Soumen Ghosh vs Sebi

Date of Hearing : 29.08.2019 Date of Decision : 04.09.2019

Appeal No. 401 of 2018

Kaushik Roy 20, Maitri Park Road, Kolkata Municipal Corporation, Regent Park, South 24, Parganas, 700070. ..... Appellant

Versus

Securities and Exchange Board of India Eastern Regional Office, L&T Chambers, 3rd Floor, 16, Camac Street, Kolkata - 700017. ...... Respondent

With Appeal No. 402 of 2018

Soumen Ghosh 201, Digra Road, P. O. Saradapally, P. S. Bhadreswar, District - Hooghly, Pin : 712124. ..... Appellant

Versus

Securities and Exchange Board of India Eastern Regional Office, L&T Chambers, 3rd Floor, 16, Camac Street, Kolkata - 700017. ...... Respondent 2

Mr. Nitendra Mohan Mukherjee, Advocate with Mr. Devasis Mitra, Advocate for the Appellants. 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 Justice M. T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer

1.

Two directors of the company have filed separate appeals

against two separate orders passed by the Whole Time Member

(hereinafter referred to as, 'WTM') of Securities and Exchange

Board of India (hereinafter referred to as, 'SEBI'). The issue is

common and therefore, both the appeals are being decided together.

For facility, the facts stated in Appeal No. 401 of 2019 (Kaushik Roy

vs. SEBI) is being taken into consideration.

2. Sumangal Industries Ltd. (hereinafter referred to as, 'SIL')

issued an advertisement in the newspaper Anand Bazar Patrika on

September 11, 2012 soliciting funds from the public under potato

purchase scheme promising huge returns to the investors. SEBI vide

an interim ex-parte order dated April 10, 2012 directed the company

not to collect any money from the investors or launch any scheme 3

and show cause as to why action should not be taken against them.

By an order dated July 9, 2013, SEBI held that the scheme carried

out by the company was a Collective Investment Scheme (CIS) and

accordingly, directed the company and its directors to wind up the

CIS and refund the money collected to the investors alongwith

interest and further restrained them from accessing the securities

market till the completion of the refund.

3. The company alongwith other directors filed an Appeal No.

210 of 2013, wherein the company submitted that they will comply

with the order passed by SEBI and sought extension of time. The

said appeal was accordingly disposed of extending time to comply

with the directions of SEBI and to refund the amount. The appellants

contended that pursuant to the order of SEBI dated July 9, 2013 the

appellant represented before SEBI. But, subsequently, when a

recovery notice was issued the appellant filed Appeal No. 290 of

2016 in which it was contended that no notice or opportunity of

hearing was provided to the appellant before passing the impugned

order. The Tribunal accordingly quashed the order dated July 9,

2013 in so far as it related to the appellant as well as the attachment

order and directed the WTM of SEBI to pass a fresh order on merits 4

in accordance with law. The said order of the Tribunal dated January

9, 2017 is extracted hereunder :-

"1. This appeal is filed to challenge the order passed by the Whole Time Member ('WTM' for short) of Securities and Exchange Board of India ('SEBI' for short) on July 9, 2013.

2. In view of the fact that the impugned order is passed without hearing the appellant, counsel for SEBI, on instruction states that the impugned order dated July 9, 2013 be quashed and set aside qua the appellant with liberty to the WTM of SEBI to pass fresh order on merits after hearing the appellant. Accordingly, the impugned order dated July 9, 2013 is quashed and set aside qua the appellant with direction to the WTM of SEBI to pass fresh order on merits and in accordance with law.

3. In view of the above, attachment levied on the bank account of the appellant shall stand vacated forthwith.

4. Appeal as also the Misc. Application are disposed of in the aforesaid terms with no order as to costs."

4. Pursuant to the order of the Tribunal, the impugned order

indicates that the appellant was granted an opportunity of hearing on

April 28, 2017 which was adjourned to May 5, 2017 and thereafter it

was rescheduled to November 13, 2017 on which date the appellant

appeared in person though an application for adjournment was filed

on behalf of his advocate. The proceedings of November 13, 2017

indicates that the appellant was heard in person and thereafter was 5

granted time to file the written submissions with the rider that no

further opportunity of personal hearing would be granted.

5. It has also come on record that the written submissions were

filed alongwith an application praying that a further opportunity of

personal hearing be granted. In the written submissions, it was

categorically stated that the appellant did not receive any notice of

the proceedings nor was ever heard. It was categorically stated that

the appellant was not aware of any show cause notice being issued by

SEBI to the appellant and consequently, contended that he had not

been given any opportunity to rebut the allegations made against

him. It was specifically urged that no material or evidence has been

provided to the appellant which would show that the appellant was

responsible for the CIS.

6. Without considering the aforesaid facts, the WTM passed an

order making the appellant responsible for refund of the money on

the ground that the appellants was a director at that point of time.

The appellants being aggrieved by the order has filed the present

appeals.

6

7. We have heard Shri Nitendra Mohan Mukherjee with Shri

Devasis Mitra, the learned counsel for the Appellants and Shri

Pradeep Sancheti, the learned senior counsel with Mr. Anubhav

Ghosh and Ms. Rashi Dalmia, the learned counsel for the respondent.

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

opinion that the WTM has committed a manifest error in the manner

in which the proceedings were conducted. When the Tribunal

directed that an opportunity of hearing should be provided to the

appellants, it did not mean that the WTM will only make a

perfunctory exercise by granting an opportunity of hearing without

providing him a copy of notice or material which is being relied upon

by the respondent. The appellants have categorically stated in the

earlier round of appeal before the Tribunal that no show cause notice

was ever provided to him nor was he accosted with the charge and

unless and until the material was placed before him, it was not

possible for him to give a suitable reply. The same assertion was

made in his written submissions to which the WTM has not adhered

to.

9. In our opinion, it was the duty of the WTM to provide a copy

of the show cause notice indicating the violation committed by the 7

appellant alongwith material if any, and thereafter an opportunity of

hearing should have been given to the appellant to rebut such charges

which, in the instant case, has not been done. Thus, the entire

proceeding initiated by the WTM was in violation of principles of

natural justice.

10. The impugned orders thus, cannot be sustained and are

quashed. The appeals are allowed. The matters are remitted again to

the WTM to issue a show cause notice and proceed from there

onwards after giving an opportunity to the appellants to file their

reply and after giving an opportunity of hearing. For the aforesaid

purpose, the appellants shall appear before the WTM on October 10,

2019 on which date the WTM will serve a show cause notice and

proceed from there onwards. In the circumstances of the case, there

shall be no order as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M. T. Joshi Judicial Member 04.09.2019 Prepared & Compared by PTM