Invalid service of show cause notice and denial of hearing vitiated the ex parte penalty order under natural justice.
Rule 7 requires service of a show cause notice by personal delivery, registered post to the last known residence or place of business, and only then, if those methods fail, by affixation. Service by direct affixation without showing prior effective attempts was held invalid, and available email correspondence supported the need for electronic service where permitted. Because the notice was not duly served, the noticee was denied an opportunity to reply, breaching natural justice and Article 14. The ex parte penalty order was therefore unsustainable, and the matter was remitted for fresh adjudication after proper service and hearing.
Issues: (i) Whether service of the show cause notice was valid under Rule 7 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. (ii) Whether the ex parte penalty order could be sustained when the notice was not properly served and the appellant was denied an opportunity of hearing.
Issue (i): Whether service of the show cause notice was valid under Rule 7 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995.
Analysis: Rule 7 contemplates service by tendering or delivering the notice, by registered post to the residence or last known residence or place of business, and, only if such modes fail, by affixation at the relevant premises. The service record did not show any effective attempt at personal service or service at the place of business, and direct recourse to affixation was therefore unjustified. The available email address also provided an additional practical mode of service, particularly when prior correspondence had taken place through email and the statutory scheme permitted service by electronic mail under the relevant regulations made in exercise of Section 30 of the SEBI Act, 1992.
Conclusion: Service was not validly effected on the appellant.
Issue (ii): Whether the ex parte penalty order could be sustained when the notice was not properly served and the appellant was denied an opportunity of hearing.
Analysis: Since the show cause notice was not duly served, the appellant was deprived of the chance to reply to the notice and contest the proceedings. That denial of hearing offended the principles of natural justice and attracted the protection of Article 14 of the Constitution of India. An ex parte order passed in such circumstances could not stand.
Conclusion: The ex parte order was unsustainable and had to be quashed.
Final Conclusion: The penalty order was set aside and the matter was sent back for fresh adjudication after due service of notice and an opportunity of hearing.
Ratio Decidendi: Where statutory service of notice is not properly effected and the noticee is thereby denied an opportunity of hearing, an ex parte penal order is vitiated for breach of natural justice and cannot be sustained.
TaxTMI 
AI Drafter ✕
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