RITESH AGARWAL AND ANR. versus SECURITIES AND EXCHANGE BOARD OF INDIA ACT AND ORS.

Citation: [2008] 8 S.C.R. 553 · Decided: 13-05-2008 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Case Partly allowed
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Judgment (excerpt)

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[2008] 8 S.C.R. 553 
RITESH AGARWAL AND ANR. 
V. 
SECURITIES AND EXCHANGE BOARD OF INDIA AND 
ORS. 
(Civil Appeal No. 4681 Of 2006) 
MAY 13, 2008 
[S.B. SINHA AND LOKESHWAR SINGH PANTA, JJ] 
SECURITIES AND EXCHANGE BOARD OF /NOIA 
A 
B 
ACT, 1992: 
C 
ss. 11 and 11B - Irregularities committed by 'promoters' 
of target company in its public issue and allotment of shares 
-SEBI holding the public issue by the promoters to be a hoax 
with an intention to perpetrate fraud on investors -
Board 
directing all promoters to disassociate themselves in every D 
respect from the capital market related activities and not to 
access the capital market for a period of ten years - Two of the 
promoters claiming themselves to be minor at the relevant 
time -
Held: The persons who committed fraud in the names· 
of the minors would be proceeded against not only for com-
E · 
mission of act of fraud on their own behalf but also on behalf 
of the minors - Minors being not party to the fraud, could not 
have been subjected to penalty under the Act - Contract Act, 
1872 . 
SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR 
F 
TRADE PRACTICES RELATING TO SECURITIES MAR-
KETS) REGULATIONS, 1995: 
Regulations 3-6 and 11 - Penalty - Retrospective op-
eration of Regulations-Held: A penal statute will not have any G 
,., t 
retrospective effect or retroactive operation - The Regulations 
coming into force w. e. f. 25. 10. 1995, would not apply where the 
cause of action arose prior thereto - In absence of any valid 
law operating in the field, there would not be any source for 
553 
H 
554 
SUPREME COURT REPORTS 
[2008] 8 S.C.R. 
A imposing penalty -
On facts, commission of fraud having 
completed prior to coming into force of Regulations, question 
of invoking penal provisions would not arise - Constitution of 
India, 1950 - Articles 19(1) (g) and (6). 
SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND 
B TAKEOVERS) REGULATIONS, 1977: 
Regulation 2(h) - 'Promoter' - Held: Wife and children 
of the promoter making contribution towards the target com-
pany would come within the purview of the term 'promoter'. 
C 
Securities and Exchange Board of India noticed ir-
regularities in the matter of public issue of a company. 
The SEBI found that the public issue by the promoters of 
the company was hoax with an intention to perpetrate 
fraud on investors. It, therefore, directed the promoters 
D of the company to buy back the shares from the allotteesl 
shareholders. It further, in exercise of powers uls 4(3) r/w 
ss. 11 and 11-B of the Securities and Exchange Board of 
India Act, 1992 and Regulation 11 of SEBI (Prohibition of 
Fraudulent and Unfair Trade Practices) Regulations, 1995 
E (the FUTF Regulations) directed the company and its pro-
moters including the two appellants to dissociate them-
selves from the capital market related activities and not 
to access the capital market for a period of ten years. The 
two appellants contended in appeal before the Securities 
F Appellate Tribunal that they were minors when the com-
pany went in for the public issue and, therefore, the Board 
was not justified in issuing directions to them. The plea 
was rejected by the Tribunal. 
In the instant appeal it was contended that the appel-
G lants being minors, no order of penalty could have been 
imposed on them; that they were not shown as promoters 
in the brochure; that the public issue of the company hav-
ing been opened on 12.6.1995 and closed on 22.6.1995, 
the 1995 Regulations which came into force w.e.f. 
H 25.10.1995, could not be said to have any application. 
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RITESH AGARWAL AND ANR. v. SECURITIES 
555 
AND EXCHANGE ORS. 
Partly allowing the appeal, the Court 
A 
HELD: 1. It may be true that only the father of the appel-
lants was shown as a promoter in the brochure along with 
two others, but, indisputably the two appellants and their 
mother also made contributions. They, therefore, come 
within the purview of the term 'promoter' as defined in Regu-
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lation 2(h) of the SEBI (Substantial Acquisition of Shares and 
Takeovers) Regulations, 1997. [para 11] [566-B,C, 565-A] 
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2. The fact that the issue was under-subscribed is not 
in dispute. The question that the under-writers have not c 
subscribed is also not in issue. The fact that there had been 
divergence of funds is also neither in doubt nor in dispute. 
The promoter's contribution has not come in, furthermore, 
is not in question. The findings of the Board are not in ques-
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