Kishore V. Gandhi vs Sebi

Order Reserved on : 9.12.2019 Date of Decision: 12.12.2019

Appeal No.407 of 2019 Kishore V. Gandhi 12/A, Vaibhav Apartment, Bhulabhai Desai Road, Near American Consulate, Mumbai-400026. .... Appellant

Versus

Securities and Exchange Board of India SEBI Bhawan, Plot No.C-4A, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. ... Respondent

Mr. Kunal Katariya, Advocate with Ms. Sourbahi Waknis, Advocate i/b. Aagam Doshi & Co. for the Appellant.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocate i/b. MDP & Partners 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

1.

Against the order of the Adjudicating Officer imposing

a penalty of Rs.10 lakhs the present appeal has been filed.

The Adjudicating Officer held that the appellant alongwith

other entities had indulged in circular, reversal and 2

synchronized trades thereby violating Regulations 3 and 4 of

the Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003 (hereinafter referred to as

'PFUTP Regulations').

2. The penalty order has been imposed upon Kishor V.

Gandhi, HUF. The present appeal has been filed by Kishor

V. Gandhi contending that the HUF was dissolved and,

therefore, the present appeal was being filed in his individual

capacity. Considering the peculiar facts of the case, we

permit the appellant to pursue the appeal as the Karta of

Kishor V. Gandhi, HUF.

3. The ground urged by the appellant are two folds,

namely, that the show cause notice was never served upon

the appellant and consequently was denied an opportunity of

hearing. The second ground urged is, that the proceedings

are liable to be quashed on the ground of laches in as much as

there is an inordinate delay in initiating the proceedings.

4. In this regard, the relevant facts is, that the investigation

period is 1st September, 2009 to 15th January, 2010. The

Adjudicating Officer was appointed on 8th August, 2013 and

the show cause notice was issued on 28th February, 2018. 3

The said show cause notice came back undelivered and

consequently it was affixed at the last known address of the

appellant on 14th April, 2018. Subsequently, the notice for

hearing fixing 12th June, 2018 and again for 16th July, 2018

came back undelivered and thereafter notice for hearing for

27th July, 2018 was served by affixation again at the last

known address. In this fashion, substantial compliance was

made by the Adjudicating Officer who proceeded with the

matter ex-parte and passed the impugned order.

5. We have heard Mr. Kunal Katariya, Advocate assisted

by Ms. Sourbahi Waknis, Advocate for the Appellant and

Mr. Vishal Kanade, Advocate assisted by Mr. Chirag

Bhavsar and Ms. Eram Quraishi, Advocates for the

Respondent.

6. It was contended by the learned counsel of the

appellant that the notice was sent at the address which he had

vacated and sold to one Mr. Satish Chowdhary in 2011 and,

since then, the appellant had not been occupying the said

premises. Thus, the question of service of summons does not

arise.

7. The fact that the appellant had sold the premises and

vacated the same has been denied by the respondent for want 4

of knowledge. The respondents however submit that the

summons were sent at the last known address and when it

came back undelivered the same was served by affixation at

the last known address and, consequently, service of the

summons was made in accordance with Securities and

Exchange Board of India (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules, 1995.

8. In this regard, Rule 7 of the Rules is extracted as

under:-

Service of notices and orders.

7. A notice or an order issued under these rules shall

be served on the person in the following manner, that is

to say,-

(a) by delivering or tendering it to that person or his duly authorised agent;

(b) by sending it to the person by registered post with acknowledgement due to the address of his place of residence or his last known place of residence or the place where he carried on, or last carried on, business or personally works, or last worked, for gain:

(c) if it cannot be served under clause (a) or clause (b), by affixing it on the outer door or some other conspicuous part of the premises in which that person resides or is known to have last resided, or carried on business or personally works or last worked for gain and that written report thereof should be witnessed by two persons.

5 9. The aforesaid Rules provide the manner of service of

the notice, namely, by delivering or tendering it to the person

or to his authorized agent or by sending it by registered post

acknowledgment due to the address of his place of residence

or his last known place of residence or the place where he

carried on, or last carried on, business. Rule 7(c) further

provided that if the person cannot be served under the modes

prescribed under Clause 7(a) and (b) in that event service

would be made by affixation at the place where he had last

resided or carried on business.

10. In the instant case, we do not find anything on the

record to indicate that any effort was made by the respondent

to serve the notice personally. Had this procedure been

adopted the process server would have come to know as to

whether the appellant was staying at the premises or had left

the premises. Thus, without complying with the procedure

adopted under clause (a) under Rule 7 respondent cannot take

steps to serve by way of speed post or by affixation under

clause (c).

11. We are also of the opinion, that the mode of service

prescribed under Rule 7 is not exhaustive and other modes of

service is available in addition to the mode of service 6

prescribed under Rule 7, for example, publication of notice in

newspaper or service through email.

12. In addition to the modes prescribed under the Rules of

1995, other modes could also be utilized such as O29R2 of

CPC or under the Securities and Exchange Board of India

(Manner of Service of Summons and Notices issued by the

Board) (Amendment) Regulations, 2007 which has been

issued in exercise of the powers conferred by Section 30 of

the SEBI Act, 1992 which provides various modes for

tendering notice to a person which also includes service by

electronic mail service.

13. Consequently, we are of the opinion that sufficient

service was not made upon the appellant. Since the show

cause notice was not served upon the appellant a vital right

was denied to him to reply to the show cause notice and

thereafter to defend himself. Such denial of right is violative

of the principles of natural justice as embodied under Article

14 of the Constitution of India.

14. In our opinion, in the given circumstances, service of

the summons pursuant to the show cause notice was

insufficient even though the summons and the affixation of

summons thereafter was done at the last known address. 7

Service by affixation can only be resorted after all other

attempts by other means are exhausted which in the instant

case was not done. The affixation was done admittedly when

the summonses were returned undelivered. No effort was

made by the respondents to find out the correct address of the

appellant after he vacated the premises.

15. In the light of the aforesaid, we are of the opinion, that

the impugned order suffers from the principles of natural

justice as embodied in Article 14 of the Constitution. We

find that the appellant was not served and affixation of the

summons was made at the address were the appellant had

already vacated and left. We accordingly hold that the

appellant was not served with the summons and the entire

procedure proceeded ex-parte in violation of the principles of

natural justice. On this short ground, the impugned order

cannot be sustained and, therefore, it is not necessary for the

Tribunal to dwell on the issue as to whether the proceedings

should be quashed on the ground of laches.

16. We accordingly set aside the impugned order of the

Adjudicating Officer. The appeal is accordingly allowed.

The matter is remitted to the Adjudicating Officer to decide

the matter afresh after giving an opportunity of hearing to the 8

appellant. For this purpose, the appellant will appear before

the Adjudicating Officer on 27th December, 2019 on which

date he would be supplied with a copy of the show cause

notice. The appellant will provide his residential and

business address along with mobile numbers, land line

numbers and email address. The Adjudicating Officer will

thereafter proceed with the matter and pass appropriate

orders after providing the appellant an opportunity to file his

reply and after giving an opportunity of hearing. It would be

open to the appellant to raise all such grounds that are

permissible in law before the Adjudicating Officer which if

raised will be considered and dealt with.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

12.12.2019 Prepared and compared by RHN