Mr Mukkaram Jan vs Securities Exchange Board Of ...
2021 Latest Caselaw 972 Kant

                             1

    IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 16TH DAY OF JANUARY, 2021

                          BEFORE

      THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR

        WRIT PETITION No.41229 OF 2019 (GM-RES)

BETWEEN :

MR. MUKKARAM JAN
S/O LATE AZAM JAN
AGED ABOUT 51 YEARS
RA/T FLAT NO.G-10
NO.5, CAVALCADE APARTMENTS
BENSON CROSS ROAD
BENSON TOWN
BENGALURU-560 046                     ... PETITIONER

(BY SHRI. DHYAN CHINNAPPA, SENIOR ADVOCATE FOR
    SHRI. M. CHINTAN CHINNAPPA, ADVOCATE)

AND :

SECURITIES EXCHANGE BOARD OF INDIA
SEBI BHAVAN
C-4A, G BLOCK
BANDRA KURLA COMPLEX
BANDRA EAST
MUMBAI-400 051

ALSO AT
JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD
BENGALURU-560 025                           ... RESPONDENT

(BY SHRI. NITIN PRASAD, ADVOCATE)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE
ACTIONS OF THE RESPONDENT IN COMMENCING PROCEEDINGS
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AGAINST THE PETITIONER UNDER THE SEBI ACT, 1992 PURSUANT TO
SHOW CAUSE NOTICE DATED 20.10.2016 (ANNX-A) AS ILLEGAL,
UNCONSTITUTIONAL,    AND    ARBITRARY      IN   LAW,   AND
CONSEQUENTIALLY STRIKE DOWN THE SAME ETC.

     THIS WRIT PETITION, HAVING BEEN HEARD THROUGH VIDEO
CONFERENCING AND RESERVED FOR ORDERS ON 04.01.2021,
COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THE
COURT PRONOUNCED THE FOLLOWING:-



                            ORDER

Heard Shri. Dhyan Chinanppa, learned Senior

Advocate for petitioner and Shri. Nitin Prasad, learned

Advocate for respondent.

2. Briefly stated the facts of the case are, petitioner

was a whole time Director of M/s. Cranes Software

International Ltd. The said Company did not disburse

dividends for the year 2008-2009. Shareholders filed

complaints with Securities and Exchange Board of India

('SEBI' for short), between September 2010 and February

2012.

3. After registration of complaints, the Company

paid the dividends. SEBI closed the complaints during 2013

and 2014.

4. On October 20, 2016 SEBI issued a show-cause

notice to the Company and its Directors calling upon the

noticees as to why action under Section 11 and 11B of the

SEBI Act, 1992 should not be initiated for violation of

Section 205(1A) of the Companies Act, 1956. Petitioner did

not reply to the said notice. By communication dated

August 20, 2019 (Annexure-B), SEBI called upon the

petitioner to remain present for hearing on September 13,

2019 at its Mumbai Office. Feeling aggrieved, petitioner has

presented this writ petition with a prayer to quash the said

notices.

5. Shri. Dhyan Chinnappa, learned Senior Advocate

urged following grounds in support of this petition:

x there is inordinate delay of more than five years in issuing the show-cause notice dated October 20, 2016;

x SEBI did not act on the show-cause notice immediately and has called upon the petitioner to attend a hearing after a lapse of three years from the date of the show-cause notice;

x Companies Act, 1956 stood repealed in 2013. Under Section 465 of the Companies Act, only such acts in respect of which action has been initiated prior to repeal have been saved;

x Companies Act is a complete code and SEBI has initiated criminal action in C.C. No.114/2016 before the Special Court for Economic Offences at Bengaluru.

6. Opposing the writ petition Shri. Nitin Prasad

submitted that petitioner has chosen to challenge the show-

cause notice. He can urge all his contentions before the

SEBI. If any adverse order is passed against him, he can

challenge the same before the Securities Appellate Tribunal.

Without responding to either the show-cause notice nor the

communication to attend the hearing, petitioner has

invoked the writ jurisdiction of this Court. Placing reliance

on Special Director and another Vs. Mohd. Ghulam Ghouse

and another1, he submitted that High Court should not

entertain writ petitions questioning the legality of show-

cause notices. On the point of delay, he relied upon

Collector of Central Excise, New Delhi Vs. Bhagsons Paint

(2004)3 SCC 440

Industry (India)2 and submitted that in the absence of any

statutory bar, SEBI can initiate action belatedly also as

there is no statutory bar.

7. I have carefully considered rival contentions and

perused the records.

8. Shri. Dhyan Chinnappa has placed reliance on

three judgments of Securities Appellate Tribunal, Mumbai.

In the case of Ashlesh Gunvantbhai Shah Vs. Securities and

Exchange Board of India3 in respect of certain irregularities

in the script, the Tribunal has held that delay of seven years

is inordinate. In the case of Sanjay Jethalal Soni and others

Vs. Securities and Exchange Board of India4, the Tribunal

has held delay of five years as inordinate. The Tribunal has

placed reliance on several decisions of the Apex Court and

quashed the show-cause notices.

2003(iii)ECR530(SC)

Appeal No.169 of 2019 decided on 31.01.2020

Appeal No.102 of 2019 decided on 14.11.2019

9. Shri. Nithin Prasad is right in his submission that

in normal circumstances, this Court ought not to and does

not interfere with show-cause notice. In the case on hand,

complaints with regard to non-payment of dividends were

registered between 2010 and 2012. Annexure-D is the

screen shot of the case status. It shows that SEBI has

closed the complaints between 2013 and 2014. The show-

cause notice is issued in October 20, 2016. No further

action is taken till issuance of communication as per

Annexure-B in 2019, calling upon the petitioner to remain

present during the hearing.

10. A perusal of the orders passed by Securities

Appellate Tribunal noted supra, shows that the said Tribunal

has consistently held delay of five years and more in

initiating action by the SEBI as unsustainable. In this

background, even if petitioner is relegated to SEBI to attend

the hearing as contemplated in communication Annexure-B

and if petitioner were to suffer any adverse order, he can

challenge the same before the Appellate Tribunal. Both

cases of the Tribunal cited before this Court are recent

judgments of 2019 and 2020. In those cases, the Tribunal

has decided the matter only on the point of delay without

going into the merits. In this case, reckoned from the date

of complaints, the delay is about four to six years in issuing

the show-cause notice and seven to nine years in holding

the hearing.

11. Therefore, in the facts and circumstances in this

case, no useful purpose would be served in relegating the

petitioner to the SEBI. Hence, this petition merits

consideration and it is accordingly allowed.

12. Show-cause notices dated October 20, 2016 and

August 20, 2019 as per Annexures- A and B respectively

are quashed.

Sd/-

JUDGE

SPS