Supreme Court Refuses To Interfere With HC Order In SEBI Appeal Concerning Atlas Ramachandran's Escrow Funds

The Supreme Court on Tuesday declined to interfere with a Kerala High Court Division Bench judgment concerning funds lying in an escrow account maintained with Axis Bank.

The funds were connected with an open offer linked to late filmmaker and jeweller M.M. Ramachandran, popularly known as Atlas Ramachandran.

A Bench of Justices Dipankar Datta and Sheel Nagu at the threshold questioned SEBI's locus to challenge an order arising from proceedings initiated by Axis Bank against the Income Tax Department. The court ultimately refused to interfere with the High Court order.

“You first satisfy us on the point of your locus standi to file a Letters Patent Appeal arising out of an order passed between Axis Bank and Income Tax Department.”, Justice Datta asked.

Senior Advocate Arvind Datar, appearing for SEBI, argued that the funds deposited in the escrow account were no longer the property of the income-tax defaulter and that SEBI had rights over the money.

Datar submitted that SEBI was a necessary and proper party since the funds in the escrow account were connected with SEBI's regulatory framework governing open offers.

“I am a party to the writ appeal. I am a necessary and a proper party because the funds belong to me, belong to SEBI. Axis Bank is one of the designated accounts.”, Datar said.

He explained the larger implications of the issue, submitting that where a person makes an open offer for acquisition of shares, a prescribed portion of the consideration has to be deposited with a designated bank in an escrow account.

“If a person has to make an open offer and support the open offer value, say ₹100 crores, then 25 crores, 25% has to be deposited with Axis Bank or HDFC Bank, a designated bank.”

Datar argued that once the money was deposited in the escrow account for the purpose of the open offer, it could no longer be treated as the property of the income-tax defaulter.

“Once the money is deposited with the escrow account of the Axis Bank, it is no longer the property of the income tax defaulter.”

He submitted that the issue had ramifications beyond the present dispute because monies were regularly deposited in escrow accounts maintained with designated banks for open offers.

“What we are saying is day in and day out, people deposit monies in Axis Bank, HDFC Bank, and so on and so forth.”

Justice Datta however, repeatedly questioned how SEBI was prejudiced by the High Court's order, particularly since the High Court had left the remedies of the parties open.

Datar responded that SEBI had participated in the proceedings before the Single Judge and had made submissions regarding the funds and its regulatory rights.

The Bench pointed out that the Division Bench had not adjudicated upon SEBI's substantive rights and had merely left the parties to pursue their remedies.

“Your remedies left open.”, Justice Datta said.

Datar questioned what remedy SEBI was left with if the Income Tax Department was permitted to proceed against the escrow funds.

“What remedy I got? I got no remedy.”

Datar relied on the Supreme Court Rules concerning the right of a third party to maintain a Special Leave Petition and sought to satisfy the Court that SEBI had sufficient standing.

The Bench rejected the suggestion that the Supreme Court Rules could independently confer a right to appeal against an order which did not bind or adversely affect the proposed appellant.

“Supreme Court Rules cannot override Article 226. Article 226 cannot be overridden by Supreme Court Rules.”

The Court further observed that a person who was not the original writ petitioner could not maintain an appeal merely by claiming an interest in the subject matter.

“You may not be, but you cannot file an intra-court appeal. For filing a writ appeal, you have to show that the order binds you or adversely affects you.”

The Bench then asked Datar how SEBI could demonstrate that the Kerala High Court's order was detrimental to its interests.

“How do you show me what they need, before they reach the appellate court? That the order is detrimental to your interest in the sense that it binds you, directs you to do something. Nothing of that sort.”

The Court ultimately dismissed SEBI's special leave petition as withdrawn.