Déjà Suit: A Quest for Finality in SEBI’s Functions

[Nandita is a student at National Law Institute University Bhopal.]

Recently, in Securities and Exchange Board of India v. Ram Kishori Gupta (Ram Kishori Gupta), the apex court has settled the matters regarding the applicability of res judicata in judicial decisions of Securities and Exchange Board of India (SEBI). Further, in Faime Makers (Private) Limited v. Registrar, Coop. Societies (Faime Makers), the Supreme Court of India affirmed that res judicata applies to all quasi-judicial bodies. However, SEBI’s operational reality casts a new picture. It has repeatedly reopened both its adjudicatory and administrative decisions. With this, the applicability of res judicata and other principles of finality to the administrative functions of SEBI is still unsettled. This paper intends to explore the journey of achieving finality in judicial decisions of SEBI and whether administrative decisions of SEBI can ever be final.  

Res Judicata and Its Cousins

The principle of res judicata is rooted in the need for finality in litigation. Although the Civil Procedure Code 1908 codifies this rule, the courts have also applied the principle as a rule of public policy to prevent re-litigation. Issue Estoppel is a narrower subset of res judicata that prevents a party from re-litigating a particular issue that has already been decided in a prior proceeding between the same parties, even if the subsequent proceeding involves a different cause of action. Issue estoppel is not explicitly codified but is recognized as a common law principle, often inferred from the principles of res judicata and estoppel.

Same Facts, Same Fight? SEBI Circumventing Res Judicata

SEBI is a quasi-judicial body which performs its judicial functions under Section 11, 11B and 15-I of the SEBI Act 1992 through Whole Time Member (WTM) and Adjudicatory Authority (AO). Recently, the Supreme Court in the Faime Makers case held that all quasi-judicial bodies are equally bound by res judicata. Further, the Supreme Court in Ram Kishori Gupta has also affirmed that the principle also specifically applies to SEBI. Even though res judicata had already been clarified as a public policy concern much before this, SEBI has found ways to circumvent this rule and thwart the concern of finality in largely three ways – firstly, WTM and AO simultaneously taking up the same case but giving contradictory judgments; secondly, SEBI reopening previously concluded cases; and finally, SEBI reopening its administrative decisions. 

Split screens at SEBI: WTM v/s AO in the same frame

There have been several instances where WTM and AO have delivered contradictory verdicts that have led to significant confusion for the parties involved. Initially, there was a clear demarcation between the functions of the two: the WTM issued directions that were preventive, while the AO imposed penalties that were penalizing in nature. But the amendment allowing the WTO to penalize has resulted in conflicting findings by these two authorities, as the AO and WTM have the power to take up cases in parallel as well.  A notable example is the MPF Systems Limited v. SEBI case, where the AO imposed a penalty for violating Regulations 16-19 of the  Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR Regulations). A WTM held that there was no violation under Regulation 16-19 in light of Regulation 15(2). Later, another WTM enhanced the penalty under other LODR Regulations provisions. The Securities Appellate Tribunal (SAT) ultimately set aside both penalties and remanded the matter back to the AO. Similarly, there have been multiple instances of WTM and AO giving contradictory decisions, leaving the parties confused and ultimately causing delays.

Final yet not final: SEBI reopening its cases

In the unique case of Ram Kishori Gupta, WTM passed its initial final order on 31 July 2014, without ordering disgorgement. SAT directed SEBI to reconsider the matter. However, on 16 December 2014, WTM reopened the case not just for disgorgement but to initiate a fresh investigation into whether VCL’s KMPs had made gains from the fraud and whether Gupta could be compensated. After a hearing, SEBI passed an order on 1 April 2016, wherein it acknowledged its earlier failure to calculate losses and directed the initiation of disgorgement proceedings. A show-cause notice followed in January 2018, and on 28 September 2018, SEBI ordered disgorgement of INR 4.56 crore but again denied compensation. Both parties appealed. SAT in August 2019 awarded compensation to Gupta, but in December 2021, quashed the disgorgement order, citing res judicata. The Supreme Court upheld this in April 2025 and held that SEBI had unlawfully reopened a concluded matter and exceeded SAT’s limited mandate. While Ram Kishori Gupta resolved the applicability of res judicata to SEBI’s judicial functions, the question of finality in its administrative actions remains open.

Administrative decisions of SEBI: Can they ever be final?

SEBI has the power to investigate under Section 11C, and the courts have held this to be a purely administrative function. These powers are significantly wide, and SEBI can initiate a variety of actions under this section. The courts often refrain from interfering in such decisions and leave it to the discretion of the regulatory authority. In Vishal Tiwari v. Union of India, the petitioners alleged SEBI’s inaction and sought a transfer of the investigation to the CBI or a special investigation team. While the Supreme Court acknowledged its power to do so under Articles 32 and 142, it declined to intervene and noticed an absence of serious error on SEBI’s part. This results in investigative decisions often going unchecked, especially in the case of the reopening of an investigation.

In the case of Nalwa Sons Investments Limited v. SEBI (Nalwa), the petitioners alleged that SEBI had reopened the case after 10 years of closing the SCORES complaint and contended that the same is barred by res judicata since there were no new documents to form the basis of the reopening. The court dismissed the complaint as an alternative remedy was available to the parties, but raised an important question that may be put before SEBI: Is res judicata at all applicable in such proceedings? Before exploring this, it becomes imperative to know when such regulatory bodies can justifiably reopen their investigation. 

While there is no SEBI-specific jurisprudence on this, the Income Tax Act 1961 categorically provides for reopening an investigation, and this may be only done when there are reasonable grounds for doing so. Courts have, over time, clarified that reasonable grounds to believe shall stem from new and tangible information for the reopening. Further, the reopening cannot be done for a mere change of opinion of the authority. Notably, in none of the cases related to the reopening of assessment, the court cited res judicata as the applicable principle. Instead, they relied on the natural justice rights of the parties to justify their decision. It is also pertinent to note that these reopening of assessments was done within three years from the closing of the initial investigation, as the Income Tax Act 1961 expressly provides for a limitation period for the same. This has avoided delay and arbitrary reopening of assessments after multiple years. 

Now, since there is no express provision regarding the reopening of an investigation, can parties rely on res judicata as a relief against this? Although lucrative, it seems unlikely that this principle can be a remedy in the arbitrary reopening of investigations as it applies to judicial orders. SEBI, through a circular, clarified that a complaint is considered closed only when the SCORES complaint is closed. But this closing of the SCORES complaint is not an adjudicatory order, per se, since this is devoid of the basic requirement of an adjudicatory process, i.e., hearing of the parties. This is a decision taken by the body based on its investigation. 

In such cases, issue estoppel may offer a more appropriate remedy. Although it is not traditionally applied to proceedings involving administrative functions, it presents a narrower and more precise alternative to res judicata. For instance, in the Nalwa case, the petitioners argued that no new material had emerged to justify the reopening of an investigation a decade after its closure. As a principle rooted in the law of evidence, issue estoppel bars the re-litigation of an issue that has already been conclusively determined, especially when the same evidence is relied upon once again.

Conclusion 

While res judicata has been firmly applied to SEBI’s quasi-judicial functions, its administrative actions remain largely untouched by the principle. In the absence of a clear provision for reopening and a statutory limitation period, SEBI effectively retains unfettered discretion to reopen investigations at any time, even without the emergence of new material. Until the law evolves to address this gap, possibly through the application of issue estoppel or legislative reform, the principle of finality will remain only partially realised in SEBI’s functioning.