SECURITIES AND EXCHANGE BOARD OF INDIA VS IL AND FS SECURITIES SERVICES LTD. AND ORS.

SECURITIES AND EXCHANGE BOARD  OF INDIA VS IL AND FS SECURITIES SERVICES LTD. AND ORS.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले


NON­REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
I.A. NO.6482 OF 2022
IN 
CIVIL APPEAL NOS. 5395­5398 OF 2019
SECURITIES AND EXCHANGE BOARD 
OF INDIA                     …..APPELLANT (S)
VERSUS
IL AND FS SECURITIES SERVICES
LTD. AND ORS.   .….RESPONDENT(S)
AND IN THE MATTER OF:
DALMIA CEMENT (BHARAT) LTD.   …..APPLICANT/
RESPONDENT NO.5.
                      J U D G M E N T
Vineet Saran, J.
This is an application for modification of the order dated
21.09.2021 passed in I.A. No.84110 of 2021 in CA. Nos.5395­
5398 of 2019.
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2. The short dispute in the present matter is with regard to
the   release   of   the   mutual   funds   in   favour   of   the
applicant/Respondent No.5, which are of the value of about 350
crores.
3. Earlier, by order dated 27.08.2019, this Court had given
the option to applicant/Respondent No.5 to get mutual funds
converted/encashed and the amount was to be deposited in a
fixed deposit account of a nationalized bank.  The said order was
modified by this Court by a detailed order dated 16.03.2021
passed in I.A. No.100812/2020 in C.A. Nos.5395­5398 of 2019,
the operative portion of which is extracted below:­
“10. Therefore,   we   modify   the   Interim
Order dated 27.08.2019 to the extent that the
Mutual   Fund   units   of   Respondent   No.5­
Applicant, kept with the Respondent No.1­ISSL,
be released in favour of the Respondent No.5­
Applicant by way of transfer of the said Mutual
Fund units and crediting the same in the demat
account of the Respondent No.5­Applicant.  This
is subject to the Applicant furnishing requisite
Bank   Guarantee   of   equivalent   value   as   the
Mutual Fund  units, to the  satisfaction  of  the
Trial   Court.     The   Respondent   No.5­Applicant
shall comply with this requirement within one
month   of   filing   of   application   for   release   of
Mutual Fund units (along with a copy of this
order) before the Trial Court.   The Trial Court
shall   also   dispose   of   such   application
expeditiously.    It  is   clarified  that   the   Interim
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Order   dated   27.08.2019   shall   continue   to
operate   as   it   was   as   against   the   other
parties/non­Applicants herein”
4. Another application, I.A. No.84110/2021, was filed
by   the   applicant/Respondent   No.5   and   this   Court   further
modified the earlier order on 21.09.2021, operative portion of
which reads as under:­
“That instead of bank guarantee for a sum of
Rs.344.07 crore,  which has been furnished by
applicant/Dalmia in terms of our order dated
16.03.2021,   the   applicant/Dalmia   shall   now
furnish a bank guarantee for a sum of Rs.100
crores and further it shall furnish a security to
the extent of Rs.300 crores of an unencumbered
asset, the value of which may be duly certified
by the Chartered Accountant­cum­Valuer, who
have no conflict of interest having regard to the
parties   involved   and   interest   in   the   subject
matter and may be any one of the following. 
1. PricewaterhouseCoopers Private Limited 
2. Ernst and Young 
3. KPMG 
The   bank   guarantee   already   furnished   by
the applicant/Dalmia to the extent of Rs.344.07
crores   shall   stand   discharged   on   the
applicant/Dalmia fulfilling the above conditions
to   the   satisfaction   of   the   Trial   Court.   The
applicant/Dalmia   shall   also   file   an   affidavit
before this Court to the extent that the asset,
which   is   being   furnished   as   security,   is   an
unencumbered property.”
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5.  The present application, I.A. No.6482 of 2022, has been
filed by the applicant/Respondent No.5 for a further modification
of the order dated 21.09.2021, the prayers of which read as
under:­
“a. Allow   the   present   Application
seeking modification of order dated 21.09.2021
passed by this Hon’ble Court in IA No.84110 of
2021; and/or
b. Modify the order dated 21.09.2021
passed by this Hon’ble Court in IA No.84110 of
2021   in   Civil   Appeal   No.5395   of   2019   and
direct the Chief Metropolitan Magistrate (East),
Karkardooma   Courts,   Delhi   to   return/release
the   original   Bank   Guarantee   No.
OGT0005210053201 dated 23.03.2021 of the
IndusInd   Bank   Limited   in   the   sum   of   INR
344.07   Crores,   furnished   by   Dalmia   Cement
(Bharat) Ltd./applicant pursuant to order dated
16.03.2021 passed  by this  Hon’ble Court, to
the Applicant on such terms and conditions as
may be deemed fit by this Hon’ble Court; and
c. Pass   such   other   order(s)   as   this
Hon’ble Court may deem fit.”
6. The submission of Shri Guru Krishna Kumar, learned
Senior Counsel appearing for applicant/Respondent No.5 is that
subsequent   to   the   passing   of   the   order   dated   21.09.2021,   a
supplementary   chargesheet   has   been   filed   by   the   Economic
Offences Wing   (hereinafter referred to as “EOW”), in which a
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clear   finding   against   the   ISSL/Respondent   No.1   and
Allied/Respondent No.4 has been recorded to the extent it has
been found that “after settlement of above trades by ISSL out of
the funds of Allied, the securities fraudulently pledged by Allied
became   free   from   collateral   and   ought   to   have   been   rightfully
returned to its original/rightful owner i.e. Complainant and ISSL
cannot have any claim of any nature over the said securities”
(Complainant was the applicant/Respondent No.5).
7. It has been further contended that the Serious Fraud
Investigation Office (for short ‘SFIO’) reported prima facie finding
that   the   buying   and   selling   of   illiquid   contracts   was   a   preplanned   synchronized   activity   wherein   the   exchange   platform
was used to camouflage a financial transaction.   As such, the
SFIO   has   also   recorded   a   clear   finding   that   the   ISSL   has
fraudulently   allowed   movement   of   collaterals.     It   has   been
submitted that although the matter is still under investigation
but prima facie view of EOW and SFIO are both clearly against
the   ISSL/Respondent   No.1   and   Allied   Financial   Services   Pvt.
Ltd./Respondent   No.4.     It   is   contended   that   the
applicant/Respondent No.5 is incurring huge expenses/costs by
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furnishing bank guarantee and the alternative provided by order
dated 21.09.2021 to furnish bank guarantee for a sum of Rs.100
Crores and further to furnish security to the extent of Rs.300
Crores of unencumbered asset is inequitable and unreasonable
in the facts and circumstances of the case, as admittedly the
securities/mutual   funds   belong   to   the   applicant/Respondent
No.5,   who   should   be   given  superdari  of   the   same   without
imposing any such conditions.  
8. Shri   K.V.   Viswanathan   and   Shri   Sidharth   Luthra,
learned Senior Counsel appearing for the Respondent No.1 have
vehemently opposed the prayer for any further modification of
the order dated 21.09.2021.     They have submitted that the
conditions   imposed   in   the   order   dated   21.09.2021   are   fully
justified.  It is contended by them that though the EOW has on
09.11.2021   filed   a   supplementary   chargesheet   against
Respondents No.1 and 4 but the fulcrum of this chargesheet is
the order of the SEBI dated 02.07.2021, which was passed prior
to 21.09.2021.   It is contended that though observations have
been made in the SFIO report, the same are not final as the
matter is still under investigation.  
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9. Shri Pratap Venugopal, learned counsel appearing for the
SEBI and Shri Sandeep Bisht, learned counsel appearing for
Respondent   No.4/Allied   and   Shri   Rishi   K.   Awasthi,   learned
counsel appearing for the retail investors have also opposed this
prayer   for   any   further   modification   of   the   order   dated
21.09.2021.
10. We have heard learned counsel for the parties at length
and   perused   the   record.     In   our   view,   the   subsequent
supplementary chargesheet submitted by the EOW, and relied
upon by the learned counsel for the petitioner, ought not to be
ignored while considering this matter.  In its earlier orders, this
Court has clearly found that the securities need to be released in
favour of the applicant/Respondent No.5.  The only question is
with regard to the mode and manner of the securities to be
furnished by the applicant/Respondent No.5.  It is not disputed
that the petitioner has, in terms of the order dated 16.03.2021,
complied   with   the   condition   of   furnishing   bank   guarantee   of
Rs.344.07 Crores.
11. In   paragraph   20   of   this   application   filed   by   the
applicant/Respondent No.5, it is stated that the applicant is a
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public limited company, having sound financials with a strong
balance­sheet   and   other   financial   statements   (assets   of   INR
18,556 Crores and turnover of INR 8,779 Crores during financial
year 2020­21).  The same is not denied by the other parties who
have filed their respective replies to this application.  
12. Keeping in view the aforesaid facts and circumstances,
we are of the opinion that the operative part of the order dated
21.09.2021 deserves to be modified and, accordingly, the same is
modified to the extent that instead of bank guarantee for a sum
of   Rs.344.07   Crores,   which   has   been   furnished   by
applicant/Respondent No.5, in terms of order dated 16.03.2021,
the   applicant/Respondent   No.5   shall   now   furnish     bank
guarantee for a sum of Rs.100 Crores and it shall further furnish
a corporate guarantee to the extent of Rs.300 Crores.  The bank
guarantee earlier furnished by the applicant/Respondent No.5 to
the extent of Rs.344.07 Crores shall stand discharged on the
applicant/Respondent No.5 fulfilling the above condition to the
satisfaction of the Trial Court concerned.  
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13. It is again clarified that any observation made in this
order shall not affect the merit of the case and the appeals will be
heard on merit. 
14. With the aforesaid directions, the I.A. No.6482 of 2022 is
disposed of.                                                                        
………..………………………………..J
  (VINEET SARAN)
………..………………………………..J
                     (J.K. MAHESHWARI)
New Delhi
April 11, 2022.

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