REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1697 OF 2005

Securities & Exchange Board of India  ..Appellant(s)

Versus  

Ajay Agarwal      ..Respondent(s)

J U D G M E N T

GANGULY, J.

1. The question which arises for consideration in  

this  appeal  is  whether  Section  11-B  of  the  

Securities and Exchange Board of India Act, 1992  

(for short, ‘the Act’) could be invoked by the  

Chairman of the Securities and Exchange Board of  

India  (for  short,  ‘SEBI’)  in  conjunction  with  

Sections  4(3)  and  11  for  restraining  the  

respondent from associating with any corporate  

body  in  accessing  the  securities  market  and  

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prohibiting him from buying, selling or dealing  

in securities.  

2. The  factual  background  in  which  the  present  

appeal arises is noted as under.  

3. The respondent was appointed the Joint Managing  

Director  of  Trident  Steel  Limited  (hereafter  

referred to as “the said Company) on or about  

20th May  1993.   The  Board  initiated  certain  

preliminary  investigations  about  the  affairs  

relating to public issues by the said Company on  

the basis of a complaint received from a member  

of Bombay Stock Exchange (for short B.S.E.). The  

public issue of the said Company was of 52 lacs  

shares of Rs.10 each at a premium of Rs.3.50 per  

share aggregating to Rs.7 crore 2 lacs.  The  

Lead Managers to the issue were Bank of Baroda  

and Apple Industries Limited. Such issues opened  

on  26th November,  1993  and  closed  on  December  

1993 and one of the Directors of the Company  

appeared to be the chief promoter of the same.  

4. The complaint was to the effect that there was  

misstatement  in  the  prospectus  filed  by  the  

company at the time of the public issue with  2

regard to alleged non-disclosure of pledge of 7  

lac 50 thousand shares held in the company by  

directors  of  the  company  to  avail  of  working  

capital from Bank of Baroda.  The second aspect  

of the complaint was that the Directors of the  

company  had  also  given  a  non-disposal  

undertaking to Bank of Baroda in respect of the  

same  shares  and  that  the  prospectus  does  not  

mention the same. The further complaint is that  

the  2000  investors  complained  regarding  non-

receipt of dividend and the such complaint was  

filed before the Investor Service Cell, B.S.E.  

The  company  while  replying  to  the  investors  

stated  that  it  had  not  declared  any  dividend  

during the preceding year in respect of which  

complaint has been made. Therefore, prima facie,  

a case of misstating the facts in the prospectus  

and misguiding the investors was made out.  It  

appears  that  the  company  had  deliberately  not  

dispatched share certificates to investors based  

in  Jalgaon  and  failed  to  produce  the  share  

transfer  records  and  proof  of  records  of  the  

applicants in Jalgaon.  

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5. In the course of investigation it appeared that  

the Directors of the company had pledged their  

personal  holding  of  7  lac  50  thousand  shares  

with  the  Bank  of  Baroda  and  its  Director,  

namely,  Mr.  A.A.  Kazi  and  Dowell  Leasing  and  

Financing  Limited  had  given  non-disposal  

undertaking  to  Bank  of  Baroda.  This  was  not  

disclosed  in  the  prospectus  of  the  company.  

This  appears  to  be,  prima  facie,  a  case  of  

violation of SEBI guidelines for disclosure for  

investor protection. Thus an important aspect of  

the  capital  structure  of  the  company  had  not  

been disclosed in the prospectus as a result of  

which the investors were misguided.  In view of  

such  complaint  having  been  received  

investigation was undertaken. Ultimately, a show  

cause notice dated 22.12.99 was issued to the  

respondent  asking  it  to  show  cause  why  

directions  under  Section  11-B  of  the  Act  

restraining the company and its Directors from  

accessing  the  capital  market  for  a  suitable  

period will not be issued. A reply was demanded  

within  15  days  from  the  receipt  of  the  show  

cause notice.

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6. Pursuant  to  such  show  cause  notice  the  

respondent  gave  his  reply  on  1.3.2000  and  

10.7.2002.   Thereafter,  an  opportunity  of  

personal hearing was granted to the respondent  

on  14.5.2002  and  the  same  was  adjourned  to  

5.7.2002 and on that date the Board made its  

submissions.  Ultimately,  on  31st March,  2004  

Chairman  of  the  Board  passed  an  order,  the  

concluding portion whereof is as under:

“Therefore,  in  exercise  of  the  powers  conferred upon me by virtue of Section 4(3)  read  with  Section  11  and  Section  11B  of  SEBI Act, I hereby direct that Shri Ajay  Agarwal be restrained from associating with  any  corporate  body  in  accessing  the  securities  market  and  also  be  prohibited  from  buying,  selling  or  dealing  in  securities for a period of five years. This direction shall come into force with  immediate effect”.

7. Against the said order an appeal being Appeal  

No.85 of 2004 was filed before the Tribunal.

8. Before the Appellate Forum the only point argued  

is that Section 11-B of the Act came by way of  

amendment to the said Act with effect from 25th  

January,  1995  whereas  the  public  issue  in  

respect of which the impugned order was passed  5

was of November 1993 and the prospectus was of  

October 1993. Both public issue and prospectus  

were prior to 1995.  The shares were listed with  

effect from 15.2.1994. Therefore, it was urged  

on  behalf  of  the  appellant  that  the  alleged  

misconduct if any was for a period of time when  

Section 11-B was not on the statute book. Thus,  

the question arose whether any direction can be  

issued  under  Section  11-B  for  the  alleged  

misconduct said to have been committed prior to  

introduction  of  Section  11-B.  The  Appellate  

Tribunal was of the view that the provision of  

Section 11-B cannot be invoked in respect of the  

alleged misconduct which took place at a point  

of time when Section 11-B was not on the statute  

book. While passing the said order the Appellate  

Forum  recorded  that  the  respondent  before  the  

said  Forum,  the  appellant  herein,  wants  to  

withdraw the impugned order.

9. In fact, against the said recording a review was  

filed for reviewing the contents of paragraphs  

13 and 14 of the order passed by the Appellate  

Tribunal.

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10. Paragraphs 13 and 14 of the order passed by the  

Appellate Tribunal are set out below:

“13. We have heard the learned counsel for  the respondent.  The learned counsel fairly  conceded  that  such  wide  powers  as  in  section  11-B  cannot  be  retrospectively  applied.

14. The learned counsel for the respondent  seeks leave of this court to withdraw the  impugned order”.

11. After  reviewing  the  said  order  the  Appellate  

Tribunal ultimately deleted paragraph 14 by the  

order dated 9.12.04.

12. Again  in  the  order  dated  9.12.04  it  was  

unfortunately  mentioned  that  the  order  was  

passed  with  the  consent  of  the  parties.  

Subsequently the said recital in the order, as  

noted above, was deleted.

13. Assailing order of the Appellate Tribunal, the  

learned counsel for the appellant-Board mainly  

urged  that  the  finding  given  by  the  Tribunal  

that the powers under Section 11-B can only be  

used prospectively and not retrospectively had  

been given on an erroneous appreciation of the  

legal provision under the said Act.  It appears  7

that the Appellate Tribunal passed its order by  

relying on the decision of this Court in the  

case  of  Govinddas  and  others v.  Income  Tax  Officer and another - 1976 (103) ITR 123 (S.C.).

14. The decision of this Court in Govinddas (supra)  was  on  totally  different  facts  and  legal  

questions.  

15. It is well known that the substantive laws to be  

applied for determination of tax liability must  

be the law which is in force in the relevant  

assessment year.

16. It is well settled that law to be applied for  

assessment is the one which is extant in the  

assessment  year  unless  there  is  an  amendment  

which is made retrospective either expressly or  

by necessary implication. See M/s Reliance Jute  and  Industries  Ltd. v C.I.T  West  Bengal,  Calcutta  [1980 (1) SCC 139 at p.141 para 6].  Same principles have been followed in the case  

of  Controller  of  Estate  Duty,  Gujarat-I,  Ahemadabad v. M.A. Merchant and etc., [AIR 1989  SC 1710 at p.1713 para 8].

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17. In  Govinddas  (supra), this  Court  held  that  Subsections (1) to (5) of Section 171 of the  

1961 Act provide for the machinery of assessment  

of  Hindu  Undivided  Family  after  partition.  

Subsection (6) of Section 171 of 1961 Act is the  

substantive provision imposing tax liability on  

the  members  which  is  payable  by  the  joint  

family. But these provisions are, rightly held  

to  be,  not  applicable  for  recovery  of  tax  

assessed  on  the  Hindu  Undivided  Family  for  a  

period  prior  to  the  enactment  of  those  

provisions. Therefore, this Court held that the  

income  tax  officer  was  not  correct  in  taking  

recourse to sub-sections (6) to (7) of Section  

171 of the Income Tax Act, 1961 for the purpose  

of  recovery  of  tax  assessed  on  the  Hindu  

Undivided  Family  for  assessment  in  respect  of  

the  years  1950-1951  and  1956-1957  since  the  

relevant provisions of 1961 Act were not given  

any  retrospective  operation.  It  is  not  in  

dispute that the assessment of tax in respect of  

the  assessment  year  for  the  Hindu  Undivided  

Family  was  completed  under  the  corresponding  

provisions  of  the  1922  Act.  Therefore,  the  

Supreme Court held that such a case would be  9

governed by Section 25-A of the old  Act which  

does not impose any liability on members of the  

Hindu  Undivided  Family  in  case  of  partial  

partition since no such liability existed under  

Section 25-A of the old Act.

18. It is clear from the aforesaid discussion that  

the ratio in Govinddas’s case does not apply to  

this case in as much as no tax liability has  

been created under the order of the Board.  

19. The appellate Tribunal without at all discussing  

the  facts  and  law  involved  in  Govinddas  

erroneously  applied  its  ratio  in  the  impugned  

order.

20. It  may  be  noted  in  this  connection  that  the  

impugned  order  was  passed  by  the  Board  in  

exercise of its power under Section 4(3) read  

with Section 11 and Section 11-B of the said  

Act.  Under Section 11 of the said Act the Board  

has  the  power  of  restraining  a  person  from  

accessing the securities market or prohibiting  

any person associated with securities market to  10

buy, sell or deal in securities. Such power is  

given to the Board under Section 11(4)(b) of the  

said Act. Section 11(4)(b) of the said Act is as  

follows:

“11(4)(b)restrain  persons  from  accessing  the  securities  market  and  prohibit  any  person associated with securities market to  buy, sell or deal in securities”

21. Therefore,  restrain  order  passed  on  the  

respondent  strictly  speaking  was  not  under  

Section  11-B  of  the  said  Act.   However,  the  

provisions of Section 11(4)(B) of the said Act  

also  came  by  way  of  amendment  in  2002.  It  

should, however, be noted that by the time the  

Board passed the order on 31st March 2004 all the  

amendments were on the statute.

22. Therefore,  the  question  here  is  not  of  

retrospective operation of the amendments.  Even  

if the amendments to the said Act are allowed to  

operate prospectively by the time the order was  

passed by the Board, it was empowered by the  

aforesaid amendments to do so.  

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23. Therefore,  without  giving  any  retrospective  

operation  to  those  provisions,  the  impugned  

order can be passed by the Board in as much as  

the amendments in questions empowered the Board  

to pass such an order when it passed the order.  

So, the question that survives is whether the  

Board  could  pass  the  order  in  respect  of  

allegations which surfaced prior to the coming  

into  effect  of  those  amendments  in  1995  and  

2002.

24. It is here that question of protection against  

ex-post facto laws fall for consideration.  

25. In  this  connection  it  may  be  noticed  that  

Section 11-B of the Act was invoked even at the  

show cause stage. Therefore, it cannot be said  

that any provision has been invoked in the midst  

of  any  pending  proceeding  initiated  by  the  

Board. The respondent was, thus, put on notice  

that  the  Board  is  invoking  its  power  under  

Section 11-B which was available to it under the  

law  on  the  date  of  issuance  of  show  cause  

notice.

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26. In the premises, it cannot be said that any new  

provision  has  been  invoked  in  connection  with  

any pending proceeding. Nor can it be contended  

by the respondent that there was any unfairness  

in the proceeding. Respondent was given adequate  

notice of the charges in the show cause notice.  

He was given an opportunity to reply to the show  

cause notice and, thereafter, a fair opportunity  

of hearing was given before the order was passed  

by  the  Board.  The  entire  gamut  of  a  fair  

procedure was thus observed.

27. This Court also finds that there is no challenge  

to the amended provision of the law. Even if the  

law applies prospectively, the Board cannot be  

prevented from acting in terms of the law which  

exists on the day the Board passed its order.

28. It was urged on behalf of the respondent that on  

the  date  when  the  violations  were  alleged  

against him, the Board did not have the power  

either under Section 11-B or under Section 11  

(4)(b) as those provisions came subsequently by  

way of amendment.  This contention weighed with  

the appellate forum and the respondent was given  13

the protection against ex post facto law even  

though it was not clearly mentioned in the order  

of the Appellate Forum.   

29. The right of a person of not being convicted of  

any offence except for violation of a law in  

force at the time of the commission of the act  

charged as an offence and not to be subjected to  

a  penalty  greater  than  that  which  might  have  

been inflicted under the law in force at the  

time  of  the  commission  of  the  offence,  is  a  

Fundamental  Right  guaranteed  under  our  

Constitution only in a case where a person is  

charged of having committed an “offence” and is  

subjected to a “penalty”.

30. In the instant case, the respondent has not been  

held guilty of committing any offence nor has he  

been  subjected  to  any  penalty.  He  has  merely  

been restrained by an order for a period of five  

years from associating with any corporate body  

in accessing the securities market and also has  

been prohibited from buying, selling or dealing  

in securities for a period of five years.

 14

31. The word ‘offence’ under Article 20 sub-clause  

(1)  of  the  Constitution  has  not  been  defined  

under the Constitution.  But Article 367 of the  

Constitution  states  that  unless  the  context  

otherwise  requires,  the  General  Clauses  Act,  

1897 shall apply for the interpretation of the  

Constitution as it does for the interpretation  

of an Act.

32. If we look at the definition of ‘offence’ under  

General Clauses Act, 1897 it shall mean any act  

or an omission made punishable by any law for  

the time being in force. Therefore, the order of  

restrain  for  a  specified  period  cannot  be  

equated with punishment for an offence as has  

been defined under the General Clauses Act.

33. Under  Criminal  procedure  code,  ‘offence’  has  

been defined under Section 2(n) as follows:

“2(n) “offence”  means  any  act  or  omission made punishable by any law for  the time being in force and includes any  act in respect of which a complaint may  be made under Section 20 of the Cattle- trespass Act, 1871 (1 of 1871);”

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34. On a comparison of the aforesaid two definitions  

we find that there are common links between the  

two.  An  offence  would  always  mean  an  act  of  

omission or commission which would be punishable  

by any law for the time being in force.

35. Article 20(1) was interpreted by the Court in  

Rao Shiv Bahadur Singh and another v.  State of  Vindhya  Pradesh (AIR  1953  SC  394).  Justice  Jagannadhads speaking for Constitution Bench, on  

a  comparison  of  similar  provisions  in  English  

Law and American Constitution, opined that the  

language used in Article 20 is in much wider  

terms. This Court held that:

“...what is prohibited is the conviction  of  a  person  or  his  subjection  to  a  penalty under ‘ex post facto’ laws.  The  prohibition  under  the  Article  is  not  confined to the passing or the validity  of the law, but extends to the conviction  or  the  sentence  and  is  based  on  its  character as an ‘ex post facto’ law”

36. The  ratio  of  this  judgment  has  again  been  

affirmed in State of West Bengal v. S.K. Ghosh,  (AIR 1963 SC 255), wherein another Constitution  

Bench  of  this  Court  speaking  through  Justice  

Wanchoo, as His Lordship then was, held that a  

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forfeiture  by  a  District  Judge  under  Section  

13(3)  of  Criminal  Laws  Amendment  Ordinance  of  

1944  cannot  be  equated  to  a  forfeiture  under  

Section 53 of IPC inasmuch as forfeiture under  

Section  13(3)  of  the  Ordinance  involved  

embezzlement of government money or property and  

the same is not punishment or penalty within the  

meaning  of  Article  20(1)  of  Constitution  (See  

paras 14 and 15 of the judgment).   

37. Even if penalty is imposed after an adjudicatory  

proceeding,  persons  on  whom  such  penalty  is  

imposed cannot be called an accused.  It has  

been held that proceedings under Section 23(1A)  

of  Foreign  Exchange  Regulation  Act,  1947  are  

adjudicatory  in  character  and  not  criminal  

proceedings  (See  Director  of  Enforcement v.  M.C.T.M.  Corporation  Pvt.  Ltd.  and  others,  (1996) 2 SCC 471).  Persons who are subjected to  

such  penalties  are  also  not  entitled  to  the  

protection  under  Article  20(1)  of  the  

Constitution.

38. Following the aforesaid ratio, this Court cannot  

hold that protection under Article 20(1) of the  17

Constitution in respect of ex-post facto laws is  

available to the respondent in this case.  

39. If  we  look  at  the  legislative  intent  for  

enacting the said Act, it transpires that the  

same was enacted to achieve the twin purposes of  

promoting  orderly  and  healthy  growth  of  

securities  market  and  for  protecting  the  

interest  of  the  investors.  The  requirement  of  

such  an  enactment  was  felt  in  view  of  

substantial  growth  in  the  capital  market  by  

increasing participation of the investors.  In  

fact such enactment was necessary in order to  

ensure the confidence of the investors in the  

capital market by giving them some protection.

40. The said Act is pre-eminently a social welfare  

legislation seeking to protect the interests of  

common men who are small investors.

41. It is a well known canon of construction that  

when  Court  is  called  upon  to  interpret  

provisions of a social welfare legislation the  

paramount duty of the Court is to adopt such an  

interpretation as to further the purposes of law  18

and if possible eschew the one which frustrates  

it.

42. Keeping  this  principle  in  mind  if  we  analyse  

some of the provisions of the Act it appears  

that  the  Board  has  been  established  under  

Section 3 as a body corporate and the powers and  

functions of the Board have been clearly stated  

in Chapter IV and under Section 11 of the said  

Act.

43. A perusal of Section 11, Sub-Section 2(a) of the  

said  Act  makes  it  clear  that  the  primary  

function  of  the  Board  is  to  regulate  the  

business  in  stock  exchanges  and  any  other  

securities markets and in order to do so it has  

been entrusted with various powers.

44. Section  11  had  to  be  amended  on  several  

occasions  to  keep  pace  with  the  ‘felt  

necessities of time’.  One such amendment was  

made in Sub Section (4) of Section 11 of the  

said Act, which gives the Board the power to  

restrain persons from accessing the securities  

market and to prohibit such persons from being  

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associated  with  securities  market  to  buy  and  

sell or deal in securities.  Such an amendment  

came in 2002.

45. From the statement of objects and reasons of the  

Amendment  Act  of  2002,  it  appears  that  the  

Parliament  thought  that  in  view  of  growing  

importance of stock market in national economy,  

SEBI will have to deal with new demands in terms  

of  improving  organisational  structure  and  

strengthening institutional capacity.

46. Therefore,  certain  shortcomings  which  were  in  

the existing structure of law were sought to be  

amended  by  strengthening  the  mechanisms  

available  to  SEBI  for  investigation  and  

enforcement, so that it is better equipped to  

investigate  and  enforce  against  market  

malpractices. (See Paragraph 3 of the Statement  

of objects and reasons).

47. Section 11-B which empowers the Board to issue  

certain  directions  also  came  up  by  way  of  

amendment  in  1995  by  Act  9  of  1995.   The  

Statements  of  Objects  and  Reasons  of  such  20

amendments show one of the objects is to empower  

the  Board  to  issue  regulations  without  the  

approval  of  the  Central  Government.  (See  para  

3(e) of the Statements of Objects and Reasons).  

Section 11-B of the Act thus empowers the Board  

to  give  directions  in  the  interest  of  the  

investors  and  for  orderly  development  of  

securities market, which, as noted above, is one  

of the twin purposes to be achieved by the said  

Act.  Therefore, by the 1995 amendment by way of  

Section 11-B Board has been empowered to carry  

out the purposes of the said Act.

48. As noted above, there is no challenge to those  

provisions which came by way of amendment.  In  

the  absence  of  any  challenge  to  those  

provisions, it cannot be said that even though  

Board  is  statutorily  empowered  to  exercise  

functions  in  accordance  with  the  amended  law,  

its power to act under the law, as amended, will  

stand frozen in respect of any violation which  

might have taken place prior to the enactment of  

those provisions. It is nobody's case that Board  

has  exercised  those  powers  in  respect  of  a  

proceeding  which  was  initiated  prior  to  the  21

enactment of those provisions.  In fact Board  

has issued the show cause notice in terms of  

Section  11-B  and  considered  the  reply  of  the  

respondent.  In such a situation, there has no  

infraction in the procedure.  

49. Therefore, the entire basis of the order of the  

Appellate Tribunal that provision of Section 11-

B  cannot  be  applied  retrospectively  has  been  

passed  on  an  erroneous  basis,  as  discussed  

herein above.

50. Provisions of Section 11-B being procedural in  

nature can be applied retrospectively.   

51. The appellate Tribunal made a manifest error by  

not appreciating that Section 11-B is procedural  

in nature. It is a time honoured principle if  

the law affects matters of procedure, then prima  

facie it applies to all actions, pending as well  

as future. See  K.Eapan Chako v.  The Provident  Investment Company (P.) Ltd.,[AIR 1976 SC 2610]  wherein Chief Justice A.N. Ray laid down those  

principles.

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52. Maxwell in his “Interpretation of Statutes” also  

indicated that no one has a vested right in any  

course of procedure. A person’s right of either  

prosecution  or  defence  is  conditioned  by  the  

manner prescribed for the time being by the law  

and if by the Act of Parliament, the mode of  

proceeding is altered, and then no one has any  

other right than to proceed under the alternate  

mode. [Maxwell  Interpretation of Statutes,  11th  

Edition, p.216].

53. These  principles,  enunciated  by  Maxwell,  have  

been quoted with approval by the Supreme Court  

in its Constitution Bench judgment in  Union of  India v.  Sukumar  Pyne [AIR  1966  SC  1206  at  p.1209]

54. For the reasons discussed above, this Court is  

constrained to quash the order of the Appellate  

Tribunal and upholds the order of the Chairman  

of the Board.

55. The appeal is allowed.  There will be, however,  

no orders as to costs.

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.......................J. (G.S SINGHVI)

.......................J. (ASOK KUMAR GANGULY)

New Delhi February 25, 2010

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