Supreme Court Applies Res Judicata to SEBI Proceedings, Invalidating Subsequent Disgorgement Order

The Supreme Court heared the batch of appeals arose from protracted litigation initiated in 2005 by the Securities and Exchange Board of India (SEBI) against M/s. Vital Communications Limited (VCL) and its promoters and directors concerning alleged misleading advertisements regarding share buyback, bonus issues, and preferential allotment in 2002. SEBI's initial proceedings led to an order in 2008, which was set aside by the Securities Appellate Tribunal (SAT) on remand.

Subsequently, SEBI passed another order in 2014 imposing restraints on accessing the securities market. Parallelly, investors who claimed losses due to the misleading advertisements sought compensation from SEBI. This led to further proceedings and a later disgorgement order by SEBI in 2018, which was challenged by VCL and others, while the investors continued to seek compensation.

Supreme Cour on the question as to whether the principle of "Res Judicata" applies to proceedings initiated by SEBI under the Securities and Exchange Board of India Act, 1992, precluding SEBI from issuing a fresh disgorgement order on the same cause of action after an earlier order imposing penalties had attained finality, the Supreme Court observed that the doctrine of res judicata, based on public policy and the need for finality in judicial determinations, is not limited to the Code of Civil Procedure, 1908, and extends to quasi-judicial and administrative proceedings like those before SEBI, the Apex Court held

"27. Though it was contended by SEBI that the principle of res judicata in Section 11 of the Code of Civil Procedure, 1908, cannot be imported into these proceedings, due to Section 15U(1) of the Act of 1992, we are not persuaded to agree. This provision merely deals with the procedure and powers of the Tribunal and states that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and shall have the power to regulate its own procedure. Significantly, this provision does not cover proceedings before the SEBI and its WTMs under the Act of 1992. Therefore, SEBI cannot claim exemption from the applicability of the principle of res judicata thereunder."

The Court noted that SEBI's order dated 31.07.2014, passed under Section 11B of the Act of 1992 on the same show-cause notices issued in 2012, had become final as it was not challenged.

Consequently, the subsequent disgorgement order dated 28.09.2018, based on the same cause of action, was barred by the principle of res judicata, as SEBI could not revisit the matter and issue additional directions once the initial order had attained finality and its penalties had already been suffered. The Court also commented on the "unconscionable delay" by SEBI in initiating the disgorgement proceedings.

The Supreme Court allowed SEBI's appeal against the Securities Appellate Tribunal's (SAT) order directing SEBI to pay compensation to the investors, setting aside the SAT's judgment on this aspect. As a consequence, the investors' appeal seeking interest on the directed compensation was dismissed.

CORAM: Justice Sanjay Kumar and Justice K.V. Viswanathan
BETWEEN: SECURITIES AND EXCHANGE BOARD OF INDIA VS RAM KISHORI GUPTA & ANR. 2025 INSC
DATE OF JUDGMENT: 07-04-2025