Shri C.R. Rajesh Nair vs Sebi

Order Reserved on :12.7.2019 Date of Decision : 18.7.2019

Misc. Application No.302 of 2017 And Appeal No.327 of 2017

Shri C.R. Rajesh Nair C/o. Anil Agarwal, House No.8, Bella Vista Colony, Dona Paula, Panjim, Goa 403004. ..... Appellant

Versus

Securities & Exchange Board of India SEBI Bhawan, Plot No.C-4A, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400050. ...... Respondent

Mr. Neville P. Lashkari, Advocate with Mr. Aditya Vyas, Advocate i/b. Vertices Partners for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh and 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 2

Misc. Application No.302 of 2017

There is a delay of 99 days in filing the appeal. For the

reasons stated in the application, the delay is condoned.

The Misc. Application is allowed.

Appeal No.327 of 2017

1.

The impugned order has been passed against the

appellant for violation of the Securities and Exchange Board

of India Act, 1992 (hereinafter referred to as 'SEBI Act') and

the Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 1992 (hereinafter referred to as

'PIT Regulations') on the ground that the appellant, being the

Managing Director of M/s. Sigrun Holdings Ltd. (hereinafter

referred to as 'SHL') sold 45,000 shares of SHL on 24th May,

2010 while having knowledge/possession of the adverse

quarterly result of SHL which information was an

unpublished price sensitive information before the same were

announced to the general public by the stock exchange on

29th May, 2010. The appellant thus traded in the shares of

SHL while in possession of unpublished price sensitive

information and the appellant did not obtain prior approval

from the Board of SHL for trading in the shares. Further, it 3

was found that the appellant had entered into opposite

transaction to purchase of one lakh shares of SHL on 5th

February, 2010. Based on the aforesaid finding the

Adjudicating Officer imposed a penalty of Rs.5 lakhs under

Section 15G of the SEBI Act for violation of Regulation 3 of

the PIT Regulations. Further, a penalty of Rs.8 lakhs was

imposed for violation of Clause 3.3.1 of the Model Code of

Conduct prescribed under Regulation 12(1) of the PIT

Regulations and another sum of Rs.1 crore was imposed for

violation of Clause 4.2 of the Code of Conduct prescribed

under Part A of Schedule 1 under Regulation 12(1) of the PIT

Regulations. The appellant, being aggrieved by the said

order, has filed the appeal on the ground that the impugned

order is an ex-parte order and that he had no knowledge of

the proceedings initiated by the Adjudicating Officer.

2. The undisputed facts which are culled out from the

impugned order and from the affidavits filed in the appeal is,

that in relation to the alleged sale of 45,000 shares made by

the appellant SEBI issued an email in 2012 asking the

appellant to furnish certain information. The said

information was supplied by the appellant to SEBI through

email on 13th May, 2013. Similar information was also 4

sought by SEBI from the appellant's broker JHP Securities

Pvt. Ltd. (hereinafter referred to as 'JHP'). Certain

information was also supplied to SEBI by JHP. Based on the

information given and investigation made, a show cause

notice dated 15th September, 2014 was issued to the appellant

at the last known address which came back undelivered. The

show cause notice was thereafter affixed at the last known

address of the appellant. The Adjudicating Officer thereafter

issued a notice directing the appellant to appear for personal

hearing which notice also came back undelivered. The said

notice was subsequently served by affixation at the last

known address of the appellant. An attempt was also made

by the Adjudicating Officer to serve the show cause notice

through the appellant's broker JHP. The said broker vide

letter dated 29th December, 2014 informed the Adjudicating

Officer that they had sent the show cause notice through

registered post but the same returned with the remark

"Unclaimed". Effort was also made by the broker to deliver

the show cause notice personally but they found the door

locked. The broker also informed the Adjudicating Officer

that a scanned copy of the show cause notice was sent to the

appellant on his email id ranu.jain@sigrun.in. 5

3. Based on the aforesaid admitted facts the Adjudicating

Officer presumed sufficient service and proceeded ex-parte

and passed the impugned order imposing the penalty.

4. The appellant contends that he had furnished the

desired information to SEBI through email dated March 13,

2013 and thereafter he did not receive any further queries

from SEBI. In July 2014, he sold his residence and shifted

and consequently the show cause notice and the notice for

hearing which was sent to his earlier residential address was

not received as he had already left that premises.

5. The fact that the appellant had sold his residential

flat/house has not been disputed by SEBI. It was however

contended that service was made as per the procedure laid

down under the Securities and Exchange Board of India

(Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995 at the last known address

and such procedure having been made in accordance with the

rules being followed, in that event, there was no illegality in

the service of the show cause notice done by the respondent.

It was thus contended that the principles of natural justice

was not violated.

6

6. We have heard Mr. Neville P. Lashkari, Advocate

assisted by Mr. Aditya Vyas, Advocate for the Appellant and

Mr. Gaurav Joshi, Senior Advocate assisted by Mr. Anubhav

Ghosh and Ms. Rashi Dalmia, Advocates for the Respondent.

7. The show cause notice was issued admittedly to the

last known address of the appellant under the Securities and

Exchange Board of India (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules, 1995.

For facility, 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.

7 8. The aforesaid rule provided 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.

9. In the instant case, we do not find anything on record to

indicate that any effort was made by the respondent to serve

the show cause notice personally. We do not find that any

effort was made to serve at the place where he carried on

business or had worked for gain. Thus, without complying

with the procedure adopted under Clause (a) and (b) of Rule

7 the respondent cannot take direct steps for affixation under

Clause (c). Further, we find that the show cause notice that

was sent by speed post came back undelivered. No effort

was made to find out as to whether the appellant was residing

at that premises or not. We are, further, of the opinion that

the mode of service prescribed under Rule 7 is not exhaustive 8

and other modes of service was always available in addition

to the modes of service prescribed under Rule 7 i.e. for

example publication of the notice in an appropriate

newspaper or service through email. In this regard, we find

that SEBI was corresponding with the appellant through

email and information was supplied by the appellant through

email. This mode could have easily been adopted by the

respondent which they failed to do so. Instead the

Adjudicating Officer made efforts to get the show cause

notice served through the broker of the appellant. It is

strange that when the email id of the appellant was known to

the respondent which is quoted in the impugned order, but

made no effort to serve the show cause notice or the notice

for date of hearing through email.

10. 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 9

tendering notice to a person which also includes service by

electronic mail service.

11. 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.

12. In the light of the aforesaid, the impugned order, being

an ex-parte order, suffers from the vice of natural justice and

cannot be sustained. The impugned order is accordingly

quashed. The appeal is allowed. The matter is remitted to

the Adjudicating Officer to pass a fresh order after serving

the show cause notice and after affording an opportunity of

hearing to the appellant. For this purpose, we direct the

appellant to appear before the Adjudicating Officer on 1st

August, 2019 on which date the Adjudicating Officer will

supply a copy of the show cause notice and the Adjudicating

Officer will proceed from there onwards. The appellant will

also supply the email address, residential address, business

address, mobile number, etc for necessary communication to 10

be made by the Adjudicating Officer. In the event, the

appellant does not appear before the Adjudicating officer on

the date fixed by us it would be open to the Adjudicating

Officer to proceed ex-parte and pass appropriate orders.

13. In the circumstances of the case there shall be no order

as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 18.7.2019 Prepared and compared by RHN