2021 (3) TMI 1281 - AT - SEBI

Offence under SEBI Act - Recovery proceedings - Attachment orders - whether recovery proceedings can be initiated straight away under section 28A of the SEBI Act without issuing notice for adjudicating a dispute between the regulator and the appellants and without giving an opportunity to the appellants to contend that they are not associated companies of PACL? - HELD THAT - Assuming that the Recovery Officer does have the jurisdiction to initiate recovery proceedings under Section 28A is it not necessary for the Recovery Officer to issue notice before proceedings with the recovery of the amount and, further whether attachment order could be passed without issuing any notice especially when there is no evidence in the impugned order that there is a possibility that the appellants would run away with the money. Appellants is a running Company and the financial year is coming to an end on 31st March. The attachment order attaching the bank accounts is certainly not in the interest of the smooth running of the business of the Company. We direct the respondent to file a reply within two weeks from today. Two weeks thereafter to the appellant to file rejoinder. The matter would be listed for admission and for final disposal on 29th April, 2021. In view of the undertaking given by the appellants today we direct that the attachment orders passed against the appellants shall remain in abeyance. The appellants would be permitted to operate their accounts and make necessary expenditures for the smooth running of the business.

Summary

Issues involved:
1. Challenge against a notice of demand and attachment order under the Income Tax Act and SEBI Act.
2. Jurisdiction of the Recovery Officer under Section 28A of the SEBI Act.
3. Necessity of issuing notice before initiating recovery proceedings.
4. Validity of attaching bank accounts without evidence of potential flight risk.
5. Impact of attachment order on the smooth running of the company.

Analysis:
1. The judgment deals with two appeals challenging a notice of demand and an attachment order issued under the Income Tax Act and the SEBI Act. The appellants argue that they were not parties to the proceedings against PACL, and the notice and attachment were based on orders against PACL for recovery of funds. The Supreme Court had constituted a Committee to oversee the recovery process from PACL, leading to the issuance of the impugned notice and attachment order.

2. The key issue raised is whether recovery proceedings can be initiated under Section 28A of the SEBI Act without prior notice or opportunity for the appellants to dispute their association with PACL. The judgment questions the Recovery Officer's jurisdiction to proceed with recovery without issuing notice and whether an attachment order can be passed without evidence of a flight risk.

3. The judgment notes that the appellants are operating companies, and the attachment of their bank accounts could disrupt their business operations, especially with the financial year ending soon. This raises concerns about the impact of the attachment order on the smooth functioning of the company and the need to balance recovery efforts with business continuity.

4. In response to the issues raised, the tribunal directs the respondent to file a reply within two weeks and grants the appellants a further two weeks to file a rejoinder. The matter is scheduled for admission and final disposal on a specified date, allowing both parties to present their arguments fully before the tribunal.

5. Notably, the tribunal orders that the attachment orders against the appellants remain in abeyance, allowing them to operate their accounts and manage necessary expenses for the smooth running of their business. The parties are instructed to coordinate with the Registrar regarding the hearing format, either through video conferencing or physical presence, ensuring procedural efficiency amid the Covid-19 pandemic.

6. Due to the current circumstances, the judgment is digitally signed by the Private Secretary on behalf of the bench, with all concerned parties directed to act upon the digitally signed copy provided via fax or email. This ensures the continuity of legal proceedings while adapting to remote working arrangements necessitated by the pandemic.