TaxTMI 
TaxTMI 
2025 (12) TMI 888
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....oceedings on the ground that the appointment of the Adjudicating Officer [AO], in the absence of a recorded opinion under Rule 3 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 [SEBI Adjudication Rules], was without jurisdiction. 3. As both appeals stem from the same Impugned Judgment, they are being disposed of by this common judgment. For the sake of convenience, clarity, and to avoid repetitive description of party ranks in this common judgment, the Appellant in LPA 412/2018, Securities and Exchange Board of India, shall hereinafter be referred to as "SEBI", and the Appellant in LPA 550/2018, Amit Jain, shall hereinafter be referred to as "Petitioner". BRIEF FACTS: 4. The prefatory facts, which are common and germane to the adjudication of both the present Appeals, are set out in brief as follows: I. The Petitioner, Amit Jain, was a shareholder of Himalaya Granites Ltd., a listed company. On 10.10.2011, the Bombay Stock Exchange [BSE] addressed a communication to SEBI reporting certain transactions undertaken in the shares of the said company. In that communication, BSE ind....
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...., by communication dated 26.09.2014, declined to furnish certain information sought. VIII. The Petitioner challenged the Show Cause Notice and the appointment of the AO in W.P.(C) 8394/2014 before the learned Single Judge. IX. By Judgment dated 09.07.2018, the learned Single Judge held that, in terms of Rule 3 of the Adjudication Rules, the formation of an opinion by the Board that there exist grounds for adjudication under Chapter VI-A of the Act is a mandatory prerequisite for appointing an AO. As no such opinion was recorded by the competent authority, the learned Single Judge set aside the Show Cause Notice and the adjudication proceedings. X. Aggrieved thereby, SEBI preferred LPA 412/2018, contending that the learned Single Judge erred in holding that no opinion had been formed. Conversely, the Petitioner preferred LPA 550/2018 seeking affirmance of the reasoning, while raising ancillary issues concerning SEBI's internal process and jurisdiction. CONTENTIONS ADVANCED ON BEHALF OF SEBI: 5. Learned Senior Counsel appearing for SEBI would submit that the learned Single Judge has fallen into error in setting aside the Show Cause Notice on the premi....
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....of some documents was permitted. After considering the reply, the Adjudicating Officer was of the opinion that inquiry should be held. Accordingly, a notice fixing a date for appearance was issued. There was no procedural irregularity, at least till the stage of notice fixing a date of hearing." CONTENTIONS ADVANCED ON BEHALF OF PETITIONER: 9. Per contra, learned counsel appearing for the Petitioner would support the Impugned Judgment in its entirety and submits that no interference is warranted. It is urged that the learned Single Judge has correctly appreciated the statutory framework governing the present controversy, particularly the PIT Regulations, which, according to the Petitioner, constitute a complete and self-contained code. 10. Learned counsel would submit that SEBI's initiation of proceedings was not in consonance with the procedural architecture envisaged under the PIT Regulations, and the learned Single Judge has rightly concluded that no violation of the substantive provisions of the Regulations could be attributed to the Petitioner. 11. Learned counsel would further contend that the entire scheme of the SEBI Act, and particularly Section 11 thereof, und....
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....urteen 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 officer shall explain to the person proceeded against or his lawyer or authorised 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 taken place. (5) The adjudicating officer shall then give an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary the hearing may be adjourned to a future date and in taking such evidence the adjudicating officer shall not be bound to observe the provisions of the Evid....
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.... (a) to furnish any document, return or report to the Board, fails to furnish the same, [or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents] he shall be liable to [a penalty [which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees]]; (b) to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations [or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents], he shall be liable to [a penalty [which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees]]; (c) to maintain books of account or records, fails to maintain the same, he shall be liable to [a penalty [which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during....
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....ework governing the conduct of such inquiry. Rule 4, in particular, prescribes the manner in which the AO is to proceed once appointed. In the present case, the proposed inquiry pertained to alleged violations of Regulations 13(3) and 13(5) of the PIT Regulations, arising from the failure to make mandatory disclosures. 18. Such failure would correspond to Section 15A(b) of the Act which has already been extracted hereinbefore and which sets out what would be the penalty in the event that a person to have been found in violation of the provisions. 19. Rule 4 of the SEBI Adjudication Rules further mandates that, for the purpose of adjudication under Section 15A, the AO must, at the threshold, issue a notice calling upon the concerned person to show cause as to why an inquiry should not be initiated. Under Rule 4(2), such notice must necessarily specify the nature of the offence alleged against the concerned person/Noticee. 20. Under Rule 4(3), upon consideration of the "cause", if any, shown by such noticee in the event that the AO was of the opinion that an inquiry were to be held, the AO would have to issue a notice for the appearance of such noticee or their Authorized Re....
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....ontained in Section 15; and thereafter, (c) to record in writing the imposition of such penalty as the AO may deem appropriate in consonance with the specific statutory provision under which the inquiry has been undertaken. 24. Evidently, the error in the approach of the learned Single Judge lies in the assumption that, the inquiry contemplated under Rule 5 was undertaken solely for the purpose of determining the quantum of penalty, without allegedly first arriving at a reasoned satisfaction regarding the commission of a violation warranting such penalty. This misconception stands revealed from the very formulation of the issue in paragraph 23 of the Impugned Judgment, wherein the learned Single Judge frames the question in the following terms: "23. The questions that are required to be addressed in this petition are (i) whether the Whole Time Member had formed an opinion that there were grounds for adjudging penalty under Section 15A(b) of the Act; and (ii) whether the Whole Time Member was required to pass an order under Regulation 14 of the PIT Regulations before taking any steps for appointing an Adjudicating Officer for adjudging any penalty under Section ....
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....lty. As elaborated hereinbefore, the inquiry was directed, in the first instance, towards determining whether any violation under Section 15A(b), constituting the initial procedural exercise required to be undertaken prior to carrying out the remaining exercises, inter alia, the determination on imposition of a penalty, and if found warranted, the quantum of such penalty. The concern expressed by the learned Single Judge regarding the absence of a prior formation of opinion before imposition of penalty thus, appears to have been on a misapprehension and therefore, misconceived. We also note that this aspect does not seem to have been lucidly set out before the Learned Single Judge, which may have resulted in his entertaining such a misapprehension. Challenge by Amit Jain IN LPA 550/2018 31. We discern no infirmity in the conclusion reached by the learned Single Judge insofar as the alleged requirement of passing an order under Regulation 14 of the PIT Regulations prior to initiating steps for the appointment of an AO or for undertaking any adjudicatory exercise under Section 15A(b) of the Act is concerned. 32. The learned Single Judge has, in our view correctly, held that ....