SEBI Can't Pass Multiple Orders On Same Cause Of Action; Res Judicata Principle Applies : Supreme Court

Reiterating that the principle of res judicata applies to quasi-judicial proceedings, the Supreme Court today (April 7) upheld the Securities Appellate Tribunal's decision, which held that SEBI's subsequent disgorgement order was barred by res judicata, as its earlier order had not directed disgorgement.

The Court invoked the principle of constructive res judicata (as per Explanation IV to Section 11 of the CPC), holding that since SEBI could have ordered disgorgement in its earlier proceedings, it was not permissible to do so in a subsequent order.

The bench comprising Justices Sanjay Kumar and K.V. Viswanathan considered whether the principle of res judicata applies to proceedings under the SEBI Act, 1992, particularly in cases where SEBI seeks to issue multiple orders on the same cause of action.

The matter concerned fraudulent activities by Vital Communications Limited (VCL), a listed company whose misleading advertisement led the investors to invest their monies in VCL leading to financial loss after finding that the share prices were inflated.

Initially, the SEBI didn't pass a disgorgement order (an order forcing the company that was unjustly enriched to give back profit obtained through illegal or unethical means), however, later on, based on the investor's complaints, SEBI reopened the case and passed a disgorgement order in 2018 under Section 11B, directing VCL to repay unlawful gains.

VCL challenged this before the Tribunal, arguing res judicata barred a second order on the same cause of action. The tribunal held the 2018 disgorgement order was barred by res judicata since the 2014 order was final.

Aggrieved by the Tribunal's decision, the SEBI appealed to the Supreme Court.

Affirming the Tribunal's order, the judgment authored by Justice Kumar observed that SEBI's 2014 order passed under Sections 11 and 11B imposed penalties but did not direct disgorgement. As the order was not appealed, it attained finality, and SEBI could not subsequently revisit the same cause of action to order disgorgement.

In this regard, the Court reference the case of Hope Plantations Ltd. vs. Taluk Land Board, Peermade, and another, (1999) 5 SCC 590 where the Court affirmed that the rule of res judicata prevents the parties to a judicial determination from litigating the same question over again, even though the determination may be demonstrably wrong.

“It was held that when proceedings attain finality, parties are bound by the judgment and are estopped from questioning it. They cannot litigate again on the same cause of action, nor can they litigate any issue which was necessary for decision in the earlier litigation. It was pointed out that Section 11 of the Code of Civil Procedure, 1908, contains provisions of res judicata but these are not exhaustive of the general doctrine of res judicata. It was observed that the principles of res judicata would be equally applicable in proceedings before administrative authorities.”, the court observed.

Further, the Court also referenced the case of Amalgamated Coalfields Ltd. and another vs. Janapada Sabha Chhindwara and others, AIR 1964 SC 1013 where the Court explained the principle of constructive res judicata stating that if a plea could have been taken by a party in a proceeding between him and his opponent, he would not be permitted to take that plea against the same party in a subsequent proceeding which is based on the same cause of action.

Applying the aforesaid law, the Court noted since the SEBI could have passed the disgorgement order in 2014, than it would be impermissible for the SEBI to pass a disgorgement order later on re-opening the same issue which was earlier decided and remained unchallenged as the same would be barred by principle of constructive res-judicata.

“In the light of these edicts, it is not open to SEBI to claim that it could pass multiple final orders on the same cause of action. Having undertaken the exercise pursuant to its show-cause notices issued in 2012, SEBI passed the order dated 31.07.2014, in exercise of power under Section 11B of the Act of 1992, with certain directions which attained finality and were given full effect to. That being so, SEBI could not have reopened the entire exercise without just cause so as to pass a fresh order under Section 11B, once again, 4 years later.”, the court observed.

“Viewed thus, we are of the opinion that the entire exercise undertaken by SEBI after the passing of the final order dated 31.07.2014, resulting in the disgorgement order dated 28.09.2018, was unsustainable in law.”, the court added.

Resultantly, the Court allowed the appeal.

Case Title: SECURITIES AND EXCHANGE BOARD OF INDIA VERSUS RAM KISHORI GUPTA & ANR.

Citation : 2025 LiveLaw (SC) 401

Click here to read/download the judgment

Appearances:

For Appellant(s) : Mr. Chander Uday Singh, Sr. Adv. Mr. Amarjit Singh Bedi, Adv. Ms. Surekha Raman, Adv. Mr. Shreyash Kumar, Adv. Mr. Yashwant Sanjenbam, Adv. Mr. Harshit Singh, Adv. Mr. Sidharth Nair, Adv. M/s. K.J. John And Co., AOR

For Respondent(s) : Mr. Purvish Malkan, Sr. Adv. Mr. Prakash Shah, Adv. Mrs. Rekha Pandey, AOR Mr. Raghav Pandey, Adv. Mrs. Dr. Keyur Shah, Adv. 1 CA No. 7941/2019 etc. Mrs. K. Sarada Devi, AOR Ms. Kaveri Kalyana Ram, Adv. Mr. H.C. Gupta, Adv. Mr. Chander Uday Singh, Sr. Adv. Mr. Amarjit Singh Bedi, Adv. Ms. Surekha Raman, Adv. Mr. Shreyash Kumar, Adv. Mr. Harshit Singh, Adv. Mr. Yashwant Sanjenbam, Adv. Mr. Sidharth Nair, Adv. M/s. K.J. John And Co., AOR