TaxTMI 
TaxTMI 
2025 (12) TMI 1149
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....uthority has issued impugned notice and accordingly, sought for quashing the same. 2. Since, the question of law involved in these writ petitions are common, and facts are similar in nature and further the grounds as urged by the learned counsel appearing for the parties are more or less identical in nature and therefore, the writ petitions were clubbed, heard together and disposed of by this common order. FACTS IN W.P. NO. 3525 OF 2022: 3. In W.P. NO. 3525 of 2022, the petitioner is Noticee No. 8, challenging the impugned notice dated 22.09.2021 (Annexure-A). 4. It is the case of the petitioner that the petitioner was an Independent Director and Non-Executive Chairman of the Board of LVB, from April, 2013 to April, 2015. It is also stated that, the respondent No. 2 has issued impugned notice, calling upon the petitioner to furnish the details to the questionnaire which related to trading, and details of petitioners' association with various entities as well as with LVB. The petitioner has answered to the questionnaire, however, the respondent No. 2 has sought for personal appearance of the petitioner for Inquiry as to take evidence. The petitioner requested his persona....
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....ive Chairman between 06.06.2017 to 05.06.2020 and was Non-Executive, Independent Director from 10.06.2020 to 25.09.2020. The petitioner held shares of LVB and also the Director in M/s. Brahmaputra Power Pvt. Ltd. with a paid-up capital of Rs. 5,00,000/- holding 500 shares i.e. 1% of the paid-up capital. It is averred in the writ petition that, the respondent No. 2 issued summons and questionnaire to the petitioner seeking information as to affairs with LVB and pursuant to the same, the petitioner provided all information accordingly. It is further stated that a specific question through questionnaire, was relating to the petitioner, having participated in two Board Meetings of LVB, wherein the discussion was made to engage with JP Morgan India Pvt. Ltd. by LVB and the petitioner had passed information to M/s. Brahmaputra Power Pvt. Ltd. who in turn, traded in the scripts of LVB. It is further averred in the writ petition that, the petitioner had brought to the knowledge of respondent No. 2 that, the petitioner was Member of Capital Raising Committee and had attended the Meeting on 22.02.2018 and in this regard, the reply dated 22.03.2021 was submitted by the petitioner as per Annex....
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....er's advocate as to rejecting the request made by the petitioner seeking investigation report as per Annexure-K. The allegation made against the petitioner in the impugned notice as to communicating Unpublished Price Sensitive Information (for short, 'UPSI') which is in violation of Section 12(e), (d) and (e) of the Act, read with 3(1) and 4(1) of Insider Trading Regulations, 2015. It is the grievance of the petitioner that the respondent No. 2 has no jurisdiction and has no power or authority as the authorised officer to proceed with the Inquiry. It is further stated that, the allegation made by the respondent No. 2 that the petitioner has traded in scripts of LVB but as per the impugned notice, it is M/s. Brahmaputra Power Ltd., which has traded and not the petitioner. It is further stated in the writ petition that, the action of the respondent No. 2 is contrary to the RBI Circular dated 26.10.2021 (Annexure-M), and therefore, it is contended that, the impugned notice suffers from infirmity as the respondent No. 2 has no jurisdiction to issue the impugned notice and that apart, there is no material referred to in the impugned notice to substantiate the allegation against the peti....
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....s ARGUMENTS OF THE PETITIONERS: 13. Sri. D.L.N. Rao, learned Senior Counsel appearing for the petitioner (Noticee No. 3) in W.P. No. 3519 of 2022, argued that, the impugned notice at Annexure-A issued by the DGM of respondent-SEBI is without jurisdiction. Referring to Section 15-I of the Act, it is contended by the learned Senior Counsel that, DGM has no jurisdiction to issue the impugned notice, as the competent authority under Section 15-I of the Act is Division Chief and above or the Board as per Section 11B (2) of the Act. It is also argued by the learned Senior Counsel by inviting the attention of the Court to Section 11B (2), 15-I and 19 of the Act that, no delegation be made to any Officer lower than a office of Division Chief and as the statute provided for a thing to be done by a competent person, such power has to be exercised by the same person or authority under the statute and such power cannot be delegated to any other person, who is lower the competent authority. Therefore, learned Senior Counsel sought for setting aside the impugned notice on the ground of jurisdiction. 14. It is further argued by the learned Senior Counsel that, the scheme of the Act provi....
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....trary to the requirement that the show-cause notice must put-forth the noticee of alleged allegation and therefore, sought for interference of this Court. It is contended that a notice which declares conclusion deprives the noticee of a real and fair opportunity to respond, which violates the basic requirement of fair hearing, and as such, it is argued that the impugned notice is required to be set aside by this Court. In this regard learned Senior Counsel refers to the judgement of the Hon'ble Supreme Court in the case of Barium Chemicals Ltd and another vs. Company Law Board and others reported in (1967) 1 SCR 898. Further, learned senior counsel refers to the judgment of the Hon'ble Supreme Court in the case of Siemens Ltd vs. State of Maharashtra and others reported in (2006) 12 SCC 33 and contended that the writ petition is maintainable as the impugned notice is being issued with pre-meditation by the respondent-authority and therefore, sought for interference of this Court. 17. Nextly, learned Senior Counsel for the petitioner by referring to office note produced by the respondent-authority with substantial modification that the same is in violation of Regulation 3(1) of t....
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.... it is argued by the learned Senior Counsel that the respondent-authorities have not provided the documents relied upon while issuing the show-cause notices and therefore, sought for interference of this Court. 21. It is also argued by Sri. Ashok Haranalli, learned Senior Counsel by referring to Section 19 and 29 of the Act, and emphasised that the essential power conferred by the Act cannot be delegated to anyone and such power conferred under the Act shall be exercised by the very same authority and therefore, as the impugned notice is issued by the incompetent authority-DGM and therefore, sought for interference of this Court. In this regard, learned Senior Counsel appearing for the petitioner, places reliance on the judgment of the Hon'ble Supreme Court in the case of A. K. Roy and another vs. State of Punjab and others reported in (1986) 4 SCC 326. 22. It is further submitted by the learned Senior Counsel for the petitioner that, though the impugned notice referred to in the investigation report, however, same was not supplied to the petitioner for effective response and therefore, sought for setting aside the impugned notices. 23. It is also contended by the learned ....
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....ort and agenda for Board Meeting held on 20.04.2018 and 25.05.2018. Therefore, it is contended that the petitioners were prejudiced in making effective reply to the impugned notice. It is further contended that nothing is forthcoming from the impugned notice as to delay of more than three years in issuing impugned notice to the petitioners. It is the categorical arguments of the learned Senior Counsel that the petitioners are not connected to LVB in any manner whatsoever, and particularly, it is argued by the learned Senior Counsel that Noticee Nos. 1 and 3 were stated as "Insider" and such presumption by the respondents is based on no evidence and as such, same is erroneous as just because the Noticee No. 4 shares Directorship with Noticee Nos.1 and 3 does not automatically to conclude that the Noticee No. 4 access to UPSI and therefore, sought for setting aside the impugned notice. 28. Nextly, it is contended by Smt. Lakshmy Iyengar, learned Senior Counsel, by referring to Section 15-I of the Act that the impugned notices have been issued by the incompetent person and therefore, same is required to be set aside. 29. In order to buttress her arguments, learned Senior Counsel....
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....ns/reply to the impugned notice, if any, under the facts and circumstances of the case and therefore, submitted that the interference by this Court under Article 226 of Constitution of India is only under exceptional circumstances and the present writ petitions should not be considered as an exceptional matter to interfered with the impugned notice, and accordingly, places reliance on the judgment of the Division Bench of this Court in the case of S. Durendra Babu vs. BWSSB and Another in W.P. 8816 of 2020 disposed of on 20.07.2020; in the case of SEBI vs. Mukkaram Jan in W.A. No. 270 of 2021 disposed of on 09.04.2021, and in the case of Union of India and another vs. Kunisetty Satyanarayana reported in (2006) 12 SCC 28. 33. It is further contended by the learned Senior Counsel for the respondents, that, the impugned show-cause notice is pertaining to the alleged violations committed by the petitioners, under Section 15G of the Act, which provides for allegations as to Insider Trading. Referring to Section 11(4A), 11B(1) and 11B(2) of the Act, it is argued that, the Board is empowered to issue directions/levy penalties, in respect of violations, specified in Chapter VIA, of the ....
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....he petitioners to appear before the competent authority, and to raise issue with regard to jurisdiction insofar as issuing the show-cause notice and same could be decided by the respondent-authorities, conducting the inquiry and therefore, sought for dismissal of the writ petitions. 36. Sri. R. V. S. Naik, learned Senior Counsel for the respondents, while referring to Noticee Nos. 1, 3, 4 to 7 and 8, argued that, these noticees have allegedly traded while in possession of UPSI and that apart, the Noticee Nos. 4 to 7, have filed their reply to the show-cause notice, (Annexure-B in W.P. NO. 25261 of 2022) and therefore, it is contended by the learned Senior Counsel that, as those petitioners have filed reply to the impugned show-cause notice, without raising question of jurisdiction, and as such, these petitioners in W.P. NO. 25261 of 2022, cannot urge jurisdictional error and to maintain petition before this Court. In this regard, learned Senior Counsel for the respondents submitted that, it is open for such petitioners to raise jurisdictional aspect before the Inquiring Authority, if so advised. 37. Nextly, in response to the contentions raised by the learned Senior Counsel f....
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....t has empowered to impose penalties, and the provision under Section 11(1), 11(4) and 11B(1) of the Act, existed even before insertion through the amendment during, 2018 and therefore, sought for dismissal of the writ petitions. ANALYSIS: 40. In the light of the submissions made by the learned counsel appearing for the parties, the following questions have to be answered in these writ petitions. (i) Whether the impugned notices are liable to be quashed as there is pre-meditated action by the respondent-authorities ? (ii) Whether the petitioners have made out a case for interference, as the action by the respondents in issuing impugned notice, calling for explanation, for alleged offence of trading under the Act, under Article 226 of Constitution of India ? 41. Since the principal question in these writ petitions as to attack the impugned notice, at Annexure-A, it is relevant to ascertain as to the nature, scope and the relevancy of averments in the notice in larger perspective. In this regard, it is relevant cite the judgment of the Hon'ble Supreme Court in the case of Gorkha Security Services vs. Government of NCT of Delhi and others reported in AIR 2014....
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....it is not specifically mentioned in the show-cause notice but it can clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement." 42. It is the case of the petitioners, that, Section 15-I of the Act, empowers on officers of rank, Division Chief and above, are the competent officers to issue the impugned notice under Act. It is argued by the learned Senior Counsel for the petitioners that, the delegation under Section 19 of the Act, empowers the deligatee, to adjudicate the dispute and Section 15-I of the Act, does not provide any officer below the rank of Chief General Manager to be an Adjudicating Officer. Chapter 6A, comprising Section 15A, to 15JB, of the Act, provides for penalties and adjudication. For easy reference to resolve the contentions of the parties, it is relevant to extract certain provisions of the Act. Section 15-I of the Act, provides as under: Section 15-I. Power to Adjudicate.- (1) For the purpose of adjudicating under sections 15A, 15B, 15C, 15D, 15E, [15EA, 15EB,] 15F, 15G, [15H, 15HA and 15HB], the Board [may] appoint any officer not below the rank of a Division Chief to be an adjudicating officer ....
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.... or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions,- (a) to any person or class of persons referred to in section 12m or associated with the securities market; or (b) to any company in respect of matters specified in section11A, as may be appropriate in the interests of investors in securities and the securities market. [(2) Without prejudice to the provisions contained in sub-section(1), sub-section (4A) of the section 11 and section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner. Explanation.- For the removal of doubts, it is hereby declared that the power to issued directions under this section shall include and always be deemed to have been included the power to direc....
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....uce 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 [the Board or the adjudicating officer] shall not be bound to observe the provisions of the Evidence Act, 1872 (11 of 1872) : Provided that the notice referred to in sub-rule (3), and the personal hearing referred to in sub-rules (3), (4) and (5) may, at the request of the person concerned, be waived. [(5A) The Board may appoint a presenting officer in an inquiry under this rule.] (6) While holding an inquiry under this rule the 16[the Board or the adjudicating officer] shall have the power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which, in the opinion of the [the Board or the adjudicating officer], 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 [the Board or the adjudicating officer], the 19[the Board or the adjudicating officer] may proceed with the inquiry....
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....proceedings. (Emphasis supplied) 51. Having noticed the aforementioned Clause in the impugned notice, if the enclosures have not reached the petitioners, and thereby, the petitioners have requested for those documents in their letters and e-mails and as such, there was no impediment for the respondents to furnish the same. Be that as it may be, atleast, to maintain fairness in action, respondents ought to have supplied the relied upon documents to the petitioners and without doing so, the respondents have called upon the petitioners to inspect those documents at their office and that apart, rejecting their plea for seeking documents could not satisfy the test of principle of wednesbury of natural justice. 52. It is pertinent to mention here that, it is contention of the learned Senior Counsel for the respondents that, not only adjudicating authorities under Section 15-I of the Act, which provides for adjudication of the disputes under Section 15A, 15B, 15C, 15D, 15E, (15EA, 15EB,) 15F, 12G, 15H, 15HA, and 15HB of the Act, wherein, the word "may" is used empowering the Board, to appoint any officer, not below the rank of Chief General Manager as Adjudicating Officer. ....
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....t may be performed by the court enforcing a foreign award." (Underlined by me) 55. Following the declaration of law made by the Hon'ble Supreme Court with reference to legislative intent therein, the competent authority under the Act to issue the notice is the Officer of the rank of CGM, and above only, and not any officer below the rank of CGM. In that view of the matter, "delegation" cannot be understood distancing from other provisions in the same Act, made under Section 19 of the Act nor any such officer below the rank of Chief General Manager and therefore, I find force in the submission made by the learned Senior counsel for the petitioners that, the impugned notices being issued by the respondent No. 2-DGM, who is undoubtedly incompetent authority and below the rank of Chief General Manager, and therefore, the impugned notices are liable to be quashed. 56. Though the learned Senior Counsel for the respondents vehemently argued that, normally this court does not interfere with challenging the show-cause notice, however, if such notice is issued by an incompetent authority and same has to be interfered with under Article 226 of Constitution of India, as such act....
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.... read in the light of the provisions contained under Section 15-I, 15G and Section 11B(2) of the Act. These provisions has to be read harmoniously by looking into the other provisions in the same Act, which is plain, unambiguous and clear in conveying the intention of the legislation. In this regard, as the language employed in the aforesaid provisions are clear, plain and unambiguous, then the legislative intent has to be given effect to and this Court has no jurisdiction to interfere with the intention of the makers by filling up gaps in between the words of the enactment, while exercising writ jurisdiction and as such, it is relevant to cite the judgment of the Hon'ble Supreme Court in the case of B. Premanand and Others Vs. Mohan Koikal and Others reported in (2011) 4 SCC 266, and in the case of State of Jharkhand and Another Vs. Govind Singh reported in (2005) 10 SCC 437. 59. It is to be noted that, in the light of the judgment of the Hon'ble Supreme Court in the case of Collector (District Magistrate) Alahabad and another vs. Raja Ram Jaiswal reported in AIR 1985 SC 1622, it is held that when the power is conferred to achieve a certain purpose, that power can be exercised ....
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...., the question has to furnish the material to the aggrieved parties, and non-disclosure of the report therein, by the authorities under SEBI, and as such, the Hon'ble Supreme Court, held that, it is a clear violation of Regulations and principles of natural justice. Paragraphs 30 and 45 of the said judgment reads as under: "30. It would be fundamentally contrary to the principles of natural justice if the relevant part of the investigation report which pertains to the appellant is not disclosed. The appellant has to be given a reasonable opportunity of hearing. The requirement of a reasonable opportunity would postulate that such material which has been and has to be taken into account under Regulation 10 must be disclosed to the noticee. If the report of the investigating authority under Regulation 9 has to be considered by the Board before satisfaction is arrived at on a possible violation of the regulations, the principles of natural justice require due disclosure of the report. * * * 45. The principle that the material that may influence the decision of a quasi-judicial authority to award a penalty must be disclosed to a delinquent was affirmed by thi....
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....ry officer were only to record the evidence and forward the same to the disciplinary authority, that would not constitute any additional material before the disciplinary authority of which the delinquent employee has no knowledge. However, when the enquiry officer goes further and records his findings, as stated above, which may or may not be based on the evidence on record or are contrary to the same or in ignorance of it, such findings are an additional material unknown to the employee but are taken into consideration by the disciplinary authority while arriving at its conclusions. Both the dictates of the reasonable opportunity as well as the principles of natural justice, therefore, require that before the disciplinary authority comes to its own conclusions, the delinquent employee should 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) 61. Following the declaration of law made by the Hon'ble Supreme Court, the requirement as provided under Section 19 of the Act is mandatory, as....
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....o above, there has been considerable debate on the application of that theory in other cases. The divergent views expressed in regard to this theory have been elaborately considered by this Court in M.C. Mehta [(1999) 6 SCC 237] referred to above. This Court surveyed the views expressed in various judgments in England by Lord Reid, Lord Wilberforce, Lord Woolf, Lord Bingham, Megarry, J. and Straughton, L.J. etc. in various cases and also views expressed by leading writers like Profs. Garner, Craig, de Smith, Wade, D.H. Clark etc. Some of them have said that orders passed in violation must always be quashed for otherwise the court will be prejudging the issue. Some others have said that there is no such absolute rule and prejudice must be shown. Yet, some others have applied via media rules. We do not think it necessary in this case to go deeper into these issues. In the ultimate analysis, it may depend on the facts of a particular case." 64. In the case of Siemens Ltd (supra), paragraph 9 reads as under: "9. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same ....
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....rd to breach of principles of natural justice as the respondents have not provided relied upon documents to the petitioners, particularly investigation report, the learned Senior Counsel for the respondents countered by relying upon the judgment of the Hon'ble Supreme Court, in the case of Kavi Arora (supra) to over-come, the ruling in T.Takano, (supra). In this regard, learned Senior Counsel Smt. Lakshmy Iyengar, rightly places reliance on the judgment of three judges Bench, in the case of Reliance Industries Ltd., (supra), wherein, the Hon'ble Supreme Court had an occasion, to consider T.Takano case, and confirmed, the fact as to disclosure of documents by the respondent-authorities, being a statutory authorities and in the said case, particularly, the direction was issued for disclosure of the document against SEBI only and as such, affirmed the judgment in the T.Takano case, and therefore, I am of the opinion that, the submission made by the learned Senior Counsel for the respondents cannot be accepted. It is also to be noted that, the Hon'ble Supreme Court in the case of S.L. Kapoor (supra), at paragraphs 16 and 17 held as follows: "16. Thus on a consideration of the ....