Bombay High Court stays order to register FIR against ex-SEBI chief Madhabi Buch, others

The Bombay High Court on Tuesday stayed a special court order to register a first information report (FIR) against against former Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch and other SEBI and Bombay Stock Exchange (BSE) officials in connection with a listing fraud case. .Single-judge Justice SG Dige granted relief after Buch and two others moved the Court challenging the order.The High Court prima facie observed that the special court order was passed mechanically without going into the details or attributing any role to Buch and others."Complainant seeks time to file reply. After hearing all the parties, it appears that judge has passed order mechanically without going to details and without attributing any role to the applicants. Hence, order is stayed," the High Court ordered.The Court was hearing challenge to special court’s order directing the Anti-Corruption Bureau (ACB) to register an FIR against Buch and five others in connection with alleged irregularities in the 1994 listing of a company on the Bombay Stock Exchange (BSE).Besides Buch, the special court had ordered FIR against five others including SEBI’s whole-time members Ashwani Bhatia, Ananth Narayan G, and Kamlesh Chandra Varshney, as well as BSE officials Pramod Agarwal and Sundararaman Ramamurthy.Buch, Bhatia and Agarwal approached the High Court challenging the same..Special Judge has passed order mechanically without going to details.Bombay High Court.Background.The special court’s order was passed on March 1 by Judge Shashikant Eknathrao Bangar in response to a complaint filed under Section 156(3) of the Criminal Procedure Code (CrPC) by Sapan Shrivastava, a reporter from Dombivli. Shrivastava alleged that SEBI officials had colluded to facilitate the listing of a company in 1994 without ensuring compliance with regulatory norms. He claimed that multiple complaints to SEBI and law enforcement authorities had been ignored, necessitating judicial intervention..According to the complaint, the accused SEBI officials and BSE executives failed to enforce key provisions of the SEBI Act, 1992, as well as the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The complaint alleged that SEBI’s inaction enabled the listing despite non-compliance, leading to market manipulation, insider trading, and artificial inflation of share prices, which ultimately defrauded investors. It also accused the officials of violating the Prevention of Corruption Act by failing to exercise due diligence and regulatory oversight.Judge Bangar, in his order observed that the allegations "prima facie" disclosed a cognizable offence and required further investigation. He noted that “the inaction by law enforcement and SEBI necessitates judicial intervention under Section 156(3) CrPC” and directed the ACB to file an FIR and submit a status report within 30 days..Hearing today.When the plea by Buch came up for hearing today before Justice Dige, Solicitor General Tushar Mehta, appearing for SEBI officials, said the complainant is habituated to filing frivolous cases and has been fined before for the same by courts."In nutshell, two-para complaint filed with regard to some IPO which SEBI granted in 1994. All the parties are current members.. Complete non application of mind in the order. I will also show another judgment of this court where this petitioner was fined ₹5 lakh for filing frivolous petition," the SG said.He highlighted a judgment of the High Court in which Shrivastava had threatened others with a public interest litigation for his own benefit."I have a huge chart ready. I runs into two three pages. The series of frivolous litigations he has filed where the court has made a finding that he is extorting money. Public spirited individuals must work for the public. But he is crowd funding," Mehta submitted.He also said that the special court in the present case passed the order without hearing Buch and others. "Even if it was done in 1994, it has been 30 years now. We were not there in 1994," he stated..Senior Advocate Amit Desai, appearing for Bombay Stock Exchange officials, said that the allegations by the complainant against the officials are baseless and scandalous and an attack on BSE. "He is saying that omission to take action against Cals refinery amounts to corruption and for that they took ₹2-10 lakh. He has made a load of scandalous statements. These are the officials of the pre eminent stock exchange of the India and it is an attack on the economy.. It is unfortunate that the learned judge did not understand the significance of this matter.. All the allegations are bold and baseless," Desai said. Specifically on the merits of the allegations, Desai said that the regulation claimed to have been violated came into force only on 2002."The regulation alleged to be violated is section 17A of the Securities Contract Regulation Act. The particular regulations was brought only in 2007. The learned judge does not even realise that the provision was not there," Desai claimed.He highlighted how Shrivastava had created a charade through his letters and communications to various officials."What is the offence? Where is the cheating? who was defrauded? The learned judge has not said anything. On March 11, 2024, he (Shrivastava) writes a letter to chairperson of SEBI and another on April 4. Through these letters, he creates a charade of communication as required under Section 156(1). Another letter in March 19, 2024 to the DG, ACB stating that the SEBI is not taking any action. He is creating a charade," Desai argued.He further contended that government sanction has to be obtained before prosecuting these government officials for acts allegedly done by them in the discharge of their official duties."The learned judge should be aware of the amendment of the Maharashtra amendment to the Code of Criminal Procedure (CrPC) that requires that a sanction must be obtained before prosecuting public officials. It was introduced so that these kind of vexatious litigation needs to be prevented. An order of 156(3) was passed without even looking at these provisions.. Something as fundamental as this that shocks the market. How can it (such order) be passed," Desai demanded..Senior Advocate Sudeep Pasbola, representing Buch, said that the claim that no action has been taken against Cals Refinery is false."What's alleged is that SEBI is not taking action against Cals refinery. There are hundreds of actions taken against Cals refinery. There is no question of compliance for SEBI for listing.. SEBI is a market regulator they step in when there is violation," he said.Besides, the accused-officers stepped into their roles after 2023, he pointed out..Complainant Sapan Shrivastava appeared in person. He submitted that all the allegations were based on facts. He contended that criminal law starts operating only when the fraud comes to knowledge and therefore, although the crime happened in 1994, action can be taken today. SEBI had not granted any NOC, permission to Cals Refinery back in 1994, he said, and sought time to file documents in response to the plea by Buch and others.The Court acceded to the request but stayed the special court order. .[Read Live Coverage]