Neptune Overseas Limited & Anr. vs Sebi

Order Reserved on: 10.10.2019 Date of Decision : 18.10.2019 Appeal No. 96 of 2018

1.

Neptune Overseas Limited 1, Fourth Floor, H.K. House, Behind Jivabhai Chambers, Ashram Road, Ahmedabad - 380 009.

2. Kailash Ramkishan Gupta A-1, Amardeep Flats, Fatehpura Garden, Paldi, Ahmedabad - 380 007. ..... Appellants

Versus

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

2. Indian Commodity Exchange Limited 1st Floor, Office No. 109, Nodh No. 1158 to 63/65/9, Hat Faliyu, Mahidharpura, Surat - 390 003. ... Respondents

Mr. Rishabh Parikh, Advocate i/b Hitesh Buch & Associates for the Appellants.

Mr. Kevic Setalvad, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for Respondent No. 1.

Mr. Navin Pahwa, Advocate with Mr. Mitesh Naik, Advocate i/b Dhru & Co. for Respondent No. 2.

2

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. The appellants have filed the present appeal questioning

the legality and veracity of the order dated July 23, 2011

passed by the erstwhile Forward Markets Commission

(hereinafter referred to as 'FMC') which has now merged

with the Securities and Exchange Board of India ('SEBI' for

short) with effect from September 28, 2015.

2. The facts leading to the filing of the appeal is, that the

appellant no. 2 Kailash Ramkishan Gupta was the Managing

Director and Chief Executive Officer of National Multi

Commodity Exchange of India Ltd. ('NMCE' for short)

which is an association registered under the provisions of the

Forward Contract (Regulation) Act, 1952 (hereinafter referred

to as 'FCR Act') and registered with FMC under Section 14B

of the FCR Act. Appellant no. 1 is the core promoter of

NMCE and appellant no. 2 is the Managing Director and

Chairman in Neptune Overseas Limited (appellant no. 1). 3

Thus, appellant no. 2 was wearing two hats, one as a

Managing Director and Chief Executive Officer of NMCE

and the other as Managing Director and Chairman in Neptune

Overseas Limited. Pursuant to the scheme of amalgamation,

NMCE has merged with Indian Commodity Exchange

Limited ('ICEL' for short) in 2018.

3. FMC is the regulatory authority set up by the

Government of India in accordance with the provisions of

Section 3(1) of the FCR Act to regulate the commodity

futures markets. Section 3(2) of the FCR Act provides for

constitution of the FMC.

4. A complaint dated November 28, 2010 relating to the

trading irregularities and abuse of its position in the NMCE

committed by appellant no. 1 and appellant no. 2 was

received by the FMC, based on which an enquiry was

initiated on December 14, 2010 which resulted in the

inspection of the books of accounts. An enquiry into the

affairs of NMCE prima facie revealed serious acts of

omission and commission committed by appellant no. 2.

Accordingly, a show cause notice dated June 21, 2011 was

issued to the appellant no. 2 as Ex-Managing Director and 4

Chief Executive Officer and as Vice Chairman of NMCE

directing him to file an appropriate reply and appear for

hearing on July 4, 2011. The show cause notice prima facie

alleged that the appellant no. 2 committed serious acts of

omission and commission as detailed in the notice and

therefore directed to show cause as to why the acts of

omission and commission should not be referred to other

concerned departments and authorities for appropriate action

under the relevant Acts.

5. Appellant no. 1 challenged the show cause notice before

the Gujarat High Court contending that no show cause notice

was provided nor an opportunity of hearing was given. The

Learned Single Judge by an order dated July 8, 2011

dismissed the petition against which an intra court appeal was

filed. During the pendency of the appeal, appellant no. 2 filed

an impleadment application which was allowed by the

Gujarat High Court. In the meanwhile, FMC issued an order

dated July 23, 2011 which is the impugned order issuing

several directions against the appellants and NMCE, i.e.

respondent no. 2. The appellants filed an amendment

application challenging the order dated July 23, 2011 which

was allowed and necessary amendment was carried out. The 5

Division Bench of the Gujarat High Court by an order dated

February 9, 2012 allowed the appeal and the order dated July

23, 2011 passed by the FMC was quashed. FMC was directed

to issue a show cause notice to appellant no. 1 as well as to

the respondent no. 2 and was directed to decide the matter

after inviting replies / objections and after affording an

opportunity of hearing.

6. Before the Gujarat High Court the appellants had urged

that neither appellant no. 1 nor respondent no. 2 NMCE were

issued any show cause notice. It was further urged that FMC

had no power to issue such a show cause notice. It was also

urged that some of the documents were not supplied by FMC.

The Division Bench found that no show cause notice was

issued to appellant no. 1 or the respondent no. 2. The FMC

before the Division Bench of the Gujarat High Court

conceded that no show cause notice was issued to appellant

no. 1 or to NMCE, respondent no. 2 and submitted that they

would issue a show cause notice to appellant no. 1 as well as

to respondent no. 2 NMCE. Accordingly, the Gujarat High

Court without going into the merits held that in the absence of

show cause notice to appellant no. 1 or to respondent no. 2 the

impugned order dated July 23, 2011 being contrary to the 6

principles of natural justice could not be sustained and was

quashed. The Division Bench also recorded that if any

documents are in possession of the FMC and the same has not

been supplied to the appellants the same would be supplied on

payment of usual charges, if any.

7. The said order of the Division Bench of the Gujarat

High Court was challenged by FMC before the Supreme

Court of India by filing a Special Leave Petition. The

Supreme Court while entertaining the SLP passed an interim

order staying the effect and operation of the order of the

Division Bench of the Gujarat High Court and further directed

that the impugned order would stand revived and remain

operative. Subsequently, the Supreme Court by an order dated

March 7, 2018 quashed and set aside the orders of the Gujarat

High Court and granted permission to the appellants to file a

statutory appeal before the Securities Appellate Tribunal

(SAT) questioning the validity of the order dated July 23,

2011. The order of the Supreme Court dated March 7, 2018 is

extracted hereunder:-

"ORDER

We have heard learned counsel for the parties.

7 In our opinion, it would be more appropriate if Respondent Nos. 1 and 2 are granted permission to file a statutory appeal before the Securities Appellate Tribunal (SAT) challenging the order dated 23rd July, 2011.

Thirty days' time is granted to the respondents to file an appeal. If the appeal is filed by the respondents within a period of thirty days from today, the Securities Appellate Tribunal will hear the appeal on merits.

In the meanwhile, the interim order passed by this Court on 22nd March, 2012 will continue to the effect that any proceedings, decision or action taken in pursuance of the order dated 23rd July, 2011 passed by the Forward Markets Commission (now SEBI) shall abide by the final result of the appeal.

In view of the above, the impugned judgments and order are set aside.

The special leave petitions are disposed of.

Pending application, if any, also stands disposed of."

8. Based on the aforesaid directions of the Supreme Court

the present appeal has been filed.

9. We have heard Shri Rishabh Parikh, the learned counsel

for the appellants, Shri Kevic Setalvad, the learned senior

counsel for respondent no. 1 and Shri Navin Pahwa, the

learned counsel for respondent no. 2.

8

10. The contention of the learned counsel for the appellants

is that-

(i) adequate and proper opportunity of hearing was

not granted to the appellants before passing the

impugned order.

(ii) the request of appellant no. 2 for providing further

documents which was in their possession was

denied arbitrarily and

(iii) FMC had no jurisdiction or authority to issue the

show cause notice under the FCR Act.

11. On the other hand the contention of the respondent no. 1

is, that adequate opportunity was provided to the appellants

which they failed to avail and therefore the impugned order is

not violative of the principles of natural justice. It was further

contended that whatever documents that was relied upon by

the respondent no. 1, was duly provided and other documents

that was cited by the appellants was not provided as the said

documents were irrelevant and were not being relied upon by

the respondents. In support of the submission, reliance was

placed on a decision in Chandrama Tewari vs Union of 9

India, 1987 (Supp) SCC 518 and Radhakrishnan

Prabhakaran vs. State of T.N. and Others, (2000) 9 SCCC

170.

12. It was contended that the scheme of the Act made it

apparently clear that the FMC had the jurisdiction and

authority to issue the show cause notice and impose a penalty

upon the appellants. In support of the submission, the

respondent no. 1 relied upon a decision of the Supreme Court

in First Commodities Exchange of India vs Union of India,

2015 SC OnLine Ker 3808 : (2015) KLT (SN 122) 103.

13. Learned counsel for the Respondent no. 2 submitted that

pursuant to the directions issued by FMC in the impugned

order dated July 23, 2011, respondent no. 2 NMCE has

carried out and executed the said directions and thus

contended that the appeal has become infructuous.

14. We are of the opinion that even if the directions have

been carried out by respondent no. 2 the appellants have a

legal right to question the veracity of the order on merits and

contend that no such direction could have been issued. 10

15. On the issue of violation of natural justice, we find that

admittedly appellant no. 1 and respondent no. 2 were not

issued any show cause notice. This fact was conceded by the

respondent no. 1 before the Gujarat High Court which

respondent no. 1 cannot resile. The respondent no. 1 further

agreed to issue a show cause notice to appellant no. 1 and

respondent no. 2. We find that since the impugned order

contained various directions against appellant no. 1 and

respondent no. 2, the impugned order cannot be sustained on

account of violation of principles of natural justice since no

show cause notice was issued to them. It is reiterated that no

direction can be issued to a party to whom a show cause

notice has not been issued by FMC. Thus, the impugned order

cannot be sustained insofar as the appellant no. 1 is

concerned.

16. Insofar as appellant no. 2 is concerned he was issued the

show cause notice dated June 21, 2011 in which the hearing

was fixed for July 4, 2011. Appellant no. 2 by letter dated

June 22, 2011 and June 23, 2011 requested respondent no. 2

for supply of certain documents which was reflected in the

show cause notice. Initially, the respondent no. 1 allowed the

appellant to inspect the documents vide a letter dated June 24, 11

2011 but ultimately acceded to the request of the appellant

and supplied the documents on July 5, 2011. Since necessary

documents were not supplied the hearing which was fixed on

July 4, 2011 was accordingly adjourned to July 13, 2011. The

record indicates that since the entire documents were not

supplied, the appellant no. 2 made a request to supply the

remaining documents which request was rejected on the

ground that since these documents were not relied upon by

the respondent the same was not been provided to the

appellant no. 2. We may point out here at this stage that the

Gujarat High Court directed respondent no. 1 to supply all the

documents to the appellants on payment of usual charges. The

record further indicates that the hearing was adjourned from

July 13, 2011 to July 20, 2011 and one last opportunity was

given to the appellants to place written submissions.

17. We find that on July 20, 2011 a request was made for an

adjournment for two weeks to enable the appellant no. 2 to

address them through his advocate on the issue of jurisdiction

of the respondent no 1 in issuing the show cause notice. The

appellant also placed a copy of the order of the Gujarat High

Court on the Petition filed by appellant no. 1 raising the issue

of jurisdiction of FMC to issue the show cause notice and on 12

this ground also prayed for an adjournment. The request of

the appellants to allow an advocate to address the question of

jurisdiction was rejected and the matter was closed for orders.

Thereafter the impugned order was passed on July 23, 2011

which according to the appellants was a Saturday when the

FMC was closed. The respondents contend that the aforesaid

sequence of events clearly indicates that sufficient time was

granted to the appellants to place their view point which they

failed and consequently there was no violation of the

principles of natural justice.

18. Having heard the learned counsel for the parties on this

issue we find that admittedly the show cause notice was

issued on June 21, 2011 which was received by appellant no.

2 shortly thereafter. The documents in part were only supplied

on July 5, 2011. Accordingly, the appellant no. 2 cannot be

faulted for the adjournment made on July 4, 2011. According

to the appellant voluminous documents running into

thousands of pages were provided and many documents were

not provided for which further request was made which was

rejected by the respondent. Request for further time to place

their written submissions was granted till July 20, 2011. The

request for adjournment on July 20, 2011 was rejected on the 13

ground that the matter was being delayed. We find that only

two weeks had elapsed from the date when the documents

were supplied for filing a reply. Further request for

adjournment was not unreasonable. Further, the period

granted for filing reply was wholly inadequate considering the

voluminous documents running into thousands of pages relied

upon by the respondent.

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

no reasonable opportunity was given by the respondent no. 1

to the appellant no. 2 for the purpose of filing objection /

reply to the show cause notice.

20. Further, the request on behalf of the appellant no. 2 to

permit his advocate to place submissions on the issue of

jurisdiction was not unreasonable and should not have been

rejected. The finding that the appellant was avoiding to show

cause on one pretext or the other is a finding based on

surmises and conjectures. As per sequence of events stated

aforesaid, it is clear that there has been no unreasonable

request on the part of the appellant in seeking time to file their

written submissions and for placing their arguments. In our

opinion the rejection of the request of the appellant on July 14

20, 2011 for an adjournment, was violative of the principles

of natural justice. Consequently, the impugned order against

the appellant no. 2 cannot be sustained and is quashed.

21. Since the impugned order has been quashed on account

of violation of principles of natural justice it is not necessary

for this Tribunal to go into the question of jurisdiction,

namely, whether the FMC had jurisdiction to issue a show

cause notice under the FCR Act.

22. In the result, the appeal is allowed. The impugned order

is quashed. The matter is remitted to respondent no. 1 and, if

they are so advised, the respondent no. 1 can proceed afresh

only after issuing the show cause notice to appellant no 1 and

respondent no. 2. Since the appellant no. 2 has already been

served with the show cause notice, no fresh show cause notice

is thus required to be served. The respondents are further

directed to grant adequate time to the appellants to file their

objections / reply which will be considered by the respondent

after giving an opportunity of hearing to the appellants. In the

event, any application for supply of documents is requested

by the appellants, the same shall be dealt with in accordance

with law. In the event the plea of jurisdiction is taken by the 15

appellants the same shall be considered and decided by

respondent no. 1 in accordance with law. We further direct

that any order that is passed by respondent no. 1 shall be

passed on a working day. In the circumstances of the case,

party 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 18.10.2019 Prepared and compared by:msb