Case Law Details
Assam Company India Ltd. and Anr. Vs Union of India (Gauhati High Court)
What can be deduced is that though a shell company is defined in other jurisdictions, in India there is no statutory definition of a shell company. However, in popular parlance as well as from the perspective of the Government and its agencies, a shell company is ordinarily identified with dubious activities concerning serious economic offences, such as, tax evasion, money laundering, benami transaction, conversion of black money into white, round-tripping with host of other associated offences. The general perception is that presence of shell companies and its potential use for illegal activities threatens the very economic foundation of the country and severely compromises its economic foundation and ultimately sovereignty.
Question for consideration is whether it was justified on the part of the SFIO to brand a Company as a shell company? Further, was the SEBI justified in investigating petitioner Company as a shell company?
In the opinion of the Court, considering the negative implications of being branded as a shell company, it was not justified either on the part of the SFIO or SEBI to treat petitioner Company as a shell company straightaway and thereafter to initiate investigation to justify such branding. Principles of natural justice would require that before such branding, petitioner No.1 should have been put on notice and afforded a reasonable opportunity of hearing as to why and on what grounds it was being suspected to be a shell company and only if the response was found to be not satisfactory, such a finding could have been recorded. A finding of shell company de hors any notice or hearing would not be justified having regard to its negative implications and serious consequences. In the case of petitioner Company, the circumstances and the context in which it has been declared as a shell company is a virtual condemnation but it is a condemnation without a hearing. That apart, there is also the question of the State or its agencies using an expression which is not defined in any law.
Objective of the SEBI Act is to promote orderly and healthy growth of securities market on the one hand and on the other hand to protect the interest of investors. It has power to issue directions if it is satisfied upon enquiry that such direction is necessary in the interest of investors etc. Thus, the power of SEBI to enquire into any infraction of law by corporate entities or to conduct enquiry or to issue direction in exercise of its powers under the SEBI Act is not in dispute. Such a power SEBI undoubtedly has but that is not the question here. The question is whether a person, a juristic person in this case, can be condemned unheard. It goes to the root and is fundamental that no person can be condemned unheard. Therefore, before branding petitioner as a shell company, it was obligatory on the part of Union Government to have issued notice and to have heard petitioner .
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