HC stay on FIR order against Madhabi Puri Buch, 5 others to continue for 4 weeks

A single-judge bench of justice SG Dige on Tuesday found flaws in the order passed by the special court, saying it appears to have been “passed mechanically”

MUMBAI: The Bombay high court’s decision to stay or temporarily delay a special court’s order directing a First Information Report (FIR) to be registered against former Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch and five others for alleged stock market fraud and corruption will hold for at least four weeks.

Mumbai: SEBI chairperson Madhabi Puri Buch addresses a press conference, at SEBI head office in Mumbai, Tuesday, Dec. 20, 2022. (PTI Photo)(PTI12_20_2022_000307A) (PTI)

A single-judge bench of justice SG Dige on Tuesday found flaws in the order passed by the special court designated under the Prevention of Money Laundering Act on March 1, which directed Maharashtra’s Anti-Corruption Bureau (ACB) to file an FIR against Buch and five other senior officials from Sebi and the Bombay Stock Exchange (BSE).

“It appears that the order was passed mechanically without going into the details and without attributing any role to the applicants,” the bench said, while granting the complainant, Thane-based journalist Sapan Shrivastava, four weeks to file a reply. The high court had first passed a stay order on March 3.

Earlier, on March 1, special judge Shashikant Bangar had directed the ACB to file an FIR based on Shrivastava’s complaint, which accused Sebi of permitting New Delhi-headquartered oil refinery, Cals Refineries, to list on the BSE in 1994 even though it failed to meet regulatory conditions under the Sebi Act, 1992.

The complaint stated that the alleged fraudulent listing took place with the active connivance of regulatory authorities, particularly Sebi, which facilitated market manipulation and enabled corporate fraud. Shrivastava also alleged that Sebi officials had accepted a bribe of ₹2-10 lakh to overlook the regulatory breaches, thereby failing to carry out due diligence. He claimed that he suffered heavy financial losses due to the alleged corruption.

Along with Buch, the complaint was filed against three Sebi whole-time members Ashwani Bhatia, Ananth Narayan G, and Kamlesh Chandra Varshney, BSE chairperson Pramod Agarwal and the stock exchange’s chief executive Sundararaman Ramamurthy.

To be sure, trading in shares of Cals Refineries was suspended in August 2017. Neither Buch nor the three whole-time members were with Sebi at the time, the markets regulator had said in a statement after the special court’s order.

Advocate Sudeep Pasbola, representing Buch, reiterated this in the high court on Tuesday, while also highlighting the action taken by Sebi against Cals Refineries. Solicitor general Tushar Mehta, representing the Sebi officials, questioned the special court’s order, stating that it was passed “without application of mind”. He added that Shrivastava, who has a history of filing “vexatious litigations”, has again filed this complaint over frivolous claims.

“The complainant was fined ₹5 lakh in one such case for filing a frivolous complaint”, Mehta said, adding that Shrivastava has been extorting money through such litigations and even created a website for crowdfunding. He also asked the high court to consider that it has been 30 years since the listing was permitted.

Senior advocate Amit Desai, representing the BSE officials, said the allegations were baseless and scandalous. “For the special judge to take this kind of action against the chairperson and the officials is an attack on the economy of the country. He does not understand the significance of the matter. This is a scandalous complaint with serious consequences,” he said.

Desai also highlighted that the complaint, which listed violations under the Securities Contracts (Regulation) Act or SCRA, is not substantially viable as the law did not exist in 1994. “It was only introduced in 2002,” he said.

Moreover, Desai accused Shrivastava of engaging in a “charade of communication” by sending letters to Sebi and the director general of the ACB in March and April 2023 before filing the official complaint on April 6, 2024.

He also underscored the provisions of the Maharashtra Amendment to the Code of Criminal Procedure (CrPC), which bars investigation by the magistrate without a government sanction. “How did the judge not know this? How did he go wrong?” the senior advocate said. “Something as fundamental as this shakes the market,” he added.