2019 (10) TMI 111 - AT - SEBI

Default of Service of notices and orders - non service of show cause notice personally - Unpublished price sensitive information used by MD to sale of shares - violation of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act ) and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as PIT Regulations ) - HELD THAT - In the instant case, we do not find anything on record to indicate that any effort was made by the respondent to serve the show cause notice personally. We do not find that any effort was made to serve at the place where he carried on business or had worked for gain. Thus, without complying with the procedure adopted under Clause (a) and (b) of Rule 7 the respondent cannot take direct steps for affixation under Clause (c). Further, we find that the show cause notice that was sent by speed post came back undelivered. No effort was made to find out as to whether the appellant was residing at that premises or not Mode of service prescribed under Rule 7 is not exhaustive and other modes of service was always available in addition to the modes of service prescribed under Rule 7 i.e. for example publication of the notice in an appropriate newspaper or service through email. In this regard, we find that SEBI was corresponding with the appellant through email and information was supplied by the appellant through email. This mode could have easily been adopted by the respondent which they failed to do so. Instead the Adjudicating Officer made efforts to get the show cause notice served through the broker of the appellant. It is strange that when the email id of the appellant was known to the respondent which is quoted in the impugned order, but made no effort to serve the show cause notice or the notice for date of hearing through email. In addition to the modes prescribed under the Rules of 1995, other modes could also be utilized such as O29R2 of CPC or under the Securities and Exchange Board of India (Manner of Service of Summons and Notices issued by the Board) (Amendment) Regulations, 2007 which has been issued in exercise of the powers conferred by Section 30 of the SEBI Act, 1992 which provides various modes for tendering notice to a person which also includes service by electronic mail service. Consequently, we are of the opinion that sufficient service was not made upon the appellant. Since the show cause notice was not served upon the appellant a vital right was denied to him to reply to the show cause notice and thereafter to defend himself. Such denial of right is violative of the principles of natural justice as embodied under Article 14 of the Constitution of India. The impugned order, being an ex-parte order, suffers from the vice of natural justice and cannot be sustained. The impugned order is accordingly quashed. The appeal is allowed

Summary

Issues:
1. Delay in filing the appeal
2. Violation of SEBI Act and PIT Regulations
3. Service of show cause notice and principles of natural justice

Analysis:

1. Delay in filing the appeal:
- The judgment addresses a delay of 99 days in filing the appeal, which was condoned by the Appellate Tribunal for reasons stated in the application.

2. Violation of SEBI Act and PIT Regulations:
- The appellant, as the Managing Director of a company, was found to have traded shares based on unpublished price sensitive information, violating SEBI Act and PIT Regulations.
- Penalties were imposed for various violations, including trading without prior approval and engaging in opposite transactions.
- The appellant contended that the order was ex-parte, claiming no knowledge of the proceedings initiated by the Adjudicating Officer.

3. Service of show cause notice and principles of natural justice:
- The judgment detailed the efforts made to serve the show cause notice, including sending it to the appellant's last known address and through the appellant's broker.
- However, the appellant had shifted residences, and the notice was not received at the new address.
- The Tribunal found that the service of the notice did not comply with the prescribed rules and failed to utilize alternative modes such as email communication.
- As a result, the Tribunal concluded that the appellant was denied a vital right to reply and defend, violating principles of natural justice.
- The ex-parte order was quashed, and the matter was remitted to the Adjudicating Officer for a fresh order after proper service of the show cause notice and an opportunity for hearing.

In conclusion, the judgment highlighted issues related to procedural compliance, natural justice, and the importance of proper service of notices in legal proceedings, ultimately leading to the quashing of the ex-parte order and a direction for a fresh order after ensuring due process.