Justice Sanjay Kumar, Justice K.V. Viswanathan, Supreme Court
SEBI Cannot Pass Multiple Final Orders On Same Cause Of Action: Supreme Court
|The Supreme Court allowed the Civil Appeal of the Securities and Exchange Board of India against the Judgment of the Securities Appellate Tribunal.
The Supreme Court held that the Securities and Exchange Board of India (SEBI) cannot pass multiple Final Orders on the same cause of action.
The Court held thus in a Civil Appeal filed by the SEBI against the Judgment of the Securities Appellate Tribunal (SAT).
The two-Judge Bench comprising Justice Sanjay Kumar and Justice K.V. Viswanathan observed, “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 Bench reiterated that the principle of res judicata is based on public policy and justice and 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.
Senior Advocate Chander Uday Singh represented the Appellant while Senior Advocate Purvish Malkan represented the Respondents.
Factual Background
M/s. Vital Communications Limited (VCL), New Delhi was a public limited company whose shares were listed on the Bombay Stock Exchange, the Delhi Stock Exchange, and the National Stock Exchange. While so, the SEBI issued a show-cause notice (SCN) to VCL under the SEBI Act, 1992, in relation to alleged misleading advertisements issued by VCL regarding buyback of its shares, issue of bonus shares, and preferential issue of shares within 30 days. It was alleged that the advertisements published in newspapers misled the investors by benchmarking the price of the scrip at Rs. 30/- when the share was trading at around Rs. 3/- to Rs. 12/-. Various other allegations were framed against the VCL by SEBI. Thereafter, SEBI dropped the charges against former Chairman-cum-Managing Director of VCL, and imposed a lesser penalty on Director of VCL, whereby she was restrained from accessing the securities market and prohibited from buying, selling, and dealing in securities in any manner for a period of six months.
As regards the remaining noticees, i.e., VCL and its other directors and promoters, SEBI restrained them from accessing the securities market and prohibited them from buying, selling, and dealing in securities in any manner for a period of two years. Being aggrieved, VCL filed Appeals before the SAT, Mumbai, which were allowed. The matter was remanded to SEBI. Parallelly, a woman and her husband who allegedly purchased VCL shares based on misleading ads, separately filed an Appeal before SAT. The Tribunal found that there was no directive or mandate in any of the measures under Section 11(2) of the SEBI Act, empowering SEBI to undertake the task of considering and granting compensation to investors for the losses that they may have suffered due to misleading or fraudulent ads by a company. Subsequently, fresh SCNs were issued by SEBI against VCL and other entities. SAT directed SEBI to compensate the investors within a time frame. Challenging such a direction, SEBI was before the Apex Court.
Reasoning
The Supreme Court in view of the facts and circumstances of the case, noted, “No doubt, the illegalities committed by VCL and the other entities had financial implications which may have warranted a direction for disgorgement, but once the SEBI did not choose to issue such a direction in the first instance and was satisfied with lesser penalties in its order dated 31.07.2014, the question of permitting SEBI, without just cause, to revisit the said final order and pass fresh directions does not arise. Doing so would be violative of public policy, which attaches great value and sanctity to the finality of judicial determinations and the principle of res judicata.”
The Court said that though it was contended by SEBI that the principle of res judicata in Section 11 of the Code of Civil Procedure, 1908 (CPC) cannot be imported into these proceedings, due to Section 15U(1) of the SEBI Act, the same cannot be agreed upon.
“This provision merely deals with the procedure and powers of the Tribunal and states that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and shall have the power to regulate its own procedure. Significantly, this provision does not cover proceedings before the SEBI and its WTMs under the Act of 1992. Therefore, SEBI cannot claim exemption from the applicability of the principle of res judicata thereunder”, it added.
The Court further remarked that the laidback and indolent approach on the part of SEBI in dealing with the matter needs mention as it does not augur well for a statutory body enjoined with the duty of protecting investors and regulating the securities market which, by its very nature, is volatile, to drag its feet and indulge in unwarranted and unjustified delays.
“… 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. Further, as the compensation claim of Ram Kishori Gupta and Harishchandra Gupta against SEBI stood decided by the Tribunal’s order dated 30.04.2013, which also attained finality, it was not open to them to reopen the same and seek to pin such liability upon SEBI once again”, it also observed.
Accordingly, the Apex Court allowed the Appeal and set aside the SAT’s Judgment.
Cause Title- Securities and Exchange Board of India v. Ram Kishori Gupta & Anr. (Neutral Citation: 2025 INSC 454)
Appearance:
Appellant: Senior Advocate Chander Uday Singh, Advocates Amarjit Singh Bedi, Surekha Raman, Shreyash Kumar, Yashwant Sanjenbam, Harshit Singh, and Sidharth Nair.
Respondents: Senior Advocate Purvish Malkan, AOR Rekha Pandey, K. Sarada Devi, Advocates Prakash Shah, Raghav Pandey, Keyur Shah, Kaveri Kalyana Ram, and H.C. Gupta.