Bombay HC Stays Order Directing FIR Against Former SEBI Chairperson, Others

The Bombay High Court has issued a stay on a special court’s directive to register a First Information Report (FIR) against former Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch and other SEBI and Bombay Stock Exchange (BSE) officials concerning an alleged listing fraud.

Court’s Observations

A single-judge bench presided over by Justice S.G. Dige granted interim relief following a legal challenge mounted by Buch and two other officials. The High Court noted that the lower court’s order was issued in a perfunctory manner, lacking a thorough analysis of the allegations or specific attribution of responsibility to the accused parties.

“Complainant seeks time to file reply. After hearing all the parties, it appears that judge has passed order mechanically without going to details and without attributing any role to the applicants. Hence, order is stayed,” the High Court observed.

Background of the Case

The controversy originates from an order issued by the special court directing the Anti-Corruption Bureau (ACB) to register an FIR against Buch and five other officials regarding alleged irregularities in the 1994 listing of a company on the BSE. The individuals implicated included SEBI’s whole-time members Ashwani Bhatia, Ananth Narayan G, and Kamlesh Chandra Varshney, alongside BSE officials Pramod Agarwal and Sundararaman Ramamurthy. Buch, Bhatia, and Agarwal subsequently moved the High Court to contest the order.

The special court’s ruling, delivered by Judge Shashikant Eknathrao Bangar on March 1, stemmed from a complaint filed under Section 156(3) of the Criminal Procedure Code (CrPC) by journalist Sapan Shrivastava. The complaint alleged that SEBI officials had colluded to facilitate the listing of a company in 1994 despite non-compliance with regulatory mandates, resulting in market manipulation, insider trading, and artificial inflation of share prices.

The complaint further contended that SEBI’s inaction constituted a violation of key provisions under the SEBI Act, 1992, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, thereby implicating them under the Prevention of Corruption Act.

The special court determined that the allegations “prima facie” indicated the commission of a cognizable offense, necessitating further investigation. It directed the ACB to file an FIR and submit a status report within 30 days.

Arguments Before The High Court

Solicitor General Tushar Mehta, appearing for SEBI officials, contended that the complainant had a history of filing frivolous cases and had previously been penalized by courts for engaging in such litigation. He criticized the lower court’s order, asserting that it demonstrated a lack of legal rigor and factual assessment.

“In essence, a brief, two-paragraph complaint has led to an order concerning an IPO granted by SEBI in 1994. The order reflects a complete non-application of mind. The petitioner has a documented history of filing frivolous cases, including a previous instance where he was fined ₹5 lakh,” Mehta argued.

Senior Advocate Amit Desai, representing BSE officials, characterized the allegations as unfounded and defamatory, emphasizing their potential impact on the credibility of India’s leading stock exchange. He highlighted that the regulation allegedly breached—Section 17 of the Securities Contracts (Regulation) Act (SCRA)—was enacted only in 2002, long after the events in question.

Desai also asserted that the complainant had strategically created a fabricated trail of communications with regulatory agencies to justify judicial intervention under Section 156(3) CrPC. Moreover, he pointed out that under the Maharashtra amendment to the CrPC, government sanction is a prerequisite for prosecuting public officials for actions taken in their official capacity, a requirement the special court had overlooked.

Senior Advocate Sudeep Pasbola, appearing for Buch, refuted claims that SEBI had failed to act against Cals Refinery. He argued that SEBI had taken multiple enforcement actions against the company over the years and that its role as a market regulator did not extend to overseeing individual listings.

Complainant’s Defense & Court’s Interim Relief

Appearing in person, Shrivastava defended his complaint, asserting that it was based on factual evidence. He argued that criminal liability for fraud is triggered upon its discovery, allowing legal action to be initiated irrespective of when the offense occurred. He also claimed that SEBI had not granted any No Objection Certificate for Cals Refinery’s listing in 1994, thus rendering the case viable despite the passage of nearly three decades.

Despite these assertions, the High Court found substantial procedural deficiencies in the special court’s order. Acknowledging the concerns raised by the petitioners, the court granted the complainant time to submit a response but imposed a stay on the directive to register the FIR.

The case remains under judicial consideration, pending further hearings.