TaxTMI 
TaxTMI 
2022 (9) TMI 688
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....Contract (Regulation) Act, 1956 (hereinafter referred to as "SCR Act 1956") read with SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as, as "SEBI Adjudication Rules 1995") and Securities Contract (Regulation) (Procedure for holding inquiry and imposing penalties) Rules, 2005 (hereinafter referred to as "SCR Penalties Rules 2005"). The Petitioner had also sought orders for supply of a copy of the opinion formed under Rule 3 of the SEBI Adjudication Rules 1995, for constituting an Adjudicating Authority to issue Show Cause Notice dated 17th November 2020 to the Petitioner. 2. The Petitioner joined Religare Finvest Limited (RFL), a subsidiary entity of Religare Enterprises Ltd. (REL) as the President- Consumer Finance, to set up and manage its retail lending business i.e. SME Lending business. Thereafter, he worked as the Managing Director (MD) and Chief Executive Officer (CEO) of RFL to represent the SME Lending Business. 3. Respondent SEBI appointed a Forensic Auditor, M/s MSA Probe Consulting Private Limited (hereinafter referred to as "MSA Probe Consulting") to conduct an investigation in the matter of M/s....
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....further submitted that copies of all documents were relied upon by the Respondent SEBI at the time of issuing Show Cause Notice have to be provided to the Petitioner. It is contended that without getting access to those documents, it would not be possible for the Petitioner to reply to the Show Cause Notice. 11. On the other hand, it is the case of Respondent SEBI, that as per the SEBI Adjudication Rules, the Board has to form an opinion, to decide whether the Show Cause Notice is required to be issued or not. The Respondent SEBI is not required to furnish the noticee with a copy of the opinion. It is further, the case of Respondent SEBI, that in addition to physical inspection of all relevant documents. Respondent SEBI has provided the Petitioner with a Compact Disc containing voluminous records, except those which contain internal confidential documents or documents which affect the confidentiality of third parties. By a letter dated 24th March 2021, the Petitioner was informed that the documents mentioned in paragraphs 3, 4 and 5 of his e-mail dated 23rd March 2021 were confidential documents. The Petitioner, however, made an application to SEBI to supply the documents relied u....
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.... but the Adjudicating Authority refused to hear them and it was observed by the Adjudicating Authority that documents not supplied would not be relied upon in the final order. 22. It was argued that the Petitioner had sought inspection of the opinion under Rule 3, by an email dated 4th May 2021. The proceedings before the Adjudicating Authority were listed on 29th September 2021. The Adjudicating Authority, without hearing the Petitioner sent the Record of the proceedings dated 29th September 2021 to the Petitioner on 30th September 2021, incorrectly recording that the arguments were heard by the Adjudicating Authority on the Applications filed by the Petitioner. In the record of proceedings, it was inter-alia stated that an opportunity to inspect the opinion, would be provided to the Petitioner. 23. Counsel argued that after numerous requests, an opportunity to inspect the opinion was given to the Advocate of the Petitioner on 10th December 2021, under Rule 3 of the SEBI Adjudication Rules 1995. According to the Petitioner, only redacted opinion was supplied to the Petitioner. In the circumstances, Petitioner sought the complete opinion formed under Rule 3 of the SEBI Adjudicati....
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....into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute. *** 33. In this regard, the learned Senior Counsel for the appellant pressed into service the doctrine of duty of adequate disclosure which according to him is an essential part of the principles of natural justice and doctrine of fairness. A bare reading of the provisions of the Act and the Rules do not support the plea taken by the appellants in this regard. Even the principles of natural justice do not require supply of documents upon which no reliance has been placed by the authority to set the law into motion. Supply of relied on documents....
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....icer cannot be appointed and any such appointment would be without jurisdiction. The respondent also does not dispute the above proposition. It claims that the Board has formed an opinion that there are grounds for adjudging under the provisions of Chapter VIA of the Act and, therefore, the appointment of the Adjudicating Officer cannot be faulted. In its counter affidavit, the respondent has averred as under:- "It is submitted that SEBI had examined into the alleged irregularities in the trading in shares of Himalayan Granites Ltd. and into possible violation of the provisions of the SEBI Act and PIT Regulations. Further, the adjudication proceedings were initiated in the matter after the Whole Time Member was prima-facie satisfied that there are sufficient grounds to enquire into the affairs and adjudicate upon the alleged violations under the SEBI Act and PIT Regulations. It is submitted that the same can be seen from Page no.66 (Annexure 10) of the writ petition containing the file noting." 31. Mr. Luthra pointed out that Rule 4 of the SEBI Adjudication Rules 1995 provides for a two-tier adjudication process. The said Rule is in pari materia with Rule 4 of the Foreign Exch....
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....he issue of show cause notice, a noticee is permitted to submit his reply to the same. In terms of the above Rule, the Adjudicating Authority has to consider the objections raised by the noticee and only if he forms an opinion that an inquiry should be continued further that the Adjudicating proceedings can be proceeded with, by issuing a notice for personal hearing. However, if the Adjudicating Authority is satisfied that the objections raised to the notice are valid, he may drop the show cause notice. The provision as found in Rule 4 of the Adjudication Rules is a unique provision. The Counsel for the parties were not able to point out any similar rules under which a two tier adjudication of a show cause notice is provided for in any other statute. Normally, once a show cause notice has been issued, the Adjudicating Authority deals with all the objections of the noticee, be it preliminary as well as any other defence, by passing one common order of adjudication. The fact that the legislature has provided in Rule 4 of the Adjudication Rules that on issue of notice, the noticee can object to the same and this objection has to be considered by the Adjudicating Authority for forming ....
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....ocuments in CDs are confidential. Mr. Luthra submitted that the Petitioner has been able to show that withholding of documents containing exculpatory material would adversely affect the defence of the Petitioner. 37. Mr. Chander Uday Singh, learned Senior Counsel appearing on behalf of the Respondent SEBI submitted that SEBI had conducted an investigation in the matter of Religare Enterprises Ltd. (REL) and various related entities for alleged violation of the provision of SEBI Act and/or SEBI PFUTP Regulations", during the period between 1st April 2011 to 31st March 2018. 38. Mr. Singh submitted that MSA Probe Consulting was appointed Forensic Auditor on 10th May 2018 to examine alleged diversion of funds from REL and/or its subsidiaries for the benefit of the promoter/promoters and/or connected entities. 39. The Petitioner was apparently President, Consumer Finance of Religare Finvest Ltd., a subsidiary of REL and a related entity from 15th May 2008. He was CEO from 2009 and Managing Director and CEO till November 2017. Mr. Singh submitted that he was at the helm of affairs of Religare Finvest Limited subsidiary of REL during the period when funds were diverted from REL and Re....
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....apter VI-A of the Act, it may appoint any of its officers not below the rank of Division Chief to be an adjudicating officer for holding an inquiry for the said purpose. Holding of inquiry. 4.(1) In holding an inquiry for the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G [15HA and 15HB] whether any person has committed contraventions as specified in any of sections 15A, 15B, 15C, 15D, 15E, 15F, 15G [15HA and 15HB] the 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 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 authorised representative. (4) On the date fixed, the adjudicating ....
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....whom inquiry is contemplated. The participation of the person against whom inquiry is contemplated is not necessary. The Board forms its opinion, based on whether there are prima facie materials or grounds for initiation of inquiry. The opinion of the Board under Section 3 has nothing to do with the outcome of the enquiry. 46. After the Board forms its opinion to appoint an Adjudicating Officer, comes the next stage, which is the stage under Rule 4 of an inquiry for adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H, 15I, 15J and 15HB whether any person has committed contraventions as specified in those sections. The inquiry commences with a Show Cause Notice calling upon the noticee to show cause why an inquiry should not be held against him. The Show Cause Notice has to specify the nature of offence alleged to have been committed and the penalty proposed, to enable the noticee to effectively reply to the show cause. A reading of Section 4(3) makes it clear that, if after considering the cause, if any shown by the noticee, the Adjudicating Officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for appearance of that person eit....