Karvy Stock Broking Ltd. vs Sebi

Date of decision : 21/01/2015

Appeal No.66 of 2014

Karvy Stock Broking Ltd.

Karvy House,

46, Avenue IV, Street No.1,

Road No.10, Banjara Hills,

Hyderabad - 500 034. ... Appellant

Versus

Securities and Exchange Board of India

SEBI Bhavan, Plot No.C-4A, "G" Block,

Bandra Kurla Complex,

Bandra (E), Mumbai - 400 051. ... Respondent

Mr. Navroz Seervai, Senior Advocate a/w Mr. Vinay Chauhan, Mr. K.C. Jacob and Mr. Apurv Gupta, Advocates for the Appellant.

Mr. Shiraz Rustomjee, Senior Advocate a/w Mr. Rushin Kapadia, Advocate i/b K.Ashar & Co. for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member A. S. Lamba, Member

Per : Justice J.P. Devadhar (Oral)

1.

Appellant is aggrieved by the order passed by the Whole Member of

Securities and Exchange Board of India (WTM, SEBI) on 14th March, 2014

whereby the Appellant is prohibited from taking up any new assignment or

contract or launch a new scheme for a period of six months as a stock broker. -2-

2. Apart from challenging the aforesaid order on merits, Appellant has

taken a preliminary issue relating to violation of principles of natural justice.

3. Dispute in the present case relates to violations allegedly committed

by Appellant during the period 2003-2005. On completion of investigation in

respect of the aforesaid violations, SEBI had issued show-cause notice to the

Appellant on 22/6/2006 and after hearing the Appellant, had passed an order

on 22/6/2007, inter alia, suspending the certificate of registration of the

Appellant as a member of National Stock Exchange of India Ltd., Bombay

Stock Exchange Ltd. and Hyderabad Stock Exchange Ltd. for a period of

three months.

4. On appeal, aforesaid Order dated 22/6/2007 was set aside by this

Tribunal and SEBI was directed to pass a fresh order on merits. Accordingly,

the impugned order dated 14th March, 2014 is passed by SEBI which is

challenged in the present Appeal.

5. Admittedly, in the earlier order dated 22/6/2007, SEBI had not relied

upon the statement of Mr. Devi Dutt, Chief Manager of Bharat Overseas Bank

(BHOB), Ahmedabad Branch. In the impugned order, however, reliance is

placed by SEBI on the statement of Mr. Devi Dutt, Chief Manager of BHOB,

Ahmedabad Branch.

6. Admittedly, during the course of investigation, Appellant by a letter

dated 8/1/2007 had sought cross-examination of all persons whose statements

were recorded including cross-examination of "BHOB Ahmedabad Branch

Manager". Although, name of Mr. Devi Dutt, Chief Manager of BHOB,

Ahmedabad Branch was not specifically stated in the said letter dated -3-

8/1/1007, in view of the fact that SEBI had recorded the statement of Mr. Devi

Dutt, it is obvious that the Appellant had sought cross-examination of all

persons including cross-examination of Mr. Devi Dutt.

7. In these circumstances and more particularly when SEBI had deemed

it fit not to rely upon the statement of Mr. Devi Dutt in its earlier order dated

22/6/2007, but deemed it fit to consider the statement of Mr. Devi Dutt in the

impugned order dated 14/3/2014, it was imperative on part of SEBI to afford

an opportunity to the Appellant to cross-examine Mr. Devi Dutt before

relying upon the said statement of Mr. Devi Dutt.

8. Where a noticee seeks cross-examination of a person whose statement

is recorded by SEBI, then, passing an order on the basis of the statement of

that person without giving the noticee an opportunity to cross-examine that

person, would be in violation of the principles of natural justice. In the

present case, even if there was any doubt on part of SEBI as to whether the

Appellant had in fact sought cross-examination of Mr. Devi Dutt, in our

opinion, in view of the fact that the Appellant had sought cross-examination

of all persons whose statements were taken on record including the statement

of Branch Manager of BHOB, Ahmedabad Branch, it is evident that Appellant

had sought cross-examination of Mr. Devi Dutt. Since statement of Mr. Devi

Dutt played a dominant role in passing the impugned order, it would not be

proper to proceed with hearing of the Appeal on merits without permitting

the Appellant to cross-examine Mr. Devi Dutt.

9. Accordingly, the impugned order of SEBI dated 14/3/2014 is quashed

and set aside and the matter is restored to the file of SEBI for passing fresh

order on merits after giving an opportunity to the Appellant to cross-examine -4-

Mr. Devi Dutt, if SEBI chooses to rely upon the said statement of Mr. Devi

Dutt.

10. In view of the fact that considerable time has elapsed from the date of

the alleged violation, we direct SEBI to pass appropriate order on merits as

expeditiously as possible and preferably within a period of four months from

today. All contentions kept open.

11. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

A.S. Lamba Member 21/01/2015 Prepared & compared by-ddg