High Court quashes show-cause notices due to significant delays in SEBI actions

The High Court allowed the petition, quashing the show-cause notices dated October 20, 2016, and August 20, 2019, due to the significant delays of four to six years in issuing the notice and seven to nine years in holding the hearing. The Court relied on precedents indicating that delays of this magnitude in SEBI actions were unsustainable, deciding it would not be beneficial to refer the petitioner back to SEBI.

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Issues:
Delay in issuing show-cause notice by SEBI, challenge to the legality of show-cause notice, relevance of delay in initiating action by SEBI, jurisdiction of High Court to entertain writ petitions questioning show-cause notices.

Analysis:
The case involved a petitioner who was a whole-time Director of a company that did not disburse dividends for the year 2008-2009, leading to complaints filed with SEBI between September 2010 and February 2012. SEBI closed the complaints in 2013 and 2014. However, a show-cause notice was issued on October 20, 2016, and the petitioner was called for a hearing in 2019. The petitioner challenged the notices citing delays and the repeal of the Companies Act, 1956. The respondent argued that the petitioner should address his contentions before SEBI and the Securities Appellate Tribunal if needed, relying on legal precedents.

The High Court considered the arguments presented by both parties and examined the records. The petitioner's counsel referred to judgments of the Securities Appellate Tribunal highlighting delays in SEBI actions, while the respondent emphasized the usual practice of not interfering with show-cause notices. The Court noted the closure of complaints by SEBI in 2013-2014 and the subsequent delay in issuing the show-cause notice and calling for a hearing in 2019.

The Court observed that the Securities Appellate Tribunal had consistently deemed delays of five years or more in SEBI actions as unsustainable. Referring to recent judgments of the Tribunal, the Court found the delay in the present case to be about four to six years in issuing the show-cause notice and seven to nine years in holding the hearing. Considering the circumstances and the precedents, the Court decided that it would not be beneficial to send the petitioner back to SEBI. Consequently, the petition was allowed, and the show-cause notices dated October 20, 2016, and August 20, 2019 were quashed.

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