Court Should Not Act As ‘Super Regulator’: Delhi HC In Plea By Subramanian Swamy Seeking Investigation In Alleged Fraud By Max Life & Axis Bank

The Delhi High Court while dealing with a writ petition in form of Public Interest Litigation (PIL) preferred by BJP leader Dr. Subramanian Swamy, said that the Court should not act as a ‘super regulator’.

Swamy had approached the Court under Article 226 of the Constitution seeking issuance of Writ of Mandamus to form a committee consisting of experts to investigate the alleged fraudulent acts of M/s Max Life Insurance Co. Ltd. and M/s Max Financial Services Ltd. in allowing their shareholder i.e., Axis Bank Ltd. and its group companies to make undue profits or illegal gains from the purchase and sale of equity shares of Max Life in a non-transparent and illegal manner.

A Division Bench comprising Acting Chief Justice Manmohan and Justice Tushar Rao Gedela observed, “Consequently, keeping in view the fact that the Petitioner challenges private commercial transactions between commercial entities as well as the fact that shareholders of the public limited company have approved the transactions and in addition insurance and banking sectors are regulated and the independent sectoral regulators, namely, SEBI and RBI are seized of the controversy, this Court is of the view that it should not act as a ‘super regulator’ and interfere in exercise of Article 226 jurisdiction.”

The Bench elucidated that the Writ of Mandamus being a public law remedy may be issued against a private body discharging public functions, however, it cannot be used for enforcement of purely private contracts between parties.

Senior Advocate Rajshekhar Rao appeared on behalf of the petitioner while Senior Advocate Mukul Rohatgi appeared on behalf of the respondents.

Factual Background -

The senior counsel for Swamy (petitioner) stated that the respondents were attempting to acquire shareholding in Max Life (insurance company) by unfair and non-transparent ways using their experience in insurance sector to manipulate the records and valuations to serve their interests. It was stated that Axis Bank in accordance with Insurance Regulatory and Development Authority of India (IRDAI) Regulations, 2015 was acting in the capacity of a corporate agent for Max Life and was also its shareholder. Allegedly, as per the disclosure made in August 2023, the Board of Directors (BOD) of Axis Bank approved the infusion of Rs. 1,612 crores in Max Life via preferential allotment, resulting in Axis Bank’s direct stake in Max Life increasing to 16.22% and collective stake of Axis entities increasing to 19.02% as proposed in letters issued to stock exchanges.

It was further stated that Axis Bank sold its stake of 0.998% shares of Max Life in March 2021 to Max Financial and Mitsui Sumitomo International for Rs. 166/- per share and subsequently, in March-April 2021 itself, Axis Bank and its group entities acquired 12.002% shares from Max Financial at price range of Rs. 31.51-32.12 per share. It was also stated that Axis Bank has gained substantially while selling shares as the selling price has been exponentially more than the purchasing price which is contrary to the directions issued by the IRDAI in its letter of January 2021. It was alleged that the promoters of the insurer i.e., Max Financial and Sumitomo have been engaging in transfer of shares of the insurer to Axis Bank at a price, which is substantially lower than the fair market value and subsequently buying the same share from Axis Bank at a substantially higher price.

The High Court in the above context of the case emphasised, “This Court is of the view that where a field is regulated and where an appropriate regulator has either already taken note of and addressed the transaction or is investigating the said transaction, the Court in writ jurisdiction should not interfere. In such a situation, the regulator must be allowed to do its job.”

The Court remarked that the tendency to examine commercial transactions from the perspective of reasonableness in Article 226 jurisdiction is to be eschewed as it would make every valuation, sale, purchase of shares or property or every merger, acquisition, de-merger, subject to judicial review.

“If according to the petitioner, there is a criminality involved in the aforementioned transactions, as seems to be unarticulated submission, the petitioner is always at liberty to file appropriate proceedings in accordance with law. … This Court also finds that though a personal allegation has been made against Chairperson SEBI, yet neither the writ petition has been amended nor she has been impleaded as a respondent. This Court is of the view that even if the Chairperson of SEBI has had a professional relationship with Max group in the past, it will not take away the Regulator’s obligation and duty to decide the matter in accordance with law. Also, if the final decision of SEBI is in any manner influenced or affected because of the alleged erstwhile professional relationship of its Chairperson, the Petitioner shall surely be entitled to agitate the said ground at that stage”, it added.

Moreover, the Court directed the SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) to complete the investigation as expeditiously as possible. It ordered that if, after completion of any investigation, any further action is required to be taken, the same shall be taken by independent sectoral regulators in accordance with law.

The Court also clarified that the rights and contentions of all the parties are left open including with regard to the locus standi of the petitioner and maintainability of the writ petition.

Accordingly, the High Court disposed of the petition.

Cause Title- Dr. Subramanian Swamy v. Union of India & Ors. (Neutral Citation: 2024:DHC:6222-DB)

Appearance:

Petitioner: Senior Advocate Rajshekhar Rao, Advocates Aakanksha Kaul, Meherunnisa Aanand Jaitley, Areeb, Satya Sabharwal, Aman Sahani, Ajay Sabharwal, Tanya Arora, and Aakash Saksena.

Respondent: CGSC Kirtiman Singh, Senior Advocates Pratap Venugopal, Mukul Rohatgi, Rajiv Nayar, Sajan Poovayya, Advocates Waize Ali Noor, Varun Pratap Singh, Varun Rajawat, Maulik Khurana, Kartik Baijal, Ashish Aggarwal, Raunak Dhillon, Madhavi Khanna, Niharika Shukla, Nikhil Rohatgi, Shashank Khurana, Rahul Kumar, Ramesh Babu MR, Monisha Singh, Nisha Sharma, Jagriti Bharti, Rohan Srivastava, Tanya Chowdhary, Vatsala Rai, A Roy Chowdhury, and Saurabh Batra.

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