Praveen Poddar vs Sebi

Date of Hearing : 11.07.2019 Date of Decision : 15.07.2019

Misc. Application No. 5 of 2019 And Appeal No. 6 of 2019 Praveen Poddar H. No. 33A, 3rd Floor, Old Anarkali, Krishna Nagar, Delhi - 110051. ... Appellant

Versus

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

Mr. Pulkit Sharma, Advocate with Mr. Shikhar Sthapak, Advocate i/b Mindspright Legal for the Appellant. Mr. Pradeep Sancheti, Senior Advocate with Mr. Anubhav Ghosh, Ms. Rashi Dalmia, Advocates 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, Presiding Officer

1.

The present appeal has been filed against the order dated

August 27, 2014 passed by the Adjudicating Officer (hereinafter

referred to as, 'AO') imposing a penalty of Rs. 70 lacs under Section

15HA of the Securities and Exchange Board of India Act, 1992 2

(hereinafter referred to as, 'SEBI Act') for 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').

The appellant has also challenged the recovery certificate dated May

3, 2017 and the attachment proceedings issued by the Recovery

Officer.

2. There is a delay of 1446 days in filing the appeal and,

therefore, a Misc. Application has also been filed for condoning the

delay. The common ground urged in the application for condoning

the delay as well as in attacking the appeal on merits is, that the

impugned order was passed ex-parte without giving the appellant an

opportunity of being heard. Consequently, since the issue is the

same, the application and the appeal are being decided together.

3. According to the facts culled out from the application and

from the memo of appeal, it transpires that the appellant joined as a

Marketing Executive in M/s. Pioneer Securities Pvt. Ltd. in 2003

which was managed and controlled by one Mr. Sushil Kumar Jain.

The appellant took financial assistance from Mr. Jain and

accordingly, he was obligated to him. It is contended that he allowed

Sushil Kumar Jain to open the firm in the appellant's name as a sole

proprietor of M/s. Regent Financial Services. This firm also had two 3

bank accounts. The appellant also opened a trading account in

Pioneer TCP Stock Brokers Pvt. Ltd. which was owned, controlled

and managed by Sushil Kumar Jain. It was also contended that two

bank accounts in the proprietorship firm and the trading account of

the appellant was managed and controlled by Sushil Kumar Jain. It

was also contended that the appellant resigned in August 2006 and

thereafter joined another firm known as Elite Wealth Advisors Ltd.

(Elite). It was contended that on May 12, 2017 while trying to

withdraw some money from his account through the debit card the

transactions were declined and, upon an enquiry made by the

appellant from the bank, the appellant came to know that the account

was blocked due to a legal order. Before he could further investigate

in the matter, his employer, namely, Elite received the attachment

proceedings from National Securities Depository Ltd. (NSDL) and,

on that basis, his employer terminated his services on May 22, 2017.

It is alleged that thereafter he made enquiries and contacted Mr.

Sushil Kumar Jain and then came to know about the transactions

done by Mr. Jain from his proprietorship firm. It is contended that

the appellant thereafter made a complaint before the Economic

Offence Wing (EOW) on November 23, 2017 and also made a

representation to SEBI on April 16, 2018 and subsequently, filed the

present appeal in September 2018 in which there was a delay of 1446

days.

4

4. It was contended that all the notices and the impugned order

was sent at the address 308, Skipper Corner, 88 Nehru Place, New

Delhi - 110019 which is the business office and address of Sushil

Kumar Jain, where he was earlier working between 2003 to 2006. It

was contended that the appellant neither received the show cause

notice nor any date of hearing was communicated and was totally

oblivious of the adjudication proceedings initiated by SEBI. It was,

thus, contended that the impugned order, being an ex-parte order,

was violative of the principles of natural justice and was liable to be

set aside.

5. On the other hand, the stand of SEBI is that the show cause

notice dated December 12, 2013 was sent by Speed Post which was

returned undelivered and thereafter on February 20, 2014 the show

cause notice was served upon the appellant by way of affixture at the

last known address of the appellant, namely, at 308, Skipper Corner,

88 Nehru Place, New Delhi - 110019. It was also contended that

thereafter all the notices of hearing were also served by affixation

and the impugned order was also sent at the same address.

6. It was contended by SEBI that the service of the show cause

notice etc. was done in accordance with the provisions of Rule 7 of

the Securities and Exchange Board of India (Procedure of Holding 5

Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995

(hereinafter referred to as, 'Inquiry Rules'). It was contended that

the procedure laid down in the Inquiry Rules was duly followed and,

therefore, there was no violation of natural justice.

7. Having heard the learned counsel for the parties, we find that

due procedure for serving the show cause notice was duly followed

by SEBI in accordance with the Rule 7 of the Inquiry Rules. The

summons was sent at the address that was obtained by SEBI from the

stock exchange. However, the fact remains that the appellant had

resigned and left the service of Pioneer Securities Pvt. Ltd. in 2006

and thereafter joined Elite. The fact that the appellant had joined

Elite and was working till 2017 when the attachment order was

served cannot be disputed by the respondent as attachment order was

served through his employer which formed the basis of his

termination from his service.

8. We also find thereafter that when the appellant came to know

about the impugned order sometime in May 2017, he made an

attempt to find out the matter and took steps to file a complaint

before the EOW and representation before SEBI. We are constraint

to observe that satisfactory explanation has not been given by the

appellant for the period from May 2017 till September 2018 that is

the date when the appeal was eventually filed, 6

9. However, we are of the opinion that the appellant has made out

a case that the show cause notice was not served upon him. Since the

appellant had left the last known address available with SEBI and

was working with another company and at another place, we are of

the opinion that affixation of the show cause notice at the last known

address, in the given circumstances does not amount to sufficient

service and, thus, a benefit of doubt has to be given to the appellant.

10. We are of the opinion that an opportunity should be given to

the appellant to contest the matter on merits especially when a huge

penalty has been imposed upon him and when there is an allegation

that a fraud has been played upon the appellant by his ex-employer.

We are of the opinion that the appellant is entitled to contest the

matter on merits. We are also of the opinion that the delay of five

years should be condoned on payment of costs.

11. In Civil Appeal No. 4649 of 2006 (Noted Infotech P. Ltd. vs.

Securities and Exchange Board of India decided on August 4,

2008), the Hon'ble Supreme Court condoned the delay of 720 days

on payment of costs.

12. In Ummer vs. Pottengal Subinda, [2018 SCC OnLine SC

199], the Hon'ble Supreme Court held that the appellant was not

required to explain each days delay in filing the appeal and if 7

plausible grounds are indicated then the same would be a sufficient

ground for condoning the delay.

13. Similarly, in Ram Nath Sao Alias Ram Nath Sahu and Ors.

vs. Gobardhan Sao and Ors. [(2002) 3 SCC 195], the Hon'ble

Supreme Court held that the expression "sufficient cause" should

receive a liberal construction so as to advance substantial justice

especially when no negligence or inaction or want of bonafides is

imputable to a party.

14. In the light of the aforesaid and considering the overall facts in

the given case, we are of the opinion that sufficient cause has been

shown by the appellant for condoning the delay. We are also of the

opinion that in the larger interest of justice the delay should be

condoned and the appellant should be allowed to contest the matter

on merits. Consequently, for the reasons stated aforesaid, the delay

in filing the appeal is condoned on payment of costs of Rs. 2 lacs

which shall be paid by the appellant to the respondent on or before

August 10, 2019.

15. In view of the fact that the impugned order dated August 27,

2014 was passed ex-parte pursuant to the show cause notice dated

December 12, 2013 which was never served upon the appellant, we

are of the opinion that the impugned order dated August 27, 2014

cannot be sustained and is set aside. We accordingly, direct the 8

appellant to appear before the AO on August 10, 2019 at 12 noon on

which date SEBI will provide the appellant the show cause notice

and thereafter the AO will proceed from there onwards. The

appellant will also provide the address for communication of the

proceedings and shall file a reply within the appropriate period

granted by AO. We also direct the AO to provide adequate

opportunity of hearing to the appellant and pass an order within six

months thereafter. We also direct that the attachment proceedings

initiated by the Recovery Officer will continue to operate for a period

of six months from today and in the event the adjudication

proceeding does not come to an end, it would be open to the parties

to move an application before this Tribunal for further orders.

16. 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 15.07.2019 Prepared & Compared by PTM