Mr. Chetan S. Kothari vs Sebi

Date of Decision: 25.03.2019

Appeal No. 329 of 2017

Mr. Chetan S. Kothari Flat No. 1502, 15th Floor, Rasraj Height, Rokadia Lane Borivali (W), Mumbai- 400 092 ...Appellant

Versus

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

Mr. Nihar Mody, Advocate with Mr. Saurabh Bachhawat, Advocate and Mr. Ravi Ramaiya, Chartered Accountant i/b Shah & Ramaiya Chartered Accountants for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent.

WITH Appeal No. 328 of 2017

Mrs. Chetna Kothari Flat No. 1502, 15th Floor, Rasraj Height, Rokadia Lane Borivali (W), Mumbai- 400 092 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent 2

Mr. Nihar Mody, Advocate with Mr. Saurabh Bachhawat, Advocate and Mr. Ravi Ramaiya, Chartered Accountant i/b Shah & Ramaiya Chartered Accountants for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point 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 (Oral)

1.

These two appeals are against a common order and are

consequently being decided together. For facility, the facts in

Appeal No. 329 of 2017 is taken into consideration. The appellant

Chetan Kothari is the Managing Director and promoter of a

company known as Tricom India Ltd. ("TIL" for convenience).

Pursuant to an investigation conducted by Securities and Exchange

Board of India ("SEBI" for convenience), a show cause notice dated

08.03.2016 was issued to show cause as to why an inquiry should

not be held and penalty should not be imposed under Section 15G of

the SEBI Act, 1992 for alleged violation of the provisions of law

namely, that the appellant being insiders in terms of Regulation 2(e),

2(h), 2(i) and 2(c) of the Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulations, 1992 (hereinafter

referred to as the "PIT Regulations") read with Regulation 12 of

Securities and Exchange Board of India (Prohibition of Insider

Trading) Regulations, 2015 were in possession of the Price Sensitive 3

Information before it was disseminated to the public and while in

possession of the said Unpublished Price Sensitive Information had

traded in the scrip of TIL which was in violation of Regulation 3(i)

of the PIT Regulations. The appellant submitted a reply to the show

cause notice immediately thereafter. The appellant in Appeal No.

328 of 2017 is the wife of the appellant Chetan Kothari who also

submitted a reply.

2. It transpires that the appellant Chetan Kothari also stood

guarantee of a loan taken by TIL. The company defaulted on the

repayment of the loan as a result, State Bank of India took

possession of the flat in which the appellants were residing. This

resulted in the appellants moving into another flat. The change of

residence was intimated by the appellants to the Adjudicating

Officer ("AO" for convenience) in two of the show cause notices

issued to them. However, in the instant show cause notice, by an

inadvertent error, the change of address could not be intimated to the

AO. As a result, the notice for hearing was affixed at the last known

address, i.e., the residential flat, the possession of which was taken

over by the State Bank of India. The respondent also issued an

advertisement for hearing and thereafter the impugned order was

passed imposing a penalty of ` 50,00,000/- (Fifty Lakhs) each on the

appellants. The appellants, being aggrieved by the imposition of

penalty have filed the present appeals.

4

3. Heard Shri Nihar Mody learned counsel and Shri Gaurav

Joshi, learned senior counsel for the parties. At the outset, it was

submitted by the learned counsel for the appellants that the

impugned order was in violation of the principles of natural justice

as no opportunity of hearing was provided. It was urged that the

appellants had received a number of show cause notices from the

AO and that he had sent intimation of the change of address in two

of the show cause notices but by an inadvertent error he could not

intimate the AO about the change of address in the present show

cause notice. It was also contended that the affixation of the notice

at his earlier residential address was not known, neither he read the

advertisement which was published in the newspaper with regard to

the intimation of the date of hearing. It was contended that in the

other show cause notice in which the appellants had intimated about

the change of address the appellants duly received the second notice

and participated in those proceedings. It was thus, urged that an

opportunity of hearing may be given so as to place the correct

factual position before the AO.

4. On the other hand, learned counsel for the respondent

seriously contended that there was no fault on the part of the

respondent as the summons were sent at the last known address and

that the appellants had failed to intimate the authority of the change

of address. It was further contended that summons was not only

affixed at the last known address but summons was also published in 5

the leading newspapers and therefore the appellants were deemed to

have knowledge of the date of hearing.

5. Having heard the learned counsel for the parties, we are of the

opinion that in the given situation the appellants did intimate about

the change of address to the AO in two other proceedings. There

was no deliberate attempt on the part of the appellants in not

intimating the authority about the change of address in the present

proceedings. Thus, the bonafides of the appellants of not intimating

the AO about the change of address cannot be doubted. The change

of address also occurred on account of their forceful eviction

initiated by State Bank of India who took possession of their flat for

non-payment of the loan taken by the company in which the

appellant Chetan Kothari had given his personal guarantee.

Consequently, we are of the opinion that the appellants are entitled

for an opportunity of hearing in the instant case. Since an ex-parte

order was passed, we are of the opinion that an opportunity of

hearing should be provided to meet the ends of justice.

6. For the reasons stated aforesaid the appeals are allowed. The

impugned order is set aside. The matter is remitted to the AO to

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

appellants. The appellants shall appear before the AO to be

appointed by SEBI on 22nd April, 2019 on which date the matter

would be heard and if for some reason the matters are not concluded 6

on that date, the AO will decide the same within six weeks

thereafter. The appellants shall further deposit a sum of `5,00,000/-

each before the AO. The said amount shall be kept in an interest

bearing account which shall be subject to the result of the appeal.

The appeals are allowed on payment of cost of ` 5,00,000/- which

shall be paid by the appellants to the respondent towards cost of

litigation. All the aforesaid amount will be deposited before the

respondent on or before the date fixed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 25.03.2019 Prepared & Compared By: PK