Bombay HC Rebukes SEBI For Non-Compliance With Court Order, Says Being A Public Body It Must Inspire Confidence Of Investors, Court

The Bombay High Court on Friday pulled up the Securities and Exchange Board of India (SEBI) for not complying with the Court's order directing it to furnish documents concerning proceedings initiated against Bharat Nidhi Ltd (BNL), a company owned by Times Group MD Vineet Jain.

A division bench of Justice GS Kulkarni and Justice Jitendra Jain, while directing SEBI to comply with the concerned order dated October 23, 2023 and furnish the requested documents to the complainants, observed that SEBI's conduct is damaging to the confidence of investors.

“There has been persistent non-compliance of such orders passed by the Court, despite the Special Leave Petition of the SEBI being rejected, is too far to be imagined nay totally unacceptable. SEBI is a public body, it is required to act in public interest, it needs to comply with the orders passed by this Court...Such approach of the SEBI, in our opinion, would cause a dent to the confidence, the investors would repose in the SEBI, which needs to function solely to further the object and purpose, for which it is created by the Act of the Parliament”, the court observed.

The observation was made by the court while dealing with a writ petition filed by minority shareholders of BNL seeking documents related to an investigation on their complaint.

The petitioners in their writ petitions have alleged violations by BNL of various securities laws, including Minimum Public Sharing Norms (MPS) and inadequate disclosure of promoters' holdings. They claimed that SEBI's investigation report and relevant documents were not provided to them despite being shareholders. The petitioners contended that SEBI's proceedings against BNL lacked transparency, treating the matter as if it were to be held 'in camera,' with all related documents deemed privileged.

It was asserted that BNL, previously listed on the Delhi Stock Exchange, had sought listing on the non-functional Calcutta Stock Exchange and currently existed on the Dissemination Board of the National Stock Exchange. The petitioners argued that BNL's non-listing on a recognized stock exchange prejudiced their interests as investors, especially given BNL's shareholding in Bennett, Coleman & Co. Ltd. (Times Group).

SEBI, in response to these alleged violations, issued a show cause notice dated October 28, 2020 to BNL. Before reaching a conclusion on the show cause notice, BNL and Vineet Jain invoked the Securities and Exchange Board of India (Settlement Proceedings) Regulation, 2018, seeking a settlement. The petitioners contended that gross violations could not be settled and challenged the settlement order.

The prayers in the petitions sought the quashing of the settlement order, withdrawal of the settlement order, disclosure of promoter holdings, compliance with securities laws, and a declaration of the actions taken pursuant to the settlement order as illegal.

The petitioners requested SEBI to provide relevant documents, which was contested by SEBI and. The Bombay High Court, considering Regulation 29 on confidentiality and the petitioners' integral role as minority shareholders, directed SEBI on October 23, 2023 to furnish the requested documents.

This order was contested by BNL and SEBI before the Supreme Court. However, their respective Special Leave Petitions were dismissed by the Supreme Court, rendering the Bombay High Court's order final.

SEBI, in an affidavit dated November 20, 2023, informed the court that the settlement order dated September 12, 2022 had been revoked and withdrawn by an order dated November 10, 2023 due to the respondents' failure to comply with the settlement order, not on the grounds raised by the petitioners.

SEBI argued that since the settlement orders were revoked, the principal prayers of the petitioners, challenging the settlement orders, were rendered infructuous and the show cause notice should now be taken forward and adjudicated.

The petitioners asserted that as minority shareholders, they were entitled to the documents ordered by the court on October 23, 2023, irrespective of the revocation of the settlement orders. They emphasized that the SEBI's inconsistent and seemingly collusive behaviour needed scrutiny, considering its public character.

The court opined that prayers challenging the settlement orders, were indeed rendered infructuous due to SEBI's revocation of the settlement orders. However, the court held that prayers pertaining to disclosure of promoter holdings and compliance with securities laws survived and directed SEBI to furnish the requested documents.

“Even assuming that the petitioners are not correct on their contentions on the different stands being taken by the SEBI, however, the SEBI needs to be consistent and firm in whatever it proposes to do in such eventuality, and above all, such actions must inspire confidence of the investors as also of the Court”, the court observed.

Case no. – Writ Petition No. 530 of 2023

Case Title – Ashok Dayabhai Shah And Ors. v. Securities And Exchange Board of India And Ors.