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Synopsis

The Delhi High Court, recently, dismissed a petition filed by BJP leader Subramanian Swamy, seeking the issuance of a writ of Mandamus to establish a committee of experts to investigate the alleged fraudulent activities of M/s Max Life Insurance Co. Ltd. (referred to as ‘Max Life’) and M/s Max Financial Services Ltd. (referred to as ‘Max Financial’).

“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”, the bench of Acting Chief Justice Manmohan and Justice Tushar Rao Gedela held. 

Max Life and Max Financial were accused of enabling their shareholder, Axis Bank Ltd. (referred to as ‘Axis Bank’), along with its group companies, Axis Securities Ltd. (referred to as ‘Axis Securities’) and Axis Capital Ltd. (referred to as ‘Axis Capital’), to make undue profits or illegal gains through the purchase and sale of Max Life’s equity shares in a non-transparent and illegal manner.

Senior Advocate Rajshekhar Rao, representing Subramanian Swamy, stated that Directors of Axis Bank, Axis Securities, Axis Capital, Max Financial, and Max Life attempted to acquire shareholding in Max Life, an insurance company, by unfair and non-transparent means, utilizing their expertise in the insurance sector to manipulate records and valuations for their benefit. 

Senior Advocate Rajshekhar Rao highlighted that Axis Bank, acting as a corporate agent for Max Life under the Insurance Regulatory and Development Authority of India (IRDAI) Regulations, 2015, and being a shareholder in Max Life, had approved the infusion of Rs. 1612 crores into Max Life by way of preferential allotment, increasing Axis Bank’s direct stake in Max Life to 16.22% and the collective stake of Axis entities to 19.02% as disclosed to the stock exchanges. 

According to Senior Advocate Rajshekhar Rao, Axis Bank gained substantially by selling shares at a price exponentially higher than the purchase price, in contravention of IRDAI’s directions issued on 28th January 2021.

Senior Advocate Mukul Rohtagi, representing Axis Bank, raised a preliminary objection regarding the maintainability of the present writ petition, arguing that Swamy lacked locus standi. He submitted that while the principle of locus standi is relaxed in public interest litigation, it should only be applied to ensure that the rights of the poor, socially, and economically backward individuals, or persons with disabilities are not denied. Senior Advocate Rohtagi emphasized that public interest litigation is associated with the enforcement of social and economic rights in India.

Senior Advocate Pratap Venugopal, representing SEBI, presented an original notarized affidavit dated 9th August 2024, which was taken on record. The affidavit stated that pursuant to the order passed by IRDAI, SEBI had initiated a preliminary examination of the matter, and the investigation was at an advanced stage of completion. 

The court determined that when a specific field is regulated and the appropriate regulatory body has already taken notice of and addressed a transaction or is currently investigating it, the Court should refrain from intervening in its writ jurisdiction. In such cases, the regulator should be permitted to fulfill its duties.

Moreover, the court emphasized that while a writ of Mandamus, being a public law remedy, could be issued against a private entity performing public functions, it could not be employed to enforce purely private contracts between parties.

The court outlined 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”.

The court opined that if Swamy believed that criminality was involved in the aforementioned transactions, as implied in the unarticulated submission, he was free to initiate appropriate legal proceedings.

The court also observed that although a personal allegation had been made against the Chairperson of SEBI, the writ petition had not been amended, nor had she been made a respondent. The court held that even if the Chairperson had a prior professional relationship with the Max group, it would not diminish the Regulator’s duty to adjudicate the matter following the law. Additionally, if SEBI’s final decision were influenced by the alleged previous professional relationship of its Chairperson, Swamy would be entitled to challenge that ground at a later stage.

Consequently, considering that Swamy challenged private commercial transactions between commercial entities and that shareholders of the public limited company had approved the transactions, as well as the fact that the insurance and banking sectors are regulated by independent sectoral regulators, SEBI and RBI, which are already handling the matter, the court concluded that “it should not act as a ‘super regulator’ and interfere in exercise of Article 226 jurisdiction”. 

Accordingly, the court disposed of the writ petition, directing SEBI and RBI to complete their investigation as swiftly as possible. 

For Petitioner: Senior Advocate Rajshekhar Rao with Advocates Aakanksha Kaul, Meherunnisa Aanand Jaitley, Areeb, Satya Sabharwal, Aman Sahani, Ajay Sabharwal, Tanya Arora and Aakash Saksena
For Respondent: Senior Advocates Mukul Rohtagi and Rajiv Nayar with Advocates Raunak Dhillon, Madhavi Khanna, Niharika Shukla, Nikhil Rohtagi, Shashank Khurana and Rahul Kumar
For Union: Standing Counsel Kirtiman Singh with Advocates Waize Ali Noor, Varun Pratap Singh, Varun Rajawat, Maulik Khurana and Kartik Baijal
For SEBI: Senior Advocate Pratap Venugopal with Advocate Ashish Aggarwal
For RBI: Advocates Ramesh Babu, Monisha Singh, Nisha Sharma, Jagriti Bharti, Rohan Srivastava and Tanya Chowdhary
Case Title: Dr. Subramanian Swamy v Union Of India & Ors