TaxTMI 
TaxTMI 
2020 (10) TMI 689
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....re is: whether the Board is obliged to grant a personal hearing to the petitioner while considering an exemption application under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The answer is-No. The facts and the reasons for this conclusion are as follows. 4. The Petitioner- JK Paper Limited is a public limited company. The Petitioner manufactures and supplies paper and board. The Respondent, Securities and Exchange Board of India, SEBI, is established under the Securities and Exchange Board of India Act, 1992. 5. SEBI, in the year 1999, had framed "Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999" which provided for the stock-based incentive schemes to employees. On 28 October 2014, SEBI notified Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, ("Regulations of 2014"). SEBI has framed the Regulations of 2014 in the exercise of the power conferred by sections 11, 11A and 30 of the Act of 1992 read with section 62 of the Companies Act of 2013 and rule 12 of Companies (Share Capital and Debentures) Rules, 2014. The Reg....
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....Appellate Tribunal under the Act of 1992 and the Securities Appellate Tribunal (Procedure) Rules, 2000. The Appellate Tribunal allowed the appeal on 11 August 2020. The Appellate Tribunal held that the SEBI had to give reasons in the order rejecting the exemption application. The Tribunal directed the SEBI to pass a reasoned order within the set time limit. 10. The SEBI, by an email communication dated 26 August 2020, sought certain information from the Petitioner. The Petitioner responded on 2 September 2020 and submitted information. The Petitioner sought a personal hearing before any decision is taken on the exemption application. By communication dated 7 September 2020, the SEBI informed the Petitioner to make submissions in writing by 12 September 2020. The Petitioner again, by an email dated 11 September 2020, requested an opportunity to make submissions in person. The SEBI replied on 14 September 2020 stating that according to it, all the relevant submissions have been brought on record and there is no such requirement for a personal hearing. However, the Petitioner was given liberty to file additional information through written submissions, if necessary. 11. S....
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....et up by the company or any other company in its group; b. the scheme is funded or guaranteed by the company or any other company in its group; c. the scheme is controlled or managed by the company or any other company in its group. Regulation 3 specifies the manner of implementation of the schemes. The regulation reads thus: 3. Implementation of schemes through trust. (1) A company may implement schemes either directly or by setting up an irrevocable trust(s): Provided that if the scheme is to be implemented through a trust the same has to be decided upfront at the time of taking approval of the shareholders for setting up the schemes: Provided further that if the scheme involves secondary acquisition or gift or both, then it is mandatory for the company to implement such scheme(s) through a trust(s). (2) and (3) ..... ..... ..... ..... ..... ..... ..... Regulation 26 mandates certain conditions regarding the position of shares of the company. The relevant part is reproduced as under: 26. Administration and implementation. (1) ..... ..... ..... ..... ..... ..... ..... ..... (2) At no point....
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....s powers under the Act of 1992, the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 2013. 16. The Petitioner's first contention is that the Appellate Tribunal in its order dated 11 August 2020 has held that the power under Regulation 29 is a quasi-judicial power and since it is a finding rendered in the litigation between the parties the same is binding on SEBI. The SEBI has argued that there is no such finding. 17. When SEBI had rejected the application of the Petitioner for exemption/relaxation on 3 February 2020, the Petitioner filed an appeal before the Securities Appellate Tribunal. The Petitioner contended that the communication was non-speaking. The stand taken by SEBI was that it is only when an exemption is granted that the reasons need to be given. There is no obligation to provide any reasons when the exemption application is rejected. The Tribunal noted the phrase "for reasons to be recorded" and observed that this requirement would apply in both contingencies, i.e. for rejection of the application and for grant of the same. After interpreting the language of Regulation 29(1) in this manner, the Appellate Tribunal also made a general comment on ....
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....he Regulations, if any entity is in breach thereof, the consequences would follow as provided in Regulation 30, unless the entity is exempted. Liability thus originates from the breach of the Regulations 2014. Refusal to grant an exception under Regulation 29 is not the origin of liability. Grant of exemption is a matter of exception from the general rule contained under the Regulations. The contention of the Petitioner that right of personal hearing must follow because the power under Regulation 29 is a quasi-judicial power, cannot be accepted. 21. The next limb argument of the Petitioner is that looking at the consequences that would follow, whatever may be the nature of Regulation 29, in requirement of fairness, transparency and principles of natural justice, personal hearing be read into these provisions. Reliance is placed on the decisions of the Supreme Court in the cases of Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664, The Siemens Engineering & Manufacturing Co. of India Ltd. v. The Union of India (1976) 2 SCC 981 and Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I (2008) 4 SCC 151. SEBI, on the other hand, has relied on the following dec....
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.... has clarified this position in the judgment in the case of Gorkha Security Services v. Government (NCT of Delhi) (2014) 9 SCC 105, wherein the appellant before the Supreme Court had questioned the form and content of show cause notice to be issued to blacklist the petitioner. One question framed by the Supreme Court was the necessity to serve show cause notice as requisite of principles of natural justice. The Supreme Court observed that once a show cause notice is given and an opportunity is accorded to give a reply, it is not necessary to give personal hearing. The case of State Bank of India v. M/s.Jah Developers Pvt. Ltd. Civil Appeal No.4776/2019 decided on 8 May 2019., came up before the Supreme Court in respect of the declaration of a borrower as a willful defaulter under the circulars issued by the Reserve Bank of India. The question was whether an advocate ought to be allowed to represent the borrower before the Committee taking a decision. The issue was answered in negative. The Supreme Court, in State Bank of India, reiterated the principle that natural justice is a flexible tool used in order to arrive at a just result and such result can be achieved without a pe....
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.... does not in all circumstances mean a personal hearing. SEBI has placed two Regulations before us and has pointed out two of the provisions. First is Regulation 5 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011. It incorporates a condition of giving a reasonable opportunity. Second is Regulation 25A(4) of the SEBI (Delisting of Equity Shares) Regulation, 2009. It provides for a "reasonable opportunity of being heard" to the applicant before deciding exemption application. Therefore whenever it is found necessary to provide for an opportunity, SEBI has expressly incorporated it in such provisions. No such stipulation is found in the Regulation at hand. 26. The apprehension expressed by the SEBI that by reading duty to give personal hearing in this Regulation would have adverse ramifications on its working cannot be said to be unwarranted. The SEBI has framed several regulations on various aspects of the securities market. A large number of applications are filed before it. It will hamper the functioning of the SEBI if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provides for it or not. 27. We c....