Proceedings initiated after a person's death are void; Section 28B inapplicable to Oct 31, 2018 order; heirs' restraints quashed

AT held that proceedings initiated after the death of the noticee were void and could not continue against the deceased or their legal representatives under the SEBI Act; the proviso imposes liability on legal representatives only where penalty was imposed before death and Section 28B (effective 8 Mar 2019) did not apply to the impugned 31 Oct 2018 order. The WTM's continuation of proceedings and restraints on the heirs were unlawful and quashed. The appeal was allowed and the regulator was directed to pay costs of Rs.5,00,000 to the appellants within four weeks.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether proceedings under the SEBI Act and directions for refund/disgorgement can be validly initiated or continued against a person who was deceased before issuance of the show cause notice.

2. Whether, in absence of express statutory provision permitting recovery from a deceased person's estate, the regulator may direct legal representatives to discharge liabilities alleged to have accrued to the deceased after his death.

3. Whether Section 28B (as enacted) or any other provision of the SEBI Act authorised continuation of proceedings or recovery against legal representatives where no proceedings were initiated during the deceased's lifetime.

4. Whether directions restraining legal representatives from dealing with inherited property (creation of third party rights) can be made where proceedings against the deceased were initiated after death.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of initiating/continuing proceedings against a deceased person

Legal framework: SEBI Act empowers the Board/WTM to issue directions under Sections 11, 11B and related provisions after enquiry. The Act does not define "person" to expressly include legal representatives; General Clauses Act, 1897 provides a general definition of "person". Principle of actio personalis moritur cum persona governs survival of personal actions unless right crystallised in lifetime or statute provides otherwise.

Precedent Treatment: Reliance on authorities holding that assessment or recovery proceedings cannot be continued against a dead person where the taxing/statutory provision lacks machinery for recovery from estate (Bombay High Court in CIT v. Ellis C. Reid; affirmed/approved by Supreme Court in Amarchand N. Shroff and James Anderson; recent affirmation in Shabina Abraham v. CCE & Customs).

Interpretation and reasoning: The Tribunal found that the show cause notice and subsequent order were issued after the person's death and, despite knowledge of death, proceedings were continued. In absence of any provision in the SEBI Act providing for continuation against the estate where no proceedings were initiated during life, initiating or continuing proceedings against a dead person is impermissible and renders the order non est and void. The General Clauses Act definition was held not to supply authority to proceed against legal representatives where SEBI Act is silent.

Ratio vs. Obiter: Ratio - Where statutory scheme lacks machinery for recovery from deceased's estate and no proceedings were initiated during the deceased's lifetime, regulatory proceedings initiated after death are null and void. Obiter - Reference to maxim actio personalis moritur cum persona as explanatory of survival principle.

Conclusion: Proceedings initiated and concluded after the death of the noticee, without any proceedings during his lifetime, are legally impermissible and the resultant orders are nullities; they must abate on knowledge of death.

Issue 2: Liability of legal representatives in absence of express statutory provision

Legal framework: Absence of express provision in SEBI Act (prior to insertion of Section 28B) to recover monies from estate; General Clauses Act definition; common law principle that personal actions die with the person unless crystallised or statute provides otherwise.

Precedent Treatment: Supreme Court decisions emphasise that taxing or recovery provisions must contain necessary machinery for recovery from the estate before enforcement against legal representatives is permissible (Shabina Abraham and earlier decisions).

Interpretation and reasoning: The Tribunal held that, since SEBI Act lacked any provision authorising recovery from estate at the time (impugned order predates insertion of Section 28B), there was no legal basis to direct legal representatives to refund or be held liable. The Tribunal emphasised that the right to recover survives only when crystallised in the lifetime of the deceased or when statute furnishes recovery mechanism; personal reliefs sought against director/person do not automatically pass to heirs.

Ratio vs. Obiter: Ratio - In absence of statutory authority to recover from a deceased's estate, legal representatives cannot be made liable for monies alleged to be due to regulatory proceedings initiated after death. Obiter - Discussion on who may be an appropriate person to recover from (the company) and reference to actio personalis principle.

Conclusion: Directions seeking recovery from legal representatives where no liability was determined during the deceased's life are without authority and unsustainable.

Issue 3: Application of Section 28B (continuance of proceedings) and temporal applicability

Legal framework: Section 28B (as enacted by Act No.13 of 2018 effective 8 March 2019) permits continuance of certain proceedings against legal representatives and limits liability in respect of penalties imposed before death; proviso restricts liability for penalties to those imposed before death.

Precedent Treatment: Not applicable directly in the judgment; statutory interpretation governs temporal operation.

Interpretation and reasoning: The Tribunal found Section 28B inapplicable because it was inserted after the impugned order (order dated 31 October 2018). Moreover, the proviso to Section 28B makes clear that legal representative liability for penalties arises only if the penalty was imposed before death. Since the penalty/order in question was passed after death, and the statutory provision was not in force when the order was passed, reliance on Section 28B to sustain post-death proceedings was untenable.

Ratio vs. Obiter: Ratio - A statutory provision enacted after the completion of impugned proceedings cannot validate those past proceedings; where the proviso limits liability to penalties imposed before death, it cannot be used to impose liability after death.

Conclusion: Section 28B cannot be retroactively applied to sustain proceedings or impose liability on legal representatives where the impugned order predates the insertion of that section and where no penalty was imposed during the deceased's lifetime.

Issue 4: Legality of restraining directions against legal representatives regarding inherited property

Legal framework: SEBI's power to issue directions under Section 11B; absence of express statutory authority to affect estate rights of heirs where proceedings against deceased were not maintainable; principle preventing creation of third party rights restraint without jurisdiction.

Precedent Treatment: No direct precedent cited beyond general principles of legal representative liability and survival of actions.

Interpretation and reasoning: The Tribunal held that restraining legal representatives from selling or creating third party rights in inherited property was a perverse exercise where proceedings against the deceased were invalid. Since proceedings should have abated upon knowledge of death, such post-death prohibitory directions constituted misuse of process and unjustified harassment.

Ratio vs. Obiter: Ratio - Where proceedings against a deceased are void for want of statutory authority, ancillary prohibitory directions affecting heirs' estate rights are also unsustainable. Obiter - Observations on imposition of costs for harassment.

Conclusion: Directions restraining legal representatives from dealing with inherited property, issued consequent to proceedings initiated after death, are unlawful; imposition of costs is appropriate for harassment caused.

Relief and Consequences

Conclusions drawn: The impugned orders (show cause/order) insofar as they pertain to the deceased's legal representatives are quashed as void; proceedings should have abated on knowledge of death; Section 28B is inapplicable retroactively; restraining directions were perverse; costs were imposed on the regulator for harassment.

---