http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 26  

                                                       REPORTABLE

                 IN THE SUPREME COURT OF INDIA

                 CIVIL APPELLATE JURISDICTION

                  CIVIL APPEAL NO. 4681 OF 2006

Ritesh Agarwal & Anr.                                   ...Appellants

                                    Versus

Securities & Exchange Board of India & Ors.             ...Respondents

                          JUDGMENT

S.B. SINHA, J :

1.    Ritesh Polysters Ltd. (Company) was a company incorporated and

registered under the provisions of the Companies Act, 1956.

     One Surender Kumar Agarwal was shown to be a promoter in the

brochure issued by the Company.        However, his wife Rookprekha

Agarwal and their two sons Ritesh Agarwal and Deepak Agarwal

(Appellants, who were said to be minors at the relevant time) also

purported to have made contributions. The Company came out with a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 26  

                                  2

public issue of 30 lakh equity shares of Rs. 10/- each at a premium of Rs.

5/- per share aggregating to Rs. 450 lakhs. A prospectus therefor was

issued. The issue opened on 12.06.1995. It closed on 22.06.1995. 15

lakh shares of Rs. 10/- each for cash at a premium of Rs. 5/- per share

were reserved for firm allotment to the promoters and directors of the

company and their friends and relatives. A sum of Rs. 2.25 crores (Rs.

225/- lakhs) was to be invested by the promoters.         The issue went

through. It later transpired that Pratha Investments, Ritesh Capital and

Ritesh Agarwal asked for issuance of duplicate shares contending that

the shares allotted in their favour had been misplaced. An advertisement

was issued. A notice was also sent to the Stock Exchange. The Stock

Exchange, however, on an enquiry made in that behalf, came to learn that

the alleged lost shares had in fact been sold in the market. The trading in

the scrip of the Company was suspended.

2.    The matter was referred to the Securities and Exchange Board of

India (for short "the Board"). In an enquiry conducted by the Board, it

was discovered that only 7.96% of the public issue had been subscribed

by the public till the closing date and the promoters who were required to

subscribe Rs. 225/- lakhs had invested a sum of Rs. 35/- lakhs only. A

large number of other irregularities were also found.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 26  

                                   3

     As the Board has noticed the said irregularities in great details, it is

not necessary for us to repeat the same once over again. The Board, by

its order dated 9.02.2004, directed:

            "40. Therefore, in the interest of the investors              and safety and security of the capital market, in              exercise of powers conferred on me under              Section 4(3) read with Section 11 and 11B of              SEBI Act and Regulation 11 of SEBI              (Prohibition of Fraudulent and Unfair Trade              Practices) Regulations, 1995, I, hereby, direct              M/s. Ritesh Polyster Limited and its promoters,              viz., Ritesh Exports Ltd., Sh. Surendra Kumar              Agarwal, Smt. Roop Rekha Agarwal, Sh.              Ritesh Agarwal and Sh. Deepak Agarwal to              disassociate themselves in every respect from              the capital market related activities and not to              access the capital market for a period of ten              years.              41. Further, in light of the facts and              circumstances of the case, it is already made              out that the public issue by the promoters was              hoax with an intention to perpetrate fraud on              investors. Therefore, I am of the view that it              would be appropriate to pass a direction under              section 11B of the SEBI Act as a remedial              measure. I hereby direct the above named              promoters of Ritesh Polyster Ltd. to buy back              the shares from the allottees/ shareholders              offering an amount at which the shares were              issued i.e. Rs. 15/- per share if the shares are              fully paid or @ Rs. 7.50 per share if the shares              are partly paid and delist Ritesh Polyster Ltd.              from the stock exchanges."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 26  

                                    4

3.    An appeal was preferred thereagainst before the Tribunal.

However, none of the findings of fact were in question.         The said

findings of fact, therefore, had attained finality.

     The Tribunal, by reason of the impugned judgment, negatived the

plea of the appellants Ritesh Agarwal and Deepak Agarwal that they

were minors at the relevant time, stating:

            "The appellants in appeal no. 43/2004 have              taken a plea that they were minors at the time              when the company went in for the public issue              and, therefore, the Board was not justified in              issuing any direction to them. We are unable to              accept this plea. We are informed that the              Board has launched prosecution against the              company and its promoters.            In those              proceedings it may be relevant for these              appellants to contend that they were minors, but              in the present proceedings which are of civil              nature, the plea can have no relevance. At any              rate, they had attained majority on the date              when the impugned order was passed and,              therefore, the direction restraining them from              accessing the capital market could be issued by              the Board."

4.    The Tribunal opined that the Company and its promoters played

fraud on the public and the Board was justified in debarring the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 26  

                                      5

promoters and the Company from having access to the capital market for

a period of 10 years. It also agreed with the other directions of the

Board.

5.           In the aforementioned backdrop, the questions which have been

raised before us by Mr. C.A. Sundaram, learned senior counsel appearing

on behalf of the appellants, have to be noticed, which are as under:

    (i)       Ritesh Agarwal and Deepak Agarwal being minors, no order of

              penalty could have been imposed on them.

    (ii)      Apart from Surender Kumar Agarwal, others having not been

              shown as promoters in the brochure, the impugned judgment

              cannot be sustained.

    (iii)     The issue in question having been opened on 12.06.1995 and

              closed on 22.06.1995, the Securities and Exchange Board of

              India (Prohibition of Fraudulent and Unfair Trade Practices

              Relating To Securities Markets) Regulations, 1995 (for short

              "the FUTP Regulations) which came into force on and from

              25.10.1995 cannot be said to have any application.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 26  

                                        6

6.           Ms. Suruchii Aggarwal, learned counsel appearing on behalf of the

respondents, on the other hand, would contend:

    (i)        Till the FUTP Regulations came into force, the matter used to

               be governed by the Securities and Exchange Board of India

               Act, 1992 (for short "the SEBI Act") and application thereof

               was not dependant upon the coming into force of the FUTP

               Regulations.

    (ii)       In the proceedings before the Board, which is civil in nature,

               the appellants Ritesh Agarwal and Deepak Agarwal never

               claimed themselves to be the minors and, thus, such a plea

               cannot be raised where they have been held guilty of

               defrauding the public fund.

    (iii)      The nature of the fraud practised being that they purported to

               have transferred their money to the Company on one day and

               on the next day they took the same back and, thus, the promoter

               having not admittedly contributed in the fund, the impugned

               judgment should not be interfered with.

7.           The SEBI Act was enacted to provide for the establishment of a

Board to protect the interests of investors in securities and to promote the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 26  

                                   7

development of, and to regulate, the securities market and for matters

connected therewith or incidental thereto.

     "Board" has been defined in Section 2(1)(a) of the SEBI Act to

mean "the Securities and Exchange Board of India established under

Section 3" thereof.

     Chapter IV of the SEBI Act provides for powers and functions of

the Board. Sub-section (1) of Section 11 thereof enjoins a duty upon the

Board to protect the investors in securities and to promote the

development of and to regulate the securities market by such measures as

it thinks fit. The measures referred to in Sub-section (1) of Section 11

may provide for, without prejudice to the generality of the foregoing

provisions, inter alia the following:

            "(a) regulating the business in stock exchanges              and any other securities markets;

            (b) registering and regulating the working of              stock brokers, sub-brokers, share transfer              agents, bankers to an issue, trustees of trust              deeds, registrars to an issue, merchant bankers,              underwriters, portfolio managers, investment              advisers and such other intermediaries who may              be associated with securities markets in any              manner;

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 26  

                                  8

           (ba) ***

           (c) ***

           (d) ***

           (e) prohibiting fraudulent and unfair trade             practices relating to securities markets;

           (f) ***

           (g) prohibiting insider trading in securities;

           (h) ***

           (i) ***

           (ia) ***

           (j) performing such functions and exercising             such powers under the provisions of the             Securities Contracts (Regulation) Act, 1956 (42             of 1956), as may be delegated to it by the             Central Government;"

     Section 11A of the SEBI Act specifies the matters which are

required to be disclosed by the companies.         Section 11AA thereof

provides for collective investment scheme. Section 11B provides for

certain remedial measures which read as under:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 26  

                                 9

          "11B. Power to issue directions

          Save as otherwise provided in section 11, if            after making or causing to be made an enquiry,            the Board is satisfied that it is necessary-

          (i) in the interest of investors, or orderly            development of securities market; or

          (ii) to prevent the affairs of any intermediary or            other persons referred to in section 12 being            conducted in a manner detrimental to the            interests of investors or securities market; or

          (iii) to secure the proper management of any            such intermediary or person,

          it may issue such directions,-

          (a) to any person or class of persons referred to            in section 12, or associated with the securities            market; or

          (b) to any company in respect of matters            specified in section 11A, as may be appropriate            in the interests of investors in securities and the            securities market."

    Section 12 of the SEBI Act provides for registration of stock

brokers, sub-brokers, share transfer agents, etc. Chapter VI A of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 26  

                                    10

SEBI Act provides for penalties and adjudication. Section 15H provides

for penalty for non-disclosure of acquisition of shares and take-overs.

     Section 24 of the SEBI Act provides for the offences committed

under the SEBI Act.

     Section 30 of the SEBI Act provides for regulation making power.

The Board in exercise of its power conferred upon it under Section 30 of

the SEBI Act made the FUTP Regulations. The said Regulations came

into force on and from 25.10.1995.

8.    Indisputably, when the irregularities committed by the Company

and/ or its promoters came to the notice of the Board, it had issued a

notice only on 28.01.2003.

     The FUTP Regulations are prospective in nature. Chapter II of the

FUTP Regulations provides for prohibition of fraudulent and unfair trade

practices relating to securities market. Regulation 4 prohibits against

market manipulation; Clause (a) whereof reads as under:

            "4. No person shall -

            (a) effect, take part in, or enter into, either              directly or indirectly, transactions in securities,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 26  

                                   11

             with the intention of artificially raising or               depressing the prices of securities and thereby               inducing the sale or purchase of securities by               any person"

        Regulation 5 of the FUTP Regulations provides for prohibiting

misleading statements to induce sale or purchase of securities.

Regulation 6 thereof prohibits unfair trade practices relating to securities.

Regulation 11 empowers the Board to issue directions in the following

terms:

             "11. The Board may, after consideration of the               report referred to in regulation 10 and after               giving reasonable opportunity of hearing to the               person concerned, issue directions for ensuring               due compliance with the provisions of the Act,               rules and regulations made thereunder, for the               purposes specified in regulation 12."

        Regulation 12 of the FUTP Regulations specifies the purpose of

directions.

9.       We may also notice that a Company has certain duties and

functions under the Companies Act, 1956. Section 63 thereof provides

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 26  

                                   12

for criminal liability for mis-statements in the prospectus, which reads as

under:

             "63 - Criminal liability for mis-statements in               prospectus

             (1) Where a prospectus issued after the               commencement of this Act includes any untrue               statement, every person who authorised the               issue of the prospectus shall be punishable with               imprisonment for a term which may extend to               two years, or with fine which may extend to               fifty thousand rupees, or with both, unless he               proves either that the statement was immaterial               or that he had reasonable ground to believe, and               did up to the time of the issue of the prospectus               believe, that the statement was true.

             (2) A person shall not be deemed for the               purposes of this section to have authorised the               issue of a prospectus by reason only of his               having given-

             (a) the consent required by section 58 to the               inclusion therein of a statement purporting to               be made by him as an expert, or

             (b) the consent required by sub-section (3) of               section 60."

        Section 77 of the Companies Act provides for restrictions on

purchase or loans by Company for purchase of its own shares. Any

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 26  

                                   13

person violating the provisions of the Companies Act may be proceeded

thereunder.

10.   The word "promoter", however, has not been defined either under

the Companies Act or under the SEBI Act. The definition of promoter

has, however, been provided in Section 2(h) of the Securities and

Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 1997 in the following terms:

             "2(h). ‘Promoter’ means -

             (a) any person who is in control of the target               company;               (b) any person named as promoter in any offer               document of the target company or any               shareholding pattern filed by the target               company with the stock exchanges pursuant to               the Listing Agreement, whichever is later;               and includes any person belonging to the               promoter group as mentioned in Explanation I:               Provided that a director or officer of the target               company or any other person shall not be a               promoter, if he is acting as such merely in his               professional capacity.               Explanation I: For the purpose of this clause,               ’promoter group’ shall include:               (a) ***               (b) in case the promoter is an individual -               (i)           the spouse of that person, or any               parent, brother, sister or child of that person or               of his spouse;               (ii)          any company in which 10% or               more of the share capital is held by the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 26  

                                  14

           promoter or an immediate relative of the             promoter or a firm or HUF in which the             promoter or any one or more of his immediate             relative is a member;             (iii)         any company in which a company             specified in (i) above, holds 10% or more, of             the share capital; and             (iv)           any HUF or firm in which the             aggregate share of the promoter and his             immediate relatives is equal to or more than             10% of the total.             Explanation       II:   Financial     Institutions,             Scheduled Banks, Foreign Institutional             Investors (FIIs) and Mutual Funds shall not be             deemed to be a promoter or promoter group             merely by virtue of their shareholding.             Provided that the Financial Institutions,             Scheduled Banks and Foreign Institutional             Investors (FIIs) shall be treated as promoters or             promoter group for the subsidiaries or             companies promoted by them or mutual funds             sponsored by them."

11.   It may be true that only Surender Kumar Agarwal was shown as a

promoter in the Brochure along with Shiv Shanker Agarwal and

Mahender Kumar Agarwal, but, indisputably, Rooprekha Agarwal,

Ritesh Agarwal and Deepak Agarwal who are wife and sons of Surender

Kumar Agarwal made contributions. They, therefore, come within the

purview of the said term.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 26  

                                   15

     Surender Kumar Agarwal ex facie suppressed the fact that Ritesh

Agarwal and Deepak Agarwal were minors. Such a contention appeared

to have been raised for the first time before the Tribunal.

     It is one thing to say that as minors they could not have entered

into a contract having regard to the provisions of the Indian Contract Act,

1872 and, thus, any act committed by them should be ignored, but, this,

itself, goes to show how Surender Kumar Agarwal played an important

role in resorting to wholly unfair practices and fraudulent acts. It is,

therefore, not possible for us to hold that Surender Kumar Agarwal alone

was the promoter.

     However, a minor cannot enter into a contract.          The Tribunal

unfortunately did not go into this question in details. Finding of the

Tribunal which has been noticed by us hereinbefore, with respect, is

wholly unsustainable. It is not based on any legal principle. No reason

has been assigned therefor.

     If they were minors, they being not party to the fraud, could not

have been subjected to penalty under the SEBI Act. The person who

committed the fraud in their names, viz., Surender Kumar Agarwal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 26  

                                  16

himself, should have been proceeded against not only for commission of

act of fraud on his own behalf but also on behalf of the minors.

     The fact that the issue was under-subscribed is not in dispute. The

question that the under-writers have not 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 Board did not find any justification in the cause shown by the

appellants herein.

     The violations which have been found are:

            "1) The entire amount collected as              subscription was not kept in a separate account              (public issue account) opened for this purpose              and was being deposited in other account of              other banks also.

            2)     Ritesh Polyster received only Rs. 35              lakhs as promoters contribution instead of Rs.              2.25 crores. However, they have fraudulently              allotted shares worth Rs. 2.25 crores to the              promoters and hence cheated the other genuine              investors/ underwriters.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 26  

                                   17

            3)      Ritesh purchased the shares back from              the financiers who had bailed out the issue              (under the garb of subscription) using the              public issue proceeds. This is in violation of              Section 77 of the Companies Act, 1956. Thus,              the public issue proceeds have not been utilized              for the purpose it has been raised. Hence, there              has been misstatement in the prospectus to this              effect.

            4)     The issue did not receive the minimum              subscription of 90% even after the devolvement              period. Hence, the issue should have been              refunded which was not done. Thus, there has              been a misstatement in the prospectus to this              effect."

     The said findings are not in question. The Board, therefore, has

rightly proceeded to take action in terms of the SEBI Act.

     The question as to whether the provisions of the FUTP

Regulations are attracted in this case may now be examined.

     The FUTP Regulations came into force for the first time on

25.10.1995. Would it apply in a case where the cause of action arose

prior thereto? Ex facie, a penal statute will not have any retrospective

effect or retroactive operation. If commission of fraud was complete

prior to the said date, the question of invoking the penal provisions

contained in the said Regulations including Regulations 3 to 6 would not

arise. It is not that the Parliament did not provide for any penal provision

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 26  

                                   18

in this behalf. If the appellants have violated the provisions of the

Companies Act, they can be prosecuted thereunder. If they have violated

the provisions of the SEBI Act, all actions taken thereunder may be taken

to their logical conclusion. A citizen of India has a right to carry on a

profession or business as envisaged by Article 19(1)(g) of the

Constitution of India. Any restriction imposed thereupon must be made

by reason of a law contemplated under Clause (6) thereof. In absence of

any valid law operating in the field, there would not be any source for

imposing penalty. A right to carry on trade is a constitutional right. By

reason of the penalty imposed, the Board inter alia has taken away the

said constitutional right for a period of ten years which, in our opinion, is

impermissible in law as the Regulations were not attracted.

     In Sterlite Industries (India) Ltd. v. Securities and Exchange Board

of India [(2001) 31 SCL 485: (2001) 45 CLA 195 (SAT)] , the Chairman

of the Board vide its order had prohibited the appellant, a public limited

company through its directors from accessing the capital market for a

period of two years and also ordered to initiate prosecution proceedings

under Section 24 read with Section 27 of the Act for violation of

Regulation 4(a) and 4(d) of the FUTP regulations against the appellant.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 26  

                                 19

     Setting aside the impugned order, the Tribunal on the applicability

of Sections 11 and 11B of the Act on barring the appellant from

accessing the capital market while referring to its decision in Bank of

Baroda opined:

           "104. It is seen from the order that the direction             debarring the appellant accessing the capital             market was issued invoking the powers vested             in the respondent under sections 11 and 11B.             ...The Tribunal had occasion to examine the             scope and reach of these sections in Bank of             Baroda v. SEBI [2000] 26 SCL 532 (SAT)             (Mum.) and had expressed the following view:

           "53. Section 11 and Section 11B are             interconnected and co-extensive as both these             sections are mainly focussed on investor             protection. On a careful perusal of the said             Section 13 referred to in the earlier paragraphs,             it could be seen that the respondent has been in             no uncertain terms mandated to protect the             interests of investors in securities by such             measures as it thinks fit. Of course those             measures are subject to the provisions of the             Act. The expression ’measure’ has not been             defined in the Act. So we have to go by its             generally understood meaning. According to             Corpus Juris Secundum measure means             ’anything desired or done with a view to the             accomplishment of a purpose, a plan or course             of action intended to obtain some object, any             course of action proposed or adopted by a             Government’. However, I am not inclined to             agree with the respondent’s view that the power             under Section 11 is unlimited. I am of the view             that the legislature has circumscribed the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 26  

                     20

power, by putting the caveat that these measures are subject to the provisions of the Act. The ambit of power is contained within the frame work of the Act. But within the statutory frame work such power reigns.

54. While Section 11 deals with the functions of the Board, Section 11B is on the powers of the Board. Section 11B is more action oriented, in a sense it is a functional tool in the hands of the Board. In effect Section 11B is one of the executive measures available to the respondent to enforce its prime duty of investor protection. As could be seen from the text of the section reproduced above, the respondent is empowered to issue directions in the interests of investors of any person or class of persons referred to in Section 12 of the Act or associated with the securities market. In other words the section identifies the persons to whom and the purposes for which, directions can be issued.

55. The Gujarat High Court had examined the scope of Section 11 and Section 11B vis-a-vis the respondent’s position, while deciding an appeal against the Single Judge’s order in Alka Synthetics Ltd. case [1999] 19 SCL 460. The basic issue for consideration before the Division Bench in the said appeal was as to whether the respondent had the authority to issue an order under Section 11B of the Act for impounding or forfeiting the money received by stock exchanges, as per the concluded transactions under its procedure, until final decision is made..."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 26  

                                  21

     While negating the views of the Single Judge, and upholding the

respondent’s power to issue such a direction under Section 11B it was

held that the Act provides for remedial measures and, thus, it was entitled

to issue any direction.

     It was, however, held :

            "106. It has to be noted that Section 11B does              not even remotely empower the respondent to              impose penalties."

     It was furthermore held :

            "108. The legislature has clearly spelt out the              penal provisions in the Act at 3 places - Section              12(3) provides for suspension or cancellation of              the certificate of registration granted to the              market intermediaries in the event of their              proven misconduct, provision under Chapter              VIA, provides for imposition of monetary              penalty for certain offences specified therein;              section 24 empowers Courts to award              punishment for violation of offences under the              Act etc. Since legislature has deliberately              chosen to create specific offences and penalties              thereto, it is not possible to view that under              Section 11B the respondent is competent to              issue a direction which tantamounts to              imposition of penalties, While widening the              scope of ’such measures’ used in Section 11, to              include penalties, and thereby stretching the              scope of issuing directions under Section 11B

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 26  

                     22

to cover imposition of penalties, the limitation stated above need be kept in mind. However, it is understood that the respondent has also been taking the view that Section 11B is not a penal provision, but preventive and remedial in its application. If that is so, it has to be seen whether the impugned direction prohibiting the appellant from accessing the capital market for a period of 2 years from the date of the order is preventive or remedial. In the absence of any explanation from the respondent as to what exactly is meant by ’accessing the capital market’, it has to be understood as is understood in the common parlance - i.e., entry to the capital market for issuing/offering securities. In this context, it is to be noted that the charge against the Appellant is of market manipulation. The shares of the appellant are listed/traded in the stock exchanges even today. That being the case preventing the appellant raising further capital/offering shares to the public in the next two years cannot serve as a preventive measure to debilitate the appellant indulging in market manipulation. Similarly, by no stretch of imagination the said direction can be considered even remedial as prospective barring of a public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose, 3 years ago. A remedial action is normally seen as one intended to correct, remove or lessen a wrong, fault or defect. Purport of preventive or remedial directions which can be issued in a proven case of fraudulent and unfair trade practice is discernible from the provisions of regulation 12 of the Regulations, already cited in this order. In my view the impugned order is neither remedial nor preventive but punitive in effect as it takes away the appellant’s right to mobilise funds from the public to carry on its business. According       to    Webster’s    Encyclopaedic Unabridged Dictionary ’penalty means a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 26  

                                  23

           punishment imposed or incurred for a violation             of law or rule’. In the instant case it is seen that             the order is made in the light of the finding - by             the authority, that the appellant has violated the             regulations. This nexus also strengthens the             view that the order debarring the appellant from             accessing the capital market is a penalty. In this             view of the matter the order has no legal             backing and therefore cannot sustain."

                                        [Emphasis supplied]

     Similar observations were made in BPL Limited v. Securities &

Exchange Board of India, SEBI [2002] 38 SCL 310 (SAT) and Videocon

International Ltd. v. Securities & Exchange Board of India, Shri D.R.

Mehta, Chairman, SEBI and Dr. R.K. Kakkar, Division Chief, SEBI

[2002] 38 SCL 422.

19.   Ritesh Agarwal and Deepak Agarwal are said to be minors. As

they were minors having regard to the provisions of the Indian Contract

Act, they could not have been proceeded against strictly in terms of the

provisions of the said Act. Apart from the actions taken by the Board,

the persons who undertook those fraudulent actions may also be held to

be guilty of making a mis-representation and commission of fraud not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 26  

                                  24

only before the prospective purchasers of the shares but also before the

statutory authority. The same, however, would itself not mean that a

minor would not be penalized for entering into a contract which per se

was not enforceable. A contract must be entered into by a person who

can make a promise or make an offer. If he cannot make an offer or in

his favour an offer cannot be made, the contract would be void as an

agreement which is not enforceable in law would be void. Section 11 of

the Indian Contract Act provides that the person who is competent to

contract must be of the age of majority. If Ritesh Agarwal and Deepak

Agarwal were minors, as would appear from their birth certificates, they

could not have entered into the contract.

20.   We, therefore, are of the opinion that subject to any other or

further order which the Board may pass as against Shri Surender Kumar

Agarwal and Smt. Rooprekha Agarwal, the impugned directions would

not be binding on Ritesh Agarwal and Deepak Agarwal.

21.   We do not accept the contention of Ms. Aggarwal that the offence

is a continuing one.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 26  

                                  25

22.   We do not also accept the contention that Rooprekha Agarwal was

not a promoter and only promoters were Ritesh Polyesters Limited and

Surender Kumar Agarwal. We, however, accept the contention of Mr.

Sundaram that Ritesh Agarwal and Deepak Agarwal could not have

proceeded against for violation of the FUTP Regulations.

23.   We, however, uphold other directions issued by the Board

including the action taken in respect of the offences purported to have

been committed. We also grant liberty to the authorities to proceed

against the offenders not only for other or further charges to which they

made themselves liable under the SEBI Act but also under the

Companies Act, 1956 and other penal statutes, if attracted.

24.   For the reasons aforementioned, the appeal is allowed to the

aforementioned extent. No costs.

                                            ...............................J.                                              [S.B. Sinha]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 26  

              26

                   ................................J.                     [Lokeshwar Singh Panta] New Delhi; May 13, 2008