TaxTMI 
TaxTMI 
2020 (1) TMI 523
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.... has been issued, namely: "(i) Noticees no. 2-5 i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly, till further orders. (ii) Noticees no. 2-5 are restrained from being associated with any intermediary registered with SEBI or any listed entity or its material unlisted subsidiary, till further orders. (iii) The concerned stock exchanges are permitted to allow the aforementioned persons/entities at paragraph 6.1(i) to square off their existing open positions in the Futures and Options segment, if any, immediately. The aforementioned persons/entities shall not be allowed to take fresh positions or increase their open positions or execute trades. Further, the concerned stock exchanges shall ensure that no fresh positions are created for the aforementioned persons/entities. (iv) Noticees no. 6-8 i.e. Avantha Holdings Limited, Acton Global Private Limited and Solaris Industrial Chemicals Limited are directed to retain funds/other assets to the ext....
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....d holding Company and a promoter of the Company in which 87% of the shares are held by Appellant No. 1. 3. The immediate cause of action which instigated the chain of events was the outcome of the Board Meeting held on August 19, 2019 which started at 3:00 P.M. and ended at 4:00 A.M on the next day. In this meeting the Appellant No. 1 as a Chairman of the Company was present. On the basis of the minutes of the Board, the Company made a corporate announcement on August 20, 2019 disclosing the following namely: "A. The Board of Directors ("Board") as well as Risk and Audit Committee ("RAC") of CG Power held a meeting to inter alia consider and discuss the status of annual financial statements of the Company as well other related matters. B. The Operations Committee was made aware of some unauthorised transactions by certain employees of the Company and was also made aware of a letter received by the Company from a financing company (subsequently revealed as Aditya Birla Finance Limited) regarding a certain interest payment failure which the Operations Committee was unable to trace or ascertain from the financials of the Company. To make further assessments in thi....
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.... on August 29, 2019 and August 30, 2019. SEBI after considering the Preliminary Investigation Report given by the Company and further considering the Audit Report, prima facie found that there was a serious misstatement of accounts and diversion of funds from the Company and its subsidiaries in violation of the SEBI Act, SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for convenience) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations, 2015 for convenience). SEBI upon examining the evidence, prima facie found that the appellants had perpetrated certain irregularities which included: "i. The use of certain assets of the Company as collateral including being Co-Borrower and/or Guarantor for enabling third parties to obtain loans without due authorisation from the Board of CG Power. ii. Routing transactions through subsidiaries, Promoter-affiliated Companies and other connected parties for the ultimate benefit of companies related to Promoter Group. iii. Inappropriate netting-off the liabilities with the receivables from different ....
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....n on the part of the appellants amounted to a fraud on its public investors for which a detailed forensic audit was required to bring out the complete picture and the extent of the misappropriation/ misstatement. In order to prevent further diversion/ siphoning of the funds the WTM found it necessary to pass an ex-parte ad-interim order, which have already been extracted earlier. 8. We have heard the learned senior counsel Shri Janak Dwarkadas for the Appellants and the learned senior counsel Shri Iqbal Chagla for Respondent No. 1 and the learned senior counsel Shri Amit Desai for Respondent No. 2 at some length. 9. Shri Dwarkadas the learned senior counsel contended that by passing the ex-parte ad-interim order the respondent has already placed the appellant guilty without trial. Without considering the reputation of the appellants, SEBI has proceeded in haste in holding that the appellants have siphoned off the money as petty thieves. It was contended that there was no urgency in the matter and, if an opportunity of hearing was given, the appellants would have placed the material and would have proved that all the alleged transactions as has been indicated in the impugned o....
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....al to the interests of the Company. It was thus contended that the denial of the documents by the Company was in gross violation of the principles of natural justice. In view of the aforesaid, the learned senior counsel contended that in the absence of any urgency, there was no reason for this ex-parte ad-interim order to continue any further. It was contended that the appellants shall file their appropriate replies after receiving the relevant documents and would participate in the proceedings but prayed that the ex-parte ad-interim order should not be allowed to operate. 10. On the other hand, Shri Chagla the learned senior counsel for SEBI contended that, SEBI has the power to pass ex-parte ad-interim orders pending investigation under Sections 11 & 11B of the SEBI Act in order to protect the interest of the investors. The learned senior counsel contended that during the preliminary inquiry and upon examination of the evidence that came before SEBI it was prima facie found that the appellants were indulging in diversion/siphoning of the funds of the Company which was against the interests of the shareholders of the Company and therefore it was necessary that action was taken ....
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....ion under Sections 11 & 11B of the SEBI Act. What has been disputed is, that considering the facts and circumstances in the instant case, there was no urgency to pass an ex-parte ad-interim order. The appellants in support of their submission have relied upon a decision of this Tribunal in North End Foods Marketing Pvt. Ltd. v. SEBI [2019] 105 taxmann.com 69/153 SCL 340 (SAT-Mum) where in this Tribunal held as under: "17. In our opinion, the impugned order is harsh and unwarranted. We are of the opinion that there was no real urgency at this late stage in passing an ex-parte restraint order which virtually amounts to passing a final order. The period of trades is 2017-2018. At the time when the impugned order was passed the future contracts had been executed. The lean season was over. There is nothing on record to indicate that the sales made by the appellants was on a higher side indicating manipulation in the price nor there is any prima-facie, finding that by accumulating large stocks of Mentha Oil, the appellant had dominated the market without making any comparison with the total volume of trades in the physical market. In our opinion, the basis of urgency was purely ....
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....years. SEBI in its letter dated October 21, 2013 wrote to MP Mr. Patil that the Appellant's activities did not satisfy the conditions of Section 11AA of the SEBI Act and therefore, none of the schemes time sharing business fell within the ambit of a CIS. A perusal of the original files produced by SEBI as well as that of Reply-Affidavit filed by it undoubtedly points out that the Respondent had taken a view on file that the time sharing business does not fall within the definition of CIS. This view was nurtured by the Respondent till it was changed as a result of either the judgment in the case of PGF Ltd. by the Hon'ble Supreme Court on 12th March, 2013 and/or the intervention of MP Mr. Patil by a letter dated 2nd July 2013 calling upon SEBI to investigate the case of Appellant regarding applicability of CIS to the time sharing business. 31. We have examined Sections 11(1), 11(4) and 11B read with Sections 11AA(1), 11AA(2) of the SEBI Act along with Regulation 65 of the CIS Regulations of 1999, under which the Respondent has passed the Impugned Order to protect the interest of investors. 32. An analysis of the precise legal nature of the discretion confer....
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....pportunity of a hearing will suffer from the vice of unfairness. It is well settled that if there is authority to decide and determine to the prejudice of another person, the duty to give a fair hearing is implicit in the exercise of such power. 34. It is indeed accepted that the necessity for speed may call for immediate action in a given case and the need for promptitude may exclude the duty of giving a pre-decisional hearing to the person affected. At the same time, in such situations, there is an inherent need to show that the danger to be averted or the act to be prevented is so imminent that the pre-decisional hearing must be dispensed with. In the present matter, no such urgency has been brought to our notice. In fact, we feel that by asking the Appellant to stop all its activities, the customers who wish to avail of the schemes of the Appellant by going on holiday or vacation, are being put to loss." 14. There is no doubt that an ex-parte ad-interim order can be passed only when there is an urgency. In Liberty Oil Mills v. Union of India AIR 1984 SC 1271, the Supreme Court held that the urgency must be infused by a host of circumstances and further held that the....