Case: Securities &amp; Exchange Board of India Vs. Ajay Agarwal

Act, 1947 are adjudicatory in character and not criminal proceedings (See Director of Enforcement v. M.C.T.M. Corporation Pvt. Ltd. and others, (1996) 2 SCC 471 ). Persons who are subjected to such penalties are also not entitled to the protection under Article 20(1) of the Constitution. 38. Following the aforesaid ratio, this Court cannot hold that protection under Article 20(1) of the Constitution in respect of ex-post facto laws is available to the respondent in this case. 39. If we look at the legislative intent for enacting the said Act, it transpires that the same was enacted to achieve the twin purposes of promoting orderly and healthy growth of securities market and for protecting the interest of the investors. The requirement of such an enactment was felt in view of substantial growth in the capital market by increasing participation of the investors. In fact such enactment was necessary in order to ensure the confidence of the investors in the capital market by giving them some protection. 40. The said Act is pre-eminently a social welfare legislation seeking to protect the interests of common men who are small investors. 41. It is a well known canon of construction that when Court is called upon to interpret provisions of a social welfare legislation the paramount duty of the Court is to adopt such an interpretation as to further the purposes of law and if possible eschew the one which frustrates it. 42. Keeping this principle in mind if we analyse some of the provisions of the Act it appears that the Board has been established under Section 3 as a body corporate and the powers and functions of the Board have been clearly stated in Chapter IV and under Section 11 of the said Act. 43. A perusal of Section 11, Sub-Section 2(a) of the said Act makes it clear that the primary function of the Board is to regulate the business in stock exchanges and any other securities markets and in order to do so it has been entrusted with various powers. 44. Section 11 had to be amended on several occasions to keep pace with the `felt necessities of time. One such amendment was made in Sub Section (4) of Section 11 of the said Act, which gives the Board the power to restrain persons from accessing the securities market and to prohibit such persons from being associated with securities market to buy and sell or deal in securities. Such an amendment came in 2002. 45. From the statement of objects and reasons of the Amendment Act of 2002, it appears that the Parliament thought that in view of growing importance of stock market in national economy, SEBI will have to deal with new demands in terms of improving organisational structure and strengthening institutional capacity. 46. Therefore, certain shortcomings which were in the existing structure of law were sought to be amended by strengthening the mechanisms available to SEBI for investigation and enforcement, so that it is better equipped to investigate and enforce against market malpractices. (See Paragraph 3 of the Statement of objects and reasons). 47. Section 11-B which empowers the Board to issue certain directions also came up by way of amendment in 1995 by Act 9 of 1995. The Statements of Objects and Reasons of such amendments show one of the objects is to empower the Board to issue regulations without the approval of the Central Government. (See para 3(e) of the Statements of Objects and Reasons). Section 11-B of the Act thus empowers the Board to give directions in the interest of the investors and for orderly development of securities market, which, as noted above, is one of the twin purposes to be achieved by the said Act. Therefore, by the 1995 amendment by way of Section 11-B Board has been empowered to carry out the purposes of the said Act. 48. As noted above, there is no challenge to those provisions which came by way of amendment. In the absence of any challenge to those provisions, it cannot be said that even though Board is statutorily empowered to exercise functions in accordance with the amended law, its power to act under the law, as amended, will stand frozen in respect of any violation which might have taken place prior to the enactment of those provisions. It is nobodys case that Board has exercised those powers in respect of a proceeding which was initiated prior to the enactment of those provisions. In fact Board has issued the show cause notice in terms of Section 11-B and considered the reply of the respondent. In such a situation, there has no infraction in the procedure. 49. Therefore, the entire basis of the order of the Appellate Tribunal that provision of Section 11- B cannot be applied retrospectively has been passed on an erroneous basis, as discussed herein above. 50. Provisions of Section 11-B being procedural in nature can be applied retrospectively. 51. The appellate Tribunal made a manifest error by not appreciating that Section 11-B is procedural in nature. It is a time honoured principle if the law affects matters of procedure, then prima facie it applies to all actions, pending as well as future. See K.Eapan Chako v. The Provident Investment Company (P.) Ltd.,[AIR 1976 SC 2610 ] wherein Chief Justice A.N. Ray laid down those principles. 52. Maxwell in his "Interpretation of Statutes" also indicated that no one has a vested right in any course of procedure. A persons right of either prosecution or defence is conditioned by the manner prescribed for the time being by the law and if by the Act of Parliament, the mode of proceeding is altered, and then no one has any other right than to proceed under the alternate mode. [Maxwell Interpretation of Statutes, 11th Edition, p.216]. 53. These principles, enunciated by Maxwell, have been quoted with approval by the Supreme Court in its Constitution Bench judgment in Union of India v. Sukumar Pyne [AIR 1966 SC 1206 at p.1209]

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]49. Therefore, the entire basis of the order of the Appellate Tribunal that provision of Section 11- B cannot be applied retrospectively has been passed on an erroneous basis, as discussed herein above50. Provisions of Section 11-B being procedural in nature can be applied retrospectively18. It is clear from the aforesaid discussion that the ratio in Govinddass case does not apply to this case in as much as no tax liability has been created under the order of the Board21. Therefore, restrain order passed on the respondent strictly speaking was not under Section11B ofthe said Act. However, the provisions of Section 11(4)(B) of the said Act also came by way of amendment in 2002. It should, however, be noted that by the time the Board passed the order on 31st March 2004 all the amendments were on the statuteEven if the amendments to the said Act are allowed to operate prospectively by the time the order was passed by the Board, it was empowered by the aforesaid amendments to do so23. Therefore, without giving any retrospective operation to those provisions, the impugned order can be passed by the Board in as much as the amendments in questions empowered the Board to pass such an order when it passed the order. So, the question that survives is whether the Board could pass the order in respect of allegations which surfaced prior to the coming into effect of those amendments in 1995 and 200225. In this connection it may be noticed that Section11B ofthe Act was invoked even at the show cause stage. Therefore, it cannot be said that any provision has been invoked in the midst of any pending proceeding initiated by the Board. The respondent was, thus, put on notice that the Board is invoking its power under Section11Bwhich was available to it under the law on the date of issuance of show cause notice26. In the premises, it cannot be said that any new provision has been invoked in connection with any pending proceeding. Nor can it be contended by the respondent that there was any unfairness in the proceeding. Respondent was given adequate notice of the charges in the show cause notice. He was given an opportunity to reply to the show cause notice and, thereafter, a fair opportunity of hearing was given before the order was passed by the Board. The entire gamut of a fair procedure was thus observed27. This Court also finds that there is no challenge to the amended provision of the law. Even if the law applies prospectively, the Board cannot be prevented from acting in terms of the law which exists on the day the Board passed its order38. Following the aforesaid ratio, this Court cannot hold that protection under Article 20(1) of the Constitution in respect oft facto laws is available to the respondent in this case48. As noted above, there is no challenge to those provisions which came by way of amendment. In the absence of any challenge to those provisions, it cannot be said that even though Board is statutorily empowered to exercise functions in accordance with the amended law, its power to act under the law, as amended, will stand frozen in respect of any violation which might have taken place prior to the enactment of those provisions. It is nobodys case that Board has exercised those powers in respect of a proceeding which was initiated prior to the enactment of those provisions. In fact Board has issued the show cause notice in terms of Section11Band considered the reply of the respondent. In such a situation, there has no infraction in the procedure49. Therefore, the entire basis of the order of the Appellate Tribunal that provision of Section 11B cannot be applied retrospectively has been passed on an erroneous basis, as discussed herein above50. Provisions of Section11Bbeing procedural in nature can be applied retrospectively51. The appellate Tribunal made a manifest error by not appreciating that Section11Bis procedural in nature. It is a time honoured principle if the law affects matters of procedure, then prima facie it applies to all actions, pending as well as future. See K.Eapan Chako v. The Provident Investment Company (P.) Ltd.,[AIR 1976 SC 2610 ] wherein Chief Justice A.N. Ray laid down those principles52. Maxwell in his "Interpretation of Statutes" also indicated that no one has a vested right in any course of procedure. A persons right of either prosecution or defence is conditioned by the manner prescribed for the time being by the law and if by the Act of Parliament, the mode of proceeding is altered, and then no one has any other right than to proceed under the alternate mode. [Maxwell Interpretation of Statutes, 11th Edition, p.216]53. These principles, enunciated by Maxwell, have been quoted with approval by the Supreme Court in its Constitution Bench judgment in Union of India v. Sukumar Pyne [AIR 1966 SC 1206 at p.1209]54. For the reasons discussed above, this Court is constrained to quash the order of the Appellate Tribunal and upholds the order of the Chairman of the Board.