Post-decisional hearing and directors' due diligence support confirmation of ex parte protective securities directions.

Post-decisional hearing can cure the absence of a prior hearing for an ad interim ex parte protective order issued in the interest of investors and the securities market, so a natural justice challenge fails where urgent interim action is followed by an opportunity to respond. Directors, including non-executive directors, may still be held responsible for regulatory violations where the material shows lack of due diligence and no effective corrective action, and such responsibility is not displaced by private undertakings or reliance on proceedings under other statutes. On that basis, the restraint directions were confirmed and continued, with segregated handling of the relevant funds and securities through dedicated accounts.

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Issues: (i) Whether the ad interim ex parte directions could be continued after granting a post-decisional opportunity of hearing and whether the order suffered from violation of natural justice. (ii) Whether the noticees, including non-executive directors, had failed to exercise due diligence and could be held responsible for the company's regulatory violations, warranting confirmation of the restraint directions.

Issue (i): Whether the ad interim ex parte directions could be continued after granting a post-decisional opportunity of hearing and whether the order suffered from violation of natural justice.

Analysis: The interim directions had been passed under the SEBI Act on the basis of prima facie findings during preliminary examination and were followed by a post-decisional hearing. The applicable provisions empowered the authority to pass interim directions in the interests of investors and the securities market, and settled law recognises that pre-decisional hearing is not invariably required where urgent protective action is taken pending inquiry, so long as an opportunity to represent is later afforded.

Conclusion: The challenge based on natural justice failed, and the ex parte interim directions were not vitiated on that ground.

Issue (ii): Whether the noticees, including non-executive directors, had failed to exercise due diligence and could be held responsible for the company's regulatory violations, warranting confirmation of the restraint directions.

Analysis: The noticees were directors during the period when the violations occurred, had provided personal guarantees and mortgaged properties for the company's borrowings, and had not shown any effective corrective action. Under the Companies Act, a non-executive director is not automatically immune from liability and may be answerable where there is lack of diligence. The surrounding material showed that they could not plausibly claim ignorance of the company's affairs, and the statutory liability could not be displaced by private undertakings or by relying on proceedings under other enactments.

Conclusion: The noticees were found to have failed to act diligently, and the restraint directions were confirmed to continue.

Final Conclusion: The regulatory restraint remained in force, the objections to confirmation of the interim order were rejected, and the authority also directed segregated handling of the relevant funds and securities through dedicated accounts.

Ratio Decidendi: Where directors of a regulated intermediary remain associated with the company during the period of violations and fail to act with due care and diligence, post-decisional hearing satisfies natural justice for an ex parte protective order passed in the interest of investors, and such interim directions may be confirmed and continued.

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