2021 (1) TMI 1174 - HC - SEBI

Delay of 5 years or more in initiating action by the SEBI - SEBI proceedings for companies act violations - Non-payment of dividends - Show-cause notice to the Company and its Directors calling upon the noticees as to why action under Section 11 and 11B of the SEBI Act, 1992 should not be initiated for violation of Section 205(1A) of the Companies Act, 1956 - HELD THAT - In the case on hand, complaints with regard to non-payment of dividends were registered between 2010 and 2012. Annexure-D is the screen shot of the case status. It shows that SEBI has closed the complaints between 2013 and 2014. The show-cause notice is issued in October 20, 2016. No further action is taken till issuance of communication as per Annexure-B in 2019, calling upon the petitioner to remain present during the hearing. A perusal of the orders passed by Securities Appellate Tribunal shows that the said Tribunal has consistently held delay of five years and more in initiating action by the SEBI as unsustainable - even if petitioner is relegated to SEBI to attend the hearing as contemplated in communication Annexure-B and if petitioner were to suffer any adverse order, he can challenge the same before the Appellate Tribunal - Tribunal has decided the matter only on the point of delay without going into the merits. In this case, reckoned from the date of complaints, the delay is about four to six years in issuing the show-cause notice and seven to nine years in holding the hearing. In this case, no useful purpose would be served in relegating the petitioner to the SEBI. Hence, this petition merits consideration and it is accordingly allowed.

Summary

Issues:
Delay in issuing show-cause notice by SEBI, challenge to the legality of show-cause notice, relevance of delay in initiating action by SEBI, jurisdiction of High Court to entertain writ petitions questioning show-cause notices.

Analysis:
The case involved a petitioner who was a whole-time Director of a company that did not disburse dividends for the year 2008-2009, leading to complaints filed with SEBI between September 2010 and February 2012. SEBI closed the complaints in 2013 and 2014. However, a show-cause notice was issued on October 20, 2016, and the petitioner was called for a hearing in 2019. The petitioner challenged the notices citing delays and the repeal of the Companies Act, 1956. The respondent argued that the petitioner should address his contentions before SEBI and the Securities Appellate Tribunal if needed, relying on legal precedents.

The High Court considered the arguments presented by both parties and examined the records. The petitioner's counsel referred to judgments of the Securities Appellate Tribunal highlighting delays in SEBI actions, while the respondent emphasized the usual practice of not interfering with show-cause notices. The Court noted the closure of complaints by SEBI in 2013-2014 and the subsequent delay in issuing the show-cause notice and calling for a hearing in 2019.

The Court observed that the Securities Appellate Tribunal had consistently deemed delays of five years or more in SEBI actions as unsustainable. Referring to recent judgments of the Tribunal, the Court found the delay in the present case to be about four to six years in issuing the show-cause notice and seven to nine years in holding the hearing. Considering the circumstances and the precedents, the Court decided that it would not be beneficial to send the petitioner back to SEBI. Consequently, the petition was allowed, and the show-cause notices dated October 20, 2016, and August 20, 2019 were quashed.