SECURITIES AND EXCHANGE BOARD OF INDIA vs. TERRASCOPE VENTURES LIMITED ETC. ETC. Supreme Court judgment on diversion of preferential issue proceeds

SECURITIES AND EXCHANGE BOARD OF INDIA vs. TERRASCOPE VENTURES LIMITED ETC. ETC. Supreme Court judgment on diversion of preferential issue proceeds

Meta: 2026 INSC 245 | Civil Appeal Nos. 5209-5211 of 2022

INTRODUCTION

SECURITIES AND EXCHANGE BOARD OF INDIA vs. TERRASCOPE VENTURES LIMITED ETC. ETC. — Supreme Court judgment delivered 17 March 2026. The dispute concerned alleged diversion of proceeds raised by a preferential allotment from stated objects to investments and loans. The Court allowed the appeal, set aside the SAT order dated 02.06.2022, and restored the Adjudicating Officer's order dated 29.04.2020 imposing monetary penalties.

QUICK FACT BOX

Parties: Securities and Exchange Board of India (Appellant) and Terrascope Ventures Limited Etc. Etc.; Geeta Manoharlal Saraf; Manoharlal Saraf (Respondents)

Court: Supreme Court of India

Bench: K. V. Viswanathan and J. B. Pardiwala, JJ.

Citation: 2026 INSC 245

Case numbers: Civil Appeal Nos. 5209-5211 of 2022

Judgment date: 17th March, 2026

Lower forum(s): Securities Appellate Tribunal, Mumbai (order dated 02.06.2022); Adjudicating Officer order dated 29.04.2020

BACKGROUND OF THE CASE

The appellant is Securities and Exchange Board of India. The respondents include Terrascope Ventures Limited (formerly Moryo Industries Limited) and two individual directors, Manoharlal Saraf (Managing Director) and Geeta Manoharlal Saraf (Director).

On 03.09.2012 the company issued a notice for an Extraordinary General Meeting disclosing objects for a preferential allotment, including capital expenditure, acquisitions, funding long-term working capital, marketing, setting up offices abroad and other corporate purposes.

A Special Resolution was passed on 01.10.2012 and between 16.10.2012 and 08.11.2012 preferential allotments were made and approximately Rs. 15,87,50,000/- was raised.

SEBI alleged that from 17.10.2012 the respondent company diverted proceeds to purchase shares of other companies and grant loans/advances, contrary to the objects disclosed in the EoGM notice.

A Whole Time Member (WTM) of SEBI passed an ad-interim restraining order on 04.12.2014, later confirmed on 22.08.2016. A purported shareholder ratification resolution was passed on 29.09.2017.

The Adjudicating Officer issued a show cause notice on 27.04.2018 and, after inquiry, passed orders on 29.04.2020 finding violations of PFUTP Regulations and SCRA and imposing monetary penalties on the company and individual directors.

The respondents appealed to the Securities Appellate Tribunal (SAT), which set aside the AO orders by a short order dated 02.06.2022, reasoning that shareholders had ratified the utilization.

SEBI appealed to the Supreme Court against the SAT order.

LEGAL ISSUE BEFORE THE SUPREME COURT

The main question before the Court was: Whether the SAT was justified in reversing the order of the Adjudicating Officer, and exonerating the respondents for alleged violations of PFUTP Regulations and the SCRA?

SUPREME COURT ANALYSIS

The Court recorded that the objects disclosed in the explanatory statement for the preferential issue were required to be stated under Regulation 73 of the SEBI (ICDR) Regulations, 2009 and that the funds raised were admitted to have been used for investments in shares and for loans and advances which were not the disclosed objects.

The Court reviewed the PFUTP Regulations and noted the broad and inclusive definition of "fraud" and prohibitions under Regulations 3 and 4, including publishing information not believed to be true and disseminating misleading information.

The Court held that the critical inquiry is what was stated as objects in the notice of EoGM, and that diversion of funds immediately after receipt (between 16.10.2012 and 09.11.2012) supported the finding of misuse.

On ratification, the Court examined Section 27 of the Companies Act and related provisions, and concluded Section 27 applies to prospectus variations and does not support post-facto validation of diversion in private placement cases; reliance on Section 62(1)(c) was rejected in the facts of this case.

The Court held that a post-facto shareholder ratification cannot legitimize an act that is unlawful and affects public rights and stakeholders beyond shareholders; illegality affecting public interest cannot be ratified.

The Court distinguished between the powers of the WTM under Sections 11/11B and the Adjudicating Officer under Section 15I/15HA, and held that both authorities could exercise jurisdiction in their respective domains; the AO's imposition of monetary penalty was valid in the circumstances.

Applying these principles, the Court found that the diversion of proceeds amounted to violations of Regulations 3 and 4 of the PFUTP Regulations and that the SAT's reliance on the shareholder ratification was erroneous.

FINAL VERDICT

The Supreme Court allowed the appeals by Securities and Exchange Board of India against the SAT order.

The SAT order dated 02.06.2022 was set aside and the Adjudicating Officer's order dated 29.04.2020 was restored.

The AO's findings of violation and the monetary penalties imposed in the AO orders were restored by the Court.

WHY THIS JUDGMENT MATTERS

The judgment states that diversion of funds raised through preferential allotment from the objects disclosed in the explanatory statement can attract violations of PFUTP Regulations and SCRA.

The Court explicitly held that post-facto shareholder ratification cannot validate acts that are unlawful and affect public stakeholders; ratification cannot legalize illegality impacting public interest.

The judgment affirms the distinct roles of WTM proceedings under Sections 11/11B and AO proceedings under Section 15I/15HA, and that both may operate within their respective statutory scopes.

CONCLUSION

SECURITIES AND EXCHANGE BOARD OF INDIA vs. TERRASCOPE VENTURES LIMITED ETC. ETC. resulted in the Supreme Court allowing SEBI's appeal and restoring the Adjudicating Officer's penalty order dated 29.04.2020. The Court held that diversion of preferential issue proceeds from disclosed objects cannot be validated by later shareholder ratification, and violations of PFUTP Regulations and SCRA were established.