which the petitioners deem the best or that no counter terms can be suggested is entirely misconceived and wholly beyond the ambit of the Settlement Regulations. 31. In Shilpa Stockbroker Pvt. Ltd. and Anr. V/s. Securities and Exchange Board of India 2012 SCC OnLine Bom 58, yet another coordinate Bench of this Court (D.Y. Chandrachud and A.A. Sayed, JJ., as their Lordships then were) on considering the scope and ambit of the 2007 Guidelines for Consent Orders and for considering requests for the composition of offences under the SEBI Act, 1992 held that whether a dispute should be resolved or whether the wider public interest in ensuring regulatory compliance requires that proceedings should be initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th and investment are impacted by the stock market. SEBI is within its power to protect and streamline the functioning of the securities market. A person who is alleged to be in breach of the Regulations or statutory provisions which are designed to protect the public interest can have no vested right either to insist upon SEBI settling a dispute or in enforcing compliance of the terms of a proposed offer of settlement. 34. The coordinate Bench, therefore, declined to strike down the 2007 Guidelines or the requirement of the pendency of Court proceedings or adjudication in clauses 8, 11 and 17 of the Guidelines as being arbitrary and violative of Article 14 of the Constitution. The coordinate Division Bench also declined to issue a mandamus to SEBI to read the requirement of pendency to mean and include pendency of the enforcement proceedings post-adjudication. A mandamus to direct SEBI to enforce the willingness conveyed by the petitioners in their letter dated 18 August 2010 was also declined. 35. The coordinate Division Bench held that there was no merit in any of the submissions urged on behalf of the petitioners. The Guidelines in so far as they mandate that proceedings shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application for settlement and where the applicant fails to comply with the condition precedent(s) for settlement within the time as required by the IC to reject such application. 39. Mr Joshi contended that Regulation 13 (2) (ba) was an instance of excessive delegation because unfettered powers were vested in the IC to impose condition precedent(s). He submitted that such a provision, when read with Regulation 6 (1) (f), produced manifestly arbitrary results. Accordingly, he submitted that the impugned provisions were liable to be struck down for manifest arbitrariness. 40. The challenge based on excessive delegation was never really elaborated upon. In any event, the SEBI Act 1992 and the Settlement Regulations provide ample guidance on how discretion is to be exercised in dealing with settlement applications. Therefore, we find no merit in the challenge based on excessive delegation to the SEBI. 41. The SEBI Act of 1992 is enacted to provide for establishing a Board to protect the interests of investors in securities and to promote the development of and regulate the securities market and for matters connected therewith or incidental thereto. A Division Bench of the Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument based upon any alleged excessive delegation is liable to be rejected and is hereby rejected. 44. Mr Joshi, apart from simply alleging that this was a case of excessive delegation, did not demonstrate why this was so. He did, however, urge that the ultimate decision on whether to accept the settlement proposal or not vested in the panel of Whole Time Members (WTMs) and, therefore, empowering the IC to impose any condition precedent(s) prevented the settlement proposal from being considered by the panel of WTMs. He submitted that this was a case of excessive delegation and, in any event, suggested manifest arbitrariness. 45. The Settlement Regulations make detailed provisions explaining the scope of settlement proceedings, the contents of the settlement terms, the factors to be considered to arrive at the settlement terms, scrutiny of the application by the IC, the recommendations to be made by the HPAC and finally the action to be taken by the WTM on the settlement proposal and the recommendations made by the HPAC on the settlement proposal. 46. For example, Regulation 9 provides that the settlement terms may include a settlement amount and/or non-monetary terms in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f abuse in a given case is not grounds for striking down the provision itself, though the abuse itself could be judicially reviewed if a good case is made out. 51. In this case, Mr. Daruwalla submitted that the HPAC and the panel of WTMs considered the petitioners' proposal. It is only upon due consideration of the petitioners' proposal that the impugned rejection letter was issued. Therefore, the argument that the petitioners' proposal was not considered by either the HPAC or the panel of WTMs is incorrect. The provisions in Regulations 14 and 15 show that the HPAC must examine a settlement proposal to consider whether the same can be recommended for acceptance. The HPAC can also seek revision of the settlement terms and refer the matter to the IC. Similarly, even the panel of WTMs, upon consideration of the recommendations of the HPAC, may either accept or reject the same. A rejection requires the panel of WTMs to record reasons and communicate them to the applicant. 52. The detailed provisions in the SEBI Act and the Settlement Regulations are sufficient to ward off the challenge based on excessive delegation or the challenge that the impugned provisions are ultra vires the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the delegated legislation framed by the executive, the constitutional court can examine the same. The Court also held that broad discretion must be given to the State in such matters. Once it is established that the legislature itself has willed that a particular thing be done and has merely left the execution of it to a chosen instrumentality, there can be no question of excessive delegation. 56. Regarding the challenge based on "manifest arbitrariness", we refer to the recent decision of the Hon'ble Supreme Court in the case of Assn. for Democratic Reforms (Electoral Bond Scheme) V/s. Union of India 2024 (5) SCC 1. Here, the Constitution Bench has held that the manifest arbitrariness of subordinate legislation has to be primarily tested vis-a-vis its conformity with the parent statute. Therefore, in situations where subordinate legislation is challenged on the ground of manifest arbitrariness, the Court will proceed to determine whether the delegate has failed "to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the Constitution". 57. In contrast, applying the mani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would exercise restraint unless clear grounds justify interference. The Court would not supplant views for that of the experts as this can jeopardize the marketplace and cause unintended complications. Policy decisions can only be faulted on mala fides, unreasonableness, arbitrariness and unfairness, and violation of fundamental rights or exercise of power beyond the legal limits. 62. The Court reiterated that manifest arbitrariness requires something to be done in the form of delegated legislation, which is capricious, irrational, or without an adequate determining principle. Delegated legislations that are forbiddingly excessive or disproportionate can also be manifestly arbitrary. The Court concluded that the SEBI 1996 Regulations did not suffer from the vice of manifest arbitrariness. Incidentally, the decision of the Division Bench of Gujarat High Court in Alka Synthetics Ltd. (supra) was also approved in this case. 63. In Pioneer Urban Land and Infrastructure V/s. Union Of India 2019 8 SCC 416, the Hon'ble Supreme Court held that the legislature must be given free play in the joints regarding economic legislation. Apart from the presumption of constitutionality in such case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The condition precedent(s) did not prevent the petitioners' proposal from being considered by the HPAC and, finally, the panel of WTMs. We see nothing unreasonable, irrational or capricious in the conditions itself. Merely because such conditions may not be to the liking of the petitioners, such conditions cannot be styled as arbitrary or unreasonable. 69. The conditions must be considered in the backdrop of the allegations in the SCN about the petitioners acting in concert with the other noticees. There are allegations about common directors or employees, trustees, common bank accounts, common signatories and manipulations. The question at this stage is not whether those allegations are correct. However, from the show cause notice, it is difficult to state that the allegations are based on no prima facie material. Therefore, to say that the conditions should never have been imposed, particularly the condition regarding the other noticees joining in the settlement proposal, cannot be accepted. As noted earlier, it is not the petitioners' right to insist that their settlement proposal be accepted on the terms they deem most appropriate. 70. The scope of judicial review in e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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