Case Note & Summary
The Bombay High Court dismissed two writ petitions filed by Hemant Kulshrestha and Vinay Bansal challenging an ex-parte interim order passed by the Securities and Exchange Board of India (SEBI) on 15 May 2025. The petitioners were alleged to have engaged in manipulative trading and insider trading in the securities market. SEBI, exercising its powers under Section 11B of the SEBI Act, 1992, directed the petitioners to disgorge wrongful gains and restrained them from accessing the securities market until further orders. The petitioners contended that the order was passed without affording them a prior hearing, violating principles of natural justice. They argued that SEBI should have issued a show-cause notice before passing any adverse order. SEBI, represented by senior counsel, submitted that the order was passed in urgency to prevent further harm to the market and that a post-decisional hearing would be provided. The court examined the scope of Section 11B and the doctrine of natural justice in the context of regulatory actions. It held that SEBI has the power to pass ex-parte interim orders when there is a reasonable apprehension of market manipulation and public interest requires immediate action. The court noted that the requirement of natural justice is not inflexible and can be satisfied by a post-decisional hearing, especially where the order is interim and subject to review. The court also observed that the petitioners had been given an opportunity to file objections and be heard after the order. Consequently, the court dismissed both petitions, upholding the validity of the ex-parte interim order and directing SEBI to conclude the post-decisional hearing expeditiously.
Headnote
A) Securities Law - Ex-parte Interim Order - Power of SEBI under Section 11B of SEBI Act, 1992 - SEBI passed an ex-parte interim order directing petitioners to disgorge wrongful gains and restraining them from accessing securities market - Petitioners challenged the order on grounds of violation of natural justice - Court held that SEBI has power to pass ex-parte interim orders in cases of urgency and public interest, and post-decisional hearing is sufficient compliance with natural justice (Paras 1-10). B) Securities Law - Natural Justice - Post-decisional Hearing - Section 11B of SEBI Act, 1992 - Petitioners argued that they were not heard before the interim order - Court held that where urgent preventive action is required to protect market integrity, a post-decisional hearing is valid and adequate (Paras 5-8). C) Securities Law - Market Manipulation - Disgorgement of Profits - Section 11B of SEBI Act, 1992 - SEBI alleged that petitioners engaged in manipulative trading and insider trading - Court upheld SEBI's direction to disgorge profits as a measure to protect investors and maintain market integrity (Paras 3-6).
Issue of Consideration
Whether SEBI can pass an ex-parte interim order without prior hearing, and whether the post-decisional hearing mechanism satisfies principles of natural justice.
Final Decision
The Bombay High Court dismissed both writ petitions, upholding the validity of SEBI's ex-parte interim order and directing SEBI to conclude the post-decisional hearing expeditiously.
Law Points
- Ex-parte interim order
- Natural justice
- Post-decisional hearing
- Securities market manipulation
- SEBI Act Section 11B
- Urgency and public interest
