SEBI Rejects Preliminary Objections in Bajaj Hindusthan Fund Diversion Case

Securities and Exchange Board of India (SEBI) Rebuffs Preliminary Objections in Fund Diversion Case

The Securities and Exchange Board of India (SEBI) has rejected preliminary objections raised by Bajaj Hindusthan Sugar Limited and its promoters against ongoing proceedings in an alleged fund diversion case. The decision allows adjudication on the merits to continue, paving the way for further investigation.

The proceedings stem from a show-cause notice issued by SEBI on October 16, 2023, against Bajaj Hindusthan Sugar Limited, promoter Shishir Bajaj, and managing director Kushagra Bajaj, over alleged diversion of funds through inter-corporate loans and transactions involving connected entities. The noticees argued that SEBI lacked jurisdiction because two forensic audit reports, conducted during RBI-mandated restructuring exercises, had already examined the transactions and found no evidence of diversion or siphoning of funds.

However, the Quasi-Judicial Authority (QJA) N Murugan, in his order, held that even if the investigation authority failed to consider certain materials during the investigation, such omission would not invalidate the proceedings. The authority observed that SEBI derives statutory powers under the SEBI Act and PFUTP Regulations to investigate allegations relating to fund diversion and fraudulent conduct affecting investors and securities markets.

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The QJA order distinguished between 'jurisdictional facts' and 'adjudicatory facts', relying on several Supreme Court judgments. It held that while jurisdictional facts determine whether an authority can act at all, adjudicatory facts relate to the appreciation of evidence and the determination of merits. The authority rejected arguments that the proceedings suffered from excessive delay, stating that mere public disclosure of transactions did not automatically reveal alleged diversion or fraudulent routing of funds.

The order further stated that SEBI had the jurisdiction to investigate the allegations of fund diversion. Therefore, even if the investigating authority is assumed to have reached an erroneous conclusion or failed to consider those facts, such alleged defects would not convert a valid exercise of jurisdiction into a case of lack of jurisdiction.

The decision follows directions issued by the Bombay High Court in relation to a writ petition filed by the company and its promoters. The Quasi-Judicial Authority order allows SEBI to continue its investigation into the alleged fund diversion case, which has significant implications for the company and its promoters.

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