Case Law Details
The very purpose of having an independent regulatory authority like SEBI, and vesting it with statutory powers of inquiry, is to enable it to take prompt action in matters relating to issue and transfer of share; particularly, SEBI is expected to be the sentinel, read the fine print of prospectuses keeping the investors’ interests in view; it has both a preventive and corrective role to perform; therefore, it is not possible to place a narrow interpretation on the words “issue and transfer of securities” occurring in Section 55A.
Merely because the public issue was closed, SEBI could not be relieved of its statutory duty to conduct an enquiry into the complaint and into the veracity of the statements made in the prospectus
CASE LAWS DETAILS
HIGH COURT OF DELHI
Kimsuk Krishna Sinha Vs. SEBI
APPEAL NO: W. P. (C) 7976 of 2007 & CM Appl. No. 15084/07
DECIDED ON April 9, 2010
RELEVANT PARAGRAPH
19 This Court is unable to agree with the submissions made on behalf of the Respondent No.3 that the expression “issue and transfer of securities and non-payment of dividend” in Section 55A of the Companies Act does not cover misstatement in the prospectus. Section 55 A reads as under: “55A Powers of Securities and Exchange Board of India – The provisions contained in Sections 55 to 58, 59 to 84, 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 1122, 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 the 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 by the Central Government, (Tribunal) or the Registrar of Companies as the case may be.”
20. The above provision includes the provision makes a reference to Section 62 which talks of civil liability for misstatement in prospectus and Section 63 which talks of criminal liability for misstatement in prospectus. While enforcing the civil liability for any loss or damage under Section 62 may be restricted to persons who subscribed for shares on the faith of the prospectus, Section 63 can be set in motion by any person including SEBI. The purpose of inserting Section 55A in the Companies Act was to empower the SEBI to take both corrective and preventive action. This is perhaps because as a regulatory body SEBI gets to see the draft prospectus preceding a public issue by a company even before the public gets to see the RHP. SEBI is enabled and empowered to examine the DRHP and insist on complete and truthful disclosure of all relevant facts therein. The very purpose of having an independent regulatory authority like SEBI, and vesting it with statutory powers of inquiry, is to enable it to take prompt action in matters relating to issue and transfer of shares. Particularly, SEBI is expected to be the sentinel, read the fine print of prospectuses keeping the investors interests in view. It has both a preventive and corrective role to perform. Therefore, it is not possible to place a narrow interpretation on the words “issue and transfer of securities” occurring in Section 55-A of the Companies Act. Given the object and purpose of the provision, it should be broadly construed. In any event, the word “securities” is defined under Section 2(h)(i) of the Securities Contracts (Regulation) Act 1956 to include shares.
21. In the instant case, even if it is assumed that the petitioner’s complaint was received by SEBI only on 15th June 2007 i.e. one day after the closure of the public issue, it need not have prevented SEBI from taking action thereafter if on an enquiry into the complaint it was revealed that there had been a misstatement in the prospectus. In other words merely because the public issue was closed, SEBI could not be relieved of its statutory duty to conduct an enquiry into the complaint and into the veracity of the statements made in the prospectus (RHP). There are enough powers vested in it under the SEBI Act for this purpose. Illustratively this would include Sections 11 and 11–B of the SEBI Act. In SEBI Vs. Ajay Agarwal (supra) the Supreme Court noted that the SEBI Act “is pre-eminently a social welfare legislation seeking to protect the interests of common men who are small investors”. This Court would like to add that the SEBI Act expects SEBI to act as an institution accountable to the investor public and be both accessible and responsive to complaints. In the instant case, as the facts reveal, SEBI was inexplicably slow in reacting to the Petitioner’s complaints. Its subsequent failure to initiate further steps to investigate the transaction in question was also not consistent with its statutory obligation.
