Show cause notice limits control FUTP penalties, while undisclosed shareholding breach under insider trading rules was upheld.

A quasi-judicial penalty order cannot rest on grounds or materials not contained in the show cause notice or supplied to the noticee; the FUTP findings were therefore unsustainable and were set aside. The Insider Trading Regulations breach for non-disclosure under Regulation 13 was nevertheless upheld because the notice, contemporaneous record, and the appellants' own replies supported the finding that the required disclosures were not made. With the FUTP charge deleted, the penalty had to be confined to the surviving violation and was correspondingly reduced.

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Issues: (i) Whether the findings of violation of the FUTP Regulations could be sustained when the adjudicating officer relied on grounds and materials not contained in the show cause notice or supplied to the noticees. (ii) Whether the finding of violation of the Insider Trading Regulations for non-disclosure under Regulation 13 was justified, and what penalty ought to follow.

Issue (i): Whether the findings of violation of the FUTP Regulations could be sustained when the adjudicating officer relied on grounds and materials not contained in the show cause notice or supplied to the noticees.

Analysis: The allegations in the notice were confined to off-market transfer of shares allegedly to conceal identity and avoid the surveillance net of the exchanges. The adjudicating officer, however, travelled beyond the notice by introducing a price-manipulation theory and by relying on investigation material, exchange reports, depository information, and media references that had not been furnished to the appellants. A quasi-judicial determination cannot rest on material collected behind the back of the noticees or on findings outside the scope of the notice. The absence of any substantiating material for the alleged cartel arrangement further weakened the charge.

Conclusion: The findings of violation of the FUTP Regulations were unsustainable and were set aside in favour of the appellants.

Issue (ii): Whether the finding of violation of the Insider Trading Regulations for non-disclosure under Regulation 13 was justified, and what penalty ought to follow.

Analysis: The notice specifically alleged that the appellants had crossed the relevant shareholding threshold and failed to make the required disclosures. The record, including the appellants' own replies to the investigating officer, supported the conclusion that the required disclosures had not been made. The challenge based on later-produced letters was not accepted as sufficient to displace the admissions and the contemporaneous record. Since the FUTP findings were deleted, the penalty required reassessment and had to reflect only the surviving breach under the Insider Trading Regulations.

Conclusion: The finding of violation of the Insider Trading Regulations was upheld, but the penalty was reduced to Rs. 3 lakhs each for the concerned appellants.

Final Conclusion: The common order was set aside insofar as it sustained the FUTP charges, while the Insider Trading violation was affirmed for the relevant appellants with a substantially reduced monetary penalty.

Ratio Decidendi: A quasi-judicial penalty order cannot be sustained on grounds or materials not contained in the show cause notice or not supplied to the noticee, and the penalty must be confined to the surviving proved violation.

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