Imposition of Penalty for Fraudulent GDR Issuance After Undue Delay & Without Valid Reasons was to be Quashed | SAT

Case Details: D. Sundararajan v. Securities and Exchange Board of India - [2023] 152 taxmann.com 360 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Vinay Chauhan, Ms. Almira Lasrado & Ms Afreen Thanevala, Advs. for the Appellant.
  • Sumit Rai, Mihir Mody, Arnav Misra & Harshvardhan Melanta, Advs. for the Respondent.

Facts of the Case

In the instant case, the company ‘Cals Refineries’ issued Global Depository Receipts (GDRs) on 12-12-2007. During the course of the investigation, it was observed that a false impression was given to investors regarding the subscription of GDR by one entity known as ‘H’ and, thus, the issuance of GDR was fraudulent.

Based on the aforesaid, a show cause notice dated 25-9-2013 was issued by the Whole Time Member (WTM) of SEBI. The matter was contested by the noticees and thereafter, WTM passed an order of debarment.

On the same facts and on the same cause of action and for the same violation, the Adjudicating Officer (NCLT) initiated proceedings by the issuance of show cause notice on 9-6-2019, which after the contest had resulted in the passing of the impugned order wherein different quantum of penalties had been imposed upon notices.

It was noted that though there is no period of limitation prescribed in the Act and Regulations for issuance of a show cause notice and for completion of adjudication proceedings, nonetheless, authorities are required to exercise their powers within a reasonable period.

However, in the instant case, the power to adjudicate had not been exercised within a reasonable period. When WTM issued a show cause notice on 25-9-2013, nothing stopped the Adjudicating Officer from initiating penalty proceedings against the appellant.

SAT Held

The SAT held that by sitting over the matter from 2013 to 2019, there had been an undue delay in the initiation of proceedings for which no cogent or valid reasons had been given. Consequently, no penalty could be imposed and the impugned order passed by the Adjudicating Officer was to be quashed.

List of Cases Reviewed

• • AO, SEBI v. Bhavesh Pabari [2019] 103 taxmann.com 8/152 SCL 717 (SC) (para 13)
  • Ashlesh Gunvantbhai v. SEBI [2020] 117 taxmann.com 416/160 SCL 242 (SAT – Mum.) (para 12) followed.

List of Cases Referred to

• • Rakesh kathotia v. SEBI [Appeal No. 7 of 2016, dated 27-5-2019] (para 10)
  • Ashok Shivlal Rupani v. SEBI [Appeal No. 417 of 2018, dated 22-8-2019] (para 11)
  • SEBI v. Ashok Shivlal Rupani [Civil Appeal Nos. 8444-8445 of 2019, dated 15-11-2019] (para 11)
  • Ashlesh Gunvantbhai Shah v. SEBI [2020] 117 taxmann.com 416/160 SCL 242 (SAT – Mum.) (para 12)
  • AO, SEBI v. Bhavesh Pabari [2019] 103 taxmann.com 8/152 SCL 717 (SC) (para 13).