SC Finds No Grounds For Sebi To Withhold Disclosing Documents In Settlement Matter
After an order of the Supreme Court (SC) on Monday, market regulator SEBI will have to disclose documents related to a settlement agreement it had entered into with Bharat Nidhi Ltd. (BNL), one of India's richest media holding companies. A three member SC bench led by Chief Justice DY Chandrachud dismissed SEBI's special leave petition challenging a Bombay High Court (HC) order, which had directed SEBI to disclose documents relating to the settlement. After the Bombay HC order, SEBI has backtracked on the settlement that it had entered into with BNL. SEBI is facing backlash from complainants and shareholders of the company for entering into a settlement, which the complainant Ashok Shah has said was not tenable in the law.
After SEBI started investigating BNL and related entities for grossly undervaluing a buyback offer by several thousands of crores, those being probed approached the regulator for settlement of the case without admitting or denying the charges of alleged violations. SEBI accepted the settlement offer as per the regulations and passed an order in 2022. But last month, SEBI revoked the settlement order since shareholders of BNL and the complainants against the company demanded the documents relating to the settlement terms entered into between the regulator and BNL and the Bombay HC directed the regulator to share the documents. Also, SC dismissed SEBI's plea and upheld the HC directions against the regulator.
Solicitor General Tushar Mehta appearing on behalf of SEBI had argued that Regulation 29(1) of the SEBI (Settlement Proceedings) Regulations 2018 stipulates that all information submitted and discussions held in pursuance of the settlement proceedings under the Regulations shall be deemed to have been received or made in a fiduciary capacity and may not be released to the public, if the same prejudices the Board and/or the applicants. However, SC dismissed these arguments.
"There is no material before this Court to indicate that the disclosure would cause prejudice. It is common ground that the settlement itself has been revoked in which case the provisions of Regulation 29 are not attracted. In any event, we are of the view that the order of the High Court requiring disclosure of documents would not fall for interference in these proceedings. In the future, if any case arises before this Court bearing on a demonstrable prejudice to the Board or to the applicant within the meaning of Regulation 29, that issue would be adjudicated upon on its own merits," SC said.
Bharat Nidhi case
BNL had announced a share buyback (mandatory as per the law since it got delisted from Calcutta Stock Exchange) for 21,791 shares at an exit price of Rs 11,229 a piece. The shareholders complained to SEBI that BNL and its promoters were suppressing the company's value which was mainly based on its holding in the BCCL Group and ran into several billions of dollars and hence the buyback offer ought to be much higher. SEBI started investigations after the Securities and Appellate Tribunal (SAT) asked the regulator to look into the shareholder complaints. SEBI also issued a show cause notice to BNL and other related entities. A few weeks after the notice, both SEBI and BNL entered into a settlement agreement.
According to BNL shareholders, Ashok Dayabhai and Pina S, SEBI could not have entered into a settlement with BNL and the related entities, since the subject matter of the show cause notice (issued by SEBI to BNL and related entities) the company could never have been settled. The shareholders approached the Bombay High Court (HC) as SEBI refused to share with them the documents related to the terms of the settlement. Justice Jitendra Jain and GS Kulkarni of the Bombay HC directed SEBI to furnish the documents relating to the settlement with BNL. Following this, SEBI in November cancelled its settlement with BNL so that it does not have to share the documents related to the settlement now. But this has put the market regulator into the dock now, which will have to investigate and adjudicate the case involving BNL and others as per the show cause notice, legal experts said. Also, SEBI will not have to refund the money it accepted from BNL as part of the settlement, legal experts said.
What did Bombay HC say
Lawyers appearing for the shareholder told the court that the settlement of BNL with SEBI was a consequence of the complaint made by them to SEBI, on which an investigation was undertaken and thereafter a show cause notice was issued to the majority shareholders controlling the BNL.
Further, the court was informed that the show cause notice was replied, and considering the imputations as made, on the basis of an investigation undertaken by the SEBI, a proposal for settlement was submitted by the BNL to settle the irregularities, which could not have been settled and which were sought to be settled by the impugned settlement order that was manifestly illegal on several counts.
The Bombay HC observed that the shareholders were entitled to receive the documents they were demanding since SEBI undertook the investigations on their complaints against BNL for violating the rules, regulations and norms.
"The avowed object and intention of (SEBI) is to protect the interests of investors in securities and to promote the development of, to regulate the securities market. Thus, all actions which are taken by the SEBI and through the various bodies as constituted under the Act and the regulations are required to act considering the paramount interest of the investors. For such reasons as well, we do not find as to why the petitioners ought not to be entitled to the documents. We do not find that there is any impediment whatsoever in law or otherwise for the documents, as demanded, to be supplied to the petitioners. Thus, the impression that the petitioners (BNL shareholders and complainants) should not be provided with such documents, is not acceptable. Once it is the entitlement of the petitioners in law to receive such documents, they need to be furnished such documents, unless furnishing of these documents would stand prohibited in law, which is certainly not a situation in the present facts," Bombay HC said in its recent order while asking SEBI to furnish the documents.
Yet, to avoid furnishing the documents, SEBI withdrew its settlement with BNL and related entities.
