Kumar Rajaratnam, J. (Presiding Officer)
1. These appeals are taken up with the consent of the parties for final disposal.
2. The appellants in both these appeals challenge the order of the Securities and Exchange Board of India (SEBI) dated 25th of March, 2003. The first appellant is the company. The second appellant is the Managing Director. A common order has been passed by SEBI.
3. The facts very briefly are as follows: The first appellant, Toubro infotcch & Industries Ltd., hereinafter referred to as 'the company', has its registered office in Chandigarh and has its Regional Office at Calcutta. The equity shares of the company are listed in the Ahmedabad Stock Exchange, Delhi Stock Exchange, Ludhiana Stock Exchange, Calcutta Stock Exchange and Mumbai Stock Exchange.
4. The company went in for two issues of secured debentures. The first issue opened on 1-9-1999 and the second issue on 1-4-2000. The company wanted to set up a chicken processing plant and wanted to expand its activity in floriculture and steel plant. Each issue was for Rs. 10 crores with a green-shoe option of Rs. 500 lakhs. It was alleged that these debentures were not offered to select group of persons and therefore the offer of debentures was not a private placement but a public offer. Admittedly, two commission agents, who felt aggrieved by perhaps the non-payment of commission or for some other reason best known to them, gave a complaint to SEBI to the effect that funds were collected by the company from the public and requested SEBI to enquire into the matter.
5. The SEBI at Annexure A-1 issued a show cause notice to the company under the heading "Violation of the Provisions of Companies Act, 1956 Notice for Prosecution". The first show cause notice of 25th of September 2000 is marked as Annexure A-1. The allegation in the notice was with reference to the letter of offer submitted by the company for multiplier secured debenture.
According to SEBI, in the show cause notice at Annexure A-1, the allegations were :
(a) The credit rating given to the company was fraudulent inducement to allure the investors.
(b) The registered office was wrongly shown at Calcutta instead of Chandigarh.
(c) The company had offered tax-free debentures to the investors.
(d) One Mr. N.K. Maini was shown as a nominee-director but Maini was not a director of the company with effect from 5th of April, 1999.
The notice at Annexure A-1 also stated that there were other misrepresentations in the debenture offer. The company submitted its reply denying the allegations.
6. Annexure A-4 dated 6th February, 2001 is the second show cause notice issued by SEBI to the director of the company. This notice was with respect to violations of the company under the provisions of the Companies Act, 1956 and why action should not be taken under SEBI Disclosure and Investors Protection Guidelines, 2000 (hereinafter referred to as the 'Guidelines'). Subsequently in the 2nd show-cause notice the company was asked to show cause why it should not be asked to refund the money to the investors arising out of the debentures placements and also as to why the company and its directors should not be restrained from the capital market and why the company should not be restrained from raising funds in the capital market for a period of five years,
7. The company submitted various replies to the second show-cause notice as well.
8. Ultimately the impugned order was passed by SEBI dated 25th of March, 2003. By the operative portion of the impugned order, SEBI directed the company to refund the money raised by the company to the debenture-holders with interest @ 10% within a period of two weeks from the date of the order. By a further direction, SEBI ordered that the company and its promoters-directors be restrained from associating with the capital market for a period of five years.
9. Aggrieved by the impugned order passed by SEBI dated 25th of March, 2003, the appellants are before us. There are five issues that require to be answered by the Tribunal. The five issues are as follows :
(1) The vexed question before us was whether the company had gone in for two public issues of secured debentures or, on the materials before us, whether these issues of secured debentures were, in fact, private placement as claimed by the company?
(2) Whether SEBI had the power to issue Guidelines without those Guidelines being laid before Parliament as required under Section 31 of the Securities and Exchange Board of India Act, hereinafter referred to as 'the Act'?
(3) Whether SEBI's impugned order survives for consideration in the light of the order of the Supreme Court in Civil Appeal 9738 of 2003 wherein the debenture-holders have been allowed to convert their debentures into preferential shares by consent of the debenture-holders and the company with effect from 1st of April, 2003?
(4) Whether there was any grievances from the Debenture-holders?
(5) Whether SEBI had power to restrain persons from accessing the securities market prior to the introduction of Section 11(4) of the Act, which was inserted by the Securities and Exchange Board of India (Amendment) Act, 2002 Section 4(d) and came into force with effect from 29-10-2002?
10. First issue to be addressed to is whether the debentures were offered to the public or whether it was a private placement. It appears that the SEBI Guidelines only relate to public placement. It is common ground that if the letter of offer for secured debentures was held to be a private placement, the Guidelines cannot be the subject matter of initiation of any action by SEBI. It is also common ground that the right to initiate action by SEBI against the company for violation of the Guidelines is confined only to debentures which is classified as public placement. This is not to mean that action cannot be taken against the company by the law of the land for any act of misrepresentation, which results in cheating the public. But as far as the violation of the Guidelines is concerned, it applies only to public placement. That is why it has been the endeavour of the learned counsel for SEBI to submit before us that the issue of debentures was a public issue.
11. In the impugned order, SEBI deals with the issue of 'select persons'. According to SEBI, the test should be that there must be an intimate connection between the company and the persons to whom the offers are made. The 'select persons' should normally be friends, relatives or persons personally known to the promoters. SEBI further held that the Board meeting on 15-1-1999 did not specify the names of investors for whom subscription was to be garnered.
12. Section 67 of the Companies Act gives an indication of the difference between private placement and public issue. Section 67(3) is clear and categorical. Section 67(3) reads as follows :
"(3) No offer or invitation shall be treated as made to the public by virtue of Sub-section (1) or Sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances--
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation." [Emphasis supplied]
The first proviso to Section 67(3) inserted by the Companies (Amendment) Act, 2000 with effect from 13-12-2000 sets at rest the question by stating that if an invitation to subscription is made to 50 or more persons, it ceases to be a private placement. The first proviso reads as follows :
"Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more,"
This proviso was not in force when the two debenture issues were made by the company. The first issue was on 1st of September, 1999 and the second issue was on June 1, 2000. The allotments were completed by July, 2000. Therefore, the proviso, which came into force on 13-12-2000 holding that any issue made to 50 or more persons will be deemed to be public issue, was not in force.
13. We are now left with the definition of a 'public issue' before the amendment. Section 67(3) of the Companies Act stipulates in the negative to the effect that no offer or invitation shall be treated as made to the public if the offer or invitation does not result directly or indirectly in the debentures being available for notice by persons other than those receiving the offer or initiation. In other words, no offer shall be treated as being made to public unless it can be shown that directly or indirectly the debentures were calculated to make available to purchasers other than those receiving the offer or invitation.
14. The learned senior counsel for the appellants, Mr. S.K. Kapur, took us through the salient features of the letter of offer, which is the subject-matter of the dispute. The letter of offer at the outset states 'Private & Confidential'. It also states 'Not for circulation'. It also stated as follows :
"It may please be noted that above offer is made specifically to you and is not to be circulated. The information contained therein is to be treated as strictly confidential."
On the reverse, under the heading 'General Instructions', the relevant portion reads as follows :
"This offer is being made on a Private Placement basis and cannot be accepted by any person other than to whom it has been offered. Further, this offer cannot be transferred or renounced in any one's favour."
It also states in the front portion of the letter that the information contained in the letter of offer is to be treated as strictly confidential. Other details in the letter may not be strictly relevant to determine whether it is public placement or private placement.
15. The reasons assigned by SEBI for deeming the issue as a public issue is found at pages 9 & 10 of the impugned order. We may summarize the same. It appears that a letter was received from Sri Laxmi Narayan of Agra and IK Misra of Kolkata forwarded from the PMO's office, two other letters were also received from Majhi and Ashok Chakravarthy of West Bengal. All these letters appear to be from agents or would be agents of the company. They sought the advice of SEBI as to whether they can become agents of the company. This made SEBI suspicious and SEBI after making a reference to it at the enquiry concluded that it was a public issue.
16. The second ground on which SEBI placed its ruling that the debenture was a public issue was that a reference was received from the Dy. Commissioner of Police Detective Dept., Kolkata stating that the company was mobilizing public money against issuance of secure debenture and the company had engaged agents for this purpose. Some statements of the agents recorded by SEBI which reveal that the agents were getting commission from 0.25% to 0.5% depending on the monthly business.
17. Since the order of SEBI is not paragraphed (it would be advisable for SEBI in future to paragraph the order for the convenience of the readers) we have to necessarily make a reference to the operative portion of the order at pages 9, 10 and 11 of the impugned order by which reasoning SEBI comes to the conclusion that the Debentures are public placement. It reads as under :
"The matter of raising funds by TIIL allegedly by way of issue of privately placed debentures was brought to notice of SEBI by Banamali Maji and Ashok Chakraborty or West Bengal. Copies of letter of offer and application form for issue of secured debentures were furnished and advice sought from SEBI in regard to becoming agents of TIIL. Similarly reference was also received from Laxmi Narayan of Agra and I.K. Mishra of Calcutta (forwarded through PMO).
Reference were also received from the Dy. Commissioner of Police, Detective Department, Calcutta bringing to SEBI's notice that TIIL was mobilizing public money against issuance of secured debentures and that TIIL had engaged agents for that purpose. The letter also specified names and telephone numbers of certain agents of TIIL such as Shri Amal Kumar Das, Shri Bimal Kumar Das, Pallab Banerjee etc. Statements of some agents engaged by TIIL were also recorded by SEBI such as Shri Banamali Maji, Shri Shyamal Mondal etc. documents obtained in course of enquiry made by SEBI revealed that, agents were being ensured incentives from 0.25% to 5% depending upon the monthly business targets assigned to each of them. The names of some agents mentioned in the letter of the DCP such as Amal Kumar Das, Bimal Kumar Das and in the statements recorded are the same, thereby corroborating each other. From the above, I come to the finding that the said issue of debenture by TIIL was to the public and not to select persons as contended by TIIL.
It is clear that TIIL was using the services of agents for mobilizing funds from the general public from time to time against the alleged privately placed secured debentures. The debentures were calculated to be availed of by all and sundry, whosoever may be convinced by the investment agents engaged by TIIL.
Hence, in view of the above facts and the fact that offer of TIIL was not restricted to selected persons and that it engaged agents to mobilize funds, I come to the finding that TIIL was not restricted to selected persons and that it engaged agents to mobilize funds, I come to the finding that TIIL made a public issue of Secured Debentures."
18. Only on these two grounds at page 10 of the impugned order the SEBI comes to the conclusion that the company by using agents for mobilizing funds from the general public and invited 'All and Sundry' to invest in the debenture issue.
19. We are not persuaded to accept the reasoning that by merely employing agents or paying commission to the agents a debenture can be treated as a public issue. It would not be in the interest and welfare of the investors if solely on the basis of statements recorded by disgruntled agents and on the basis of the letter from the police in Kolkata an issue is to be treated as public issue. There was no indepth enquiry from any of the persons who have subscribed to the debenture. In fact not a single investor grievance has been placed before SEBI. That would have been the litmus test as to whether a person actually subscribed to the issue without being specifically invited to participate.
20. In a much quoted English judgment Government Stock & Other Securities Investment Co. Ltd. v. Christopher  1 WLR 237 (Ch.D.), the Court interpreted the provision in the English Companies Act, 1948, which was similar to Section 67 of the Companies Act, 1956.
21. Section 38(3) of the English Companies Act, 1948 reads as follows:
"Subject to the provisions of the next following section, it shall not be lawful to issue any form of application for shares in or debentures of a company unless the form is issued with a prospectus which complies with the requirements of this section : provided that this sub-section shall not apply if it is shown that the form of application was issued either - (a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures; or (b) in relation to shares or debentures which were not offered to the public. ..." [Emphasis supplied]
22. The proviso is more or less the same as in Section 67(3) of the Companies Act, 1956. While interpreting whether the offer was public or private, the English Court pronounced as follows:
"It is alleged by the plaintiff company that it is a prospectus to which Section 38 of the Companies Act, 1948, applies, and that as such it does not comply with the requirements of that Act. It is not disputed that if it is such a prospectus, it does in fact fail to comply with the requirements of the Act."
23. After setting forth the proposition of law the English Court answered the question, in the facts and circumstances of that case, as follows :
"In Murray's Oxford Dictionary, one of the meanings attributed to 'subscription' is: A promise over one's signature to pay 'a sum of money for shares in an undertaking'. I can find no secondary meaning attributed to 'subscription' in the Companies Act, 1948. On the contrary, paras 4, 5, 6 and 7 of the Part I of the Schedule 4 to the Act clearly require that 'subscription' and 'subscribe' involve the notion of payment in cash. The circular in this case does not invite subscription for shares for cash. For these reasons, I am of opinion that the circular is not a prospectus within the meaning of that word as used in that Companies Act, 1948. I would add that it would be somewhat strange if the circular were in fact a prospectus in view of the circumstance that the permission of the Board of Trade was obtained under Section 13 of the Prevention of Fraud (Investments) Act, 1939, on the basis that it was not a prospectus. I am further of opinion that the circular was not distributed to the public. I accept the proposition put forward by Sir Andrew Clark, namely, that the test is not who receives the circular, but who can accept the offer put forward. In this case it can only be persons, legally or equitably interested as shareholders in the shares of Union-Castle or Clan. In t he case of those who accept non-renounceable letters of allotment will be issued. In these circumstances the ease appears to me to fall within Section 55(2) of the Companies Act, 1948." [Emphasis supplied]
24. The Court further pronounced as follows:
"I can find no reason whatever for not giving to this form the meaning so clearly intended by its author. It opens with the words; 'if you wish to accept the accompanying offer you should sign this form and forward it, together with your share certificate(s) to the Union Castle Mail Steams hip Co. Ltd.... in the pre-paid envelope provided, so as to be received not later than the close of business on Friday, December 30, 1955.' Then follows the heading : 'Form of Acceptance and Transfer'. It is addressed to Union-Castle as agents for the new company, and it then states: 'I/We', a blank being left for the name of the shareholder or stockholder to be inserted, 'hereby irrevocably accept the offer made to me/us by the British and Commonwealth Shipping Co. Ltd. (hereinafter called "the new company") and contained in the new company's circular letter (hereinafter called the "offer") dated November 12, 1955 to acquire my/our holding of (blank) ordinary stock in the Union -Castle Mail Steamship Co. Ltd. (hereinafter called "the stock") upon the terms and subject to the condition set out therein'. Paragraph (2) states that the stockholder encloses his stock certificate which is to be held by Union-Castle upon the terms of the offer. Paragraph (3) provides that, subject to the offer becoming unconditional, the signature of the stockholder to the form of acceptance and transfer shall constitute for Union-Castle an execution by the stockholder of an instrument of transfer of the stock to the new company, and the stock holder further undertakes to execute any further assurance that may be necessary in connection with such transfer. The stockholder then authorizes and requests Union-Castle to forward to him a fully paid non-renounceable letter of allotment, and in due course a dividend certificate in respect of the shares of the new company to be allotted to the stockholder pursuant to the offer. There is then a dividend request, and a provision that in the event of the offer not becoming unconditional, Union-Castle is to return the certificate. Then follows provision for the signatures and the witnessing of the signatures of the stockholder or stockholders. To my mind nothing could be clearer. It is to operate as an acceptance of the offer made by the new company and of the shares in the new company, and as a transfer of the acceptor's holding in Union-Castle or Clan as the case may be. Why then should the court be astute to turn this form upside down or inside out in an attempt to give it some other meaning, particularly in view of the circumstance that I have held that the circular is not a prospectus, but what it purports to he, namely, the communication of an offer to exchange shares in the new company for shares in Union-Castle or Clan as the case may be.
It is against the background provided by the construction which I place on the circular, and the form accompanying it, that I turn to consider the allegations that the circular contains such material misrepresentations and omissions that it should intervene at this stage in a representative shareholders' action. In this regard it is, I think, necessary to bear in mind the proposition that a mere omission to state facts in the circular does not amount to a misrepresentation which would give rise to any cause of action, unless the effect of the omission is to render untrue or at least misleading some positive statement therein." [Emphasis supplied]
25. After carefully reading the letter of offer in the ease before us, it makes sense that we should follow the true meaning of the letter of offer in the absence of any investor grievance as none can be seen from the impugned order. The complaints referred to in the impugned order were only from agents.
26. Reference has also been made from the bar to the judgment of the Punjab & Haryana High Court in AIR 1956 Punjab 196 wherein the words 'calculated to' in Section 67(3) of the Companies Act have been defined to mean design, forethought or intention to accomplish a purpose. The Court pronounced as follows :
"(8) Mr. H.S. Daobia, learned counsel for the petitioners, has drawn my attention to Section 5(1)(iii) of the Companies Act, 1956. It defines 'private company' which means a company which by its articles restricts the right to transfer its share, if any, limits the number of its members to 50, and lastly prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company.
According to Mr. Daobia, offer of shares to any person other than the existing members of the company is tantamount to an invitation to the public to subscribe for shares which is under a statutory ban. My attention has also been drawn to Section 67(3) of the Act which runs as under :
'No offer or invitation shall be treated as made to the public by virtue of Sub-section (1) or Sub-section (2); as the case may be, if the offer or invitation can properly be regarded, in all the circumstances:
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or
(b) Otherwise as being a domestic concern of the persons making and receiving the offer or invitation/
(9) This provision corresponds to Section 55(2) of the English Companies Act of 1948. In Buckley on the Companies Act, 12th Edition, at page 138, after reproducing Sub-section (2), it was observed.
'As to (a) note that it is not necessary to show that the offer could not result in the way mentioned, but only that it is not calculated so result. Presumably, the reference to persons other than those receiving the offer refers to the letter as a class and not individually.'
(10) The word 'calculated' suggests design, forethought or intention to accomplish a purpose. 'Calculated' primarily means to compute mathematically, but when applied to a human action it is used in the sense of, to intend, to design, to plan, or to adopt to achieve a purpose."
27. No pronouncement of the Supreme Court has been placed before us on this subject.
28. SEBI bases its conclusion that because agents were engaged the debenture is a public issue. In other words, because the company had engaged agents, it was contrary to Section 67 of the Companies Act and the engagement of agent was also banned by Circular No. 7 of 1992 dated 6th of July, 1992 issued by the Department of Company Affairs.
29. SEBI was in error in coming to the conclusion that employment of agents was prohibited with respect to private placement. The employment of agents with regard to private placement of debentures is recognized in Section 76(1)(b)(iii) of the Companies Act. Section 76(1)(6)(iii) indicates that even with regard to private placement of debenture agents can be employed under certain conditions. It is not in dispute that under the Companies Act, 1956 the employment of agents for making private placement on certain stringent conditions was not barred.
30. With respect to the circular relied on by SEBI, the circular relates to shares and not with respect to debentures. Shares and debentures are separately defined in the Companies Act. More so the circular deals with renounceable rights of promoters' quota. The circular also refers to dissemination of information through the media. The circular has no application to the facts of the present case. A clear reading of Section 76 would indicate that even with respect to a private placement there can be employment of agents on certain stringent conditions. But to simply say that merely because agents were employed the debenture becomes public and the provisions of the Guidelines are attracted, is erroneous. Even with respect to the statement of agents and the letter of the Deputy Commissioner of Police, Kolkata, the learned senior counsel for the respondent submitted that the reference to the letters received from Banamali Majhi/Ashok Chakraborty/Lakshmi Narayan/I.K. Mishra clearly and admittedly shows that these persons had written to SEBI seeking advice "to become agents of the appellant company". In actual point of fact, admittedly these four persons were not the agents of the appellant company at any point of time. They were not investors. They had nothing to do with the debentures in question. They had nothing to do with the two issues.
31. With respect to the letter from the Dy. Commissioner of Police, Kolkata, it appears that on a perusal of the letter the police did not make any complaint against the company or in respect of the debentures. They were merely seeking information.
32. With respect to the so-called commission agents, it was submitted that the impugned order refers to a statement said to have been recorded from Banamali Majhi. It was further submitted that the statement of one Shyamal Mondal is referred to in the impugned order, was produced before this Tribunal on the last day of hearing. The substance of the said statement was that the deponent had never been in touch with the appellant company. It was submitted that the deponent also said that he did not know the directors and promoters and could not say what were the promises being made by the company. He also admitted that he had not attended any meeting convened by the appellant company but that he proposed 'to do so' at a meeting t o be held on 30th January, 2001. Whether he did or did not attend such a meeting is not apparent, nor anything said or shown later to have happened at such an alleged meeting is not made clear. This is the sum and substance of this deponent's evidence. This slender material cannot be the basis of coming to the conclusion that it is a public issue.
33. It was further submitted that the two letters received from RBI were also produced. Significantly, no reliance is placed on either these letters or their contents in the impugned order. The RBI also asked for an enquiry to be made and no more than that. There is only a passing reference to the letters having been received but evidently the letters were not considered a material for She decision taken by SEBI. No reference is made to the RBI letter's in the impugned order except at the time of hearing the appeal.
34. It was further submitted that it is not open for the respondent in this appeal to introduce new facts or fresh reasons of any kind. Any statutory order such as in the instant case must be supported in this appeal on its own strength and not on any fresh basis of any kind, particularly as to the facts of the case (see Mohinder Singh Gill v. Chief Election Commissioner AIR 1978 SC 851).
35. We hold that the paramount test is that no offer or invitation shall be treated as made to the public unless it can he shown in the facts and circumstances of a particular ease that it has been calculated to a result directly or indirectly in the shares or debentures becoming available for subscription other than to those receiving the offer or invitation. In other words, there must be a design or intention on the part of the company by its conduct which results in a gate crasher accepting the offer or invitation.
It must be established --
(a) that there was a calculated offer on the part of the company to bring in an uninvited guest to subscribe to the debenture.
(b) that persons other than those receiving the offer or invitation had in fact actually subscribed to the offer.
It these two conditions are fulfilled, then no amount of camouflage in the letter of offer can make a public issue into one of a private issue. In this regard, we have given oar anxious consideration to the facts and circumstances of the case emanating from the impugned order. Certainly SEBI could have done a better job by examining during enquiry one or two subscribers to determine whether they were invited or not. That would have been a clinching proof to hold that a public issue was sought to be brought out in the guise of a private issue. The reasons given by SEBI for holding it as a public placement, is, strictly speaking, not in accordance with law. As expressed by us, there is no bar on fulfilling certain conditions for a company paying commission to an agent in a private issue. SEBI was in error in holding that mere payment of commission to an agent would make an issue public. SEBI also did not put enough materials in the impugned order to prove that the company had gone in for a public issue. SEBI got carried away by the statements of disgruntled commission agents and the letter from Kolkata Police. Accordingly, we hold from the materials on record that it is not possible to state that the two issues were public issues in the absence of any proper enquiry.
36. The second issue that arises for consideration is whether the Guidelines can be enforced without they being placed before the Parliament as required under Section 31 of the Act.
37. The SEBI Act recognizes the power to make 'Rules' and to make 'Regulations'. While the Central Government may by notification make 'rules' for carrying out the purpose of this Act, the Board may by notification make 'regulations' consistent with this Act and the Rules made thereunder. In other words, the power to make 'rules' vests with the Central Government. The power to make 'regulations' vests with the SEBI Board. At one time, even the power to make Regulations by the Board was with the previous approval of the Central Government. The words "with the previous approval of the Central Government" were omitted by Act 9 of 1995 with effect from 25-1-1995. Now the Board by notification makes Regulations consistent with the Act and the Rules made thereunder to carry out the purpose of this Act. Parliament gives powers under Section 29 to make Rules and under Section 30 to make Regulations. We are not concerned with Section 29 since that is the prerogative of the Central Government. We are at present dealing with the power to make Regulations. There are number of Regulations, which have been made to protect the interests of the investors in securities and to regulate the securities market. In fact, the word 'regulations' has been defined under Section 2(1)(h) as under :
"(h) 'regulations' means the regulations made by the Board under this Act;"
'Notification' has been defined under Section 2(1)(f) as under :
"(f) 'notification' means a notification published in the Official Gazette;"
The power to make Regulations is under Section 30 of the Act. Section 30 reads as follows :
"Power to make regulations.--(1) The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely :--
(a) the times and places of meetings of the Board and the procedure to be followed at such meetings under Sub-section (1) of Section 7 including the quorum necessary for the transaction of business;
(b) the term and other conditions of service of officers and employees of the Board under Sub-section (2) of Section 9;
(c) the matters relating to issue of capital, transfer of securities and other matters incidental thereto and the manner in which such matters shall be disclosed by the companies under Section 11A;
(d) the conditions subject to which certificate of registration is to be issued, the amount of fee to be paid for certificate of registration and the manner of suspension or cancellation of certificate of registration under Section 12."
Even after a Regulation is made by Notification under Section 30, every regulation made under Section 30 shall be laid before Parliament. The laying section is Section 31. Section 31 reads as hereunder :
"Rules and regulations to be laid before Parliament.--Every rule and every regulation made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation." [Emphasis supplied]
While the Act recognizes 'rules' and 'regulations' in Sections 29 and 30, there is, however, no definition of the word 'Guidelines'. It is the case of the appellants that they are being proceeded or prosecuted under SEBI Disclosure and Investors Protection Guidelines, 2000.
38. There is no definition of 'Guidelines' in the Act. However, the Guidelines, 2000 themselves define 'Guidelines' under paragraph 1.2.1(xiv) and it reads as hereunder :
"(xiv) 'Guidelines' means Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 1999 and includes instructions issued by the Board."
The said Guidelines have not been laid before Parliament unlike the Rules and Regulations, which are required to be laid before Parliament. The vexed question is what is the sanctity of Guidelines under which a person is proceeded against. If the Act recognizes only 'Rules' and 'Regulations', can it be said that the 'Guidelines are in the nature of a circular. However Guidelines cannot mandate violation of substantial laws unless such a power is expressed in the form of a legislation in the Act. We have no difficulty in understanding the power of the Central Government or the SEBI Board, as the case may be, to issue 'Rules' and 'Regulations' respectively. But can SEBI create a new class of procedure, which is ultimately punitive in nature without authority of law. The closest parallel to 'Guidelines' where some judicial pronouncement is available in the form of case law is that of 'circulars' under the Income-tax Act. We have, therefore, perused the Income-tax Act. It appears that a 'circular' is not defined in the Income-tax Act just as 'Guidelines' are not in the SEBI Act. The Supreme Court in K.P. Varghese v. ITO  131 ITR 597, 7 Taxman 13 pronounced that circulars are binding on Income Tax Authorities and further they are in the nature of contemporanea expositio and are alegitimate aid in construction of law. It was further held that contemporanea expositio and hence, Circulars, must be clearly wrong before they are overturned.
Under Central Excise law, the Supreme Court in Paper Products v. CEC AIR 1999 SC 3341, pronounced that CBEC Circulars are binding on excise authorities. In CCE v. Usha Martin Industries  7 SCC 47 it was held that an assessee can contest the validity/legality of a Circular but revenue cannot. It was further held that Appellate Authorities would not be bound by Circulars,
In CCE v. Kores (India) Ltd.  10 SCC 338, it was held that Tariff Advice/Trade Notices from the CBEC will not bind Appellate Authorities.
Under General law, the Supreme Court in DDA v. Vijaya C. Gurusahaney  7 SCC 301, held that guidelines of the DDA were binding as policy decisions or guidelines of statutory bodies in the absence of rules to the contrary.
The 'circular', as stated earlier, are clarificatory in nature and are usually contemporaneous and they are within the purview of the Act and are binding on the revenue. In so far as Guidelines are concerned, it is necessary to state that they are not regulations and 'Guidelines' cannot mandate a procedure, the violation of which is punitive in nature. In that respect, they take the form of a regulation. In the absence of any such power in the Act, the violation of a Guideline, it appears to us, cannot lead to any punitive action unlike violation of a regulation since 'Guideline' is not defined in the Act.
39. Since 'circulars' are usually clarificatory in nature and need not be defined, it can be said that the 'Guidelines' are also in the nature of a circular. We, however, have some reservation whether violation of the 'Guidelines' can lead to a substantive misconduct, leading to debarring a person or company from capital market. To direct a person not to access the capital market and to refund the money to the debenture-holders, in our considered view, can only arise out of a violation of a 'regulation' as contemplated under Section 30 of the Act. We, however, would like to leave that question open in view of the fact that Section 31 itself saves any action done before the 'regulation' is placed before Parliament. We have already extracted Section 31 hereinabove. The Supreme Court has pronounced that similar provisions as in Section 31 are only directory and not mandatory and any action done prior to it being placed before Parliament will be saved. See :
(1) Jan Mohammad Noor Mohammad Bagban v. State of Gujarat AIR 1966 SC 385.
(2) Quarry Owners Association v. State of Bihar AIR 2000 SC 2870.
(3) Hukam Chand v. Union of India  2 SCC 601.
(4) Atlas Cycle Industries Ltd. v. State of Haryana  2 SCC
Therefore, even assuming that the 'Guidelines' are 'regulations', we do not think it is necessary to hold that the Guidelines have no force in law merely because they have not been laid before Parliament since there is a saving clause in Section 31 itself. We accordingly reject the contentions of the appellants that these Guidelines cannot be a subject-matter of an enquiry since they have not been placed before the Parliament.
In passing, we would like to add that a time has come to define guidelines in the Act and to end this controversy once and for all. Issuance of such guidelines in conformity with the provisions of the Act will be beneficial to SEBI and to the investor public for the efficient management of the securities market. SEBI must be empowered in the Act to issue guidelines from time to time. This power will enable SEBI to take action for violations of the guidelines in accordance with law as is being done for violation of the Regulations in accordance with law. We will have it at that:
40. Mr. Desai, the learned counsel for the respondent, submitted that the SEBI has sou motu powers to issue directions in the interest of investors under Section 11B. Section 11B reads as follows :
"Power to issue directions.--Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,--
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interests of investors of securities market; or
(iii) to secure the proper management of any such intermediary or person,
it may issue such directions,--
(a) to any person or class of persons referred to in Section 12, or associated with the securities market; or
(b) to any company in respect of matters specified in Section 11A,
as may be appropriate in the interests of investors in securities and the
41. The learned counsel for the respondent relied on the judgment in Anand Rathi v. SEBI  32 SCL 227 (Bom.). It may not be necessary for us to give a finding whether SEBI acted under its inherent powers under Section 11B or under the provisions of the Guidelines since we hold that the Guidelines are of a binding nature till they are laid before Parliament on account of the saving clause in Section 31 or unless defined otherwise. Consequently, we, as stated earlier, reject the contention of the learned counsel for the appellants that SEBI cannot proceed under the provisions of the Guidelines read with Section 11B of the Act.
42. The next question that arises for consideration is whether SEBI's impugned order survives for consideration in the light of the order of the Supreme Court on these very debentures. It has been brought to our notice by the learned counsel for the appellants, Mr. S.K. Kapur, during the pendency of the appeal that after the passing of the impugned order of SEBI, a suit was filed in the Delhi High Court by the debenture-holders. It has been submitted by the counsel for the appellants, Shri S.K. Kapur, that a meeting of all the debenture-holders of the two debenture issues was convened. This was done pursuant to the order of the Delhi High Court and the Delhi High Court requested a retired High Court Judge to determine whether the debentures could be converted into preferential shares. The retired High Court Judge submitted a report and pursuant to which the High Court passed the following order :
"Notice. Mr. Bhatnagar accepts notice on behalf of the defendant. By way of present application plaintiff prays that a decree be passed against the defendant in the light of the order dated 29th May, 2003 wherein the defendant had agreed that it would be bound by the result of the meeting held in terms of the said order. The plaintiff has filed the present suit against the defendant for declaration and permanent injunction. Vide order dated 29th May, 2003 this Court directed that a meeting of all the debenture holders be held to decide whether debentures are to be converted to preference shares. With the consent of the parties justice S.N. Kapoor (Retd.) was requested to convene a meeting of the debenture holders of the defendant company. A meeting of all the debenture holders was held under the Chairmanship of Justice S.N. Kapoor (Retd.) where only 7 debenture holders were represented. Postal ballots had been received from numerous debenture holders of the defendant company. In terms of the order dated 10th June, 2003 the said postal ballots were counted and the plaintiff learnt that a majority of the debenture holders have voted in favour of the proposal to issue preference shares for the value of the debentures.
In the order dated 29th May, 2003 it has been recorded that the outcome of the meeting will be binding on the parties. Counsel for the plaintiff contends that in view of the fact that the defendant was present in Court on 20th May, 2003 when the order was passed and it had agreed to be bound by the result of the meeting held in terms of that order, the result of the meeting being in favour of the plaintiff, he is entitled to judgment on admission under the provisions of Order 12 Rule 6 CPC. Counsel for the defendant does not dispute the same.
In the light of the aforesaid the suit is decreed in favour of the plaintiff and against the defendant. Decree sheet be drawn accordingly. All the pending application stands disposed of.
I have perused the report of Justice S.N. Kapoor (Retd.) counsel for the parties are agreed that the bill, if any, raised by the Chairman shall be paid by both in equal shares. The date fixed before the JR is cancelled."
The order of the High Court was confirmed by the Supreme Court in the case of Pritam Paul v. Toubro Infotech & Industries Ltd. [Civil Appeal No. 9738 of 2003 (arising out of SLP (C) No. 22325 of 2003)] and the Supreme Court held that all debenture-holders shall be allotted preferential shares as directed by the High Court with effect from 1st of April, 2003. The pronouncement of the Supreme Court is as follows :
The only fault that can be found with the impugned order of the High Court is that the High Court has not appointed any date with effect from which its order has to be implemented.
After hearing the learned senior counsel for the parties, it is directed that the plaintiff (respondent in the High Court and appellant herein) and all holders of the debentures shall be allotted preferential shares as directed by the High Court with effect from 1st April, 2003. Subject to the above modification, the order of the High Court is maintained.
The appeal stands disposed of."
The order of the Supreme Court appears to have covered both the debenture issues and in view of the conversion from debentures to preferential shares, the order of SEBI asking the company to refund the amount to debenture-holders has become unenforceable since it appears to be the desire of the debenture-holders to convert their holdings into preferential shares. In that view of the matter, there is common ground, both on behalf of the appellants and the respondent, that the order of SEBI insofaras directing the company to refund the money is unenforceable and is accordingly set aside as SEBI and this Tribunal are respectfully bound by the orders of the Supreme Court.
43. The next question to be answered by this Tribunal is whether there were any grievances by the debenture-holders, which were not redressed by the company either before the SEBI or while the matter was before us. We have given our anxious consideration of this matter. Although we have held that it is not possible to hold that the debentures are a public placement, we are of the view that as a court of equity we would be justified in directing the company to redress all grievances from the date of issue till the cut off date given by the Supreme Court, namely, 1st of April, 2003.
44. The learned senior counsel for the appellants fully co-operated with the Tribunal de hors all technicalities. The Chairman and the Managing Director of the company has filed an affidavit dated 8th of July, 2004 wherein it has been stated that every debenture investor grievance has been settled by the company to the satisfaction of the debenture-holders. All the grievances that were brought to the notice of the Tribunal by SEBI have been fully satisfied by the company and this finds a place in the affidavit filed by the company. We have taken upon ourselves this exercise since it was submitted by the counsel for the appellants that if there is any grievance of any investor with respect to the debentures, it would be addressed to and settled forthwith without any technical objection. It is only in these circumstances the appellants have filed this affidavit. After setting out the details of the full and final settlement made to the debenture-holders, the appellants have stated at paragraphs 7, 8 and 9 as follows :
"(7) I further say and submit that as on date there are no complaints of the subscribers of the two issues, which are the subject matter of the present Appeal pending with the Appellant. I respectfully say and submit that in the event of receipt of any grievances from any such subscribes, directly or through the respondent the same will be redressed expeditiously.
(8) I further say and submit that the Appellant-Company has adequately provided for servicing of the total debt of the subscribers of the aforesaid two issues. Infact, the debts has been survived without any complaint for 4 years. I further say and submit that the Appellant-company has adequate assets and resources for refund of the amounts to the subscribers on maturity. Hereto annexed and marked as Exhibit-E is the copy of the valuation report dated 29th May, 2004 showing that the value of assets fixed at Rs. 412 lacs and other assets at Rs. 11408.59 lacs.
(9) The above statements made in paragraphs are true to before this Hon'ble Court." [Emphasis supplied]
The affidavit filed by the appellants dated 8th of July, 2004 shall form a part and parcel of the records of this Tribunal.
45. We also make it clear that if there are any grievances of the debenture-holders till the cut off date of 1st of April, 2003 (Supreme Court order), the appellants shall redress the grievances, if any, brought to their notice.
46. The appellants have also suffered an adverse order directing them not to access the market for a period of five years. This order was passed on 25th of March, 2003. This order has been in force for nearly one year and four months. We feel in the facts and circumstances and for the reasons stated above, this period shall be treated as the period of ban already undergone. We accordingly reduce the period mentioned in the impugned order from five years to the period already undergone by the appellants.
47. The last question that arises for consideration is whether SEBI has power to restrain persons from accessing the securities market prior to the introduction of Section 11(4) of the Act w.e.f. 29-10-2002. It was vehemently submitted by the senior counsel, Sri S.K. Kapur, that the provisions of Section 11(4) of the Act conferring upon the Board the power to take measures mentioned therein were inserted into the Act by Section 4(d) of the Securities and Exchange Board of India (Amendment) Act, 2002 with effect from 29th October, 2002. It is only by this amending Act that the Board was conferred the power to restrain persons from accessing the securities market and to prohibit any person associated with the securities market to buy or sell or deal in securities. It is submitted that prior to 29th October, 2002, the Board had no power to take such a measure. In this connection, we have carefully perused the statement of object and the statement of object and reasons of the amending Act of 2002, which categorically recognizes that SEBI had "no jurisdiction to prohibit issue of securities" and further states, inter alia, that the amendments are intended "to confer power upon the Board" to impose such a restriction. A perusal of the amending Act and its statement of object and reasons, demonstrates that prior to the 2002 amendment the Board did not have the power to pass such an order under Section 11B or otherwise. It is submitted that in the present case, the acts complained of having been concluded in 2000, the Board's order is entirely in excess of its powers and without jurisdiction.
48. On this aspect, reliance was also placed on the judgment of this Tribunal in three eases :
(a) Sterlite Industries (I) Ltd. v. SEBI  6 Comp. LJ. 279 prs. 105-109 (SAT - Mum.);
(b) Mega Resources Ltd. v. SEBI  3 Comp. LJ. 179 36 SCL 569 pr. 55 (SAT - Mum.); and
(c) Roopram Sharma v. SEBI  6 Comp. LJ. 407 39 SCL 728 prs. 23, 24 (SAT -Mum.).
49. It was the alternative submission by SEBI that in reply that de hors of Section 11(4) it is possible to bar a person under Section 11B as it has an inherent jurisdiction. We do not think such drastic measures are contemplated under Section 11B de hors Section 11(4) [Read the aims and objects of the reasons of Amending Act of 2002].
50. We find considerable force in the submission of the learned counsel for the appellants, having carefully perused the Statement and Objects and Reasons of the amending Act 2002.
51. However, we feel it is not necessary for us to give a finding one way or the other since we have taken a practical view of the matter based on equity and good conscience in the paramount interests of the investor public.
52. Accordingly, we pass the following orders :
(1) The order directing the appellants to refund money with 10% interest to the debenture-holders passed by SEBI is set aside.
(2) The order directing the appellants not to access the capital market and not to associate with capital market, dealing in securities or associating with any intermediaries in the capital market for a period of five years, is modified to the period already undergone by the appellants (nearly one year and four months).
(3) The appellants shall redress all grievances of debenture-holders, if any, brought to their notice from the lime of issue till they were converted as preferential shares.
53. The appeal is disposed of accordingly.
54. There will no order as to costs.
As we were about to pronounce the judgment, written submissions were filed by the counsel for the respondent. Obviously it is not possible to take the written submissions on record because they are filed as we were about to pronounce the orders. However, we carefully perused the written submissions and the written submissions are only a repetition of the long oral submissions made by the counsel for the respondent and those oral submissions have been taken into account in our order.