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D.A. Gadgil Versus Securities and Exchange Board of India and ors.

2003 (10) TMI 669 - SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal No. 117/2002 - Dated:- 30-10-2003 - C. Achuthan (Presiding Officer) For the Petitioner : Pradeep Sancheti, Tushar Desai For the Respondent : Kumar Desai, Daya Gupta, Anitha Anoop, Amit Daga ORDER C. Achuthan (Presiding Officer) Order passed by the Chairman, Securities and Exchange Board of India, the Respondent herein, on 24.10.2002, under section 11B of the Securities and Exchange Board of India Act, 1992 is under challenge in the present appeal. The Respondent by the said order had disq .....

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here were certain allegations about the 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 .....

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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 years from the date of the order. The order was issued on 1.2.2000. Shri Gadgil challenged the said order by filing an appeal in the Tribunal. The main thrust of his attack against the order was that it was passed without giving him sufficient notice/opportu .....

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him by issuing directions declaring him ineligible for holding any office as trustee/fund manager of the Mutual Fund or of Director/Senior functionary of public financial institution - ICIC, IDBI, UTI/Stock Exchange/Depositories like CDSL or NSDL for a sufficient period". The Appellant responded to the notice. During the course of the proceedings the Appellant requested the Respondent to cross examine one Jaysukhlal Jagjivan and Nitin Doshi of a broker firm viz. Jaysukhlal Jagjivan Stock Br .....

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on for a period of one year". Claiming to be aggrieved by the order the Appellant preferred the present appeal. In this context before proceeding further in the matter it is felt that it would be advantageous to know the bases on which SEBI has held the Appellant guilty of the charges. SEBI has stated that : "In response to the aforesaid show-cause notice, Shri Gadgil sent a reply on December 11, 2000 denying all the charges leveled against him. Shri Gadgil in his reply sent through hi .....

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ed 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-ex .....

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examine. In the note submitted, he had cited cases in favour of his right for cross examination. However, no written submissions on merits or other aspects was submitted by him. After having waited till October 17, 2001, SEBI sent a letter to the Advocates for Shri Gadgil, M/s. Bhaishankar Kanga and Girdharlal asking them to file written submissions. In response to the said letter, the Advocate for Shri Gadgil sent another letter dated October 19, 2001 referring to their note attached to the ea .....

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SEBI on February 15, 2002, a copy of which was also sent to his Advocate. SEBI received a communication dated 28.01.2002 from the advocate for Shri Gadgil asking for confirmation for the presence of Shri Nitin Doshi and Shri Jaysukhlal Jagjivan during the hearing. Again another letter dated January 30, 2002 was sent to SEBI in which it was said that if SEBI proceeds by relying on the statements made by Shri Nitin Doshi and Jaysukhlal Jagjivan, it would cause prejudice to the client if they are .....

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ournment of hearing. Thereafter, a communication was sent by SEBI informing about the date of hearing being scheduled for August 24, 2002 which was again rescheduled for August 26, 2002. This was communicated vide letter dated August 16, 2002. By letter dated 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 aut .....

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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 opinion that particular statements are not relied upon, .....

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e contract note itself is sufficient to implicate Shri Gadgil. The fact that he had entered into such deal for a price higher than the prevailing market rate endangering the interests of all the unit holders is in itself sufficient to warrant action. The actual transaction took place on June 24, 1998. therefore the argument that such decision to purchase shares was taken early cannot be believed. In a fluctuating market one cannot make decision and then wait for long to implement the same so far .....

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C stands and they have undergone their period of punishment and also complied with the directions of SEBI. The charges against Shri Gadgil have been framed in the light of such basic facts that led to the finding against SAMC and there is no doubt about their reliability. The contentions Shri Gadgil raised against the Regulations being not applicable to him also do not hold good. By making an investment decision prejudicial to the interests of unit holders as the managing director of SMF and the .....

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ction 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 o .....

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nd there is nothing to disprove the same. At no point has, the show cause notice or SEBI for that matter, treated the date of dealing as 19-06-1998. Therefore, it is clear that acts of omission and commission of Shri Gadgil, who was at the relevant time the managing director of SAMC were prejudicial to the interest of the Unit holders of the SMF and that such acts amount to breach of trust, since Shri Gadgil's action were in fiduciary capacity. As such Shri Gadgil a) failed to ensure that th .....

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ary to the provisions of trust deed and SEBI (Mutual Fund) Regulations; d) purchase of the shares was for extraneous consideration of bailing out the brokers facing payment problems for their trading in Videocon shares and in pursuance of clandestine buy back arrangement with Videocon group; e) Shri Gadgil tried to create false documentary evidence with a view to mislead the Investigations by preparing ante dated correspondence between SMF and the broker to give an impression that the shares wer .....

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the order. Learned Counsel referred to this Tribunals order dated 11.8.2000 remanding the matter to SEBI and SEBI's show cause notice dated 6.11.2000 to the Appellant issued in compliance of the directions given by the Tribunal in its order. He submitted that in response to the said show-cause notice, the Appellant had sent a reply on 13.12. 2000 denying all the charges leveled against him. The Appellant in his reply stated that the decision to purchase or sell shares was always taken by the .....

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ry 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 Appel .....

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er, no written submission on merits or other aspects was submitted by him. After having waited till October 17, 2001, the Respondent sent a letter to the Appellant, asking him to file written submissions. In response to the said letter, the Appellant sent another letter dated October 19, 2001 referring to his note attached to the earlier letter of March 7, 2001 on cross-examination. On January 22, 2002 the Respondent had issued a letter to the Appellant asking them to clarify how the Appellant w .....

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the Respondent proceeds by relying on the statements made by Shri Nitin Doshi and Jaysukhlal Jagjivan, it would cause prejudice to the Appellant if they are not afforded an opportunity to cross-examine those witnesses. The hearing was finally scheduled for 28th August, 2002. The Respondent vide letter dated August 23, 2002 informed the Appellant that in the scheduled hearing, he may submit his arguments with reference to cross-examination and also on the merits of the case since there was a cha .....

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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 impugn .....

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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 SAMC.. On Contravention of the SEBI (Mutual Fund Regulations) Regulations 25(1), (2), (10) and (16). Admittedly none of the aforesaid Regulations apply to the Asset Management and not to any individual or even to a Director of Asset Management Company. There is no express provision providing for any penalty or pun .....

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even in dispute that SEBI, while disposing of a matter against SAMC has not even proposed to issue any direction for debarring them for any period much less one year. Similarly, SEBI has not even proposed to debar the Shriram Group and/or its Company and/or its Directors/persons controlling interest, at whose behest the Appellant is alleged to have acted and deciding the purchase of Videocon shares. It is not the case of SEBI that the decision to purchase Videocon shares is questionable on the g .....

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Order of this Tribunal wherein the Order of SEBI to the extent that applied to the Appellant was set aside. SEBI cannot be permitted to take advantage of its own fault in not issuing a Show Cause Notice to the Appellant and not giving an opportunity of hearing before coming to any conclusion; and even the said Order has been successfully challenged by the Appellant and therefore once again foisted penalty on the Appellant on the basis that the earlier Order has not been challenged by SAMC. The .....

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ed 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 .....

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the transaction to the seller on 19-06-1998. The Broker has also confirmed in his statement that on 19-06-1998 they were aware about the sale to Shriram Mutual Fund, however, the names of the scheme(s) on whose behalf the shares were purchased were not disclosed. The statement of the Broker clarifies further that this position was telephonically confirmed in the morning of 22-06-1998 (20-06-1998 and 21-06-1998 being Saturday and Sunday). Thus, there is no divergence of views between the Seller, .....

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I not only sought to discard the statement made by Mr.Surin Usgaonkar on behalf of Springfield Securities Ltd. but have also discarded the letters dated 15-06-1998 and 19-06-1998. The basis and the reason for discarding the said letters is the reliance placed on the statements made by the Broker's representatives that the said letters were issued/received on 22-06-1998. The Broker has however issued a letter dated 28.08.1999 confirming that the transaction took place on 19-06-1998, though it .....

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and evidence only one view is possible or that no prejudice has been caused to the Appellant by denying right of cross examination. In the circumstances, if the observations 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 .....

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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 was for purchase of 1,20,000 shares. There is admittedly no link to connect the said MoU to the said transaction, except conjectures that it may .....

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The broker has admitted that it has part financed the purchase of the said shares from its own funds. The allegation about the sale of certain fundamentally strong scrips to finance the purchase of the Videocon shares is not correct. All the shares were sold in ordinary course of business and not with a view to finance the present deal. Further, in majority of the cases the price of the shares so sold actually fell after the sale by the SAMC. Thus showing how baseless is the allegation of SEBI i .....

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as continuously falling was with intent and hope of a turn around in the scrip price. In fact the price of the Videocon shares did show smart recovery in 6 months time, which could have fetched the fund a healthy return of more than 25% on its investment. The findings of the SEBI that the Appellant has indulged in fabrication of documents is clearly a finding amounting to fraud and which required a very strong and satisfactory proof, however, the said finding is inherently misconceived in as muc .....

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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 o .....

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JSBPL as a cross deal at 24:15:15 hours. A cross deal is a deal executed between two clients of the same broker. A negotiated deal includes a cross deal and at the relevant time was required to be reported to the stock exchange within 15 minutes of the trade being concluded and if concluded after trading hours, the trade was required to be reported immediately on the next trading day at the start of trading. The fact that the said transaction is a cross deal is now not disputed, though at the st .....

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on 24th June, 1998 and not settlement 13 which ended on Friday, 19th June, 1998. Neither purchaser nor seller had at the relevant time raised any grievance relating to the wrongful recording of the said transaction as having been wrongfully recorded as having taken place in settlement 14 as it ought to have been recorded as having taken place in settlement 13. Therefore till investigations and inquiries commenced both purchaser and seller had accepted that the transactions as recorded in the Con .....

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tered into the B.S.E. system, after trading hours, it is not possible for the seller to have sold 1,20,100 shares out of the said purchased shares earlier i.e. during trading hours on the 19th June 1998. If the transaction took place as claimed on 19th after trading hours there is no reason why the same could not have been entered into the system 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 1 .....

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98 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 s .....

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been completed. The said letter was issued and predated at the request of SRMF. The said letter dated 15th June, 1998 is the only letter ever written by SMF to the said broker requesting him to purchase shares. The said letter dated 19th June, 1998 is also the only letter ever written by the broker recording having executed an order placed by SMF. As per the Appellant's statements dated 23rd December, 1998 and 19th January, 1999, the said letter dated 19th June, 1998 is the only proof availa .....

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the statements together along with the documentary evidence it is clear that the Appellant knew of the said transaction. Mr. Usgaonkar his junior in the Shriram Group had informed him of the same and that he might require funds. The statement of the Appellant that whenever funds were required by the Shriram group he was the person who would be approached it is clear that Springfield did not have adequate resources and that funds have been made available by Joy Holding a Company forming part of t .....

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im 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 w .....

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collectively point directly to the guilt of the Appellant and corroborate SEBI's contention that the transaction did take place on 24th June 1998 as reported to the BSE and not on 19th June 1998 as alleged by the Appellant. The award on which reliance was sought to be placed by the Appellant is of no avail since as the award records that since there are no disputes between the parties there is nothing to adjudicate and the proceedings are terminated. It may be further noted that even the sa .....

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hlal and Nitin Doshi - partners of the Broker Firm and not any other person whose statements were recorded and relied upon by SEBI. Therefore denial of cross examination did not and could not have prejudicially affected the Appellant. Cross Examination in all circumstances is not an essential element of the principles of Natural Justice and the requirement of whether denial of right to cross examine is a breach of natural justice should be considered from the facts of each case and there can not .....

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ons. Under section 11B of the SEBI Act, SEBI's power to pass such an order has been upheld in several matters by various High Courts. Though the said cases were with reference to power to pass such an order at an interim stage, and Interim Order can be passed only if the authority has the power to pass a final order in the same terms. This Tribunal in the case of Anand Rathi has recognized the power of SEBI to pass such order in the interest of investors and the securities market. The Appell .....

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pugned 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 t .....

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ompany, which is the Appellant in the present case and has been correctly looked at for the acts of the corporate entity. Further the impugned order debarring the Appellant from holding any public position in any capital market related institutions is preventive in nature as it prevents the Appellant from committing similar mischief in the future and is passed in the interest of investors and the securities market and can not be termed to be punitive in nature and therefore can be upheld. I have .....

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lied on certain documents, the authenticity of the contents of the same has been questioned by the Appellant. In this context it is seen that in the show cause notice issued to the Appellant on 6.11.2000 SEBI has stated that "Shri Ram Mutual Fund purchased 1,20,100 shares of Videocon on BSE by way of a cross deal between SRMF as buyers and Spring Fields Securities LTD, (SSL) stated to be an associate concern of Shriram Group as sellers on 24.6.1998." This date of transaction has been d .....

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k exchange through his terminal as a cross deal." A letter was sent by SRMF on 22.6.1998 to JSBPL though dated 15th June, 1998, asking 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 tha .....

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en 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 received by him actually on June 22, 1998. It was further admitted that letter dated June 19,1998 issued by JSBPL to SRMF was back dated at the request of SRMF i.e. actua .....

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share as the limit for purchase of these shares. On 15th June, 1998, which is the date on which this letter was purportedly written the price of Videocon shares was ₹ 100.40 per share. Further, the execution of order has taken place as per the letter of the broker to SRMF dated 19th June, 1998 @ ₹ 85/- per share. However, the contract was issued by the broker for ₹ 84.25 per share, which is inclusive of brokerage of 25 paise per share i.e. the price of the share is ₹ 84/- .....

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s been shifting its version from time to time is evident that they stated something before and took a different stand in their letter dated 28.8.1999 addressed to SAM. The following portion from the said letter is relevant in this context: "You are well aware that your Mutual Fund had given us the order on 15th June 1998 to purchase 120000 shares of Videocon International Limited within the limit of ₹ 85/- per share. You had also requested us to confirm as soon as the quantum is compl .....

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r 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 tran .....

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e apportionment of quantity of the shares of Videocon International Limited which were purchased by you. The said apportionment of quantity of shares was for 120600 shares. A copy of the said letter dated 23rd June, 1998 is enclosed herewith for your ready reference. As we had received the said letter dated 23rd June, 1998 we immediately vide our letter dated 23rd June, 1998 informed you that since the transaction could not be reported today, i.e. 23rd June, 1998, to the Stock Exchange, we infor .....

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ned and accepted by you along with our covering letter dated 24th June, 1998. We are enclosing herewith a copy of the said letter dated 24th June, 1998 along with the contract are enclosed herewith for your ready reference. You are well aware that the said transaction was made through us between you and your associate company, viz. the Spring Field Company Limited. As the said transaction was reported in the cross deal we have given the entire consideration to the said the Spring Field Company L .....

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d by us as alleged. We deny that we have actually made a purchase on 24th June, 1998." The contradictory stand of JSBPL is very evident from the above. SEBI's submission that they have gone by the documents and the statement of Nitin Doshi etc. only corroborates the document is difficult to accept in 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 m .....

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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 stre .....

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is of no adverse consequence to the Appellant. The Appellant was the chief executive of an asset management company of a mutual fund. Even though in the order the scope of the expression "Public position in any capital market related public institution" for a period of 3 years has been left open to interpretation, in the ordinary course, to a layman it means that the Appellant cannot take up any assignment with any capital market intermediary for 3 years. Undoubtedly it is an order ad .....

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cuss the dominance of that principle in decision making in matters adversely affecting the interests of others. The principles of natural justice are known in the jurisprudence of administrative law as the fundamental rules of justice. Natural justice demands that a person who is to be directly affected by an administrative action be given prior notice of what is proposed so as to enable him to make proper representation to defend his cause. The aim of the rules of natural justice is to secure j .....

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tunity 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) .....

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tory authority arrives at a just decision and it is calculated to act as a healthy check on the misuse of power. Hence its reach should not be narrowed and its applicability circumscribed. Earlier it was generally believed that the rules of natural justice apply only to judicial or quasi judicial proceeding. In State of Orissa V. Dr.(Miss) Bina Pani Die (AIR 1967 SC 1269) the reach of the rule was clarified by the Supreme Court by holding that even an administrative order or decision in matters .....

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al enquiries....... ........ Arriving at a just decision is the aim of both quasi judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have far reaching effect than a decision in a quasi judicial enquiry". In Swadesi Cotton Mills V. Union of India (AIR 1981 SC) the Supreme Court relying on Bina Pani Dei and Kraipak observed that "irrespective of whether the power conferred on a statutory body or tribunal is administrative or quasi .....

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be taken which will affect the right of any person without first being informed of the case and giving him/her an opportunity of putting forward his/her case. An order involving consequences must be made consistently with the rules of natural justice. In Mohinder Singh V Chief Election Commissioner, (1978) 1 SCC 405, the Constitution Bench held that 'civil consequences' covers infraction of not merely property or personal right but of civil liberties, material deprivations and non pecun .....

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e 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 Ar .....

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be applicable only to quasi judicial inquiry and not to administrative inquiry. It must logically apply to both". Having said so the Court further stated that "fair play in action requires that the procedure adopted must be just fair and reasonable. The manner of exercise of the power and its impact on the rights of the person affected would be in conformity with the principles of natural justice. Article 21 clubs life with liberty, dignity of person with means of lively-hood without .....

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the antithesis of arbitrariness. It is, thereby, conclusively held by this court that the principles of natural justice are part of Article 14 and the procedure presented by law must be just fair and reasonable.......................It is thus well settled that right to life enshrined under Article 21 of the Constitution would include right to lively-hood. The order of termination of the service of an employee/workman visits with civil consequences of jeopardising not only his/her lively-hood b .....

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o show cause why action proposed therein be taken. If no sufficient cause shown the charge will stick and consequences will follow. Otherwise the proposal will 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. .....

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stice 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 arbitrary action on the part of public authorities". In the present case, admittedly no show cause notice was given to the Appellant providing hi .....

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pellant ineligible to hold any office in the capital market related institution for 3 years is more or less the same. The circumstances obviating the need for serving a notice on the Appellant as putforth are of no help to the Respondents in the light of the Supreme Court's observation in Olga Telli's case cited above. In authority is now required to act judicially whenever its actions are likely to result in any disadvantage to a person. "Disadvantage" as the Supreme Court sta .....

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t, he was aware of the charges because of his participation in another inquiry proceeding under section 15I of the Act, before an officer of the Respondents and that he being the Managing Director of R-4 at the relevant point of time, could have appeared before R-2 of his own, appear to me only a defense for the sake of defense. It is well settled law that the person against whom action is being taken need be informed of the specific charges and also the consequences attendant thereto. No one ca .....

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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 .....

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uot;the requirements of natural justice are met only if opportunity to represent is given in view of proposed action. The demands of natural justice are not met even if the very person proceeded against has furnished the information on which the action is based, if it is furnished in a casual way or for some other purpose. The person proceeded against must know that he is being required to meet the allegations which might lead to a certain action being taken against him. If that is made known, t .....

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I have gone through the two decision of the Supreme Court in Fire Stone Rubber Co. Workers case and Delhi Cloth and General Mills Company Ltd., cited by the Respondents. Both these cases relate to the references under section 11A of the Industrial Dispute Act, 1947. In fact the Court had discussed the Delhi Cloth Mills case while deciding Fire Stone Rubber Company Workers appeal. These decisions are of little help to the Respondents. The facts are clearly distinguishable. The scheme of the adjud .....

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atna & others (1986) 4 SCC 534 decided by the Supreme Court. The Court while examining the relevance of following the principles of natural justice in the disciplinary proceedings under section 21 of the Chartered Accountants Act, 1949, had made the following observations, which I consider is relevant in the context. In the context of the submission by the Appellant's Counsel that provision of an appeal under section 22A of the Chartered Accountants Act is a complete safe guard against a .....

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tice 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 de .....

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eal to another body from the effective decision to expel him. I cannot think that natural justice is satisfied by a process whereby an unfair trial, though not resulting in a valid expulsion, will nevertheless have the effect of depriving the member of his right of appeal when a valid decision to expel him is subsequently made. Such a deprivation would be a powerful result to be achieved by what in law is a mere nullity; and it is no mere triviality that might be justified on the ground that nat .....

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of Appeal of New Zealand in Reid v. Rowley But perhaps another way of looking at the matter lies in examining the consequences of the initial order as soon as it is passed. There are cases where an order may cause serious injury as soon as it is made, an injury not capable of being entirely erased when the error is corrected on subsequent appeal. For instance, as in the present case, where a member of a highly respected and publicly trusted profession is found guilty of misconduct and suffers pe .....

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ng period of scrupulous, conscientious and diligent industry. It is the portrait of his professional honour. In a world said to be notorious for its blasé 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 pr .....

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n 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 the Hon'ble Gujrat High Court's decision in Hindustan Finstock Ltd., relied on by the Respondent. The Hon'ble Court in the said case had observed that when on the question of facts there was no dispute, that no real prejudice has been caused to a party aggrieved by an order, by absence of .....

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e court may strike down the action of the authority if taken in breach of principles of natural justice only if the prejudice is shown or proved and the action is in breach of principles of natural justice." In the Appellant's case it is clear that the Appellant was denied of an opportunity to rebut the evidence used against him, by denying cross examination. In my view this is clear breach of the principles of natural justice. I agree with the Respondent's submission that through d .....

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