SECURITIES AND EXCHANGE BOARD OF INDIA vs. IL AND FS SECURITIES SERVICES LTD.

1 NON­REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION I.A. NO.6482 OF 2022 IN  CIVIL APPEAL NOS. 5395­5398 OF 2019 SECURITIES AND EXCHANGE BOARD  OF INDIA                     …..APPELLANT (S) VERSUS IL AND FS SECURITIES SERVICES LTD. AND ORS.   .….RESPONDENT(S) AND IN THE MATTER OF: DALMIA CEMENT (BHARAT) LTD.   …..APPLICANT/ RESPONDENT NO.5.                       J U D G M E N T Vineet Saran, J. This is an application for modification of the order dated Signature Not Verified Digitally signed by Rachna Date: 2022.04.11 16:04:00 IST Reason: 21.09.2021 passed in I.A. No.84110 of 2021 in CA. Nos.5395­ 5398 of 2019. 2 2. The short dispute in the present matter is with regard to the   release   of   the   mutual   funds   in   favour   of   the applicant/Respondent No.5, which are of the value of about 350 crores. 3. Earlier, by order dated 27.08.2019, this Court had given the option to applicant/Respondent No.5 to get mutual funds converted/encashed and the amount was to be deposited in a fixed deposit account of a nationalized bank.  The said order was modified   by   this   Court  by   a   detailed   order   dated   16.03.2021 passed in I.A. No.100812/2020 in C.A. Nos.5395­5398 of 2019, the operative portion of which is extracted below:­ “10. Therefore,   we   modify   the   Interim Order dated 27.08.2019 to the extent that the Mutual   Fund   units   of   Respondent   No.5­ Applicant, kept with the Respondent No.1­ISSL, be released in favour of the Respondent No.5­ Applicant by way of transfer of the said Mutual Fund units and crediting the same in the demat account of the Respondent No.5­Applicant.  This is subject to the Applicant furnishing requisite Bank   Guarantee   of   equivalent   value   as   the Mutual Fund  units, to the  satisfaction  of  the Trial   Court.     The   Respondent   No.5­Applicant shall comply with this requirement within one month   of   filing   of   application   for   release   of Mutual Fund units (along with a copy of this order) before the Trial Court.   The Trial Court shall   also   dispose   of   such   application expeditiously.    It  is   clarified  that   the   Interim 3 Order   dated   27.08.2019   shall   continue   to operate   as   it   was   as   against   the   other parties/non­Applicants herein” 4. Another application, I.A. No.84110/2021, was filed by   the   applicant/Respondent   No.5   and   this   Court   further modified the earlier order on 21.09.2021, operative portion of which reads as under:­ “That instead of bank guarantee for a sum of Rs.344.07 crore,  which has been furnished by applicant/Dalmia in terms of our order dated 16.03.2021,   the   applicant/Dalmia   shall   now furnish a bank guarantee for a sum of Rs.100 crores and further it shall furnish a security to the extent of Rs.300 crores of an unencumbered asset, the value of which may be duly certified by the Chartered Accountant­cum­Valuer, who have no conflict of interest having regard to the parties   involved   and   interest   in   the   subject matter and may be any one of the following.  1. PricewaterhouseCoopers Private Limited  2. Ernst and Young  3. KPMG  The   bank   guarantee   already   furnished   by the applicant/Dalmia to the extent of Rs.344.07 crores   shall   stand   discharged   on   the applicant/Dalmia fulfilling the above conditions to   the   satisfaction   of   the   Trial   Court.   The applicant/Dalmia   shall   also   file   an   affidavit before this Court to the extent that the asset, which   is   being   furnished   as   security,   is   an unencumbered property.” 4 5.  The present application, I.A. No.6482 of 2022, has been filed by the applicant/Respondent No.5 for a further modification of the   order  dated  21.09.2021,  the   prayers  of   which  read as under:­ “a. Allow   the   present   Application seeking modification of order dated 21.09.2021 passed by this Hon’ble Court in IA No.84110 of 2021; and/or b. Modify the order dated 21.09.2021 passed by this Hon’ble Court in IA No.84110 of 2021   in   Civil   Appeal   No.5395   of   2019   and direct the Chief Metropolitan Magistrate (East), Karkardooma   Courts,   Delhi   to   return/release the   original   Bank   Guarantee   No. OGT0005210053201 dated 23.03.2021 of the IndusInd   Bank   Limited   in   the   sum   of   INR 344.07   Crores,   furnished   by   Dalmia   Cement (Bharat) Ltd./applicant pursuant to order dated 16.03.2021 passed  by this  Hon’ble Court, to the Applicant on such terms and conditions as may be deemed fit by this Hon’ble Court; and c. Pass   such   other   order(s)   as   this Hon’ble Court may deem fit.” 6. The submission of Shri Guru Krishna Kumar, learned Senior Counsel appearing for applicant/Respondent No.5 is that subsequent   to   the   passing   of   the   order   dated   21.09.2021,   a supplementary   chargesheet   has   been   filed   by   the   Economic Offences Wing   (hereinafter referred to as “EOW”), in which a 5 clear   finding   against   the   ISSL/Respondent   No.1   and Allied/Respondent No.4 has been recorded to the extent it has been found that  “after settlement of above trades by ISSL out of the funds of Allied, the securities fraudulently pledged by Allied became   free   from   collateral   and   ought   to   have   been   rightfully returned to its original/rightful owner i.e. Complainant and ISSL cannot have any claim of any nature over the said securities” (Complainant was the applicant/Respondent No.5). 7. It has been further contended that the Serious Fraud Investigation Office (for short ‘SFIO’) reported prima facie finding that   the   buying   and   selling   of   illiquid   contracts   was   a   pre­ planned   synchronized   activity   wherein   the   exchange   platform was used to camouflage a financial transaction.   As such, the SFIO   has   also   recorded   a   clear   finding   that   the   ISSL   has fraudulently   allowed   movement   of   collaterals.     It   has   been submitted that although the matter is still under investigation but prima facie view of EOW and SFIO are both clearly against the   ISSL/Respondent   No.1   and   Allied   Financial   Services   Pvt. Ltd./Respondent   No.4.     It   is   contended   that   the applicant/Respondent No.5 is incurring huge expenses/costs by 6 furnishing bank guarantee and the alternative provided by order dated 21.09.2021 to furnish bank guarantee for a sum of Rs.100 Crores and further to furnish security to the extent of Rs.300 Crores of unencumbered asset is inequitable and unreasonable in the facts and circumstances of the case, as admittedly the securities/mutual   funds   belong   to   the   applicant/Respondent No.5,   who   should   be   given   superdari   of   the   same   without imposing any such conditions.   8. Shri   K.V.   Viswanathan   and   Shri   Sidharth   Luthra, learned Senior Counsel appearing for the Respondent No.1 have vehemently opposed the prayer for any further modification of the  order   dated   21.09.2021.       They  have   submitted   that  the conditions   imposed   in   the   order   dated   21.09.2021   are   fully justified.  It is contended by them that though the EOW has on 09.11.2021   filed   a   supplementary   chargesheet   against Respondents No.1 and 4 but the fulcrum of this chargesheet is the order of the SEBI dated 02.07.2021, which was passed prior to 21.09.2021.   It is contended that though observations have been made in the SFIO report, the same are not final as the matter is still under investigation.   7 9. Shri Pratap Venugopal, learned counsel appearing for the SEBI   and   Shri   Sandeep   Bisht,   learned   counsel  appearing   for Respondent   No.4/Allied   and   Shri   Rishi   K.   Awasthi,   learned counsel appearing for the retail investors have also opposed this prayer   for   any   further   modification   of   the   order   dated 21.09.2021. 10. We have heard learned counsel for the parties at length and   perused   the   record.     In   our   view,   the   subsequent supplementary chargesheet submitted by the EOW, and relied upon by the learned counsel for the petitioner, ought not to be ignored while considering this matter.  In its earlier orders, this Court has clearly found that the securities need to be released in favour of the applicant/Respondent No.5.  The only question is with regard   to   the   mode  and   manner   of   the   securities   to be furnished by the applicant/Respondent No.5.  It is not disputed that the petitioner has, in terms of the order dated 16.03.2021, complied   with   the   condition   of   furnishing   bank   guarantee   of Rs.344.07 Crores. 11. In   paragraph   20   of   this   application   filed   by   the applicant/Respondent No.5, it is stated that the applicant is a 8 public limited company, having sound financials with a strong balance­sheet   and   other   financial   statements   (assets   of   INR 18,556 Crores and turnover of INR 8,779 Crores during financial year 2020­21).  The same is not denied by the other parties who have filed their respective replies to this application.   12. Keeping in view the aforesaid facts and circumstances, we are of the opinion that the operative part of the order dated 21.09.2021 deserves to be modified and, accordingly, the same is modified to the extent that instead of bank guarantee for a sum of   Rs.344.07   Crores,   which   has   been   furnished   by applicant/Respondent No.5, in terms of order dated 16.03.2021, the   applicant/Respondent   No.5   shall   now   furnish     bank guarantee for a sum of Rs.100 Crores and it shall further furnish a corporate guarantee to the extent of Rs.300 Crores.  The bank guarantee earlier furnished by the applicant/Respondent No.5 to the extent of Rs.344.07 Crores shall stand discharged on the applicant/Respondent No.5 fulfilling the above condition to the satisfaction of the Trial Court concerned.   9 13. It is again clarified that any observation made in this order shall not affect the merit of the case and the appeals will be heard on merit.  14. With the aforesaid directions, the I.A. No.6482 of 2022 is disposed of.                                                                            ………..………………………………..J   (VINEET SARAN) ………..………………………………..J                      (J.K. MAHESHWARI) New Delhi April 11, 2022.