TaxTMI 
TaxTMI 
2018 (7) TMI 1450
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....nsider Trading) Regulations, 1992 (hereafter 'the PIT Regulations'). 3. The petitioner also prays that the proceedings leading to the appointment of the Adjudicating Officer to adjudge the penalty be quashed. 4. The principal allegation against the petitioner is that although he held more than 5% shares in a listed company, Himalaya Granites Ltd., he had failed to make the disclosure as required under Regulation 13(3) read with 13(5) of the PIT Regulations. 5. The petitioner contends that an Adjudicating Officer can be appointed under Section 15-I of the Act only where the Securities and Exchange Board of India (hereafter 'the Board') forms an opinion that there are grounds for adjudging under any provisions of Chapter VIA of the Act (which includes Section 15A). However, in the present case, no such opinion was formed by the Board and, therefore, the appointment of the Adjudicating Officer is without jurisdiction. The petitioner further claims that proceedings for imposition of penalty cannot be initiated without a prior order under Regulation 14 of the PIT Regulations and, therefore, the proceedings initiated against the petitioner are without jurisdiction and contrary t....
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....fficer."The said note stated that the Board had examined the alleged irregularities observed in the matter of Himalaya Granites Ltd. and into possible violation of the provisions of the Act and various Regulations made thereunder and it, prima facie, appeared to the Whole Time Member of the Board that Anirudh Bubna Trust and Spark Securities Private Limited had violated Regulations 7(1) and 7(2) of the Takeovers Regulations as well as Regulations 13(1) and 13(3) read with 13(5) of the PIT Regulations. And, the petitioner had violated Regulations 13(3) read with 13(5) of the PIT Regulations. The note further recorded that the Whole Time Member was satisfied that there was sufficient grounds to enquire into the affairs and adjudicate upon the alleged violation by the said entities under (a) the Act; (b) the Takeovers Regulation; and (c) the PIT Regulations. Accordingly, the Whole Time Member had in exercise of powers under Section 19 of the Act read with Section 15-I of the Act and Rule 3 of the Rules appointed Ms Anita Kenkare as the Adjudicating Officer (AO) by an order dated 04.10.2013 to enquire into and to adjudge under Section 15A(b) of the Act. 10. The Adjudicating Officer ....
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....spects any violation of the PIT Regulations. He referred to the PIT Regulations and submitted that the same contained provisions with regard to investigations. The same also required the Board to communicate the findings of the investigation and to provide an opportunity to the concerned person to respond to the said investigation. The Board was empowered to issue orders under Regulation 11 of the PIT Regulations after considering any explanation that may be provided by the concerned party. He submitted that Regulation 14 of the PIT Regulations expressly provided that if a person had violated the provisions of the Regulation, he would also be liable for appropriate action including under Chapter VIA of the Act. He submitted that the scheme of the PIT Regulations made it amply clear that the Board was first required to exhaust the process of investigation and then form a firm opinion. The question whether any penalty was required to be imposed would arise only after the Board had formed a firm opinion. He submitted that any order passed by the Board would also be appealable before the Securities Appellate Tribunal in terms of Regulation 15 of the PIT Regulations. He submitted that s....
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....he time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to [a penalty [which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees]]." 20. In terms of Section 15-I of the Act, the Board is required to appoint an officer not below the rank of Division Chief for holding inquiry for the purposes of adjudging the levy of penalty, inter alia, under Section 15A of the Act. Section 15-I of the Act is set out below:- "15-I. Power to adjudicate - (1)For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G (15H, 15HA and 15HB), the Board shall appoint any officer not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. (2) While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the fa....
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....t are required to be addressed in this petition are (i) whether the Whole Time Member had formed an opinion that there were grounds for adjudging penalty under Section 15A(b) of the Act; and (ii) whether the Whole Time Member was required to pass an order under Regulation 14 of the PIT Regulations before taking any steps for appointing an Adjudicating Officer for adjudging any penalty under Section 15A(b) of the Act. 24. The learned counsel appearing for the petitioner had referred to Regulation 4A of the PIT Regulations and had contended that it was mandatory for the Board (or its delegate) to make the necessary inquiries for forming a, prima facie, opinion and to further follow the procedure under Chapter III of the PIT Regulations. 25. Regulation 4A(1) of the PIT Regulations empowers the Board to make inquiries in cases where the Board suspects that any person has violated the provisions of the PIT Regulations in order to form a prima facie opinion as to whether there is any such violation. In terms of Regulation 4A(2) of the PIT Regulations, the Board is also empowered to appoint one or more officers to inspect the books and records of insider(s) or any other person as re....
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....sider(s) or any other persons as mentioned in clause (i) of sub-section 11 for the purpose of sub-regulation (1)." Directions by the Board 11. The Board may without prejudice to its right to initiate criminal prosecution under section 24 or any action under Chapter VIA of the Act, to protect the interests of investor and in the interests of the securities market and for due compliance with the provisions of the Act, regulations made thereunder issue any or all of the following order, namely: (a) directing the insider or such person as mentioned in clause (i) of sub-section (2) of section 11 of the Act not to deal in securities in any particular manner; (b) prohibiting the insider or such person as mentioned in clause (i) of sub-section (2) of section 11 of the Act from disposing of any of the securities acquired in violation of these regulations; (c) restraining the insider to communicate or counsel any person to deal in securities; (d) declaring the transaction(s) in securities as null and void; (e) directing the person who acquired the securities in violation of these regulations to deliver the securities back to the ....
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....vestigations and pass orders under PIT Regulations and issue directions as specified under Regulation 11 of the PIT Regulations. However, the said procedure does not impinge or any way dilute the powers of the Board to otherwise take action under the provisions of Chapter VIA of the Act. In view of the above, the contention that the Board was first required to determine whether the petitioner had violated the PIT Regulations before appointing an Adjudicating Officer under Section 15-I of the Act is unmerited. As noticed above, the provisions of Chapter 3 of the PIT Regulations (which includes Regulation 4A to Regulation 11A) provides self contained code for conduct of the examination/investigation, which may culminate in the directions as contemplated under Regulation 11 of the PIT Regulations. However, it is not necessary that the procedure of investigation must be carried out before the Board can form an opinion that there are grounds for adjudging under any of the provisions in Chapter VIA of the Act. It is also clear that if the investigation is carried out in terms of PIT Regulations results in the issue of directions under Regulation 11 of the PIT Regulations, the Board is no....
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....d above, a Whole Time Member has been delegated the power for appointing an Adjudicating Officer and, therefore, before such appointment is made, the Whole Time Member is required to form an opinion that there are grounds for adjudging under the provisions of Chapter VIA of the Act. Admittedly, there is no noting by the Whole Time Member expressly stating that he has formed such an opinion. The only noting available on the file made by the Whole Time Member is that "Ms Anita Kenkare is appointed as A.O.".The said noting is on a file put up to the Whole Time Member seeking approval of the recommendations made by the Committee of Division Chiefs and such recommendations includes the recommendations of initiation of adjudicating proceedings under Section 15A(b) of the Act against the petitioner. It is, thus, apparent that the Whole Time Member had accepted the recommendations made as he has proceeded to appoint an Adjudicating Officer. However, there is no noting that indicates that he has independently formed any opinion that there are grounds for adjudging under Chapter VIA of the Act. 35. This Court is of the view that the noting made by the Whole Time Member cannot be read as a....
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....escaped assessment, before initiating any action for reopening of the assessment and the Commissioner was required to be satisfied that such action was warranted. In that case, the concerned officer had merely stated "Yes" against the question "Whether the Commissioner is satisfied that it is a fit case to issue a notice under Section 148 of the Act?" The Court concluded that the Commissioner had mechanically recorded his permission as he could not have come to such conclusion on the material placed before him. In the present case, the Whole Time Member has not even made a statement that he has formed an opinion that there are grounds for adjudging levy of penalty under Chapter VIA of the Act. In the Central India Electric Supply Co. Ltd. v. Income Tax Officer, Company Circle - X, New Delhi & Anr.:(2011) 333 ITR 237 (Delhi), the Division Bench of this Court considered a case where an endorsement "Yes. The Board is satisfied" was made against a column reading "whether the Board was satisfied of the reasons recorded." The said satisfaction was in the form of a rubber stamp. The Court concluded that the same did not comply with the provisions of Section 151 of the Income Tax Act, 1961....