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Judgment
Devi Prasad Singh, J.—The Petitioner, a Company, incorporated under the Companies Act, 1956 (in short the Act), possessing requisite Certificate for Incorporation issued by the Registrar of Companies for Uttar Pradesh and Uttaranchal, Kanpur, has approached under writ jurisdiction being aggrieved with the impugned order passed under the Securities and Exchange Board of India Act, 1992 (in short 1992 Act), read with Securities and Exchange Board of India (Issue of Capital and Disclosure requirements) Regulations, 2009 (in short Regulations), mainly on the ground that Securities and Exchange Board of India (in short SEBI), does not have got jurisdiction to pass the impugned order in view of the fact that the Petitioner Company is not a listed Company in the Stock exchange of India nor intending to be listed in any stock exchange hence is exempted from the provisions contained in 1992 Act and by virtue of Section 55A(c) of the Companies Act, 1956 the Petitioner Company was to be regulated and administered by the Ministry of Corporate Affairs, Government of India. Further ground is that the impugned order has been passed in utter disregard of principles of natural justice and also for extraneous reasons being predetermined order.
According to Petitioners counsel the Petitioner Company was initially, registered under the Companies Act with the name and title of "Sahara India ''C'' Junxion Limited" and later on, its name was changed to "Sahara India Real Estate Corporation Limited'' (in short SIRECL). The Board of Petitioner No. 1 in its meeting dated 29.2.2008, took a decision to raise its funds from unsecured Optional Fully Convertible Debentures (OFCDs) by way of private placement. The Extraordinary General Meeting of the Petitioner Company held on 3.3.2008, accorded approval u/s 81(1A) of the Companies Act, 1956 for issuance of Optional Fully Convertible Unsecured Debentures by way of private placement to near and deers of the Petitioner Company. The Red Herring Prospectus u/s 60B of the Companies Act, was filed with the Registrar of Companies, U.P. at Kanpur on 13.3.2008. While filing Red Herring Prospectus with the Registrar of the Company at U.P., Kanpur, it was stated by the Petitioner Company that in OFCDs, only those persons shall be eligible to apply to whom the Information Memorandum was circulated and/or approached privately, who are associated/affiliated or connected in any manner with Sahara Group of companies, without giving any advertisement in general public. According to Petitioners'' counsel, in the application form also said condition was provided.
The dispute arises with the Petitioner Company from the stage when Sahara Prime City Limited, a listed Company filed its draft Red Herring Prospectus with SEBI for its IPO on 29.9.2009. It appears that after receipt of Red Herring Prospectus from Sahara Prime City Limited, SEBI wrote a letter dated 12.5.2010 (Annexure-12 to the writ petition), to the Petitioner Company SIRECL, regarding draft Red Herring Prospectus filed by Sahara Prime City Limited, with averments that SEBI received complaints alleging that SIRECL had filed prospectus with the Registrar of Companies and had allegedly issued Optional Fully Convertible Debentures, violating statutory requirements. The SEBI sought certain details regarding the OFCDs issued by SIRECL. Before the said letter, the SEBI sent letter dated 4.2.2010 (Annexure-10 to the writ petition), to M/s. Enam Securities Pvt. Ltd., calling for certain information regarding Bonds issuance by the Petitioner Company to SIRECL and Sahara Housing Investment Corporation Limited (SHICL).
It has been specifically stated by the Petitioners counsel that SEBI indulged into correspondence with M/s. Ename Securities Pvt. Ltd., but it is not the Lead Manager of the Petitioner Company. M/s. Enam Securities Private Ltd., is exclusively the Lead Manager of M/s. Sahara Prime City Limited.
After receipt of letter dated 12.5.2010, the Petitioner Company wrote letter dated 19.5.2010 (Annexure-13 to the writ petition) to SEBI informing that Sahara India Real Estate Corporation Limited, had filed Red Herring Prospectus with Registrar of Companies prior to issue of OFCDs without violating any statutory requirements and they may be supplied copies of alleged complaints received by SEBI. In turn, SEBI, vide letter dated 21.5.2010 (Annexure-14 to the writ petition), informed that due to reason of confidentiality, it will not be possible for them to provide copies of complaints. The Petitioner Company thereafter, vide letter dated 26.5.2010 (Annexure-15 to the writ petition) informed the SEBI to grant time to submit reply. Again, the Petitioner Company, vide letter dated 28.5.2010 (Annexure-16 to the writ petition), made request to SEBI to provide copies of complaints to enable them to understand the nature of grievance of Investors and help them in resolving the issue contained in the complaints. In turn. SEBI again vide letter dated 11.6.2010 (Annexure-17 to the writ petition), informed the Petitioner Company that due to reason of confidentiality, it would not be possible for them to provide copies of information sought and directed the Petitioner Company to send information requested by earlier letter.
In pursuance of the letter of SEBI, it appears that the Petitioner approached the Central Government seeking certain clarification being unlisted Company and falling within the domain of Central Government and informed the SEBI that as and when the clarification would be received from the Central Government, reply shall be submitted. Thereafter, it appears that the Government of India informed the Petitioner Company that the matter is being examined in the Ministry under the provisions of Companies Act. The letter dated 17.6.2010 sent by the Government of India through the Ministry for Corporate Affairs, has been filed as Annexure-19 to the writ petition which is reproduced as under:
F.N.2/PS/MCA/2010/1428 ALOK SINGH TEL: 23073804-05 FAX: 23073806 PRIVATE SECRETARY TO MINISTER OF STATE (I/C) FOR CORPORATE AFFAIRS AND MINORITY AFFAIRS GOVERNMENT OF INDIA ''C'' WING, SHASTRI BHAWAN, NEW DELHI-110 001 June 17, 2010 To, Director Sahara India real Estate Corporation Limited 1,Kapoorthala Complex Aliganj Lucknow-226 024
Dear Sir,
This is to acknowledge the receipt of your letter dated 31st May, 2010 addressed to Shri Salman Khurshid, Hon''ble Minister of State (I/C) for Corporate Affairs seeking clarification on the issue of regulatory governance of Issuance of Optionally Fully Convertible Debentures (OFCDs) by Sahara India Real Estate Corporation Limited. The matter is being examined in this Ministry under relevant provisions of the Companies Act, 1956. Thanking you, Yours faithfully, Illegible (Alok Singh)
SEBI sent a letter dated 25.3.2010 to M/s. Enam Securities Pvt. Ltd., with request to send required information otherwise, it shall be treated as non compliance of order. By another letter dated 23.9.2010, SEBI informed the Petitioner Company that investigating authority has been appointed whereby, calling to submit details with regard to issuance of OFCDs (Annexure-21 to the writ petition).
After receipt of summons from SEBI, the Petitioner Company, vide letter dated 30.9.2010, sent detailed representation (Annexure-23 to the writ petition) raising objection that SEBI has got no jurisdiction to proceed in the matter since the Government of India is seized with the controversy.
A supplementary affidavit has been filed on behalf of the Petitioner No. 2, which shows that u/s 234(1) of the Companies Act, the Government of India has directed the Petitioner to send certain information. In response to letter dated 21.9.2010, the Petitioner Company, vide letter dated 4.10.2010 (Annexure-SA-2 to the supplementary affidavit), communicated necessary information to the Registrar of Companies and in lieu thereof, the Registrar of Companies has sent letter dated 14.10.2010 (Annexure-SA3 to the supplementary affidavit) directing that necessary information be further communicated by filing Prospectus as required u/s 60B(9) of the Companies Act. Rest reply of the Petitioner has been found satisfactory. The letter dated 21.9.2010 (Annexure-SA-1 to the supplementary affidavit) is reproduced as under:
GOVERNMENT OF INDIA, MINISTRY OF CORPORATE AFFAIRS, O/o. REGISTRAR OF COMPANIES, UP & UTTARAKHAND, 10/499B, ALLENGAJ, KHALASI LINES KANPUR-208002. SPEED POST ORDER u/s 234(1) OF THE COMPANIES ACT, 1956 -M/S Sahara India Real Estate Corporation Limited
WHEREAS, the M/s. Sahara India real Estate Corporation Limited has filed Red Herring Prospectus through Form No. 62 vide SRN a 33724675 on 13.03.2008 regarding issue of Optionally Fully Convertible Unsecured Debentures by way of Private Placement basis.
In this connection, you are requested to furnish under mentioned information/documents:
1 Date of opening of the issue:
2 Date if closing of the issue.
3 Date of earliest closing of the issue.
4 Size of present issue giving separately reservation for preferential allotment to promoters and others.
5 Premium decided.
6 Justification of Premium.
7 Amount collected through Premium.
8 Amount collected through Private Placement basis.
Terms of Conditions specified in the Annexure-1. Please furnish the details with regard to the amount collected, as per Schedule, separately in respect of each Bond.
Whether OFCD''s have been transferred in the names of the Investors.
Numbers of the Investors to whom allotment have been made along with their names, address, no of OFCD''S applied and allotted.
Amount collected through Private Placement Basis.
Utilization of the Funds collected through Private Placement basis.
Whether the purpose for which funds has been collected has been achieved, if so how.
It is noticed from the Schedule-II under head Means of financing the project has been financed partly by issue of Optionally Fully Convertible Unsecured Debentures by way of Private Placement basis as well as with the Capital, Reserve and other sources. Please inform the amount invested through Capital, Reserve and other sources. Please inform the amount invested through Capital, Reserve and other sources.
Date of Allotment done.
Whether any Advertisement has been published for promotion of aforesaid OFCD''S.
Your attention is invited to the provision of Section 60B(9) of the Companies Act, 1956, in this connection please clarify whether the company has filed a final Prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as were not complete in the red herring prospectus.
Whether any allotment has been made to the Promoter/Directors/key management persons of the company, if so furnish the names and numbers of OFCD''s allotted.
The Class or classes of persons to whom the allotment has been made.
Shareholding pattern of the promoters and others classes of shares before and after the offer.
Whether allotment of OFCD''S has been complete.
Whether aforesaid OFCD''S are secured, if so whether the company has been compliance of Section 125/128 & 129 of the Companies Act, 1956 has been made, if so please submit documentary proof.
WHEREAS, the provisions of Section 234(1) of the Companies Act, 1956, empowers Registrar of Companies that any information or explanation is necessary (with respect to any matter to which such document) purports to relate, he may, by a written order, call on the company submitting the document to furnish in writing such information or explanation, within such time as he may specify in the order.
You are, therefore, called upon to furnish the information/ explanation referred above within 15 days from the date of this notice failing which penal action will be initiated against the company and its directors u/s 234(a) of the Act.
(M.P. Shah) Registrar of Companies U.P. & Uttaranchal Kanpur.
No. TC/MISC/2010/2399 Dated: 21.09.2010
M/s. Sahara India Real Estate Corporation Limited Sahara India Bhawan, 1, Kapoorthala Complex, Lucknow-226 004. (U.P.)
Reply was submitted by the Petitioner, dated 4.10.2010 (Annexure-SA-2 to the supplementary affidavit) after which the Registrar of Companies has sent letter dated 14.10.2010 which is reproduced as under:
SAHARA INDIA PARIWAR SAHARA INDIA REAL ESTATE CORPORATION LIMITED Registered office: 1, Kapporthala Complex, Aliganj, Lucknow - 226 004 Tel.: 0522-2337777, Fax: 0522-2330135
No. SIRECL/DIR/ROC/OCT.-10/01 DATE: 04.10.2010 The Registrar of Companies, U.P. & Uttaranchal, 10/499B, Allenganj, Kalalsi Lines, Kanpur-208 002
Sir,
Ref: Your letter No. TC/MISC/2010/2399 dated 21.09.2010. Sub: Order u/s 234 of the ompanies Act,1956 calling on nformation purport to issue of OFCDs by the Company.
With reference to your order referred hereinabove in the case of Sahara India Real Estate Corporation Limited (SIRECL), in respect of Red Herring Prospectus filed through form 62, vide SRN A 33724675 on 13.3.2008 regarding issue of Optionally Fully Convertible (Unsecured)Debentures ("OFCDs") by way of Private Placement by SIRECL, an unlisted Company, and which also does not intend to list its securities, our para-wise submissions are as under:
Reply to point No. 1. The Private Placement was opened on 25th April, 2008 after filing Red Herring Prospectus in compliance of Section 60B(2) of the Companies Act, 1956, vide SRN A 33724675 on 13.3.2008. There was no advertisement or in any way invitation to public to subscribe, as has been stated in the Red Herring Prospectus submitted with your office vide acknowledgement card issued by your office dated 18.03.2008.
Reply to Point No. 2 & 3. Since it is a Private Placement of securities by an unlisted Company which, does not intend to get its securities listed on any Stock Exchange in India or Abroad, nor has or intends to invite public by way of advertisement or otherwise, the Board of Directors thought it fit not to mention date of closing in the Red Herring Prospectus. The date of closing of the issue shall be informed to your office by filing prospectus on close of Private Placement in compliance of Section 60B(9) of the companies Act, 1956.
Reply to point No. 4. The size of issue will be informed to your office by the Board of Directors of the Company on closure of the issue by filing prospectus as referred hereinabove. There was no reservation for preferential allotment to promoters and others.
Reply to point Nos. 5, 6 & 7.OFCDs. are being issued at par as stated in the Red Herring Prospectus. No premium is being charged on issue/allotment of OFCDs.
Reply to point Nos. 8 & 9. Amounts collected through Private Placement will be informed to your office by way of filing prospectus in compliance of provisions of the Companies Act 1956, as referred hereinabove. As per the Balance Sheet as on 30.6.2009, amount outstanding was Rs. 48433697276/-. Breakup of the amount outstanding under different schemes as referred in the Red Herring Prospectus is given hereunder:
(Rs.) a) Abode Bond 13855744000/- b) Nirman Bond 19800233000/- c) Real Estate Bond 9359835000/- d)
Interest Accrued but not due for payment, included in the total amount outstanding is Rs. 5417885276/
The above figures are as per the Balance Sheet of the Company duly audited and submitted to your office.
Reply to point No. 10. The Investors who have applied and paid as per terms and conditions of the issue as well as complied with other conditions, including declaration of association with Sahara India Group, were allotted OFCDs in their name.
Reply to point no 11. Number of Investors to whom allotments have been made and their details, shall be filed alongwith the Prospectus on closure of the Issue.
With reference to amount collected through Private Placement, please refer point 6 above.
Reply to point no 12 & 13. Fund collected through Private Placement were invested in the real estate projects duly audited by the Auditors as per the audited Balance Sheet of the Company filed with your office, copy enclosed. The purpose of the funds so collected has been achieved, as stated in the Balance Sheet duly certified by the auditors, as referred in the Auditors'' Report, certifying the collection and investment thereof.
Reply to point No. 14. The figures of Capital, reserves and other sources are as per the audited Balance Sheet of the Company as on 30.6.2009 and stated hereunder:
(Rs.) a) Equity Capital 10,00,000/- b) Reserves 6,90,361/- c) Other Sources (OFCDs) 48433697276/-
Reply to point no 15.OFCDs were allotted by the Committee, duly authorized by the Board of Directors, on following dates to the applicants who had applied under the terms and conditions stated and who had also given their consent to be bound by the terms and conditions of Issue as well as who had given declaration of their association with Sahara India Group:
02.09.2008 06.10.2008 26.12.2008 27.02.2009 06.04.2009 30.06.2009
Reply to point no 16. No advertisement of any kind has been published for promotion of OFCDs.
Reply to point No. 17. Company shall be filing prospectus on close of the issue in compliance of provisions of Section 60B(9) of the Companies Act, 1956, stating therein the total capital raised by way of OFCDs and other related information by filing the prospectus with your Office.
Reply to point No. 18. No allotment has been made to the Promoters/ Directors/ Key management persons of the company.
Reply to point No. 19. The allotment has been made to the persons who are connected with Sahara India Group and who have given declaration to the Company to this effect in compliance of terms stated in red Herring Prospectus filed with your office.
Reply to point No. 20. Shareholding pattern of the Company before the opening of issue, i.e., as on 25.04.2008 is given below. Shareholding pattern after the closing of the issue can be made available only on actual closure of the issue:
(Rs. (Rs.) a) Promoters 10,00,000 100 b) Others Nil Nil
Reply to point no 21. Private Placement of OFCDs has not yet closed and allotments shall be complete on closure of the issue.
Reply to point no 22.OFCDs issued are un-secured, therefore, compliance of Section 125/128 and 129 of the Companies Act is not applicable.
Trust, you will find the above information in order and to your complete satisfaction. This reply may be treated as compliance of the orders issued by your office under the provisions Section 234(1) of the Companies Act, 1956.
Thanking you and assuring you of our fullest cooperation at all times.
Yours faithfully, for Sahara India Real Estate Corporation Limited
Illegible (Director)
Illegible Encl: As above
After the reply submitted by the Petitioner, dated 4.10.2010 (Annexure-SA 3 to the supplementary affidavit) the Registrar of Companies has sent letter dated 14.10.2010 which is reproduced as under:
GOVERNMENT OF INDIA, MINISTRY OF CORPORATE AFFAIRS, O/o. REGISTRAR OF COMPANIES, UP & UTTARAKHAND, 10/499B, ALLENGAJ, KHALASI LINES KANPUR- 208002.
No. UC/MISC/2010/2537 Dated: 14.10.2010
M/s. Sahara India Real Estate Corporation Limited Sahara India Bhawan, 1, Kapoorthala Complex, Lucknow-226024 (U.P.).
Sub: Issue of OFCD''s by the Company-reg.
Sir,
With reference to your reply no SIRECL/DIR/ROC/OCT-10/01 dated 04.10.2010 on the above noted subject and to state that your reply has been examined in this office as under:
I). Point Nos. 1, 2, 3, 5, 6, 7, 8, 9, 10, 12, 13, 14, 15, 16, 18, 19, 20, 21 & 22 have been examined and appears to be satisfactory.
II). Further with reference to Points Nos 4, 11 & 17 your are directed to make compliance on closure of issue by filing of Prospectus, as required u/s 60B(9) of the Companies Act, 1956.
Yours faithfully, illegible (M.P. Shah) Registrar of Companies U.P. & Uttaranchal Kanpur.
It has been vehemently submitted by the learned Counsel for the Petitioner Company that M/s/ Enam Securities Pvt. Ltd., is not the Lead Manager to Sahara Prime City Ltd., registered under the Companies Act hence a separate legal entity and under the garb of investigation of the matter with regard to Sahara Prime City Ltd., SEBI has got no right to interfere with the Petitioner Company since it is not a listed Company. It has been categorically pleaded that the Petitioner has unnecessarily been dragged into the subject matter of M/s. Sahara Prime City Ltd. It has been stated that Mr. D.J. Bagchi who was given an opportunity of meeting with SEBI officers with regard to present controversy, has no concern with the Petitioner Company. He is neither authorised representative nor an officer bearer to discuss on behalf of Petitioner Company.
Petitioners'' counsel has relied upon the cases reported in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, Whirlpool Corporation. v. Registrar of Trade Marks, Mumbai and Ors.; (2006) 12 SCC 33 Union of India (UOI) Vs. Hindalco Industries, H.L. Trehan and Others Vs. Union of India (UOI) and Others, V.C., Banaras Hindu University and Others Vs. Shrikant, Shri Shekhar Ghosh Vs. Union of India (UOI) and Another, Shekhar Ghosh. v. Union of India and Anr.; (2008) 14 SCC 151 M.V. Janardhan Reddy Vs. Vijaya Bank and Others, Deepak Agro Foods Vs. State of Rajasthan and Others, Tayabbhai M. Bagasarwalla and another Vs. Hind Rubber Industries Pvt. Ltd. etc., Tayabbhai M. Bagasarwalla and Anr. v. Hind Rubber Industries Pvt. Ltd., and Ors.; AIR 1954 SC 295 (V 51 C 33) State of Maharashtra Vs. Marwanjee P. Desai and Others, State of Maharashtra. v. Marwanjee F. Desai and Ors.; (2005) 8 SCC 504 Raja Ram Pal Vs. The Hon''ble Speaker, Lok Sabha and Others, Raja Ram Pal. v. Hon''ble Speaker, Lok Sabha and Ors.; 2010 (7) Supreme 91 Mumbai International Airport Pvt. Ltd. v. Golden Chariot Airport and Anr.; (2010) 9 SCC 655 Hari Bansh Lal. v. Sahodar Prasad Mahto and Ors.; and (2010) 7 SCC 678 East Coast Railway and Anr. v. Mahadev Appa Rao and Ors.
Submission of Petitioners counsel is that the Petitioner Company being an unlisted Company, the SEBI has got no jurisdiction to proceed keeping in view the provisions contained in Section 55A of Companies Act read with Section 11(2A) of 1992 Act. Further submission is that Registrar of Companies is seized with the matter and the Petitioner Company, being an unlisted Company, the SEBI cannot interfere. Dispute should be adjudicated by the Central Government. According to Petitioners counsel, under the garb of Sahara Prime City Ltd., SEBI is interfering with the functioning of the Petitioner Company which is an unlisted Company. It has also been submitted that the Petitioner Company is covered by the judgment of Bombay High Court. The judgment of Bombay High Court has been filed as Annexure No. 4 to the writ petition.
For convenience Section 55A of the Companies Act and Section 11(2A) of 1992 Act are reproduced as under:
(Section 55A of Companies Act)
55A. Powers of Securities and Exchange Board of India.-The provisions contained in Sections 55 - 58, 59 - 84, 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall,-
(a) in case of listed public companies;
(b) in case of those public companies which intend to get their securities listed on any recognised stock exchange in India, be administered by the Securities and Exchange Board of India; and
(c) in any other case, be administered by the Central Government.
Explanation-For removal of doubts, it is hereby declared that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of re-redeemable preference shares shall be exercised b the Central Government. (Tribunal) or the Registrar of Companies, as the case may be)
(Section 11(2A) of 1992 Act)
11 (2A). Without prejudice to the provisions contained in Sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to Section 12) which intends to get its securities listed on any recognized stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market.
It has further been submitted that there cannot be simultaneous inquiry, by two forums, one by the Central Government as well as the other, by the SEBI with regard to same issue.
Sri R.N. Trivedi, learned Senior Counsel on behalf of SEBI submitted that writ petition is not maintainable as the Petitioners has got option to prefer appeal u/s 15T of 1992 Act and with an intention to safeguard interest of Investors, the interim order has been passed pending investigation. Further submission is that provisions inserted in the application for RHP and in the resolution, the Petitioners do not intend to get listed, is void in view of provisions contained in Section 73(1) and 73(4) of Companies Act. There is compulsory legal obligation to get the Company listed. According to Sri Trivedi, the total investment upto, June, 2010 is almost 4843.37 crores and the interest accrued and the interest due for payment is Rs. 541.79 Crores. The Petitioner Company shall be deemed to be a public Company. It has further been stated that under the proviso to Sub-Section 67(3) of Companies Act if offer is made by less than 50 persons can be treated as private placement but if it offers 50 persons or more it should be treated as public offer. In the present context, keeping in view the amount involved, it shall be public offer and shall require the listing of the Company.
Learned Counsel for the Respondents has relied upon the cases reported in (2007) 3 SCC 729 State of Punjab Vs. Baldev Singh, Dr. Rajbir Singh Dalal Vs. Chaudhari Devi Lal University, Sirsa and Another, Rajbir Singh Dalal (Dr.). v. Chaudhari Devi Lal University, Sirsa and Anr.; and (2010) 5 SCC 246 Zameer Ahmed Latifur Rehman Sheikh. v. State of Maharashtra and Ors.
On the other hand, Dr. Ashok Nigam, learned Additional Solicitor General of India has argued and stated in his written argument that the issuance of OFCDs by Petitioner Company after registration with Registrar, is permissible. The Central Government remains the regulating authority for the Company. It has got its own control system in place which has been under constant review with the development taking place in the corporate world. Virtually, learned Additional Solicitor General of India defends the rights of Central Government to proceed with the matter. Para 10 of the written argument submitted by Dr. Ashok Nigam, Additional Solicitor General of India, is reproduced as under:
In view of the above, the issuance of OFCD the Petitioner company after their registration with the Registrar of Companies has been permissible under law. The Central Government remains the regulating authority for the company. It has got its own control system in place which has been under constant review with the developments taking place in the corporate world and it has already increased its controlling aspect of such companies and would further strengthen the same by making keener and deeper scrutiny of private placement of companies.
Attention has been invited to observation of Bombay High Court while deciding almost identical issue where argument of SEBI has been taken into account before Bombay High Court. It shall be appropriate to reproduced para 4 of the said judgment (Annexure-4 to the writ petition) as under:
The petition is stoutly opposed by the Respondents. SEBI in its affidavit have set up the case that Sesa Industries is not listed. They have not made any application to any recognised stock exchange for getting their securities listed manifesting their intention to have their securities listed at the recognised stock exchange. In the circumstances it has no jurisdiction in the matter. According to SEBI, the grievance of the Petitioners can be redressed u/s 55A of the Companies Act through Central Government as Section 55A inter alia provides that in all cases in which SEBI is unable to regulate the provisions relating to issue and transfer of securities may be administered by the Central Government. They have pointed out that the Petitioners in fact have vide their letter dated 17th June, 2003 requested the department of Company Affairs to invoke their powers under Companies Act, 1956 for carrying out special audit and investigation into the affairs of the Sesa Goa and Sesa Industries.
Prima facie in case, a Company is not listed under 1992 Act, then it is for the Central Government to look into the complaint or irregularities if any with regard to registered companies. However, submission of Sri R.N. Trivedi is that an amount of Rs. 4800 crores and odd, cannot be shared by 60 persons hence it is a public offer and in case it is a public offer, then 1992 Act shall come into picture to deal with the controversy.
It has not been disputed at bar that both the proceedings one by SEBI and the other by the Central Government, cannot run simultaneously to adjudicate the matter. It has been stated by the Petitioners'' counsel that since the issues have not been closed till date, no final detail can be given and that is why, the Registrar of Companies, has granted time to submit information as required after closure of issues.
Whether SEBI has got right to interfere with the affairs of an unlisted Company before the closure of issues on the ground of shares sold? Whether SEBI can compel a Company to get listed under 1992 Act? whether SEBI can proceed under 1992 Act against an unlisted Company ignoring the pending proceeding before the Central Government? All these questions relate to jurisdictional issues of parties i.e., SEBI and the Central Government, which require consideration. Prima facie, since the Petitioners are not a listed Company and the matter is under investigation by the Central Government, the case for interim relief is made out and also it requires that controversy should be settled at rest at the earliest to add any further complications to safeguard the interest of shareholders.
In case an authority lacks jurisdiction to impose penalty, then such order is amenable to writ jurisdiction under Article 226 of the Constitution of India, vide judgment of Hon''ble Supreme Court reported in Dr (Smt.) Kuntesh Gupta Vs. Management of Hindu Kanya Mahavidyalaya, Sitapur (U.P.) and Others, Dr. Smt. Kuntesh Gupta. v. Management of Hindu Kanya Mahavidyalaya, Sitapur (U.P.) and Ors..
It has been settled by Hon''ble Supreme Court in the case reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, Calcutta Discount Company v. I.T.O. and AIR 1967 SC 549 Bhopal Sugar Industry v. STO, that where mandatory provision of law has not been complied with and Petitioners suffer from no fault on his or her part, the alternative remedy shall not be a bar to exercise jurisdiction under Article 226 of the Constitution of India.
It has also been settled by Hon''ble Supreme Court that where important question of law is involved it shall be open to exercise extraordinary jurisdiction of Article 226 of the Constitution of India to settle a controversy. It has further been held that where public authority is acting contrary to provision of law or taking undue advantage of its own then alternative remedy shall not be a bar, vide, judgments reported in Union of India (UOI) and Another Vs. State of Haryana and Another, Union of India v. State of Haryana and 2002 (3) Salonah Tea Co. Ltd. and Others Vs. Superintendent of Taxes, Nowgong and Others, M.D., Tamil Nadu State Transport Corporation Vs. Neethivilangan Kumbakonam, Shiv Shankar Dal Mills and Others Vs. State of Haryana and Others, Shiv Shankar Dal Mill v. State of Haryana.
In a case reported in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, Whirpool Corporation v. Registrar of Trade Marks, Hon''ble Supreme Court had held that alternative remedy shall not be a bar and dismissal of writ petition by High Court held to be not proper. The order passed by the authorities arbitrarily by abusing the power or in violation of principle of natural justice, may always be subjected to judicial review under Article 226 of the Constitution of India.
In a case reported in Godrej Sara Lee Ltd. Vs. Asst. Commissioner (AA) and Another, Hon''ble Supreme Court observed held that if the order of statutory authority is questioned on the ground of lack of jurisdiction, Court may interfere and the alternative remedy is no bar. Their lordships held that where issue relating to jurisdictional fact is raised, it should have been determined by the High Court in exercise of writ jurisdiction under Article 226 of the Constitution of India
In the case reported in Babubhai Jamnadas Patel Vs. State of Gujarat and Others, Hon''ble Supreme Court held that High Courts and Supreme Court are sentinels of justice. They have been vested with extraordinary powers of judicial review and supervision to ensure that rights of citizens are duly protected. Courts have to maintain a constant vigil against inaction of authorities in discharging their duties and obligations in the interest of citizens for whom they exist. Directions may be issued to authorities to perform their duties as required under various statutes.
Prima facie, at least out of two forums only one can proceed with regard to allegations in question i.e., either SEBI or the Central Government. Since admittedly, the Petitioner Company is an unlisted Company, the Registrar seems to have got primacy over the SEBI to make an inquiry. Prima facie with the tenor of pre-supposition, the SEBI has passed restrained order, as appears from the plain reading of para 39 of the impugned order that too, in violation of principles of natural justice. Sweeping orders affecting civil rights prima facie, should not have been passed in utter disregard of principles of natural justice, vide AIR 2008 SCW 3665 Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, LIC of India and Another Vs. Consumer Education and Research center and Others, of India. v. Consumer Education and Research Centre.
By catena of judgments, Hon''ble Supreme Court and this Court settled that a thing should be done in the manner provided by the Act and statutes and not otherwise, vide Taylor v. Taylor (1876) 1 Ch. D. 426 ; AIR 1936 253 (Privy Council) Deep Chand Vs. The State of Rajasthan, Patna Improvement Trust Vs. Smt. Lakshmi Devi and Others, State of Uttar Pradesh Vs. Singhara Singh and Others, Nika Ram Vs. State of Himachal Pradesh, Ramchandra Keshav Adke (Dead) by Lrs. and Others Vs. Govind Joti Chavare and Others, Chettian Veetil Ammad and Another Vs. Taluk Land Board and Others, State of Bihar and Another Vs. J.A.C. Saldanha and Others, A.K. Roy and Another Vs. State of Punjab and Others, State of Mizoram Vs. Biakchhawna, J.N. Ganatra Vs. Morvi Municipality, Morvi, Babu Verghese and Others Vs. Bar Council of Kerala and Others, and Chandra Kishore Jha v. Mahavir Prasad (1998) 8 SCC 266.
In the present case, a question is cropped up as to who is to initiate the proceeding or inquiry with regard to unlisted companies in the event of receipt of complaint?
Being an unlisted Company, prima facie case is made out for interim relief. Since "issue" has still not been closed and is under process, the balance of convenience lies in Petitioners'' favour. The Petitioners may also suffer irreparable loss and injury. Accordingly, it is a fit case where, Court should interfere under extraordinary jurisdiction under Article 226 of the constitution of India to decide jurisdictional issue.
In view of the above, the writ petition is admitted for peremptorily hearing.
As an interim measure, the operation of the impugned order contained in Annexure No. 1 to the writ petition is stayed with liberty to SEBI to proceed with the inquiry but no final decision shall be taken. However, the Registrar of Companies/Central Government is directed to proceed with the controversy at their end, investigate in the interest to shareholders and submit a status report by the next date of listing. The Petitioners shall provide all necessary required information to the Registrar of Companies in terms of notice dated 21.9.2010 and 14.10.2010 expeditiously say within three weeks. In case Registrar arrives to the conclusion that it is a case of public company then, shall proceed in accordance to law and also inform the SEBI.
Let counter affidavit be filed within two weeks and thereafter, a week''s time is allowed to file rejoinder affidavit.
List on 12.01.2011 for peremptorily hearing.