[Cites 40, Cited by 0]
Karnataka High Court
Vision Ei Tech And Services vs The Security And Exchange Board on 12 December, 2025
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WP No. 3525 of 2022
C/W WP No. 3519 of 2022
WP No. 25261 of 2022
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 12TH DAY OF DECEMBER, 2025
BEFORE
THE HON'BLE MR. JUSTICE E.S.INDIRESH
WRIT PETITION NO. 3525 OF 2022 (GM-RES)
C/W
WRIT PETITION NO. 3519 OF 2022 (GM-RES)
WRIT PETITION NO. 25261 OF 2022 (GM-RES)
IN WP NO.3525/2022
BETWEEN:
RAGURAJ GUJJAR
S/O LATE THIPANNA
AGED ABOUT 66 YEARS
R/O 406, 3A CROSS
M.M. LAYOUT
KAVALBYRASANDRA
BENGALURU - 560 032.
....PETITIONER
Digitally signed by (BY SRI. ASHOK HARANALLI, SENIOR ADVOCATE FOR
CHAYA S A
Location: HIGH SRI. ANIRUDH ANAND, ADVOCATE)
COURT OF
KARNATAKA
AND:
1. THE SECURITY AND EXCHANGE BOARD
OF INDIA (SEBI)
REPRESENTED BY ITS
CHAIRMAN
CONSTITUTED UNDER THE SECUTIRY &
EXCHANGE BOARD OF INDIA ACT 1992
HAVING ITS OFFICE AT 2ND FLOOR
JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD
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BENGALURU - 560 015.
2. DEPUTY GENERAL MANAGER
INVESTIGATION DEPARTMENT -ID-6
SEBI BHAVAN
PLAT NO.C4 -AG BLOCK
BANDRA KURLA COMPLEX
BANDRA EAST
MUMBAI- 400 051.
...RESPONDENTS
(BY SRI. R.V. SUBRAMANYA NAIK, SENIOR ADVOCATE FOR
SRI. NITIN PRASAD, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED NOTICE BEARING NO.SEBI/IVD /1D-6-LVB-
CR/BKS/SCN/25274/1/2021 DATED 22.09.2021 ISSUED BY
RESPONDENT.
IN WP NO.3519/2022
BETWEEN:
BODDAVARAM K. MANJUNATH
AGED ABOUT 62 YEARS
1/20, 8TH CROSS,
KUMARA PARK WEST
BENGALURU - 560 020.
....PETITIONER
(BY SRI. D.L.N. RAO, SENIOR ADVOCATE FOR
SMT. SWATHI ASHOK, ADVOCATE)
AND:
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1. THE SECURITY AND EXCHANGE BOARD
OF INDIA (SEBI)
REPRESENTED BY ITS
CHAIRMAN
CONSTITUTED UNDER THE SECUTIRY &
EXCHANGE BOARD OF INDIA ACT 1992
HAVING ITS OFFICE AT 2ND FLOOR
JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD
BENGALURU - 560 015.
2. DEPUTY GENERAL MANAGER
INVESTIGATION DEPARTMENT -ID-6
SEBI BHAVAN
PLAT NO.C4 -AG BLOCK
BANDRA KURLA COMPLEX
BANDRA EAST
MUMBAI- 400 051.
...RESPONDENTS
(BY SRI. R.V. SUBRAMANYA NAIK, SENIOR ADVOCATE FOR
SRI. NITIN PRASAD, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED NOTICE BEARING NO.SEBI/IVD /ID-6-LVB-
CR/BKS/SLN/25265/1/2021 DATED 22.09.2021 ISSUED BY 2ND
RESPONDENT (ANNEXURE-A).
IN WP NO.25261/2022
BETWEEN:
1. VISION-EI-TECH & SERVICES
PRIVATE LIMITED
NO.20, EDEN PARK
202, 2ND FLOOR
VITTAL MALLYA ROAD
BENGALURU - 560 001.
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REPRESENTED BY DIRECTOR
SHRI. D.L.N. MURTHY
AGED ABOUT 64 YEARS.
2. CELESTIAL TECHSOFT & SERVICES
PRIVATE LIMITED
NO.20, EDEN PARK
202, 2ND FLOOR
VITTAL MALLYA ROAD
BENGALURU - 560 001.
REPRESENTED BY DIRECTOR
SHRI. D.L.N. MURTHY
AGED ABOUT 64 YEARS.
3. BHRAHMAPUTRA POWER
PRIVATE LIMITED
NO.20, EDEN PARK
202, 2ND FLOOR
VITTAL MALLYA ROAD
BENGALURU - 560 001.
REPRESENTED BY DIRECTOR
SHRI. D.L.N. MURTHY
AGED ABOUT 64 YEARS.
4. MR. D.L.N. MURTHY
AGED ABOUT 64 YEARS
"UDITA" APARTMENT
NO.08-607, 1050/1
SURVEY PARK
KOLKATA - 700 075.
....PETITIONERS
(BY SMT. LAKSHMY IYENGAR, SENIOR ADVOCATE FOR
SMT. SABAHATH SULTANA, ADVOCATE)
AND:
1. THE SECURITY AND EXCHANGE BOARD
OF INDIA (SEBI)
REPRESENTED BY ITS
CHAIRMAN
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CONSTITUTED UNDER THE SECUTIRY &
EXCHANGE BOARD OF INDIA ACT 1992
HAVING ITS OFFICE AT 2ND FLOOR
JEEVAN MANDAL BUILDING
NO.4, RESIDENCY ROAD
BENGALURU - 560 015.
2. DEPUTY GENERAL MANAGER
INVESTIGATION DEPARTMENT -ID-6
SEBI BHAVAN
PLAT NO.C4 -AG BLOCK
BANDRA KURLA COMPLEX
BANDRA EAST
MUMBAI- 400 051.
...RESPONDENTS
(BY SRI. R.V. SUBRAMANYA NAIK, SENIOR ADVOCATE FOR
SRI. NITIN PRASAD, ADVOCATE FOR R1 & R2)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED NOTICE DATED 22.09.2021 ANNEXURE-A;
RESPONDENTS TO AWAIT THE DECISION OF THIS HON'BLE
COURT IN SIMILAR MATTERS BEFORE PROCEEDING WITH THE
COMMON IMPUGNED NOTICE.
THESE WRIT PETITIONS HAVING BEEN RESERVED FOR
ORDERS, COMING FOR PRONOUNCEMENT THIS DAY,
E.S. INDIRESH J., MADE THE FOLLOWING:
CORAM: HON'BLE MR. JUSTICE E.S.INDIRESH
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CAV ORDER
1. In these writ petitions, the petitioners are
assailing the notice dated 22.09.2021 (Annexure-A)
issued by the respondent No.2-Deputy General
Manager (for short, 'DGM'), as incompetent authority
has issued impugned notice and accordingly, sought for
quashing the same.
2. Since, the question of law involved in these writ
petitions are common, and facts are similar in nature
and further the grounds as urged by the learned
counsel appearing for the parties are more or less
identical in nature and therefore, the writ petitions
were clubbed, heard together and disposed of by this
common order.
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FACTS IN W.P.NO.3525 OF 2022:
3. In W.P.No.3525 of 2022, the petitioner is
Noticee No.8, challenging the impugned notice dated
22.09.2021 (Annexure-A).
4. It is the case of the petitioner that the
petitioner was an Independent Director and Non-
Executive Chairman of the Board of LVB, from April,
2013 to April, 2015. It is also stated that, the
respondent No.2 has issued impugned notice, calling
upon the petitioner to furnish the details to the
questionnaire which related to trading, and details of
petitioners' association with various entities as well as
with LVB. The petitioner has answered to the
questionnaire, however, the respondent No.2 has
sought for personal appearance of the petitioner for
Inquiry as to take evidence. The petitioner requested
his personal appearance in the local office of the
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respondent-authority as per Annexure-B, however, the
respondent No.2, did not accept the request made by
the petitioner and on the other hand, the respondent
No.2 issued impugned notice, alleging that, the
petitioner is in possession of UPSI, as traded in the
scripts of LVB, during the month of February, March
and June of 2018. It is also alleged against the
petitioner that, the mode of sharing of UPSI, is
presumed on the basis that, the petitioner shares the
minutes of meeting of the Board with one connected
person.
5. It is further stated that, the UPSI relates to
capital rising for LVB and the three connected persons
have disputed their possession of UPSI and the
adjudication is still pending against them. It is also
stated that, the respondent No.2, erroneously come to
the conclusion that, the connected persons had access
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to UPSI, and therefore, it is contended by the
petitioner that, allegation has been made against the
petitioner is devoid of merit and unsustainable in law.
The petitioner has sought for certain documents as per
Annexure-C, however, the respondent No.2, replied
vide e-mail dated 22.10.2021 (Annexure-D). It is
further stated that, since the petitioner was a covid
survivor and as such, requested the respondent No.2
to allow his advocate to inspect the documents and
same was denied to the petitioner. It is also stated that
the petitioner sought for cross-examination of officials
of LVB and JP Morgan India Pvt Ltd., as well as seeks
investigation report referred to in the impugned notice,
as per Annexure- F and G. It is the case of the
petitioner that, during January 2018, LVB, intend to
rise the capital and same is reflected in the Press
Release dated 08.07.2019 (Annexure-H). It is also
stated that, impugned notice is without jurisdiction and
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accordingly, sought for setting aside the impugned
notice.
FACTS IN W.P.NO.3519 OF 2022:
6. In W.P.No.3519 of 2022, the petitioner is
Noticee No.3, assailing the impugned notice dated
22.09.2021 (Annexure-A) issued under Section 11B of
the Securities and Exchange Board of India Act, 1992
(hereinafter referred to as 'Act').
7. Facts of the case are that, the petitioner claims
to be a Non-Executive and Independent Director of
Lakshmi Vilas Bank (hereinafter referred to as 'LVB')
from August, 2008 to January, 2015. The petitioner
was Non-Executive Chairman between 06.06.2017 to
05.06.2020 and was Non-Executive, Independent
Director from 10.06.2020 to 25.09.2020. The
petitioner held shares of LVB and also the Director in
M/s.Brahmaputra Power Pvt. Ltd. with a paid-up capital
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of Rs.5,00,000/- holding 500 shares i.e. 1% of the
paid-up capital. It is averred in the writ petition that,
the respondent No.2 issued summons and
questionnaire to the petitioner seeking information as
to affairs with LVB and pursuant to the same, the
petitioner provided all information accordingly. It is
further stated that a specific question through
questionnaire, was relating to the petitioner, having
participated in two Board Meetings of LVB, wherein the
discussion was made to engage with JP Morgan India
Pvt. Ltd. by LVB and the petitioner had passed
information to M/s. Brahmaputra Power Pvt. Ltd. who
in turn, traded in the scripts of LVB. It is further
averred in the writ petition that, the petitioner had
brought to the knowledge of respondent No.2 that, the
petitioner was Member of Capital Raising Committee
and had attended the Meeting on 22.02.2018 and in
this regard, the reply dated 22.03.2021 was submitted
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by the petitioner as per Annexure-B. It is also averred
that, pursuant to the issuance of summons, the
petitioner appeared and adduced evidence before the
respondent No.2.
8. It is the case of the petitioner that, the
petitioner has not violated any norms of trading of
shares as alleged in the impugned notice, as no
Circular or Communication has been issued by LVB
regarding link with JP Morgan India Pvt. Ltd. It is
further stated that, though the petitioner had attended
the Board Meeting of Directors on 20.04.2018 and
25.05.2018, however, denied the trading with JP
Morgan India Pvt. Ltd., as alleged, in the impugned
notice. It is stated that, the matters relating to capital
raising by LVB were discussed and the petitioner being
a connected person and 'Insider' in terms of Regulation
2(1)(d)(1) and 2(1)(g)(1) of Insider Trading
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Regulations and therefore, it is contended that,
allegations made in the impugned notice are without
ascertaining the true facts. The extracts of Minutes of
Meeting dated 20.04.2018 and 25.05.2018 are
produced at Annexures - D and D1 respectively. It is
stated in the writ petition that, the Minutes of Meeting
do not have agenda of the entire meeting and so also
to discharge the onus imposed under the Regulations
and as such, the petitioner addressed communication
dated 17.10.2021 as to inspection of documents, which
include agenda of the Board Meeting. In response to
the same, the respondent No.2, indicated for
inspection of documents on 23.11.2021 by letter dated
19.11.2021 (Annexure-F). In this regard, the petitioner
appointed his counsel to inspect the documents on
24.11.2021 on account of his health issues, however, it
was reported that, documents pertaining to two Board
Meetings were not given for inspection. The counsel
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for the petitioner informed as to not providing the
relevant Minutes of the Board Meeting, however, the
respondent No.2 sent e-mail to the petitioner that,
same was not relied upon, as per their e-mail reply
dated 24.11.2021 (Annexure-G).
9. It is further stated that, despite on account of
his ill-health, as the petitioner was not provided with
the entire Board Meeting Minutes and as such, the
petitioner as per Regulation 4(4) of the Regulations,
2015, seeks Investigation Report relating to alleged
trading between LVB and JP Morgan India Pvt. Ltd. It
is also stated that, on 04.02.2022, the respondent
No.2 sent an e-mail to the petitioner's advocate as to
rejecting the request made by the petitioner seeking
investigation report as per Annexure-K. The allegation
made against the petitioner in the impugned notice as
to communicating Unpublished Price Sensitive
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Information (for short, 'UPSI') which is in violation of
Section 12(e), (d) and (e) of the Act, read with 3(1)
and 4(1) of Insider Trading Regulations, 2015. It is the
grievance of the petitioner that the respondent No.2
has no jurisdiction and has no power or authority as
the authorised officer to proceed with the Inquiry. It is
further stated that, the allegation made by the
respondent No.2 that the petitioner has traded in
scripts of LVB but as per the impugned notice, it is
M/s.Brahmaputra Power Ltd., which has traded and not
the petitioner. It is further stated in the writ petition
that, the action of the respondent No.2 is contrary to
the RBI Circular dated 26.10.2021 (Annexure-M), and
therefore, it is contended that, the impugned notice
suffers from infirmity as the respondent No.2 has no
jurisdiction to issue the impugned notice and that
apart, there is no material referred to in the impugned
notice to substantiate the allegation against the
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petitioner and therefore, it is pleaded in the writ
petition that, the reputation of the petitioner is being
tarnished, which amounts to violation of fundamental
right of the petitioner. Hence, the petitioner has filed
W.P.No.3519 of 2022.
FACTS IN W.P.NO.25261 OF 2022:
10. In W.P.No.25261 of 2022, the petitioners are
Noticee Nos.4 to 7, challenging the impugned notice
dated 22.09.2021 (Annexure-A).
11. It is the case of the petitioners that, petitioner
Nos.1 to 3 are the private companies. The respondent
No.2 issued summons to the petitioners and sought
information in respect of affairs of the petitioners with
transaction to the script of LVB. The petitioners
provided all the information and pursuant to the same,
the respondent No.2 has issued impugned notice,
stating that, the petitioner No.4 has traded in the script
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of LVB based on UPSI and as such, it is alleged against
the petitioner No.4 in the impugned notice that, the
petitioner No.4 has violated the provisions of the Act. It
is also stated that, the petitioners have filed detailed
objections to the impugned notice, as per Annexure-B.
It is further stated in the writ petition that the
respondent No.2 had fixed the hearing on 05.07.2022,
and in the meanwhile, the petitioners have sought for
adjournment as to appear in person as per their reply
dated 01.07.2022. It is also stated that the petitioners
have received another notice dated 25.11.2022,
(Annexure-G) to appear before the respondent No.2 on
16.12.2022, for which the petitioners have filed reply
dated 13.12.2022 (Annexure-H). It is the grievance of
the petitioners that the petitioners were denied with
the opportunity of hearing by the respondent No.2 and
that apart, the respondent No.2 has no jurisdiction to
issue the impugned notice dated 22.09.2021,
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(Annexure-A), and therefore, sought for setting aside
the impugned notice at Annexure-A by filing this writ
petition.
12. I have heard Sri. D.L.N. Rao, learned Senior
Counsel appearing for Smt. Swathi Ashok for the
petitioner in W.P.No.3519 of 2022; Sri. Ashok
Haranalli, learned Senior Counsel for Sri. Anirudh
Anand for petitioner in W.P.No.3525 of 2022; Smt.
Lakshmy Iyengar, learned Senior Counsel appearing
for Smt. Sabahath Sultana in W.P.No.25261 of 2022,
and Sri. R.V.S. Naik, learned Senior Counsel for Sri.
Nitin Prasad, for the respondents in all the writ
petitions
ARGUMENTS OF THE PETITIONERS:
13. Sri. D.L.N. Rao, learned Senior Counsel
appearing for the petitioner (Noticee No.3) in
W.P.No.3519 of 2022, argued that, the impugned
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notice at Annexure-A issued by the DGM of
respondent-SEBI is without jurisdiction. Referring to
Section 15-I of the Act, it is contended by the learned
Senior Counsel that, DGM has no jurisdiction to issue
the impugned notice, as the competent authority under
Section 15-I of the Act is Division Chief and above or
the Board as per Section 11B (2) of the Act. It is also
argued by the learned Senior Counsel by inviting the
attention of the Court to Section 11B (2), 15-I and 19
of the Act that, no delegation be made to any Officer
lower than a office of Division Chief and as the statute
provided for a thing to be done by a competent person,
such power has to be exercised by the same person or
authority under the statute and such power cannot be
delegated to any other person, who is lower the
competent authority. Therefore, learned Senior
Counsel sought for setting aside the impugned notice
on the ground of jurisdiction.
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14. It is further argued by the learned Senior
Counsel that, the scheme of the Act provides for Board
to appoint an Adjudicating Officer under Section 15-I of
the Act before initiation of penalty proceedings and the
said requirement is mandatory in nature which cannot
be conferred to the individual authorities under the Act.
In this regard, referring to Section 15-I of the Act, Sri.
D.L.N.Rao, learned Senior Counsel submitted that the
amendment made to word 'shall' to 'may' in Section
15-I of the Act does not dispense with need for the
Adjudicating Officer and it is mandatory requirement of
appointment by the Board to initiate proceedings by
issuing notice to the aggrieved person and therefore,
penalty under Section 15G of the Act can be imposed
by an Adjudicating Officer alone, and therefore, sought
for interference of this court.
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15. Referring to statement of objections filed by the
respondent-authorities, it is contended by the learned
Senior Counsel that the delegation of power and
functions of the authorities provided under the Act,
particularly, referring to Annexure-R1 (statement of
objections) at Sl.No.22, 25 and 28, that the Chief
General Manager is the competent officer to cause
show-cause notice under Section 15-I of the Act and
therefore, the impugned notice is void ab initio as
being issued by the DGM. Referring to Section 19 of
the Act which provides for delegation of power by the
Board, it is contended by the learned Senior Counsel,
Sri. D.L.N. Rao, that the delegation under Section 19 of
the Act, cannot override the express statutory
requirement provided under the Act, for adjudication
and therefore, the impugned notice is liable to be
quashed. It is contended that, the absence of a lawfully
appointed Adjudicating Officer is a jurisdictional error,
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which goes to the root of the proceedings and vitiates
impugned show-cause notice in entirety. In this regard,
Sri. D.L.N. Rao, learned Senior Counsel appearing for
the petitioner, places reliance on the judgment of the
Hon'ble Supreme Court in the case of Whirlpool
Corporation vs. Registrar of Trade Marks, Mumbai
and others reported in (1998) 8 SCC 1 and
contended that, the impugned notice suffers from
incompetency and accordingly, sought for setting aside
the impugned notice at Annexure-A.
16. Learned Senior Counsel further contended that
the impugned notice is liable to be quashed as it
proceeds on conclusive and predetermined allegations
against the noticees, which is contrary to the
requirement that the show-cause notice must put-forth
the noticee of alleged allegation and therefore, sought
for interference of this Court. It is contended that a
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notice which declares conclusion deprives the noticee
of a real and fair opportunity to respond, which violates
the basic requirement of fair hearing, and as such, it is
argued that the impugned notice is required to be set
aside by this Court. In this regard learned Senior
Counsel refers to the judgement of the Hon'ble
Supreme Court in the case of Barium Chemicals Ltd
and another vs. Company Law Board and others
reported in (1967) 1 SCR 898. Further, learned
senior counsel refers to the judgment of the Hon'ble
Supreme Court in the case of Siemens Ltd vs. State
of Maharashtra and others reported in (2006) 12
SCC 33 and contended that the writ petition is
maintainable as the impugned notice is being issued
with pre-meditation by the respondent-authority and
therefore, sought for interference of this Court.
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17. Nextly, learned Senior Counsel for the
petitioner by referring to office note produced by the
respondent-authority with substantial modification that
the same is in violation of Regulation 3(1) of the
Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2015 (for short,
Regulations, 2015) and further, it is contended that the
clerical corrections made thereunder is jurisdictional
error to issue notice under Section 11B of the Act.
18. It is argued by the learned Senior Counsel that,
where jurisdiction is depended upon the existence of
foundational or jurisdictional error, the competent
authority itself must be satisfied of those facts before
assuming jurisdiction and as such, submitted that the
internal notings clearly demonstrates that the
allegations made in the impugned show-cause notice
were not borne out by the investigation report and
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were instructed to be inserted without evidentiary
foundation and in this regard, learned Senior Counsel
refers to the judgment of the Hon'ble Supreme Court in
the case of Oryx Fisheries Private Limited vs.
Union of India and others reported in (2010) 13
SCC 427.
19. Finally, Sri. D.L.N. Rao, learned Senior Counsel
argued that though the petitioner has sought for
documents from the respondent-authorities to respond
to impugned show-cause notice including the
Investigation Report and such other materials,
however, the respondent-authorities with a casual
manner responded by letter dated 21.11.2021
(Annexure-G) that some of the documents were not
relied upon and as such, declined to furnish the
Investigation Report, which is contrary to the judgment
of the Hon'ble Supreme Court in the case of T. Takano
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vs. Securities and Exchange Board of India and
another reported in (2002) 8 SCC 162 and further
argued that non-disclosure of documents that form the
basis for the allegations made against the petitioner
vitiates the entire proceedings. Accordingly, learned
Senior Counsel sought for setting aside the impugned
show-cause notice issued by the respondents.
20. Sri. Ashok Haranalli, learned Senior Counsel
appearing for the petitioner in W.P.No.3525 of 2022,
argued on the similar lines with Sri. D.L.N. Rao,
learned Senior Counsel, and in addition to the same, it
is argued that, the impugned notice is in the nature of
imposing penalty against the petitioners as the
respondent-authorities have already determined to
take action against the petitioners without offering
explanation from the petitioners as to allegation made
in the notice. Referring to paragraph 25 of the
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impugned notice, it is argued by the learned Senior
Counsel that the respondent-authorities have not
provided the documents relied upon while issuing the
show-cause notices and therefore, sought for
interference of this Court.
21. It is also argued by Sri. Ashok Haranalli,
learned Senior Counsel by referring to Section 19 and
29 of the Act, and emphasised that the essential power
conferred by the Act cannot be delegated to anyone
and such power conferred under the Act shall be
exercised by the very same authority and therefore, as
the impugned notice is issued by the incompetent
authority- DGM and therefore, sought for interference
of this Court. In this regard, learned Senior Counsel
appearing for the petitioner, places reliance on the
judgment of the Hon'ble Supreme Court in the case of
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A. K. Roy and another vs. State of Punjab and
others reported in (1986) 4 SCC 326.
22. It is further submitted by the learned Senior
Counsel for the petitioner that, though the impugned
notice referred to in the investigation report, however,
same was not supplied to the petitioner for effective
response and therefore, sought for setting aside the
impugned notices.
23. It is also contended by the learned Senior
Counsel that the allegation made in the notice that the
Directors of the LVB had trading with the JP Morgan
India Pvt. Ltd., is incorrect as the LVB has no
relationship with the JP Morgan India Pvt Ltd., and as
such, the entire averments made in the impugned
notice is based on the assumptions without
fundamental facts by the respondent-authorities, which
requires to be set aside in this writ petition.
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24. It is also argued by the learned Senior Counsel
that the impugned notice is liable to be quashed on the
ground of delay and laches as the same was served to
the petitioner, after three years from the date of cause
of action and as such, action of the respondents would
establish the malafide action of the respondents to
target the petitioner to suffer mental trauma and as
such, sought for setting aside the impugned notice.
25. Nextly, Sri. Ashok Haranalli, learned Senior
Counsel argued that, petitioner has no role in trading
with the LVB or JP Morgan India Pvt. Ltd., as the
allegation made against the petitioner is as to his
relationship with the Directors of LVB and further, the
petitioner had access to UPSI as connected persons of
LVB share does not arise to the petitioner and in this
regard, no documents are furnished to the petitioner to
substantiate the said fact and accordingly, sought for
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setting aside the impugned notice issued by the
respondent-authorities.
26. In order to buttress his arguments, learned
Senior Counsel refers to the judgment of the Hon'ble
Supreme Court in the case of S.L. Kapoor vs.
Jagmohan and Others, reported in (1980) 4 SCC
379; in the case of Managing Director, ECIL vs. B.
Karunakar and others, reported in (1993) 4 SCC
727; in the case of Siemens Ltd vs. State of
Maharashtra and others reported in (2006) 12 SCC
33.
27. Smt. Lakshmy Iyengar, learned Senior Counsel
appearing for the petitioners in W.P.No.25261 of 2022
(noticee Nos. 4 to 7) submitted that, the petitioners
have filed detailed objections to the impugned notice
on 08.02.2022 (Annexure-B) questioning the
jurisdiction of the competent authority to issue the
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impugned notice and also sought for an opportunity to
inspect certain documents relied upon by the
respondent-authorities for framing the charges against
the petitioners, as stated in the show-cause notice,
however, the respondent-authorities have not provided
the copy of the Investigation Report and agenda for
Board Meeting held on 20.04.2018 and 25.05.2018.
Therefore, it is contended that the petitioners were
prejudiced in making effective reply to the impugned
notice. It is further contended that nothing is
forthcoming from the impugned notice as to delay of
more than three years in issuing impugned notice to
the petitioners. It is the categorical arguments of the
learned Senior Counsel that the petitioners are not
connected to LVB in any manner whatsoever, and
particularly, it is argued by the learned Senior Counsel
that Noticee Nos. 1 and 3 were stated as "Insider" and
such presumption by the respondents is based on no
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evidence and as such, same is erroneous as just
because the Noticee No.4 shares Directorship with
Noticee Nos.1 and 3 does not automatically to conclude
that the Noticee No.4 access to UPSI and therefore,
sought for setting aside the impugned notice.
28. Nextly, it is contended by Smt. Lakshmy
Iyengar, learned Senior Counsel, by referring to
Section 15-I of the Act that the impugned notices have
been issued by the incompetent person and therefore,
same is required to be set aside.
29. In order to buttress her arguments, learned
Senior Counsel referred to the judgment of the Hon'ble
Supreme Court in the case of Babu Verghese and
others vs. Bar Council of Kerala and others
reported in (1999) 3 SCC 422 and argued that, if the
manner of doing a particular act is prescribed under a
statute and such act must be done in that fashion
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alone and therefore, sought for interference of the
Court.
30. In reply to the arguments of the learned Senior
Counsel for the respondents, referring to the judgment
of the High Court of Judicature at Madras in
W.P.Nos.17521 of 2020 and connected writ petitions
disposed of on 26.04.2024, it is contended by the
learned Senior Counsel that LVB was respondent No.3
in the aforementioned petitions and objected for
amalgamation of the Bank with Reserve Bank of India
and in this connection, the learned Senior Counsel
refers to paragraph No.2(vii) and paragraph No.12.7
and argued that the allegation made in the impugned
notice is nonest and without jurisdiction and as such,
sought for setting aside the same.
31. Emphasizing on the judgment of the Hon'ble
Supreme Court in the case of Reliance Industries
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Limited vs. Securities and Exchange Board of
India & others., in Crl.A.No.1167/2022, disposed
of on 05.08.2022, Smt. Lakshmy Iyenger, learned
Senior Counsel argued that the above decision is of
strength of the three judges of the Hon'ble Supreme
Court, and relied upon the judgment of T. Takano vs.
Securities and Exchange Board of India reported in
(2022) 8 SCC 162 and therefore, judgment of the
Hon'ble Supreme Court in the case of Kavi Arora vs.
Securities and Exchange Board of India reported in
2022 SCC Online SC 1217 as referred to by the
learned Senior Counsel for the respondents is per
incuriam and Reliance Industries Limited (supra)
has laid down the law as to the exercising judicial
review over respondent-authorities which is of
regulatory domain and accordingly, submitted that the
entire action of the respondent-authority is contrary to
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law and therefore, sought for setting aside the
impugned notice issued by the respondents.
ARGUMENTS OF THE RESPONDENTS:
32. Per contra, Sri. R.V.S. Naik learned Senior
Counsel appearing for the respondents sought to
justify the impugned notices and argued that this Court
must restrain from interfering with the impugned
notice issued by the respondent-authorities and further
the petitioners have to be relegated to file
objections/reply to the impugned notice, if any, under
the facts and circumstances of the case and therefore,
submitted that the interference by this Court under
Article 226 of Constitution of India is only under
exceptional circumstances and the present writ
petitions should not be considered as an exceptional
matter to interfered with the impugned notice, and
accordingly, places reliance on the judgment of the
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Division Bench of this Court in the case of S.Durendra
Babu vs. BWSSB and Another in W.P. 8816 of
2020 disposed of on 20.07.2020; in the case of SEBI
vs. Mukkaram Jan in W.A. No.270 of 2021 disposed
of on 09.04.2021, and in the case of Union of India
and another vs. Kunisetty Satyanarayana reported
in (2006) 12 SCC 28.
33. It is further contended by the learned Senior
Counsel for the respondents, that, the impugned show-
cause notice is pertaining to the alleged violations
committed by the petitioners, under Section 15G of the
Act, which provides for allegations as to Insider
Trading. Referring to Section 11(4A), 11B(1) and
11B(2) of the Act, it is argued that, the Board is
empowered to issue directions/levy penalties, in
respect of violations, specified in Chapter VIA, of the
Act, which includes Section 15 of the Act. It is further
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argued that, though Section 15-I, of the Act, confers
power on Adjudicating Officer, to levy a penalty,
however, same power be extended on the Board, to
levy penalties, under Section 11(4A) and 11B(2) of the
Act as per the amendment made during the year 2018,
which came into effect from 08.03.2019 as per the
rules framed by the Central Government and therefore,
it is the principal submission of the learned Senior
Counsel for the respondents that, either the Board, or
the Adjudicating Officer, can levy penalty for violations
committed thereunder and therefore, sought for
dismissal of the writ petitions.
34. Referring to the Securities and Exchange Board
of India, (Procedure for Holding Inquiry and Imposing
Penalties) Rules, 1995 (for short, Rules, 1995), it is
argued that, Rule 2(c) provides for "Inquiry" as
provided under Section 11(4A) and 11B(2), of the Act,
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and therefore, it is contended that, in the event, the
Board is not exercising such powers, under the Act,
eventually the deligatee under Section 19 of the Act, is
empowered to pass appropriate orders and therefore,
learned Senior Counsel sought for dismissal of the writ
petitions. Emphasising on these aspects, it is argued
that, the requirement of Section 19 of the Act, to pass
orders in writing, as per the provisions under Exchange
Board of India, (Delegation of Statutory and Financial
Powers) Order, 2019 and such 'Delegation of Powers'
referred to in SL.No.22 and 25 of Part A, Chapter I
(Annexure-R1 in statement of objections in
W.P.No.3525 of 2022), issuing and signing authority of
the impugned show-cause notice is the respondent
No.2-DGM, and therefore, it is argued by the learned
Senior Counsel for the respondents that, the impugned
notices are issued by the competent authority, and
therefore, sought for dismissal of the writ petitions.
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35. It is further argued that since the impugned
notices are mere show-cause notices, do not amount to
an adverse order affecting the rights of the parties, and
therefore, it is contended that, the writ petitions do not
survive for consideration. In this regard, learned Senior
Counsel for the respondents referred to the judgment
of the Hon'ble Supreme Court in the case of Special
Director and another vs. Mohd. Ghulam Ghouse
and another reported in (2004) 3 SCC 440 and
argued that, it is open for the petitioners to appear
before the competent authority, and to raise issue with
regard to jurisdiction insofar as issuing the show-cause
notice and same could be decided by the respondent-
authorities, conducting the inquiry and therefore,
sought for dismissal of the writ petitions.
36. Sri. R. V. S. Naik, learned Senior Counsel for
the respondents, while referring to Noticee Nos. 1, 3, 4
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to 7 and 8, argued that, these noticees have allegedly
traded while in possession of UPSI and that apart, the
Noticee Nos. 4 to 7, have filed their reply to the show-
cause notice, (Annexure-B in W.P.No.25261 of 2022)
and therefore, it is contended by the learned Senior
Counsel that, as those petitioners have filed reply to
the impugned show-cause notice, without raising
question of jurisdiction, and as such, these petitioners
in W.P.No.25261 of 2022, cannot urge jurisdictional
error and to maintain petition before this Court. In this
regard, learned Senior Counsel for the respondents
submitted that, it is open for such petitioners to raise
jurisdictional aspect before the Inquiring Authority, if
so advised.
37. Nextly, in response to the contentions raised by
the learned Senior Counsel for the petitioners as to non
-supply of relied upon documents, while issuing the
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impugned show-cause notice issued to the petitioners,
it is argued by the learned Senior Counsel for the
respondents that the petitioners themselves have
produced e-mails whereunder Annexures to the
impugned show-cause notices have been attached and
further the respondents have extended opportunity to
the petitioners for inspection of such documents in
their office, and therefore, countered the submission
made by the learned Senior Counsel for the petitioners.
In this regard, learned counsel for the respondents
places reliance on the judgment of the Hon'ble
Supreme Court in the case of Kavi Arora vs.
Securities and Exchange Board of India reported in
2022 SCC Online SC 1217 and argued that, it would
be open for the petitioners to approach the appropriate
forum seeking such documents from the respondents.
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38. Nextly, insofar as the contentions urged by the
learned Senior Counsel for the petitioners that
impugned show-case notice is pre-meditated, Sri. R.V.
S. Naik, learned Senior Counsel for the respondents
countered by referring to the word "alleged" in
paragraph 20 of the impugned show-cause notice at
Annexure-A and submitted that, the apprehension
expressed by the learned Senior Counsel for the
petitioners is misnomer and cannot be accepted and
accordingly, sought for dismissal of the writ petitions.
Emphasising on the object of the Act, Sri. R.V.S. Naik,
learned Senior Counsel for the respondents submitted
that, the Securities Market Regulator is an Expert
Body, with a mandate to protect, the interest of the
investors and therefore, contended that, the judicial
review over the Regulatory Body under the Act, is
limited and in this regard, places reliance on the
judgment of the Hon'ble Supreme Court in the case of
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Vishal Tiwari vs. Union of India and others
reported in (2024) 4 SCC 115.
39. Lastly, it is argued by the learned Senior
Counsel for the respondents with regard to reply made
by the learned Senior Counsel for the petitioners that,
Section 11(4A) and 11B(2), of the Act, was inserted by
way of amendment, which came into force on
08.03.2019, wherein, the alleged violation against the
petitioners is during the year 2018 and as no cause of
action to initiate Inquiry accordingly, it is argued by the
learned Senior Counsel for the respondents that, the
Board under the Act has empowered to impose
penalties, and the provision under Section 11(1), 11(4)
and 11B(1) of the Act, existed even before insertion
through the amendment during, 2018 and therefore,
sought for dismissal of the writ petitions.
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ANALYSIS:
40. In the light of the submissions made by the
learned counsel appearing for the parties, the following
questions have to be answered in these writ petitions.
(i) Whether the impugned notices are liable to
be quashed as there is pre-meditated action by
the respondent-authorities ?
(ii) Whether the petitioners have made out a
case for interference, as the action by the
respondents in issuing impugned notice, calling
for explanation, for alleged offence of trading
under the Act, under Article 226 of Constitution
of India ?
41. Since the principal question in these writ
petitions as to attack the impugned notice, at
Annexure-A, it is relevant to ascertain as to the nature,
scope and the relevancy of averments in the notice in
larger perspective. In this regard, it is relevant cite the
judgment of the Hon'ble Supreme Court in the case of
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Gorkha Security Services vs. Government of NCT
of Delhi and others reported in AIR 2014 SC 3371
as to mandatory requirement of the notice. Paragraphs
18 to 20 reads as under:
"18. Thus, there is no dispute about the requirement of
serving show-cause notice. We may also hasten to add that
once the show-cause notice is given and opportunity to reply
to the show-cause notice is afforded, it is not even necessary
to give an oral hearing. The High Court has rightly repudiated
the appellant's attempt in finding foul with the impugned
order on this ground. Such a contention was specifically
repelled in Patel Engg. [Patel Engg. Ltd. v. Union of India,
(2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445]
19. The central issue, however, pertains to the requirement
of stating the action which is proposed to be taken. The
fundamental purpose behind the serving of show-cause notice
is to make the noticee understand the precise case set up
against him which he has to meet. This would require the
statement of imputations detailing out the alleged breaches
and defaults he has committed, so that he gets an
opportunity to rebut the same. Another requirement,
according to us, is the nature of action which is proposed to
be taken for such a breach. That should also be stated so that
the noticee is able to point out that proposed action is not
warranted in the given case, even if the defaults/breaches
complained of are not satisfactorily explained. When it comes
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to blacklisting, this requirement becomes all the more
imperative, having regard to the fact that it is harshest
possible action.
20. The High Court has simply stated that the purpose of
show-cause notice is primarily to enable the noticee to meet
the grounds on which the action is proposed against him. No
doubt, the High Court is justified to this extent. However, it is
equally important to mention as to what would be the
consequence if the noticee does not satisfactorily meet the
grounds on which an action is proposed. To put it otherwise,
we are of the opinion that in order to fulfil the requirements
of principles of natural justice, a show-cause notice should
meet the following two requirements viz:
(i) The material/grounds to be stated which according to the
department necessitates an action;
(ii) Particular penalty/action which is proposed to be taken. It
is this second requirement which the High Court has failed to
omit.
We may hasten to add that even if it is not specifically
mentioned in the show-cause notice but it can clearly and
safely be discerned from the reading thereof, that would be
sufficient to meet this requirement."
42. It is the case of the petitioners, that, Section 15-I
of the Act, empowers on officers of rank, Division Chief
and above, are the competent officers to issue the
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impugned notice under Act. It is argued by the learned
Senior Counsel for the petitioners that, the delegation
under Section 19 of the Act, empowers the deligatee,
to adjudicate the dispute and Section 15-I of the Act,
does not provide any officer below the rank of Chief
General Manager to be an Adjudicating Officer. Chapter
6A, comprising Section 15A, to 15JB, of the Act,
provides for penalties and adjudication. For easy
reference to resolve the contentions of the parties, it is
relevant to extract certain provisions of the Act.
Section 15-I of the Act, provides as under:
Section 15-I. Power to Adjudicate.- (1) For the purpose
of adjudicating under sections 15A, 15B, 15C, 15D, 15E,
[15EA, 15EB,] 15F, 15G, [15H, 15HA and 15HB], the Board
[may] appoint any officer not below the rank of a Division
Chief to be an adjudicating officer for holding an inquiry in
the prescribed manner after giving any person concerned a
reasonable opportunity of being heard for the purpose of
imposing any penalty.
(2) While holding an inquiry the adjudicating officer shall
have power to summon and enforce the attendance of any
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person acquainted with the facts and circumstances of the
case to give evidence or to produce any document which in
the opinion of the adjudicating officer, may be useful for or
relevant to the subject matter of the inquiry and if, on such
inquiry, he is satisfied that the person has failed to comply
with the provisions of any of the sections specified in sub-
section(1), he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.
(3) The Board may call for and examine the record of any
proceedings under this section and if it considers that the
order passed by the adjudicating officer is erroneous to the
extent it is not in the interests of the securities market, it
may, after making or causing to be made such inquiry as it
deems necessary, pass an order enhancing the quantum of
penalty, if the circumstances of the case so justify.
Provided that no such order shall be passed unless the
person concerned has been given an opportunity of being
heard in the matter:
Provided further that nothing contained in this sub-section
shall be applicable after an expiry of a period of three months
from the date of the order passed by the adjudicating officer
or disposal of the appeal under section 15T, whichever is
earlier.
(underlined by me)
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43. Section 19 of the Act, provides for delegation,
which reads as under:
Section 19. Delegation.- The Board may, be general or
special order in writing delegate to any member, officer of
the Board or any other person subject to such conditions, if
any, as may be specified in the order, such of its powers and
functions under this Act (except the powers under section
29) as it may deem necessary.
44. Chapter IV of the Act, provides for powers and
functions of the Board. Section 11B of the Act, is
extracted below:
Section 11B. Power to issue directions and levy
penalty.- [(1)] Save as otherwise provided in section 11, if
after making or causing to be made an enquiry, the Board is
satisfied that it is necessary-
(i) in the interest of investors, or orderly
development of securities market; or
(ii) to prevent the affairs of any intermediary or other
persons referred to in section 12 being conducted in a
manner detrimental to the interests of investors or securities
market; or
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(iii) to secure the proper management of any such
intermediary or person,
it may issue such directions,-
(a) to any person or class of persons referred to in
section 12m or associated with the securities market; or
(b) to any company in respect of matters specified in
section11A, as may be appropriate in the interests of
investors in securities and the securities market.
[(2) Without prejudice to the provisions contained in
sub-section(1), sub-section (4A) of the section 11 and
section 15-I, the Board may, by an order, for reasons to be
recorded in writing, levy penalty under sections 15A, 15B,
15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB
after holding an inquiry in the prescribed manner.
Explanation.- For the removal of doubts, it is hereby
declared that the power to issued directions under this
section shall include and always be deemed to have been
included the power to direct any person, who made profit or
averted loss by indulging in any transaction or activity in
contravention of the provisions of this Act or regulations
made thereunder, to disgorge an amount equivalent to the
wrongful gain made or loss averted by such contraventions.
45. The definition of 'Board', under Section 2(a) of the
Act, which provides that, the Board constituted under
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Section 3 of the Act. It is also relevant to extract, Rule
2(b) and Rule 2(c) of Rules, 1995, which provides as
under:
Rule 2(b): "adjudicating officer" means the officer appointed
by the Board as adjudicating officer under section 15I of the
Act;
Rule 2 (c): "inquiry" means the inquiry referred in sub-
section (4A) of section 11 or sub-section (2) of section 11B
or section 15-I of the Act.
(Underlined by me)
46. Rule 4 of Rules, 1995 provides as under:
4. Holding of inquiry. (1) In holding an inquiry for the
purpose of adjudging under sections 15A, 15B, 15C, 15D,
15E, [15EA, 15EB,] 15F, 15G [, 15HA and 15HB] whether
any person has committed contraventions as specified in any
of sections 15A, 15B, 15C, 15D, 15E, [15EA, 15EB,] 15F,
15G [, 15HA and 15HB] the [the Board or the adjudicating
officer] shall, in the first instance, 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 fourteen
days from the date of service thereof) why an inquiry should
not be held against him.
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(2) Every notice under sub-rule (1) to any such person shall
indicate the nature of offence alleged to have been
committed by him.
(3) If, after considering the cause, if any, shown by such
person, the [the Board or the adjudicating officer] 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 lawyer or other authorised
representative.
(4) On the date fixed, the [the Board or the adjudicating
officer] shall explain to the person proceeded against or his
lawyer or authorised representative, the offence, alleged to
have been committed by such person indicating the
provisions of the Act, rules or regulations in respect of which
contravention is alleged to have taken place.
(5) The [the Board or the adjudicating officer] shall then
give an opportunity to such person to produce such
documents or evidence as he may consider relevant to the
inquiry and if necessary the hearing may be adjourned to a
future date and in taking such evidence the [the Board or
the adjudicating officer] shall not be bound to observe the
provisions of the Evidence Act, 1872 (11 of 1872) :
Provided that the notice referred to in sub-rule (3), and the
personal hearing referred to in sub-rules (3), (4) and (5)
may, at the request of the person concerned, be waived.
[(5A) The Board may appoint a presenting officer in an
inquiry under this rule.]
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(6) While holding an inquiry under this rule the 16[the Board
or the adjudicating officer] shall have the power to summon
and enforce the attendance of any person acquainted with
the facts and circumstances of the case to give evidence or
to produce any document which, in the opinion of the [the
Board or the adjudicating officer], may be useful for or
relevant 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 19[the Board or the adjudicating
officer] may proceed with the inquiry in the absence of such
person after recording the reasons for doing so.
(Underlined by me)
47. It is not in dispute that, impugned notices are
issued by the Deputy General Manager of the
respondent-authority under Section 11B of the Act. The
alleged, transaction /trading as mentioned in the
notice is during the period from 01.12.2017 to
21.06.2018. The respondent-SEBI suspects, the
involvement of LVB Board Meeting, on 25.05.2018 to
raise plans as to involvement in the financial aspect of
JP Morgan India Pvt. Ltd., at paragraph 20 of the
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impugned notice in W.P.No.3525 of 2022, reads as
under: (page 48).
20. In light of the aforesaid, it is alleged that:
(a) Noticees No.1,2,3 and 7 have communicated UPSI in
violation of 12 A(e) read with Section 15G of SEBI Act and
Regulation 3(1) of Insider Trading Regulations, 2015.
(b)Noticee No.1 and Noticess No.3 to 8 have traded in the
script of LVB on the basis of UPSI in violation of Section
12A(d) and (e) read with Section 15G of SEBI Act and
Regulation 4 (1) read with Regulation 4(2) of Insider Trading
Regulations, 2015.
(Emphasised by me)
48. It is pertinent to mention here that, the aforesaid
paragraph 20 indicates that "noticee Nos. 1, 2 3 and 7
have communicated" and further "traded in script of
LVB" and these unambiguous words, undoubtedly,
express that, such noticees have committed an office
under the Act and is nothing but concluding the Inquiry
itself by issuing impugned notice by the respondents.
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49. Paragraph 21 impugned notice is began with the
word, "In view of the aforesaid violations". Paragraph
25 of the impugned notice, provides for enclosing the
relied upon the documents as per the list of enclosures.
50. In Paragraphs 25 and 26 of the impugned notice
at Annexure-A in W.P.No.3525 of 2022, which provides
as under:
25. The documents relied upon in the notice have been
annexed as per the list of enclosures.
26. The Noticees may also note that a settlement mechanism
is provided under the SEBI (Settlement Proceedings)
Regulations, 2018. If the Noticees wish to opt for the
settlement process, they may apply for the same in the
manner given in the aforementioned regulations under
intimation to the undersigned. Further, they may not that
filing of settlement application does not confer any right to
seek the settlement of the proceedings.
(Emphasis supplied)
51. Having noticed the aforementioned Clause in the
impugned notice, if the enclosures have not reached
the petitioners, and thereby, the petitioners have
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requested for those documents in their letters and e-
mails and as such, there was no impediment for the
respondents to furnish the same. Be that as it may be,
atleast, to maintain fairness in action, respondents
ought to have supplied the relied upon documents to
the petitioners and without doing so, the respondents
have called upon the petitioners to inspect those
documents at their office and that apart, rejecting their
plea for seeking documents could not satisfy the test of
principle of wednesbury of natural justice.
52. It is pertinent to mention here that, it is
contention of the learned Senior Counsel for the
respondents that, not only adjudicating authorities
under Section 15-I of the Act, which provides for
adjudication of the disputes under Section 15A, 15B,
15C, 15D, 15E, (15EA, 15EB,) 15F, 12G, 15H, 15HA,
and 15HB of the Act, wherein, the word "may" is used
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empowering the Board, to appoint any officer, not
below the rank of Chief General Manager as
Adjudicating Officer. In this regard, taking into
consideration the power of delegation under Section 19
of the Act has to be read conjointly with Section 15-I of
the Act, which provides for power to adjudicate
including an offence under Section 15G, of the Act,
which connotes for allegation as to Insider Trading.
53. It is pertinent to ascertain the relevant Clause of
definition as per Regulations 2015, wherein, Section
2(d) to the word 'connected person'. Section 2(g) of
the Regulation provides for definition to word 'Insider':
Section 2(g) of the said Regulation reads as under:
1. " (g) "insider" means any person who is:
i) a connected person; or
ii) in possession of or having access to unpublished
price sensitive information;
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54. In the backdrop of the aforementioned provisions
of the Act, Rules, and Regulations referred to above,
the word 'may' is required to be interpreted by looking
into the text and the context in which such expression
is mentioned, under the specific provision, in which,
such, "delegation" is provided. In this regard, it is
relevant to follow the declaration of the Hon'ble
Supreme Court in the case of Vijay Karia and others
vs. Prysmian Cavi E Sistemi SRL and others
reported in (2020) 11 SCC 1, and paragraph 59 reads
as under:
"59. On the other hand, where the grounds taken to resist
enforcement can be said to be linked to party interest alone,
for example, that a party has been unable to present its
case before the arbitrator, and which ground is capable of
waiver or abandonment, or, the ground being made out, no
prejudice has been caused to the party on such ground
being made out, a court may well enforce a foreign award,
even if such ground is made out. When it comes to the
"public policy of India" ground, again, there would be no
discretion in enforcing an award which is induced by fraud or
corruption, or which violates the fundamental policy of
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Indian law, or is in conflict with the most basic notions of
morality or justice. It can thus be seen that the expression
"may" in Section 48 can, depending upon the context, mean
"shall" or as connoting that a residual discretion remains in
the court to enforce a foreign award, despite grounds for its
resistance having been made out. What is clear is that the
width of this discretion is limited to the circumstances
pointed out hereinabove, in which case a balancing act may
be performed by the court enforcing a foreign award."
(Underlined by me)
55. Following the declaration of law made by the
Hon'ble Supreme Court with reference to legislative
intent therein, the competent authority under the Act
to issue the notice is the Officer of the rank of CGM,
and above only, and not any officer below the rank of
CGM. In that view of the matter, "delegation" cannot
be understood distancing from other provisions in the
same Act, made under Section 19 of the Act nor any
such officer below the rank of Chief General Manager
and therefore, I find force in the submission made by
the learned Senior counsel for the petitioners that, the
impugned notices being issued by the respondent
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No.2-DGM, who is undoubtedly incompetent authority
and below the rank of Chief General Manager, and
therefore, the impugned notices are liable to be
quashed.
56. Though the learned Senior Counsel for the
respondents vehemently argued that, normally this
court does not interfere with challenging the show-
cause notice, however, if such notice is issued by an
incompetent authority and same has to be interfered
with under Article 226 of Constitution of India, as
such action is without jurisdiction. In this regard, it is
relevant to cite the judgment of the Hon'ble Supreme
Court in the case of Whirlpool (supra), wherein
paragraph 15 and 19 reads as under:
"15. Under Article 226 of the Constitution, the High Court,
having regard to the facts of the case, has a discretion to
entertain or not to entertain a writ petition. But the High
Court has imposed upon itself certain restrictions one of
which is that if an effective and efficacious remedy is
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available, the High Court would not normally exercise its
jurisdiction. But the alternative remedy has been
consistently held by this Court not to operate as a bar in at
least three contingencies, namely, where the writ petition
has been filed for the enforcement of any of the
Fundamental Rights or where there has been a violation of
the principle of natural justice or where the order or
proceedings are wholly without jurisdiction or the vires of an
Act is challenged. There is a plethora of case-law on this
point but to cut down this circle of forensic whirlpool, we
would rely on some old decisions of the evolutionary era of
the constitutional law as they still hold the field.
***
19. Another Constitution Bench decision in Calcutta Discount
Co. Ltd. v. ITO, Companies Distt. I [AIR 1961 SC 372 :
(1961) 41 ITR 191] laid down:
"Though the writ of prohibition or certiorari will not issue
against an executive authority, the High Courts have power
to issue in a fit case an order prohibiting an executive
authority from acting without jurisdiction. Where such action
of an executive authority acting without jurisdiction subjects
or is likely to subject a person to lengthy proceedings and
unnecessary harassment, the High Courts will issue
appropriate orders or directions to prevent such
consequences. Writ of certiorari and prohibition can issue
against the Income Tax Officer acting without jurisdiction
under Section 34, Income Tax Act."
(Underlined by me)
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57. The aforementioned judgment was reiterated by
the Hon'ble Supreme Court in the case of U.P. Power
Transmission Corp., Ltd and another vs. GG
Power & Industrial Solutions Ltd and another
reported in (2021) 6 SCC 15 (See paragraph 16).
58. Following the aforementioned judgments of the
Hon'ble Supreme Court, I am of the opinion that, the
delegation as provided under Section 19 of the Act,
shall be read in the light of the provisions contained
under Section 15-I, 15G and Section 11B(2) of the Act.
These provisions has to be read harmoniously by
looking into the other provisions in the same Act, which
is plain, unambiguous and clear in conveying the
intention of the legislation. In this regard, as the
language employed in the aforesaid provisions are
clear, plain and unambiguous, then the legislative
intent has to be given effect to and this Court has no
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jurisdiction to interfere with the intention of the makers
by filling up gaps in between the words of the
enactment, while exercising writ jurisdiction and as
such, it is relevant to cite the judgment of the Hon'ble
Supreme Court in the case of B. Premanand and
Others Vs. Mohan Koikal and Others reported in
(2011) 4 SCC 266, and in the case of State of
Jharkhand and Another Vs. Govind Singh reported
in (2005) 10 SCC 437.
59. It is to be noted that, in the light of the judgment
of the Hon'ble Supreme Court in the case of Collector
(District Magistrate) Alahabad and another vs.
Raja Ram Jaiswal reported in AIR 1985 SC 1622, it
is held that when the power is conferred to achieve a
certain purpose, that power can be exercised only for
achieving that purpose and not for extraneous
consideration, nor for irrelevant consideration nor for
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colourable exercise of power. In the case of
Mackinnon Mackenzie and Company Ltd vs.
Mackinno Employees Union reported in (2015) 4
SCC 544, it is held that, if a statute prescribe a
particular procedure, it should be done in the particular
manner alone and any deviation from such provision in
an enactment amounts to without jurisdiction. The
aforementioned dictum was recently considered by the
Hon'ble Supreme Court in the case of OPTO Circuits
India Ltd vs. Axis Bank and others reported in AIR
2021 SC 753. paragraph 15 reads as under:
"15. This Court has time and again emphasised that if a
statute provides for a thing to be done in a particular
manner, then it has to be done in that manner alone and in
no other manner. Among others, in a matter relating to the
presentation of an election petition, as per the procedure
prescribed under the Patna High Court Rules, this Court had
an occasion to consider the Rules to find out as to what
would be a valid presentation of an election petition
in Chandra Kishore Jha v. Mahavir Prasad [Chandra Kishore
Jha v. Mahavir Prasad, (1999) 8 SCC 266] and in the course
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of consideration observed as hereunder : (SCC p. 273, para
17)
"17. ... It is a well-settled salutary principle that if a
statute provides for a thing to be done in a particular
manner, then it has to be done in that manner and in no
other manner."
Therefore, if the salutary principle is kept in perspective, in
the instant case, though the authorised officer is vested with
sufficient power; such power is circumscribed by a procedure
laid down under the statute. As such the power is to be
exercised in that manner alone, failing which it would fall
foul of the requirement of complying with due process under
law. We have found fault with the authorised officer and
declared the action bad only insofar as not following the
legal requirement before and after freezing the account. This
shall not be construed as an opinion expressed on the merit
of the allegation or any other aspect relating to the matter
and the action initiated against the appellant and its
Directors which is a matter to be taken note of in
appropriate proceedings if at all any issue is raised by the
aggrieved party."
60. In the case of T. Takano (supra), wherein, the
question has to furnish the material to the aggrieved
parties, and non-disclosure of the report therein, by
the authorities under SEBI, and as such, the Hon'ble
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Supreme Court, held that, it is a clear violation of
Regulations and principles of natural justice.
Paragraphs 30 and 45 of the said judgment reads as
under:
"30. It would be fundamentally contrary to the principles of
natural justice if the relevant part of the investigation report
which pertains to the appellant is not disclosed. The
appellant has to be given a reasonable opportunity of
hearing. The requirement of a reasonable opportunity would
postulate that such material which has been and has to be
taken into account under Regulation 10 must be disclosed to
the noticee. If the report of the investigating authority under
Regulation 9 has to be considered by the Board before
satisfaction is arrived at on a possible violation of the
regulations, the principles of natural justice require due
disclosure of the report.
***
45. The principle that the material that may influence the
decision of a quasi-judicial authority to award a penalty
must be disclosed to a delinquent was affirmed by this Court
in Union of India v. Mohd. Ramzan Khan [Union of
India v. Mohd. Ramzan Khan, (1991) 1 SCC 588 : 1991 SCC
(L&S) 612] . In that case, this Court laid down that a
delinquent officer is entitled to receive the report of the
enquiry officer which has been furnished to the disciplinary
authority. This principle was affirmed by a Constitution
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Bench of this Court in ECIL v. B. Karunakar [ECIL v. B.
Karunakar, (1993) 4 SCC 727 : 1993 SCC (L&S) 1184] . The
rationale behind the right to receive the report of the
enquiry officer was explained by this Court in the following
terms : (ECIL case [ECIL v. B. Karunakar, (1993) 4 SCC 727
: 1993 SCC (L&S) 1184] , SCC p. 754, para 26)
"26. The reason why the right to receive the report
of the enquiry officer is considered an essential part of the
reasonable opportunity at the first stage and also a
principle of natural justice is that the findings recorded by
the enquiry officer form an important material before the
disciplinary authority which along with the evidence is
taken into consideration by it to come to its conclusions. It
is difficult to say in advance, to what extent the said
findings including the punishment, if any, recommended in
the report would influence the disciplinary authority while
drawing its conclusions. The findings further might have
been recorded without considering the relevant evidence
on record, or by misconstruing it or unsupported by it. If
such a finding is to be one of the documents to be
considered by the disciplinary authority, the principles of
natural justice require that the employee should have a fair
opportunity to meet, explain and controvert it before he is
condemned. It is negation of the tenets of justice and a
denial of fair opportunity to the employee to consider the
findings recorded by a third party like the enquiry officer
without giving the employee an opportunity to reply to it.
Although it is true that the disciplinary authority is
supposed to arrive at its own findings on the basis of the
evidence recorded in the inquiry, it is also equally true that
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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 own conclusions, the
delinquent employee should have an opportunity to reply
to the enquiry officer's findings. The disciplinary authority
is then required to consider the evidence, the report of the
enquiry officer and the representation of the employee
against it."
(emphasis supplied)
61. Following the declaration of law made by the
Hon'ble Supreme Court, the requirement as provided
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under Section 19 of the Act is mandatory, as the same
provision has not changed/altered/modified in exercise
of power by the competent authority, and also even
the amendment has been made to Section 11-4A of
the Act, did not alter mandatory provision contained
under Section 19 of the Act. Hence, it may be
concluded that, this court normally will not interfere
with a show-cause notice, in a writ proceedings under
Article 226 of Constitution of India, unless the such
notice is issued by an incompetent authority as
required under a particular enactment and therefore, if
such notice is issued by the incompetent authority,
then such writ petitions are required to be interfered
with as same are without jurisdiction.
62. In the light of the submission made by the learned
Senior Counsel appearing for the petitioners, on careful
reading of the averments made in the impugned
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notice, I am of the opinion that, the impugned notices
suffer from infirmity, as it vitiates on the ground as, it
contains conclusive and pre-determination by the
respondents herein, and as such, paragraphs 20 and
21 of the impugned notices as extracted above, though
used the word "alleged", however, the respondent-
authorities have clearly stated as to the violation of
Section 12A(e), 12A(d) and read with Section 15G of
the Act, and Section 3(1)(4) of the Regulations. It is
well established principle in law that, if a notice is
issued by the quasi-judicial authority under a statutory
Regulations/Rule, it is the duty of the authority issuing
such notice shall offer explanation for the alleged
violation from the aggrieved party/noticee, based on
the undecided allegations made thereunder.
63. Having taken note of the averments made in the
impugned notice, wherein, the respondents proceeded
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to assert that, the petitioners "Communicated UPSI"
and "Traded while in possession of UPSI" which makes
it clear that, the respondents had issued notices to the
petitioners as an empty formality to offer explanation,
despite decided to take action, under the Act. At this
stage it is relevant to cite the judgment of Hon'ble
Supreme Court in the case of Aigargh Muslim
University and others vs. Mansoor Ali Khan
reported in (2000) 7 SCC 529, paragraph 25 reads as
under:
"25. The "useless formality" theory, it must be noted, is an
exception. Apart from the class of cases of "admitted or
indisputable facts leading only to one conclusion" referred to
above, there has been considerable debate on the application of
that theory in other cases. The divergent views expressed in
regard to this theory have been elaborately considered by this
Court in M.C. Mehta [(1999) 6 SCC 237] referred to above. This
Court surveyed the views expressed in various judgments in
England by Lord Reid, Lord Wilberforce, Lord Woolf, Lord
Bingham, Megarry, J. and Straughton, L.J. etc. in various cases
and also views expressed by leading writers like Profs. Garner,
Craig, de Smith, Wade, D.H. Clark etc. Some of them have said
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that orders passed in violation must always be quashed for
otherwise the court will be prejudging the issue. Some others
have said that there is no such absolute rule and prejudice must
be shown. Yet, some others have applied via media rules. We
do not think it necessary in this case to go deeper into these
issues. In the ultimate analysis, it may depend on the facts of a
particular case."
64. In the case of Siemens Ltd (supra), paragraph 9
reads as under:
"9. Although ordinarily a writ court may not exercise its
discretionary jurisdiction in entertaining a writ petition
questioning a notice to show cause unless the same inter
alia appears to have been without jurisdiction as has been
held by this Court in some decisions including State of
U.P. v. Brahm Datt Sharma [(1987) 2 SCC 179 : (1987) 3
ATC 319 : AIR 1987 SC 943] , Special Director v. Mohd.
Ghulam Ghouse [(2004) 3 SCC 440 : 2004 SCC (Cri) 826]
and Union of India v. Kunisetty Satyanarayana [(2006) 12
SCC 28 : (2006) 12 Scale 262] , but the question herein has
to be considered from a different angle viz. when a notice is
issued with premeditation, a writ petition would be
maintainable. In such an event, even if the court directs the
statutory authority to hear the matter afresh, ordinarily such
hearing would not yield 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
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explicitly said so both in the counter-affidavit as also in its
purported show-cause notice."
65. It is also relevant to cite the judgment of the
Hon'ble Supreme Court in the case of Oryx Fisheries
Pvt Ltd (supra), paragraph 31 reads as under:
"31. It is of course true that the show-cause notice cannot
be read hypertechnically and it is well settled that it is to be
read reasonably. But one thing is clear that while reading a
show-cause notice the person who is subject to it must get
an impression that he will get an effective opportunity to
rebut the allegations contained in the show-cause notice and
prove his innocence. If on a reasonable reading of a show-
cause notice a person of ordinary prudence gets the feeling
that his reply to the show-cause notice will be an empty
ceremony and he will merely knock his head against the
impenetrable wall of prejudged opinion, such a show-cause
notice does not commence a fair procedure especially when
it is issued in a quasi-judicial proceeding under a statutory
regulation which promises to give the person proceeded
against a reasonable opportunity of defence."
66. Following the dictum of Hon'ble Supreme Court in
the aforementioned decisions, I am of the opinion that,
the impugned notice suffers from infirmity and errors
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in the law and facts. Therefore, I find force in the
submission made by the learned Senior Counsel for the
petitioners.
67. Lastly, insofar as the submission made by the
learned Senior Counsel appearing for the petitioners
with regard to breach of principles of natural justice as
the respondents have not provided relied upon
documents to the petitioners, particularly investigation
report, the learned Senior Counsel for the respondents
countered by relying upon the judgment of the Hon'ble
Supreme Court, in the case of Kavi Arora (supra) to
over-come, the ruling in T.Takano, (supra). In this
regard, learned Senior Counsel Smt. Lakshmy Iyengar,
rightly places reliance on the judgment of three judges
Bench, in the case of Reliance Industries Ltd.,
(supra), wherein, the Hon'ble Supreme Court had an
occasion, to consider T.Takano case, and confirmed,
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the fact as to disclosure of documents by the
respondent-authorities, being a statutory authorities
and in the said case, particularly, the direction was
issued for disclosure of the document against SEBI only
and as such, affirmed the judgment in the T.Takano
case, and therefore, I am of the opinion that, the
submission made by the learned Senior Counsel for the
respondents cannot be accepted. It is also to be noted
that, the Hon'ble Supreme Court in the case of S.L.
Kapoor (supra), at paragraphs 16 and 17 held as
follows:
"16. Thus on a consideration of the entire material
placed before us we do not have any doubt that the
New Delhi Municipal Committee 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 that action was proposed. If
there was any correspondence between the New Delhi
Municipal Committee and any other authority about the
subject-matter of any of the allegations, if information
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was given and gathered it was for entirely different
purposes. In our view, 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. We do not suggest that the
opportunity need be a "double opportunity" that is, one
opportunity on the factual allegations and another on
the proposed penalty. Both may be rolled into one. But
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 the requirements are met. We disagree
with the finding of the High Court that the Committee
had the opportunity to meet the allegations contained
in the order of suppression.
17. Linked with this question is the question whether
the failure to observe natural justice does at all matter
if the observance of natural justice would have made
no difference, the admitted or indisputable facts
speaking for themselves. Where on the admitted or
indisputable facts only one conclusion is possible and
under the law only one penalty is permissible, the court
may not issue its writ to compel the observance of
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natural justice, not because it approves the non-
observance of natural justice but because courts do not
issue futile writs. But it will be a pernicious principle to
apply in other situations where conclusions are
controversial, however, slightly, and penalties are
discretionary."
68. Following the declaration of law made by the
Hon'ble Supreme Court in the aforementioned cases, I
have carefully examined the memo dated 16.12.2024,
filed by the respondents along with the office note
wherein, the approval of the competent authority, was
obtained for issuance of show-cause notice, which is a
note sheet, is nothing but a draft notice, which requires
some more material is to be added to it. However,
same has been approved by DGM, with following
words:
"3.IVD-ID6 may issue the SCN after suitably incorporating
the aforesaid observations/modifications."
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69. On careful looking into the draft with corrections
approved therein annexed in the memo filed by the
respondents, no final draft was placed by the DGM
after making necessary corrections, before the CGM or
higher authorities, seeking their approval as mentioned
in the note sheet, and therefore, the impugned notices
lacks jurisdiction, incompleteness and suffers from
merit, claiming explanation from the petitioners.
Having perused the impugned notice, I am of the
opinion that, the impugned notice is liable to be
quashed as it has not passed through the test of
reasonableness, justness, and fairness to meet the
demands of Rule of law principles.
70. Foregoing reasons and the binding precedent of
the Hon'ble Supreme Court in the aforementioned
decisions, I am of the opinion that, the impugned
notices have been issued by an incompetent authority
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and the averments made in the impugned notice, in
whole, would indicate the conclusive and pre-
determined action by the respondents against the
petitioners, and that apart, having not furnished
Investigation Report, and such other documents sought
for by the petitioners which are relied upon by the
respondents, amounts to violation of principles of
natural justice and therefore, questions framed above
favour the petitioners. In the result, I pass the
following:
ORDER
i) Writ petitions are allowed;
ii) In W.P.No.3525 of 2022, the notice dated
22.09.2021 (Annexure-A) issued by the
respondent No.2, in favour of the
petitioner/noticee No.8, is hereby
quashed;
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iii) In W.P.No.3519 of 2022, the notice dated
22.09.2021 (Annexure-A) issued by the
respondent No.2, in favour of the
petitioner/noticee No.3, is hereby
quashed;
iv) In W.P.No.25261 of 2022, the notice dated
22.09.2021 (Annexure-A) issued by the
respondent No.2, in favour of the
petitioners/noticee Nos.4 to 7, is hereby
quashed.
SD/-
(E.S.INDIRESH)
JUDGE
SB
List No.: 1 Sl No.: 1
