Balsaaheb Keshawrao Bhapkar vs Securities And Exchange Board Of India

2024 INSC 525 REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL ORIGINAL JURISDICTION

WRIT PETITION (CRL.) NO. 546 OF 2023

Balasaheb Keshawrao Bhapkar & Ors. ….Petitioner(s)

Versus

Securities and Exchange Board of India & Ors. ….Respondent(s)

ORDER

SURYA KANT, J.

1. Petitioner Nos. 1 and 2 are husband and wife, whereas Petitioner

No. 3 is their son. They have invoked the jurisdiction of this Court

under Article 32 of the Constitution, seeking the following directions: -

“(a) To issue appropriate writ in the nature of mandamus or

any direction or order directing the Respondent No. 1 to

liquidate the attached assets within a period of 6

months and/or, in the alternative, allow the Petitioners

to assist Respondent No. 1 in liquidating the attached Signature Not Verified Digitally signed by assets;

ARJUN BISHT Date: 2024.07.16 15:46:35 IST Reason:

(b) Direct Respondent No.1 to distribute the amount lying

within it to genuine investors as early as possible; Page 1 of 21

(c) Direct Respondent No. 1 to allow the Petitioners to assist

them in identifying genuine investors and also the

amount deposited by them; and

(d) Pass other and further order(s) as this Hon’ble Court

may deem fit in the facts and circumstances of the case.”

2. The above-stated reliefs have been sought in light of the following

set of events predicated in this factual background: -

(a) Petitioner Nos. 1 and 2 are the founder-Directors of one Sai Prasad

Properties Ltd, incorporated under the provisions of the Companies

Act, 1956. Petitioner No. 3 also joined the aforesaid company as a

Director in 2008, allegedly when he was still studying in college,

and is claimed to have thereafter resigned in the year 2014. The

Petitioners also floated various other companies, known as the Sai

Group of Companies, consisting of:

(i) M/s Sai Prasad Properties Ltd. (hereinafter, “SPPL”);

(ii) M/s Sai Prasad Foods Ltd. (hereinafter, “SPFL”);

(iii) M/s Sai Prasad Corporation Ltd. (hereinafter, “SPCL”); and

(iv) M/s Shree Sai Space Creations Ltd. (hereinafter, “SSSCL”).

(b) The Security and Exchange Board of India (hereinafter, “SEBI”)

received a complaint dated 02.06.2010 alleging illegal mobilisation

of funds by SPFL. After processing the said complaint and in Page 2 of 21 furtherance of the orders passed by the High Court of Madhya

Pradesh and the Department of Financial Services, Ministry of

Finance, the Whole Time Member of SEBI (hereinafter, “WTM”)

issued an interim order-cum-show cause notice dated 17.07.2013,

inter alia, directing SPFL and its Directors to refrain from collecting

any more money from investors, under the existing schemes or any

new schemes. SEBI, once again passed an order dated 14.01.2015

against SPFL and its Promotors/Directors, restraining them from

collecting any money from the investors, launching or carrying out

any Collective Investment Schemes, and from

alienating/disposing/selling any of the assets of the Company,

except for the purpose of refund to its investors.

(c) SEBI received a letter dated 17.08.2012 from the Registrar of

Companies, Goa, Daman & Diu informing that upon inspection

conducted under Section 209A of the Companies Act, 1956, it was

found that SPPL had been accepting investments from their

associates for a period of 4 to 9 years and had also been executing

joint venture agreements. SEBI was then requested to take

appropriate action against SPPL for violating Section 11AA of the

SEBI Act, 1992.

(d) A preliminary enquiry was conducted, and after issuing an interim

order-cum-show cause notice dated 17.07.2013, the WTM vide the

Page 3 of 21 final order dated 14.01.2015 issued directions against SPPL and its

Promotors/Directors, identical to those passed against SPFL

(mentioned in paragraph 2(b) above).

(e) In addition, SEBI received complaints on 23.09.2013 against SPCL

and its sister concerns, alleging collection of money from the public,

through the Collective Investment Schemes. While these

complaints were under investigation, SEBI also received a reference

from the Income Tax Department dated 03.03.2014 alleging the

collection of money from the public by M/s Sai Prasad Group, to

the tune of Rs. 290 crores. WTM once again issued an interim order

on 22.07.2014, followed by a final order dated 01.02.2016,

directing SPCL and its Directors not to collect any money from the

investors or launch or carry out any Collective Investment

Schemes. SPCL and its Directors were further restrained from

accessing the securities market and were prohibited from buying,

selling, or otherwise dealing in the securities market for a period of

four years.

(f) A somewhat similar complaint dated 06.10.2013 was received by

SEBI against SSSCL, alleging the illegal mobilisation of funds

through a joint venture participation project, which was in the

nature of Collective Investment Schemes. Upon investigation, SEBI

found a prima facie violation of Section 11AA (2) of the SEBI Act.

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Consequently, an interim order-cum-show cause notice was issued

on 23.01.2014, directing SSSCL and its Directors to abstain from

collecting any money from the investors and from launching or

carrying out any Collective Investment Schemes. WTM further

directed SSSCL to wind up the existing Collective Investment

Schemes, refund the monies collected by it under such schemes

and submit a compliance report including the trail of funds claimed

to be refunded, bank account statements indicating the refunds to

investors, and replies from the investors acknowledging such

refunds. In addition, proceedings under Chapter VI-A of the SEBI

Act, 1992 were also initiated, and an Adjudicating Officer was

appointed to inquire into the violations.

(g) It may not be necessary to refer to the subsequent events in relation

to the four companies referred to above, except to say that:

(i) Penalties were imposed;

(ii) Recovery proceedings for a sum of Rs. 30,561,041,451.69

(Three Thousand and Fifty-Six Crores approximately) were

initiated; and

(iii) All the immovable properties and jewelleries owned by the

aforesaid companies were attached, including those permitted

to be auctioned by the MPID Court in Mumbai in Case No.

7/2016.

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(iv) The MPID Court and the SEBI, vide orders dated 30.01.2017

and 10.03.2017 respectively, attached various properties of

the companies and jewellery items. Subsequently, through

various orders passed from time to time, including the one

dated 12.02.2020, SEBI attached additional properties in the

State of Maharashtra and prevented the creation of any further

encumbrances in all the immoveable properties held by the

Petitioners. In furtherance, SEBI sold 100 properties in 7

public auctions to liquidate the movable or immovable assets.

(h) Meanwhile, FIR No. 78/2015 was registered on 16.03.2015 at

Police Sation Rajhara, District Balod, State of Chhattisgarh,

against the Petitioners under Sections 3, 4, and 5 of the Prize Chits

and Money Circulation Scheme (Banning) Act, 1978 (hereinafter,

“Prize Chits Act”). It appears that the Petitioners were arrested in

that case on 27.01.2016.

(i) Thereafter, a series of FIRs were registered in the States of

Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar

Pradesh and Haryana. Most of these FIRs have been registered

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 (hereinafter, “MPID Act”). It appears that while 28 FIRs

have been registered in the State of Chhattisgarh, 16 FIRs are Page 6 of 21 registered in the State of Madhya Pradesh, 11 FIRs in the State of

Rajasthan, 2 FIRs in the State of Uttar Pradesh, and 1 FIR in the

State of Maharashtra and the State of Haryana each.

(j) It further appears that after the Petitioners were arrested on

27.01.2016 in the first case registered in the State of Chhattisgarh,

the Petitioner Nos. 1 and 2 still continue to be in custody of various

courts, as a result of multiple FIRs registered across the country.

Petitioner No. 3, however, was first released on bail by this Court

vide order dated 15.03.2021, but was again arrested on 26.12.2022

by the Chhattisgarh Police in similar cases registered in 2016 and

2019. It appears that he was, however, released on bail by the

Chhattisgarh High Court on 10.04.2023 in MCRC No. 724 / 2023.

Thereafter, vide the order dated 15.04.2024 passed in SLP (Crl.) D.

No. 43363/2023, it has been directed that Petitioner No. 3 shall not

be arrested in any fresh case registered against the Petitioners on

the same or related issues. On 29.04.2024, it was further directed

that Petitioner No.3 shall not be arrested in any of the cases

registered against him until further orders.

3. Having understood the facts, we shall now advert to the

Petitioners’ prayer seeking a direction to SEBI to liquidate the attached

assets in a time-bound manner and disburse the sale proceeds to

genuine investors as early as possible. In this regard, SEBI noted that

Page 7 of 21 the Forensic Audit conducted by the Economic Offence Wing

(hereinafter, “EOW”) revealed that the Companies floated by the

Petitioners were liable to refund Rs. 4700 crores, though as per the

order passed by the WTM the refund amount was initially Rs. 3049

crores only. It is also not in dispute that there are 498+13 immovable

properties owned by the companies; the details whereof have been

furnished before the MPID Court, Mumbai. The parties are broadly ad

idem that the entire liability of each Company regarding refund of the

due amount to all the investors as well as various statutory, foreseen or

unforeseen liabilities, can be extinguished from the sale proceeds of

some of the immovable properties, if not all of them.

4. Since the immovable properties owned by the companies are

spread over different parts of the country, it was sensed unachievable

for either the SEBI or the MPID Court at Mumbai, to liquidate all these

assets through time-bound public auctions, for the reason that the

process postulates various complex questions such as:

(i) What is the exact location of the immovable property in metes and

bounds?;

(ii) Whether or not such property is free from encumbrances?;

(iii) Whether the physical possession of the subject-property is with one

of the companies or not;

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(iv) Whether any civil dispute regarding the title/ownership of such

property is pending before a competent forum?;

(v) What is the market value of the property in the event of its sale in

a transparent manner?;

(vi) Is there any lien of statutory tax, levy, duty, or any other charge

attached to such property?;

(vii) What mechanism shall be evolved for the sale of each property, so

as to fetch the best price?; and

(viii) What is the mandatory procedure to be followed in terms of local

laws for the purpose of registration of the auctioned property and

its mutation in favour of the auction purchaser, etc.

5. Since SEBI with its bona fide pursuits to liquidate the assets and

generate funds to satisfy the claims of investors, has already auctioned

some of the assets, it has taken a very fair stand through its learned

Senior Counsel, agreeing to the constitution of a High-Powered Sale

Committee (hereinafter, “HPSC”) to auction the immovable assets of the

companies, to the extent they are required to satisfy the investors’

claims and liquidate all other statutory liabilities of the Companies. In

this regard, the Petitioners, as well as SEBI, have submitted their

comprehensive notes of suggestions to work out the modalities.

Page 9 of 21

6. We have minutely considered the valuable suggestions given by

learned Senior Counsel/Counsel for the parties for the constitution of

HPSC and have also kept in view exigencies such as that:

(a) Petitioner Nos.1 and 2 are languishing in jail as undertrials for over

8 years;

(b) Innocent investors have been eagerly awaiting the refund of their

hard-earned money for more than a decade;

(c) Despite its best intentions and commitment, SEBI is facing an

uphill task in conducting public auctions in a timebound manner;

(d) SEBI or MPID Court, Mumbai do not have the readily available

infrastructural and strategical facilities to identify each property, to

have fair assessment of their market value, and then to auction

them to fetch the true market value;

(e) The conclusion of trials in the pending criminal cases is marred by

uncertainty; and

(f) The Petitioners have shown their bona fide towards refunding the

investors' amounts, and any further delay in this regard, will be

prejudicial to one and all.

7. Keeping these exceptional and peculiar circumstances in view, we

deem it fit to invoke our powers under Article 142 of the Constitution of

Page 10 of 21 India, so as to do complete justice between the parties and hence,

constitute the HPSC comprising of the following:

(a) Hon’ble Mr. Justice S. Ravindra Bhatt, Former Judge, Supreme

Court of India – Chairperson;

(b) Dr. Justice Satish Chandra, Former Judge, High Court of

Allahabad – Member;

(c) A nominee of SEBI who shall be an officer preferably in the rank of

its Director – Member;

(d) States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan,

Uttar Pradesh and Haryana are hereby directed to appoint one of

their officers of the Revenue Department, not below the rank of

Collector, to assist the HPSC in relation to the properties situated

within that State. The Collector shall be obligated to provide the

requisite information, in writing, and shall sign the proceedings as

State Representative;

(e) Mr. Pardeep Kumar Sharma, Registrar (Retd.), Supreme Court of

India is hereby appointed as the Member Secretary-cum-Nodal

officer of the HPSC. He shall be the Principal Custodian of all

records and shall coordinate between the Chairperson and

Members of the Committee as well as the State Authorities to give

effect to the task assigned to the HPSC;

(f) The Deputy Secretary, Department of Home, Government of

Maharashtra, who is the Officer in charge of the EOW, shall act as Page 11 of 21 Secretary to the HPSC for the purpose of securing title/ownership

records or other relevant documents from different States and shall

be jointly responsible along with Member-Secretary for

maintenance and custody of record;

(g) The HPSC may, at its discretion, associate:

(i) A Chartered Accountant; or

(ii) A Civil Engineer; or

(iii) An Architect; or

(iv) Any other expert, from time to time as and when required;

(h) The HPSC shall:

(i) Firstly, obtain all property documents/original title deeds and

other relevant records from the SEBI/EOW/MPID Court,

Mumbai and Sub-Registrars of different States, where the

properties of M/s Sai Prasad Group of Companies are located;

(ii) A database of the property documents, along with material

details, shall be created;

(iii) Arrangements shall be made for safe storage, digitalisation,

and unique number marking of the property

documents/original title deeds and other jewellery items;

(iv) In this regard, SEBI with the help of Stock Holding Document

Management Services Ltd., will provide the necessary facilities;

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(i) The HPSC shall take necessary steps to ensure that all the

properties are shown to be entrusted/encumbered in its favour in

the State Government land records;

(j) The HPSC shall appoint a pool of Certified Valuers to evaluate the

Company's assets in each State;

(k) We hereby confer and vest all the powers of a Civil Court in the

HPSC for taking necessary actions to speed up the liquidation of

the Companies' properties;

(l) The HPSC, with the help of experts, will prepare a list of properties

already sold under the supervision of the MPID Court, Mumbai, as

well as a separate list of the properties that are yet to be sold;

(m) The HPSC will engage/appoint e-auction service providers for

auctioning of the assets;

(n) Similarly, expert agencies may be empanelled for the valuation of

the assets for initiating the public auction process and its

advertisement;

(o) The final decision regarding the disposal of the assets shall be at

the complete discretion of the HPSC and once the sale is made the

property shall vest in the buyer, free from all encumbrances.

(p) The Petitioners or their nominees will be at liberty to join the

auction proceedings and bring prospective buyers. They may

submit their suggestions to the HPSC, if any. However, the HPSC

will have full discretion to decide on those suggestions, and the

Page 13 of 21 Petitioners shall not be entitled to agitate on such issues before this

Court or any other forum;

(q) The objections, if any, submitted by the Companies against the

Forensic Audit Report and which are stated to be pending before

the MPID Court, Mumbai, are directed to be decided within two

months. A copy of the order shall be forwarded by the MPID Court

to the HPSC for its information and record; and

(r) SEBI is directed to provide a separate account where the sale

proceeds shall be deposited. Such account shall be jointly operated

by the Chairperson or his nominee Member along with the Member,

nominated by SEBI.

Refund Process

8. Having delineated the manner in which the HSPC will auction the

assets and accommodate the sale proceeds in a dedicated account, the

following process may be undertaken for the refund to investors:

(i) The HPSC shall identify the number of investors and database of

such investors, in consultation with all the concerned agencies /

State Representatives and, if so required, the Representatives of the

Companies;

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(ii) The HPSC shall thereafter determine the amount to be refunded to

each investor;

(iii) The HPSC shall determine a threshold recovery limit beyond which

the refund process can be started;

(iv) The HPSC shall also decide upon a category of investors based on

their investment amount so that the refund can be done in a

segregated and simultaneous manner;

(v) As already stated, the HPSC shall open an Escrow Account with a

bank designated by SEBI, transfer all amounts from the account

monitored presently by the MPID Court, Mumbai, and deposit all

sale proceeds in that interest-bearing account;

(vi) The HPSC shall decide the nature of documents to be sought from

the investors to determine their claims and the mode of application

by the investors (online/physical) to determine their eligibility for

refund, as well as the mode of refund (online/draft/both); and

(vii) Investor’s claims shall be invited through a public notice that shall

be widely publicized in one English newspaper and in one

vernacular newspaper, popular in the State.

Obligation of the Petitioners and their Companies

9. Having regard to the duties and obligations to be carried out by

the Petitioners and their companies, the following may be done:

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(i) The Petitioners and their Companies shall forthwith submit details

of all the immovable assets/jewellery items to the HPSC and shall

also handover original title deeds or other relevant documents as

may be in their possession;

(ii) The Petitioners and their Companies shall execute the necessary

sale deeds within the time frame and as per the instructions of the

HPSC after the sale is confirmed and the full consideration is

received in the bank account to be operated by HPSC; and

(iii) In the event of any pending title dispute, the HPSC shall determine

the rights of the Sai Prasad Group of Companies in such properties

for the limited purpose of auctioning them. Except for when there

are legal impediments, such property shall be auctioned without

any delay, and the Petitioners or the authorised representatives of

their Companies will execute the necessary documents, including

sale deeds, in such cases also.

Secretarial cum Administrative requirements

10. With respect to the administrative or secretarial assistance that is

necessitated in the course of dealing with these directions, the following

may be adhered to:

(i) SEBI will assist HPSC in the opening of its office, for the purpose

of overall coordination and receiving correspondence from the

stakeholders. HPSC will also arrange other infrastructure and may

Page 16 of 21 engage secretarial assistance as may be necessary for its smooth

functioning. If the SEBI has any adequate office space and

infrastructure at a place where the HPSC decides to set up its

Principal Office, SEBI may provide the same without prejudice to

its right to recover user charges, which will be determined by the

HPSC;

(ii) Needless to say, the office space shall be sufficient for carrying out

meetings, sitting of secretarial services, maintenance of records,

etc.;

(iii) The HPSC shall open a dedicated website for the auction / e-

auction/advertisement / refund process etc.;

(iv) The claims / objections / representations etc., as may be received

by HPSC shall also be disposed of at its end;

(v) The HPSC shall fix a time line for every action and endeavour to

conclude the sale process as early as possible and within the time

frame so determined; and

(vi) We will at this stage request the HPSC to make an endeavour to

conclude the entire process within one year.

Remuneration

11. Finally, keeping in mind the distinct responsibilities and

obligations to be shouldered by the HPSC, it is imperative to also

address the remuneration of the learned Chairperson along with all the

Page 17 of 21 members. In this regard, learned Senior counsel for the parties have

referred to two orders passed by this Court as `guidelines’.

The first order is dated 4 th May, 2022 passed in Writ Petition (C)

No.995 of 2019 (National Spot Exchange Ltd. v. Union of India & Ors.)

wherein, a `Supreme Court Committee’ headed by a former Chief

Justice of the High Court was constituted for the purpose of sale of the

attached properties and disbursement of sale proceeds amongst the

investors. This Court, instead of fixing the honorarium, observed that

“the learned Judge will fix his own fee”. The second order dated 29th

March, 2023 was passed in I.A. No.56308 of 2023 in Writ Petition (C)

No.191 of 2022 (Pinak Pani Mohanty v. Union of India & Ors.) wherein

also a High-Powered Committee headed by a former Judge of this Court

was constituted to supervise and monitor the disbursement of an

amount of Rs. 5000 crores to the depositors of the Sahara Group of Co-

operative Societies. In that case, an honorarium of Rs. 15 lakhs per

month was ordered to be paid to the learned former Judge of this Court,

besides Rs. 5 lakhs per month to the learned amicus curiae.

12. Having bestowed our thoughtful consideration on these two orders

and after taking note of the fact that the entire process in the case in

hand might take more than a year, it seems to us that fixation of

monthly honorarium may not be desirable. Similarly, we do not want to

leave it for the learned Chairperson or members of the HPSC to fix their

Page 18 of 21 own honorarium as it is likely to cause embarrassment to them.

Considering all these aspects in view, we issue the following directions:-

(i) The Chairperson of the HPSC shall be entitled to an honorarium of

Rs. 2 lakhs per sitting day, when effective proceedings are held.

This will be in addition to travelling, boarding and other

miscellaneous expenses as may be incurred in discharging the

assigned responsibilities;

(ii) The learned Member, who is a former Judge of the High Court shall

be entitled to an honorarium of Rs. 1.50 lakhs per sitting day, when

effective proceedings are held. This will be in addition to travelling,

boarding and other miscellaneous expenses as may be incurred in

discharging the assigned responsibilities;

(iii) The Member nominated by SEBI shall not be entitled to any

remuneration—since he is a full-time officer of SEBI. However, he

shall be entitled to travelling, boarding, and other miscellaneous

expenses as may be incurred in discharging the assigned

responsibilities;

(iv) The Member Secretary cum Nodal Officer of the Committee shall be

entitled to an honorarium of Rs. 75 thousand per sitting day, when

effective proceedings are held. This will be in addition to travelling,

boarding and other miscellaneous expenses as may be incurred in

discharging the assigned responsibilities;

Page 19 of 21

(v) Remuneration of experts like Chartered Accountant, Civil Engineer,

Architect, Certified Valuer etc. shall be determined by the HPSC;

and

(vi) The expenditure towards honorarium, hiring of office, secretarial

assistance, as well as for following the prescribed procedure of

auction, etc., shall be reimbursed from the sale proceeds. The

initial expenditure shall be reimbursed from the sale proceeds of

the properties which have already been sold, namely, the amount

which the SEBI will transfer to the Escrow Account.

13. The States of Chhattisgarh, Maharashtra, Madhya Pradesh,

Rajasthan, Uttar Pradesh and Haryana are hereby directed through

their Chief Secretaries and Financial Commissioners (Revenue), to

extend full cooperation and provide complete assistance as may be

required by the HPSC for the purpose of execution and fulfilment of the

assigned task. There must not be any delay on their part to comply with

the instructions as may be received from the Chairperson of the HPSC.

14. Similarly, the Directors General of Police of the above-mentioned

States are directed to provide assistance, if so required for the purpose

of securing and protecting possession of the properties of the

Companies.

15. In addition, the HPSC, if so required, may deploy private guards

for the protection of the properties of the Companies.

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16. SEBI and the Petitioners are also directed to extend full

cooperation to the HPSC.

17. To facilitate the sale and disbursement process and keeping in

mind the period of incarceration already undergone, Petitioner Nos. 1

and 2 are directed to be enlarged on interim bail to the satisfaction of

the MPID Court, Mumbai in Case No. 7 / 2016. This will be treated as

interim bail in all of the FIRs. We order this on the basis of the special

facts of the case, in exercise of our power under Article 142 of the

Constitution of India.

18. The HPSC shall be at liberty to seek further guidelines or

clarifications as may be required, for which its Member Secretary cum

Nodal Officer shall be at liberty to move an appropriate application

before this Court.

………………………………J. (SURYA KANT)

………………………………J. (K.V. VISWANATHAN)

NEW DELHI

DATED: 15.07.2024

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