2019 (12) TMI 732 - AT - SEBI

Legal rep not liable in recovery proceedings under SEBI Act, tribunal rules

The tribunal held that recovery proceedings cannot be pursued against the legal representative of a deceased individual under the Securities and Exchange ... Recovery proceedings continued against the legal representative of the deceased - HELD THAT:- Proceedings would continue against the legal representative of the defaulter if the defaulter dies after the certificate was drawn up by the tax recovery officer. At the outset, Rule 85 is not applicable as we have already held that Section 28A is not applicable. In any case, in the instant case, recovery certificate was drawn on June 15, 2016 much after the death of the appellant's husband who died on November 5, 2015. The recovery certificate and the attachment proceedings was done against a dead person which was without jurisdiction. Once the person dies, recovery proceedings cannot continue and can only continue against the legal representatives if the Statute provides specifically. SEBI Act and its Regulations does not contain any provision to continue recovery proceedings against the legal representative of the deceased. So long as there is no separate machinery to proceed against the legal representative, the cause of action comes to an end and recovery proceedings could no longer continue. In the light of the aforesaid, the impugned recovery certificate for recovery of ₹ 12 lacs cannot be sustained and is quashed. The appeal is allowed Issues:1. Whether recovery proceedings can continue against the legal representative of the deceasedRs.Analysis:The Securities and Exchange Board of India (SEBI) conducted an investigation regarding violations of regulations by the deceased, leading to a penalty being imposed. Following the death of the appellant's husband, recovery proceedings were initiated against his legal representative. The key question was whether recovery proceedings could be pursued against the legal representative of the deceased.The SEBI Act, specifically Section 28A, empowers the Recovery Officer to recover penalties from defaulting individuals. However, the term 'person' in the SEBI Act refers to any company, association, or body of individuals, without a specific provision for legal representatives of deceased persons. This lack of clarity necessitated a reference to the General Clauses Act, which also does not include legal representatives in its definition of 'person.'Referring to a Supreme Court ruling in a similar context, the tribunal emphasized that recovery proceedings cannot be extended to legal representatives unless explicitly provided for in the statute. The absence of a provision in the SEBI Act to pursue recovery against legal representatives of deceased individuals led to the conclusion that such actions were unauthorized and erroneous.Moreover, the tribunal highlighted the relevance of Rule 85 of the Second Schedule to the Income Tax Act, which allows proceedings against legal representatives only if the defaulter dies after the recovery certificate is issued. In this case, the recovery certificate was issued post the death of the appellant's husband, making the recovery proceedings against a deceased person jurisdictionally flawed.The tribunal also dismissed the respondent's reliance on Section 23JC of the Securities Contracts (Regulation) Act, 1956, as it had not been notified at the time of the case. This further strengthened the argument against continuing recovery proceedings against the legal representative of the deceased.In conclusion, the tribunal ruled that the SEBI Act and its regulations do not provide for the continuation of recovery proceedings against the legal representative of a deceased individual. Without a specific provision for such actions, the recovery proceedings against the legal representative were deemed unauthorized and were consequently quashed.