2024 (12) TMI 538 - HC - SEBI

Validity of Show cause notice - scope of judicial review of a show cause notice SEBI power to review or revisit its earlier decisions - argument about delay or laches - whether the Petitioners have made out a case to secure the quashing of the impugned show-cause notice or nip the proceedings in the bud? Delay or laches - HELD THAT - The principle on which the relief to the party on the grounds of laches or delay is denied is that the rights which have accrued to others by reason of the delay in filing the Petition should not be disturbed unless there is a reasonable explanation for the delay. The real test to determine the delay in such cases is that the Petitioner should come to the writ Court before a parallel right is created and that the lapse of time is not attributable to any laches or negligence. The test is not a physical running of time. Where the circumstances justifying the conduct exist, the manifest illegality cannot be sustained on the sole ground of laches. The argument about the complaint against the Petitioners being hit by delay and laches would have to be examined in the above light. Such examination or evaluation would involve delving into factual aspects, determining prejudice, creating parallel rights, etc. Therefore, in this case, the impugned show cause notice cannot be set aside by alleging delay or laches. In any event, this plea can always be raised in response to the impugned show cause notice, and there is no reason to assume that the SEBI would not consider the same. Review, revisit, double jeopardy and res judicata - By simply alleging that this is a case of review, revisit, double jeopardy or res judicata, no case is made out to interfere with the impugned show cause notice. Undoubtedly, it would be open to the Petitioners to raise all such defences. If such defences are raised, we are sure they will be considered following the law based upon the material the Petitioners produce to support such contentions. The issue of whether principles of res judicata or double jeopardy apply to such proceedings can also be considered if raised. However, this case does not call for quashing the impugned show cause notice based on such grounds. Non application of mind - From the material placed before us, it is difficult to say that Arya s complaint was thoroughly examined and closed. There is no clarity on whether Arya s complaint contained substantially the same allegations as in the 2019 complaint. There is no material about thorough investigation as claimed by the Petitioners. Therefore, at this stage, it is too premature to quash the impugned show notice based upon such pleas or the Petitioners understanding of Clause 12 of SEBI s circular dated 18 December 2014. Again, the petitioners are free to raise all permissible pleas in response to the impugned show-cause notice, and there is no good reason to assume the SEBI cannot or will not consider such pleas. In this petition, we are only to consider whether the Petitioners have made out a case to secure the quashing of the impugned show-cause notice or nip the proceedings in the bud. Upon considering the material placed and the contentions advanced, no such extraordinary case is made out. Non-furnish of information/documents - We have no reason to believe that the SEBI would act unfairly or breach the law enshrined in the Court s decisions. If there is any actual prejudice, such grievance can always be made, even in a challenge to the SEBI s decision, should the same adversely affect the Petitioners. However, based on the advanced arguments, no case has been made to quash the show cause notice. In this case, the material relied upon the show cause notice has been furnished to the Petitioners. We thought that the Petitioners could be furnished the information referred to in paragraph 4(i) of the proceedings for inspection of documents held on 4 October 2024. This was in the context of Arya s complaint dated 12 August 2014. Mr Doctor, on instruction but without prejudice, agreed to provide that information to the Petitioners within 2 weeks of uploading this order. The statement is accepted, and the SEBI will have to abide by the same. Upon receipt of this material, the Petitioners must not further delay in filing a response to the impugned show cause notice if they wish to file a response. Response must be filed within 4 weeks of the receipt of the information/documents which the SEBI has now agreed to furnish to the Petitioner. Regarding the information/documents for inspection of documents at least prima facie, we think that the Petitioners are only trying to create a base so that, in future, they can allege failure of natural justice. This is only a prima facie opinion; therefore, it is open to the Petitioners to complain about the non-furnish of this documents/material, demonstrate prejudice, if any, and urge failure of natural justice. However, exercising our extraordinary jurisdiction, we do not think that we should or could assist the Petitioners in unnecessarily prolonging the adjudication of the impugned show cause notice by interfering at every stage and over every matter. The extraordinary and discretionary jurisdiction cannot be invoked for such purposes. The impugned show-cause notice was issued on 20 August 2024. To date, the petitioners have not filed a proper reply. Mr. Doctor pointed out that the Petitioners have also submitted settlement proposals, so no final orders can be made on the impugned show-cause notice until the settlement applications/proposals are disposed of. This Petition was filed in November 2024, and a stay was sought on further proceedings under the impugned show-cause notice. All this suggests that this Court s extraordinary jurisdiction is being invoked to stall or delay the proceedings to the extent possible. At this stage, just as there may be no presumption of wrongdoings by the Petitioners, so also we cannot presume that the SEBI would not give the Petitioners a fair hearing or fair opportunity. However, fairness in such matters is not a one-way street but two-way traffic. Even the Petitioners must cooperate with the expeditious disposal of the show cause notice so that if they are clean, they need not suffer on account of such prolonged adjudication. The earlier the air is cleared, the better it is for all concerned, including the system that the SEBI must regulate. Thus, we decline to interfere with the impugned show-cause notice and dismiss this Petition. This is subject to our recording SEBI s statement about furnishing information in terms of Clause 4 (i) of the proceedings for inspection dated 4 October 2024 and the grant of some additional time to the Petitioners to respond to the impugned show-cause notice.

Summary

Issues Involved:
1. Delay and laches in the issuance of the show cause notice.
2. Review or revisiting of earlier decisions by SEBI, potentially amounting to double jeopardy or res judicata.
3. Non-application of mind and non-furnishing of relevant documents by SEBI.

Detailed Analysis:

1. Delay and Laches:
The Petitioners argued that the show cause notice issued by SEBI in August 2024, regarding a reorganisation from 2014, was delayed by almost ten years, invoking the doctrine of laches. They contended that such a delay rendered the notice without jurisdiction and should be quashed. However, the court held that the argument of delay involves factual inquiries and considerations of prejudice, which are not purely about the passage of time. The court emphasized that the Petitioners could raise this issue in their response to the notice, and SEBI would have to consider it according to the law. Therefore, the delay did not warrant quashing the notice at this stage.

2. Review/Res Judicata:
The Petitioners claimed that SEBI's issuance of the show cause notice amounted to a review or revisit of a previously closed complaint from 2014, which could lead to double jeopardy or res judicata. They argued that SEBI had already examined and closed the complaint, and reopening it was unjust. The court noted that the principles of double jeopardy or res judicata might not strictly apply in such regulatory matters. It was highlighted that the current notice was based on a new complaint from 2022, followed by an investigation. The court found no basis to quash the notice on these grounds, allowing the Petitioners to raise these defenses during the adjudication process.

3. Non-Application of Mind and Non-Furnishing of Documents:
The Petitioners argued that SEBI failed to consider relevant materials before issuing the show cause notice and did not provide necessary documents, breaching principles of natural justice. The court found that SEBI had conducted an investigation based on a new complaint and issued the notice after considering the investigation report. The court held that the scope of judicial review of a show cause notice is limited and that SEBI had applied its mind based on the available materials. Regarding the non-furnishing of documents, the court acknowledged SEBI's willingness to provide certain documents related to the 2014 complaint and directed SEBI to furnish them within two weeks. The court emphasized that the Petitioners should not delay responding to the notice after receiving these documents.

Conclusion:
The court dismissed the Petition, refusing to interfere with the show cause notice. It recorded SEBI's statement about providing specific documents and granted the Petitioners additional time to respond to the notice. The court underscored the importance of expeditious proceedings and cooperation from the Petitioners, noting that fairness is a two-way street. The Rule was disposed of without any cost order, and all parties were directed to act on an authenticated copy of the order.