SECURITIES AND EXCHANGE BOARD OF INDIA versus MEGA CORPORATION LIMITED

[2022] 2 S.C.R. 546

[2022] 2 S.C.R.

ASECURITIES AND EXCHANGE BOARD OF INDIA

MEGA CORPORATION LIMITED

(Civil Appeal No. 2104 of 2009)

MARCH 25, 2022

[L. NAGESWARA RAO ANDPAMIDIGHANTAM SRI NARASIMHA, JJ.]

Securities and Exchange Board of India Act, 1992 – ss 11,11B, 19, 15T – SEBI (Prohibition of Fraudulent and Unfair TradeCPractices Relating to Securities Market) Regulations, 2003 –Regulations 3(a), (b), (c) &(d) and 4(1), 4(2)k, 4(2)(r) – ListedCompany – Unusual Surge in Profits – In the instant case the listedrespondent-company was engaged in the business of radio taxiservice coupled with trading of shares in small measure – TheDcompany’s share went unusually high from Rs 4.25 to Rs 43.85 andresultantly there was increase in the average monthly volume ofshares to 1,56,22,583 shares – Looking at the sudden upward spurt,SEBI carried out the investigation and after hearing the Companyand other noticees, it held that the Company has violated theprovisions of the Act and the PFUTP Regulations and henceErestrained the Company from accessing the capital market in anymanner and its directors from dealing in securities for one year –The Company filed an appeal u/s 15T of the Act before the SecuritiesAppellate Tribunal, which set aside the SEBI’s order holding thatthe extraordinary profits in itself cannot be the basis for concludingFthat the Company’s accounts are manipulated with specificobjective to mislead the investors and the advertisement issued bythe company for inviting public in investing in the company wasdone in ordinary course of the business and that there was nofoulplay and also that SEBI has misconstrued the alleged links withthe entities since SEBI did not give opportunity of cross-examinationGto the Company to explain the matter thus violating principles ofnatural justice – Aggrieved by the decision of the Tribunal, theappellant filed instant appeal – Held: The issue in the instant appealas also the conclusions drawn by the Tribunal were factual in natureand hence did not give rise to any question of law warrantingHinterference of this court u/s.15Z of the Act – So far the observation

of the Tribunal with respect to the cross-examination was concerned,there was no necessity for the Tribunal to lay down as an inviolableprinciple that there is right of cross-examination in all cases andthe conclusion of the Tribunal based on evidence on record did notrequire such finding – The findings of the Tribunal to that extentis set aside while decision on all other grounds is upheld.

Securities and Exchange Board of India Act, 1992 – s 15Z –Jurisdiction of the Supreme Court – Scope of – The Court willexercise jurisdiction only when there is question of law arisingfor consideration from the decision of the Tribunal which may arisewhen there is erroneous construction of the legal provisions of thestatute or the general principles of law – Not every interpretationof the law would amount to question of law warranting exerciseof jurisdiction u/s 15Z – The Tribunal while exercising jurisdictionu/s 15T, also interprets the Act, Rules and Regulations madethereunder and systematically evolves legal regime – These veryprinciples are applied consistently for structural evolution of thesectorial laws – This freedom to evolve and interpret laws must belongto the Tribunal to subserve the Regulatory regime for clarity andconsistency – These are policy and functional considerations whichthe Supreme Court will keep in mind while exercising its jurisdictionunder Section 15Z.

Words and Phrases – Phrases such as, ‘question of law’, areopen textual expressions, used in statutes to convey certainmeaning which the legislature would not have intended to be readin pedantic manner – When words of the Sections allow narrowas well as wide interpretations, courts of law have developed theart and technique of finding the correct meaning by looking at thewords in their context – Interpretation of statutes.

Dismissing the appeal, the Court

HELD: 1. Phrases such as, ‘question of law’, are opentextual expressions, used in statutes to convey certain meaningwhich the legislature would not have intended to be read in apedantic manner. When words of the Sections allow narrow aswell as wide interpretations, courts of law have developed theart and technique of finding the correct meaning by looking at

Athe words in their context. The jurisdiction of the Supreme Courtunder Section 15Z to consider any question of law arising fromthe orders of the Tribunal should therefore be seen in the ‘context’of the powers and jurisdiction of the Tribunal under Sections 15K,15L, 15M, 15T, 15U and 15Y of the Act. It is in the functioning ofthe Tribunal to re-examine all questions of fact at the appellateBstage while exercising jurisdiction under Section 15T of the Act.The Supreme Court while exercising appellate jurisdiction underSection 15Z of the Act would be measured in its approach whileentertaining any appeal from the decision of the Tribunal. Thisfreedom to evolve and interpret laws must belong to the TribunalsCto subserve the regulatory regime for clarity and consistency andit is with this perspective that the Supreme Court will considerappeals against judgment of the Tribunals on questions of lawarising from its orders. [Paras 16, 17,18][558-D-E; 559-C-D,F-G]

DReserve Bank of India vs. Peerless General FinanceInvestment Company Ltd. & Ors. (1987) 1 SCC 424 :[1987] 2 SCR 1 – relied on.

2. The Supreme Court will exercise jurisdiction only whenthere is question of law arising for consideration from theEdecision of the Tribunal. question of law may arise when thereis an erroneous construction of the legal provisions of the statuteor the general principles of law. In such cases, the Supreme Courtin exercise of its jurisdiction of Section 15Z may substitute itsdecision on any question of law that it considers appropriate.However, not every interpretation of the law would amount to aFquestion of law warranting exercise of jurisdiction under Section15Z. The Tribunal while exercising jurisdiction under Section 15T,apart from acting as an appellate authority on fact, also interpretsthe Act, Rules and Regulations made thereunder andsystematically evolves legal regime. These very principles areGapplied consistently for structural evolution of the sectorial laws.This freedom to evolve and interpret laws must belong to theTribunal to subserve the Regulatory regime for clarity andconsistency. These are policy and functional considerations whichthe Supreme Court will keep in mind while exercising itsjurisdiction under Section 15Z. [Paras 20.1, 20.2][560-D-G]H3. The submission relating to the allegation that the accountsare manipulated for the year 2004-05 to show inflated profits tolure investors into buying shares of the company. SEBI has referredto the efforts made by it to trace the devise by which the shares ofthe Company were bought and sold in the market. It was allegedthat more than 2 crores shares were purchased by certain entitiesin the physical form in ‘off-market’ deals and then transferred thoseshares in subsequent ‘off-market’ deals to certain other outsideentities connected to the company. These allegations necessitatedproof of such ‘off- market’ transactions and the connectivity of the‘outside entitles’ with the Company. The Tribunal in its appellatejurisdiction came to the conclusion that the connectivity could notbe established and that the conclusions drawn by the Board wereinsufficient. It is evident from the above that the findings are basedon the Tribunal’s inferences drawn from the material available onrecord. The conclusions drawn by the Tribunal do not give rise toany question of law warranting interference of the court underSection 15Z of the Act. [Paras 27, 28, 29][562-F-H; 563-D-E]

K.L. Tripathi v. State Bank of India and Ors. (1984) 1SCC 43 : [1984] 1 SCR 184; Tara Chand Vyas v.Chairman & Disciplinary Authority and Ors. (1997) 4SCC 565 : [1997] 2 SCR 472; State Bank of India v.Jah Developers Private Limited and Ors. (2019) 6 SCC787 : [2019] 7 SCR 701; M/s Vijay Textile v. Securitiesand Exchange Board of India (2011) SCC Online SAT50; Securities and Exchange Board of India v. RakhiTrading Private Limited (2018) 13 SCC 753 : [2018] 1SCR 937; Securities and Exchange Board of India v.Kishore R. Ajmera (2016) 6 SCC 368 : [2016] 1 SCR1118; Meenglas Tea Estate v. Workmen [1964] 2 SCR165; Bareilly Electricity Supply Co. Ltd v. Workmen andOrs. (1971) 2 SCC 617 : [1972] 1 SCR 241; SwadeshiCotton Mills v. Union of India (1981) 1 SCC 664 :[1981] 2 SCR 533; Videocon International Ltd. v.Securities Exchange Board of India (2015) 4 SCC 33 :[2015] 3 SCR 1; Clariant International Ltd. and Anr. v.Securities and Exchange Board of India (2004) 8 SCC524 : [2004] 3 Suppl. SCR 843; National Securities

ADepository Ltd. v. Securities Exchange Board of India(2017) 5 SCC 517 : [2017] 4 SCR 901; Aligarh MuslimUniversity v. Mansoon Ali Khan (2000) 7 SCC 529 :[2000] 2 Suppl. SCR 684; A.S Motors Private Limitedv. Union of India (2013) 10 SCC 114 : [2013] 4 SCR409; T. Takano v. Securities and Exchange Board ofBIndia (2022) SCC OnLine SC 210 – referred to.

Case Law Reference

From the Judgment and Order dated 15.10.2008 of the SecuritiesAppellate Tribunal, Mumbai in Appeal No.60 of 2008.

GChander Uday Singh, Sr. Adv., Pratap Venugopal, Ms. SurekhaRaman, Akhil Abraham Roy, Vijay Valsal, Amjid Maqbool, M/s K. J.John and Co., Advs. for the Appellant.

Vaibhav Gaggar, A. V. Rangam, Buddy A. Ranganadhan, PrerakKhurana, Ketan Sarraf, Utkarsh Tiwari, Ms. Sumedha Dang, Advs. forHthe Respondent.

SECURITIES AND EXCHANGE BOARD OF INDIA v. MEGACORPORATION LIMITED

The Judgment of the Court was delivered by

PAMIDIGHANTAM SRI NARASIMHA, J.

1. This is statutory appeal under Section 15Z of the Securitiesand Exchange Board of India Act, 1992[1] against the final order of theSecurities Appellate Tribunal[2], by which the Tribunal has set aside theorder passed by the Securities and Exchange Board of India[3] restrictingthe respondent-company from accessing the capital market for one yearand further restraining the promoter directors from buying, selling orotherwise dealing with securities for India. While dismissing the appeal,we have explained that the jurisdiction of the Supreme Court underSection 15Z is confined to question of law.2. M/s Mega Corporation Limited, listed in the Bombay StockExchange in 1996, is engaged in the business of radio taxi service, coupledwith trading of shares in small measure till 2004. The attention of theshare market regulator, SEBI, was drawn to the unusual price movementof the scrip of the Company between January 2005 to September 2005.The Company’s shares traded between Rs. 4.25/- to Rs. 43.85/-. Thisupward spurt resulted in an increase in the average monthly volume ofshares to 1,56,22,583 shares. Having observed this activity, the SEBIdirected investigation while passing an ex partead interim order underSection 11B, 11(4) (b) and 11(D) of the Act against 56 entities, being theCompany, its promoter-directors, some of its clients, stockbrokers anddepositors. After hearing the objections, the interim orders wereconfirmed, and show-cause notice for violation of Regulations 3(a),(b), (c)&(d) and 4(1), 4(2)(k) & 4(2)(r) of the SEBI (Prohibition ofFraudulent and Unfair Trade Practices Relating to Securities Market)Regulations, 2003[4] was issued on 10.10.2007.

3. The show cause notice was premised on the informationobtained after investigation on the following:

3.1The Company made huge profits from undeclared businessand sale of scrips and there is uncertainty about the sourceof income. It is not known whether the Company hadamended its Memorandum and Articles for undertaking the

1 hereinafter referred to as the ‘Act’.

2 hereinafter referred to as the ‘Tribunal’.

3 hereinafter referred to as ‘SEBI’ or ‘the Board’.

4 hereinafter referred to as ‘PFUTP Regulations’.

552SUPREME COURT REPORTS

Aactivity of trading. The surge in the profits is unusual, andthere is no reasonable explanation for the same. This isviolative of Regulation 3 of the PFUTP Regulations.

3.2Between April 2005 to September 2005, the Company andother noticees issued public statements in the form ofBadvertisements and other notifications to lure the public ininvesting in the Company. This activity was undertaken tocreate an artificial demand knowing fully well that this isnot the truth of the matter. This is in violation of Regulation4(2)(k) and 4(2)(r) of the PFUTP Regulations.

C3.3The Company manipulated its profits by selling sharesthrough orchestrated deals which were detected in theinvestigation. The manipulations led to an artificial increaseof the scrip to phenomenal extent sub-serving thefraudulent intention of the Company, and this is againviolative of Regulation 3 of the PFUTP Regulations.D

4. The Company and other noticees filed their responses. Afterhearing all parties, the SEBI passed the final order dated 28.02.2008holding that the Company has violated the provisions of the Act and thePFUTP Regulations. In the exercise of its powers under Sections 11and 11B read with Section 19 of the Act and the PFUTP Regulations,ESEBI restrained the Company from accessing the capital market in anymanner and its directors from dealing in securities for one year. Theoperative portion of the order is as follows:

“4.1 Now, therefore, I in exercise of powers conferred uponme under Section 11 and 11B read with Section 19 of theFSEBI Act, 1992 further read with PFUTP Regulations 2003,hereby restrain Mega Corporation Limited (PAN-AAC-CM-9506-E) from accessing the capital market in any mannerwhatsoever for of period of one year (1 year) and ShriKunal Lalani (PAN-AAG-OPL-0992-C), Shri Himanshu MehtaG(PAN-AAL-PM-5750-F) and Shri Surendra Chhalani (PAN-ACI-PC2863-K) Directors of the company are herebyrestrained from buying, selling or otherwise dealing insecurities, in any manner, for period of one year (1 year).”

5. The Company filed an appeal under Section 15T of the Actbeing Appeal No. 60 of 2008 before the Tribunal. The Tribunal re-H

examined the three circumstances which became the basis of SEBIdecision and finally allowed the appeal, by its judgment dated 15.10.2008.The Tribunal held:

5.1The unusual profits, if any, made during the year 2004-05by itself cannot constitute any transgression of law. Thepowers vested in the Board are only to ensure that investorsBare not misled in making investments based on fraud andallurement and that there is nothing unusual about investorsbeing attracted when the Company comes with positiveannual reports. The Tribunal held that extraordinary profitsin itself cannot be the basis for concluding that theCompany’s accounts are manipulated with specificCobjective to mislead the investors.5.2On the issue of public statements in the form ofadvertisements and notifications dated 07.04.2005 and20.04.2005, the Tribunal concluded that there is nothingwrong in the advertisements issued for entering into theDbusiness of foreign exchange with the launch of ‘Mega ForexBrand’ and also the announcement relating to tour servicesbased on the agreement with Gems Tours and TravelsPrivate Limited. The Tribunal found that theseannouncements were in the ordinary course of business,and there was sufficient evidence to that effect. HavingEconsidered facts in detail, the Tribunal reversed the findingsof the SEBI.5.3Finally, the Tribunal also examined the allegation relating tomanipulation. It considered the findings of the SEBI thatthe transactions were orchestrated through entities that hadF

5.3Finally, the Tribunal also examined the allegation relating tomanipulation. It considered the findings of the SEBI thatthe transactions were orchestrated through entities that hadlinks with the Company. On reappreciation the Tribunal foundthat the alleged links were not established and that the Boardhad unnecessarily read into certain activities, meaning whichcould not be inferred in the ordinary course of events.

It is in this context that the Tribunal proceeded to acceptthe submission made on behalf of the Company that theBoard could not have relied on the letter of the stockbrokercontradicting the stand taken by it without giving anopportunity of cross-examination. Because such anopportunity was not granted, the Tribunal held that theprinciples of natural justice stood violated.

A6. The present appeal under Section 15Z of the Act is against thisjudgment of the Tribunal. We heard Shri C.U. Singh, Senior Advocate,assisted by Shri Pratap Venugopal for SEBI and Shri Vaibhav Gaggar,appearing on behalf of the Company.

7. On behalf of the Board, Shri C.U. Singh, Senior Advocate,Bsubmitted that:

7.1The Tribunal examined the order passed by SEBI in adisjointed manner by taking each incident as standaloneevent and gave its finding as if they were separate events.In its approach to examine the events as independentCepisodes, the Tribunal misled itself in coming to the wrongconclusions. Shri Singh took us through the orders passedby SEBI and the final judgment of the Tribunal and submittedthat the findings of SEBI are correct and that the Tribunalis wrong in each of its conclusions. He also submitted thatthe events depicting manipulation are correctly identified,Dand they are based on the evidence available on recordand, therefore, the Tribunal was not justified in interferingwith findings of manipulation.

7.2Disapproving the principle adopted by the Tribunal aboutthe right of cross-examination, he submitted that such anEapproach would virtually disable SEBI from performing itsfunctions. Reliance was placed on the judgments of thisCourt in K.L Tripathi[5], Tara Chand Vyas[6] and JahDevelopers[7].

8. Shri Vaibhav Gaggar, in his reply, submitted that:

8.1The appeal has to be dismissed as there is no question oflaw involved in the case.

8.2The approach adopted by SEBI in focusing on the suddenspurt in profit of the Company, is itself, is wrong approach.He sought to demonstrate that there is no unusual incomeGin the profit of the Company.

5 K.L. Tripathi v. State Bank of India and Ors. (1984) 1 SCC 43.

6 Tara Chand Vyas v. Chairman & Disciplinary Authority and Ors. (1997) 4 SCC 565.

H7 State Bank of India v. Jah Developers Private Limited and Ors. (2019) 6 SCC 787.

8.3On the issuance of advertisements, Shri Gaggar showed usAthe factual background leading to the advertisements andstated that there is no indication of any intention to misleadthe public or lure the investors on the statements madetherein. He submitted that the findings of the Tribunal thatthe advertisements were not in violation of the RegulationsBare based on the correct facts as evidenced by the materialplaced before the Board. Reliance was placed on thejudgment of the Tribunal in M/s Vijay Textile.[8]

8.4Shri Gaggar submitted that the conclusions drawn by theBoard on the assumption that the sales were orchestratedthrough artificial purchase and sale are incorrect. Heendeavoured to establish that the assumed link betweenthe parties is non-existent and only imaginary. Reliance wasplaced on the decision of this Court in Rakhi Trading[9]andKishore Ajmera[10].

8.5A final submission was made on the ground that principlesof natural justice would be violated if an opportunity to cross-examine is not granted in case where material adverseto the party is taken cognisance by SEBI. In support ofthis, decisions of this Court in the judgments in Meenglas[11],Bareilly Electricity[12]and Swadeshi Cotton Mills[13]wereErelied on.

9. In his rejoinder, Shri Singh has distinguished the cases cited by

Shri Gaggar and referred to precedents to establish that there isno right to cross-examination of witness and the principles of naturaljustice would not require granting right of cross-examination. Hereiterated that the functioning of the SEBI will be hampered if this formalityis to be followed in every case.

8 M/s Vijay Textile v. Securities and Exchange Board of India (2011) SCC Online SAT50.

9 Securities and Exchange Board of India v. Rakhi Trading Private Limited (2018) 13SCC 753.

10 Securities and Exchange Board of India v. Kishore R. Ajmera (2016) 6 SCC 368.

11 Meenglas Tea Estate v. Workmen (1964) 2 SCR 165.

12 Bareilly Electricity Supply Co. Ltd v. Workmen and Ors. (1971) 2 SCC 617.

13 Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664.

A10. The following issues arise for consideration:

10.1What is the scope and ambit of statutory appeal to theSupreme Court under Section 15Z of the Act against anorder passed by the Securities Appellate Tribunal?

10.2Whether the advertisements dated 07.04.2005 andB20.04.2005, are in violation of Regulations 3 (a), (b), (c),(d) read with Regulation 4 (1), (2) (k) and (r) as amountingto misleading and defrauding the investors?

10.3Whether the Company has violated Regulations 3(a), (b),(c) and (d) and Regulation 4(1), 4(2)(k) and 4(2) (r) of theCSEBI (PFUTP) Regulations, 2003 by manipulating the shareprices and accounts?

10.4Whether there is right to cross-examine the author of adocument if SEBI seeks to rely on that document which isagainst the interest of the company?

11. Before we consider the rival contentions based on the issues,as formulated above, it is necessary to take note of certain statutoryprovisions. Section 11 of the Act enumerates the functions of the SEBIand empowers it to take measures for protecting the interests of investorsin securities. Section 11B empowers SEBI to issue necessary directions.EIn exercise of its powers under Section 30 the SEBI made the PFUTPRegulations, of which, we are concerned with Regulations 3(a), (b), (c),(d) and Regulations 4(1), 4(2)(k) and 4(2)(r).

ISSUE 1:What is the scope and ambit of statutory appeal to theSupreme Court under Section 15Z of the Act against an order passed byFthe Securities Appellate Tribunal?

12. The power and jurisdiction of the Supreme Court to considerthe decisions of the Tribunal is provided in Section 15Z of the Act. Thesaid provision is as under:

15Z.Appeal to Supreme Court. Any person aggrieved by anyGdecision or order of the Securities Appellate Tribunal mayfile an appeal to the Supreme Court within sixty days from thedate of communication of the decision or order of theSecurities Appellate Tribunal to him on any question of lawarising out of such order;

Provided that the Supreme Court may, if it is satisfied that theapplicant was prevented by sufficient cause from filing theappeal within the said period, allow it to be filed within afurther period not exceeding sixty days.

In Videocon International[14] this Court had an occasion to dealwith Section 15Z. Having considered the amendment to the Section, theCourt observed as under:

“38. …..A right of appeal may be absolute, i.e., without anylimitations. Or, it may be limited right. The above position isunderstandable, from perusal of the unamended andamended Section 15-Z of the SEBI Act. Under the unamendedSection 15-Z, the appellate remedy to the High Court, againstan order passed by the Securities Appellate Tribunal, wascircumscribed by the words “...on any question of fact or lawarising out of such order”. The amended Section 15-Z, whilealtering the appellate forum from the High Court to theSupreme Court, curtailed and restricted the scope of theappeal, against an order passed by the Securities AppellateTribunal, by expressing that the remedy could be availed of“...on any question of law arising out of such order.”. It is,therefore apparent, that the right to appeal, is available in-different packages, and that, the amendment to Section 15Z,varied the scope of the second appeal provided under theSEBI Act.”

13. Though the Court observed that the appellate jurisdiction iscurtailed to determining only question of law, the question still remainsas to which issues qualify as questions of law and which issue do not.We will examine this.

14. On ‘textual’ interpretation, the expression ‘question of law’is defined in the Black’s Law Dictionary as follows:

“1. An issue to be decided by the judge, concerning theapplication or interpretation of the law;

2. question that the law itself has authoritatively answered,so that the Court may not answer it as matter of discretion;

14 Videocon International Ltd. v. Securities Exchange Board of India (2015) 4 SCC 33.

A3. An issue about what the law is on particular point; anissue in which parties argue about, and the court must decidewhat the true rule of law is;

4. An issue that, although it may turn on factual point, isreserved for the court and excluded from the jury; an issueBthat is exclusively within the province of the judge and notthe jury”[15]

15. Reference to Law Dictionary for the meaning of the expression‘question of law’ is not to overlook the difficulty in drawing boundariesbetween questions of law and fact. Under the subject, the malleableCboundaries between law and fact, H.W.R Wade has commented:

“Much of the discussions of this chapter proceeds on the basisthat the distinction between question of law and questionof fact is self-evident. But this is not so; the boundary is oftenelusive.”[16]

16. Phrases such as, ‘question of law’, are open textual expressions,used in statutes to convey certain meaning which the legislature wouldnot have intended to be read in pedantic manner. When words of theSections allow narrow as well as wide interpretations, courts of lawhave developed the art and technique of finding the correct meaning byElooking at the words in their context. In Reserve Bank of India v.Peerless General Finance Investment Company Ltd. & Ors.[17], JusticeO. Chinnappa Reddy, observed:

“33. Interpretation must depend on the text and the context.They are the bases of interpretation. One may well say if theFtext is the texture, context is what gives the colour. Neithercan be ignored. Both are important. That interpretation is bestwhich makes the textual interpretation match the contextual.A statute is best interpreted when we know why it was enacted.With this knowledge, the statute must be read, first as wholeGand then section by section, clause by clause, phrase by phrase

15 Black’s Law Dictionary, 10th Edition p. 1442.

16 H.R.W. Wade & C.F Forsyth, Administrative Law, Chapter 8 (Oxford UniversityPublication, United Kingdom, 11th Edn, 2014).

17 Reserve Bank of India vs. Peerless General Finance Investment Company Ltd. &HOrs. (1987) 1 SCC 424

and word by word. If statute is looked at, in the context ofits enactment, with the glasses of the statute-maker, providedby such context, its scheme, the sections, clauses, phrasesand words may take colour and appear different than whenthe stature is looked at without the glasses provided by thecontext. With these glasses we must look at the Act as wholeand discover what each section, each clause, each phraseand each word is meant and designed to say as to fit into thescheme of the entire Act. No part of statute and no word ofa statute can be construed in isolation. Statutes have to beconstrued so that every word has place and everything is inits place……”

17. The jurisdiction of the Supreme Court under Section 15Z toconsider any question of law arising from the orders of the Tribunalshould therefore be seen in the ‘context’ of the powers and jurisdictionof the Tribunal under Sections 15K, 15L, 15M, 15T, 15U and 15Y of theAct. It is in the functioning of the Tribunal to re-examine all questions offact at the appellate stage while exercising jurisdiction under Section15T of the Act. In Clariant[18 ]and National Securities Depository[19],this Court had an occasion to examine the jurisdiction of the Tribunaland explain that the Tribunal has wide powers. Being permanent body,apart from acting as an appellate Tribunal on fact, the Tribunal routinelyinterprets the Act, Rules and Regulations made thereunder and evolvesa legal regime, systematically developed over period of time. Theadvantage and benefit of this process is consistency and structuralevolution of the sectorial laws.18. It is in the above-referred context that the Supreme Courtwhile exercising appellate jurisdiction under Section 15Z of the Act wouldbe measured in its approach while entertaining any appeal from thedecision of the Tribunal. This freedom to evolve and interpret laws mustbelong to the Tribunals to subserve the regulatory regime for clarity andconsistency and it is with this perspective that the Supreme Court willconsider appeals against judgment of the Tribunals on questions of lawarising from its orders.

18 Clariant International Ltd. and Anr. v. Securities and Exchange Board of India (2004)

8 SCC 524, para 73, 74

19 National Securities Depository Ltd. v. Securities Exchange Board of India (2017) 5SCC 517, para 9.

A19. It is in this very context that the UK Supreme Court in thecase of Jones v. First Tier Tribunal,[20] formulated certain principles forappellate courts to interfere against the orders of Tribunals on the groundof existence of questions of law. The Court held as under:

“16 … It is primarily for the tribunals, not the appellate courts,Bto develop consistent approach to these issues [of law andfact], bearing in mind that they are peculiarly well fitted todetermine them. pragmatic approach should be taken tothe dividing line between law and fact, so that the expertiseof tribunals at the first tier and that of the Upper Tribunalcan be used to best effect. An appeal court should not ventureCtoo readily into this area by classifying issues as issues oflaw which are really best left for determination by the specialistappellate tribunals.”

20. The scope of appeal under Section 15Z may be formulated asunder:D

20.1The Supreme Court will exercise jurisdiction only whenthere is question of law arising for consideration from thedecision of the Tribunal. question of law may arise whenthere is an erroneous construction of the legal provisions ofthe statute or the general principles of law. In such cases,Ethe Supreme Court in exercise of its jurisdiction of Section15Z may substitute its decision on any question of law thatit considers appropriate.

20.2However, not every interpretation of the law would amountto question of law warranting exercise of jurisdiction underFSection 15Z. The Tribunal while exercising jurisdiction underSection 15T, apart from acting as an appellate authority onfact, also interprets the Act, Rules and Regulations madethereunder and systematically evolves legal regime. Thesevery principles are applied consistently for structuralevolution of the sectorial laws. This freedom to evolve andG

20 Jones v. First Tier Tribunal [2013] UKSC 19. Para 16; followed in Regina (PrivacyInternational) v. Investigatory Powers Tribunal [2019] UKSC 22, para 134; See also,Administrative Law by Paul Craig (8[th] Ed. 2016 at p.492 and H.R.W. Wade & C.FForsyth, Administrative Law, Chapter 8 (Oxford University Publication, UnitedHKingdom, 11th Edn, 2014).

interpret laws must belong to the Tribunal to subserve theRegulatory regime for clarity and consistency. These arepolicy and functional considerations which the SupremeCourt will keep in mind while exercising its jurisdiction underSection 15Z.

21. We will now examine the other issues in the context of thescope and ambit of the appellate jurisdiction of the Supreme Court underSection 15Z as discussed herein above.

ISSUE 2: Whether the advertisements dated 07.04.2005,20.04.2005, are in violation of Regulations 3 (a), (b), (c), (d) read withRegulation 4 (1), (2) (k) and (r) as amounting to misleading and defraudingthe investors?

22. This issue should not detain us for long, as the facts involvedin this issue are relating to the merits of the case and, as such, do notqualify as question of law. We will however refer to the two instancesas Shri C.U. Singh has made detailed submissions before us.

23. As per the first advertisement dated 07.04.2005, it was allegedby SEBI that in violation of Regulation 4 (2) (k) and 4 (r) of the PFUTPRegulations, the Company proceeded to announce on 07.04.2005 thelaunch of the worldwide outbound package tour services. These serviceswere intended to operate across 25 cities in India and were expected toachieve revenue of Rs. 1000 million with net profit of Rs.200 millionin its first year. SEBI alleges that this announcement was made for thesole purpose of misleading the investors. This finding is reversed by theTribunal based on an agreement between the Company and M/s GemTours and Travels Private Limited to establish subsidiary companycalled ‘Mega Holidays Ltd.’ to handle the tour services. The Tribunalalso noted the bank statement supporting the Company’s transactionwith M/s Gem Tours and Travels Private Limited.

24. We are mentioning these facts only to indicate that the Tribunalhas reversed the findings of SEBI on the basis of its own inferencesdrawn from the documents on record. The decision of the Tribunal isfact-based and does not give rise to any question of law for invoking thejurisdiction of the Supreme Court under Section 15Z. For this reason,we are not inclined to interfere with the finding of fact, which must restwith the conclusions drawn by the Tribunal.

A25. So far as the second announcement dated 20.04.2005 isconcerned, it relates to the allegation of announcing the commencementof business in foreign exchange with the launch of ‘Mega Forex Brand’.It was alleged that the Company made false statements such as that it isexpected to grab 5-10% of the market share in the forex market, “whichis at 5-6 billion dollars” in span of one or two years. Here again, theBTribunal concluded that the application for license to deal with foreignexchange which is alleged to have been made in September 2005 wasonly revised application. The revised application is said to have beenmade in as reply to the queries of the Reserve Bank of India on theiroriginal application, which was in fact made on 14.04.2005, that is evenCbefore the announcement. The Tribunal, therefore, was of the opinionthat the announcement is not imaginary but is based on specific stepstaken before the date of announcement, lending credence to the saidactivity.

26. The conclusion is drawn by the Tribunal, being factual, notDgiving rise to any question of law, the jurisdiction of this Court underSection 15Z cannot be invoked. For this reason, we affirm the finding ofthe Tribunal and there is no occasion for this court to interfere with thedecision of the Tribunal. The issue is answered against the appellant.

ISSUE 3:Whether the company has violated Regulations 3(a),E(b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2) (r) of the SEBI(PFUTP) Regulations, 2003 by manipulating the share prices andaccounts?

27. The next submission relates to the allegation that the accountsare manipulated for the year 2004-05 to show inflated profits to lureFinvestors into buying shares of the company. SEBI has referred to theefforts made by it to trace the devise by which the shares of the Companywere bought and sold in the market. It was alleged that more than 2crores shares were purchased by certain entities in the physical form in‘off-market’ deals and then transferred those shares in subsequent ‘off-market’ deals to certain other outside entities connected to the company.GThese allegations necessitated proof of such ‘off-market’ transactionsand the connectivity of the ‘outside entitles’ with the Company.28. The Tribunal in its appellate jurisdiction came to the conclusionthat the connectivity could not be established and that the conclusionsdrawn by the Board were insufficient. On the basis of the inferencesHdrawn from the facts, the Tribunal rendered the following findings:

“There is no evidence in support of any definite sustainablelink between the appellant company and any of the traderswho allegedly traded in the appellant company’s scrip withthe purpose of generating volumes and thereby raising itsprice. The charge of manipulative trading in its own sharesby the appellant company, therefore, fails.

But it is another matter to say that company has manipulatedits accounts with that specific object in view because therecan be multitude of reasons why an unscrupulousmanagement may want to show inflated financial results in itsaccounts. In the present case, no material has been producedby the Respondent to establish that the manipulation is theannual accounts of the appellant for the year 2004-05, ifany, had been resorted to with the objective of luring investorsto buy the scrip of the company. Given the lack of any definiteevidence, this charge against the appellant also fails.”

29. It is evident from the above that the findings are based on theTribunal’s inferences drawn from the material available on record. Theconclusions drawn by the Tribunal do not give rise to any question of lawwarranting interference of this court under Section 15Z of the Act. Thisissue is answered against the appellant.

ISSUE 4: Whether there is right to cross-examine the author ofa letter if the SEBI seeks to rely on that letter, adverse to the company?

30. The Board has, in its investigation, secured letter from oneof the directors of M/S DPS Shares and Stock Brokers Pvt. Ltd., thestockbrokers of the company. This letter contradicts the stand taken bythe company in its defence. This happened in the following factualbackground. When asked to explain the transaction relating to purchaseand sale of scrip in somewhat suspicious circumstances, the Companytook refuge by stating that the transactions were in the exclusiveknowledge of the stockbroker company. The Board, in its investigation,secured letter from stockbroker stating that their two directors, oneShri Pratik Shah and one Shri Sujal Shah, had handled the transactions inthe alleged scrip by opening current account by using dummy resolutionswithout the knowledge of Shri Dinesh Masalia, the third director of thestockbroker company. On this basis, it was concluded that the transaction

Awas fictitious. In defence, the Company sought permission to cross-examine the said Shri Dinesh Masalia, but no permission was granted.SEBI proceeded and gave its final orders on 07.01.2008. It is in thiscontext that the Company made its submission before the Tribunal thatprinciples of natural justice were violated because an opportunity to cross-examine is not presented.B

31. There is no dispute that the Company and the directors wereinformed about the letter elicited from Shri Dinesh Masalia. The show-cause notice explicitly mentions it. The Company’s reply to the show-cause notice evidences objections raised by the Company with respectto the stand taken by Shri Dinesh Masalia. To this extent, opportunityCwas given to the Company, in the sense that SEBI was relying on adocument which was disclosed to the Company. The only question iswhether there is right to cross-examine the author of letter whileSEBI is performing its regulatory role and deciding upon the allegationof manipulation under Regulations 3 and 4 of the PFUTP Regulations.

32. Shri C.U Singh arguing for the Board has denied any right tocross-examine while SEBI exercises its jurisdiction. In support of hissubmissions, he has referred to the cases as indicated earlier. He hasalso argued that there is no prejudice caused to the Company as anopportunity was given by handing over the material relied on by theEBoard against which the Company gave its reply. He also referred tojudgments of this Court in Aligarh Muslim University[21] and A.SMotors[22] to press the point that the Court will not insist on examinationof witnesses merely as an empty formality.

33. On the other hand, Shri Gaggar submitted that the ground thatFprinciples of natural justice would clearly be violated if opportunity tocross-examine is not granted.

34. Immediately after the parties were heard, and the judgmentwas reserved on 17.02.2022, on the very next day, another Bench of thisCourt delivered its judgment in T. Takano[23]. The case relates toGproceedings that arose under this very same Act and in fact concerningallegations of fraudulent and unfair trade practices adopted by theappellants therein under the PFUTP regulations. This Court considered

21 Aligarh Muslim University v. Mansoon Ali Khan (2000) 7 SCC 529.

22 A.S Motors Private Limited v. Union of India (2013) 10 SCC 114.

23 T. Takano v. Securities and Exchange Board of India (2022) SCC OnLine SC 210

the issue as to the statutory obligation of SEBI to follow the principles ofnatural justice. Having reviewed the entire case law on the subject, thisCourt formulated the following principles:

“62. The conclusions are summarised below:

(i) The appellant has right to disclosure of the materialrelevant to the proceedings initiated against him. deviationfrom the general rule of disclosure of relevant informationwas made in Natwar Singh (supra) based on the stage of theproceedings. It is sufficient to disclose the materials relied onif it is for the purpose of issuing show cause notice fordeciding whether to initiate an inquiry. However, allinformation that is relevant to the proceedings must bedisclosed in adjudication proceedings;

(ii) The Board under Regulation 10 considers the investigationreport submitted by the Investigating Authority underRegulation 9, and if it is satisfied with the allegations, it couldissue punitive measures under Regulations 11 and 12.Therefore, the investigation report is not merely an internaldocument. In any event, the language of Regulation 10 makesit clear that the Board forms an opinion regarding the violationof Regulations after considering the investigation reportprepared under Regulation 9;

(iii) The disclosure of material serves three-fold purpose ofdecreasing the error in the verdict, protecting the fairness ofthe proceedings, and enhancing the transparency of theinvestigatory bodies and judicial institutions;

(iv) focus on the institutional impact of suppression ofmaterial prioritises the process as opposed to the outcome.The direction of the Constitution Bench of this Court inKarunakar (supra) that the non-disclosure of relevantinformation would render the order of punishment void onlyif the aggrieved person is able to prove that prejudice hasbeen caused to him due to non-disclosure is founded both onthe outcome and the process;

(v) The right to disclosure is not absolute. The disclosure of-information may affect other thirdparty interests and the

stability and orderly functioning of the securities market. Therespondent should prima facie establish that the disclosure-of the report would affect thirdparty rights and the stabilityand orderly functioning of the securities market. The onusthen shifts to the appellant to prove that the information isnecessary to defend his case appropriately; and

(vi) Where some portions of the enquiry report involveinformation on third-parties or confidential information onthe securities market, the respondent cannot for that reasonassert privilege against disclosing any part of the report.The respondents can withhold disclosure of those sections ofthe report which deal with third-party personal informationand strategic information bearing upon the stable and orderlyfunctioning of the securities market.”

35. As per the principles laid down in the above referred case,there is right of disclosure of the relevant material. However, such aDright is not absolute and is subject to other considerations as indicatedunder paragraph 62(v) of the judgment above referred. In this judgment,there is no specific discussion on the issue of right to cross-examinationbut the broad principles laid down therein are sufficient guidance for theTribunal to follow. There is no need for us to elaborate on this point anyEfurther.

36. Coming back to the facts of the present case, we have noticedthat the Tribunal has arrived at its conclusions based on independentfacts concerning (a) the allegations under Regulation 4 relating to theissuance of misleading advertisements dated 07.04.2005 and 20.04.2005Fas well as (b) allegations relating to manipulation of scrip prices andprofits to lure investors. As indicated earlier, the Tribunal concluded thatthe allegations could be proved. As we are not interfering in the findingsof fact arrived at by the Tribunal the Company’s claim for cross-examiningwould pale into insignificance. This question presents itself merely as anacademic issue.G

37. We are also of the opinion that, there was no necessity for theTribunal to lay down as an inviolable principle that there is right ofcross-examination in all cases. In fact, the conclusion of the Tribunalbased on evidence on record did not require such finding. We, therefore,set aside the findings of the Tribunal to this extent while upholding itsH

decision on all other grounds. We would also leave the question of lawrelating to the right of cross-examination open and to be decided in anappropriate case by this Court.

38. For the reasons stated above, while we dismiss Civil AppealNo. 2104 of 2009 against the judgment of the Securities Appellate Tribunalin Appeal No. 60 of 2008 dated 15.10.2008, the general observations ofthe Tribunal that there is right of cross-examination is hereby set aside.

39. Parties to bear their own costs.

Devika Gujral

Appeal dismissed.