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Judgment
The present writ petition has been preferred challenging inter alia circulars dated 15th May, 2018 and 25th June, 2018 being annexures ‘P-28’
and ‘P-29’ to the writ petition. Mr. Sengupta, learned senior Counsel appearing for the petitioners submits that by the impugned circular dated
25th June, 2018 a penalty of additional surveillance margin of 25% has been directed to be imposed upon the petitioner no.1 with effect from 2nd July,
2018.
The said circular refers to earlier circulars dated 13th April, 2018 and 15th May, 2018. The circular dated 13th April, 2017 would reveal that Securities
and Exchange Board of India (in short SEBI) and Stock Exchanges in a joint meeting decided that in stocks wherein unsolicited SMSs have been
found to be circulated and have resulted in an increased trading activity, an additional surveillance margin of 25% shall be levied on the trading
members who have a substantial trading activity in those stocks.
It was further stated in the said circular that trading members shall be informed individually about the additional margins and the same shall be
effective from 23rd April, 2018. However, no such additional surveillance margin was imposed upon the petitioner no.1 and the list of such stocks
were also not circulated either by SEBI or by the Stock Exchanges. The petitioners thereafter were requested by SEBI to attend a meeting on 11th
May, 2018 and in the said meeting, the intermediaries including the representatives of the petitioner no.1 complained that they have no jurisdiction to
withhold pay-outs to the clients or to recover/call back sale proceeds from a client under a concluded contract. They requested SEBI to amend the
regulations empowering them to withhold pay-outs. The representative of SEBI informed in the said meeting that detailed guidelines will be published
and requested the intermediaries to withhold pay-outs.
Without supplying copy of the minutes of the said meeting, the Bombay Stock Exchange (in short, BSE) by two electronic mails dated 14th May, 2018
and 16th May, 2018 forwarded the list of clients of petitioner no.1 who have allegedly transacted in two SMS stocks. In the midst thereof, by a
circular dated 15th May 2018, instructions were issued inter alia to withhold sale proceeds and to make all efforts to bring the funds back from clients
though the intermediaries do not have the jurisdiction to carry out such instructions. Implementation of such instructions is an impossibility. However,
the petitioner no.1 took all possible steps for substantial compliance of the instructions but still the petitioner no.1 has been penalized and the imposition
of such penalty would amount to closing of its business.
Mr. Sengupta further submits that about 5000 investors are registered with the petitioner no.1. Two lists of the SMS stocks were published by BSE
and National Stock Exchange (in short, NSE) and the petitioner no. 1 is related to only two companies, namely, Thirani Projects Ltd. and J. Taparia
Projects Ltd. and their respective dates of dissemination were stated to be 10th April, 2018 and 10th May, 2018 respectively whereas the list providing
the details of securities sold reveals that the period in respect of Thirani Projects Ltd. was stated to be from 27th December, 2017 to 13th April,2018.
Per contra Mr. Kar, learned advocate appearing for the respondent no. 3 submits that the writ petition itself is not maintainable since section 23L of
Securities Contracts (Regulation) Act, 1956 provides an alternative remedy. He further submits that BSE has acted on the basis of the directions
issued by SEBI. All members of the BSE, including the petitioner no.1 herein, were alerted as regards the unsolicited SMSs pertaining to stocks since
29th December, 2015 onwards.
In terms of such direction, appropriate steps and remedial measures were not taken by the petitioner no.1. From the letter issued by the representative
of the petitioner no.1, annexed at page 95 of the writ petition, it would be explicit that the petitioners accepted the instructions issued by SEBI and
stated to have initiated necessary actions. The circular dated 13th April, 2018 has also not been challenged in the writ petition. The petitioner no.1 has
failed to confirm compliance of the instructions and accordingly, the additional surveillance margin has been directed to be levied upon the petitioner
no. 1 with effect from 2nd July, 2018.
Records reveal that by a circular dated 17th November, 2017, the trading members were requested to advice their clients to remain cautious on
unsolicited messages being circulated by unregistered/unauthorized entities to induce investment or sale of the stock of certain listed companies.
Subsequent thereto, in a joint meeting of SEBI and the Stock Exchanges, it was decided that in stocks wherein unsolicited SMSs have been found to
be circulated and have resulted in an increased trading activity, an additional surveillance margin of 25% shall be levied on the trading members who
have a substantial trading activity in those stocks, as would be explicit fom the circular dated 15th May, 2018. Thereafter reminders were given to the
petitioner no.1 by emails dated 18th May, 2018 and 24th May, 2018. The decision contained in the circular dated 25th June, 2018, is a surveillance
measure and is a preventive action adopted after cautioning the intermediaries about such unsolicited messages since the month of November, 2017.
In the said conspectus, the interim order as prayed for by the petitioners for stay of operation of the decision contained in the circular dated 25th June,
2018 is refused. The respondents are directed to file the affidavitin-opposition within four weeks from date. Reply, thereto, if any be filed within two
weeks thereafter. The petitioners would be at liberty to mention the matter for final hearing after expiry of the period as fixed above towards
exchange of affidavits. The point of maintainability as raised by Mr. Kar is kept open to be decided at the time of final hearing of the writ petition.