SC Admits Writ Plea | Directs SEBI to Auction Assets of Companies Running Illegal ‘CIS’ and to Refund Monies to Investors

Case Details: Balasaheb Keshawrao Bhapkar v. Securities and Exchange Board of India - [2024] 164 taxmann.com 611 (SC)

Judiciary and Counsel Details

• Surya Kant & K.V. Viswanathan, JJ.

Facts of the Case

In the instant case, SEBI received a complaint alleging illegal mobilisation of funds by companies floated by petitioners, which was in nature of the Collective Investment Scheme, thus violating Section 11AA of the SEBI Act.

SEBI passed an order inter alia, directing the companies and its Directors to refrain from collecting more money from investors under the existing schemes or new schemes.

In addition, recovery proceedings for a sum of Rs.3056 crores were initiated, and all the immovable properties and jewellery owned by the said companies were attached.

Meanwhile, an FIR was registered against the petitioners under Sections 406, 420 and 34 of IPC read with Sections 3, 4, 5, 6 and 10 of the Prize Chits Act and Section 3 of the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999 (MPID Act) and they were arrested in that case.

The petitioners filed an instant petition seeking a direction to the SEBI to liquidate the attached assets in a time-bound manner and disburse sale proceeds to genuine investors as early as possible.

Further, parties were broadly advised that the entire liability of each Company regarding the refund of the due amount to all investors, as well as various statutory, foreseen or unforeseen liabilities, could be extinguished from the sale proceeds of some of the immovable properties.

It was noted that since immovable properties owned by companies were spread over different parts of the country, it was considered unachievable for either SEBI or MPID Court to liquidate all these assets through time-bound public auctions.

Supreme Court Held

The Supreme Court observed that since SEBI, with its bona fide pursuits to liquidate assets and generate funds to satisfy investors’ claims, had already auctioned some of the assets, it had taken a very fair stand by agreeing to the constitution of a High-Powered Sale Committee (HPSC) to auction immovable assets of companies to the extent they were required to satisfy investors’ claims and liquidate all other statutory liabilities of Companies.

The Supreme Court held that in these peculiar circumstances, an instant writ by the petitioners to liquidate attached assets was to be allowed to do complete justice between parties, and HPSC was to be constituted. Further, SEBI and the petitioners were also directed to extend full cooperation to HPSC.

The Supreme Court also held that to facilitate the sale and disbursement process and considering the period of incarceration already undergone, petitioners were directed to be enlarged on interim bail to the satisfaction of the MPID Court. Thus, this would be treated as interim bail in all of the FIRs.