2019 (10) TMI 1048 - AT - SEBI

Tribunal overturns ex-parte order, grants fair hearing opportunity, condones appeal delay, directs SEBI for further proceedings.

The Tribunal set aside the ex-parte order due to improper service of the show cause notice, granting the appellant a fair hearing opportunity. The delay ... Condonation of delay in filing appeal - Show cause notice not served on appellant - HELD THAT:- We find that due procedure for serving the show cause notice was duly followed by SEBI in accordance with the Rule 7 of the Inquiry Rules. The summons was sent at the address that was obtained by SEBI from the stock exchange. However, the fact remains that the appellant had resigned and left the service of Pioneer Securities Pvt. Ltd. in 2006 and thereafter joined Elite. The fact that the appellant had joined Elite and was working till 2017 when the attachment order was served cannot be disputed by the respondent as attachment order was served through his employer which formed the basis of his termination from his service. When the appellant came to know about the impugned order sometime in May 2017, he made an attempt to find out the matter and took steps to file a complaint before the EOW and representation before SEBI. We are constraint to observe that satisfactory explanation has not been given by the appellant for the period from May 2017 till September 2018 that is the date when the appeal was eventually filed, Appellant has made out a case that the show cause notice was not served upon him. Since the appellant had left the last known address available with SEBI and was working with another company and at another place, we are of the opinion that affixation of the show cause notice at the last known address, in the given circumstances does not amount to sufficient service and, thus, a benefit of doubt has to be given to the appellant. An opportunity should be given to the appellant to contest the matter on merits especially when a huge penalty has been imposed upon him and when there is an allegation that a fraud has been played upon the appellant by his ex-employer. We are of the opinion that the appellant is entitled to contest the matter on merits. We are also of the opinion that the delay of five years should be condoned on payment of costs. Sufficient cause has been shown by the appellant for condoning the delay. We are also of the opinion that in the larger interest of justice the delay should be condoned and the appellant should be allowed to contest the matter on merits. Consequently, for the reasons stated aforesaid, the delay in filing the appeal is condoned on payment of costs of ₹ 2 lacs which shall be paid by the appellant to the respondent on or before August 10, 2019. Issues:1. Delay in filing the appeal and condonation of delay.2. Violation of natural justice principles in passing the ex-parte order.3. Allegation of fraud by the ex-employer.4. Service of show cause notice and subsequent proceedings.5. Condonation of delay based on legal precedents.6. Setting aside the ex-parte order and directions for further proceedings.Issue 1: Delay in filing the appeal and condonation of delay:The appeal was filed against an order imposing a penalty under the SEBI Act for violations of regulations. A delay of 1446 days in filing the appeal was noted, prompting the need for a Misc. Application for condoning the delay. The appellant argued that the impugned order was passed ex-parte without giving an opportunity to be heard, forming the basis for both the delay application and the appeal on merits to be decided together.Issue 2: Violation of natural justice principles in passing the ex-parte order:The appellant contended that the ex-parte order was violative of natural justice as he was unaware of the adjudication proceedings initiated by SEBI. SEBI, on the other hand, asserted that the show cause notice and subsequent communications were served in accordance with the Inquiry Rules. The Tribunal found that the appellant had not received the show cause notice, leading to a benefit of doubt being granted due to insufficient service.Issue 3: Allegation of fraud by the ex-employer:The appellant alleged that his ex-employer engaged in fraudulent activities, leading to legal consequences for the appellant. The appellant made complaints to the EOW and SEBI, highlighting the need for a fair opportunity to contest the matter on merits, especially considering the significant penalty imposed.Issue 4: Service of show cause notice and subsequent proceedings:SEBI contended that the show cause notice and related communications were served as per the prescribed rules. However, the Tribunal found that the appellant had changed employment and address, rendering the affixation of notices at the previous address insufficient for proper service. This discrepancy led to the setting aside of the ex-parte order.Issue 5: Condonation of delay based on legal precedents:Legal precedents were cited to support the condonation of the delay in filing the appeal. The Tribunal referred to past judgments where delays were condoned based on plausible grounds without requiring detailed explanations for each day of delay. Considering the circumstances and interests of justice, the Tribunal decided to condone the delay upon payment of costs.Issue 6: Setting aside the ex-parte order and directions for further proceedings:Ultimately, the Tribunal set aside the ex-parte order due to the lack of proper service of the show cause notice. The appellant was directed to appear before the AO for further proceedings, with SEBI providing the show cause notice. The AO was instructed to afford the appellant a fair hearing and pass an order within six months. Additionally, the attachment proceedings were allowed to continue for six months, with provisions for further orders if needed.This comprehensive analysis of the judgment covers the issues involved, the arguments presented, and the Tribunal's decision on each matter, ensuring a detailed understanding of the legal complexities addressed in the case.