2015 (7) TMI 92 - AT - Companies Law

Restrained from accessing the securities market - Prohibition from buying, selling or otherwise dealing in securities directly or indirectly for a period of 10 years - Violation of the principles of natural justice - Held that - We find merit in the contention of the appellants that in the personal hearing granted on August 13, 2013 appellants had argued only on the preliminary issue and that they were under the impression that fresh hearing would be given to them in case the preliminary issue is decided against the appellants. While making it clear that it is open to SEBI to hear on preliminary issue as well as merits together and pass one composite order, in the facts of present case, in our opinion, SEBI was not justified in passing impugned order on merits without making it clear to the appellants that at the personal hearing appellants would be heard both on the preliminary issue and on merits. - In these circumstances, the impugned order is quashed and set aside and the matters are restored to the file of the WTM of SEBI for passing common order on the preliminary issue.

Summary

Issues:
1. Appellants aggrieved by SEBI order to disgorge unlawful gains and restrain from securities market for 10 years.
2. Impugned order challenged on grounds of unsustainability on merits and breach of natural justice principles.
3. Show cause notice issued in 2008 decided against appellants, Tribunal remanded for fresh decision in 2010.
4. Fresh show cause notice issued in 2012, appellants raised objections on res judicata and double jeopardy.
5. Personal hearing held in 2013, appellants argued only on preliminary issue, not on merits.
6. SEBI passed impugned order in 2014, addressing preliminary issue of res judicata, proceeded to decide on merits.
7. Issue of whether impugned order violates natural justice principles due to lack of hearing on merits and delay in decision.
8. SEBI contends appellants raised merits in reply, justifying impugned order, no prejudice from delay.

Analysis:
1. The appellants challenged SEBI's order directing them to disgorge unlawful gains and imposing a 10-year ban from the securities market. They argued the order was unsustainable on merits and violated natural justice principles.
2. The Tribunal had remanded the case in 2010 for a fresh decision after the show cause notice issued in 2008 was decided against the appellants.
3. In 2012, a fresh show cause notice was issued, and the appellants objected, citing res judicata and double jeopardy concerns.
4. During the personal hearing in 2013, the appellants focused on the preliminary issue and did not address the merits of the case.
5. SEBI passed the impugned order in 2014, addressing the preliminary issue of res judicata and proceeding to decide on the merits of the case.
6. The key issue was whether the impugned order breached natural justice principles by not allowing a hearing on merits and delaying the decision for 11 months.
7. SEBI argued that the appellants had raised merits in their reply, justifying the impugned order, and claimed no prejudice from the delay.
8. The Tribunal found merit in the appellants' contention that they had only argued the preliminary issue during the personal hearing, leading to the quashing of the impugned order and a direction for a common order on the preliminary issue and merits.