Asha Vijaykumar Chopra And Anr. vs Sebi

Date of Hearing : 06.09.2019 Date of Decision : 24.09.2019

Appeal No. 100 of 2018

1.

Asha Vijaykumar Chopra

2. Gulshan Vijaykumar Chopra

Niraj House, Sundar Baug, Near Deonar Bus Depot, Chembur, Mumbai - 400 088. ..... Appellants

Versus

The Recovery Officer Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Prakash Shah, Advocate i/b Prakash Shah & Associates for the Appellants.

Mr. Gaurav Joshi, Senior Advocate with Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b ELP for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member Justice M. T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer

1. Securities and Exchange Board of India (hereinafter referred to

as, 'SEBI') carried out an investigation in respect of buying, selling 2

and dealing in shares of M/s. Niraj Cement Structuals Ltd. In the

investigation, it was found that Vijaykumar Rajkumar Chopra,

husband of the appellant and now deceased had violated the

provisions of Regulation 29(1) and 29(2) of the Securities and

Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011 (hereinafter referred to as, 'SAST

Regulations') as well as Regulation 13(5) of the Securities and

Exchange Board of India (Prohibition of Insider Trading)

Regulations, 1992 (hereinafter referred to as, 'PIT Regulations').

Consequently, a show cause notice was issued and, after granting an

opportunity of personal hearing, the Adjudicating Officer (hereinafter

referred to as, 'AO') passed an order dated September 24, 2014

imposing a penalty of Rs. 12 lacs under Section 15A(b) of the

Securities and Exchange Board of India Act, 1992 (hereinafter

referred to as, 'SEBI Act') for the aforesaid violation. An appeal was

filed and, during the pendency of the appeal, Vijaykumar Rajkumar

Chopra died on November 5, 2015. Accordingly, this Tribunal by

order dated August 19, 2016 dismissed the appeal as abated.

2. After the death of the appellant's husband the respondent

initiated recovery proceedings against Vijaykumar Rajkumar Chopra

vide certificate No. 914 of 2016 dated June 15, 2016 and vide

attachment proceeding No. 2549 of 2016 dated June 15, 2016

attached the bank account of Vijaykumar Rajkumar Chopra. Vide 3

attachment proceeding No. 2550 of 2016 dated June 15, 2016 the

demat account of the deceased was also attached. It transpires that

the respondent thereafter addressed a letter to the appellants to appear

before the recovery officer. Objections were raised by the appellants

contending that recovery proceedings now cannot be initiated nor

continued. Inspite of these objections, the recovery officer issued the

recovery certificate dated March 27, 2018 for recovery of

Rs. 17,05,986/- pursuant to the penalty order. The appellants being

aggrieved by the recovery certificate has filed the present appeal.

3. The short question that arises for consideration in the present

appeal is, whether recovery proceedings can continue against the

legal representative of the deceased.

4. We have heard Shri Prakash Shah, the learned counsel for the

appellants and Shri Gaurav Joshi, the learned senior counsel with

Shri Abhiraj Arora and Shri Vivek Shah, the learned counsel for the

respondent.

5. We find that recourse to the recovery proceeding has been

initiated under Section 28A of the SEBI Act. For facility, the said

provision is extracted hereunder :-

"28A. (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund of monies or fails to comply with a direction of disgorgement order issued 4

under section 11B or fails to pay any fees due to the Board, the Recovery Officer may draw up under his signature a statement in the specified form specifying the amount due from the person (such statement being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the amount specified in the certificate by one or more of the following modes, namely:--

(a) attachment and sale of the person's movable property;

(b) attachment of the person's bank accounts;

(c) attachment and sale of the person's immovable property;

(d) arrest of the person and his detention in prison;

(e) appointing a receiver for the management of the person's movable and immovable properties,

and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232, the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time, in so far as may be, apply with necessary modifications as if the said provisions and the rules made thereunder were the provisions of this Act and referred to the amount due under this Act instead of to income-tax under the Income-tax Act, 1961.

Explanation 1.-- For the purposes of this sub-section, the person's movable or immovable property or monies held in bank accounts shall include any property or monies held in bank accounts which has been transferred directly or indirectly on or after the date when the amount specified in certificate had become due, by the person to his spouse or minor child or son's wife or son's minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property or monies held in bank accounts so transferred to his minor child or his son's minor child is 5

concerned, it shall, even after the date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the person's movable or immovable property or monies held in bank accounts for recovering any amount due from the person under this Act.

Explanation 2.-- Any reference under the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962 to the assessee shall be construed as a reference to the person specified in the certificate.

Explanation 3.-- Any reference to appeal in Chapter XVIID and the Second Schedule to the Income-tax Act, 1961, shall be construed as a reference to appeal before the Securities Appellate Tribunal under section 15T of this Act.

(2) The Recovery Officer shall be empowered to seek the assistance of the local district administration while exercising the powers under sub-section (1).

(3) Notwithstanding anything contained in any other law for the time being in force, the recovery of amounts by a Recovery Officer under sub-section (1), pursuant to non- compliance with any direction issued by the Board under section 11B, shall have precedence over any other claim against such person.

(4) For the purposes of sub-sections (1), (2) and (3), the expression "Recovery Officer" means any officer of the Board who may be authorised, by general or special order in writing, to exercise the powers of a Recovery Officer."

6. The aforesaid provision indicates that if a person fails to pay

the penalty, the recovery officer after drawing a certificate, can

proceed to recover from the said person the amount specified in the

certificate by adopting one or more of the following modes, namely, 6

attachment and sale of the person's movable property; attachment of

person's bank account; attachment and sale of the persons

immovable property; arrest of the person and detention in prison

appointing a receiver for the management of the person's movable

and immovable properties. For the aforesaid purpose, the provision

of Section 220 to 227, 228-A, 229 232 as well as the Second and

Third Schedule to the Income Tax Act, 1961 would apply as far as

possible.

7. The term 'person' has not been defined under the SEBI Act

and, therefore, recourse is taken to the General Clauses Act, 1897.

Section 3(42) of the General Clauses Act, 1897 defines 'person' as

under :

"person" shall include any company or association or body of individuals, whether incorporated or not."

8. The Hon'ble Supreme Court in Shabina Abraham and Ors. vs.

Collector of Central Excise and Customs [(2015) 10 SCC 770] has

held that :

"person shall include any company or association or body of individuals whether incorporated or not. This definition does not take us any further as it does not include legal representatives of the persons who are since deceased."

7 9. In the light of the aforesaid, Section 28A cannot be made

applicable on the legal representatives of the deceased. The recovery

of penalty can only be made from the person who has committed the

default. Thus, recourse to recover the penalty from the legal

representatives of the deceased under Section 28A is patently

erroneous and without any authority of law.

10. In this regard, reliance on Rule 85 of the Second Schedule to

the Income Tax Act is misconceived. For facility Rule 85 is

extracted hereunder :-

"85. If at any time after the certificate is drawn up by the Tax Recovery Officer the defaulter dies, the proceedings under this Schedule (except arrest and detention) may be continued against the legal representative of the defaulter, and the provisions of this Schedule shall apply as if the legal representative were the defaulter."

11. From the aforesaid it is apparently clear that proceedings would

continue against the legal representative of the defaulter if the

defaulter dies after the certificate was drawn up by the tax recovery

officer. At the outset, Rule 85 is not applicable as we have already

held that Section 28A is not applicable. In any case, in the instant

case, recovery certificate was drawn on June 15, 2016 much after the

death of the appellant's husband who died on November 5, 2015.

The recovery certificate and the attachment proceedings was done 8

against a dead person which was without jurisdiction. Once the

person dies, recovery proceedings cannot continue and can only

continue against the legal representatives if the Statute provides

specifically.

11. Thus, we are of the opinion that SEBI Act and its Regulations

does not contain any provision to continue recovery proceedings

against the legal representative of the deceased. So long as there is

no separate machinery to proceed against the legal representative, the

cause of action comes to an end and recovery proceedings could no

longer continue.

12. In Shabina Abraham & Ors. (supra), the Hon'ble Supreme

Court was considering the provisions of the Central Excises and Salt

Act, 1944 and held that there was no separate machinery under the

Central Excises and Salt Act to proceed against the dead person and

consequently, held that recovery proceeding against the legal

representative of the deceased was without jurisdiction. The said

decision is squarely applicable in the instant case.

13. The learned counsel for the respondent placed reliance upon

the provision of Section 23JC which was inserted under the

Securities Contracts (Regulation) Act, 1956 by the Finance Act,

2018. For facility, the said provision is extracted hereunder :- 9

"157. After section 23JB of the principal Act, the following section shall be inserted namely :-

'23JC. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased:

Provided that, in case of any penalty payable under this Act, a legal representative shall be liable only in case the penalty has been imposed before the death of the deceased person.

(2) For the purposes of sub-section (1), -

(a) any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, initiated against the deceased before his death shall be deemed to have been initiated against the legal representative, and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased and all the provisions of this Act shall apply accordingly.

(b) any proceeding for disgorgement, refund or an action for recovery before the Recovery Officer under this Act, except a proceeding for levy of penalty, which could have been initiated against the deceased if he had survived, may be initiated against the legal representative and all the provisions of this Act shall apply accordingly.

(3) Every legal representative shall be personally liable for any sum payable by him in his capacity as legal representative if, while his liability for such sum remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.

(4) The liability of a legal representative under this section shall, be limited to the extent to which the estate of the deceased is capable of meeting the liability.

10 Explanation. - For the purposes of this section "Legal representative" means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character, the person on whom the estate devolves on the death of the party so suing or sued."

14. The said provision has not been notified as yet and, therefore,

no reliance can be taken by the respondent at this stage.

15. In the light of the aforesaid, the impugned recovery certificate

for recovery of Rs. 12 lacs cannot be sustained and is quashed. The

appeal is allowed. In the circumstances of the case, parties shall bear

their own costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 24.09.2019 Prepared & Compared by PTM