Securities and Exchange Board of India Act, 1992 – ss 11, 11B, 19, 15T – SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 – Regulations 3(a), (b), (c) &(d) and 4(1), 4(2)k, 4(2)(r) – Listed Company – Unusual Surge in Profits – In the instant case the listed respondent-company was engaged in the business of radio taxi service coupled with trading of shares in a small measure – The company’s share went unusually high from Rs 4.25 to Rs 43.85 and resultantly there was increase in the average monthly volume of shares to 1,56,22,583 shares – Looking at the sudden upward spurt, SEBI carried out the investigation and after hearing the Company and other noticees, it held that the Company has violated the provisions of the Act and the PFUTP Regulations and hence restrained the Company from accessing the capital market in any manner and its directors from dealing in securities for one year – The Company filed an appeal u/s 15T of the Act before the Securities Appellate Tribunal, which set aside the SEBI’s order holding that the extraordinary profits in itself cannot be the basis for concluding that the Company’s accounts are manipulated with a specific objective to mislead the investors and the advertisement issued by the company for inviting public in investing in the company was done in ordinary course of the business and that there was no foulplay and also that SEBI has misconstrued the alleged links with the entities since SEBI did not give opportunity of cross-examination to the Company to explain the matter thus violating principles of natural justice – Aggrieved by the decision of the Tribunal, the appellant filed instant appeal – Held: The issue in the instant appeal as also the conclusions drawn by the Tribunal were factual in nature and hence did not give rise to any question of law warranting interference of this court u/s.15Z of the Act – So far the observation of the Tribunal with respect to the cross-examination was concerned, there was no necessity for the Tribunal to lay down as an inviolable principle that there is a right of cross-examination in all cases and the conclusion of the Tribunal based on evidence on record did not require such a finding – The findings of the Tribunal to that extent is set aside while decision on all other grounds is upheld.
Securities and Exchange Board of India Act, 1992 – s 15Z – Jurisdiction of the Supreme Court – Scope of – The Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal which may arise when there is erroneous construction of the legal provisions of the statute or the general principles of law – Not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction u/s 15Z – The Tribunal while exercising jurisdiction u/s 15T, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime – These very principles are applied consistently for structural evolution of the sectorial laws – This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency – These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z.
Words and Phrases – Phrases such as, ‘question of law’, are open textual expressions, used in statutes to convey a certain meaning which the legislature would not have intended to be read in a pedantic manner – When words of the Sections allow narrow as well as wide interpretations, courts of law have developed the art and technique of finding the correct meaning by looking at the words in their context – Interpretation of statutes.
Dismissing the appeal, the Court
HELD: 1. Phrases such as, ‘question of law’, are open textual expressions, used in statutes to convey a certain meaning which the legislature would not have intended to be read in a pedantic manner. When words of the Sections allow narrow as well as wide interpretations, courts of law have developed the art and technique of finding the correct meaning by looking at the words in their context. The jurisdiction of the Supreme Court under Section 15Z to consider any question of law arising from the orders of the Tribunal should therefore be seen in the ‘context’ of the powers and jurisdiction of the Tribunal under Sections 15K, 15L, 15M, 15T, 15U and 15Y of the Act. It is in the functioning of the Tribunal to re-examine all questions of fact at the appellate stage while exercising jurisdiction under Section 15T of the Act. The Supreme Court while exercising appellate jurisdiction under Section 15Z of the Act would be measured in its approach while entertaining any appeal from the decision of the Tribunal. This freedom to evolve and interpret laws must belong to the Tribunals to subserve the regulatory regime for clarity and consistency and it is with this perspective that the Supreme Court will consider appeals against judgment of the Tribunals on questions of law arising from its orders. [Paras 16, 17,18][558-D-E; 559-C-D, F-G]
Reserve Bank of India vs. Peerless General Finance Investment Company Ltd. & Ors. (1987) 1 SCC 424 : [1987] 2 SCR 1 – relied on.
2. The Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate. However, not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z. [Paras 20.1, 20.2][560-D-G]
3. The submission relating to the allegation that the accounts are manipulated for the year 2004-05 to show inflated profits to lure investors into buying shares of the company. SEBI has referred to the efforts made by it to trace the devise by which the shares of the Company were bought and sold in the market. It was alleged that more than 2 crores shares were purchased by certain entities in the physical form in ‘off-market’ deals and then transferred those shares in subsequent ‘off-market’ deals to certain other outside entities connected to the company. These allegations necessitated proof of such ‘off- market’ transactions and the connectivity of the ‘outside entitles’ with the Company. The Tribunal in its appellate jurisdiction came to the conclusion that the connectivity could not be established and that the conclusions drawn by the Board were insufficient. It is evident from the above that the findings are based on the Tribunal’s inferences drawn from the material available on record. The conclusions drawn by the Tribunal do not give rise to any question of law warranting interference of the court under Section 15Z of the Act. [Paras 27, 28, 29][562-F-H; 563-D-E]
K.L. Tripathi v. State Bank of India and Ors. (1984) 1 SCC 43 : [1984] 1 SCR 184; Tara Chand Vyas v.
Chairman & Disciplinary Authority and Ors. (1997) 4 SCC 565 : [1997] 2 SCR 472; State Bank of India v. Jah Developers Private Limited and Ors. (2019) 6 SCC
787 : [2019] 7 SCR 701; M/s Vijay Textile v. Securities and Exchange Board of India (2011) SCC Online SAT 50; Securities and Exchange Board of India v. Rakhi Trading Private Limited (2018) 13 SCC 753 : [2018] 1 SCR 937; Securities and Exchange Board of India v. Kishore R. Ajmera (2016) 6 SCC 368 : [2016] 1 SCR 1118; Meenglas Tea Estate v. Workmen [1964] 2 SCR 165; Bareilly Electricity Supply Co. Ltd v. Workmen and Ors. (1971) 2 SCC 617 : [1972] 1 SCR 241; Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 : [1981] 2 SCR 533; Videocon International Ltd. v. Securities Exchange Board of India (2015) 4 SCC 33 : [2015] 3 SCR 1; Clariant International Ltd. and Anr. v. Securities and Exchange Board of India (2004) 8 SCC
524 : [2004] 3 Suppl. SCR 843; National Securities Depository Ltd. v. Securities Exchange Board of India (2017) 5 SCC 517 : [2017] 4 SCR 901; Aligarh Muslim University v. Mansoon Ali Khan (2000) 7 SCC 529 : [2000] 2 Suppl. SCR 684; A.S Motors Private Limited v. Union of India (2013) 10 SCC 114 : [2013] 4 SCR 409; T. Takano v. Securities and Exchange Board of India (2022) SCC OnLine SC 210 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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