TaxTMI 
TaxTMI 
2025 (7) TMI 1212
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.... Janak Dwarkadas, learned Senior Counsel, appearing for the Petitioner in Writ Petition No. 19221 of 2024, Dr Birendra Saraf, learned Advocate General, appearing for the Petitioner in Writ Petition No. 378 of 2025, and Mr Mustafa Doctor, learned Senior Counsel, appearing for Respondent-SEBI in both Petitions. 2. Rule in both these Petitions. The rule is made returnable immediately, at the request and with the consent of the learned counsel for the parties. The learned counsel for the parties agree that both these Petitions can be disposed of by a common Judgment and Order, since the issues involved are substantially similar, though not identical. THE CHALLENGE 3. In both these Petitions, the challenges are to the impugned Show Cause Notice ("SCN") dated 05 September 2023 and 29 August 2023, issued under the provisions of the Securities and Exchange Board of India Act, 1992 ("the SEBI Act"). The Petitioners argue that since the jurisdictional facts regarding the breach of PUFTP regulations, or the making of any disproportionate gains, or securing unfair advantage, are absent, the impugned SCNs could not have been issued. Secondly, they contend that the earlier issued SCNs c....
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....) Regulations, 1992 ("the SBSB Regulations, 1992"). 7. Learned Senior Counsel submitted that based upon such recommendation, by order dated 11 November 2020, the adjudicating officer merely imposed a penalty of Rs. 3 lakhs for violation of the SBSB Regulations. CCSP paid this penalty, after which the proceedings stood concluded. Learned Senior Counsel submitted that, although the investigating authority was asked to determine whether the Petitioners gained any quantifiable benefit or unfair advantage, it did not make any such finding. 8. The learned Senior Counsel for the Petitioners argued that in the case of PRB Securities Pvt. Ltd., the Petitioner in Writ Petition No. 378 of 2025 [PRBS], the investigating authority concluded there was no breach of regulations 3(b), 3(c), and 3(d) of the PFUTP Regulations in conjunction with Sections 12A(a), 12A(b), and 12A(c) of the SEBI Act. However, the investigation only identified a violation of Regulation 4(1) of the PFUTP Regulations. 9. Dr Saraf, learned Advocate General, pointed out that there was no finding about any unfair gain or advantage by PRB Securities. He pointed out that the SEBI's adjudication officer made an order da....
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....urt would not deem it appropriate to decide the jurisdictional challenges raised by the Petitioners, the Petitioners were agreeable to raise such challenges before the adjudication authorities, provided such issues were decided as preliminary issues. Learned Senior Counsel submitted that there was no point in subjecting the Petitioners to lengthy proceedings and unnecessary harassment when they had an excellent case regarding their preliminary objections. 13. Learned Senior Counsel for the Petitioners submitted that the circumstance of having participated in the show cause notice proceedings thus far can never operate as a bar or any estoppel. They submitted that the fundamental rights of the Petitioners were at stake and therefore, there was no question of any waiver of such fundamental rights. They relied on Basheshar Nath V/s. CIT 1958 SCC OnLine SC 7 to support this contention. 14. Based upon the above submissions, which were substantially transcribed in the written submissions handed over by the learned Counsel for the Petitioners, the learned Counsel for the Petitioners submitted that the impugned SCN may either be quashed or liberty be granted to the Petitioners to urg....
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....ect of the very same charges for which the second show cause notice was issued. He submitted that in the present Petitions, the scope of the earlier show cause notices was entirely different from the impugned SCN and in any event, there was no exoneration as is sought to be portrayed by the Petitioners. 18. Mr Doctor made submissions on the proceedings in the CCSB and PRBS case to point out the distinction between the two. He also submitted that the scope of the previous proceedings and the proceedings commenced under the impugned SCN were different. He submitted that even the adjudicating officer's jurisdiction in the earlier round was distinct and separate from the Whole Time Member's ("WTM") jurisdiction. He submitted that WTM exercise has broad powers to pass such orders as may be necessary for protecting the investors and the markets. This includes the power to direct disgorgement of illegal gains made by parties. He submitted that the scope of the earlier proceedings was not to determine illegal gains or unfair advantage in the context of the action of disgorgement. He submitted that the earlier proceedings referred to the material then produced before the adjudicating aut....
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....contentions now fall for our determination. 23. The Petitioners are brokers registered with the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), respectively. In their capacity as brokers, the Petitioners were given access to the Colocation Facility (COLO Facility) comprising two kinds of servers, primary & secondary. Through these servers, the trading data was relayed to brokers who had access to a similar COLO Facility. Under the NSE Colocation Guidelines, a broker is only allowed to connect to the secondary server when the primary server is unavailable. Furthermore, before establishing a connection to the secondary server, the broker must notify NSE. 24. Between January 2015 and October 2015, complaints were received by SEBI regarding preferential access provided to certain Trading Members by NSE for Tick-By-Tick (TBT) Data Feed. These were essentially complaints, inter alia, against the Petitioners connecting to the secondary server contrary to the NSE Colocation Guidelines. Upon receiving the complaints, SEBI instructed its Cross Functional Team (CFT) to conduct a preliminary inquiry and submit a report. Subsequently, a Technical Advisory Committee (TAC....
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....tives (CD) segment. The ISB submitted its report on 10 April 2023, indicating that CCPS had connected to the secondary server of NSE, in violation of the NSE Colocation Guidelines, and had made an abnormal/unlawful profit of INR 1346 lakhs. A similar report was made by the ISB concerning PRBS, indicating that they had made abnormal/unlawful profit of INR 11997 lakhs. Based inter alia on the ISB reports, the impugned show cause notices dated 05 September 2023 and 29 August 2023 were issued to the Petitioners, essentially requiring them to show cause why these amounts should not be ordered to be disgorged. 30. CCPS was granted 21 days to respond to the show cause notice. On 22 September 2023, CCPS sought the inspection of documents, which consumed a significant amount of time and concluded on 5 February 2024. On 12 February 2024, SEBI invited CCPS for a hearing on 26 February 2024. On 26 February 2024, CCPS sought an adjournment and requested cross-examination of persons involved in the preparation of the reports submitted by ISB, Deloitte and E&Y. The hearing was deferred, and CCPS was informed that they could cross-examine the E&Y officials and the ISB professor on 04 March 2024....
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....led on 10 July 2025 and advised them to confirm their presence, latest by 27 June 2025. Though there was no interim relief granted in these Petitions, on 27 June 2025, on the grounds of pendency of the present Petition, CCPS sought a deferment of the cross-examination of Professor Ramabhadran. 36. The position concerning PRBS is not significantly different. After the hearings in the impugned SCN had substantially advanced, PRBS instituted this Petition and sought a stay on further proceedings in the impugned SCN. Even though no stay was granted, based merely on the pendency of the Petition, deferments were applied for and secured. 37. Mr. Dwarkadas and Dr. Saraf submitted that though the Petitioners had challenged the impugned SCN, they would be satisfied if all such challenges were permitted to be raised before the QJA and the QJA was directed to decide such challenges to the impugned SCN as preliminary issues before proceeding with any further hearings in the impugned SCN. 38. Therefore, we propose to allow the Petitioners to raise all their objections, including those to the impugned SCN, before the QJA. However, for reasons discussed hereafter, we do not believe that, ....
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....ircumstances, it is reasonable to believe that the very institution of these Petitions and now, the insistence that the objections to the impugned SCN be decided as preliminary issues, is merely an attempt to unduly delay the proceedings pursuant to the impugned SCN. The aim is to stall or postpone adjudication in the impugned SCN by employing various stratagems. The pressure on the Court's docket is fully exploited. Often, there is an insistence on interim relief to stay further proceedings or to bring the matter up earlier, fully aware that the arguments may be lengthy and that the courts genuinely cannot allocate early dates and ample times for such matters, given more pressing matters. Even if interim relief is not granted, postponement is sought by citing pending issues. The equitable and discretionary jurisdiction under Article 226 of the Constitution cannot support such strategies or attempts simply because the Petitioners may have the means and the wherewithal to sustain the same. 43. There is a necessity that the show cause notices issued by SEBI are expeditiously disposed of because if the Noticees are innocent, then the earlier they are cleared, the better for them an....
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....applies to the finding of undue gains or unfair advantage. 47. In any event, at least prima facie, there was a difference between the scope of the proceedings initiated by the earlier show-cause notices and the impugned show-cause notices. There were no conclusive findings on the issue of undue gains or unfair advantage. The orders disposing of the show cause notices merely pointed out that they could not detect these factors based upon the material then placed before them. Mr Doctor's contention that the earlier proceedings had nothing to do with disgorgement or that the issues of disproportionate gain or unfair advantage were not directly or substantially involved in the earlier proceedings cannot simply be brushed aside and would warrant examination in the SCN proceedings. 48. Admittedly, the ISB reports, or the further Deloitte or E&Y reports were not available when the earlier show cause notices were disposed of. Since, we wish to leave the challenges to the impugned SCN open to be decided by the QJA, we refrain from making any observations on the contentions raised on behalf of the Petitioners or for that matter, the SEBI. However, the limited and prima facie reference ....
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....JA along with all other issues simultaneously. The only reason why we have referred to the decision in V. Rajeshwari (supra) is to support our reasoning and conclusion that this is not at all a fit case to direct the QJA to treat the issue of res judicata as a preliminary issue in these proceedings. 53. Order XIV of Rule 1 of Code of Civil Procedure, 1908, [though it may not be applicable to proceedings under the SEBI with all its rigour], provides that notwithstanding that a case may be disposed of on a preliminary issue, the Court shall, subject to the provisions of Sub Rule-(2), pronounce judgment on all issues. Order XIV Rule 2(2) provides that where issues both of law and of fact arise in the same suit, and the Court is of the opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if the issue relates to- (a) the jurisdiction of the Court, or (b) a bar to the suit created by any law for the time being in force, and for that purpose, may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance with the deci....
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....et aside by the SAT. It is in these circumstances that the Co-ordinate Bench directed the framing of the issue of res judicata and its trial as a preliminary issue. The facts and circumstances in the present cases are, therefore, not at all comparable to the gross and clear facts and circumstances in Aman Kokrady (supra). 57. In Nalwa Sons (supra), this Court rejected the challenge to the show cause notices by discussing the principles for interference with show cause notices. One of the arguments raised was that the principles of res judicata and double jeopardy barred the show cause notices. This plea was rejected by observing that the consideration of such a plea would involve an investigation into factual aspects. In this case, the Court was constrained to observe that the extraordinary jurisdiction of this Court was being invoked to stall or delay the proceedings in the show cause notice to the extent possible. This Court observed that fairness in such matters was never a one-way street but two-way traffic. Even the Petitioners must co-operate with the expeditious disposal of the show cause notice so that if they are clean, they do not suffer on account of prolonged adjudic....