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2022 (9) TMI 544
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....d in the activity of purchasing and selling of shares listed under the Securities and Exchange Board of India (for short 'SEBI'). According to the respondents in the SEBI, the persons engaged in buying and selling of the shares also indulges in buying of a particular share of a listed company and immediately thereafter, sell the purchased share at a price which would be lower than the price at which the shares were purchased, and the time gap between the purchase and sell of the shares at times may also be a fraction of a second. It came to the notice of the authorities of the SEBI that such manner of purchases and sell of shares were prevalent under the SEBI which came to be called by the authorities to be reversal trading. 3. The concept of reversal trading came under the consideration of the Supreme Court in Securities and Exchange Board of India Vs. Rakhi Trading Private Ltd. reported in (2018) 13 SCC 753. In Rakhi Trading (Supra), certain decisions of the Adjudicating Officer were assailed before the Securities Appellate Tribunal (for short, SAT), which also included a decision of an Adjudicating Officer in respect of Rakhi Trading Pvt. Ltd. The SAT by its respective orders....
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.... not per se illegal. As far as reversal of trades is concerned, the Senior Counsel has sought to distinguish Ketan Parekh [Ketan Parekh v. SEBI, 2006 SCC OnLine SAT 221] as it pertained to dealings in the cash segment whereas the present case deals with the F&O segment. The learned Senior Counsel has strenuously argued that no rules of the game have been violated. 30. We are unable to agree with the arguments of the learned Senior Counsel appearing for Rakhi Trading. Regulation 4(1) in clear and unmistakable terms has provided that "no person shall indulge in a fraudulent or an unfair trade practice in securities". In SEBI v. Kanaiyalal Baldevbhai Patel [SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1] , it has been held by this Court that a trade practice is unfair if the conduct undermines the ethical standards and good faith dealings between the parties engaged in business transactions. To quote: (SCC pp. 22 & 31, paras 31 & 60) "31. Although unfair trade practice has not been defined under the regulations, various other legislations in India have defined the concept of unfair trade practice in different contexts. A clear-cut generalised definition of the ....
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....ulating the business of dealing therein. Undesirable transactions would certainly include unfair practices in trade. The SEBI Act, 1992 was enacted to protect the interest of the investors in securities. Protection of interest of investors should necessarily include prevention of misuse of the market. Orchestrated trades are a misuse of the market mechanism. It is playing the market and it affects the market integrity. 32. Ordinarily, the trading would have taken place between anonymous parties and the price would have been determined by the market forces of demand and supply. In the instant case, the parties did not stop at synchronised trading. The facts go beyond that. The trade reversals in this case indicate that the parties did not intend to transfer beneficial ownership and through these orchestrated transactions, the intention of which was not regular trading, other investors have been excluded from participating in these trades. The fact that when the trade was not synchronising, the traders placed it at unattractive prices is also a strong indication that the traders intended to play with the market. 33. We also find it difficult to appreciate the stand ....
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....ing the market forces to operate in their natural course, the traders repeatedly carried out the impugned transactions which deprived other market players from full participation. The repeated reversals and predetermined arrangement to book profits and losses respectively, made it clear that the parties were not trading in the normal sense and ordinary course. Resultantly, there has clearly been a restriction on the free and fair operation of market forces in the instant case. 35. Regulation 2(1)(c) defines "fraud". Under Regulation 2(1)(c)(2) a suggestion as to a fact which is not true while he does not believe it to be true is fraud. Under Regulation 2(1)(c)(7), a deceptive behaviour of one depriving another of informed consent or full participation is fraud. And under Regulation 2(1)(c)(8), a false statement without any reasonable ground for believing it to be true is also fraud. In a synchronised and reverse dealing in securities, with predetermined arrangement to book loss or gain between prearranged parties, all these vices are attracted. 37. According to SAT, only if there is market impact on account of sham transactions, could there be violation of the PFU....
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....me thereof; the proximity of time between the two and such other relevant factors." We do not think that those illustrations are exhaustive. There can be several such situations, some of which we have discussed hereinabove. 39. The traders thus having engaged in a fraudulent and unfair trade practice while dealing in securities, are hence liable to be proceeded against for violation of Regulations 3(a), 4(1) and 4(2)(a) of the PFUTP Regulations. Appeals Nos. 1969 of 2011, 3175 of 2011 and 3180 of 2011 are hence allowed. The orders of the Securities Appellate Tribunal are set aside and that of SEBI are restored to the extent indicated above. 41. Before concluding, we would like to reiterate the observations made by this Court in Kishore R. Ajmera [SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368] and Kanaiyalal Patel [SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1] regarding the need for a more comprehensive legal framework governing the securities market. As the market grows, ingenuous means of manipulation are also employed. In such a scenario, it is essential that SEBI keeps up with changing times and develops principles for good governance in the stoc....
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....hrough the stock exchange, it may or may not be a synchronised deal depending on the time when the buy and sell orders are placed. There are deals which match off market i.e. the buyer and the seller agree on the price and quantity and execute the transaction outside the market and then report the same to the exchange. These are also called negotiated transactions.... It has recently issued a circular requiring all bulk deals to be transacted through the exchange even if the price and quantity are settled outside the market. When such deals go through the exchange, they are bound to synchronise. It would, therefore, follow that a synchronised trade or a trade that matches off market is per se not illegal. Merely because a trade was crossed on the floor of the stock exchange with the buyer and seller entering the price at which they intended to buy and sell respectively, the transaction does not become illegal. A synchronised transaction even on the trading screen between genuine parties who intend to transfer beneficial interest in the trading stock and who undertake the transaction only for that purpose and not for rigging the market is not illegal and cannot violate the regulatio....
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....arrangement is very well possible behind the screen. This is what has been done in the case in hand. Buy and sell orders were placed at a difference of few seconds/minutes, while "sell" by respondent to Kasam Holding at a high price and "buy" by the respondent from Kasam Holding Pvt. Ltd. at a low price. The transactions wherein the "buy and sell" orders entered almost simultaneously and the transactions matched in time and quantity with significant price variation and the respondent consistently making profit but Kasam Holding Pvt. Ltd. consistently making loss. Number of reversal trades between the respondent and Kasam Holding Pvt. Ltd. and such reversal trade taking place repeatedly over a period of time only indicates that there was prearrangement between the parties before the trade was executed. The transactions involving only the same two parties within few seconds with huge difference in "buy and sell" value, though there is no difference in the underlying security, can take place only with prior understanding between the two parties. The Board who is the regulator of the market, can always lift the veil of such transactions to show the non-genuineness of such transactions.....
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....f the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion." (emphasis supplied) 68. There was no possibility of such perfect matching of quantity, timing, prices, etc. between the same parties unless there was prior meeting of minds or a specific understanding/arrangement between the parties. After referring to Ketan Parekh [Ketan Parekh v. SEBI, 2006 SCC OnLine SAT 221] and Nirmal Bang [Nirmal Bang Securities (P) Ltd. v. SEBI, 2003 SCC OnLine SAT 37 : (2004) 49 SCL 421] cases, in Accord Capital Markets Ltd., In re [Accord Capital Markets Ltd., In re, 2007 SCC OnLine SEBI 181] , SEBI held as under: (Accord Capital case [Accord Capital Markets Ltd., In re, 2007 SCC OnLine SEBI 181] , SCC OnLine SEBI para 4): "4.12. I note that most of the synchronised trades executed by the Broker were perfectly matched with the counter-party orders even with respect of the price to the extent of two decim....
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....ket participant in any manipulation. For instance, while trading, a lip service can be paid to a screen based trading system while agreement is reached beforehand between brokers to effect the transaction. Anonymity can be a cloak to cover anastomosis of interest. Therefore, the hackneyed plea based on intentions in the market place cannot pass muster in all circumstances, more so when such intentions are in the special/peculiar knowledge of the parties to the transactions. Also any suggestion attributing innocence to the parties involved in such transactions would give rise to an untenable situation where certain other third persons/entities alone would be responsible for the manipulation and none else." 69. Applying the test laid down in Kishore R. Ajmera case [SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368] to the present case, I find that by cumulative analysis of the reversal transactions between the respondent and Kasam Holding, quantity, time and significant variation of prices, without major variation in the underlying price of the securities clearly indicate that the respondent's trades are not genuine and had only misleading appearance of trading in the securiti....
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....ise of the scrip of the company. Investors are then lured to make their "investment decisions" on those manipulated inflated results, using the above devices which will amount to market abuse." 82. Stock market is regulated mainly by SEBI and to some extent by the Departments of Economic Affairs and Company Affairs of the Government of India. Market manipulation can occur in a variety of ways. Manipulations/unfair trade practices reduce the market efficacy. Section 11 of the SEBI Act, 1992 provides for the functions of the Board, as per which it shall be the duty of the Board to protect the interests of the investors in securities and to promote the development and to regulate the securities market by such measures as it thinks fit. Main function of SEBI in this regard is to make inquiry, investigation and to give directions, to promote the orderly and healthy growth of the securities market. With a view to curb unfair trade practices, market manipulation, price rigging and other frauds in securities market, SEBI is empowered to make inquiries and inspection. 84. The capital market regulator, SEBI has a significant role to play in safeguarding the interest of inve....
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.... that under Regulation 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (for short 'the PFUTP Regulations'), which provides in clear and unmistakable terms that no person shall indulge in a fraudulent or an unfair trade practice in securities, a trade practice would be unfair if the conduct undermines the ethical standards and good faith dealings between the parties engaged in the business transactions. ii. As the dealings in the stock exchange are governed by the principles of fair play and transparency, one does not have to labour much on the meaning of unfair trade practices in securities. In other words, it means a practice which does not conform to the fair and transparent principles of trades in the stock market. In a case where one party booked a gain and another party booked a loss, where in a situation, nobody intentionally trades for loss, an intentional trading for loss, per se, would not be a genuine dealing in securities. Trading in securities is always with the aim to make profits, but if one party consistently makes loss and that too in a pre-planned rapi....
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.... have been possible only through prior understanding and to fulfill an unlawful objective through misuse of the stock exchange. viii. The transactions involving the same two parties within a few seconds with huge difference in 'buy and sell' value though there is no difference in the underlying security, can take place with prior understanding between the two parties and the SEBI who is the regulator of the market, can always lift the veil of such transactions to show the non-genuineness of such transactions. ix. In the case before the Supreme Court, every time one of the parties was making profit and the other was facing loss. It seemed improbable that one of the parties namely Kasam Holding who was facing loss in each transaction by trading with the other party was still eager to trade with the same repeatedly for about four days, which was not in consonance with the market trend and human conduct. x. In a quasi judicial proceeding before the SEBI, the standard of proof was preponderance of probability and further that there would be no possibility of such perfect matching of quantity, timing, prices, etc., between the same parties unless there was prio....
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.... to promote orderly and healthy growth of the securities market. 5. The respondents in the SEBI had initiated certain proceedings under Sections 11(1), 11(4) and 11B of the SEBI Act in respect of 59 entities and in such proceeding, an interim order dated 20.08.2015 was passed with reference to the proceeding WTM/RKA/ISD/106/2015. In paragraph 40 of the said order, a conclusion was arrived in the facts of that case that certain misuse of stock options involved therein displayed not only unreal pictures of market activities, but also defeated the basic premises of screen based electronic trading system and price discovery mechanism by repeated execution of pre-decided reversal trades at irrational/arbitrary prices. Accordingly, a view was formed that the abuse of such financial instruments which were made available to the investors for the purpose of protection of their investment portfolios or the reasons of adverse price movement, cannot be tolerated and needs to be dealt with. In view of the prevalence of the pre-decided reversal trades at irrational/arbitrary prices in respect of 59 such entities, in paragraph 5 of the said order, the authorities in the SEBI was also of the vi....
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.... Bombay High Court dismissed the petition instituted by the appellant under Article 226 of the Constitution for challenging a show cause notice which was issued by the first respondent1 alleging a violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003. A petition seeking a review of the judgment of the Division Bench was disposed of by an order dated 22 October 2020. The appellant moved a Special Leave Petition against the judgment in the writ petition and the order in review. The principal issue is whether an investigation report under Regulation 9 of the PFUTP Regulations must be disclosed to the person to whom a notice to show cause is issued. 9. The appellant claims that he received the show cause notice by email on 4 August 2020. The appellant responded to the show cause notice on 6 August 2020 stating that though he had received the forensic audit report submitted by Pipara & Co. LLP, he had not received the report of the investigation conducted by SEBI. The appellant sought an opportunity to inspect the following records: "[...] including but not limited to all material on which reliance was placed Pi....
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....of information by both the parties can aid the courts in determining the truth of the contentions. The role of the court is not restricted to interpreting the provisions of law but also determining the veracity and truth of the allegations made before it. The court would be able to perform this function accurately only if both parties have access to information and possess the opportunity to address arguments and counter-arguments related to the information; (ii) Fair Trial: Since a verdict of the Court has far reaching repercussions on the life and liberty of an individual, it is only fair that there is a legitimate expectation that the parties are provided all the aid in order for them to effectively participate in the proceedings; (iii) Transparency and accountability: The investigative agencies and the judicial institution are held accountable through transparency and not opaqueness of proceedings. Opaqueness furthers a culture of prejudice, bias, and impunity - principles that are antithetical to transparency. It is of utmost importance that in a country grounded in the Rule of Law, the institutions adopt those procedures that further the democratic principles of transparency ....
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....e (1) to any such person shall indicate the nature of contravention alleged to have been committed by him. (3) After considering the cause, if any, shown by such person, the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a chartered accountant duly authorised by him." 33. Rule 4(1) of the FEMA Rules 2000 indicates that in the first instance, the adjudicating authority has to issue a notice requiring the person to show cause why an enquiry should not be held against him. The stage of the notice under Rule 4(1) is not for adjudication but is for the purpose of deciding whether an enquiry should be held. If after considering the cause which is shown, the adjudicating authority is of the opinion that an enquiry should be held, thereupon under Rule 4(3), a notice is issued for the appearance of the person. Sub-Rule (4) provides that on the date fixed, the adjudicating authority shall explain the contravention alleged to have been committed and under sub-Rule (5) an opportunity of producing documents or evidence has to be given.....
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....Whatever mode is used, the fundamental principle remains that nothing should be used against the person which has not been brought to his notice. If relevant material is not disclosed to a party, there is prima facie unfairness irrespective of whether the material in question arose before, during or after the hearing. The law is fairly well settled if prejudicial allegations are to be made against a person, he must be given particulars of that before hearing so that he can prepare his defence. However, there are various exceptions to this general rule where disclosure of evidential material might inflict serious harm on the person directly concerned or other persons or where disclosure would be breach of confidence or might be injurious to the public interest because it would involve the revelation of official secrets, inhibit frankness of comment and the detection of crime, might make it impossible to obtain certain clauses of essential information at all in the future (see R. v. Secy. of State for Home Deptt., ex p H [[1995] Q.B. 43 : [1994] 3 WLR 1110 : (1995) 1 All ER 479 (CA)]). 31. The concept of fairness may require the adjudicating authority to furnish copies of those docum....
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....f that case, the Court held that the enquiry against the noticee was yet to commence: "36. In the present case, the inquiry against the noticee is yet to commence. The evidence as may be available upon which the adjudicating authority may place reliance, undoubtedly, is required to be furnished to the person proceeded against at the second stage of inquiry into allegations of contravention. It is at that stage, the adjudicating authority is not only required to give an opportunity to such person to produce such documents as evidence as he may consider relevant to the inquiry, but also enforce attendance of any person acquainted with the facts of the case to give evidence or to produce any document which in its opinion may be useful for or relevant to the subject-matter of the inquiry. It is no doubt true that natural justice often requires the disclosure of the reports and evidence in the possession of the deciding authority and such reports and evidence relevant to the subject-matter of the inquiry may have to be furnished unless the scheme of the Act specifically prohibits such disclosure." 39. The issue in Natwar Singh (supra) was whether the authority was bound to disc....
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.... CIT from his departmental subordinates before the charge-sheet was served on the appellant had not been made available to the appellant. It appears that on complaints being received about his work the CIT had asked the Inspecting Assistant Commissioner Shri R.N. Srivastava to make a report. He made a report. It is obvious that the appellant was not entitled to a copy of the report made by Mr. Srivastava or any other officer unless the enquiry officer relied on these reports. It is very necessary for an authority which orders an enquiry to be satisfied that there are prima facie grounds for holding a disciplinary enquiry and, therefore, before he makes up his mind he will either himself investigate or direct his subordinates to investigate in the matter and it is only after he receives the result of these investigations that he can decide as to whether disciplinary action is called for or not. Therefore, these documents of the nature of interdepartmental communications between officers preliminary to the holding of enquiry have really no importance unless the Enquiry Officer wants to rely on them for his conclusions. In that case it would only be right that copies of the same shoul....
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....nced and a fortiori, if such material is not disclosed to the detenu, the order of detention would be vitiated, both on the ground that all the basic facts and materials which influenced the subjective satisfaction of the District Magistrate were not communicated to the detenu as also on the ground that the detenu was denied an opportunity of making an effective representation against the order of detention." (emphasis supplied) 43. The principle that the material that may influence the decision of a quasijudicial authority to award a penalty must be disclosed to a delinquent was affirmed by this Court in Union of India v. Mohd. Ramzan Khan . In that case, this Court laid down that a delinquent officer is entitled to receive the report of the enquiry officer which has been furnished to the disciplinary authority. This principle was affirmed by a Constitution Bench of this Court in Managing Director, ECIL, Hyderabad v. B. Karunakar . The rationale behind the right to receive the report of the enquiry officer was explained by this Court in the following terms: "26. The reason why the right to receive the report of the enquiry officer is considered an essential part of the re....
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.... have an opportunity to reply to the enquiry officer's findings. The disciplinary authority is then required to consider the evidence, the report of the enquiry officer and the representation of the employee against it." (emphasis supplied) 44. For the purpose of determining if prejudice has been caused by a nondisclosure, this Court held that the report must be furnished to the aggrieved person and the employee must shoulder the burden of proving on facts that his case was prejudiced - either the outcome or the punishment - by the nondisclosure: "30.[v]] The next question to be answered is what is the effect on the order of punishment when the report of the enquiry officer is not furnished to the employee and what relief should be granted to him in such cases. The answer to this question has to be relative to the punishment awarded. When the employee is dismissed or removed from service and the inquiry is set aside because the report is not furnished to him, in some cases the non-furnishing of the report may have prejudiced him gravely while in other cases it may have made no difference to the ultimate punishment awarded to him. Hence to direct reinstatement ....
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....e authority. 49. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure. 50. The investigation report forms the material considering which, the Board arrives at a satisfaction regarding whether there has been a violation of the regulations. If it is satisfied that there has been a violation of the regulations, after giving a reasonable opportunity to be heard, the Board is empowered to take action according to Regulations 11 and 12. It would not suffice for the first respondent to claim as it did before the High Court that it did not rely on the investigation report. The ipse dixit of the authority that it was not influenced by certain material would not suffice. If the material is relevant to and has a nexus to the stage at which satisfaction is reached by an authority, such material would be deemed to be important for the purpose of adjudication. The written submissions of the Board clearly state that the findings of the investigation report are important for the authority to decide whether there are any prima facie grounds....
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....o warrant the setting aside of the order of punishment. It was held that in order to set aside the order of punishment, the aggrieved person must be able prove that prejudice has been caused to him due to non-disclosure. To prove prejudice, he must prove that had the material been disclosed to him the outcome or the punishment would have been different. The test for the extent of disclosure and the corresponding remedy for non-disclosure is dependent on the objective that the disclosure seeks to achieve. Therefore, the impact of nondisclosure on the reliability of the verdict must also be determined vis-à-vis, the overall fairness of the proceeding. While determining the reliability of the verdict and punishment, the court must also look into the possible uses of the undisclosed information for purposes ancillary to the outcome, but that which might have impacted the verdict. 58. The appellant did not sufficiently discharge his burden by proving that the nondisclosure of the above information would affect his ability to defend himself. However, merely because a few portions of the enquiry report involve information on thirdparties or confidential information on the ....
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....no. 2 are alleged to be violation of regulations 3(b), (c), (d), 4 (1) and 4(2)(e), (f), (k) and (r) of SEBI (PFUTP) Regulations, 2003 and clause 49 (V) read with 41(II)(a) of the erstwhile Listing Agreement." 62. The conclusions are summarised below: (i) The appellant has a right to disclosure of the material relevant to the proceedings initiated against him. A deviation from the general rule of disclosure of relevant information was made in Natwar Singh (supra) based on the stage of the proceedings. It is sufficient to disclose the materials relied on if it is for the purpose of issuing a show cause notice for deciding whether to initiate an inquiry. However, all information that is relevant to the proceedings must be disclosed in adjudication proceedings; (ii) The Board under Regulation 10 considers the investigation report submitted by the Investigating Authority under Regulation 9, and if it is satisfied with the allegations, it could issue punitive measures under Regulations 11 and 12. Therefore, the investigation report is not merely an internal document. In any event, the language of Regulation 10 makes it clear that the Board forms an opinion regarding the violati....
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....ter a due disclosure is made to the appellant in terms as noted above, a reasonable opportunity shall be granted to the appellant of being heard with reference to the matters of disclosure in compliance with the principles of natural justice before a final decision is arrived at." 10. In the matter before the Supreme Court in T Takano (supra), the Division Bench of the Bombay High Court had dismissed a petition under Article 226 of the Constitution assailing a show cause notice issued by the authorities under the SEBI under the PFUTP-2003 where the principle issue raised was whether an investigation report under Regulation 9 of the PFUTP-2003 must be disclosed to the person to whom a notice of show cause is issued. 11. Regulation 9 of the PFUTP-2003 is in respect of the submission of a report of investigation done in exercise of the powers under Regulation 5 of the said Regulations. Regulation 5 of the PFUTP-2003 provides for an investigation, where the Board, the Chairman, the member or the Executive Director has reasonable ground to believe that- (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market in viol....
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....ome i.e., reliability and the process i.e., fair trial and transparency, it would be insufficient if only material relied on is disclosed. Such Rule of disclosure of only the material relied upon only holds the nexus to the outcome and not the process and, therefore, as a default Rule, all relevant materials must be disclosed. The Supreme Court also provided that as the purpose of disclosure of information is not merely individualistic i.e. to prevent errors in the verdict but also for fulfilling the larger institutional purpose of fair trial and transparency, therefore, all relevant materials must be disclosed. 17. In paragraph 32, the Supreme Court referred to Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (for short 'the FEMA Rules, 2000') which is pari materia to Rule 4(1) of the PR-1995. In respect of Rule 4(1) of the FEMA Rules, 2000, the Supreme Court observed that the stage of the notice under Rule 4(1) is not for adjudication, but it is for the purpose of deciding whether an enquiry should be held. By referring to the interpretation of Rule 4(1) of the FEMA Rules, 2000 in Natwar Singh (supra) , wherein it was held that ....
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....der Section 11C would have to satisfy the condition precedent of having a reasonable ground to believe that the transactions in securities are being dealt in a manner detrimental to the investors or the securities market or that any intermediaries or any person associated with the securities market had violated any of the provisions of the SEBI Act or the Rules or Regulations or any directions issued by the Board. (ii). By referring to Rule 4 of the PR-1995, it is the contention that the expression 'any person' contained therein would have to be understood to be a particular person to whom the notice under Section 4(1) had been issued and therefore, the requirement of the opinion to be formed by the Board under Rule 3 would have to be in respect of such particular person to whom the notice had been issued and therefore, there would be a requirement of the respondents in the SEBI to show it from the records that the opinion formed under Rule 3 are in existence in respect of the individual petitioner noticees. (iii). The report of the investigation under Section 11(C) of the SEBI Act and the individual opinions formed by the Board in respect of the petitioner notice....
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...., Rules and Regulations have been violated in respect of the tradings in stocks and securities by using the SEBI platform, the entire report if provided to the individual petitioner noticees, would adversely affect the process initiated by the authorities under the SEBI and materials collected in respect of other entities would also be available in the public domain. 20. With regard to the contention of the petitioners that in order to initiate an investigation under section 11C, 'reasonable grounds to believe' must exist to initiate such investigation, it is the contention of Mr. A Choudhury, learned senior counsel that the order dated 20.08.2015 of the SEBI in WTM/RKA/ISD/106/2015 itself contains sufficient materials leading to the reasonable ground to believe to initiate the investigation under section 11C. 21. With regard to the contention that persons ineligible have also been appointed as adjudicating officers, meaning thereby that the persons so appointed are not the respective Division Chiefs, it is the submission of Ms. M Hazarika, learned senior counsel for the authorities in the SEBI that all such persons who were appointed as adjudicating officers are the respecti....
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.... (ii) Whether the opinion to be formed under Rule 3 of the PR-1995 is an individual opinion in respect of the person specific against whom the notices under Rule 4(1) are to be issued and if yes, whether any such individual opinion had been formed. (iii) Whether a notice under Rule 4 of the PR-1995 can be assailed in a proceeding under Article 226 of the Constitution of India. (iv) Whether the adjudicating officers appointed for the purpose are the respective Division Chiefs. (v) Whether the appointment of an officer not below the rank of a Division Chief to be an adjudicating officer was done in accordance with the requirement under Section 15-I of the SEBI Act, 1992. (vi) Whether the individual opinions formed against the person specific with reference to Rule 3 of the PR-1995 are required to be provided to the noticees and in the present case, whether it had been provided. (vii) Whether a notice under Rule 4(1) of the PR-1995 can be a composite notice requiring the noticee to respond as to whether an enquiry should be held under Rule 4(1) and also requiring the noticee to respond under Rule 4(3) as to why any of the penalties....
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....tions in securities are being dealt in a manner detrimental to the investors or the securities market or any intermediary or any person associated with a securities market had violated any of the provisions of the Act or Rules or Regulations. Dr. Ashok Saraf, learned senior counsel by referring to the propositions laid down by the Supreme Court in paragraph 4 in the case of Chhugamal Rajpal Vs. S.P. Chaliha & Ors. reported in (1971) 1 SCC 453 and paragraph 6 in the case of S.Ganga Saran and Sons Pvt. Ltd. Calcutta Vs. Income Tax Officer & Ors. reported in (1981) 3 SCC 143, contends that the expression 'reason to believe' is stronger than the expression 'satisfied' and it must have a rational nexus between the believe and the materials available. 28. Per contra, both Mr. A Choudhury, learned senior counsel and Ms. M. Hazarika, learned senior counsel appearing for the respondent SEBI in different writ petitions, in response to the contention of Dr. Ashok Saraf learned senior counsel for the petitioners as regards the interpretation and requirements of Section 11C of the SEBI Act, 1992 as well as, as to whether any materials were available before the respondent SEBI to embark upon ....
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....estigation of the entire scheme employed in this case is necessary to find out the rationale of entities to indulge in such suspicious/artificial trades including tracing the fund trail and the role of intermediaries in allowing such fictitious trades to enter the system. The investigation shall also cover the examination of any other entity executing similar fictitious trades in the stock options segment." 30. By referring to the aforesaid view formed in paragraph 41 of the ad-interim order dated 20.08.2015, it is the contention of Mr. A Choudhury, learned senior counsel for the respondents in the SEBI that in course of the enquiry involved in the said order of 20.08.2015, the authorities in the SEBI came across several such transactions involving reversal trades or trading in illiquid stocks. The materials that were available before the authorities in the SEBI pursuant to the said enquiry in connection with the ad-interim order dated 20.08.2015 is the basis of the SEBI authorities to arrive at a conclusion that the reasonable ground to believe exist in the instant case, so as to require the authorities in the SEBI to initiate an investigation under Section 11(C) of the SEBI Ac....
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..................... The High Court must in each case consider, whether the act or omission complained of has resulted or is likely to result in grave injustice, and whether the party approaching it has another adequate remedy which is equally efficacious, whether he has approached the Court without acquiescence, and without undue delay, whether the problem posed raises complicated questions be inappropriate for the High Court to determine, whether the aggrieved party has been guilty of misrepresentation or suppression of material facts, and whether notwithstanding the apparent breach it would be inequitable to grant relief. 8. It is unfortunate that the learned Judges of the High Court have not indicated the considerations which persuaded them to reject the petition in limine. There can be no doubt that the averments made in the petition by the Company if proved may justify the issue of the writs claimed, for it is or the case of the Company that the facts which alone invest the Income Tax Officer with jurisdiction to issue the impugned notice did not exist. The Company has also submitted that the power under Section 34 was sought to be utilised as a mere cloak or pretence f....
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....picion and must be based on evidence and any question as to the adequacy of such evidence is wholly immaterial at that stage. He further observed that where the existence of reasonable belief that there had been underassessment due to non-disclosure by the assessee, which is a condition precedent to exercise of the power under Section 34(1)(a) is asserted by the assessing authority and the record prima facie supports its existence, any enquiry as to whether the authority could reasonably hold the belief that the underassessment was due to non-disclosure by the assessee of material facts necessary for the assessment must be barred." 35. The first proposition as provided in Madhya Pradesh Industries Limited/(i) (supra) is that if the Income Tax Authorities has no reason to believe that certain income had escaped, the jurisdiction to issue a notice under Section 34 of the Income Tax Act, 1922 will be absent. The other proposition in Madhya Pradesh Industries Limited/(ii)(supra) provides the reason to believe is not purely a subjective satisfaction of the Income Tax Authority but predicates the existence of reason on which such belief is to be founded and that a mere suspicion canno....
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....wledge, the element of unlikely or uncertainty of the existence of the fact is absent and there would remain no substantial doubt about its existence. 40. The Supreme Court in its pronouncement in Collector of Customs, New Delhi v. Ahmadalieva Nodira reported in (2004) 3 SCC 549 had held that the expression 'reasonable grounds' mean something more than prima facie grounds and it contemplates substantial probable causes for believing. Accordingly, we will have to understand that the test of certainty to arrive at a 'reasonable ground to believe', of there being material available on record, would comparably be more than the test of certainty that would be required for arriving at 'has reasons to believe'. 41. But, at the same time, although the element of certainty in respect of 'reasonable ground to believe' would be more than in that of 'has reasons to believe', but the same time, we are also required to look into the relevancy and purpose of the respective statutes wherein the two expressions may have been used. The expression 'has reason to believe' is from Section 34(1)(a) of the Income Tax Act, 1922, whereas the expression 'has reasonable grounds to believe' is to be und....
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....iew that a detailed investigation of the entire scheme as regards the reversal trades and illiquid stocks options where the involvement of more number of persons in such reversal trades and illiquid stocks options cannot be ruled out, we are of the view that it cannot be said that there was no reasonable ground to believe that an enquiry is required to be conducted under Section 11C of the SEBI Act, 1992. Whether the opinion to be formed under Rule 3 of the PR-1995 is an individual opinion in respect of the person specific against whom the notices under Rule 4(1) are to be issued and if yes, whether any such individual opinion had been formed: 43. By referring to Rule 4 of the PR-1995, the further contention of Dr. Ashok Saraf, learned senior counsel for the petitioners is that the expression 'any person contained therein' would have to be understood to be a particular person specific to whom the notice under Section 4(1) would be issued and therefore, the requirement of forming an opinion by the Board under Rule 3 would have to be in respect of such particular person specific to whom the notice may be issued. By referring to the said provision, it is the contention of Dr. As....
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....unds for adjudging are circumstanced. 47. Section 11C of the SEBI Act of 1992 provides that where the Board has reasonable ground to believe that transactions in securities are being dealt in a manner detrimental to the investors or the securities market or any intermediary or any person associated with the securities market has violated any of the provisions or the Rules or a Regulation made there-under or the directions issued by the Board, it may at any time by order in writing, direct any person to be referred as the Investigating authority to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. 48. Sub-clause A of Section 11C(1) refers to the transactions in securities that are being dealt in a manner detrimental to the investors or the securities market. The expression 'transaction in securities' may be of any such transactions in the securities which may be person specific. If any such transactions in securities are detected by the SEBI to have been dealt in a manner detrimental to the investors or the securities market, it would be for the Board to embark upon an investigation under Section 1....
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.... an enquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing the penalty. 52. On a reading of Section 15-I, makes it discernible that Section 15-I provides for the holding of an enquiry by the adjudicating officer in the prescribed manner after giving any person concerned a reasonable opportunity and further for the purpose of imposing any penalty i.e. any of the penalties that may be provided under Sections 15A to Section 15HB. The expression 'any person concerned' appearing in Section 15-I for the purpose of holding an enquiry in the prescribed manner after providing a reasonable opportunity of being heard to such person, by itself shows that the proceedings under Section 15-I would be person specific rather than it being a more broad based investigation as made under Section 11C. 53. As a reading of the provision of Section 15-I makes it discernible that the investigation contemplated thereunder would have to be against the person concerned against whom the Board intends to hold an enquiry, it has to be understood that the expression 'whenever the Board is of the opinion that there are grounds of....
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....ievances that they may have against such notices can be appropriately dealt with upon the petitioners noticees appearing before the authorities and making their respective submissions. 58. Dr. Ashok Saraf, learned senior counsel for the writ petitioners raises the counter contention that the impugned notices under Rule 4(1) of the PR-1995 are challenged primarily on the ground that the prescribed procedure under the Rules had not been followed and a bare perusal of the notices itself would make it apparent that such procedures had not been followed. According to the learned senior counsel, ordinarily a show-cause notice is not to be interfered in the proceeding under Article 226 of the Constitution of the India inasmuch as the noticee would have an adequate opportunity to reply in course of the proceeding pursuant to such notices. But, if the statutory provisions provides for a particular procedure to be followed while issuing the notices itself and the notices on a cursory glance, makes it apparent that such procedures have not been followed, a Court under Article 226 of the Constitution of India can always look into the aspect and decide the matter on the procedural proprietie....
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....ortunity to put forth their contentions before the authorities concerned and to satisfy the authorities concerned about the absence of case for proceeding against the person against whom the show-cause notices have been issued. Abstinence from interference at the stage of issuance of show-cause notice in order to relegate the parties to the proceedings before the authorities concerned is the normal rule. However, the said rule is not without exceptions. Where a show-cause notice is issued either without jurisdiction or in an abuse of process of law, certainly in that case, the writ court would not hesitate to interfere even at the stage of issuance of show-cause notice. The interference at the show-cause notice stage should be rare and not in a routine manner. Mere assertion by the writ petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, interference is ruled out. 61. A reading of the aforesaid propositions of law as regards maintainability of a writ petition under Article 226 of the Constitution of India against the notice of show-cause, ma....
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....of artificial volume to the tune of 826.21 crore units or 54.68% of the total market volume. In paragraph 6, it is stated that the writ petitioner noticee was one of the various entities which indulged in execution of the non-genuine trades in the stock options segment of BSE during the period of investigation. In paragraph 14 of the notice dated 17.09.2021, it is provided that the writ petitioner noticee is therefore, called upon to show cause as to why an inquiry should not be held against her in terms of Rule 4 of the Procedural Rules, 1995 read with Section 15-I of the SEBI Act, 1992 and penalty should not be imposed in terms of Rule 5 of the said Procedural Rules read with the provisions of Section 15HA of the SEBI Act, 1992. 65. It is the submission of Dr. Ashok Saraf, learned senior counsel for the writ petitioners that the scheme of the procedure prescribed under Rule 4 of the PR- 1995 provides for two separate and distinct stages of the proceeding where at the first stage, the noticee is required to be noticed to show cause as to why an adjudication proceeding should not initiated and the second stage pertains to the actual penalty proceeding that may be undertaken. By ....
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.... as a whole scheme of the procedure requires the notices to be in two separate stages. 69. Considering the aforesaid aspect, we are of the view that the question on the procedural aberration of Rule 4(1) raised in these writ petitions can also be adjudicated in a proceeding under Article 226 of the Constitution of India rather than requiring the noticee to give a wholesome and composite reply to all such allegations that may be made in the notice and thereafter take a decision as to whether the procedural requirements were duly followed. From such point of view, we reject the objections raised by the respondents SEBI as regards the maintainability of the writ petition on the ground that the issues raised could also have been answered by the writ petitioner noticees in the proceeding before the adjudicating officer itself. WHETHER THE ADJUDICATING OFFICERS APPOINTED FOR THE PURPOSE ARE THE RESPECTIVE DIVISION CHIEFS: 70. Another contention raised by Dr. Ashok Saraf, learned senior counsel is that as required under Section 15-I of the SEBI Act 1992, it is for the Board to appoint any officer not below the rank of a Division Chief to be an adjudicating officer. But in the ins....
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.... of the Board in the Grade D." 73. In order to appreciate the contentions raised by Dr. Ashok Saraf, learned senior counsel, which would depend on the factual situation as to whether the authority issuing the notices under Rule 4(1) of the PR- 1995 in a given case was the Division Chief of that given Division would be a question of fact to be examined from the records. 74. Dr. Ashok Saraf, learned senior counsel refers to a particular document downloaded from the website of the SEBI which provides for the organisation structure within the Board. By referring to the said document providing for the organisation structure in the SEBI, Dr. Ashok Saraf, learned senior counsel points out that the adjudicating authority who had issued the notices under Rule 4(1) of the PR-1995 in WP(C)No.766/2022, where Ms. Ankita Didwania is the writ petitioner. The said notice was issued by the Corporation Finance Department. By an order dated 06.07.2021 under the signature of M/s. Bhavana RaviKumar, General Manager, SEBI in paragraph 3 thereof, it is provided that the competent authority in exercise of the power under Section 19 of the SEBI Act, read with Section 15-I (1) thereof and Rule 3 of th....
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....CE WITH THE REQUIREMENT UNDER SECTION 15-I OF THE SEBI ACT, 1992 77. Dr. Ashok Saraf, learned Senior counsel for the petitioner by referring to the provisions of Section 15-I of the SEBI Act, 1992 contends that for the purpose of adjudging under the Sections referred therein, amongst others, Section 15HA, the Board may appoint any officer not below the rank of a Division Chief to be an adjudicating officer for holding an enquiry in the prescribed manner. Accordingly, reference is made to Section 2A of the SEBI Act, 1992, wherein it is provided that the 'Board' means the Securities and Exchange Board of India established under Section 3. Section 3 of the SEBI Act, 1992 provides that the Central Government may by notification appoint and establish for the purpose of the Act, a Board by the name of Securities and Exchange Board of India where Section 3(2) provides that the Board shall be a body corporate by the name of Securities and Exchange Board of India having perpetual succession and a common seal. Further reference is made under Section 4(1) of the SEBI Act, 1992 which provides that the Board shall consist of a Chairman, two members from amongst the officials of the Ministry ....
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....a person and the approval given to such appointment of that person. The expression appointment is defined in Black's Law Dictionary to mean 'the designation of a person, such as non-elected public official, for a job or duty'. According to Oxford English Dictionary, one of the meanings of the word 'appointment' is 'an act of assigning a job or position to someone'. On the other hand, the word 'approval' which flows from the word 'approve' as per the Black's Law Dictionary means 'to give formal sanction; to confirm authoritatively'. Again as per the Oxford English Dictionary 'approval', amongst others, means 'an official statement or indication that something is accepted or regarded favourably,' whereas the word 'approve' means 'officially agree or accept as satisfactory'. 81. Going by the aforesaid meanings of the words 'appointment' and 'approval', we have to understand that 'appointment' means the designation of a person for a job or duty or to assign a person for a job or position to someone whereas 'approval' means to officially agree or accept as satisfactory of any appointment or any act or assigning a job or position to someone by an authority other than the authority ass....
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....fter referred as the 'SEBI Rules') read with section 19 of the SEBI Act appointed certain Division Chiefs as Adjudicating Officers vide Order dated July 02, 2021 to enquire into and adjudge under Sections 15HA SEBI Act the alleged violations by the entities." 84. A reading of the Clause 3 of the said order makes it discernable that the competent authority in exercise of the powers under Section 19 of the SEBI Act read with Section 15-I(1) and Rule 3 of the Procedural Rules, 1995 had appointed certain Division Chiefs as the adjudicating officers. In other words, when the order dated 06.07.2021 was issued by Ms. Bhavana Ravikumar, General Manager, SEBI, the competent authority had already appointed the Division Chiefs as adjudicating officers. 85. Dr. Ashok Saraf, learned senior counsel submits that in the process there ought to have been in place an actual order appointing the Division Chiefs as adjudicating officers which in the instant case is found absent. 86. We are in agreement with Dr. Ashok Saraf, learned senior counsel of the petitioners to that extent that the authorities in the SEBI while undertaking the process of appointing the adjudicating officers had not meti....
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....y be issued under Rule 4(1) of the PR-1995. WHETHER A NOTICE UNDER RULE 4(1) OF THE PROCEDURAL RULES OF 1995 CAN BE A COMPOSITE NOTICE REQUIRING THE NOTICEE TO RESPOND AS TO WHETHER AN ENQUIRY SHOULD BE HELD UNDER RULE 4(1) AND ALSO REQURING THE NOTICEE TO RESPOND UNDER RULE 4(3) AS TO WHY ANY OF THE PENALTIES CONTEMPLATED UNDER SECTION 11-A TO SECTION 11HB SHOULD NOT BE IMPOSED: 91. It is the contention of Dr. Ashok Saraf, learned senior counsel for the petitioner that the notices impugned in these writ petitions comprises of two parts as to why an enquiry should not be conducted by the adjudicating officers against the noticees and secondly as to why the penalties prescribed under section 15HA should not be inflicted upon them. According to the learned senior counsel, Rule 4 having provided for two separate proceedings i.e. one to show cause the noticee and give a hearing as to why an enquiry should not be held and the second being an actual enquiry into the allegations of contravention that may have been raised and the Supreme Court in T. Takano (supra) having clearly distinguished and provided for it, the combined show cause notices for the purpose of showing cause as to ....
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.... below: 5. Pursuant to investigation, it is observed that during the investigation period, total 2,91,744 trades comprising substantial 81.41% of all the trades executed in Stock Options Segment of BSE were non genuine trades. The aforesaid non genuine trades resulted into creation of artificial volume to the tune of 826.21 crore units or 54.68% of the total market resulted into creation of artificial volume in Stock Options segment of BSE during the investigation period. 6. It is noted that Noticee was one of the various entities which were indulged in execution of non-genuine trade(s) in Stock Options Segment of BSE during the investigation period. Following points mention the dealings of Noticee in Stock Options segment of BSE during the investigation period and allegations against Noticee for execution of non-genuine trade(s). 7. Non- genuine trade(s) and artificial volume are illustrated through the dealings of the Noticee in the contract viz, "DIVI15APR1920.00CE" during the investigation period, mentioned as follows: (a) During the investigation period, total 4 trades for 99,000 units were executed in the said contract. Noticee had executed....
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....of the SEBI Act of 1992 should not be imposed under Rule 5 of the Procedure Rules of 1995. 96. Dr. Ashok Saraf, learned senior counsel for the petitioners makes a submission that the scheme of Rule 4 of the PR-1995 provides for a proceeding under Rule 4(1) of the PR-1995, in the first instance, to issue a notice requiring the person concerned to show-cause as to why an enquiry should not be held against him/her and thereafter if under Rule 4(3) an opinion is formed that an enquiry should be held, a further notice fixing a date for appearance of that person either personally or through a lawyer or representative be issued whereafter the person concerned would be explained the offence alleged to have been committed by indicating the provisions of the Act, Rules, Regulations etc., of which the contravention had taken place. It is further submitted that under Rule 4(5) the person concerned is required to be given an opportunity to produce such documents or evidence as he may consider relevant to the enquiry. According to the learned senior counsel after following the procedure from Rule 4(3) onwards, any order of penalty may be passed under Rule 5 thereof. 97. By referring to the....
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....specified in any of Sections 15-A, 15-B, 15-C, 15-D, 15-E, [15-EA, 15-EB,] A5-F, 15-G [,15-HA and 15-HB] the [the Board or adjudicating officer] shall, in the first instance, issue a notice to such person requiring him to show cause within such period as may be specified in the notice(being not less than fourteen days from the date of service thereof) why an inquiry should not be held against him. (2) Every notice under sub-rule (1) to any such person shall indicate the nature of offence alleged to have been committed by him. (3) If, after considering the cause, if any, shown by such person, the [the Board or the adjudicating officer] is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his lawyer or other authorized representative. (4) On the date fixed, the [the Board or the adjudicating officer] shall explain to the person proceeded against or his lawyer or authorized representative, the offence, alleged to have been committed by such person indicating the provisions of the Act, rules or regulations in respect of which contravention is alleged to have take....
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....sses, would have to be first completed and thereafter alone the subsequent processes can be initiated. When Rule 4(1) of PR-1995 provides that at the first instance a notice is to be issued as to why an enquiry should not be held, such notice would have to remain confined on the issue as to why the enquiry should not be held and cannot embark upon any other subsequent processes that may be provided by the subsequent provisions after the opinion to hold the enquiry is arrived at. 104. Rule 4(3) of PR-1995 inter-alia provides that if after considering the cause shown pursuant to the notice under Sub-Rule 1, the adjudicating officer is of the opinion that an enquiry should be held, he may issue a notice fixing a date for appearance of that person either personally or through a lawyer or representative. Further Rule 4(4) provides that on the date so fixed under Rule 4(3), the adjudicating officer shall explain to the person concerned or his lawyer or representative the offence alleged to have been committed by him by indicating the provisions of the Act, Rules or Regulations in respect of which the contravention is alleged to have taken place. It is to be noticed that the further pr....
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....ion is alleged to have taken place. (5) The adjudicating authority shall, then, given an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary, the hearing any be adjourned to future date and in taking such evidence the adjudicating authority shall not be bound to observe the provisions of the Indian Evidence Act,1872 (1 of 1872). (6) While holding an inquiry under this rule the adjudicating authority shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which is in the opinion of the adjudicating authority may be useful for or relevant to the subject- matter of the inquiry. (7) If any person fails neglects or refuses to appear as required by sub-rule (3) before the adjudicating authority, the adjudicating authority may proceed with the adjudicating proceedings in the absence of such person after recording the reasons for doing so. (8) If, upon consideration of the evidence produces before the adjudicating authority, the adjudicating authority is satisfied that the....
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.... the alleged contravention, but only for the purpose of deciding whether an enquiry should be held. After taking the cause shown by such person the adjudicating officer is required to form an opinion as to whether any enquiry is required to be held and it is only then the real and substantial enquiry into the allegations of contravention begins. Paragraph 23 of the Natwar Singh (supra) is extracted below:- 23. The Rules do not provide and empower the adjudicating authority to straightway make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the adjudicating authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him. It is clear from a bare reading of the rule that show-cause notice to be so issued is not for the purpose of making any adjudication into alleged contravention but only for the purpose of deciding whether an inquiry should be held against him or not. Every such notice is required to indicate the nature of contra....
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.... required to be held into the allegations of contravention. It is only then the real and substantial inquiry into allegations of contravention begins." 35. The above extract clearly indicates that the show cause notice under Rule 4(1) is not for the purpose of making an adjudication into the alleged contravention but only for deciding whether an enquiry must be conducted. The stage when an enquiry is held is subsequent to the initial stage contemplated by Rule 4(1). During the course of the adjudication, the fundamental principle is that material which is used against a person must be brought to notice. As this Court observed: "30. The right to fair hearing is a guaranteed right. Every person before an authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognised by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 65 : (1955) 1 SCR 941]. However, disclosure not necessarily involves supply of the material. A person may be allowed to inspect the file and take notes. Whatever mode is used, the fundamental principle remains that nothing should be used against the person wh....
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....ther held: "34. As noticed, a reasonable opportunity of being heard is to be provided by the adjudicating authority in the manner prescribed for the purpose of imposing any penalty as provided for in the Act and not at the stage where the adjudicating authority is required merely to decide as to whether an inquiry at all be held into the matter. Imposing of penalty after the adjudication is fraught with grave and serious consequences and therefore, the requirement of providing a reasonable opportunity of being heard before imposition of any such penalty is to be met. In contradistinction, the opinion formed by the adjudicating authority whether an inquiry should be held into the allegations made in the complaint are not fraught with such grave consequences and therefore the minimum requirement of a showcause notice and consideration of cause shown would meet the ends of justice. A proper hearing always include, no doubt, a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view." 109. By following the aforesaid propositions of law laid down by the Supreme Court in Natwar Singh (supra) and T. Takano (supra), ....
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....pect of petitioner noticee Ankita Didwania is a notice defective in form, although we may not have had arrived at any conclusion nor expressed any view on the substance of the notice dated 17.09.2021. 113. A contention has been raised by Ms. M Hazarika, learned senior counsel for the respondent SEBI that even if the notice dated 17.09.2021 is a notice defective in form, but no prejudice would be caused to the petitioners and therefore, an interference of the notice may not be made. 114. Whether or not, a prejudice has been caused would be a matter of individual perception, but by the impugned notices, the noticees are required to show cause firstly, as to why an enquiry should not be held and secondly, as to why the penalty should not be imposed. By the composite notices, the noticees are put at a disadvantage that their show cause also would have to be composite and while providing for any reply to the adjudication stage as to why penalty should not be imposed, the reply thereof can also be used for the first stage of giving a reply as to whether the enquiry is to be held or not. Had the appropriate procedure of separating the two stages would have been followed by issuing t....