Raj Kumar Kishorepuria vs SEBI Citation 127 COM CAS 18, 63 SCL 1, 2005 4 CLJ 525, 67 CLA 59,

69 CLA 1, 6 CLC 1673 FUTP Regns 1995 Powers of SEBI SEBI had the power to take actions against the petitioner for irregular allotment of preferential shares of a company under the new FUTP Regulations 2003. The petitioner's contention that the provisions of FUTP 1995 should be applicable was untenable because the changes in the repealed regulations were mere procedural changes.

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High Court of Calcutta Raj Kumar Kishorepuria vs General Manager, Securities and Exchange Board of India and Otehrs WP No. 1933 of 2004 Jayanta Kumar Biswas J 23 March 2005 Sudir Kumar Mehta Advocate,for the Petitioner Ms. Sutapa Dutta Advocate for the Respondent JUDGMENT JAYANTA KUMAR BISWAS, J.The petitioner in this writ petition is aggrieved by the notice issued by the General Manager, Securities and Exchange Board of India, dated 26 August 2004. 2. By the notice he was asked to show cause why proceedings should not be initiated against him under the Securities and Exchange Board of India Act, 1992, section 11B, read with the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, regulation 12, and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, regulation 11, for the role he played in the process of irregular allotment of preferential shares by Padmini Technologies Ltd. in the year 1999. 3. Section 30 of the Securities and Exchange Board of India Act, 1992 empowered the Board [Securities and Exchange Board of India (SEBI)] to make regulations for carrying out the purposes of the Act. In exercise of such power, it first made the 1995 Regulations, which were repealed by the 2003 Regulations (now in force), providing by their regulation 13 that notwithstanding the repeal, violations of provisions of the repealed Regulations shall be

investigated and proceeded against, and any investigation pending, at the date of their commencement, shall be continued and disposed of, according to the procedure laid down in them. 4. Counsel for the petitioner argues that provisions of regulation 12 of the repealed regulations and regulation 11 of the New Regulations, both being substantive provisions of law, as opposed to procedural ones, while, in view of provisions of regulation 13 of the New Regulations, the Board is empowered to follow the procedural provisions of the New Regulations for concluding the pending investigations, it does not possess the power to take any action against or punish the petitioner under regulation 11 of the New Regulations, though, if occasion arises, it can do so under regulation 12 of the repealed Regulations. 5. Counsel for the respondents argues that since sub-regulations (2) and (3) of regulation 13 begin with non obstante clauses, even for the violations of provisions of the repealed regulations by the petitioner, the Board would be empowered to take action in terms of regulation 11 of the New Regulations. She refers me to passages from treatise and the decisions in Union of India and another v G. M. Kokil and others AIR 1984 SC 1022, Chandravarkar Sita Ratna Rao v Ashalata S. Guram AIR 1987 SC 117, Narcotics Control Bureau v Kishanlal and others AIR 1991 SC 558, and Orient Paper and Industries Ltd. and another v State o/Orissa and others AIR 1991 SC 672. 6. With due respect to the counsel, I just do not see how the authorities cited to me can be of any assistance in deciding the question raised by the petitioner. It is not his case that because of repeal of the Old Regulations the Board lost its power to conclude the pending investigation. This is the reason why I am not dealing with the authorities which command great respect and explain unexceptionable propositions of law regarding effect and interpretation of non obstante clause in an enactment. 7. The New Regulations are divided into three Chapters. The First Chapter, headed 'Preliminary', contains regulations 1 and 2 dealing with short title and commencement, and definitions respectively. The Second Chapter, with the heading 'Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market', again has only two regulations (regulations 3 and 4). While regulation 3 enumerates what a person dealing in securities shall not do directly or indirectly, regulation 4, after saying that no person shall indulge in the fraudulent or an unfair trade practice in securities, says that dealing in securities shall be deemed to be a fraudulent or an unfair trade practice, if it involves fraud, which may include all or any of the acts and omissions mentioned in clauses (a) to (r) of its sub-regulation (2). 8. Chapter III and the last Chapter of the New Regulations is relevant for the purpose of this case. With the heading 'Investigation', it comprises the rest of the Regulations, i.e., regulations 5 to 13. Counsel for the petitioner concedes that regulations 5 (Power of the Board to Order Investigation), 6 (Powers of Investigating Authority), 7 (Power of the Investigating Authority to be Exercised with Prior Approval), 8 (Duty to Co-operate, etc.), 9 (Submission of Report to the Board), and 10 (Enforcement by the Board), being procedural provisions, shall apply without any qualification also to an investigation that was pending at the date of repeal of the Old Regulations. Regulation 12 conferring power on the Board to warn or censure an intermediary,

and also to suspend or cancel his registration, does not need any comment, as that is not in issue in the case. 9. I find that provisions in clauses (e) to (h) of regulation 11(1) of the New Regulations are nothing but improved versions of the old provisions in clauses (a) to (d) (there was nothing more) of regulation 12 of the repealed Regulations. The new regulations, in fact, do not enlarge the scope of power of the Board as to the things mentioned in clauses (a) to (d) of its regulation 11(1). The measures indicated in clauses (a) to (d) of regulation 11(1) are, in substance, identical with the already existing ones mentioned in clauses (a) to (d) of section 11(4) of the Act. In the clauses, some powers of the Board were enumerated specifically, without prejudice to the general power given to it by sections 11 and 11B of the Act. They are powers to suspend, restrain and impound; by their very nature, powers to be exercised as interim measures. They are not punishments or penalties proper, as the terms denote in the context of a legally punishable offence or misconduct. 10. It seams to me that actions taken and directions issued under regulation 11 of the New Regulations are only to advance the purposes of the Securities and Exchange Board of India Act, 1992, which conferred very extensive and wide power on the Board by its section 11B, which is "11B. Power to issue directionsSave as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions, (a) to any person or class of persons referred to in section 12, or associated with the securities market; or (b) to any company in respect of matters specified in section 11A as may be appropriate in the interests of investors in securities and the securities market." 11. After examining the provisions of the Act and the regulations (both the repealed and the new ones), I am minded to hold that interpretation given by the counsel for the petitioner to regulation 11 of the New Regulations, that it being a piece of substantive law shall not apply to the investigation started against the petitioner under the Old Regulations (since repealed), is not acceptable. In my reading and understandingnothing in regulation 11 of the New Regulations falls in the field of substantive law. 12. It seems to me that regulation 11 of the New Regulations prescribes the manner in which the Board shall take the interim measures till the time it takes the final decision under sections 11(1),

(2), (2A) and (3), and 11B of the Act. The several different preventive measures mentioned therein are intended chiefly to ensure a purposeful investigation, which is nothing but a process to reach a conclusion. Actions can be taken and directions can be issued, even pending the investigation. 13. To my mind, a provision of law of this nature, usable both at post and pending stages of an investigation, since provides only the means and instruments to achieve the end product of the administration of justice, must be regarded as procedural, irrespective of the consequences it produces as to curtailment or extinguishment of any existing right or freedom of the person likely to be affected by it. It provides one of the stages through which the investigation attains finality, and thus through the prescribed procedure sets the stage ready for the substantive law to play its role. 14. It is, therefore, my view that changes effected to the situation in this case are nothing but mere procedural changes, and that they shall apply with full force to the case of the petitioner in view of specific provisions of regulation 13 of the New Regulations. 15. Moreover, it is apparent from the impugned post investigation show cause notice that the Board contemplated actions against the petitioner under section 11B, which empowers it to issue all or any of the directions specified in regulation 11 of the New Regulations. I say so, because section 11B confers power on the Board to issue such directions as may be appropriate in the interests of investors in securities and securities market. Therefore, to rny mind, in any case, the petitioner cannot say that the measures mentioned in regulation 11 cannot be taken against him, if there are good and sufficient reasons for taking any of them. 16. For these reasons I conclude that there being no merit in the sole contention raised to challenge the show cause notice, the writ petition is liable to be dismissed; and accordingly, I dismiss it. 17. On the facts of the case, I am not inclined to make any order for costs in favour of the respondents. Hence there will be no order for costs in the writ petition. 18. Urgent certified xerox copy of the judgment and order shall be supplied to the parties, if applied for.