The Bombay High Court on Tuesday stayed a special court order directing to register a first information report (FIR) against former Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch, along with other officials of SEBI & Bombay Stock Exchange (BSE), in connection with a listing fraud case.
The single-judge Bench of Justice SG Dige observed that the special court passed the verdict mechanically without going into the details or attributing any role to Buch and others.
On March 1, Special Judge Shashikant Eknathrao Bangar had ordered the Anti-Corruption Bureau (ACB) to register an FIR against Buch and SEBI’s whole-time members Ashwani Bhatia, Ananth Narayan G and Kamlesh Chandra Varshney, along with BSE officials Pramod Agarwal and Sundararaman Ramamurthy, in connection with alleged irregularities in the 1994 listing of a company on BSE.
The Judge passed the order on a complaint filed by Sapan Shrivastava, a reporter from Dombivli, under Section 156(3) of the Criminal Procedure Code (CrPC).
The complainant alleged that SEBI officials had colluded to facilitate the listing of a company in 1994 without ensuring compliance with regulatory norms. He claimed that multiple complaints to SEBI and law enforcement authorities had been ignored, necessitating judicial intervention.
As per Shrivastava, the accused SEBI officials and BSE executives failed to enforce key provisions of the SEBI Act, 1992; SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018; and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
SEBI’s inaction enabled the listing despite non-compliance, leading to market manipulation, insider trading and artificial inflation of share prices, which ultimately defrauded investors, alleged the complainant.
He further accused the officials of violating the Prevention of Corruption (PC) Act, 1988, by failing to exercise due diligence and regulatory oversight.
The Special Judge observed in his order that the allegations prima facie disclosed a cognisable offence and required further investigation. Noting that the inaction by law enforcement and SEBI necessitated judicial intervention under Section 156(3) CrPC, the special court directed the ACB to file an FIR and submit a status report within 30 days.
Buch, Bhatia and Agarwal challenged this order before the High Court.
Appearing for SEBI officials, Solicitor General Tushar Mehta today contended that the complainant was habitual of filing frivolous cases and was earlier fined Rs five lakh for filing a frivolous petition.
The SG highlighted a High Court verdict, in which Shrivastava had threatened others with a public interest litigation for his own benefit.
The SG apprised the High Court that the complainant had earlier filed a series of frivolous litigations. In some cases, the court found that Shrivastava was extorting money. Public-spirited individuals must work for the public. But the complainant was indulging in crowd funding, added the SG.
He argued that the special court in the present case passed the order without hearing Buch and others. Even if it was done in 1994, it has been 30 years since.
Representing the BSE officials, Senior Advocate Amit Desai termed the allegations against the officials as baseless and scandalous. He said the complainant made several scandalous statements against the officials, who were working with an eminent stock exchange in India.
Calling it an attack on the economy, Desai said it was unfortunate that the Special Judge did not understand the significance of this matter.
Speaking on the merits of the allegations, he said the complainant claimed that Section 17A of the Securities Contract (Regulation) Act was violated. The particular regulation came into force only in 2007.
Desai apprised the High Court that on March 11, 2024, Shrivastava wrote a letter to the Chairperson of SEBI and another on April 4. He created a charade of communication through these letters, as required under Section 156(1). Shrivastava wrote another letter on March 19, 2024 to the DG, ACB, alleging that the SEBI was not taking any action, added the Senior Counsel.
Citing the Maharashtra amendment to the Code of Criminal Procedure (CrPC), he said government sanction was required to prosecute government officials for acts allegedly done by them in the discharge of their official duties.
The amendment was introduced with the aim to prevent such vexatious litigations, he added.
The Senior Counsel pointed out that the Special Judge passed the order under Section 156(3) without even looking at these fundamental provisions.
Appearing for Buch, Senior Advocate Sudeep Pasbola contended that the claim that no action had been taken against the Cals Refinery was false. He said hundreds of actions were taken against the Cals refinery. There was no question of compliance for SEBI for listing. Since SEBI was a market regulator, it only stepped in when there was a violation. besides, the accused officers stepped into their roles after 2023, he added.
Complainant Shrivastava appeared in person. He submitted that all the allegations were based on facts.
He contended that a criminal law started operating only when a fraud came to knowledge and therefore, although the crime happened in 1994, action may be taken today.
The complainant claimed that SEBI did not grant any NOC or permission to Cals Refinery back in 1994. He sought time to file documents in response to the plea by Buch and others. The High Court accepted his request but stayed the special court order.