Allahabad High Court Order

 

FINAL ORDER
Dated 26.03.1999

Writ Petition No. 659 (MB) of 1998

Midas Touch Investors Association ……………….. Petitioner.

Versus

Union of India and another …………………………………Opposite Parties.

Hon'ble D.K. Trivedi, J.
Hon'ble Pradeep Kant, J.

By means of this writ petition, the petitioner, who claims itself to be society registered under the  Society Registration Act, having its area of operation throughout India with the aims and objects to look after the matter of the investors interest regarding capital market which affects or likely to have an adverse effect on the investors interest, has prayed for issuance of a writ in the nature of Mandamus commanding the opposite parties to hold an enquiry and to initiate the action as pointed out by the petitioner under the provisions of Securities and Exchange Board of India Act.

It appears that being aggrieved and concerned with the action of the certain companies who according to the petitioner cheated Hundreds of Crores of Rupees after getting them deposited by the investors, and being dissatisfied with the action taken by the opposite parties for redressal of the grievances of such investors, the petitioner has approached this court with the aforesaid limited prayer. 

We have heard the learned counsel for the petitioner Smt. Nalini Jain, Shri R.N. Trivedi Additional Solicitor General of India for SEBI and Shri Sharad Kumar Srivastava Standing Counsel for the Union of India.

Learned counsel for the petitioner Shri R.N. Trivedi has filed a Supplementary Affidavit bringing on record the fact that a meeting was held between the Finance Secretary Government of India with Chairman, SEBI on 06.11.1998 which was followed by another meeting on 01-02-1999. In the said meeting following decision was taken :

"Whenever cases of defaulting companies regarding end-use of funds come to the notice of SEBI, it would pass on the information to DCA and DCA would launch prosecution thereafter."
On the part of DCA, whenever, instances of non-filing of reports for one year and more come to the notice, they would suo motto issue a show cause notice to the Company.
SEBI and DCA would set up  joint mechanism both for sharing information and taking action on the defaulting companies under their respective statutes.
It was felt that a statutory frame work could be thought of which would enable investor protection measure to be addressed in a specialised manner. It was decided that the Department of Economic Affairs would set up a group to look into the feasibility of a legislative framework for investor protection. The group would consist of representatives from SEBI, DCA, Ministry of Law, Ministry of Home Affairs and RBI Banking Division.

RBI may be advised to alert commercial banks to exercise caution in extending further assistance to these companies.

DCA has issued a circular dated December 03, 1998 to all Registrar of Companies (ROCs) and Regional Directors regarding complaints against the companies which are not available at their known addresses. It provides the ROC concerned to prepare a broad sheet in respect of such companies, after collecting information received from SEBI and Stock Exchanges. It also provides to issue default notices to such companies and their managers/directors and lodge complaint with the police authorities concerned with the Registered Office of the Company at last known address of the manager/director etc. and simultaneously to issue public notice.

SEBI is in correspondence with RBI requesting to alert commercial banks to exercise caution in extending further funds to such companies."

In the said affidavit it has further been alleged that another meeting was held between Secretary, Department of Company Affairs and Chairman SEBI along with their officials in order to devise a common strategy, on March 12, 1999. In the said meeting it was decided that a Co-ordination and Monitoring Committee would settle the policy issues regarding the delinquent companies/promoters and would monitor the progress in regard to the action. It was decided that seven Task Forces would assist the Co-ordination and Monitoring Committee. The focus of these groups would be to identify the companies which have disappeared or which have misutilised the funds mobilised from the public. The information filed with the stock exchanges pursuant to the requirements of the listing agreements as also the various documents/returns filed with ROCs could be the basic for initiating preliminary exercise of identifying the delinquent companies. The Task Forces would suggest appropriate action in terms of the Companies Act or SEBI Act after necessary investigations. The Secretary, DCA and Chairman SEBI would be the co-chairman of the Co-ordination and Monitoring Committee and senior officials of DCA and SEBI would be other members". 



"Now in view of the decision taken by the SEBI and DCA and the Finance Secretary Government of India, it is clear that the Central Government. Department of Company Affairs and Securities and Exchange Board of India are already seized of the matter and appropriate steps have been taken for putting a check upon the defaulting companies and to watch the interest of the investors. The work of identifying the defaulting companies has been entrusted to seven Task Forces and thereafter as soon as the defaulting companies are identified further action in the light of the decision referred to above will have to be taken. We are satisfied that the action taken and the principle enunciated therein would certainly be a step towards identifying the defaulting companies and protecting the interest of the investors regarding claim of their money. Besides this the defaulting companies and their Directors and Promoters will also be subjected to penal consequences under the provisions of the Indian Penal Code and the defaulting companies can also be subjected to proceedings under the Companies Act. At this juncture we may hope and trust that the opposite parties would abide by the decisions taken by them and would bring to notice the names of the defaulting companies as envisaged in the Supplementary Affidavit. They would also permit the petitioner and other law abiding citizens of the Society to submit a list of the defaulting companies if at all they can furnish and after such a list is submitted, action as envisaged in the Supplementary Affidavit and the decisions of the SEBI, DCA and the Finance Secretary Government of India shall be taken. With these observations the writ petition is finally disposed of."

 Sd/- D. K. Trivedi
 Sd/- Pradeep Kant
 26-3-99