2019 (8) TMI 1474 - AT - SEBI

Violation of SEBI (Listing and Disclosures Requirements) Regulations, 2015 - inordinate delay the initiation of proceedings by issuance of the show cause notice which culminated into a penalty order - Directors sold the shares during investigation period proposal for change in management of the company was moved through postal ballot for approval of members on July 22, 2010 but no corporate announcement was made to the Exchange regarding the Board Meeting - HELD THAT - There has been an inordinate delay on the part of the respondent in initiating proceedings against the appellants for alleged violations. Much water has flown since the alleged violations and at this belated stage the appellants cannot be penalized. It is alleged that disclosure under PIT Regulations was not made but similar disclosure was made by the appellant under SAST Regulations. Therefore, information was available on the Stock Exchange and therefore it cannot be said that the respondents were unaware of the alleged violations. Further, the purpose of disclosure was to make the market aware of the change of shareholding of the shareholders. When a disclosure was made by the company under SAST Regulations the investors became aware of the change in the shareholding. The non-compliance of Regulation 13 if any becomes technical in nature. We are of the opinion that there has been an inordinate delay in the issuance of the show cause notice and for completion of the adjudication proceedings. Since the power to adjudicate has not been exercised within a reasonable period no penalty could have been imposed for the alleged violations - on account of inordinate delay the initiation of proceedings by issuance of the show cause notice which culminated into a penalty order cannot be sustained.

Summary

Issues:
1. Alleged violations of Regulation 13(4) and 13(5) of PIT Regulations, 1992.
2. Alleged violations of Regulation 30(4) of LODR Regulations, 2015 read with clause 36 of the Listing Agreement.
3. Inordinate delay in issuing show cause notice and penalty imposition.

Analysis:
1. The case involved allegations of irregularities in the scrip of a company, leading to show cause notices to directors for violations of PIT Regulations, 1992. The violations included failure to disclose share sales under Regulation 13(4) and 13(5). The Adjudicating Officer imposed penalties on the directors for these violations, which were challenged in Appeal Nos. 417 of 2018 and 440 of 2018.

2. Another violation related to the failure of directors to make a corporate announcement regarding a proposed change in management, violating Regulation 30(4) of LODR Regulations, 2015. The directors were penalized for this violation as well. Both appeals were considered together due to a common ground.

3. The main contention raised was the inordinate delay in issuing the show cause notice, as it was issued eight years after the alleged violations occurred. The appellants argued that this delay prejudiced their defense. The Tribunal, after considering precedents, held that the delay was unreasonable. Referring to a previous case, the Tribunal emphasized the need for authorities to act within a reasonable time frame. As a result, the show cause notice and penalties were quashed due to the delay, without delving into the merits of the case.

4. The Tribunal's decision was based on the principle that in the absence of a prescribed limitation period, authorities must exercise their powers within a reasonable time. The delay in this case was deemed excessive, leading to the quashing of the show cause notice and penalty orders. The appellants were relieved of the penalties imposed due to the inordinate delay in initiating proceedings.