2013 (4) TMI 253 - SC - Companies Law

Supplementary show cause notice - Collective Investment Schemes - Held that - Having heard the learned counsel for the respective parties, we are convinced that the order of the High Court impugned in these appeals should be set aside and the proceedings dated 30.11.1999 and 10.12.1999 can themselves be treated as show cause notices apart from permitting the appellant to issue a comprehensive supplementary show cause notice to the first respondent Company within a period of three months after carrying out necessary inspection, investigation, inquiry and verification of the accounts and other records of the first respondent Company. We also make it clear that the appellant shall pass fresh orders as regards the business activity of the first respondent Company as to whether it falls under the category of CIS or not and depending upon the ultimate order to be passed it may proceed further in accordance with law. The appellant shall before taking any future action give prior notice to the first respondent Company. Since the earlier orders of the appellant were of the year 1999 and long time gap has occurred in between, such time gap shall not cause any prejudice to either of the parties - The appeals stand disposed of

Summary

Issues:
- Application for impleadment
- Necessity of show cause notice before passing orders
- Impugned orders dated 30.11.1999 and 10.12.1999
- Treatment of impugned orders as show cause notices
- Cooperation required from the first respondent Company
- Permission for inspection, investigation, and inquiry
- Issuance of supplementary show cause notice
- Submission of reply by the first respondent Company
- Opportunity for personal hearing
- Passing of fresh orders by the appellant
- Uninfluenced decision-making
- Time gap between orders

Analysis:
1. The Supreme Court allowed the application for impleadment and considered the necessity of a show cause notice before passing orders. The court observed that the appellant should have issued a show cause notice to enable the first respondent to present necessary materials and demonstrate how its business activities may not fall under the Collective Investment Scheme (CIS) category.

2. After hearing both parties, the court suggested treating the impugned orders as show cause notices and extending an opportunity to the first respondent to vindicate its stand. The court emphasized the need for cooperation from the first respondent Company, allowing inspection, investigation, and inquiry, and issuing a comprehensive supplementary show cause notice within three months.

3. The first respondent Company was directed to permit free access to records and assist auditors during inspection and verification. Upon receiving the supplementary show cause notice, the company had to submit a reply within six weeks and attend a personal hearing to present materials in support of its stand. The appellant was instructed to pass orders within six weeks after the hearing, based on the materials presented.

4. The court clarified that the appellant should pass fresh orders regarding the business activity of the first respondent Company without being influenced by previous court orders. It was emphasized that the decision should not be based on the merits of the case but on the current circumstances. The court also noted that the time gap between the orders should not prejudice either party.

5. In a separate judgment, the court dismissed the appeal after finding no merit in it, as presented by the respective counsels. The directions provided in the main judgment were upheld, and the appeals were disposed of accordingly.