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2020 (12) TMI 2 - SC - SEBIForward trade in commodities - Trading Irregularities - Piercing of corporate veil - abuse of position by the MD / Chairman of the Commodity Exchange - Plea of lack of adequate opportunity - principles of natural justice - Issuing show cause notice to the second respondent and not to the first respondent - multiple proceedings have been initiated but have resulted in no culmination over a period just short of a decade. HELD THAT - We do feel that there was an endeavour to some extent by Respondent No.2 herein to prolong the proceedings but then looking into the enormity of the contents of the show cause notice running into 150 pages with documents spanning 4,000 pages supporting it, a reasonable time had to be given to respond to the same. We may note that the whole enquiry was at the behest of independent enterprising journalist. The manner in which the proceedings were sought to be closed raises serious doubts in our mind that a fair process and opportunity has been extended to Respondent No.2 herein. Piercing of corporate veil - Insofar as Respondent No.1 herein is concerned, not even a formal show cause notice has been issued. However, the fact remains that the communications addressed by Respondent Nos.1 and 2 herein do give rise to a clear and unequivocal view that it was understood as a notice both to Respondent Nos.1 and 2 herein. - to some extent truth in what has been alleged by the appellants before us, i.e., that Respondent Nos.1 and 2 herein are conveniently playing this game of coming up separately even though they are joined in all purposes. We are conscious of the fact that Respondent No.1 herein is a separate legal entity being a registered company, but the concept of piercing the veil is not unknown to law. By this process, the law either goes behind the corporate personality to the individual members or ignores the separate personality of the company. - We are, thus, not able to hold that there was a failure to serve show cause notice to Respondent No.1 herein merely because no such notice was specifically addressed to it. The directions passed by the SAT for the case to begin with the service of fresh show cause notices would not be an appropriate direction. In the conspectus of the factual position from the proceedings which have taken place and the legal principles discussed, we are of the view that the following directions would subserve the interest of justice and perfect the rights of the parties i. No fresh show cause notice is required to be served on Respondent No.1 herein and the show cause notice dated 21.6.2011 would be treated as a show cause notice to both Respondent Nos.1 and 2 herein. ii. The documents already asked for by Respondent No.1 and 2 herein and not supplied should be supplied. In order to obtain clarity on this issue, we direct that a list of documents sought for by either respondents be supplied to the SEBI within two weeks from the date of this order and those documents are to be supplied by SEBI within two weeks thereafter. iii. Respondent Nos.1 and 2 herein are granted opportunity to file their reply to the show cause notice without any further delay within a period of four weeks after receiving aforementioned documents. iv. The SEBI would thereafter proceed to give an opportunity for personal hearing both to Respondent Nos.1 and 2 herein and these proceedings are to go on, on a day-to-day basis and no request for adjournment will be entertained in this behalf from either respondents.. v. The SEBI would take a final view on the subject matter thereafter. vi. Needless to say, if Respondent Nos.1 and 2 herein are aggrieved by the same, the remedy against the same lies before the SAT. vii. We make it clear that all pleas as raised by Respondent Nos.1 and 2 herein would be considered by the SEBI, legal or factual including but not confined to aspects of jurisdiction. In fact, this is the very purpose of relegating the proceedings before the SEBI and not to SAT as the right of appeal is a valuable right to be exercised after adequate opportunity at the first adjudication stage level. The order of the FMC dated 23.7.2011 has been set aside and a fresh order has to be passed. The different proceedings initiated, still pending almost at a nascent stage, are in pursuance of that order. The natural consequence, thus, would be that those proceedings would have to be kept in abeyance for the time being, till a view is taken by SEBI in pursuance of the directions passed by this order and would have to abide by the decision taken by the SEBI or in appeal arising therefrom. We clarify that were Respondent Nos.1 and 2 herein to fail in their endeavours, it will not mean that those other proceedings have to start de novo and can continue from the stage where they are, subject, of course, to the nature of directions passed afresh by SEBI. Appeals disposed off.
Issues Involved:
1. Culpability of Respondent Nos. 1 and 2. 2. Jurisdiction of the Forward Markets Commission (FMC). 3. Compliance with principles of natural justice. 4. Adequate opportunity for Respondent Nos. 1 and 2 to present their case. 5. Validity of the show cause notice and subsequent proceedings. 6. Consequences of the Supreme Court's previous order dated 7.3.2018. Detailed Analysis: 1. Culpability of Respondent Nos. 1 and 2: The judgment highlights the prolonged legal proceedings initiated against Respondent Nos. 1 and 2, which have not yet culminated in a determination of their culpability. The FMC's inquiry found Respondent No. 2 in breach of fiduciary responsibility, defrauding, misusing, and misappropriating NMCE's property. However, these findings were challenged due to procedural issues, and the matter remains unresolved. 2. Jurisdiction of the Forward Markets Commission (FMC): The FMC initiated proceedings based on a complaint alleging trading irregularities and abuse of position by Respondent Nos. 1 and 2. The FMC's jurisdiction was questioned, but it was clarified that Section 8(2)(b) of the Forward Contracts (Regulation) Act, 1952 empowered the Central Government to make inquiries into the affairs of registered associations, and this power had been delegated to FMC officers. 3. Compliance with Principles of Natural Justice: The principles of natural justice were a significant issue, with Respondent Nos. 1 and 2 alleging that they were not given adequate opportunity to present their case. The Division Bench of the Gujarat High Court initially quashed the FMC's order on the grounds of violation of natural justice, as no show cause notice was served to Respondent No. 1 and NMCE. The Supreme Court's previous order dated 7.3.2018 set aside this finding, but the matter was relegated to the Securities Appellate Tribunal (SAT) to be heard on merits. 4. Adequate Opportunity for Respondent Nos. 1 and 2 to Present Their Case: The SAT found that Respondent Nos. 1 and 2 were not given adequate opportunity to present their case. The FMC's show cause notice was lengthy, and the documents supporting it were voluminous. Respondent No. 2 was given insufficient time to respond, and the request for adjournment was denied. The SAT directed that Respondent Nos. 1 and 2 be given a reasonable opportunity to file objections/reply to the show cause notice. 5. Validity of the Show Cause Notice and Subsequent Proceedings: The Supreme Court agreed with the SAT's findings that adequate opportunity was not provided to Respondent Nos. 1 and 2. The Court directed that no fresh show cause notice was required, but the existing notice dated 21.6.2011 would be treated as a notice to both respondents. SEBI was directed to supply any requested documents not already provided and to give Respondent Nos. 1 and 2 a reasonable time to file their reply and a personal hearing. 6. Consequences of the Supreme Court's Previous Order Dated 7.3.2018: The Supreme Court's previous order had set aside the Division Bench's finding of violation of natural justice, directing the matter to be heard on merits by the SAT. The current judgment clarifies that the SAT's directions were appropriate, and the matter should proceed without issuing a fresh show cause notice. The order of the FMC dated 23.7.2011 was set aside, and SEBI was directed to take a fresh view after providing adequate opportunity to Respondent Nos. 1 and 2. Conclusion: The Supreme Court disposed of the appeals by modifying the SAT's order, directing SEBI to provide the requested documents, allow Respondent Nos. 1 and 2 to file their reply, and grant a personal hearing. The proceedings initiated against Respondent Nos. 1 and 2 were to continue from the current stage, subject to SEBI's fresh decision. This judgment aims to ensure that the principles of natural justice are upheld while expediting the resolution of the case.
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