TMI Blog2003 (10) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... e involvement of Shriram mutual fund (SMF) the role of the said mutual fund was also investigated. The investigation report revealed certain irregularities in the matter of investments committed by SMF. In that context the Respondent issued notice to the Shri Ram Asset Management Company (SAM) which was the Asset Management Company of SMF, seeking explanation as to why investment of funds by SAM was not carried out in the best interest of the unit holders of SMF and why it failed to ensure that its acts did not give any undue or unfair advantage to entities having association with sponsors. SAM was also asked to explain why it acted contrary to the provisions of the trust deed and mutual fund regulations notified by the Respondent. SAM replied to the notice and also made oral submissions before the Respondent. The Respondent adjudicated the notice. SEBI in its adjudication held the Appellant, who was the Managing Director of SAM also responsible to the omissions and commissions of SAM in the matter. In that context SEBI directed inter alia that Shri Gadgil shall not be eligible to hold any public position in any capital market related public institution for a further period of 3 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase the shares at a rate higher than the market price, it was stated in the reply that the same was taken by the investment committee at SAMC at a time when the price was around ₹ 170-175 in the beginning of June, 1998 and hence the purchase was in the interest of all unit holders. Pursuant, to the above, Shri Gadgil was granted opportunity of hearing before ex-chairman vide letter No.IES/ID2/RKK/21821/2001 dated January 18, 2001 to which he replied vide letter dated 24, January, 2001 stating that the date was not convenient for him and also expressed his desire to examine Mr. Jaysukhlal Jagjivan and Mr. Nitin Doshi of JSBL during such hearing. Thereafter another letter dated February 23, 2001 was issued to him affording him an opportunity of personal hearing on March 1, 2001. He had repeated his request for cross-examination through another letter of his dated 27th February, 2001. On March 01, 2001 Shri Gadgil alongwith his lawyer had appeared before the ex-Chairman and argued on the right for cross-examination. In the course of the hearing, Chairman directed Shri Gadgil to submit written submissions. Thereafter, a letter dated 7 March, 2001 was sent by the lawyer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated august 23, 2002 SEBI had informed the Advocate for Shri Gadgil that in the scheduled hearing, they may submit their arguments with reference to cross-examination and also on the merits of the case since there was a change in the hearing authority. The hearing took place on August 28, 2002. Shri Gadgil appeared with his counsel. The counsel argued on their right to cross-examine Shri Nitin Doshi and Shri Jaysukhlal Jagjivan and insisted for a ruling on the issue of cross-examination. I advised the counsel to make submissions on the merits of the case also so that I can take a decision and pass an appropriate order in the matter. However, he insisted on the stand and did not make any submission on the merits of the case. In view of this I advised them to file written submissions, which they agreed. The written submissions were submitted by the counsel vide the letter September 4, 2002 which was received by SEBI by September 6, 2002. The main contentions of Shri Gadgil as expressed in the written replies and during the hearing were that he was not afforded an opportunity to examine the witnesses. It is a settled principle of law that if the adjudicating authority is of opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence cannot evade the responsibility for the huge loss caused to the unit holders. As regards the arguments on the powers under Section 11B of SEBI Act, the action proposed to be taken is remedial or rather preventive in nature and not as a penalty. The argument of SAT having allowed the appeal by Videocon has no relevance since the facts remain undisputed in the instant case. Further, it does not make any difference whether Shri Gadgil alone or the investment committee of SAMC took the decision to purchase the shares on June 24, 1998 as a prudent fund manager, the investments made has to be in the interest of unit holders. Whereas the same was not only against the interests of unit holders. It was highly detrimental to the unit holders since the price at which the purchase was done was too high when compared to the prevailing market price. SEBI had mainly relied on the contract note and the date of purchase as entered in the system. The statements of Shri Nitin Doshi or Shri Surin Usgaonkar or Jaysukhalal Jagjivan only corroborates the facts. SEBI's findings, show cause notice and the previous order are all based on these basic facts and there is nothing to disprove the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Appellant in his reply stated that the decision to purchase or sell shares was always taken by the investment committee at SAMC. As regards the allegation that the decision to purchase the shares at a rate higher than the market price, it was stated in the reply that the same was taken by the investment committee at SAMC at a time when the price was around ₹ 170-175 in the beginning of June, 1998 and hence the purchase was in the interest of all unit holders. Thereafter the Appellant was granted an opportunity of hearing before chairman vide letter No.IES/ID2/RKK/21821/2001 dated January 18, 2001 to which he replied vide letter dated 24, January, 2001 stating that the date was not convenient for him and also expressed his desire to examine Mr. Jaysukhlal Jagjivan and Mr. Nitin Doshi of JSBL during such hearing. Thereafter another letter dated February 23, 2001 was issued to him affording him an opportunity of personal hearing on March 1, 2001. He had repeated his request for cross-examination through another letter of his dated 27th February, 2001. On March 01, 2001 the Appellant along with his lawyer had appeared before the chairman of the Respondent and argued on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide letter dated September 4, 2002. Thereafter the Respondent passed the impugned order. The Appellant submitted further: On Applicability of Section 11(B): The purpose and effect of the Impugned Order is not to punish and penalize the Appellant. Merely because it is made as a 'direction' by way of 'preventive measure' it cannot change the real nature and character of the impugned Order. In fact, during the oral arguments the Counsel for the SEBI has tacitly admitted that the impugned Orders amounts to imposing penalty/punishing of the Appellant. The judgement of this Tribunal in the Sterlite Industries Ltd. matter as also in the Videocon International Ltd. matter have clearly laid down the law in this behalf and therefore there is no justification for any argument to the contrary by SEBI. The Impugned Order is not against the Appellant in his personal capacity but in his capacity as the then Managing Director of SAMC for the alleged contravention at the behest of Shriram Group. Admittedly, it is not even proposed to issue any direction either against the Shriram Group Companies and/or its Directors and/or persons controlling interest therein or against SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper enquiry, Show Cause Notice, etc. if a common Order was passed against SAMC and Appellant, then a challenge to the said Order by the Appellant could not be brushed aside on the ground that SAMC has chosen not Appeal there from. On Date of purchase Undisputedly in the course of enquiry SEBI had in its possession the SAMC letter dated 15-06-1998 placing an Order for purchase of Videocon shares and (ii) the letter dated 19-06-1998 issued by the Broker, JSBPL confirming the purchase of shares. These two letters read together leave no doubt as to the date of the purchase of shares, viz; 19-06-1998. In the impugned Order it has been observed that there cannot be any dispute on the aspects that the shares were purchased on 24-06-1998, completely over looking this correspondence as also the statements made by the representatives of the seller Springfield Securities Ltd. In the impugned Order SEBI ahs relied upon the statement of the Broker that the said two letters were received/issued on 22-06-1998, however, in complete contradiction while dealing with the Appellant's requests for cross examination, SEBI has stated that it is not relying upon the statements made by the Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations made and/or extracted in the judgement of the Hon'ble Gujarat High Court (in the case of Hindustan Finstock Ltd. V/s. SEBI) in fact support the case of the Appellant of its right and entitlement to cross examination. In this behalf, reliance is also placed on the judgment of the Hon'ble Supreme Court reported in AIR 1957 SC 882, AIR 1958 SC 300, AIR 1970 SC 2086 as also the written submissions made by the Appellant in this behalf. If SEBI seeks to discard the earlier documentary evidence which supports the view that the transaction took place on 19-06-1998 it cannot be done without first giving an opportunity to the Appellant to cross examine the witnesses, based on whose statements SEBI discarded the documentary evidence. On Other charges made in the Impugned Order. The alleged MOU was dated 29-12-1998, i.e. six months after the date of the said transaction. Further, neither the SAMC nor the mutual fund are parties to the said mow. The Appellant has signed the said MoU in his capacity as Managing Director of another company and, that too, after resigning as MD of SAMC. The MoU refers to buy back of 5,00,000 shares of VIL, whereas the instant transaction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to the Broker the said letters have been issued/received on 22-06-1998. SEBI cannot read and decide the said statement to suit its convenience. It is not permissible to SEBI to arrive at a finding of fraud by selectively reading only a part of the statement if such an approach is permitted in every case, SEBI could selectively accept or reject the document as also selectively accept or reject parts or portions of the statements that too without any basis. It is settled law that a statement has to be read as a whole and if the reliance is placed on a statement as an admission or otherwise it must be read as a whole. Shri Kumar Desai, learned Counsel appeared for the Respondent. The following submissions were made on behalf of the Respondent. The reasons why SEBI has come to the conclusion that the transaction of purchase of 1,20,100 shares of Videocon Ltd., was dated 24th June, 1998 and not 19th June 1998 as was sought to be contended by the Appellant. The trade log (which is automatically generated as soon as the trade is matched) of BSE showed that this transaction took place on 24th June 1998. The order for purchase and sale of 1,20,100 shares of Videocon was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the said purchase. But this was not done. It can therefore be safely assumed that the said transaction did not take place on the 19th June 1998. The next 2 days i.e. 20th and 21st June, 1998 being Saturday and Sunday respectively, the said transaction could not and did not take place on these 2 days. If the transaction had taken place on 22nd or 23rd June, 1998 i.e. Monday and Tuesday respectively, there is no reason why the same could not be reported on these 2 dates. The internal bifurcation of the trades amongst the different schemes could be done subsequently. Since the volume of shares transacted on BSE on 22nd and 23rd June 1998 was 900 and 2600 shares respectively the said transaction did not take place on these 2 dates nor was it reported on these 2 dates. It was also seen that a letter dated 23rd June, 1998 was written by SSL to JSBPL, asking the broker to sell 1,20,000 shares of Videocon. Since the letter is dated 23rd June 2000 the sale could have taken place only on or after this date. Statements of the broker were recorded in which Shri Nitin Doshi, director of JSBPL, stated that the transaction for 1,20,100 shares of Videocon between SRMF and SSL was execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of enquiry is a deemed admission by him and is therefore sufficient to implicate the Appellant as charged. While it is true that the Appellant resigned as the Managing Director of the Shriram Asset Management Company in 1998 he did not part company with the Shriram Group and was immediately appointed as the Managing Director of Shriram Investment Services Ltd., which is a Merchant Banker. This clearly shows that the Appellant was an important functionary in the Shriram Group read along with the fact that the Appellant stated that whenever Shriram Group required funds they approached him etc. While the Appellant pleaded ignorance of the bail out when questioned by SEBI he in a letter to the press had himself referred to the said bail out though denied any participation in the same. The press reports denied by the Appellant in July dealt with an allegation relating buyback. In this respect the fact that an MOU dated 29th December, 1998 was signed by the Appellant as Managing Director SIS is relevant. All these factors taken collectively point directly to the guilt of the Appellant and corroborate SEBI's contention that the transaction did take place on 24th June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director of Shriram Asset Management Company in November 1998 had immediately been appointed as Managing Director of Shriram Investment Services Ltd. It is a company also connected with the Securities Market. The charges levied against the Appellant were in his capacity as Managing Director of Shriram Asset Management Company and Chairman of the Investment Committee which charges having been proved and the Appellant having been held guilty as charged, the impugned order passed in terms of the Show Cause Notice debarring the Appellant from holding any public position in any capital market related institution is in the interest of investors and the Securities market and falls within the ratio of the Anand Rathi and can be upheld. The allegations against the Appellant are restricted in his capacity as a Managing Director and Chairman of the Investment Committee in relation to the allegations made against him. The Appellant is the controlling mind of the Corporate Entity i.e. Shriram Asset Management Company and it is in that capacity that he is held liable. Further the Appellant is the person concerned as he accepted moral responsibility as the person concerned and resigned an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JSBPL to purchase 1,20,100 shares. JSBPL in turn executed the contract and informed SRMF that required procurement of 1,20,000 shares of Videocon @ ₹ 85/- has been completed. SEBI has further stated in the notice that: it was also seen that false documents were specifically created to give an impression to the investigation team of SEBI that impugned shares were purchased by SRMF on June 19, 1998 and not on June 24, 1998. It was observed that a letter dated June 15, 1998 asking the broker JSBPL to purchase 1,20,000 shares of Videocon was written on behalf of SRMF. Further, consequent to this order, vide letter dated 15.6.1998 broker JSBPL also confirmed the purchase of these shares to SRMF through a letter dated June 19,1998. Investigations revealed that these two letters one by SRMF and the other by the broker were the only written communication between the broker and the Mutual fund during the business relationship spanning one and half year. Shri Nitin Doshi, Director of JSBPL, admitted to SEBI on oath, that letter of SRMF to the broker on June 15, 1998 placing the order of purchase of Videocon shares, pursuant to which these purchases were made, was receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased 120000 shares of Videocon International Limited at ₹ 85/- per share. A copy of the said letter dated 19th June, 1998 duly acknowledged by your mutual fund is enclosed herewith for your ready reference. On 20th June, 1998 vide our letter we informed your mutual fund confirming therein that we have already informed them vide our letter dated 19th June 1998 that we have purchased 120600 shares of Videocon International Limited and not 12000 shares hence your Mutual Fund was requested to make necessary correction in their record. By the said letter we had requested your Mutual Fund to give us the names of the schemes in whose favours the contracts were required to be issued. It was further informed to your Mutual Fund that we will report the transaction to the stock Exchange, Mambai only after receipt of the scheme wise break up from them since we have to mark the transaction as financial institution while reporting the transaction to the Exchange. A copy of the said letter dated 20th June 1998 is enclosed herewith for your ready reference. You are aware that 20th day of June 1998 was Saturday the said letter was received by your Mutual Fund on 20th day of June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the dispute on the authenticity of the letters and documents relied on by SEBI. Once a document is disputed, then it has to be proved. I have also perused the oral statements made by Shri Doshi before SEBI's officer in the matter, filed in the appeal. In view of the conflicting views on the authenticity of the document conveying the actual date of transaction, and that the date being crucial to the charge I am of the view that in the light of the circumstances of the case the Appellant's request to cross examine the author of the disputed letter and statements, can not be brushed aside. It is well settled that no evidence affecting a party is admissible against that party unless the latter has an opportunity of testing its testimony by cross examination . This tribunal in its earlier order in Gadgil's appeal has elaborately discussed the need to scrupulously follow the principles of natural justice in an adjudication resulting in adverse consequences on the rights of the person charged against. For ready reference the observation made therein is extracted. I have carefully considered the rival contentions. Shri Sancheti, had strenuously argued that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple is that it has not to be done without his being given an opportunity of being heard and of making representations on his own behalf . Natural justice is a great humanising principle intended to invest law with fairness and to secure justice and over the years it has grown into a widely pervasive rule affecting large areas of administrative action. Supreme Court had even gone to the extent of treating principles of natural justice as a part of Article 14 of the Constitution. Two fundamental maxims of natural justice are (i) audi alteram partem and (ii) nemo judex in re sua . For the purpose of the present appeal we are primarily concerned with the concept of audit alteram partem. This principle is not of recent origin. It was well recognised even in the ancient world. Seneca, the philosopher, is said to have referred in Medea that it is unjust to reach decision without a full hearing In Maneka Gandhi V. Union of India (AIR 1978 SC 597) it was held that audi alteram partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the misuse of power. Hence its reach shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion everything that affects a citizen in his civil life inflicts a civil consequence...... In State of Orissa V Miss Bina Pani Dei (AIR 1967 SC 1269) this Court held that even an administrative order which involves civil consequences must be made consistently with the rules of natural justice. The person concerned must be informed of the case, the evidence in support thereof supplied and must be given a fair opportunity to meet the case before an adverse decision is taken . The Apex Court in Yadav's case had further observed that the law must therefore be now taken to be well settled that procedure prescribed for depriving a person of lively-hood must meet the challenge of Article 14 and such law would be liable to be tested on the anvil of Article 14 and the procedure prescribed by a statute or statutory rule or rules or orders affecting the civil rights or result in civil consequences would have to answer the requirement of Article 14. So it must be right, just and fair and not arbitrary fanciful or oppressive . There can be no distinction between a quasi judicial function and an administrative function for the purpose of principles of natural justice. The aim of both a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dropped. So instrument of show cause notice is of considerable importance in the process. There is no scope for presuming that a notice, in the light of the facts in a given case may not be of any practical use even to the person against whom the decision is being taken, and dispensing with the requirement of issuing show cause notice. Following observation by the Supreme Court in Olga Tellis V Bombay Municipal Corporation (AIR 1986 SC 180) explains the position. The proposition that notice need not be given of a proposed action because, there can possibly be no answer to it, is contrary to the well recognised understanding of the real import of the rule of hearing. That proposition over looks that justice must not only be done but must manifestly be seen to be done and confuses one for the other. The appearance of injustice is the denial of justice. It is the dialogue with the person likely to be affected by the proposed action which meets the requirement that justice must also be seen to be done. Procedural safe guards have their historical origins in the notion that conditions of personal freedom can be preserved only when there is some institutional check on arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation and report then he should be told the case against him and be offered fair opportunity of answering it. This mandate is on the authority vested with the authority empowered to proceed against the person and pass orders adversely affecting the other person. No one can be expected, of his own, to find out whether, there are any charges against him, being looked into by any authorities and volunteer to putforth evidence to absolve him! In this context the observation made by the Supreme Court in S.L. Kapoor V Jagmohan (AIR 1981 SC 136) in the context of deciding an SLP challenging the order of the Lt. Governor superseding the New Delhi Municipal Committee, is considered relevant. The Court had held that NDMC was never put on notice of any action proposed to be taken under section 238 of the Punjab Municipal Act and no opportunity was given to the Municipal Committee to explain any fact or circumstance on the basis of which that action was proposed. If there was any correspondence between the New Delhi Municipal Committee and any other authority about the subject matter or any of the allegations, if information was given and gathered it was for entirely different purpose. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el that provision of an appeal under section 22A of the Chartered Accountants Act is a complete safe guard against any insufficiency in the original proceeding before the Counsel, the Court observed: Learned counsel apparently has in mind the view taken in some cases that an appeal provides an adequate remedy for a defect in procedure during the original proceeding. Some of those cases as mentioned in Sir William Wade's erudite and classic work on Administrative Law 5th edn. But as that learned author observes (at p.487), in principle there ought to be an observance of natural justice equally at both stages , and If natural justice is violated at the first stage, the right of appeal is not so much a true right of appeal as a corrected initial hearing: instead of fair trial followed by appeal, the procedure is reduced to unfair trial followed by fair trial. And he makes reference to the observations of Megarry, J. in Leary v. National Union of Vehicle Builders. Treating with another aspect of the point, that learned Judge said; If one accepts the contention that a defect of natural justice in the trial body can be cured by the presence of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of a long period of scrupulous, conscientious and diligent industry. It is the portrait of his professional honour. In a world said to be notorious for its blas attitude towards the noble values of an earlier generation, a man's professional reputation is still his most sensitive pride. In such a case, after the blow suffered by the initial decision, it is difficult to contemplate complete restitution through an appellate decision. Such a case is unlike an action for money or recovery of property, where the execution of the trial decree may be stayed pending appeal, or a successful appeal may result in refund of the money or restitution of the property , with appropriate compensation by way of interest or mesne profits for the period of deprivation. And, therefore, it seems to us, there is manifest need to ensure that there is no breach of fundamental procedure in the original proceeding, and to avoid treating an appeal as an overall substitute for the original proceeding . In the light of the authorities discussed above, the argument that the deficiency of not issuing the SCN in the inquiry stage can be cured at the appellate stage stands defeated . I have perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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