TaxTMI 
TaxTMI 
2023 (12) TMI 260
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....ssed by the Adjudicating Officer ("AO" for convenience) of the Securities and Exchange Board of India ("SEBI" for convenience) imposing penalties under Section 15HA of the SEBI Act, 1992. A sum of Rs. 25 crores has been imposed upon Reliance Industries Limited noticee no. 1, Rs. 15 crores have been imposed upon noticee no. 2 Mukesh Ambani, Rs. 20 crores has been imposed upon noticee no. 3 Navi Mumbai SEZ Private Limited and Rs. 10 crores have been imposed upon noticee no. 4 Mumbai SEZ Limited. All the four noticees have filed the appeals before this Tribunal. 2. The facts leading to the filing of the present appeals is, that SEBI conducted an investigation in the trading of the scrip of Reliance Petroleum Limited ("RPL" for convenience) for the period November 01, 2007 to November 29, 2007 to ascertain as to whether there was any violation of the SEBI Act and its Rules and Regulations. 3. It was observed that a resolution was passed by the Board of Directors on March 29, 2007 approving an operating plan for the year 2007-2008 and resource requirements for the subsequent two years i.e. approximately Rs. 87,000 crores. Thereafter, RIL decided to sell approximately 5% of its sha....
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....Company was based on the same allegations as per the show cause notice issued by the WTM dated December 16, 2010 against the Company. 8. In so far as the appellant Mukesh Ambani is concerned the show cause notice alleged that he is the principal officer responsible for the day to day and overall operations of the Company and is deemed to be guilty of the offence committed by the Company and would be liable to the proceeded against and punished accordingly under Section 27 of the SEBI Act. The Show cause notice also alleged that Navi Mumbai SEZ Private Limited and Mumbai SEZ Limited, noticees no. 3 and 4 financed the whole manipulation scheme by funding the 12 named entities thereby were complicit in the scheme of manipulation to make undue gains and have consequently violated Regulations 3 and 4 of the PFUTP Regulations. 9. The AO after considering the material evidence on record and after considering the replies of the appellants and the submissions made by them upheld the allegations made in the show cause notice and imposed penalties for violations committed by the appellants under the SEBI Act. 10. We have heard Shri Somasekhar Sundaresan, the learned counsel, Shri Rag....
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....s paragraphs in the impugned order. Shri Somasekhar Sundaresan, contended that in paragraph 67 of the impugned order it was observed that being a Managing Director implies a high level of accountability and knowledge of the overall functioning of the Company and that there was no agreement between noticee no. 2 (Mukesh Ambani) and the Board of RIL that limits the power of noticee no. 2's to implement the decision of the Board of RIL. The AO further observed that even if such an agreement existed it would go against the interest of RIL whereby the Managing Director does not have any oversight over the decisions relevant to the Company. In paragraph 71, the AO observed that he finds it difficult to believe that the entire asset sale as decided in the Board meeting dated March 29, 2007 was left at the discretion of the two officers without the supervision of the Managing Director. The AO in paragraph 72, 73 and 74 came to the conclusion that the two officers were not competent to take the decisions independently. In paragraph 72, the AO held that authorising two officials to independently carry out the trading activities was not desirable in any corporate structure and, therefore, cam....
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....iability. 20. The learned counsel further contended that the Parliament made an amendment to Section 27 of the SEBI Act w.e.f. March 08, 2019. The Notes on clauses to Finance Bill, 2018 indicates that the amendment to Section 27 was brought in to "enlarge the scope of section to cover enforcement proceedings" and accordingly, by the amending act, the word "offence" in Section 27 was replaced by the word "contravention". It was urged that the Parliament was of the view that Section 27 of the SEBI Act as it stood prior to the amendment imposed vicarious liability only for "offences" giving rise to criminal punishment and, consequently, amended Section 27 to bring in vicarious liability for 'contravention' of the SEBI Act and the Regulations giving rise to civil penalties. It was urged, that if "offence" is the same as "contravention" then there was no need for the Parliament to replace the term "offence" with "contravention" and the Notes on Clauses to the Finance Bill reinforces this interpretation. 21. It was contended, that reliance by the respondents of the judgment in Standard Chartered Bank vs. Directorate of Enforcement, (2006) 4 SCC 278 was misplaced and not applicable ....
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....does not suffice for imputing vicarious liability to such person. It was urged that the proof of active role in the alleged contravention must be demonstrated by clear and concrete evidence of his active role coupled with criminal intent as a necessary precondition for affixing vicarious liability. In support of his contention the learned counsel placed reliance in the decision of the Supreme Court in Sunil Bharti Mittal vs. CBI (2015) 4 SCC 609 and Shiv Kumar Jatia vs. State of NCT, (2019) 17 SCC 193. 24. It was also urged, that in the instant case SEBI did not proceed against the two individuals who had an active role in the alleged contravention but SEBI chose only to proceed against the Managing Director, noticee no. 2 only on the basis of his designation. It was submitted that it is an established law that charges should be framed against a person who had an active role and, therefore, the procedure adopted by SEBI in targeting noticee no. 2 for reasons best known to them was wholly erroneous and malafide. 25. It was contended that the proviso to Section 27 requires "such person" to prove that the offence was committed "without his knowledge". It was contended that if kn....
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....to prove beyond a doubt in criminal prosecution that the person in-charge was involved or complicit. Thus, under Section 27 of the SEBI Act, the onus lay on the person in-charge to prove his innocence. 29. Shri Arvind Datar, the learned senior counsel contended that a perusal of the minutes of Board of RIL dated March 29, 2007 and November 19, 2007 indicates that only a general resolution was passed to raise funds and that the said resolutions does not in any way indicate that it allowed the two officers of the Company to trade and generate funds for the Company. The learned senior counsel further contended that it is unbelievable that the two officers could have carried out the manipulative trades by themselves without the oversight and involvement of the Managing Director or the Board. The learned counsel contended that the well-planned transaction could not have happened without the approval of the Managing Director and that Alok Agarwal, L V Merchant and Sandeep Agarwal could not have done the transactions all by themselves as it was not an ordinary sale of 5% of the RPL shares. 30. The learned senior counsel contended that the language of Section 27 makes it clear that i....
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.... Deputy Commissioner of Income Tax, Large Tax Payer Unit-II (2022) 7 SCC 98. 33. It was urged, that the Managing Director stands on a different position and since the Managing Director has wide powers and overall responsibilities, it cannot be said that noticee no. 2 had no knowledge. In support of his proposition the learned senior counsel placed reliance upon a decision of RNRL vs. RIL, (2010) 7 SCC 1, SMS Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89, K.K. Ahuja vs. V.K Vora and Anr. (2009) 10 SCC 48. 34. The learned senior counsel further stated that there are various decisions of this Tribunal where it has held that Section 27 applies to a Managing Director. In support of his submission the learned counsel placed reliance in the decision in Rahul H Shah vs. SEBI (2004) SCC OnLine SAT 77, Almondz Global Securities vs. SEBI in Appeal No. 275 of 2014 decided on 13.05.2016, Mohan Lall Chauhan vs. SEBI in Appeal No. 516 of 2021 decided on August 24, 2022, N. Narayanan vs. SEBI in Appeal No. 29 of 2012 decided on 05.10.2012, NSE vs. SEBI (dark-fibre) in Appeal No. 334 of 2019 decided on August 09, 2023, NSE vs. SEBI (Colocation) in Appeal No. 333 of 2019 decided 23.01....
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....or contravention of the SEBI Act, Rules, Regulations, directions or orders made thereunder? (iii) Whether in the facts and circumstances of the present case the Managing Director of the Company can be held vicariously liable for penalties under Section 27 of the SEBI Act for contravention of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations? (iv) Whether there has been undue delay in the initiation of the proceedings by the AO. 38. Before dealing with the submissions, it would be appropriate to consider the relevant provisions of the SEBI Act, namely, Section 15HA, 24, 26 and 27 of the SEBI Act. For facility, the same are extracted below:- Penalty for fraudulent and unfair trade practices. 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty [which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher. Offences. 24. (1) Without prejudice to any award of penalty by the adjudicating officer [or the Board] ....
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....ation to a firm, means a partner in the firm. 27. (1) Where [a contravention of any of the provisions of this Act or any rule, regulation, direction or order made thereunder] has been committed by a company, every person who at the time the [contravention] was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the [contravention] and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the [contravention] was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such [contravention]. (2) Notwithstanding anything contained in sub-section (1), where an [contravention] under this Act has been committed by a company and it is proved that the [contravention] has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary....
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....rovisions of the Act, Rules and Regulations. Under Chapter VII, if a person contravenes any provisions of the Act then he shall be punishable with imprisonment. Under Section 26 upon a complaint made by the Board, an offence against the company can be tried by a Court of law and, under Section 27, where an offence is committed by the company then any person responsible to the company or was in charge of the company shall be liable to be proceeded with and punished accordingly. 41. Thus, a harmonious reading of Section 24, 26 and 27 of the SEBI Act makes it clear that the intention of the legislature was that upon a failure to do something prescribed by the statute would be an offence tried in a Court of law and the person in charge of or who was responsible for the conduct of the business of the company would be proceeded with and punished accordingly. 42. The term "offence" and "contravention" has not been defined under the Act. Under Section 3(38) of the General Clauses Act "offence" means any act or omission made punishable by any law for the time being in force. Black's Law Dictionary, 7th Edition defines "offence" as a violation of the law. Stroud's Judicial Dictionary, ....
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....t and is tried before a Special Court established for this purpose. On a plain reading of Section 27, as it stood on the date of the transaction in question, makes it clear that Section 27 of the SEBI Act did not include within its scope the levy of civil penalties for the alleged violation of the provisions of the SEBI Act and the PFUTP Regulations. The pre-amendment Section 27 specifically restricted the imposition of vicarious liability for commission of offences by companies to cases involving offences by companies. Section 24 of the SEBI Act clearly sets out the scope of the term "offences" to be exclusively tried by the Special Courts established under Section 26 of the SEBI Act. 47. The Notes on Clauses appended to the Finance Bill, 2018 by which Section 27 was amended indicates that the legislature felt that there was a need to "enlarge the scope of the Section to cover enforcement proceedings" by expanding the legislative provision for vicarious liability to cover not only offences within the meaning of the SEBI Act but also any contravention. 48. We are thus of the view, that Section 27 prior to the amendment i.e. prior to March 08, 2019 had no application to civil ....
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....d "offence" (which takes its colour from the provisions of Chapter VII of the Act) with the wider term "contravention" making it clear that the Parliamentary intention was to "enlarge the scope" to include civil proceedings as well. 53. The findings in paragraphs 62-63 of the impugned order that Section 27 always covered civil proceedings in its purview and that the amendment was "clarificatory in nature" is irreconcilable with the scheme and legislative history of the SEBI Act. 54. This view of ours is fortified by the fact that SEBI since inception has accepted the fact that Section 27 does not provide for vicarious liability in respect of civil liability of a company arising out the violations committed by the company. As recent as on 24.02.2022 in re: Pentamedia Graphics Ltd. And Ors., a WTM of SEBI held:- "...regarding applicability of the Section 27 of the SEBI Act, 1992 for violation of Regulation 5(1) of PFUTP Regulations, 1995, I note that during the relevant period (i.e. 2002-03), Section 27 provided for the vicarious liability of certain persons who were in charge of and was responsible to the company where an offence is committed by a company. Section 27 ....
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....tter of Jai Mata Glass Limited WTM/AB/IVD/ID19/14250/2021-22 (10) SEBI Final Order dated 25.11.2021 in the matter of ARSS Infrastructure Projects Limited WTM/AB/IVD/ID19/14342/2021-22 (11) SEBI Final Order dated 21.12.2021 in the matter of K Lifestyle & Industries Limited WTM/AB/IVD/ID19/14495/2021-22 (12) SEBI Adjudication Order dated 21.12.2021 in the matter of Edynamics Solutions Limited SM/AD/2022-23/22324-22327 (13) SEBI Final Order dated 21.12.2021 in the matter of Nu Tek India Limited WTM/AB/IVD/ID19/14527/2021-22 (14) SEBI Adjudication Order dated 12.01.2022 in the matter of Blue Circle Services Limited MC/RM/2021-22/14712-14715 (15) SEBI Final Order dated 20.01.2022 in the matter of Landmarc Leisure Corporation Limited WTM/AB//IVD/ID19/14750/2021-22 (16) SEBI Final Order dated 28.02.2022 in the matter of Hit Kit Global Solutions Ltd. WTM/AB/IVD/ID19/15232/2021-22 (17) SEBI Final Order dated 21.03.2022 in the matter of Quest Financial Services Limited WTM/AB/IVD/ID19/15432/2021-22 (18) SEBI Final Order dated 24.03.2022 in the matter of GDR Issue by Pentamedia Graphics Limited WTM/AB/IVD/ID4/153....
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....hat the intention of the legislature was that "offence" and "contravention" meant the same in so far as Section 68 of the FERA Act was concerned. We may note at this stage that Section 68 of the FERA Act is more or less pari materia with the amended provisions of Section 27 of the SEBI Act w.e.f. March 08, 2019. However, Section 27 of the SEBI Act prior to amendment was totally different and distinct from the provision of Section 68 of the FERA Act. Thus, reliance on the decision of the Standard Chartered was misplaced. In Standard Chartered (supra) the Supreme Court held that the phrase "contravention" takes within its fold both civil as well as criminal violations in the context of Section 68 of FERA. In sharp contrast, at all times relevant to this appeal, Section 27 of the SEBI Act, did not use the word "contravention" at all, and when Parliament amended it in 2018, explicitly, Parliament stated that the intention was to enlarge the scope to include enforcement proceedings. 58. The meaning of the term "offence" is required to be understood in the context in which it is used in the legislation. A suggestion that the term "offence" as occurring in the SEBI Act also covers civi....
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....rds raising of resources for the Company's ongoing projects in line with the fund raising program as earlier authorised by the Board of Directors at the budget meeting held in March 2007. The Board was also informed that after exploring various means of finance, the company is disposing RPL shares of up to 5% through trades in RPL securities. Board noted the same." 64. It is a matter of record that: (a) One of the funding avenues identified by Alok Agarwal and L V Merchant for meeting the fund requirements was to sell RPL shares held by RIL representing 5% of the outstanding equity shares of RPL; and (b) Only these two senior executives assisted by one Sandeep Agarwal (employee of an RIL subsidiary), carried out the trades in RPL shares in both, Cash & F&O segments and raised Rs. 5,013 crore i.e. Rs. 4,500 crore in the Cash segment and Rs. 513 crore in F&O segment. (c) The impugned order records that Rs. 447.27 crore was the alleged unlawful profit. 65. The evidence contained in the minutes of these two Board meetings held on 29.03.2007 and 19.11.2007 makes it clear that: (a) The RIL Board approved the funding avenues and specifically and d....
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....icers of the company. We also find that the AO in paragraph 64 holds that it is relevant to examine the role of the Managing Director in terms of direct involvement or knowledge with regard to the manipulative scheme or trades undertaken by the company. We find that the AO failed to establish either direct involvement or knowledge of the Managing Director with regard to the trades undertaken by the company and, therefore, the finding that the Managing Director was 'complicit' to the violations committed by the company through its two officers is based on surmises and conjectures and on the basis of the figment of his imagination. 68. The burden under the proviso to Section 27(1) of the SEBI Act was completely discharged by the appellant when evidence was placed that two officers of high rank of the company were authorised to sell the shares of the Company. These two officers reported to the Board of Directors which approved the action of the two officers to sell the shares of the Company. The burden that the Managing Director of the Board of Directors exercised all due diligence was discharged and, therefore, the onus shifted back to SEBI to show that the Managing Director was r....
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....carious liability is not satisfied. The law is well settled that the mere fact that a person holds a designation of Managing Director does not suffice for imputing a vicarious liability to such person. It has been repeatedly held that the proof of "active role" in the alleged contravention in issue must be demonstrated by clear and concrete evidence of his active role coupled with criminal intent as a necessary pre-condition for affixing vicarious liability. This view of ours is fortified by a decision of the Supreme Court in Sunil Bharati Mittal vs. CBI, (2015) 4 SCC 609 wherein the Supreme Court held:- "42. No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so. 43. Thus, an individual who has perpetrated th....
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....rt seem to indicate that this was the central idea in the mind of the High Court for convicting the appellant. In a criminal case of such a serious nature mens rea cannot be excluded and once the charge of conspiracy failed the onus lay on the prosecution to prove affirmatively that the appellant was directly and personally connected with acts or omissions pertaining to Items 2, 3 and 4. It is conceded by Mr Phadke that no such direct evidence is forthcoming and he tried to argue that as the appellant was Chairman of the Sangh and used to sign papers and approve various tenders, even as a matter of routine he should have acted with care and caution and his negligence would be a positive proof of his intention to commit the offence. We are however unable to agree with this somewhat broad statement of the law. In the absence of a charge of conspiracy the mere fact that [pic]the appellant happened to be the Chairman of the Committee would not make him criminally liable in a vicarious sense for items 2 to 4. There is no evidence either direct or circumstantial to show that apart from approving the purchase of fertilisers he knew that the firms from which the fertilisers were purchased ....
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....behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision. 21. By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, when the accused is a Company. It is held that vicarious l....
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....t to the Managing Director. 74. In view of the aforesaid, the decisions cited by the learned counsel for the respondents are not applicable to the facts of the present case and are distinguishable. Reliance on the decision of the Supreme Court in Apex Laboratories Private Limited vs Deputy Commissioner of Income Tax, Large Tax Payer Unit-II (2022) 7 SCC 98 is misplaced and is of no assistance to the respondent. The said decision dealt with Section 37 of the Income Tax Act, 1961 wherein the Explanation 1 to Section 37 used the word "offence" and, on that basis, the Supreme Court disallowed the expenditure incurred by pharmaceutical companies to provide freebies to doctors which the medical council said was prohibited and liable for action on the basis that providing freebies was illegal/ prohibited by law and/ or punishable. The question before the Supreme Court was whether giving of freebies to doctors was prohibited by law which was answered in the affirmative by the Supreme Court and in that contest it was held that the word "punishable" includes in its fold "civil wrongs" for which punishment can be given. Thus, the said decision does not advance SEBI's case of stating that f....
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....divestment of investment. Similarly, the decision of this Tribunal in Sayanti Sen vs SEBI 2019 SCC OnLine SAT 132 is also not applicable as we find that the issue whether Section 27 applies to civil proceedings under SEBI Act was never raised by the parties nor considered by the Tribunal. It was a case as to whether an individual fell within the definition of the term "officer in default" under Section 5(g) of the Companies Act, 1956. Similarly, in NSE vs. SEBI (Colocation matter) in Appeal No. 333 of 2019 decided on 23.01.2023 this Tribunal observed that the Managing Director and CEO cannot abdicate their responsibility for the lapse by the professionals to whom the functions were delegated. In that case, the Managing Director and the CEO acknowledged that specific functions were delegated and this Tribunal observed that the CEO and the Managing Director cannot pass on the responsibility to the delegates. The said decision is distinguishable as in the instant case we find that the Board of RIL had specifically authorised two persons to decide the disinvestment. The Managing Director, noticee no. 2 had not delegated its powers to the two authorised persons. It was the Board who had....
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....s. 77. In this regard, the word "complicit" means involvement with others in an activity which is unlawful. On the other hand, the word "implicit" is suggestive though not directly expressed. 78. Thus, in the absence of any specific finding by the AO on noticee no. 2 complicit involvement in the execution of the implementation plan or in the execution of the trades, the AO cannot dwell into surmises and conjectures and base its findings on presumption to hold that the noticee no. 2 was implicitly involved in the transactions on the ground of being a Managing Director and which implies a high level of accountability of knowledge of overall functioning of the Company. 79. Reliance by the respondent on a reference to a Board Resolution dated 27.07.2004 which is extracted from a judgement of the Hon'ble Supreme Court in Reliance Natural Resources Limited vs Reliance Industries Limited (2010) 7 SCC 1 to contend that the appellant had substantial powers of management is a desperate attempt on their part to sustain the impugned order. We find that the said decision was not made the basis of passing the impugned order. Further, it is not even SEBI's case that the resolution of 200....
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....deposits from other companies by paying interest. 83. On 04.08.2007, noticee no. 4 entered into a 'Facility Agreement with Vinamra Universal Traders Pvt. Ltd. ("Vinamra") in terms of which the parties agreed to place short-term Inter-Corporate Deposits ("ICDs") with each other from time to time on agreed terms and conditions. Vinamra was also a company involved in the business of investments. The key terms of the Facility Agreement were as follows: (i) Article 1.1. provided that the aggregate overall limit of the facility under the agreement was Rs. 600 crore. (ii) Article 3.1 of the agreement specified a fixed rate of interest of 6.5% p.a. (iii) Article 4.1 stipulated that the borrower shall repay the amount of the loan within 1 day of being served a notice in writing calling for repayment. 84. On 22.09.2007 noticee no. 3 entered into a 'Facility Agreement' with Vinamra. The terms of the Facility Agreement between noticee no. 3 and Vinamra were similar to those of the agreement between noticee no. 4 and Vinamra, namely, (i) Article 1.1 provided that the aggregate overall limit of the facility under the agreement was Rs. 3500 crore. ....
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....e no. 3) and Mumbai SEZ (being noticee no. 4). 90. The show cause notice substantially referred to the transactions stated to have been carried out by RIL and its agents during the month of November 2007, wherein, it was inter alia alleged that: (i) RIL took short positions through 12 entities acting as its agents in November 2007 RPL Futures by breaching the client-wise position limit prescribed under certain circulars issued by SEBI. (ii) RIL depressed the settlement price of November 2007 RPL Futures by dumping large number of shares in the cash market during the last ten minutes of hearing on 29.11.2007 and, thereby gained on its short positions in the derivatives market; (iii) This fraudulent and manipulative strategy was a well thought out and deliberate attempt to make extraordinary gains. (iv) The above acts of RIL are in violation of Regulation 3 (a), (b), (c), (d) and Regulation 4(1),4(2) (d) &(e) of the PFUTP Regulations and SEBI Circular No. SMDRP/DC/CIR-10/01 dated 02.11.2001. 91. As regards noticee nos. 3 and 4, the show cause notice alleged that: (i) Noticee nos. 3 and 4 were promoted by the "Reliance Group" ....
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....tions. 96. From a perusal of the show cause notice it indicates that it is not SEBI's case that noticee nos. 3 and 4 were involved in undertaking the transactions in connection with RPL shares and futures in the month of November 2007, rather it is SEBI's case that these transactions were allegedly financed by monies traceable to the noticee nos. 3 and 4 and therefore noticee nos. 3 and 4 were complicit in the contravention allegedly committed by RIL. 97. The learned counsel for noticee nos. 3 and 4 contended that there is an unexplained delay in the initiation of the proceedings and denial of natural justice. It was urged, that the transaction in question was of November 2007 whereas the show cause notice was issued after 10 years on November 21, 2017. It was contended that the AO has committed a manifest error in holding that there is no delay in the initiation of the proceedings in as much as SEBI had taken an internal decision to await the decision in Section 11B proceedings against RIL and its agents before taking further action in the matter and that such proceedings eventually culminated in an order dated March 24, 2017 passed by the WTM and, thereafter, the show cause....
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....s urged that the impugned order is based on pure conjectures and on the assumption that the Facility Agreements were entered into solely for the purpose of funding RIL transactions in the November 2007 futures market. Further, the impugned order proceeds on an erroneous basis that the inter corporate deposit (ICDs) of Rs. 2775 crores in case of noticee no. 3 and Rs. 550 crores in the case of noticee no. 4 were in fact meant for the purpose of funding manipulative trade of RIL. 101. Having heard the learned counsel for the parties, we are of the opinion that there is an inordinate delay in the issuance of the show cause notice. Admittedly, the trades were executed by RIL in November 2007. The noticee nos. 3 and 4 received letters dated 27.02.2009 from SEBI referring to the ongoing investigation in the matter of Reliance Petroleum Limited and asked for details in respect of ICDs placed by noticee nos. 3 and 4 with Vinamra. The said information was provided by the noticee on March 29, 2009. In February and March 2010 SEBI again addressed letters to noticee nos. 3 and 4 seeking further information which were duly supplied vide letter dated April 13, 2010. 102. After 10 years the ....
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.... of inordinate delay. 107. In Mr. Rakesh Kathotia vs. SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019 this Tribunal held:- "23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras [(1989)3 SCC 483: AIR SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) 12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) 11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Paba....
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....suance of a show cause notice held: "...human memory has a short shelf life. Allowing matters to go on and on for years together serves no purpose, rather it risks loss of evidence such as important documents which may get destroyed while the issue gathers dust...in this backgrounds, the Appellants were compelled to make a feeble attempt to defend their case on the basis of scanty and incomplete materials supplied by the Respondent." 114. Similarly, in Libord Finance Ltd. Vs WTM, SEBI 2008 SCC OnLine SAT 46 this Tribunal observed: "...how could anyone file a proper reply after a lapse of more than eight years. This long delay itself causes grave injustice to the delinquent and results into violation of the principles of natural justice. Such delays defeat the very purpose of the proceedings." 115. The decisions cited by the respondent in the matter of Kunal Pradeep Savla & Ors. vs. SEBI, Appeal No. 231 of 2007 decided on 13.04.2018, Dr. V.K. Sukumaran & Anr. vs SEBI, Appeal No. 473 of 2020 decided on 24.08.2021 and Hindustan Times Ltd. vs Union of India & Ors. (1998) 2 SCC 242 has no application to the facts of the case and are irrelevant. 116. We also fi....
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.... positions were taken by the 12 agents between November 01, 2007 and November 06, 2007. 119. Based on the aforesaid facts, a finding has been given by the AO that on a combined reading of the Facility Agreement and Agency Agreement it can be inferred that noticee nos. 3 and 4 had prior knowledge of the scheme of alleged manipulative trades by RIL and that noticee nos. 3 and 4 were fully aware that the funds given by them to Vinamra was meant for financing the alleged trades in question and, therefore, noticee nos. 3 and 4 aided and abetted in the manipulative scheme. This finding in our opinion cannot be sustained for the following reasons:- 120. The Facility Agreement was signed on August 04, 2007 and September 22, 2007. The execution of these documents is not disputed nor there is any allegation that these agreements were manufactured for the purpose of this case. The starting point for the alleged manipulative scheme by RIL was the decision taken in an around October 30, 2007 to sell RPL shares. These facts are noted in paragraph 26 of the impugned order. On or before October 30, 2007 noticee no. 3 had already advanced funds to the tune of Rs. 625 crores and noticee no. 4 ....
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....as the funds required by the 12 agents were from November 01, 2007 to November 06, 2007 when they took short positions in the futures segment. 124. Assuming without admitting that the noticee nos. 3 and 4 had knowledge and provided funds for the alleged manipulative trades only those funds that flowed between November 01, 2007 and November 06, 2007 could at best have a nexus with the taking of the short positions in the November 2007 futures. The AO however has considered the entire loans of Rs. 2775 crores given by noticee no. 3 and Rs. 550 crores given by noticee no. 4 from the period September 2007 to March 2008. We may note that noticee no. 4 did not lend any money to Vinamra between November 01, 2007 to November 06, 2007 and that noticee no. 3 had given a loan of Rs. 350 crores in two transactions of November 05, 2007 and November 06, 2007 to Vinamra. Thus, the finding of the AO that Rs. 2775 crores and Rs. 550 crores totalling Rs. 3325 crores were given by noticee nos. 3 and 4 that funded the 12 agents for the alleged trades is patently erroneous. 125. We also find that one of the basic charge against noticee nos. 3 and 4 was that noticee nos. 3 and 4 were promoted by R....