2019 (12) TMI 1144 - AT - SEBI

Legality and veracity of the order passed by Forward Markets Commission which has now merged with the Securities and Exchange Board of India ('SEBI' ) - Appellant no. 1 challenged the show cause notice before the Gujarat High Court contending that no show cause notice was provided nor an opportunity of hearing was given - HELD THAT - Admittedly the show cause notice was issued on June 21, 2011 which was received by appellant no. 2 shortly thereafter. The documents in part were only supplied on July 5, 2011. Accordingly, the appellant no. 2 cannot be faulted for the adjournment made on July 4, 2011. According to the appellant voluminous documents running into thousands of pages were provided and many documents were not provided for which further request was made which was rejected by the respondent. Request for further time to place their written submissions was granted till July 20, 2011. The request for adjournment on July 20, 2011 was rejected on the ground that the matter was being delayed. We find that only two weeks had elapsed from the date when the documents were supplied for filing a reply. Further request for adjournment was not unreasonable. Further, the period granted for filing reply was wholly inadequate considering the voluminous documents running into thousands of pages relied upon by the respondent. In the light of the aforesaid, we are of the opinion that no reasonable opportunity was given by the respondent no. 1 to the appellant no. 2 for the purpose of filing objection/reply to the show cause notice. The request on behalf of the appellant no. 2 to permit his advocate to place submissions on the issue of jurisdiction was not unreasonable and should not have been rejected. The finding that the appellant was avoiding to show cause on one pretext or the other is a finding based on surmises and conjectures. As per sequence of events stated aforesaid, it is clear that there has been no unreasonable request on the part of the appellant in seeking time to file their written submissions and for placing their arguments. In our opinion the rejection of the request of the appellant on July 20. 2011 for an adjournment, was violative of the principles of natural justice. Consequently, the impugned order against the appellant no. 2 cannot be sustained and is quashed. Since the impugned order has been quashed on account of violation of principles of natural justice it is not necessary for this Tribunal to go into the question of jurisdiction, namely, whether the FMC had jurisdiction to issue a show cause notice under the FCR Act. In the result, the appeal is allowed. The impugned order is quashed. The matter is remitted to respondent no. 1 and, if they are so advised, the respondent no. 1 can proceed afresh only after issuing the show cause notice to appellant no 1 and respondent no. 2. Since the appellant no. 2 has already been served with the show cause notice, no fresh show cause notice is thus required to be served. The respondents are further directed to grant adequate time to the appellants to file their objections/reply which will be considered by the respondent after giving an opportunity of hearing to the appellants.

Summary

Issues Involved:
1. Adequate and proper opportunity of hearing.
2. Denial of request for further documents.
3. Jurisdiction of FMC to issue the show cause notice under the FCR Act.

Detailed Analysis:

1. Adequate and Proper Opportunity of Hearing:
The appellants contended that they were not granted adequate and proper opportunity of hearing before the impugned order was passed. It was noted that appellant no. 1 and respondent no. 2 were not issued any show cause notice, a fact conceded by respondent no. 1 before the Gujarat High Court. The Tribunal found that since the impugned order contained various directions against appellant no. 1 and respondent no. 2, the order could not be sustained due to the violation of principles of natural justice. It was emphasized that no direction can be issued to a party to whom a show cause notice has not been issued by FMC. Consequently, the impugned order was quashed insofar as appellant no. 1 is concerned.

2. Denial of Request for Further Documents:
Appellant no. 2 requested certain documents which were reflected in the show cause notice. Although some documents were supplied on July 5, 2011, the request for additional documents was denied on the grounds that they were not relied upon by the respondent. The Tribunal highlighted that the Gujarat High Court had directed respondent no. 1 to supply all the documents to the appellants on payment of usual charges. The hearing was adjourned multiple times, and the request for further time to place written submissions was granted till July 20, 2011. However, the request for adjournment on July 20, 2011 was rejected, which the Tribunal found unreasonable considering the voluminous documents involved. The Tribunal concluded that no reasonable opportunity was given to appellant no. 2 for filing objections/reply to the show cause notice.

3. Jurisdiction of FMC to Issue the Show Cause Notice:
The appellants argued that FMC had no jurisdiction or authority to issue the show cause notice under the FCR Act. The Tribunal noted that the issue of jurisdiction was raised before the Gujarat High Court, and the appellants' request to allow an advocate to address the question of jurisdiction was rejected by FMC. The Tribunal found that the rejection of the request for an adjournment to address the jurisdiction issue was violative of the principles of natural justice. Consequently, the impugned order against appellant no. 2 was quashed. The Tribunal decided that it was not necessary to go into the question of jurisdiction since the order was quashed on account of the violation of principles of natural justice.

Conclusion:
The appeal was allowed, and the impugned order was quashed. The matter was remitted to respondent no. 1, with directions to proceed afresh only after issuing the show cause notice to appellant no. 1 and respondent no. 2. Adequate time was to be granted to the appellants to file their objections/reply, and any application for supply of documents was to be dealt with in accordance with law. Any order passed by respondent no. 1 was to be passed on a working day. Parties were directed to bear their own costs.