TMI Blog2022 (9) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... for the belief may be any cause, explanation or justification whereas for having a reasonable ground to believe the basis for the belief would have to be the information, in other words, comparable to knowledge. Knowledge is defined in the Blacks Law Dictionary to be an awareness or understanding of a fact or circumstance; a state of mind in which the person has no substantial doubt about the existence of a fact. Belief is regarding the existence of something which is likely or relatively certain whereas knowledge is the absence of any substantial doubt in the mind of the person about its existence. In other words, in order to be knowledge, the element of unlikely or uncertainty of the existence of the fact is absent and there would remain no substantial doubt about its existence. Supreme Court in its pronouncement in Collector of Customs, New Delhi v. Ahmadalieva Nodira [ 2004 (3) TMI 70 - SUPREME COURT] had held that the expression reasonable grounds mean something more than prima facie grounds and it contemplates substantial probable causes for believing. Accordingly, we will have to understand that the test of certainty to arrive at a reasonable ground to beli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han requiring the noticee to give a wholesome and composite reply to all such allegations that may be made in the notice and thereafter take a decision as to whether the procedural requirements were duly followed. From such point of view, we reject the objections raised by the respondents SEBI as regards the maintainability of the writ petition on the ground that the issues raised could also have been answered by the writ petitioner noticees in the proceeding before the adjudicating officer itself. Whether notices impugned have been issued by authorities other than a person in the rank of a Division Chief and nor such Division Chiefs have been appointed by the Board to be the adjudicating officers? - A reading of the materials produced and the statements made by the petitioners and the authorities in the SEBI, in respect of the writ petitioner Ankita Didwania, it can be noticed that the notices under Rule 4(1) of the PR- 1995 had been issued by the Division Chief. Instead of venturing into examining the factual aspect as to whether in respect of the other writ petitions, the authorities issuing notices under Rule 4(1) of the PR-1995 are Division Chief or not, in the light of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in T Takano [ 2022 (2) TMI 907 - SUPREME COURT] , we are of the view that there would be a requirement for the respondents in the SEBI to provide the noticees the opinion formed against the individual noticee under Rule 3 of PR-1995 along with any such notice that may be issued under Rule 4(1) of the PR-1995. Notice u/r 4(1) of procedural rules of 1995 can be composite notice requiring the notice to respond as to whether an enquiry should be held u/r 4(1) - why the penalties prescribed under section 15HA should not be inflicted? - As notice under Rule 4(1) of the PR-1995 would be a notice only for the purpose as to whether an enquiry should be held and such notice cannot embark into an actual adjudication being made which ultimately may lead to any of the penalties under sections 15A to 15HB. Only upon forming such opinion that an enquiry is required to be held, the subsequent process of fixing a date of appearance for explaining the person concerned as to the alleged offence that had been committed by indicating the provisions of the Acts, Rules or Regulations that were contravened, can be carried forward. When we examine the impugned notice in respect of the writ peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion before appointing the adjudicating officer to look into the records on the opinion being formed against the persons specific against whom the adjudication process is sought to be initiated and ensure that the required opinion referred under Rule 3 of PR-1995 is duly formed. The opinion to be formed under Rule 3 of the PR-1995, which would have to be person specific to the individual noticees, be also served on the noticees along with the de-novo notice that may be issued under Rule 4(1) of the PR-1995. - Case No. : WP(C)/530, 1434, 764, 765, 1455, 1427, 1179, 1533, 766, 767, 852/2022 - - - Dated:- 6-9-2022 - Honourable Mr. Justice Achintya Malla Bujor Barua For the Petitioner : DR. A SARAF For the Respondent : SC, SEBI JUDGMENT ORDER (ORAL) Heard Dr. Ashok Saraf, learned senior counsel assisted by Mr. A. Goyal, learned counsel for the petitioners and Ms. M. Hazarika, learned senior counsel assisted by Mr. D. Khan, learned counsel for the respondents in the SEBI in WP(C) No. 530/2022, WP(C) No. 765/2022, WP(C) No. 767/2022, WP(C) No. 852/2022, WP(C) No. 1179/2022, WP(C) No. 1427/2022, WP(C) No. 1434/2022, WP(C) No. 1455/2022 and WP(C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same day had no impact on the market and it has not affected the NIFTY index in any manner or induced investors. SAT has held that such trades are illegal only when they manipulate the market in any manner and induce investors. It has also taken a view that there being no physical delivery of any asset, there is no change of beneficial ownership and what is traded in the F O segment are only contracts and hence, such synchronised and reverse trades in NIFTY options in the F O segment can never manipulate the market . It has also held that the trades being settled in cash through a stock exchange mechanism, are genuine and therefore cannot create a false or misleading appearance of trading in the F O segment. Further, any trade to be objectionable must result in influencing the market one way or the other. SAT held that these trades were for the purpose of tax planning which is not violative of any regulation. We are not inclined to get into the issue of tax planning as it was not mentioned in the show-cause notices. 29. We find it difficult to appreciate the stand taken by SAT which is endorsed by the learned Senior Counsel appearing for the respondents. Mr Chidambaram, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tood comprehensively to include any act beyond a fair conduct of business including the business in sale and purchase of securities. However the said question, as suggested by my learned Brother, Ramana, J. is being kept open for a decision in a more appropriate occasion as the resolution required presently can be made irrespective of a decision on the said question. (emphasis supplied) 31. Having regard to the fact that the dealings in the stock exchange are governed by the principles of fair play and transparency, one does not have to labour much on the meaning of unfair trade practices in securities. Contextually and in simple words, it means a practice which does not conform to the fair and transparent principles of trades in the stock market. In the instant case, one party booked gains and the other party booked a loss. Nobody intentionally trades for loss. An intentional trading for loss per se, is not a genuine dealing in securities. The platform of the stock exchange has been used for a non-genuine trade. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trades, it is not genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or if it results in circular trading or is dubious in nature and is executed with a view to avoid regulatory detection or does not involve change of beneficial ownership or is executed to create false volumes resulting in upsetting the market equilibrium. Any transaction executed with the intention to defeat the market mechanism whether negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to protect the interests of investors in the Securities Market which has seen substantial growth in tune with the parallel developments in the economy. Investors' confidence in the capital/securities market is a reflection of the effectiveness of the regulatory mechanism in force. All such measures are intended to pre-empt manipulative trading and check all kinds of impermissible conduct in order to boost the investors' confidence in the capital market. The primary purpose of the statutory enactments is to provide an environment conducive to increased participation and investment in the securities market which is vital to the growth and development of the economy. The provisions of the SEBI Act and the Regulations will, therefore, have to be understood and interpreted in the above light. In this case, it was also held that in the absence of direct proof of meeting of minds elsewhere in synchronised transactions, the test should be one of preponderance of probabilities as far as adjudication of civil liability arising out of the violation of the Act or the provision of the Regulations is concerned. To quote: (SCC p. 385, para 31): 31. The conclusion has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the screens of the exchanges in the price and order matching mechanism of the exchanges just like any other normal trade. In the said circular, it was stated that the above decision was taken as negotiated deals avoid transparency requirements, do not contribute to price discovery and some investors do not have benefit of the best possible price and militate against the basic concept of stock exchanges, which are meant to bring together a large number of buyers and sellers in an open manner. 57. In Ketan Parekh v. SEBI [Ketan Parekh v. SEBI, 2006 SCC OnLine SAT 221] the Securities Appellate Tribunal (SAT) has considered the circumstances under which synchronised trade will be legal and held as under: (SCC OnLine SAT para 20): 20. There are yet another type of transactions which are commonly called synchronised deals. The word synchronise according to Oxford Dictionary means cause to occur at the same time; be simultaneous . A synchronised trade is one where the buyer and seller enter the quantity and price of the shares they wish to transact at substantially the same time. This could be done through the same broker (termed a cross deal) or through two dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn. (emphasis supplied) 63. By manipulation and synchronisation , it is meant that two parties have premeditated; as such a drastic movement in price within few seconds could have been only through prior understanding between the parties concerned only to fulfil an unlawful objective through misuse of the stock exchange. That is, prior arrangement/prior understanding with each other wherein one will make profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r difference in the underlying price. It is thus difficult to accept that several such sell and buy orders between the respondent and Kasam Holding being within a gap of 1 , 2 or 3 or few seconds were by mere coincidence. As contended by the appellant SEBI, it was too much of coincidence that there were number of transactions of buy and sell orders between the same parties with same quantity of stock with significant variation in price. 67. In the quasi-judicial proceeding before SEBI, the standard of proof is preponderance of probability. In a case of similar synchronised trading involving same set of brokers emphasising that the standard of proof is preponderance of probability in paras 26 and 27, in Kishore R. Ajmera case [SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368] , this Court held as under: (SCC p. 383) 26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulation could reasonably lead to conclusion that the Broker was responsible in the manipulation. The evidence, direct or circumstantial, should be sufficient to raise a presumption in its favour with regard to the existence of a fact sought to be proved. As pointed out by Best in Law of Evidence , the presumption of innocence is no doubt presumptio juris; but everyday practice shows that it may be successfully encountered by the presumption of guilt arising from circumstances, though it may be a presumption of fact. Since it is exceedingly difficult to prove facts which are especially within the knowledge of the parties concerned, the legal proof in such circumstances partakes the character of a prudent man's estimate as to the probabilities of the case. Hon'ble Securities Appellate Tribunal (SAT) has observed in the matter of Ketan Parekh v. SEBI [Ketan Parekh v. SEBI, 2006 SCC OnLine SAT 221] : (SCC OnLine SAT para 20): 20. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism will depend upon the intention of the parties which could be inferred from the attending circumstances because direct evidence in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market integrity is the hallmark of securities law. Section 12-A read with Regulations 3 and 4 of the 2003 Regulations essentially intended to preserve market integrity and to prevent market abuse . The object of the SEBI Act is to protect the interest of investors in securities and to promote the development and to regulate the securities market, so as to promote orderly, healthy growth of securities market and to promote investors' protection. Securities market is based on free and open access to information, the integrity of the market is predicated on the quality and the manner on which it is made available to market. Market abuse impairs economic growth and erodes investor's confidence. Market abuse refers to the use of manipulative and deceptive devices, giving out incorrect or misleading information, so as to encourage investors to jump into conclusions, on wrong premises, which is known to be wrong to the abusers. The statutory provisions mentioned earlier deal with the situations where a person, who deals in securities, takes advantage of the impact of an action, may be manipulative, on the anticipated impact on the market resulting in the creation of artific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be overlooking the prior meeting of minds involving synchronisation of buy and sell order and not negotiated deals as per the Board's circular. The impugned transactions are a manipulative/deceptive device to create a desired loss and/or profit. Such synchronised trading is violative of transparent norms of trading in securities. If the findings of SAT are to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable to be set aside. On the above additional reasonings also, I agree with the conclusion allowing the appeal preferred by SEBI against the traders. I also agree with the conclusion dismissing the appeal preferred by SEBI against the brokers. 4. The propositions laid down by the Supreme Court in Rakhi Trading (supra) are as follows: i. According to SAT, the synchronization and reversal of trades effected by the parties with a significant price difference, some in a few seconds and majority, in any case, on the same day had no impact on the market and it had not affected the NIFTY index in any manner or induced investors and such trades are illegal only when they manipulate the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between pre-arranged parties, all the aforesaid vices are attracted. While synchronization and rapid reverse trade are being carried out by the traders, the price discovery system itself is affected and except the parties who have pre-fixed the price nobody else is in the position to participate in the trade. v. In the absence of any direct proof of meeting of minds elsewhere in a synchronized transaction, a test should be one of preponderance of probabilities as far as adjudication of civil liabilities arising out of the violation of the Act or the provisions of the Regulations are concerned. vi. All such traders who are engaged in a fraudulent and unfair trade practice while dealing in securities are hence liable to be proceeded against for violation of Regulations 3(a), 4(1) and 4(2)(a) of the PFUTP Regulations. vii. A synchronized transaction will become illegal or would violate the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and with a view to manipulate the price or volume of the scrip and done with some ulterior purpose by manipulation or synchronization between two parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary action to maintain public confidence in the integrity of the securities market. xiv. Accordingly, it was concluded by the Supreme Court that in reversal transactions, quantity, price and time and sale being persistent in a number of such trade transactions with huge price variations, it would be too naive to hold that the transactions are through screen-based trading and hence anonymous and such conclusion would lead to over-looking the prior meeting of minds involving synchronization of buy and sell order and that it was not a negotiated deal. Such transactions are manipulative/deceptive device to create a desired loss and/or profit and such synchronized trading would violate the transparent norms of trading in securities. xv. As per the propositions laid down by the Supreme Court in Rakhi Trading(supra) we have to understand that in a synchronized trading or reversal trading where there is a buying and selling of the shares within a very short span of time and one party gains while the other loses and it happens repeatedly over a period of time, it would have to be construed to be a manipulation and unfair trade practice under the laws which requires enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 1995 (in short PR- 1995) issued by the authorities in the respondent SEBI are being assailed. 7. Dr. Ashok Saraf, learned senior counsel for the writ petitioners by referring to various provisions of the SEBI Act and the Rules made thereunder has raised a contention that the procedure adopted by the respondents in the SEBI leading to the impugned notices under Rule 4(1) of the PR-1995 were in violation/aberration of the procedure prescribed in the statutes for the purpose. 8. On the other hand, Ms. M Hazarika, learned senior counsel and Mr. A Choudhury, learned senior counsel for the respondents in the SEBI raised a counter contention that all the procedures as required by the statues for the purpose have been duly followed and therefore, no interference is required in respect of the impugned notices. 9. Before adventing into the detailed submissions being raised by the rival parties as regards the violation/compliance of the necessary procedures, we are of the view that it would be pertinent to refer to the judgment of the Supreme Court in T Takano Vs. Securities and Exchange Board of India and Another reported in 2022 SCC Online SC 210 which are extracted as be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n report need not be furnished while issuing a show cause notice, the High Court has relied on the decision of this Court in Natwar Singh v. Director of Enforcement. In sum and substance, the High court has held that the report does not form the basis of the show cause notice and therefore need not be disclosed. The review petition challenging the judgment of the Division Bench of the High Court was rejected. 24. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These issues, all paramount in shaping the jurisprudence surrounding the principles of access to justice and transparency, range from identifying the purpose and extent of disclosure required, to balancing the conflicting claims of access to justice and grounds of public interest such as privacy, confidentiality and market interest. An identification of the purpose of disclosure would lead us closer identifying the extent of required disclosure. There are three key purposes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial relied on is disclosed. Such a rule of disclosure, only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed. 32. Now in the above context, it would be material to advert to the decision of this court in Natwar Singh (supra). The issue before the two-judge Bench of this Court was whether a noticee who is served with a show cause notice under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000 , is entitled to demand all the documents in the possession of the adjudicating authority including those documents upon which no reliance has been placed while issuing a notice to show cause as to why an enquiry should not be initiated against him. Rule 4 is in the following terms: 4. Holding of inquiry.- (1) For the purpose of Adjudicating under section 13 of the Act whether any person has committed any contravention as specified in that section of the Act, the Adjudicating Authority shall, 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 ten days from the date of service thereof) why an inqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person concerned. That after taking the cause, if any, shown by such person, the Adjudicating Authority is required to form an opinion as to whether an inquiry is required to be held into the allegations of contravention. It is only then the real and substantial inquiry into allegations of contravention begins. 35. The above extract clearly indicates that the show cause notice under Rule 4(1) is not for the purpose of making an adjudication into the alleged contravention but only for deciding whether an enquiry must be conducted. The stage when an enquiry is held is subsequent to the initial stage contemplated by Rule 4(1). During the course of the adjudication, the fundamental principle is that material which is used against a person must be brought to notice. As this Court observed: 30. The right to fair hearing is a guaranteed right. Every person before an authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognised by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 65 : (1955) 1 SCR 941]. However, disclosure not necessarily involves supply of the material. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only for the purpose of deciding whether an enquiry has to be held and the subsequent stage of adjudication into the allegations of contravention. This Court further held: 34. As noticed, a reasonable opportunity of being heard is to be provided by the adjudicating authority in the manner prescribed for the purpose of imposing any penalty as provided for in the Act and not at the stage where the adjudicating authority is required merely to decide as to whether an inquiry at all be held into the matter. Imposing of penalty after the adjudication is fraught with grave and serious consequences and therefore, the requirement of providing a reasonable opportunity of being heard before imposition of any such penalty is to be met. In contradistinction, the opinion formed by the adjudicating authority whether an inquiry should be held into the allegations made in the complaint are not fraught with such grave consequences and therefore the minimum requirement of a showcause notice and consideration of cause shown would meet the ends of justice. A proper hearing always include, no doubt, a fair opportunity to those who are parties in the controversy for correcting or contradicting anythin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the initial stage under Rule 4(1). At the stage of adjudication, all documents useful or relevant to the subject-matter have to be disclosed to the notice, subject to exceptions noticed by the court. 41. On behalf of the Board, it has been urged that the investigation report is in the nature of an inter-departmental communication and need not be disclosed. Reliance was placed on the judgment of this Court in Krishna Chandra Tandon (supra) to buttress the submission. However, it is clear from the judgment that even if the documents are merely inter-departmental communications, there is a duty to disclose such documents if they have been relied upon by the enquiry officer. A two-Judge Bench of this observed: 16. Mr. Hardy next contended that the appellant had really no reasonable opportunity to defend himself and in this connection he invited our attention to some of the points connected with the enquiry with which we have now to deal. It was first contended that inspection of relevant records and copies of documents were not granted to him. The High Court has dealt with the matter and found that there was no substance in the complaint. All that Mr. Hardy was able to poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jective satisfaction forming the basis of the detention order was arrived at, it would be legitimate for the Court to infer that such material must have influenced the District Magistrate in arriving at his subjective satisfaction and in such a case the Court would refuse to accept the bald statement of the District Magistrate that he did not take such material into account and excluded it from consideration. It is elementary that the human mind does not function in compartments. When it receives impressions from different sources, it is the totality of the impressions which goes into the making of the decision and it is not possible to analyse and dissect the impressions and predicate which impressions went into the making of the decision and which did not. Nor is it an easy exercise to erase the impression created by particular circumstances so as to exclude the influence of such impression in the decision making process. Therefore, in a case where the material before the District Magistrate is of a character which would in all reasonable probability be likely to influence the decision of any reasonable human being, the Court would be most reluctant to accept the ipse dixit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supposed to arrive at its own findings on the basis of the evidence recorded in the inquiry, it is also equally true that the disciplinary authority takes into consideration the findings recorded by the enquiry officer along with the evidence on record. In the circumstances, the findings of the enquiry officer do constitute an important material before the disciplinary authority which is likely to influence its conclusions. If the enquiry 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 ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the Courts and Tribunals should cause the copy of the report to be furnished to the aggrieved employee if he has not already secured it before coming to the Court/Tribunal and give the employee an opportunity to show how his or her case was prejudiced because of the non-supply of the report. If after hearing the parties, the Court/Tribunal comes to the conclusion that the non-supply of the report would have made no difference to the ultimate findings and the punishment given, the Court/Tribunal should not interfere with the order of punishment. The Court/Tribunal should not mechanically set aside the order of punishment on the ground that the report was not furnished as is regrettably being done at present. 48. The following principles emerge from the above discussion: (i) A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication; and (ii) An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority. In all reasonable probability, such material would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter and authority who can decide any enforcement action against the entity. .. The findings recorded in the investigation report against the Noticee are brought out in the SCN and the copies of all the documents that are relied upon by SEBI, while issuing the SCN are always shared with the concerned. The present case is no exception. (emphasis supplied) 51. The above extracts indicate that the findings of the investigation report are relevant for the Board to arrive at the satisfaction on whether the Regulations have been violated. Even if it is assumed that the report is an inter-departmental communication, as held in Krishna Chandra Tandon (supra), there is a duty to disclose such report if it is relevant for the satisfaction of the enforcement authority for the determination of the alleged violation. 52. In Khudiram Das (supra), a four-Judge Bench of this Court laid down a twoprong test for the standard of relevancy ; firstly, the material must have nexus with the order and secondly, the material might have influenced the decision of the authority. A Constitution Bench of this Court in Karunakar (supra) held that the nondisclosure of the relevant information is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation of the principles of natural justice. The court/appellate forum in an appropriate case will be empowered to call for the investigation report and determine if the duty to disclose has been effectively complied with. 60. The notice to show cause issued to the appellant is for violation of the provisions of the SEBI Act, SCRA and PFUTP Regulations. The show cause notice has specifically referred to what was revealed during the course of the investigation and has invoked the provisions of the PFUTP Regulations in the allegations against the appellant. Para 8(2) of the show cause notice is extracted below: (II) It is alleged that Mr. T. Takano, during whose tenure the business transactions with FDSL started by virtue of his position as MD CEO of Ricoh during FY 2012-13 to FY 2014-15, was actively involved in committing the fraud and had knowingly restricted the mandate given to PwC to six month so as to succeed in hiding his role in the commission of fraud of publishing untrue financial statement of Ricoh which resulted in misleading the investors about the financial performance of the company and thereby resulted in inducement of traders in the scrip. The said acts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s necessary to defend his case appropriately; and (vi) Where some portions of the enquiry report involve information on third-parties or confidential information on the securities market, the respondent cannot for that reason assert a privilege against disclosing any part of the report. The respondents can withhold disclosure of those sections of the report which deal with third-party personal information and strategic information bearing upon the stable and orderly functioning of the securities market. 63. The Board shall be duty-bound to provide copies of such parts of the report which concern the specific allegations which have been levelled against the appellant in the notice to show cause. However, this does not entitle the appellant to receive sensitive information regarding third parties and unrelated transactions that may form part of the investigation report. 64. During the course of the hearing, the Court has been apprised of the fact that though the hearing before the designated officer has been held, no orders have been passed in deference to the pendency of the present proceedings. Having regard to the conclusion which has been arrived at above, we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation report was an internal document which cannot be shared and further that the investigation report was not relied upon for the purpose of the show cause notice that was issued. 15. The Bombay High Court by its judgment dated 29.09.2020 had held that the investigation report under Regulation 9 of the PFUTP-2003 was solely for internal purpose and accordingly dismissed the writ petitions. Upon such dismissal, the appeal was carried before the Supreme Court. 16. On the issue as to whether there is a requirement of a disclosure of the investigation report, the Supreme Court in paragraphs 24 25 of its judgment was of the view that in shaping the jurisprudence surrounding the principles of access to justice and transparency as well as by balancing the conflicting claims of access to justice and the grounds of public interest such as privacy, confidentiality and market interest, the purpose of disclosure of information is not merely individualistic, that is to prevent error in the verdict, but is also towards fulfilling the larger institutional purpose of fair trial and transparency. The Supreme Court was also of the view that as the purpose of disclosure of inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r enquiry. The Supreme Court in paragraph 36 in its judgment in T. Takano (supra) held that the Court distinguishes between the initial stage under Rule 4(1) which is only for the purpose of deciding whether an enquiry has to be held and the subsequent stage of adjudication is into the allegations of contravention. Accordingly, while interpreting the provision from Rule 4(1) of the PR-1995 Rules, a clear distinction is to be made between the two stages i.e. the first stage where the notice concerned would be on the question as to whether an enquiry at all has to be made and if the procedure results in a conclusion that an enquiry is required, in the subsequent stage the adjudicating authorities would go into the veracity of the actual allegations of contravention that may have been raised. 18. In the conspectus of the aforementioned propositions laid down by the Supreme Court, Dr. Ashok Saraf, learned senior counsel for the petitioners assails the impugned show cause notices which are the subject matter of the present writ petitions by raising the following contentions: (i). By referring to the provisions of Section 11C of the SEBI Act contends that the Board in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be held and if the conclusion arrived at the first stage is that an enquiry is required to be held, the second stage would be for imposing the punishment. But in the notices impugned both the stages have been combined to make it a composite notice to show cause as to why the enquiry should not be held as well as, as regards the punishment that may be imposed. Further in some of the notices, the noticees were also required to avail the benefit of the conciliation process to accept a reduced punishment, which according to the learned senior counsel could have been made only after the punishments have been imposed. 19. Ms. M Hazarika, learned senior counsel and Mr. A Choudhury, learned senior counsel for the respondent SEBI on the other hand raise counter contentions that the report of the investigation under section 11C of the SEBI Act would be an investigation report for the internal purpose of the authorities of the SEBI, and, therefore, there is no requirement under the law to provide a copy thereof to the petitioner noticees. It is contended that the investigation under section 11C being a wide based investigation to arrive at a satisfaction whether the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her contention is raised that the writ petitions assailing a show cause notice itself is not maintainable inasmuch as , the law provides that it would be more appropriate for the noticees to respond to the notices and make whatever submission they intend to make against the allegations provided therein and therefore, seeking an interference with the notices in a petition under Article 226 of the Constitution of India would be not maintainable. 24. With regard to the contention that offering the petitioner noticees an opportunity to participate in a conciliation proceeding is an attempt to provide the opportunity to the noticees to accept a lesser punishment without going through the rigours of participating in an proceeding under Rule 4 and therefore, such provisions incorporated in the show cause notices would not vitiate the procedure adopted. 25. In the premises of the contentions and counter contentions raised as indicated above, the following questions for determination would arise in the present writ petitions. (i) Whether the grounds to believe which is a condition precedent of initiating an investigation under Section 11C did exist in the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon such investigation. 27. By referring to a pronouncement of the Supreme Court in Madhya Pradesh Industries Ltd. Vs. Income Tax Officer, Nagpur reported in (1970) 2 SCC 32, in paragraph 12 it is contended that the expression has reason to believe appearing in Section 34(1)(a) of the Income Tax Act does not mean a purely subjective satisfaction of the Income Tax Officer but predicates the existence of reasons on which such belief has to be founded and that it cannot be founded on a mere suspicion and must be based on evidence, although the question of adequacy of evidence would be immaterial at that stage. By referring to the said proposition, it is the contention of the learned senior counsel that for the Board to embark upon an investigation under Section 11C of the SEBI Act, there is a requirement of existence of reason to believe which again should not be purely a subjective satisfaction of the Board but upon existence of some material which may lead to the satisfaction of such reason to believe. Accordingly, the contention raised is that it will be for the respondent Board to satisfy from the records that materials did exist for the Board to have a reasonable ground to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay Stock Exchange (BSE) for the period 01.04.2014 to 31.03.2015, it was observed that several entities were consistently making significant loss and others were consistently making significant profits by executing reversal trades in stock options on the BSE. Although the enquiries related to the ex-parte ad-interim order dated 20.08.2015 were in respect of certain other specific entities, but in paragraph 41 thereof, the authorities under the SEBI by considering the nature of the trades that were enquired into, arrived at a view that a detail investigation of the entire scheme employed in the case was necessary to find out the rational of such suspicious/artificial trades, including tracing the fund trail and the role of intermediaries in allowing such fictitious trades to enter the system. The said aspect is available at paragraph 41 of the ad-interim order dated 20.08.2015, which is extracted as below:- 41. While ascertaining the exact reasons for such abnormal behavior by each of the loss-making/profit-making entities remains the subject matter of detailed investigation, maintaining market integrity and protecting interest of investors is my main concern right now. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission that in the instant case, there were no materials before the authorities of the SEBI to have a reasonable ground to believe that there was a requirement to initiate an investigation under Section 11C in respect of reversal trades having taken place in illiquid stocks. The relevant portions of paragraphs 7, 8, 9 and 10 of Madhya Pradesh Industries Limited-I (supra) are extracted as below:- 7. This Court in Calcutta Discount Company Ltd. v. Income Tax Officer, Companies District, I [(1961) 2 SCR 241] observed that the Income Tax Officer has power to issue a notice under Section 34(1)(a) only if he has reason to believe (1) that income, profits or gains had been under-assessed and (2) that such under-assessment was due to non-disclosure of material facts by the assessee, and that where facts which invest the Income Tax Officer with jurisdiction to issue the notice do not exist, the assessee may apply to the High Court under Article 226 of the Constitution for appropriate relief. The Company has asserted that the facts which attract the jurisdiction of the Income Tax Officer to issue a notice under Section 34 did not exist, and the impugned notice was issued in colourab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any legitimate purpose for which it may be used, but for the purpose of making a fishing enquiry and to review a previous order passed in favour of the Company, a Rule upon the Income Tax; Officer to show cause why the order should not be set aside and an opportunity to the authority whose action was challenged either to accept or deny the facts alleged and to set out such other material facts as have a bearing on the question, was at least called for. 33. In Madhya Pradesh Industries Limited/(ii)(supra) in paragraph 12 it had been provided that the expression has reason to believe does not mean a purely subjective satisfaction of the Income Tax Officer but predicates the existence of reasons on which such belief has to be founded. 34. Paragraph 12 of Madhya Pradesh Industries Limited/(ii)(supra) is extracted as below: 12. Shah, J. (one of us) in his dissenting judgment has observed that the expression has reason to believe in Section 34(1)(a) of the Indian Income Tax Act does not mean a purely subjective satisfaction of the Income Tax Officer but predicates the existence of reasons on which such belief has to be founded. That belief, therefore, cannot be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain and would have to be backed by some reasonable grounds. Reasonable ground is understood to mean the information that establishes sufficient articulable fact that gives a reasonable basis to believe. In other words, to be a reasonable ground, it would have to be based on certain information that establishes sufficient articulable fact to make it a basis to believe whereas existence of cause, explanation or justification would be sufficient in order to constitute a reason. 38. Accordingly, we have to understand that to have a reason to believe, the basis for the belief may be any cause, explanation or justification whereas for having a reasonable ground to believe the basis for the belief would have to be the information, in other words, comparable to knowledge. 39. Knowledge is defined in the Blacks Law Dictionary to be an awareness or understanding of a fact or circumstance; a state of mind in which the person has no substantial doubt about the existence of a fact. Belief is regarding the existence of something which is likely or relatively certain whereas knowledge is the absence of any substantial doubt in the mind of the person about its existence. In ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therewith or incidental thereto as held by the Supreme Court in the case of Clariant International Ltd. Vs. Securities and Exchange Board of India reported in (2004) 8 SCC 524. In other words, the SEBI Act, 1992 is for regulating and promoting the securities market as a whole. In the circumstance, any enquiry that may be required to be made under the SEBI Act, 1992, would be of a broader compass than that of an enquiry to be made under the Income Tax Act either of 1922 or 1961. Correspondingly, the requirement of having a reasonable ground to believe for initiating an enquiry under Section 11C of the SEBI Act, 1992 would also have to be on the basis of a broader spectrum as regards the activities that the SEBI is required to regulate, promote or develop. 42. As the enquiry may be in respect of a broader spectrum of the circumstances and activities, the element of higher certainty required for having a reasonable ground to believe under Section 11C would also have to be based on a broader spectrum of activities that are required to be regulated or promoted. If we proceed on the aforesaid premises, the materials produced by the respondents in the SEBI by referring to the interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be more broad based and may pertain to a ground to believe that the rules and procedures in conducting the trades under SEBI have been violated by someone rather than it being a reasonable ground to believe that it had been violated by a specific person concerned. 45. Ms. M Hazarika, learned senior counsel for the respondents in the SEBI on the other hand has raised a contention that in the facts and circumstances of the present case, there are materials on record to indicate that the individual noticees had indulged in certain trades, which according to the SEBI amounted to reversal trade in illiquid stock options. 46. With regard to the contention of Dr. Ashok Saraf, learned senior counsel for the petitioners as to whether the opinion of the Board to be formed as to whether there are grounds for adjudging under the provisions of Chapter VIA of the SEBI Act of 1992 that such opinion would have to be in respect of the involvements of the noticee concerned, we examine the provisions of Section 11C of the SEBI Act of 1992 and that of Rule 3 of the Procedure Rules 1995 as to under what circumstances, the two requirements i.e. reasonable ground to believe of Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities market. 49. Considering both the aspects above, the purport of an investigation under Section 11C of the SEBI Act of 1992 would be broad based rather than person specific investigation. 50. Section 11C(1) provides that the investigation to be conducted by the investigating authority, would ultimately result in a report thereon to the Board. Accordingly, it has to be understood that the report to be submitted by the investigating authorities to the Board would contain such materials which may indicate as to whether the transactions in all the securities was dealt in a manner detrimental to the investors or the securities market or whether any intermediary or any persons had violated any of the provisions of the SEBI Act, Rules or the Regulation made there-under. 51. While Sections 15A to Section 15HB provides for the various penalties that may be imposed for different circumstances leading to a violation of the SEBI Act as well as the Rules and Regulations made thereunder Section 15-I provides for the power to adjudicate. Section 15-I provides that for the purpose of adjudging under Sections 15A to 15HB, the Board may appoint any person not below the rank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution of India, we are not going into such aspect of the matter and we leave it to the individual writ petitioner noticees to take it up with the authorities concerned on the question of adequacy or accuracy of such materials against them. But at the same time, we are of the view that whatever materials are being relied or referred by the respondent authorities against the writ petitioners noticees, such materials would have to be materials pertaining to the specific person concerned and not broad based. 56. We have perused the records produced by the respondent SEBI in respect of the opinion required to be formed under Rule 3 of the PR-1995. The records produced contain materials which may be a basis to form an opinion, but the records do not indicate the formation of any such opinion by the respondent SEBI. WHETHER A NOTICE UNDER RULE 4 OF THE PR-1995 CAN BE ASSAILED IN A PROCEEDING UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA : 57. Ms. M Hazarika, learned senior counsel for the respondents in the SEBI has raised a contention that in the instant writ petitions, the notices under Rule 4(1) of the PR-1995 are notices issued in the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ield any fruitful purpose. (See K.I. Shephard v. Union of India [(1987) 4 SCC 431 : 1987 SCC (L S) 438 : AIR 1988 SC 686] .) It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter-affidavit as also in its purported show-cause notice. 11. A bare perusal of the order impugned before the High Court as also the statements made before us in the counter-affidavit filed by the respondents, we are satisfied that the statutory authority has already applied its mind and has formed an opinion as regards the liability or otherwise of the appellant. If in passing the order the respondent has already determined the liability of the appellant and the only question which remains for its consideration is quantification thereof, the same does not remain in the realm of a show-cause notice. The writ petition, in our opinion, was maintainable. 60. Reliance has also been placed in the pronouncement of the Supreme Court in paragraph 31 of Union of India Vs. VICCO Laboratories , reported in (2007) 13 SCC 270 as extracted herein below: 31. Normally, the writ court should not interfere at the stage of issuance of sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the same can be done in the present writ petitions and not require the petitioner noticees to subject themselves to the process to be initiated as per the impugned show cause notices, in respect of such issues regarding the procedure adopted that had been raised. 63. In order to appreciate the rival contentions, we look into one of the notices under Rule 4(1) of the PR-1995 in respect of the writ petitioner Ankita Didwania in WP(C)No.766/2022. In paragraph 1 of the notice dated 17.09.2021, it is stated that an adjudication proceeding had been initiated in respect of the writ petitioner Ms. Ankita Didwania bearing PAN No. BFYPB2268B for carrying out alleged non-genuine trades in illiquid stock options at the BSE and thereby violated the regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the SEBI (Prohibition of Fraudulent and Unfair Trading Practices related to Securities Market) Regulations, 2003 (in short, referred as PFUTP Regulations, 2003). 64. In paragraph 5, it is stated that pursuant to an investigation under Section 11C of the SEBI Act, 1992, it was noticed that 2,91,744 trades which comprises 81.41% of all trades executed in the stock options segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether any person had committed a contravention, in the first instance, a notice is to be issued to such person requiring him to show cause within such period as may be specified in the notice, not being less than 14 (fourteen) days from the date of service thereof, as to why an enquiry should not be held. 67. Rule 4(3) provides that if after considering the cause, if any, shown by such person, the Adjudicating Officer is of the opinion that an enquiry should be held, he shall issue a notice fixing a date for the appearance of the person concerned either personally or through his lawyer or other authorized representative. 68. The very expression in the first instance of Rule 4(1) of the Procedural Rules, 1995 gives an indication that the scheme of procedure provides for two different stages as submitted by Dr. Ashok Saraf, learned senior counsel for the writ petitioners. If it is so, the said question raised by the petitioner requires an examination and if it is so, requiring the noticee to raise a complete and comprehensive objection to the notice before the Adjudicating Officer wherein such question of procedural aberration may also be raised, may require the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that a Chief General Manager means an Officer of the Board in the Grade F. Clause 2(1)(k) provides that General Manager means an officer of the Board in the Grade E and Clause 2(1)(h) Deputy General Manager means an officer of the Board in the Grade D. 72. On a conjoint reading of Clause 2(1) with Clauses 2(1)(f) to 2(1)(k) and Clause 2(1)(h) we have to understand that a Division Chief may be a Chief General Manager or a General Manager or a Deputy General Manager depending upon as to an officer of which rank is the Division Chief of a particular Division. In a given Division if the Division Chief is the Chief General Manager for that particular Division, the Division Chief would have to be the Chief General Manager and if for another given Division, it is the Deputy General Manager, it has to be understood that the Deputy General Manager would be the Division Chief of that particular Division and accordingly. Clauses 2(1)(f), 2(1)(i), 2(1)(k) and 2(1)(h) are extracted hereunder: 2(1)(f) Chief General Manager means an officer of the Board in the Grade F; 2(1)(i) Division Chief means an officer of the Board in the Grades D to F; 2(1)(k) General Manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the writ petitioner Ankita Didwania, it can be noticed that the notices under Rule 4(1) of the PR- 1995 had been issued by the Division Chief. Instead of venturing into examining the factual aspect as to whether in respect of the other writ petitions, the authorities issuing notices under Rule 4(1) of the PR-1995 are Division Chief or not, in the light of the analysis made hereinabove, the Executive Director of the SEBI is required to look into the individual notices and arrive at his own satisfaction as to whether the respective authorities who have issued the notices do satisfy the requirement of being the Division Chiefs. If the Executive Director upon examining the records arrive at any conclusion that the authorities who have issued the notice would be not a Division Chief of the Division which had issued the notices, appropriate steps be taken to ensure that only the person who would be the Division Chief of the Division issuing the notices be appointed as the adjudicating officer. In such event, the notices that may have been issued, if any, by an authority otherwise than that of a Division Chief be recalled and necessary corrective measures be taken. WHETHER THE A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as ED-EFD ). By referring to the delegation of the powers, further reference is made to the records containing the note sheet which provides for the appointment of adjudicating officers for the different adjudicating proceedings. By referring to the said note sheet, it is pointed out that the various adjudicating officers appointed for the adjudicating proceedings were submitted for consideration by an officer who signed as GM (SM) on 03.04.2018. The said note sheet was thereafter signed by the CGM (AP) on 03.04.2018 by providing the endorsement as proposed, AOs may be appointed by ED(Law) . Subsequent thereto, there is an endorsement approved the name of the adjudicating officers as per the list 1 to 9 given above by the ED(Law), which is also dated 03.04.2018 and thereafter, the file goes back to the CGM, VSS and other authorities. 80. Dr. Ashok Saraf, learned Senior counsel for the petitioner has raised an issue that even if we go by the note sheet produced from the records, the EDEFD had only approved the names of the adjudicating officers and it cannot be said to be an appointment made by the ED-EFD. To substantiate the contention raised, it is the submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver list of officers that were presented may be appointed by the ED(Law), meaning thereby that up the stage of being considered by the CGM(AB), the appointment had not taken place and it is to be made by the ED(Law)/ED-EFD. But the ED(Law)/ED-EFD has used the expression approved the name of the adjudicating officers as per the list , although a more appropriate wording could have been appoint the adjudicating officers as per the list . 82. As no appointment had taken place upto the stage of the consideration by the CGM(AP), who again provided that the appointment may be made by the ED (law)/ED-EFD, the word approved appearing in the endorsement of the ED (law)/ED-EFD would have to be accepted to be not a very happily worded endorsement, but the meaning thereof would be that the ED (law)/ED-EFD had made the appointments. 83. Clause 3 of the order communicating appointment of Adjudicating Officer dated 06.07.2021 under the signature of Ms. Bhavana Ravikumar, General Manager, SEBI is extracted as below: 3. The Competent Authority has, therefore, in exercise of the powers conferred upon her under Section 19 of the SEBI Act read with Section 15 I(1) of the SEBI Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Chiefs to be an adjudicating officer. The opinion to be formed under Rule 3 therefore would have to precede the appointment of adjudicating officers. 89. The Supreme Court in paragraph 24 and 25 of T Takano (supra) had provided that in shaping the jurisprudence surrounding the principles of access to justice and transparency as well as balancing the conflicting claims of access of justice and the grounds of public interest such as privacy, confidentiality and market interest, the purpose of disclosure of information is not merely individualistic, that is to prevent error in the verdict, but is also towards fulfilling the larger institutional purpose of fair trial and transparency, and, therefore, there is a requirement of a disclosure of the investigation report. 90. The opinion to be formed under Rule 3 of the PR-1995 against the person specific is in the nature of a disclosure of an investigation report. Therefore, from the point of view of fulfilling the larger institutional purpose of fair trial and transparency, as enunciated by the Supreme Court in paragraphs 24 and 25 of T Takano (supra), we are of the view that there would be a requirement for the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontends that pursuant to the investigation under Section 11C of the SEBI Act 1992, the adjudicating officer arrived at a conclusion as regards the prevalence of non-genuine trades in the stock options segment of the BSE totaling 2,91,744 trades which comprised a substantial 81.41% of all trades. By further referring to paragraph 6 of the said notice, it is contended that the adjudicating officer had arrived at his conclusion that the writ petitioner noticee Ankita Didwania was involved in such non-genuine trades in the stock options segment of BSE. In paragraph 7 of the notice, it is provided that during the investigation period four trades of 99,000 units were executed in respect of contract viz., DIVI15APR1920.00CE and the petitioner noticee had executed two trades for 29,000 units in the said contract on 30.03.2015. While dealing with the said contract on 30.03.2015, the petitioner noticee at 15:14:45 hrs., had entered one buy trade with a counter party namely Open Futures and Derivatives Pvt. Ltd., for 14,500 units @Rs.4/- per unit and thereafter at 15:14:51 hrs., had entered one sell trade with the same counter party for 14,500 units @Rs.28/- per unit. Paragraph 8 of the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby, Noticee generated artificial volume of 29,000 units which is 29.29% of the volume traded in the said contract from the market during the investigation period. 8. Details of both the trades, which are non- genuine, of Noticee in Stock Options segment of BSE during the investigation period is given in Annexure B , and the detailed summary of all the dealings in the contract DIVI15APR1920.00CE IN WHICH Noticee allegedly executed non genuine trades during the investigation period is given in Annexure C . 95. Thereupon, Dr. Ashok Saraf, learned senior counsel for the petitioners refers to paragraph 14 of the notice dated 17.09.2021 wherein the petitioner noticee Ankita Didwania was called upon to show cause as to why an enquiry should not be held under Rule 4 of the Procedure Rules of 1995 read with Section 15-I of the SEBI Act of 1992 and further why penalty should not be imposed in terms of Rule 5 of the Procedure Rules of 1995 read with Section 15HA of the SEBI Act of 1992. By referring to the paragraph 14 of the notice dated 17.09.2021, the learned senior counsel submits that the purport of the notice dated 17.09.2021 is two-fold. Firstly it is a notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y requires the satisfaction of the condition precedent of there being an opinion formed that the enquiry is required to be held. 98. Ms. M Hazarika, learned senior counsel for the respondent SEBI per contra contends that the notice dated 17.09.2021 is only a show cause notice and the writ petitioners can respond to the notices and when such responses are submitted, the authorities in the SEBI would give a consideration to it. Accordingly, it is the contention that no interference is required against the notice under Rule 4 of PR-1995. 99. According to Ms. M Hazarika, learned senior counsel, the provisions of Rule 4 of PR-1995 itself are composite in nature and therefore, a composite notice in respect of all the aspect of Rule 4 would be permissible under the law. 100. Having heard the contentions and the counter contentions raised by the petitioner and the respondent SEBI on the question as to whether a composite notice with regard to all the aspects of Rule 4 of PR-1995 would be maintainable, we examined the provisions of the Rule 4 of PR-1995 itself. 101. Rule 4 of PR-1995 is extracted as below:- 4. Holding of inquiry- (1) In holding an inquiry for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant 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 [the Board or the adjudicating officer] may proceed with the inquiry in the absence of such person after recording the reasons for doing so. 102. Rule 4 (1) of PR-1995 provides that in holding an enquiry for the purpose of adjudging under Sections 15A to 15HB of the SEBI Act, 1992 as to whether any person had contravened any of the provisions thereof, the adjudicating officer at the first instance to issue a notice to such person requiring him/her to show cause as to why an enquiry should not be held against him/her. The expression first instance in Rule 4(1) of PR-1995 gives the indication that a notice under Rule 4(1) requiring the person to show cause as to why an enquiry should not be held against him/her, should precede all such notices that may be issued as per the subsequent sub Rules of Rule 4. 103. The expression first instance , as per the Merriam Webster dictionary means before other events happen or as the first thing in a series of actions . The meaning of the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of inquiry.- (1) For the purpose of adjudicating under Section 13 of the Act whether any person has committed any contravention as specified in that section of the Act, the adjudicating authority shall, 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 ten 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 person shall indicate the nature of contravention alleged to have been committed by him. (3) After considering the cause, if any, shown by such person, the adjudicating authority 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 legal practitioner or a chartered accountant duly authorized by him. (4) On the date fixed, the adjudicating authority shall explain to the person proceeded against or his legal practitioner or the chartered accountant, as the case may be, the contravention, alleged to have been committed by such person indicating the provisions of the Act or of rules, regulations, notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the FEMA Rules 2000 provides that for the purpose of adjudicating under section 13 of the Foreign Exchange Regulation Act, 1973, the adjudicating authority shall issue notice to such person requiring him to show cause within such period as to why an enquiry should not be held against him. Rule 4(3) of the FEMA Rules, 2000 provides that after considering the cause if any shown by such person, the adjudicating authority is of the opinion that an enquiry should be held, a notice fixing a date for appearance of that person, either personally or through lawyer or authorized chartered accountant, be issued. 107. While interpreting of the provisions of Rules 4(1) and 4(3) of the FEMA Rules 2000, the Supreme Court in Natwar Singh (supra) arrived at its conclusion in paragraph 23 of its judgment that the Rules do not provide and empower the adjudicating officer to straight away make an enquiry into the allegations of contravention in respect of any person, against whom a complaint had been received. The Supreme Court was of the view that for the purpose of adjudication whether any person has committed any contravention, the adjudicating officer shall issue notice requiring him to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of deciding whether an enquiry has to be held and the subsequent stage of adjudication into the allegations of contravention. 109. Paragraphs 34, 35 and 36 of T. Takano (supra) are extracted below:- 34. Now in this backdrop, Justice B. Sudarshan Reddy speaking for the two-judge Bench of this Court interpreted Rule 4 as follows: 23. The Rules do not provide and empower the Adjudicating Authority to straightaway make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the Adjudicating Authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him. It is clear from a bare reading of the rule that show cause notice to be so issued is not for the purposes of making any adjudication into alleged contravention but only for the purpose of deciding whether an inquiry should be held against him or not. Every such notice is required to indicate the nature of contravention alleged to have been committed by the person concerned. That aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnish copies of those documents upon which reliance has been placed by him to issue show-cause notice requiring the noticee to explain as to why an inquiry under Section 16 of the Act should not be initiated. To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules. Fair procedure and the principles of natural justice are inbuilt 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. (emphasis supplied) 36. The decision of this Court distinguishes between the initial stage under Rule 4 (1) which is only for the purpose of decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed that the noticee is called upon to show cause not only as to why an enquiry should not be held against her under Rule 4, but also why penalty should not be imposed under the provisions of Section 15HA of the SEBI Act, 1992 in terms of Rule 5 of the PR-1995. In other words, the notice dated 19.09.2021 in respect of petitioner noticee Ankita Didwania is a composite notice comprising of a notice as to why an enquiry should not be held and also why the adjudication proceeding be not carried forward and brought to its end by referring to the penalty. 111. Rule 4(3) of the PR-1995 provides that the subsequent process of adjudication by fixing a date of appearance of the person concerned leading to a penalty in terms of Rule 5 is to be preceded by the condition precedent of forming an opinion that an enquiry is required to be held. If we go by paragraph 14 of the impugned notice dated 17.09.2021 in respect of petitioner noticee Ankita Didwania, it has to be understood that the notice is also for the adjudication proceeding which may result in a penalty and that it was made without the satisfaction of the condition precedent of forming an opinion by the adjudicating officer tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the present form and accordingly, they are all set aside. 116. We also take note that some of the impugned notices provide for an opportunity to the noticees to avail certain conciliation process in respect of the penalties to be imposed. If any such petitioner noticees without intending to raise objection to any of the notices intends to avail any offer of conciliation in respect of the quantum of penalty, liberty would remain to any such petitioner noticees to avail the same. 117. However, as the interference is on a technical aspect on the procedure adopted in the matter, with regard to the manner in which the notices were issued, without any view being expressed on the legality and validity of the notices as regards the subject matter involved, as well as on the materials available on record, the respondents in the SEBI may proceed against the petitioner noticees from the stage of issuing the notices under Rule 4(1) of PR- 1995, if so advised subject to it being otherwise sustainable in law. 118. We have taken note of a submission being made by Dr. Ashok Saraf, learned senior counsel for the petitioners that under Rule 3 of the PR-1995, the Board may appoint any ..... 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