Pradeep Mehta Vs Union of India (Bombay High Court)
Conclusion: The statutory bodies such as BSE / NSE and SEBI had totally acted contrary to norms on illegal freezing of De-mat account of assessee merely for the reason that at one time assessee happened to be one of the promoters of a company as assessee’s role as the promoter had come to an end after the formation of the company and once the company stood incorporated. Therefore, SEBI/BSE/NSE were directed to jointly pay to assessee cost of Rs.50 lakhs within a period of two weeks.
Held: In the instant case, assessee was a senior citizen and a medical practitioner, had his Demat accounts frozen by the National Securities Depository Limited (NSDL) under the directives of SEBI. Assessee’s demat account was freezed merely for the reason that at one time assessee happened to be one of the promoters of a company. The division bench observed that the freezing of assessee’s account was not only unwarranted but also grossly unfair, as it was based on outdated assumptions about his role in Shrenuj & Company Ltd. As assessee was never involved in the company’s management, nor did he have any control over its operations. He was merely a shareholder, and his association with the company had long ceased to be relevant. What was pertinent was that once assessee’s role as the promoter had come to an end after the formation of the company and once the company stood incorporated i.e. “a legal person born”, according to assessee, it would be subjective and issue of fact, as to what was the role of the promoter, as such role would cease to exist, as the entire management of the company, as per the provisions of the Companies Act, 2013 would stand vested with the Board of Directors. It was held that the actions and conduct of the BSE / NSE and SEBI as the law mandated was to protect the interest of the investors. In the present case these statutory bodies had totally acted contrary to such norms. In fact the impugned actions of these respondents when taken against a person like assessee was also likely to shake the confidence of investors who were non residents Indian. This was certainly not what could be expected from the conduct of these entities. It was non-application of mind by any of these authorities, who were statutorily governed in resorting to take such drastic action. The duty to safeguard the investor’s sentiments and confidence was paramount which stand breached in every possible manner in the present case. Therefore, SEBI/BSE/NSE were directed to jointly pay to assessee cost of Rs.50 lakhs within a period of two weeks.
