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Talluri Srinivas v. Securities Exchange Board of India and Anr.

Bombay HC27 Feb 2012WP/1900/2011

Case brief

AI extract

What is this about?

The High Court of Bombay disposed of a writ petition challenging SEBI's refusal to keep proceedings in abeyance. The Court directed SEBI to commence disciplinary proceedings from May 7, 2012, ensuring hearings do not clash with criminal trial dates, while restraining the petitioner from issuing certificates and accessing the securities market.

What the court decided

AI extract

Talluri Srinivas Vs Securities Exchange Board of India and Anr. — Bombay HC (2012) — LawSathi Research

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srp

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

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WRIT PETITION NO. 1900 OF 2011

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Talluri Srenivas. ..Petitioner. Versus Securities & Exchange Board of India (SEBI) and Anr. ..Respondents.

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Mr. F. Devitre, Senior Advocate alongwith Mr. Simil Purohit, Mr. Amol Barase i/b Udwadia & Udeshi for the Petitioner.

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Mr. Ravi Kadam and Mr. Shiraz Rustomjee, Senior Advocates alongwith Mr. Jayesh Ashar, Mr. Mobin Shaikh i/b K. Ashar & Co., for the Respondent.

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Coram : MOHIT S. SHAH, C.J. & RANJIT MORE, J. Date : February 27, 2012 .

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P. C. :

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What is challenged in this petition under Article 226 of the

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Constitution of India is the order dated 18^th January 2011 of the Whole

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Time Member of Securities & Exchange Board of India [“ SEBI ” for short], rejecting the petitioner’s preliminary objection in the enquiry pursuant to the SEBI show-cause notice dated 14^th February 2009 and supplementary show-cause notice dated 19^th February 2010 under

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sections 11, 11(4) and 11B of the SEBI Act, 1992 and Regulation 11 of

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the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Security Market), Regulations 2003 in the matter of Satyam Computer Services Ltd [“SCSL” for short].

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The petitioner is facing prosecution for certain offences alleged to have been committed by the petitioner in what is popularly known as “ Satyam Scam ”. SEBI issued show cause notices calling upon the petitioner to show cause why certain actions, as indicated hereinafter, should not be taken against the petitioner.

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Show cause notice dated 14^th February 2009 calls upon the petitioner to show cause as to why action should not be taken against the petitioner, which may include:-

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(a) prohibiting the petitioner from directly or indirectly, in any manner, issuing any certificate with respect to compliance of obligations of listed companies and intermediaries registered with SEBI and requirements of those made under securities laws {Securities & Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 and the provisions of the Companies Act, 1956, which are administered by SEBI under section 55A thereof,

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the Rules, Regulations, Guidelines made under these Acts (which are administered by SEBI and the Listing Agreement} permanently or for a specified period.

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(b) restraining the petitioner from accessing the securities market and prohibiting from buying, selling or dealing in the securities of Satyam and its associate listed companies in any manner whatsoever, permanently or for a specified period.

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Similarly, the supplementary show cause notice dated 19^th February 2010 calls upon the petitioner to show cause why the appropriate action should not be taken against the petitioner, which may include :-

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(a) prohibiting the petitioner from directly or indirectly, in any manner, issuing any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI and the requirements under securities laws (the SEBI Act, 1992, the SCRA 1956, the Depositories Act, 1996, those provisions of the Companies Act, 1956, which are administered by SEBI under section 55A thereof, the Rules, Regulations, Guidelines made under these Acts, which are administered by SEBI and the

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Listing Agreement) permanently or for a specified period;

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(b) Issuing appropriate directions to listed companies and intermediaries registered with SEBI not to engage the petitioner’s services for issuing any certificate with respect to compliance of statutory obligations which SEBI is competent to administer and enforce under various laws for such period as deemed fit:

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(d) directing the petitioner to disgorge the fees/gains of Rs. 23,31,60,070/- and any further amounts found to have been received by you for performing the audit of SCSL during the period 2001-2008; and

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(e) any other directions as deemed fit and proper.

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The petitioner raised preliminary objection against the above show cause notices on the ground that the petitioner is already facing prosecution in respect of the allegations, which are same or overlapping with the allegations made in the above show cause notices. The whole time member of SEBI by the impugned order dated 18^th January 2011 overruled the preliminary objection and passed the

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following order:-

“22. In view of the above and on consideration of the entire facts and circumstances of the case, I am unable to accept the noticees’ request to keep the present proceedings in abeyance. The hearing of the SCNs shall proceed on merits. For that purpose, the next hearing of the matter is fixed on February 5, 2011 at 11 AM at SEBI Head Office in Mumbai. The hearing has been fixed on a Saturday as the noticees have pointed out that the hearing of the criminal trial is proceeding on day-to-day basis and that they are required to remain present at the trial each day. In case the noticees fail to appear in person or through any representative and make arguments on merits of the case on the given date and time, the SEBI proceedings shall be conducted ex-parte, on the basis of the material available on records.”

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Mr. DeVitre, learned Senior Counsel for the petitioner submitted that in view of the catena of decisions of the Supreme Court including in M. Paul Antony vs. Bharat Gold Mines Ltd ., (1993) 3 SCC 679 , during the pendency of the criminal proceedings, the disciplinary proceedings by the bodies like, SEBI should be kept in abeyance, as the right available to the petitioner under Article 20(3) of the Constitution of India will be violated and the defence of the petitioner in the criminal

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proceedings would be prejudiced, if he is required to make any submission in the matter on the show cause notices, before the conclusion of the criminal trials.

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The petition has been opposed by Mr. Ravi Kadam, learned Senior Counsel for SEBI on the ground that as per the settled legal position, pendency of the criminal trial is no bar to disciplinary proceedings being heard by the disciplinary authorities or regulatory bodies, like SEBI. It is submitted that as observed in the impugned order, and having regard to the scheme of the SEBI Act, such proceedings should be completed expeditiously and effectively. If these proceedings were to result in debarring the petitioner from undertaking the audit of listed companies in the interest of investors, this ought to be done expeditiously so that investors do not suffer any further from the audit of the petitioner. Keeping these proceedings in abeyance, would cause continued suffering of investors and thereby defeat the statutory purpose. It is submitted that SEBI cannot have control over the conclusion of criminal proceedings and, therefore, the law does not contemplate holding section 11 and 11B proceedings under the SEBI Act in abeyance till the completion of criminal trials. It is further submitted that the proceedings initiated by SEBI are really in

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the nature of remedial or preventive measures, therefore, need not be postponed till the conclusion of criminal trials.

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It is further submitted that Institute of Chartered Accountants of India had also initiated disciplinary proceedings against the petitioner and the petitioner had challenged such proceedings before the Delhi High Court on the same grounds which are now being raised for challenging the SEBI proceedings. The Delhi High Court dismissed the said writ petition as well as the Letters Patent Appeal and in Special Leave Petition (Civil) No. 20915 of 2011, the Supreme Court has passed the following order on 1^st August 2011:-

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“Learned counsel for parties are agreed that this petition can be disposed of by directing the respondent – Institute to commence the disciplinary proceedings from the week commencing 3^rd October, 2011. We order accordingly. We may, however, add that if by that date trial in criminal cases No. CC 1/10, CC 2/10 and CC 3/10, in progress in the Court of XXI ACMM, Hyderabad is not completed for any reason, the respondents shall ensure that the dates of hearing fixed by them do not clash with the dates fixed by the trial Court.”

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It is submitted that the Whole Time Member in the

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impugned order has, therefore, followed the guideline given by the Supreme Court to schedule the hearing on such dates to ensure that there will be no clash of dates.

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Having heard learned counsel for the parties and having regard to the aforesaid order of the Supreme Court in SLP filed by this very petitioner challenging the initiation of disciplinary proceedings by the Institute of Chartered Accounts of India, we are of the view that the interests of justice would be served if this writ petition is also disposed of by an order on the same lines.

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Hence, we dispose of this writ petition by issuing following directions :-

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(i) The SEBI shall commence the proceedings against the petitioner pursuant to the show cause notices dated 14^th February 20009 and 19^th February 2010 against the petitioner from the week commencing from 7^th May 2012. We may, however, add that if by that date, trial in criminal cases No. CC 1/10, CC 2/10 and CC 3/10, in progress in the Court of XXI ACMM, Hyderabad is not completed for any reason, the respondents shall ensure that the dates of hearing fixed by

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them do not clash with the dates fixed by the trial Court.

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(ii) We further direct that during the pendency of the proceedings before the SEBI pursuant to above show cause notices dated 14^th February 2009 and 19^th February 2010, the petitioner shall not :-

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(a) directly or indirectly, in any manner, issue any certificate with respect to compliance of obligations of listed companies and intermediaries registered with SEBI and requirements of those made under securities laws {Securities & Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 and the provisions of the Companies Act, 1956, which are administered by SEBI under section 55A thereof, the Rules, Regulations, Guidelines made under these Acts (which are administered by SEBI and the Listing Agreement};

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(b) access the securities market and he is prohibited from buying, selling or dealing in the securities of Satyam (SCSL) and its associate listed companies in any manner whatsoever;

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(c) access the securities market except for the purpose of disposing of the share in a company other than SCSL.

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However, in case the petitioner disposes of any shares in a company other than SCSL, the petitioner shall send an intimation to SEBI about such transaction within a week from the date of the transaction.

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(iii) It will be open to the SEBI to issue appropriate directions to listed companies and intermediaries registered with SEBI not to engage services of the petitioner for issuing any certificate with respect to compliance of statutory obligations which SEBI is competent to administer and enforce under various laws, till the disposal of above proceedings in respect of notices dated 14^th February 2009 and 19^th February 2010.

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(iv) It is made clear that this order is passed without prejudice to the rights and contentions of the parties and all the questions are kept open.

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[CHIEF JUSTICE]

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[RANJIT MORE, J.]

Talluri Srinivas v. Securities Exchange Board of India and Anr.

Case brief

What is this about?

What the court decided

Talluri Srinivas v. Securities Exchange Board of India and Anr.

Case brief

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