Telangana High Court
Animish Pradip Raje vs Securities And Exchange Board Of ... on 25 August, 2021
Bench: Hima Kohli, B.Vijaysen Reddy
THE HON'BLE THE CHIEF JUSTICE HIMA KOHLI
AND
THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
+ WRIT PETITION No.7972 of 2021
% Date: 25.08.2021
# Animish Pradip Raje
... Petitioner
vs.
$ Securities and Exchange Board of India, SEBI Bhavan,
Plot No.C-4A, G Block, Bandra-Kurla Complex, Bandra (East),
Mumbai - 400051,
and another.
... Respondents
! Counsel for the Petitioner : Mr. S. Ravi
(Senior Advocate)
For Sri Yogesh Kumar Heroor.
^ Counsel for respondents : Mr. Datar Aravind
(Senior Advocate)
For
Mr. S. Dwarakanath
Mr. Nanduri Siram
Ms.Rishika Harish
< GIST:
> HEAD NOTE:
? CASES REFERRED:
1. (1994) 4 SCC 711
2. (2000) 7 SCC 640
3. (2002) 1 SCC 567
4. (2004) 6 SCC 254
5. (2006) 6 SCC 207
6. (2014) 9 SCC 329
7. (2007) 11 SCC 335
8. (2007) 6 SCC 769
9. ILR (2011) VI DELHI 729
10. [1924] 1 KB 256 = [1923] All ER Rep 233
11. (1967) 2 QB 617
12. (1967) 2 QB 864
13. (1969) 2 SCC 262
14. (1990) 2 SCC 48
15. (2008) 14 SCC 151
16. AIR 1957 SC 425
THE HON'BLE THE CHIEF JUSTICE HIMA KOHLI
AND
THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
WRIT PETITION No.7972 of 2021
ORDER: (Per the Hon'ble the Chief Justice Hima Kohli)
1. The present petition has been filed challenging the order
dated 20.10.2020, passed by the respondent No.1/Securities and
Exchange Board of India (SEBI), appointing Grant Thornton
Bharat LLP (for short, 'GTB') as a Forensic Auditor in respect of
the financial statements of the respondent No.2/company for the
Financial Years 2018-19 and 2019-20 on the ground of conflict of
interest and violation of the principles of natural justice.
2. The facts of the case leading to filing of the writ petition are
as follows:-
(a) The writ petitioner is a resident of Hyderabad and a
minority shareholder of the respondent No.2/company, holding 790
equity shares in D-MAT form, vide DP ID IN301151.
(b) Respondent No.2 is a Public Limited Company listed
on the Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE) having a paid-up share capital of Rs.97,67,61,310
(Rupees ninety seven crores sixty seven lakh sixty one thousand
three hundred and ten only). The respondent No.2/company was
engaged in the business of procurement of milk, manufacturing of
milk products and distribution of the same and cattle feed. After
sale of its dairy business, the respondent No.2/company is in the
business of cattle feed and nutrition.
(c) The Board of Directors of the respondent
No.2/company decided to sell the shareholding of the company in
its subsidiary company, namely Sunfresh Agro Industries Private
Limited (SAIPL), to Tirumala Milk Products Private Limited
(TMPPL), which is a wholly owned subsidiary of French Dairy
Multinational Groupe Lactalis. A public disclosure dated
21.01.2019 was issued by the respondent No.2/company for
conducting the said sale and its shareholding to its sister concern.
(d) The respondent No.2/company entered into a Share
Price Agreement dated 21.01.2019 for the sale of the entire share
capital of SAIPL to TMPPL for a sale consideration of Rs.1,227
crores approximately. It also approved the sale and transfer of its
dairy product business to SAIPL, after completion of the transfer of
the shares of SAIPL to TMPPL, in terms of the Business Transfer
Agreement dated 21.01.2019, for a total consideration of Rs.473
crores approximately.
(e) On 25.03.2019, the respondent No.2/company made a
further public disclosure to the BSE and NSE informing them about
setting up of an escrow account to hold the proceeds of the
aforesaid sale and constitution of a five member 'Transaction
Committee' comprising three independent Directors and not more
than two other Directors in order to oversee, supervise and manage
utilisation of the net proceeds from the aforesaid sale transaction in
the escrow account held in trust for the shareholders. The said
Transaction Committee was to deliberate upon and evaluate various
options available for the distribution of the proceeds of the sale
transactions to the shareholders. Mr. Anoop Krishna, an
independent Director, appointed in the company on 30.07.2018 was
one of the members of the aforesaid Transaction Committee
constituted by the respondent No.2/company.
(f) The respondent No.2/company held an Extraordinary
General Meeting (EGM) of its shareholders for approval of the
aforesaid sale transactions whereby it informed the shareholders
that from out of Rs.1700 crores that was likely to be received as
proceeds of the sale transaction, Rs.1000-1200 crores (approx) may
be available for distribution to them. Around 92% of the
shareholders of the respondent No.2/company were present and
voted in favour of the resolution of the sale transaction. On
11.04.2019, the respondent No.2/company announced that the sale
transactions had culminated and executed. This was informed to the
Stock Exchanges on 11.04.2019.
(g) On 04.09.2019, the promoters of the respondent
No.2/company, namely Mr. Sarangdhar Ramchandra Nirmal and
Mr. Vivek Sarangdhar Nirmal (cumulatively holding around
50.10% of the total shareholding of the company), addressed letters
to the respondent No.2/company expressing their intention to
acquire 4,87,40,547 shares (i.e., 49.90% of the paid up equity share
capital) held by the public shareholders of the respondent
No.2/company and voluntarily delist the equity shares of the
respondent No.2/company from the BSE and the NSE. Thus, a
delisting offer was made by them, giving an exit opportunity to the
shareholders. In the meeting of the Board of Directors of the
respondent No.2/company held on 10.09.2019, the delisting
proposal was deliberated upon and a resolution was passed for
appointment of a Private Limited Company to perform the
necessary due diligence for the delisting proposal. The floor price
of Rs.63.77 per share was set by the Board of Directors for
voluntary delisting of the shares. The resolution of the Board of
Directors for voluntary delisting was duly approved by the
shareholders on 16.10.2019.
(h) Based on some news/information, the respondent
No.1/SEBI sought the comments of BSE and NSE on the details of
the distribution of the proceeds deposited by the respondent
No.2/company in the escrow account, the proposed floor price and
the delisting offer price of the respondent No.2/company and its
plans to ensure that a fair exit price is given to the minority
shareholders. At the end of November, 2019, dissatisfied with the
response received from the respondent No.2/company, the
respondent No.1/SEBI advised the stock exchanges to conduct an
independent critical analysis of the issues based on the disclosures
made by the respondent No.2/company. In the month of December,
2019 and January, 2020, BSE and NSE submitted reports where
certain issues were raised with regard to the sale transaction and
both the exchanges stated that they would not go ahead with the
delisting process of the respondent No.2/company without
obtaining express permission from the respondent No.1/SEBI. As a
result, the entire delisting process was brought to a grinding halt.
(i) The petitioner has further averred in the writ petition
that on 23.07.2020, he became aware of the public disclosure made
by the respondent No.2/company wherein it had stated that the
respondent No.1/SEBI had appointed GTB as a forensic auditor to
conduct forensic audit of the company in respect of the financial
years ending on March, 2019 and March, 2020. Following were the
terms of reference for the audit assignment of GTB, recorded by the
respondent No.1/SEBI in its order dated 20.10.2020:-
"a. Manipulation of books of accounts;
b. Misrepresentation including of financial
and/or business operations;
c. Wrongful diversion/siphoning of company
funds by Promoters/Directors/Key Managerial
Personnel;
d. Scrutiny of Business Transfer and Share
Purchase Agreements;
e. Various disclosure requirements and its
compliances;
f. Utilization of funds received out of sale
proceeds;
g. Payment made to advisors and their
appropriateness;
h. Provision in relation to indemnity obligation,
tax liability and their appropriateness;
i. Any other references communicated from time
to time during the course of the audit."
(j) After receiving the news of appointment of GTB as a
forensic auditor of the respondent No.2/company, the petitioner
came across information that one Mr. Anoop Krishna who was
deeply connected with the respondent No.2/company prior to his
engagement with a sister concern of GTB, namely GT
Restructuring Services LLP, was a member of the Board of
Directors of the respondent No.2/company. He was also appointed
as a Chairman of the Audit Committee of the respondent
No.2/company till 11.11.2019. Further, he was a Member of the
Transaction Committee constituted by the respondent
No.2/company to oversee and manage the funds received upon
completion of the sale transaction of SAIPL to TMPPL. Vide letter
dated 21.11.2019, the resignation of Mr. Anoop Krishna was
communicated by the respondent No.2/company vide its public
disclosure at BSE and NSE.
(k) Stating that Mr. Anoop Krishna had been at the helm
of affairs of the respondent No.2/company and was closely
connected to its management and even to the promoters of the
respondent No.2/company during the entire period of execution and
the sale of SAIPL to TMPPL and the period during which a
decision had been taken place to delist the respondent
No.2/company, the writ petitioner raises a grievance about the
existence of a bias and conflict of interest of GTB, appointed by the
respondent No.1/SEBI to act as a forensic auditor in respect of the
respondent No.2/company, when one of its own directors is a close
affiliate who is presently engaged with GT Restructuring Services
LLP, a sister concern of GTB.
3. On receiving a letter dated 27.09.2020 from the respondent
No.2/company regarding the non-independence of GTB as a
forensic auditor, respondent No.1/SEBI sought comments from
GTB on the issues raised in respect of Mr. Anoop Krishna. Vide
letter dated 30.09.2020, GTB gave a response and based thereon the
respondent No.1/SEBI addressed a letter dated 27.10.2020 to the
respondent No.2/company stating inter alia that there was no
conflict of interest on the independence of GTB as a forensic
auditor. The clarification offered by the GTB has been extracted in
para 26 of the impugned order dated 20.10.2020, passed by the
respondent No.1/SEBI and reads as follows:-
"i. In a professional services firm constituted as
partnerships, a director/senior advisor is a fairly
junior position and should not be construed to have
same level of authority or responsibility as a director
has in a company registered under the Companies Act,
2013. Such responsibility and authority in respect of a
partnership firm rest with the "designated partners"
under the provisions of the Limited Liability
Partnership Act, 2008 and the other partners at the
Firm;
ii. Anoop Krishna is an independent
consultant/contractor who is on a part-time retainer
basis with GT Restructuring Services LLP who has
been assigned the designation of "Director/Senior
Advisor". Anoop Krishna is not an employee, partner
or a designated partner under the provisions of the
Limited Liability Partnership Act, 2008 in GT
Restructuring Services LLP.
iii. Anoop Krishna is also not an employee,
partner or a designated partner under the provisions
of the Limited Liability Partnership Act, 2008 in
GTBL. He is not and never has been in the chain of
command of GTBL or GT Restructuring Services LLP
or any business unit of either entity or of any entity
that uses "Grant Thornton" or GT in its name. He is
neither a leader of any business unit of these entities to
which various service lines report. Anoop Krishna was
formerly an Independent Director of PDL and ceased
to be a Director of that Company well before GT was
appointed to undertake the forensic audit. Therefore,
Mr. Anoop Krishna is in no position either in terms of
authority or responsibility to influence the engagement
for Prabhat Dairy Limited carried out by the Forensic
Team of GTBL.
iv. In addition to the above and in continuation
to our response dated 11 September, 2020, we
reiterate that there are strict "Ethical dividers" within
the Firm which ensures that there is no impact on the
independence, legal, regulatory, professional and
contractual obligations of the Firm or on the services
provided to its clients. The ethical dividers and
processes include:
a. Completely separate teams for the forensic
engagement and other engagements.
b. No sharing of client's information or data
between the different functions.
c. No communications between members of the
different functions on details of the engagements or on
relevant matters related to the engagements.
d. Specific undertakings from team members
confirming their awareness of the requirements and
acknowledging their contractual obligation to comply.
e. Appropriate and adequate monitoring of
compliance.
v. Thus, having regard to the above stated
safeguards in place, our assessment of this matter is
that there is no actual or potential threat (including
the Self Review threat and Familiarity threat) to our
independence or objectivity in the forensics audit of
Prabhat Dairy Limited."
4. The respondent No.2/company challenged the order dated
20.10.2020 passed by the respondent No.1/SEBI before the
Securities Appellate Tribunal (SAT) which was quashed and set
aside vide order dated 09.11.2020. The review application filed by
the respondent No.1/SEBI, for seeking review of the aforesaid
order was dismissed on 09.02.20201. During the pendency of the
review application, the respondent No.1/SEBI passed an order
directing BSE and NSE not to proceed with the delisting process of
the respondent No.2/company and simultaneously, granted an
extension of six months to the special resolution passed for
delisting, i.e., till 13.04.2021.
5. On 09.03.2021, the petitioner addressed an e-mail to the
respondent No.1/SEBI expressing an apprehension of breach of the
rules of professional ethics, conflict of interest and bias in the
appointment of GTB as a forensic auditor of the respondent
No.2/company and requested for a fair and independent audit. Vide
e-mail dated 09.03.2021, the respondent No.1/SEBI directed the
petitioner to file a complaint on its 'SCORES PLATFORM'. It was
also mentioned that the said reply was an auto-generated one,
addressed by the Investor Assistance and Education Cell of the
respondent No.1/SEBI, which is extracted below:-
"Dear Sir/Madam,
This is with reference to the trailing mail.
Please lodge your complaint on SEBI Complaint
Redress System (SCORES) at
https://www.scores.gov.in or SCORES Mobile App
which is available on both Apple App Store and
Google Play Store.
Please note that as per circular No.SEBI/HO/
OIAE/IGRD/CIR/P/2018/58 dated March 26, 2018
investors who wish to lodge a complaint are required
to register themselves on SCORES before lodging the
complaint against a listed company, a SEBI
registered intermediary or a SEBI recognised Market
Infrastructure Institution. While registering the
complaints, mandatory details like name of the
investors, PAN, contact details, email id are to be
provided for registration.
SCORES aids in tracking the status of the complaints
anytime by the investor while also providing them
notifications from time to time with respect to their
complaints. Complaints lodged on SCORES Portal or
SCORES Mobile App help in keeping proper audit
trail of the complaint which is essential for future
references. In view of the same, complaints sent
through e-mails shall not be processed.
For any help in lodging complaint on SCORES or with
respect to your complaints you can contact the SEBI
Toll Free Help Line Number 1800 266 7575 or 1800
22 7575.
Please note this is an auto-generated e-mail and may
not be replied to.
With regards,
Office of Investor Assistance and Education
SEBI"
(emphasis added)
6. The petitioner replied to the above e-mail dated 09.03.2021,
on 19.03.2021, stating inter alia that his grievance is against the
respondent No.1/SEBI and not against the respondent
No.2/company or any Market Infrastructure Institution which
would require him to file a complaint on the 'SCORES
PLATFORM'. When the respondent No.1/SEBI did not deal with
the issues flagged by the petitioner, he filed the present petition on
23.03.2021.
7. Advancing arguments on behalf of the petitioner,
Mr. S.Ravi, learned Senior Counsel has urged that appointment of
GTB as a forensic auditor by the respondent No.1/SEBI has been
without any application of mind, in complete disregard of the rules
against bias and in contravention of the principles of professional
ethics and rules regarding conflict of interest; that the said order
violates the rights of the petitioner as a minority shareholder of the
respondent No.2/company and the forensic audit process adopted in
respect of the respondent No.2/company is liable to be tainted due
to the affiliation of Mr. Anoop Krishna with GTB; that even though
some shareholders of the respondent No.2/company had expressed
an apprehension about the possibility of bias against the GTB on
account of the affiliation of Mr. Anoop Krishna with its sister
concern i.e. GT Restructuring Services LLP, the respondent
No.1/SEBI has blindly accepted the reply received from GTB
without applying its own mind on the aspect of clash of interest as
pointed out; that it was not as if the petitioner was seeking
appointment of a particular forensic auditor in respect of the
respondent No.2/company, his request was only for appointment of
any forensic auditor on the panel of the respondent No.1/SEBI to
exclude any chance of bias or conflict of interest; that the presence
of Mr. Anoop Krishna who is affiliated with the sister concern of
GTB and has a close connection with the respondent No.2/company
as its Director, as a Member of its Audit Committee and
Transaction Committee are aspects that highlight the conflict for
interest of appointment of GTB as a forensic auditor of the
respondent No.2/company, but have been completely ignored by
the respondent No.1/SEBI.
8. It was further argued that when the terms of reference of
GTB as conveyed by the respondent No.1/SEBI itself shows that
the Promoters/Directors/Company Managerial Personnel of the
respondent No.2/company are suspected of wrongful
diversion/siphoning of company funds, respondent No.1/SEBI
ought to have blocked any attempt to influence/meddle with the
forensic audit by appointing an independent forensic auditor; that
this would have served the basic principles of natural justice,
namely nemo judex in sua causa; that the very fact that Mr. Anoop
Krishna was a member of the Audit Committee of the respondent
No.2/company and had an active role in overseeing, reviewing and
approving the internal audit system, internal control systems and
financial reporting system relating to the sale of the dairy division
of the respondent No.2/company to its subsequent delisting process
and subsequently, on account of the individual working as a
Director in the sister concern of the GTB, namely GT Restructuring
Services LLP, there is a serious apprehension that he will adversely
affect the interest of the minority shareholders and influence the
forensic audit in favour of the respondent No.2/company, thus
vitiating the entire audit process.
9. A counter affidavit in opposition of the writ petition has been
filed by the respondent No.1/SEBI. In its counter affidavit, the
respondent No.1/SEBI has justified its stand of continuing with the
appointment of GTB as a forensic auditor in respect of the
respondent No.2/company for which it has relied on the e-mail
dated 30.09.2020, received from the GTB, clarifying the role of
Mr. Anoop Krishna. Based on the response of GTB, it has been
stated that Mr. Anoop Krishna is not in a position of authority or
responsibility to influence the engagement of GTB as a forensic
auditor of the respondent No.2/company and that there are strict
"ethical dividers within the firm that ensures that there is no impact
on the independence on the contractual obligations of GTB on the
services provided to its clients". It has further been stated on behalf
of the respondent No.1/SEBI that after examination of the
complaint regarding the allegations of conflict of interest, it was
concluded that there was no such conflict of interest in the matter.
10. Mr. Arvind Datar, learned Senior Advocate appearing for the
respondent No.1/SEBI has argued that the writ petition is liable to
be dismissed on the ground that no cause of action has arisen within
the jurisdiction of this court, in as much as the registered office of
the respondent No.1/SEBI is in Mumbai and the registered office of
the respondent No.2/company is at Ahmednagar and the forensic
auditor, GTB is also based in Maharashtra. He submitted that GTB
ought to have been impleaded as a co-respondent in the present
proceedings and its non-joinder is fatal to the writ petition; that the
appointment of GTB as a forensic auditor by the respondent
No.1/SEBI was after due diligence and the objections against the
appointment of GTB were duly taken into account before passing
the order dated 20.10.2020.
11. On the impugned decision of the respondent No.1/SEBI,
dated 20.10.2020, learned Senior Advocate submitted that though
the respondent No.2/company had questioned the appointment of
GTB on the ground of lack of impartiality and conflict of interest,
such a ground was specifically given up before SAT. The
respondent No.2/company had agreed that it will cooperate and
provide all necessary papers, as demanded by the forensic auditor.
He contended that the SAT in its order dated 09.11.2020, had
clarified that the forensic report has no relationship with the
delisting approval of the respondent No.2/company and its order
was confined to the scope of the forensic audit in respect of the sale
transactions and distribution of the tax liability, indemnity and
transaction cost. Aggrieved by the said order, the respondent
No.1/SEBI had preferred an appeal before the Supreme Court,
primarily pleading that the forensic audit of the respondent
No.2/company must be completed before the delisting process
could be permitted. However, vide order dated 07.04.2001, passed
in Civil Appeals No.1009-1010 of 2021, the Supreme Court had
declined to interfere with the order of the SAT and had clarified
that the forensic audit shall be conducted in respect of the nine
terms of reference. It was thus urged that the Supreme Court did not
interfere with the appointment of the forensic auditor and had
restored the terms of reference formulated by the respondent
No.1/SEBI which would show that GTB's appointment as a
forensic auditor had also been recognised and not disturbed.
Learned counsel further submitted that if the Supreme Court's order
is read in the context of the observations made in the order dated
09.11.2020 passed by the SAT, it would show that the order would
be in respect of nine terms of reference and the GTB would
continue as a forensic auditor of the respondent No.2/company.
12. It was next contended by learned counsel for the respondent
No.1/SEBI that the petitioner's conduct is suspect, as he had been
tracking the affairs of the respondent No.2/company since January,
2019 but did not make any complaint to SEBI till 09.03.2021. Even
when he was requested to file a complaint in the prescribed format
in "SCORES" (an online complaint filing system of SEBI), he did
not follow the said procedure; that he has suppressed the fact that
his registered address with NSDL is in Pune and his KYC was in
Ahmednagar. Despite that, he has filed the present petition in this
court on a plea that he had shifted his work place and residence to
Hyderabad, State of Telangana, which cannot be a ground for
creating a jurisdiction in this court. Lastly, it was canvassed that no
rights of the petitioner have been violated. He has only 790 shares
of the respondent No.2/company that has over 20,000 shareholders
and his only right as a shareholder are the right to dividend, right to
participate in the surplus funds during winding up of the company
and right to vote at an AGM/EGM. It was submitted that no
shareholder can have a right to question the appointment of an
investigator appointed by a statutory body and the only person who
can raise such a grievance is the concerned company itself.
13. A counter affidavit has also been filed by the respondent
No.2/company, wherein it has been admitted that the company did
set up an escrow account in order to hold the consideration
proceeds of the sale transaction and it had set up a Transaction
Committee on 13.02.2019, which included Mr. Anoop Krishna as a
member. The said Transaction Committee was entrusted with the
role and function to oversee, supervise and manage the utilization
of the net proceeds from the sale transactions as held in the escrow
account, for being distributed among its shareholders. It has been
stated that the proposed delisting of the respondent No.2/company
has been completed and its shares were to be delisted on
25.04.2021 and that as per the records of the respondent
No.2/company, the petitioner did not offer his shares in the exit
offer that was provided by company. Referring to the order dated
09.11.2020, passed by the SAT, it has been averred that the SAT
has delinked the forensic audit and the voluntary delisting of the
respondent No.2/company. In paragraph 16 of the counter affidavit,
it has been stated that Mr. Anoop Krishna was appointed as an
Additional Independent Director on the Board of Directors of the
respondent No.2/company on 30.07.2018 and the said appointment
was regularised in the AGM of the respondent No.2/company held
on 22.09.2018; that he was also made Chairman of the Audit
Committee of the Board and had remained on the said Board till
11.11.2019, when he resigned; while remaining an Independent
Director of the respondent No.2/company Mr. Anoop Krishna was
a part of the Transaction Committee of the Board, formed for
overseeing and supervising the transaction of sale of shares of
SAIPL by the respondent No.2/company and Cheese Land Agro
Private Limited to TMPPL and the transfer of business from the
respondent No.2/company and Cheese Land Agro Private Limited
to SAIPL.
14. The respondent No.2/company has also averred that it had
received complaints through e-mails from the shareholders
regarding non-independence of GTB and its unsuitability, which
were forwarded to the respondent No.1/SEBI for its perusal on
28.11.2020; that the respondent No.2/company had also sought
expert legal advice from a former Judicial Member of SAT and had
forwarded the same to the respondent No.1/SEBI, wherein, it was
opined that in view of the presence of Mr. Anoop Krishna on the
Board of the Group of GTB, it would be appropriate if the forensic
audit is conducted by any other audit firm of equal stature.
15. Ms. Rishika Harish, learned counsel for the respondent
No.2/company submitted that the company is a public limited listed
company and it is amenable to the jurisdiction of the respondent
No.1/SEBI and is honouring the directions issued regarding
delisting and the forensic audit and that the company has no role to
play in the appointment of GTB as a forensic auditor. It was
clarified that learned Senior Counsel appearing for the respondent
No.1/SEBI had stated that in the appeal preferred by the respondent
No.2/company before the SAT, a plea was taken in ground (s)
questioning the appointment of GTB, but the company elected not
to challenge the order passed by the SEBI holding that GTB ought
to continue as a forensic auditor before the appellate forum.
16. In his rejoinder arguments, Mr. S.Ravi, learned Senior
Advocate clarified that the petitioner has been residing in
Hyderabad since the year 2019 and is residing at the address given
in the Memo of Parties and that he had executed a rent agreement in
respect of the flat taken by him on lease. He is working as a Project
Engineering Consultant to a company situated in Hyderabad and he
had purchased the shares of the respondent No.2/company on
10.10.2020, after shifting to Hyderabad; that the respondent
No.1/SEBI has a local office in Hyderabad and simply because its
registered office is situated in Mumbai would not mean that no part
of cause of action has arisen in Hyderabad, for filing the petition in
this court, more so when the e-mail was sent by the petitioner from
Hyderabad and was lodged at the Centralised e-mail address of the
respondent No.1/SEBI. It was urged that the petitioner is a minority
shareholder of the respondent No.2/company and has not tendered
his shares in the delisting offer and therefore, his locus standi to file
the present petition and pursue the same within the State of
Telangana, cannot be questioned. Referring to clause (1) of Article
226 of the Constitution of India, learned Senior Advocate submitted
that this court is empowered to issue directions and passed orders in
respect of any Government authority or person in relation to the
territories within which the cause of action has arisen, wholly or in
part, notwithstanding that the seat of Government/authority is not
within those territories, as prescribed in clause (2) of Article 226.
17. On the aspect of non-joinder of necessary parties, it was
submitted that the petitioner has challenged the decision of
respondent No.1/SEBI to continue GTB as a forensic auditor of the
respondent No.2/company and therefore, it is for the SEBI to
defend the said decision. The submission made on behalf of the
respondent No.1/SEBI that the order dated 07.04.2021 passed by
the Supreme Court refusing to interfere with the order of the SAT,
which had set aside orders dated 20.10.2020 and 23.12.2020,
passed by the respondent No.1/SEBI, ought to be treated as an
order approving the appointment of GTB as a forensic auditor was
vehemently disputed and it was canvassed that this could not be a
ground to dismiss the writ petition since the issue raised before the
Supreme Court was on the scope of the forensic audit, as
determined by the respondent No.1/SEBI. The aspect of any bias on
the part of the forensic auditor appointed by the respondent
No.1/SEBI, was not raised before the Supreme Court at all.
Therefore, even the concept of constructive res judicata would not
come into play in the instant case. In fact, the point of
independence of GTB was neither urged before the SAT or before
the Supreme Court.
18. On the objection taken by the respondent No.2/company that
the appointment of GTB on 13.07.2020, was a statutory
appointment, it was urged on behalf of the petitioner that the
appointment order does not refer to any provision under which the
GTB was appointed as a forensic auditor and therefore, it cannot be
treated as a quasi judicial order for the petitioner to have preferred
an appeal before the statutory authority, namely SAT. Learned
Senior Advocate asserted that no grievance could have been
registered by the petitioner against the acts of the respondent
No.1/SEBI, on the SCORES platform which would be apparent
from a perusal of FAQs published by the respondent No.1/SEBI in
respect of complaints that are lodged on the SCORES platform.
Lastly, it was contended that the petitioner being a minority
shareholder of the respondent No.2/company, is well entitled to
approach this court with a grievance that the respondent No.1/SEBI
is not acting in the interest of the minority shareholders and
investors of the respondent No.2/company and is insisting that GTB
ought to continue as a forensic auditor to look into the affairs of the
respondent No.2/company, when it has been clearly brought out
that the integrity of the forensic audit would be compromised and
the interest of the investor/shareholder of the respondent
No.2/company, which the respondent No.1/SEBI is under a
mandate to protect, will be adversely affected due to the same.
Learned Senior Advocate concluded by submitting that the
respondent No.1/SEBI has itself admitted that it has a panel of nine
forensic auditors and the petitioner has not requested for any
particular forensic auditor to be appointed in respect of the
respondent No.2/company. His only grievance is that continuation
of GTB as a forensic auditor would not result in a free and fair
scrutiny of the books of accounts, to the detriment of the minority
shareholders.
19. We have perused the records and given our careful
consideration to the arguments advanced by learned counsel for
parties.
20. Coming first to the preliminary objections raised by
Mr. Datar, Senior Advocate appearing on behalf of the respondent
No.1/SEBI of absence of cause of action within the jurisdiction of
this Court for maintaining the present petition, there is plethora of
rulings by the Supreme Court and the High Courts on the said
aspect in the context of exercising powers under Article 226 of the
Constitution of India.
21. The expression "cause of action" has been defined in
Mulla's Code of Civil Procedure as follows:-
"12. Cause of action.-- The expression "cause
of action" has acquired a judicially settled meaning.
In the restricted sense, "cause of action" means the
circumstances forming the infraction of the right or the
immediate occasion for the action. In the wider sense,
it means the necessary conditions for the maintenance
of the suit, including not only the infraction of the
right, but the infraction coupled with the right itself.
Compendiously the expression means every fact by
which it would be necessary for the plaintiff to prove,
if traversed, in order to support his right to the
judgment of the court."
22. In Halsbury's Laws of England (4th Edn.), it has been stated
that ""Cause of action" has been defined as meaning simply a
factual situation the existence of which entitles one person to obtain
from the court a remedy against another person. The phrase has
been held from earliest time to include every fact which is material
to be proved to entitle the plaintiff to succeed, and every fact which
a defendant would have a right to traverse. "Cause of action" has
also been taken to mean that particular act on the part of the
defendant which gives the plaintiff his cause of complaint, or the
subject-matter of grievance founding the action, not merely the
technical cause of action."
23. As can be seen from the above, "cause of action" is a bundle
of facts which when taken together, with the law applicable to the
said facts, gives a right to the plaintiff to seek relief against the
defendant. In other words, cause of action is premised on the
existence of a group of facts put together that would entitle a
plaintiff to approach the court for a remedy against the defendant.
24. In ONGC v. Utpal Kumar Basu, reported as (1994) 4 SCC
711, referring to the ambit of Clauses (1) and (2) of Article 226 of
the Constitution of India, a three-Judge Bench of the Supreme
Court held thus:-
"5. Clause (1) of Article 226 begins with a non
obstante clause -- notwithstanding anything in Article
32 -- and provides that every High Court shall have
power "throughout the territories in relation to which
it exercises jurisdiction", to issue to any person or
authority, including in appropriate cases, any
Government, "within those territories" directions,
orders or writs, for the enforcement of any of the
rights conferred by Part III or for any other purpose.
Under clause (2) of Article 226 the High Court may
exercise its power conferred by clause (1) if the cause
of action, wholly or in part, had arisen within the
territory over which it exercises jurisdiction,
notwithstanding that the seat of such Government or
authority or the residence of such person is not within
those territories. On a plain reading of the aforesaid
two clauses of Article 226 of the Constitution it
becomes clear that a High Court can exercise the
power to issue directions, orders or writs for the
enforcement of any of the fundamental rights
conferred by Part III of the Constitution or for any
other purpose if the cause of action, wholly or in
part, had arisen within the territories in relation to
which it exercises jurisdiction, notwithstanding that
the seat of the Government or authority or the
residence of the person against whom the direction,
order or writ is issued is not within the said
territories. In order to confer jurisdiction on the High
Court of Calcutta, NICCO must show that at least a
part of the cause of action had arisen within the
territorial jurisdiction of that Court. That is at best its
case in the writ petition.
6. It is well settled that the expression "cause of
action" means that bundle of facts which the
petitioner must prove, if traversed, to entitle him to a
judgment in his favour by the Court. In Chand
Kour v. Partab Singh [ILR (1889) 16 Cal 98, 102 : 15
IA 156] Lord Watson said:
"... the cause of action has no relation
whatever to the defence which may be set up by
the defendant, nor does it depend upon the
character of the relief prayed for by the
plaintiff. It refers entirely to the ground set
forth in the plaint as the cause of action, or, in
other words, to the media upon which the
plaintiff asks the Court to arrive at a
conclusion in his favour."
Therefore, in determining the objection of
lack of territorial jurisdiction the court must
take all the facts pleaded in support of the
cause of action into consideration albeit
without embarking upon an enquiry as to the
correctness or otherwise of the said facts. In
other words the question whether a High
Court has territorial jurisdiction to entertain
a writ petition must be answered on the basis
of the averments made in the petition, the
truth or otherwise whereof being immaterial.
To put it differently, the question of territorial
jurisdiction must be decided on the facts
pleaded in the petition. Therefore, the question
whether in the instant case the Calcutta High
Court had jurisdiction to entertain and decide
the writ petition in question even on the facts
alleged must depend upon whether the
averments made in paragraphs 5, 7, 18, 22, 26
and 43 are sufficient in law to establish that a
part of the cause of action had arisen within
the jurisdiction of the Calcutta High Court."
(emphasis added)
25. In Navinchandra N. Majithia v. State of Maharashtra,
reported as (2000) 7 SCC 640, keeping in mind the object of the
amendment to Article 226 of the Constitution of India, by virtue of
the Constitution (Forty-third Amendment) Act, 1977, the Supreme
Court made the following pertinent observations on the aspect of
exercise of territorial jurisdiction by a High Court under Article 226
(2) of the Constitution of India:-
"37. The object of the amendment by inserting
clause (2) in the article was to supersede the decision
of the Supreme Court in Election Commission v. Saka
Venkata Rao [Election Commission v. Saka Venkata
Rao, AIR 1953 SC 210] and to restore the view held
by the High Courts in the decisions [Ed. : The
reference is to K.S. Rashid Ahmed v. Income Tax
Investigation Commission, 1950 SCC OnLine P&H
58; M.K. Ranganathan v. Madras Electric Tramways
(1904) Ltd., 1952 SCC OnLine Mad 34; Aswini
Kumar Sinha v. CCE and Land Customs, 1951 SCC
OnLine Gau 53.] cited above. Thus the power
conferred on the High Courts under Article 226
could as well be exercised by any High Court
exercising jurisdiction in relation to the territories
within which 'the cause of action, wholly or in part,
arises' and it is no matter that the seat of the
authority concerned is outside the territorial limits of
the jurisdiction of that High Court. The amendment is
thus aimed at widening the width of the area for
reaching the writs issued by different High Courts."
(emphasis added)
26. In Union of India v. Adani Exports Limited, reported as
(2002) 1 SCC 567, it was held by the Supreme Court that in order
to confer jurisdiction on a High Court to entertain a writ petition,
the averments in the writ petition must disclose that such integral
facts have been pleaded in support of the cause of action that would
empower a court to decide the dispute and it is not as if each and
every fact pleaded in the petition would automatically lead to a
conclusion that there would arise a cause of action within the
territorial jurisdiction of a particular High Court, unless the facts
are of such a nature that they would have a nexus or relevance with
the lis involved in the case. In Kusum Ingots & Alloys Limited v.
Union of India, reported as (2004) 6 SCC 254, the Supreme Court
has observed that even if a small fraction of the cause of action has
accrued within the jurisdiction of a High Court, the said court will
have jurisdiction in the matter as long as there is a nexus between
the facts pleaded in the writ petition and the prayers sought.
27. In Om Prakash Srivastava v. Union of India, reported as
(2006) 6 SCC 207, the Supreme Court has observed in the same
vein that a plain reading of clause (2) of Article 226 of the
Constitution of India would make it clear that the High Court can
exercise its power to issue any direction, order or writ for the
enforcement of any fundamental right or for any other purpose if
the cause of action wholly or in part had arisen within the territorial
limits in relation to which the Court exercises jurisdiction,
regardless of the fact that the seat of the Government or authority or
the residence of the person against whom the direction/order/writ is
issued, does not fall within the territorial jurisdiction of the said
Court. We may usefully extract below; para 7 of the said ruling:-
"7. The question whether or not cause of
action wholly or in part for filing a writ petition has
arisen within the territorial limits of any High Court
has to be decided in the light of the nature and
character of the proceedings under Article 226 of the
Constitution. In order to maintain a writ petition, a
writ petitioner has to establish that a legal right
claimed by him has prima facie either been infringed
or is threatened to be infringed by the respondent
within the territorial limits of the Court's jurisdiction
and such infringement may take place by causing him
actual injury or threat thereof."
(emphasis added)
28. We may profitably refer to another decision of the Supreme
Court in Nawal Kishore Sharma v. Union of India, reported as
(2014) 9 SCC 329, wherein emphasis has been laid on the nature of
averments made in the writ petition for deciding the question of
cause of action as follows:-
"16. Regard being had to the discussion made
hereinabove, there cannot be any doubt that the
question whether or not cause of action wholly or in
part for filing a writ petition has arisen within the
territorial limit of any High Court has to be decided in
the light of the nature and character of the
proceedings under Article 226 of the Constitution. In
order to maintain a writ petition, the petitioner has to
establish that a legal right claimed by him has been
infringed by the respondents within the territorial
limit of the Court's jurisdiction."
(emphasis added)
29. In Alchemist Limited v. State Bank of Sikkim, reported as
(2007) 11 SCC 335, the Supreme Court referred to several earlier
rulings on the aspect of "cause of action" and held thus:-
"34. In Kusum Ingots & Alloys Ltd. v. Union of
India, (2004) 6 SCC 254 : JT (2004) Supp 1 SC 475,
the appellant was a Company registered under
the Companies Act having its head office at Mumbai.
It obtained a loan from the Bhopal Branch of the State
Bank of India. The Bank issued a notice for repayment
of loan from Bhopal under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002. The appellant Company
filed a writ petition in the High Court of Delhi which
was dismissed on the ground of lack of territorial
jurisdiction. The Company approached this Court and
contended that as the constitutionality of a
parliamentary legislation was questioned, the High
Court of Delhi had the requisite jurisdiction to
entertain the writ petition.
35. Negativing the contention and upholding the
order passed by the High Court, this Court ruled that
passing of a legislation by itself does not confer any
such right to file a writ petition in any Court unless a
cause of action arises therefor. The Court stated:
(Kusum Ingots case, SCC p. 261, para 20)
"20. A distinction between a legislation and
executive action should be borne in mind while
determining the said question".
Referring to ONGC v. Utpal Kumar Basu, (1994) 4
SCC 711 : JT (1994) 6 SC 1, it was held that all
necessary facts must form an "integral part" of the
cause of action. The fact which is neither material nor
essential nor integral part of the cause of action would
not constitute a part of cause of action within the
meaning of Clause (2) of Article 226 of the
Constitution.
36. In National Textile Corporation Ltd. V.
Haribox Swalram, (2004) 9 SCC 786 : JT (2004) 4 SC
508, referring to earlier cases, this Court stated that:
(SCC p. 797, para 12.1)
"12.1 ...the mere fact that the writ petitioner
carries on business at Calcutta or that the
reply to the correspondence made by it was
received at Calcutta is not an integral part of
the cause of action and, therefore, the
Calcutta High Court had no jurisdiction to
entertain the writ petition and the view to the
contrary taken by the Division Bench cannot
be sustained."
37. From the aforesaid discussion and keeping
in view the ratio laid down in a catena of decisions by
this Court, it is clear that for the purpose of deciding
whether facts averred by the appellant- petitioner
would or would not constitute a part of cause of
action, one has to consider whether such fact
constitutes a material, essential, or integral part of the
cause of action. It is no doubt true that even if a small
fraction of the cause of action arises within the
jurisdiction of the court, the court would have
territorial jurisdiction to entertain the suit/petition.
Nevertheless it must be a "part of cause of action",
nothing less than that."
(emphasis added)
30. In Ambika Industries v. Commissioner of Central Excise,
reported as (2007) 6 SCC 769, the Supreme Court has opined that
even if a small portion of cause of action arises in its jurisdiction,
the court will have jurisdiction over a matter. Para 40 of the
judgment states as follows:-
"40. Although in view of Section 141 of the Code of
Civil Procedure the provisions thereof would not apply
to writ proceedings, the phraseology used in Section
20(c) of the Code of Civil Procedure and Clause (2) of
Article 226, being in pari materia, the decisions of this
Court rendered on interpretation of Section 20(c) CPC
shall apply to the writ proceedings also. Before
proceeding to discuss the matter further it may be
pointed out that the entire bundle of facts pleaded need
not constitute a cause of action, as what is necessary
to be proved, before the petitioner can obtain a decree,
is material facts. The expression material facts is also
known as integral facts.
41. Keeping in view the expression "cause of
action" used in Clause (2) of Article 226 of the
Constitution of India, indisputably even if a small
fraction thereof accrues within the jurisdiction of the
Court, the Court will have jurisdiction in the matter
though the doctrine of forum conveniens may also
have to be considered."
(emphasis added)
31. In a five-Judge Bench decision of the Delhi High Court in
Sterling Agro Industries v. Union of India, reported as ILR (2011)
VI DELHI 729, speaking for the Bench, Justice Dipak Misra (as
His Lordship then was) has explained the concept of forum
conveniens, in relation to "cause of action" and made the following
pertinent observations:-
"31. The concept of forum conveniens
fundamentally means that it is obligatory on the part
of the court to see the convenience of all the parties
before it. The convenience in its ambit and sweep
would include the existence of more appropriate
forum, expenses involved, the law relating to the lis,
verification of certain facts which are necessitous for
just adjudication of the controversy and such other
ancillary aspects. The balance of convenience is also
to be taken note of. Be it noted, the Apex Court has
clearly stated in the cases of Kusum Ingots (supra),
Mosaraf Hossain Khan (supra) and Ambica Industries
(supra) about the applicability of the doctrine of forum
conveniens while opining that arising of a part of
cause of action would entitle the High Court to
entertain the writ petition as maintainable.
32. The principle of forum conveniens in its
ambit and sweep encapsulates the concept that a cause
of action arising within the jurisdiction of the Court
would not itself constitute to be the determining factor
compelling the Court to entertain the matter. While
exercising jurisdiction under Articles 226 and 227 of
the Constitution of India, the Court cannot be totally
oblivious of the concept of forum conveniens. The Full
Bench in New India Assurance Co. Ltd. (supra) has
not kept in view the concept of forum conveniens and
has expressed the view that if the appellate authority
who has passed the order is situated in Delhi, then the
Delhi High Court should be treated as the forum
conveniens. We are unable to subscribe to the said
view.
33. In view of the aforesaid analysis, we are
inclined to modify the findings and conclusions of the
Full Bench in New India Assurance Company Limited
(supra) and proceed to state our conclusions in
seriatim as follows:
(a) The finding recorded by the Full Bench
that the sole cause of action emerges at the
place or location where the tribunal/appellate
authority/revisional authority is situate and the
said High Court (i.e., Delhi High Court)
cannot decline to entertain the writ petition as
that would amount to failure of the duty of the
Court cannot be accepted inasmuch as such a
finding is totally based on the situs of the
tribunal/appellate authority/ revisional
authority totally ignoring the concept of forum
conveniens.
(b) Even if a miniscule part of cause of
action arises within the jurisdiction of this
court, a writ petition would be maintainable
before this Court, however, the cause of action
has to be understood as per the ratio laid down
in the case of Alchemist Ltd. (supra).
(c) An order of the appellate authority
constitutes a part of cause of action to make
the writ petition maintainable in the High
Court within whose jurisdiction the appellate
authority is situated. Yet, the same may not be
the singular factor to compel the High Court to
decide the matter on merits. The High Court
may refuse to exercise its discretionary
jurisdiction by invoking the doctrine of forum
conveniens.
(d) The conclusion that where the appellate
or revisional authority is located constitutes
the place of forum conveniens as stated in
absolute terms by the Full Bench is not correct
as it will vary from case to case and depend
upon the lis in question.
(e) The finding that the court may refuse to
exercise jurisdiction under Article 226 if only
the jurisdiction is invoked in a malafide
manner is too restricted / constricted as the
exercise of power under Article 226 being
discretionary cannot be limited or restricted to
the ground of malafide alone.
(f) While entertaining a writ petition, the
doctrine of forum conveniens and the nature of
cause of action are required to be scrutinized
by the High Court depending upon the factual
matrix of each case in view of what has been
stated in Ambica Industries (supra) and Adani
Exports Ltd. (supra).
(g) The conclusion of the earlier decision of
the Full Bench in New India Assurance
Company Limited (supra) "that since the
original order merges into the appellate order,
the place where the appellate authority is
located is also forum conveniens" is not
correct.
(h) Any decision of this Court contrary to
the conclusions enumerated hereinabove
stands overruled."
32. On an understanding of the aforesaid rulings, there is no
manner of doubt that the question as to whether cause of action has
arisen wholly or in part, within the territorial limits of a High Court
where a writ petition has been filed, would have to be decided
keeping in view the nature and the characteristics of the
proceedings filed. Even a fraction of a cause of action having
arisen in the territorial jurisdiction of the court will vest jurisdiction
on it. But that should be integral to the relief prayed for in the
petition and not some extraneous or irrelevant averment, that has no
nexus with the remedy sought against the respondent. While
examining an objection taken on lack of cause of action, the court
must also be mindful of the principles of forum conveniens.
33. We may now proceed to apply the aforesaid law to the facts
of the instant case. The relevant averments made by the petitioner
to approach this High Court for relief are that he is residing and
working for gain in Hyderabad, Telangana from the year 2019; that
subsequent to his shifting his residence to Hyderabad, he had
purchased the shares of the respondent No.2/company in October,
2020; that the respondent No.1/SEBI has a local office in Banjara
Hills, Hyderabad and further, that as a shareholder of the
respondent No.2/company he had sent e-mails dated 09.03.2021
and 19.03.2021 from Hyderabad to the centralized e-mail address
of the respondent No.1/SEBI. The petitioner has also averred that
he has not offered his shares in response to the delisting offer made
by the promoters for buying back the shares of the respondent
No.2/company. Instead, he has raised a grievance on the
competence and the objectivity of GTB to conduct a forensic audit
of the respondent No.2/company on the directions of the respondent
No.1/SEBI, which has not been addressed by the latter, compelling
him to file the present writ petition.
34. On examining the aforesaid bundle of facts, it cannot be
stated that not even a small fraction of the cause of action has arisen
within the jurisdiction of this Court to entertain the writ petition,
only because the registered office of the respondent No.1/SEBI and
that of the respondent No.2/company is situated within the State of
Maharashtra and therefore, they are outside the territorial limits of
the jurisdiction of this Court. In our opinion this cannot be a ground
to non-suit the petitioner/minority shareholder. Such an approach
would run contrary to the object of the amendment to Article 226 of
the Constitution of India by inserting clause (2), the underlying aim
whereof was to widen the scope of jurisdiction of the High Courts
to enable the courts to address the grievance of a petitioner against
a particular act of the respondent, that would have given him a
cause to complaint, notwithstanding the place where the
respondents are situated. The facts pleaded in the writ petition have
a direct nexus to the relief prayed for and therefore, the preliminary
objection raised by the respondent No.1/SEBI regarding lack of
cause of action for filing the writ petition in this court, is turned
down as devoid of merits. The principle of forum conveniens is also
in favour of the petitioner who being a minority shareholder, cannot
be expected to approach the High Court at Mumbai for relief
merely because the registered offices of the respondents are situated
in the State of Maharashtra. Even otherwise, no hardship has been
caused to the respondents as they are not expected to produce any
records for the perusal of the court, causing any inconvenience.
The petition is being decided on the basis of the pleadings and
arguments advanced by learned counsel.
35. The next objection taken by the respondent No.1/SEBI
regarding non-joinder of GTB as a necessary party in the present
proceedings would have been persuasive, had the clarification
given by GTB not been extracted in the impugned order dated
20.10.2020 passed by the respondent No.1/SEBI. Having the
benefit of the explanation offered by GTB to the respondent
No.1/SEBI, this court is only required to examine the reasons that
have weighed with the respondent No.1/SEBI for continuing with
GTB as the forensic auditor of the respondent No.2/company,
despite objections raised by other shareholders, as extracted in para
24 of the same order.
36. Before we proceed to deal with the objections taken by the
petitioner against continuation of GTB as a forensic auditor of the
respondent No.2/company, it is apposite to examine the concept of
principles of natural justice, as developed in our jurisprudence over
the years, initially by drawing strength from the celebrated
decisions of King's Bench Division in the King v. Sussex Justices,
ex parte McCarthy, reported as [1924] 1 KB 256 = [1923] All ER
Rep 233 and Queen's Division Bench in In re H.K. (an infant),
reported as (1967) 2 QB 617, and in Baging v. Criminal Injuries
Compensation Board Ex-parte Latin, reported as (1967) 2 QB 864
and thereafter, on the Supreme Court building the edifice of Rule of
Law, brick by brick and case by case.
37. In the landmark case of A.K.Kraipak v. Union of India,
reported as (1969) 2 SCC 262, a Constitution Bench of the
Supreme Court has expounded on the scope of exercise of quasi
judicial powers vis-à-vis administrative powers and application of
the principles of natural justice to such an exercise of power for
ensuring a just and fair decision and held as follows:-
"13. The dividing line between an
administrative power and a quasi-judicial power is
quite thin and is being gradually obliterated. For
determining whether a power is an administrative
power or a quasi-judicial power one has to look to the
nature of the power conferred, the person or persons
on whom it is conferred, the framework of the law
conferring that power, the consequences ensuing
from the exercise of that power and the manner in
which that power is expected to be exercised. Under
our Constitution the rule of law pervades over the
entire field of administration. Every organ of the
State under our Constitution is regulated and
controlled by the rule of law. In a welfare State like
ours it is inevitable that the jurisdiction of the
administrative bodies is increasing at a rapid rate. The
concept of rule of law would lose its vitality if the
instrumentalities of the State are not charged with the
duty of discharging their functions in a fair and just
manner. The requirement of acting judicially in
essence is nothing but a requirement to act justly and
fairly and not arbitrarily or capriciously. The
procedures which are considered inherent in the
exercise of a judicial power are merely those which
facilitate if not ensure a just and fair decision. In
recent years the concept of quasi-judicial power has
been undergoing a radical change. What was
considered as an administrative power some years
back is now being considered as a quasi-judicial
power. The following observations of Lord Parker
C.J., in Regina v. Criminal Injuries Compensation
Board Ex parte Lain [(1967) 2 QB 864 at p. 881] are
instructive.
"With regard to Mr Bridge's second point I
cannot think that Atkin L.J., intended to
confine his principle to cases in which the
determination affected rights in the sense of
enforceable rights. Indeed, in the Electricity
Commissioners case the rights determined
were at any rate not immediately enforceable
rights since the scheme laid down by the
commissioners had to be approved by the
Minister of Transport and by resolutions of
Parliament. The Commissioners nevertheless
were held amenable to the jurisdiction of this
court. Moreover, as can be seen
from Rex v. Postmaster-General Ex parte
Carmichael [(1928) 1 KB 291] and Rex v.
Boycott Ex parte Kesslay [(1939) 2 KB 651]
the remedy is available even though the
decision is merely a step as a result of which
legally enforceable rights may be affected.
The position as I see it is that the exact
limits of the ancient remedy by way of
certiorari have never been and ought not to be
specifically defined. They have varied from
time to time being extended to meet changing
conditions. At one time the writ only went to an
inferior court, later its ambit was extended to
statutory tribunals determining a lis inter
partes. Later again it extended to cases where
there was no lis in the strict sense of the word
but where immediate or subsequent rights of a
citizen were affected. The only constant limits
throughout were that it was performing a
public duty. Private or domestic tribunals have
always been outside the scope of certiorari
since their authority is derived solely from
contract, that is, from the agreement of the
parties concerned.
Finally, it is to be observed that the remedy
has now been extended, See Reg. v.
Manchester Legal Aid Committee, Ex parte
R.A. Brand & Co. Ltd. [(1952) 2 QB 413] to
cases in which the decision of an
administrative officer is only arrived at after
an inquiry or process of a judicial or quasi-
judicial character. In such a case this court
has jurisdiction to supervise that process.
We have as it seems to me, reached the
position when the ambit of certiorari can be
said to cover every case in which a body of
persons of a public as opposed to a purely
private or domestic character has to determine
matters affecting subjects provided always that
it has a duty to act judicially. Looked at in this
way the board in my judgment comes fairly
and squarely, within the jurisdiction of this
court. It is, as Mr Bridge said, 'a servant of the
Crown charged by the Crown, by executive
instruction, with the duty of distributing the
bounty of the Crown.' It is clearly, therefore,
performing public duties".
14. The Court of Appeal of New Zealand has
held that the power to make a zoning order under
Dairy Factory Supply Regulation, 1936, has to be
exercised judicially, see New Zealand and Dairy
Board v. Okita Co-operative Dairy Co. Ltd. [(1953)
New Zealand Law Reports, p. 366] This Court
in Purtabpore Co. Ltd. v. Cane Commissioner of
Bihar [Civil Appeal No. 1464 of 1968, decided on
21-11-1968] held that the power to alter the area
reserved under the Sugarcane (Control) Order, 1966,
is a quasi-judicial power. With the increase of the
power of the administrative bodies it has become
necessary to provide guidelines for the just exercise
of their power. To prevent the abuse of that power
and to see that it does not become a new despotism,
courts are gradually evolving the principles to be
observed while exercising such powers. In matters
like these, public good is not advanced by a rigid
adherence to precedents. New problems call for new
solutions. It is neither possible nor desirable to fix the
limits of a quasi-judicial power. But for the purpose of
the present case we shall assume that the power
exercised by the selection board was an administrative
power and test the validity of the impugned selections
on that basis."
(emphasis added)
38. Applying the above principles to the case on hand, it can be
seen that the allegation of the petitioner is not of real bias, but the
possibility of bias on the part of GTB qua the forensic audit that it
has been directed to conduct in respect of the financial statements
of the respondent No.2/company. The grievance raised is about a
reasonable likelihood of bias and acceptance of a reasonable ground
for believing that GTB would be likely to be biased, while
conducting the forensic audit of the respondent No.2/company. In
the above background, the court is required to test the
reasonableness of the decision of the respondent No.1/SEBI of
continuing with GTB as the forensic auditor.
39. In Management of M/s. M.S.Nally Bharat Engineering
Company Limited v. State of Bihar, reported as (1990) 2 SCC 48,
the point that came up for consideration before the Supreme Court
was whether the Government ought to have afforded an opportunity
of hearing to the appellant/company therein before accepting the
representation of the respondent/workmen, transferring a labour
dispute raised by them from the Labour Court, Dhanbad to the
Labour Court, Patna and the validity of the reasons given by the
Government for passing such an order. Highlighting the concept of
rule of law which requires the authorities vested with judicial or
administrative functions to discharge their duty in a fair and just
manner, the Supreme Court has made the following pertinent
observations:-
"12. After the leading English case
of Ridge v. Baldwin [1964 AC 40 : (1963) 2 All ER
66] and an equally important case of this Court in A.K.
Kraipak v. Union of India [(1969) 2 SCC 262 : (1970)
1 SCR 457] there was a turning point in the
development of doctrine of natural justice as
applicable to administrative bodies. Both the
authorities laid down that for application of rules of
natural justice the classification of functions as
'judicial' or 'administrative' is not necessary. Lord
Reid in Ridge case [1964 AC 40 : (1963) 2 All ER 66]
explained: 'that the duty to act judicially may arise
from the very nature of the function intended to be
performed and it need not be shown to be superadded'.
Hegde, J., in Kraipak case [(1969) 2 SCC 262 : (1970)
1 SCR 457] said that under our Constitution the rule
of law pervades over the entire field of administration.
Every organ of the State under our Constitution is
regulated and controlled by the rule of law. The
concept of rule of law would lose its vitality if the
instrumentalities of the State are not charged with
the duty of discharging their functions in a fair and
just manner. The requirement of acting judicially in
essence is nothing but a requirement to act justly and
fairly and not arbitrarily or capriciously. The
procedures which are considered inherent in the
exercise of a judicial power are merely those which
facilitate if not ensure a just and fair decision.
13. What is thus important in the modern
administration is the fairness of procedure with
elimination of element of arbitrariness. The State
functionaries must act fairly and reasonably. That is,
however, not the same thing to state that they must act
judicially or quasi-judicially. In Keshav Mills Co.
Ltd. v. Union of India [(1973) 1 SCC 380 : (1973) 3
SCR 22] Mukherjea, J. said (SCC p. 387, para 8: SCR
p. 30)
"The administrative authority concerned
should act fairly, impartially and reasonably.
Where administrative officers are concerned,
the duty is not so much to act judicially as to
act fairly."
14. The procedural standards which are implied
by the duty to act fairly has been explained by Lord
Pearson in Pearlberg v. Varty [(1972) 1 WLR 534,
547 : (1972) 2 All ELR 6] :
"A tribunal to whom judicial or quasi-
judicial functions are entrusted is held to be
required to apply those principles (i.e. the
rules of natural justice) in performing those
functions unless there is a provisions to the
contrary. But where some person or body is
entrusted by Parliament with administrative or
executive functions there is no presumption
that compliance with the principles of natural
justice is required although, as 'Parliament is
not to be presumed to act unfairly', the courts
may be able in suitable cases (perhaps always)
to imply an obligation to act with fairness."
15. In Mohinder Singh Gill v. Chief Election
Commissioner [(1978) 1 SCC 405, 434 : (1978) 2
SCR 272] Krishna Iyer, J. commented that natural
justice though varying is the soul of the rule as fair
play in action. It extends to both the fields of judicial
and administrative. The administrative power in a
democratic set up is not allergic to fairness in action
and discretionary executive justice cannot degenerate
into unilateral injustice. Good administration demands
fair play in action and this simple desideratum is the
fount of natural justice. Fairness is flexible and it is
intended for improving the quality of government by
injecting fair play into its wheels.
16. In Maneka Gandhi v. Union of India [(1978)
1 SCC 248 : (1978) 2 SCR 621] Bhagwati, J.,
expressed similar thought that audi alteram partem is
a highly effective rule devised by the courts to ensure
that a statutory authority arrives at a just decision and
it is calculated to act as a healthy check on the abuse
or misuse of power.
17. In Swadeshi Cotton Mills v. Union of
India [(1981) 1 SCC 664 : (1981) 2 SCR 533]
Sarkaria, J., speaking for himself and Desai, J., said
that irrespective of whether the power conferred on a
statutory body or tribunal is administrative or quasi-
judicial, a duty to act fairly, that is, in consonance
with the fundamental principles of substantive justice
is generally implied. The presumption is that in a
democractic polity wedded to the rule of law, the State
or the legislature does not intend that in the exercise of
their statutory powers its functionaries should act
unfairly or unjustly. In the same case, Chinnappa
Reddy, J., added (at p. 212) that the principles of
natural justice are now considered so fundamental as
to be 'implicit in the concept of ordered liberty'. They
are, therefore, implicit in every decision making
function, call it judicial, quasi-judicial or
administrative. The learned Judge went on to state
that where the statute is silent about the observance of
the principles of natural justice, such statutory silence
is taken to imply compliance with the principles of
natural justice. The implication of natural justice
being presumptive, it should be followed by the
authorities unless it is excluded by express words of
statute or by necessary implication.
18. Citations could be multiplied since there is
fairly abundant case law which has come into
existence : See, for example, E.P. Royappa v. State of
Tamil Nadu [(1974) 4 SCC 3: 1974 SCC (L&S) 165:
(1974) 2 SCR 348] and Union of India v. Tulsiram
Patel [(1985) 3 SCC 398 : 1985 SCC (L&S) 672 :
1985 Supp 2 SCR 131] . More recently in a significant
judgment in Charan Lal Sahu v. Union of
India [(1990) 1 SCC 613: (1989) 4 JT 582] learned
Chief Justice Sabyasachi Mukharji has referred to
almost all the authorities of this Court on this aspect
and emphasized that the principles of natural justice
are fundamental in the constitutional set up of this
country. No man or no man's right should be affected
without an opportunity to ventilate his views. Justice is
a psychological yearning, in which men seek
acceptance of their viewpoint by having an
opportunity before the forum or the authority enjoined
or obliged to take a decision affecting their right.
19. It may be noted that the terms 'fairness of
procedure', 'fair play in action', 'duty to act fairly'
are perhaps used as alternatives to "natural justice"
without drawing any distinction. But Prof. Paul
Jackson points out that 'Such phrases may sometimes
be used to refer not to the obligation to observe the
principles of natural justice but, on the contrary, to
refer to a standard of behaviour which, increasingly,
the courts require to be followed even in
circumstances where the duty to observe natural
justice is inapplicable" ("Natural Justice" by Paul
Jackson, 2nd edn., p. 11).
20. We share the view expressed by Professor
Jackson. Fairness, in our opinion, is a fundamental
principle of good administration. It is a rule to ensure
the vast power in the modern State is not abused but
properly exercised. The State power is used for proper
and not for improper purposes. The authority is not
misguided by extraneous or irrelevant considerations.
Fairness is also a principle to ensure that statutory
authority arrives at a just decision either in promoting
the interest or affecting the rights of persons. To use
the time hallowed phrase "that justice should not
only be done but be seen to be done" is the essence of
fairness equally applicable to administrative
authorities. Fairness is thus a prime test for proper
and good administration. It has no set form or
procedure. It depends upon the facts of each case. As
Lord Pearson said in Pearlberg v. Varty [(1972) 1
WLR 534, 547 : (1972) 2 All ELR 6] (at p. 547),
fairness does not necessarily require a plurality of
hearings or representations and counter-
representations. Indeed, it cannot have too much
elaboration of procedure since wheels of
administration must move quickly."
40. It can thus be seen that the oft quote expression that "Justice
must not only be done, but seen to be done" is deeply engrained in
the discharge of duties by authorities, whether administrative or
quasi-judicial in nature. The question that would engage a court is
not as much whether it is a case of actual injustice caused to a
party, but whether there is a chance of possible injustice which
ought to be ruled out. The fact that principles of natural justice have
not been observed would itself be a ground for interference
notwithstanding whether the aggrieved party could independently
produce proof of prejudice that may have been caused to him.
41. On the same lines, is the decision of the Supreme Court in
Sahara India (Firm) v. Commissioner of Income Tax, reported as
(2008) 14 SCC 151, where dealing with a case of special audit of
the accounts of the appellant/assessee, a plea was raised that before
any direction could be issued under Section 142 (2-A) of the
Income Tax Act, it was necessary to afford an opportunity of
hearing to the appellant, the Supreme Court answered the said
question in the affirmative by reading the concept of natural justice
into the special provision and holding thus:-
"4. Before dealing with the rival submissions to
determine whether the principles of natural justice
demand that an opportunity of hearing should be
afforded to an assessee before an order under Section
142(2-A) of the Act is made, we may appreciate the
concept of "natural justice" and the principles
governing its application.
15. Rules of "natural justice" are not embodied
rules. The phrase "natural justice" is also not
capable of a precise definition. The underlying
principle of natural justice, evolved under the
common law, is to check arbitrary exercise of power
by the State or its functionaries. Therefore, the
principle implies a duty to act fairly i.e. fair play in
action. As observed by this Court in A.K.
Kraipak v. Union of India [(1969) 2 SCC 262] the
aim of rules of natural justice is to secure justice or
to put it negatively to prevent miscarriage of justice.
These rules can operate only in areas not covered by
any law validly made. They do not supplant law but
supplement it. (Also see ITO v. Madnani Engg. Works
Ltd [(1979) 2 SCC 455 : 1979 SCC (Tax) 140] ).
16. x x x
17. Initially, it was the general view that the rules
of natural justice would apply only to judicial or
quasi-judicial proceedings and not to an
administrative action. However, in State of Orissa
v. Dr. Binapani Dei [AIR 1967 SC 1269 : (1967) 2
SCR 625] the distinction between quasi-judicial and
administrative decisions was perceptively mitigated
and it was held that even an administrative order or
decision in matters involving civil consequences, has
to be made consistent with the rules of natural
justice. Since then the concept of natural justice has
made great strides and is invariably read into
administrative actions involving civil consequences,
unless the statute, conferring power, excludes its
application by express language.
18. Recently, in Canara Bank v. V.K. Awasthy
[(2005) 6 SCC 321 : 2005 SCC (L&S) 833] the
concept, scope, history of development and
significance of principles of natural justice have been
discussed in extenso, with reference to earlier cases on
the subject. Inter alia, observing that the principles of
natural justice are those rules which have been laid
down by the courts as being the minimum protection
of the rights of the individual against the arbitrary
procedure that may be adopted by a judicial, quasi-
judicial and administrative authority while making
an order affecting those rights, the Court said: (SCC
pp. 331-32, para 14)
"14. Concept of natural justice has
undergone a great deal of change in recent
years. Rules of natural justice are not rules
embodied always expressly in a statute or in
rules framed thereunder. They may be implied
from the nature of the duty to be performed
under a statute. What particular rule of natural
justice should be implied and what its context
should be in a given case must depend to a
great extent on the fact and circumstances of
that case, the framework of the statute under
which the enquiry is held. The old distinction
between a judicial act and an administrative
act has withered away. Even an
administrative order which involves civil
consequences must be consistent with the
rules of natural justice. The expression 'civil
consequences' encompasses infraction of not
merely property or personal rights but of civil
liberties, material deprivations and non-
pecuniary damages. In its wide umbrella
comes everything that affects a citizen in his
civil life."
42. In paragraphs 19, 20 and 21 of the aforesaid decision, the
Supreme Court has concluded that no general rule of universal
application of the principles of "audi alteram partem" can be laid
down and each case would have to be examined on its own facts
and observed as follows:-
"19. Thus, it is trite that unless a statutory
provision either specifically or by necessary
implication excludes the application of principles of
natural justice, because in that event the court would
not ignore the legislative mandate, the requirement of
giving reasonable opportunity of being heard before
an order is made, is generally read into the provisions
of a statute, particularly when the order has adverse
civil consequences for the party affected. The principle
will hold good irrespective of whether the power
conferred on a statutory body or tribunal is
administrative or quasi-judicial.
20. We may, however, hasten to add that no
general rule of universal application can be laid
down as to the applicability of the principle audi
alteram partem, in addition to the language of the
provision. Undoubtedly, there can be exceptions to the
said doctrine. Therefore, we refrain from giving an
exhaustive catalogue of the cases where the said
principle should be applied. The question whether the
principle has to be applied or not is to be considered
bearing in mind the express language and the basic
scheme of the provision conferring the power; the
nature of the power conferred and the purpose for
which the power is conferred and the final effect of
the exercise of that power. It is only upon a
consideration of all these matters that the question of
application of the said principle can be properly
determined. (See Union of India v. Col. J.N.
Sinha [(1970) 2 SCC 458] .)
21. In Mohinder Singh Gill v. Chief Election
Commr. [(1978) 1 SCC 405] explaining as to what is
meant by expression "civil consequence", Krishna
Iyer, J., speaking for the majority said: (SCC p. 440,
para 66)
"66. ... 'Civil consequences' undoubtedly
cover infraction of not merely property or
personal rights but of civil liberties, material
deprivations and non-pecuniary damages. In
its comprehensive connotation, everything
that affects a citizen in his civil life inflicts a
civil consequence."
(emphasis supplied)
43. On a conspectus of the case law cited above, what emerges
with clarity is that it is fundamental law that justice should not only
be done, but should be seem to be done and any circumstance
which creates a suspicion in the mind of a party that there is a
likelihood of interference with the due course of justice, ought to be
given weightage in the context of the civil consequences likely to
be suffered by a party on violation of such a rule, which may not
just affect the property or personal rights of the aggrieved party, or
result in pecuniary damages, but can also lead to other
consequences such as violation of the civil liberties of a citizen.
44. We may pause here to cite King v. Sussex (supra). The
relevant facts of the said case were that a collision had taken place
between a motor vehicle belonging to the appellant and one
belonging to W, resulting in summons being taken out by the police
against the applicant for rash and negligent driving. At the hearing
of the summons, the acting clerk of the Justices happened to be a
member of the firm of Solicitors who were acting for W in a claim
for damages filed by him against the applicant for injuries received
by him in the collision. After the evidence was concluded and the
Justices retired to the chambers to consider their decision, the
acting clerk retired with them, while taking along with him, the
notes of evidence, if so required and to advise them on any point of
law. Upon conferring with each other, the Justices returned to the
Court and declared that they had decided to convict the applicant.
At that stage, the applicant's solicitor mentioned to the court that
only after the hearing was over, was he apprised of the relationship
of the deputy clerk with one of the partners of the firm of solicitors
engaged by W, in the civil proceedings filed by him against the
applicant and raised an objection as to the sanctity of the judicial
process.
45. Although the Justices submitted an affidavit in the above
case, stating inter alia that the concerned Deputy Clerk was not
consulted after they had retired to confer with each other before
announcing an order of conviction against the applicant and they
were not biased by the presence of the Deputy Clerk in their
chambers during the course of conferring with each other, the
King's Bench Division quashed the applicant's conviction order on
the ground that it was improper for the acting clerk to have
remained present with the Justices when they were in consultation,
having regard to his relationship with the Solicitor firm. We may
usefully extract the following observations made in the captioned
decision at pages 258 and 259:-
"It is clear that the deputy clerk was a member
of the firm of solicitors engaged in the conduct of
proceedings for damages against the applicant in
respect of the same collision as that which gave rise to
the charge that the justices were considering. It is
said, and, no doubt, truly, that when that gentleman
retired in the usual way with the justices, taking with
him the notes of the evidence in case the justices might
desire to consult him, the justices came to a conclusion
without consulting him, and that he scrupulously
abstained from referring to the case in any way. But
while that is so, a long line of cases shows that it is
not merely of some importance but is of fundamental
importance that justice should not only be done, but
should manifestly and undoubtedly be seen to be
done. The question therefore is not whether in this
case the deputy clerk make any observation or
offered any criticism which he might not properly
have made or offered; the question is whether he was
so related to the case in its civil aspect as to be unfit
to act as clerk to the justices in the criminal matter.
The answer to that question depends not upon what
actually was done but upon what might appear to be
done. Nothing is to be done which creates even a
suspicion that there has been an improper
interference with the course of justice. Speaking for
myself, I accept the statements contained in the
justices' affidavit, but they show very clearly that the
deputy clerk was connected with the case in a capacity
which made it right that he should scrupulously
abstain from referring to the matter in any way,
although he retired with the justices; in other words,
his one position was such that he could not, if he had
been required to do so, discharge the duties which his
other position involved. His twofold position was a
manifest contradiction. In these circumstances, I am
satisfied that this conviction must be quashed, unless it
can be shown that the applicant or his solicitor was
aware of the point that might be taken, refrained from
taking it, and took his chance of an acquittal on the
facts, and then, on a conviction being recorded,
decided to take the point. On the facts, I am satisfied
that there has been no waiver of the irregularity, and,
that being so, the rule must be made absolute and the
conviction quashed."
(emphasis added)
46. In Manak Lal v. Dr. Prem Chand reported in AIR 1957 SC
425, where a committee was constituted to enquire into a complaint
leveled against an Advocate and the Chairman of the said
committee had once appeared as a counsel for the complainant, the
Supreme Court held that constitution of such a committee was bad
and observed as follows:-
"4. xxx
In such cases the test is not whether in fact a
bias has affected the judgment; the test always is and
must be whether a litigant could reasonably
apprehend that a bias attributable to a member of the
Tribunal might have operated against him in the final
decision of the Tribunal. It is in this sense that it is
often said that justice must not only be done but must
also appear to be done. As Viscount Cave, L.C. has
observed in Frome United Breweries Co. v. Bath
Justices [(1926) AC 586, 590] "This rule has been
asserted, not only in the case of Courts of Justice and
other judicial Tribunals, but in the case of authorities
which, though in no sense to be called Courts, have to
act as Judges of the rights of others". In dealing with
cases of bias attributed to members constituting
Tribunals, it is necessary to make a distinction between
pecuniary interest and prejudice so attributed. It is
obvious that pecuniary interest, however small it may
be in a subject-matter of the proceedings, would wholly
disqualify a member from acting as a Judge. But where
pecuniary interest is not attributed but instead a bias
is suggested, it often becomes necessary to consider
whether there is a reasonable ground for assuming
the possibility of a bias and whether it is likely to
produce in the minds of the litigant or the public at
large a reasonable doubt about the fairness of the
administration of justice. It would always be a
question of fact to be decided in each case. "The
principle", says Halsbury, "nemo debet esse judex in
causa propria sua precludes a justice, who is interested
in the subject-matter of a dispute, from acting as a
justice therein" [Halsbury's Laws of England, Vol 21,
p. 535, para 952] . In our opinion, there is and can be
on doubt about the validity of this principle and we are
prepared to assume that this principle applies not only
to the justices as mentioned by Halsbury but to all
Tribunals and bodies which are given jurisdiction to
determine judicially the rights of parties."
47. Now applying the aforesaid principles of natural justice
enunciated by courts to the facts of the instant case, it is not in
dispute that before he had joined GT Restructuring Services LLP., a
sister concern of GTB, Mr. Anoop Krishna was a member of the
Board of Directors of the respondent No.2/company. Not only that,
Mr. Anoop Krishna was appointed as a Chairman of the Audit
Committee of the respondent No.2/company and he remained in the
said position till 11.11.2019. He was also the Chairman of the
Transaction Committee constituted by the respondent No.2/
company to oversee and manage the funds received on completion
of the sale transaction of SAIPL (subsidiary company of the
respondent No.2/company) to TMPPL (subsidiary company of
French Groupe).
48. It is also not in dispute that the sale proceeds of the shares of
SAIPL to TMPPL, i.e., a sum of Rs.1000-1200 crores had been
placed in an escrow account held in trust for the shareholders and
the very same Transaction Committee was required to deliberate
upon and evaluate the various options available for distribution of
the monies to the shareholders. As noted above, Mr. Anoop Krishna
happened to be one of the members of the Transaction Committee
constituted by the respondent No.2/ company. During the very
same period, the two promoters of the respondent No.2/company
who cumulatively held 50.10% of its total shareholding, decided to
acquire the remaining 49.90% of the paid up equity capital held by
public shareholders and thereafter, voluntarily delist the equity
shares of the company from the BSE and NSE. It has not been
denied by the respondent No.2/company that during this entire
period when a decision was taken to delist the company and give an
exit option to the public shareholders by offering them a floor price
of Rs.63.77 ps per share, Mr. Anoop Krishna was closely connected
not only to the management, but also to the aforesaid promoters of
the respondent No.2/company.
49. Expressing an apprehension about the likelihood of a bias
creeping into forensic audit proposed to be undertaken by the GTB
in view of the prominent presence of Mr. Anoop Krishna as a
Member of the Board of Directors in the sister concern of GTB and
a probability of conflict of interest, the petitioner had addressed an
e-mail dated 09.03.2021 to the respondent No.1/SEBI, requesting
for appointment of any other fair and independent auditor. The said
e-mail was replied to by the respondent No.1/SEBI vide e-mail
dated 09.03.2021 which was nothing but an auto generated reply
fed into the software installed by the respondent No.1/SEBI simply
stating that if an investor proposed to lodge a complaint against a
listed company, a SEBI registered intermediary or a SEBI
recognized Market Infrastructure Institution, he ought to register
himself on the SEBI Complaint Redress System (SCORES). Even
though the petitioner had pointed out to the respondent No.1/SEBI
vide e-mail dated 19.03.2021, he had no intention of lodging a
complaint against any of the aforesaid entities and his grievance
was directed against the respondent No.1/SEBI itself, for having
decided to appoint GTB as a forensic auditor of the respondent
No.2/company, SEBI did not give any response. In this
background, it cannot be contended on behalf of the respondent
No.1/SEBI that the petitioner failed to seek appropriate legal
recourse and instead, has filed the present misconceived petition.
50. As for the contention of learned counsel for the respondent
No.1/SEBI that the petitioner ought to have approached the Court
for relief much earlier in time and the subsequent developments
that have taken place would in any case disentitle him to relief, it
cannot be ignored that an order was passed by the whole time
member of the respondent No.1/SEBI on 20.10.2020, which
records in para 17 that to ascertain the facts and circumstances
relating to the financial dealings of the respondent No.2/company,
SEBI had passed an order on 17.07.2020, appointing GTB as a
forensic auditor to examine the financial statements of the
respondent No.2/company for the years ending 31.03.2019 and
31.03.2020, along with an audit assignment containing nine terms
of reference. Para 24 of the said order refers to the e-mails dated
09.09.2020 and 27.09.2020 received by the respondent No.1/SEBI
from the shareholders of the respondent No.2/company, raising
similar grievances as raised by the petitioner herein. After
considering the reply/clarification dated 30.09.2020, submitted by
GTB in its letter dated 07.10.2020, the respondent No.1/SEBI
turned down the objection of there being a conflict of interest on
the independence of the forensic auditor and declined the request
made for a change of the forensic auditor. The petitioner having
filed the present petition within six months from October, 2020, it
cannot be stated that the same is highly belated.
51. On merits too, a perusal of the order dated 20.10.2020
reveals that it is bereft of any reasons for ratifying the decision
taken by the respondent No.1/SEBI on 07.10.2020 and for negating
the plea of the shareholders of the respondent No.2/company that
there exists a conflict of interest on the independence of the
forensic auditor due to the presence of Mr. Anoop Krishna on the
Board of the sister concern of GTB. The said order has simply
extracted the grievance raised in para 24 and in para 26, the
clarification offered by GTB vide reply dated 30.09.2020. This is
followed by a reference made to the decision taken by the
respondent No.1/SEBI to continue with the very same forensic
auditor and the matter was closed there. The above is no more than
a narration of the sequence of events. There is no discussion on the
conflict of interest and no demonstrable application of mind on the
part of the whole time member of the respondent No.1/ SEBI for
rejecting the request for a change of the forensic auditor.
52. We may note here that if application of mind for rejecting the
objection relating to the objectivity of GTB to act as a forensic
auditor of the respondent No.2/company could be deduced from a
bare reading of the impugned order, then notwithstanding the
objection taken by the petitioner herein that the respondent
No.1/SEBI had declined to examine his objection to their
appointment, we would have perhaps declined to interfere for the
simple reason that the objections received by the respondent
No.2/company from its shareholders on the conflict of interest qua
GTB and placed before the respondent No.1/SEBI were akin in
nature and having been taken into consideration and ruled upon,
there would have been no good reason to delve into the matter all
over again. However, in view of the complete absence of
application of mind and silence on the reasoning offered by the
respondent No.1/SEBI for upholding the decision dated 07.10.2020
to continue with GTB as a forensic auditor, we are afraid, we are
not persuaded by the submission made on behalf of the respondent
No.1/SEBI that the order of appointment of GTB as a forensic
auditor, ought not to be disturbed or modified.
53. It is also a matter of record that aggrieved by the order dated
20.10.2020, the respondent No.2/company had preferred an appeal
before the SAT, Mumbai which was allowed vide order dated
09.11.2020. It is noteworthy that though the respondent
No.2/company did raise a grievance about the independence of
GTB to act as its forensic auditor in Ground (s) of the appeal
grounds, it did not press the said objection. After dismissal of the
review application filed by the respondent No.1/SEBI against the
order of SAT, SEBI had preferred an appeal before the Supreme
Court which was dismissed vide order dated 07.04.2021 in the
following terms:-
"In the peculiar facts and circumstances of these
cases, we are not inclined to interfere with the order
passed by the Securities Appellate Tribunal. We clarify
that the forensic audit shall be conducted in respect of
the nine terms of reference at para 17 of page 81 of the
paper book."
54. The submission made on behalf of the respondent No.1/SEBI
that the order dated 07.04.2021 passed by the Supreme Court ought
to be treated as binding on all the parties including the petitioner
herein not only in relation to continuation of the forensic audit but
also in respect of the appointment of GTB as a forensic auditor, is
wholly devoid of merits as the Supreme Court was not even called
upon to examine the issue of objectivity and impartiality of GTB to
act as a forensic auditor in respect of the financial affairs of the
respondent No.2/company. No such plea was taken by any of the
parties before the Supreme Court for it to have ruled either ways.
55. The question that needs to be examined is whether GTB,
tasked with the role of a financial auditor, should be above
suspicion, like Caesar's wife? This is where the principle of Nemo
judex in causa sua, the rule against bias comes into play. There are
several types of bias, including pecuniary bias, subject matter bias,
Departmental bias, Institutional bias, preconceived notion bias etc.
The underlying principle is maintaining objectivity in dealing with
or deciding a matter. There can be no gainsaying the fact that an
auditor, being a professional person/entity has to function with
complete impartially and independently. A shadow cast on the
independence of a financial audit, need not necessarily be backed
with any specific instance of bias or mala fides. The looming cloud
of doubt itself would be a persuasive factor for interference. As
observed by the Supreme Court in Management of M/s. M.S.Nally
Bharat Engineering Company Limited (supra), non-observance of
natural justice would itself cause prejudice to a person and
independent proof of prejudice, is unnecessary. Due to the blurring
of lines between an administrative order and a semi-judicial order,
the decision of the respondent No.1/SEBI to appoint GTB as a
forensic auditor of the respondent No.2/company would attract the
doctrine of natural justice, requiring the authority to act in a just
and fair manner. Acceptance by the respondent No.1/SEBI of the
clarification offered by GTB on the aspect of bias, without offering
any reasons for the same and continuing with GTB would, in our
opinion, fall foul of the principles of natural justice. As noted
above, the objection taken by the petitioner is not to an active role
of Mr. Anoop Krishna in the financial audit to be conducted by
GTB. The objection is to his very presence in the sister concern of
GTB and the existence of an element of doubt as to the impartiality
of GTB, which may result in improper interference, thereby
vitiating the audit itself. The test is whether a shareholder of the
respondent No.2/company could harbour a reasonable apprehension
of bias attributable to the financial auditor and not whether the bias
would actually affect the result of the audit.
56. The submission made by learned counsel for the respondent
No.1/SEBI that the rights of a minority shareholder are very limited
and include only right the right to dividend, right to participate in
the surplus funds during winding up of the company and right to
vote at an AGM/EGM, cannot cut any ice when the respondent
No.1/SEBI has itself enumerated in the FAQs and guidelines
uploaded on its website, several rights that are vested in a
shareholder which include the right to receive an offer, in case of a
takeover or a buyback under the SEBI Regulations. In the instant
case, the respondent No.1/SEBI has itself taken note of the
complaints received against the promoters of the respondent
No.2/company alleging inter alia that they were trying to hoodwink
the investors, by voluntarily deciding to delist from BSE and NSE
and offering a pittance as the exit price, i.e., Rs.63.77 ps. per share,
which was otherwise listed in the stock market at Rs.113/- in
January, 2021 and was discounted at 20% vis-à-vis the earlier day's
closing price. The allegations that are being examined by the
respondent No.1/SEBI also relate to whether the exit price fixed by
the promoters of the respondent No.2/company for buying back
shares from the public shareholders has been depressed to cause
them pecuniary loss.
57. Given the above background, we find merit in the submission
made on behalf of the petitioner that what is involved in the present
case is not the interest of the petitioner alone. The interest of all the
minority shareholders/investors is involved and the issue of lack of
confidence in GTB for undertaking the financial audit of the
respondent No.2/company ought to be examined from the above
perspective.
58. In view of the aforesaid discussion, we are unable to sustain
the order dated 20.10.2020 passed by the respondent No.1/SEBI
insofar as it has upheld the decision taken on 07.10.2020, of
appointing GTB as a forensic auditor in respect of the financial
affairs of the respondent No.2/company which is accordingly
quashed and set aside. Respondent No.1/SEBI is directed to
appoint any other auditor from its panel for conducting the forensic
audit of the respondent No.2/company, as per the terms of reference
drawn by it. We may note here that the financial audit was stayed
vide order dated 22.04.2021. At that stage, GTB was in the process
of calling for documents from the respondent No.2/company. Steps
had yet to be taken to examine the said documents, which are stated
to be fairly voluminous in nature. Therefore, no undue hardship or
delay is likely to be caused if any other auditor is appointed by the
respondent No.1/SEBI to audit the accounts of the respondent
No.2/company, for the audit assignment. The newly appointed
auditor shall pick up threads from the point at which it was left by
GTB and complete the audit assignment, in accordance with the
terms of the reference. The writ petition is allowed. There shall
however, be no order as to costs.
_________________
HIMA KOHLI, CJ
______________________
B. VIJAYSEN REDDY, J
25.08.2021
Note: LR copy be marked.
(By order)
Pln
