2020 (1) TMI 1201 - HC - SEBI

Insider trading in the scrips of NDTV - principal allegation in the impugned notice is that the petitioners, being promoters, and qualifying as insiders, traded in the shares of NDTV while in possession of UPSI - calling upon the petitioners before us to show cause as to why directions under section 11B of the Securities and Exchange Board of India Act, 1992 including direction for the disgorgement of illegal gains be not issued against the petitioners for the aforementioned alleged violations of the SEBI Act, 1992 and PIT Regulations - HELD THAT - We should allow the petition to be prosecuted as its obvious purpose is to delay the adjudication of the show-cause notice. It is not as if the petitioners cannot appear before SEBI without prejudice to their rights and contentions and complaint that they were not provided full, free and unhindered inspection of the relevant records and documents. The petitioners can participate in the hearing or adjudication of the show-cause notice without prejudice to all their rights and contentions including on the above point. They can very well substantiate their primary contention that on the face of it, the show-cause notice is time barred. We do not think that we should interfere with the showcause notice as that relief could have been claimed but advisedly not claimed earlier. It may be that the Writ Petition filed before the Hon ble High Court of Delhi is filed by another entity and not the petitioner. Secondly, when that High Court passed the order, the present petitioners were not served with the show-cause notice. However, even that High Court expressed its reluctance to interfere with the investigations by SEBI. Pertinently, Ms.Sethna does not seek the relief of quashing of the show-cause notice. We fail to understand the reluctance of the petitioner to appear before SEBI reserving its rights and contentions. Writ Petition before this Court with virtually the same complaint should not be entertained as that would mean that this Court can be approached challenging such a show-cause notice, when the petitioners were aware that they first approached through their promoter group, the High Court of Delhi. The grievance being more or less the same, we do not think that this Petition should be entertained only on the ground of alleged lack of inspection. We do not think that the petitioners cannot properly defend themselves. The petitioners can participate in the adjudication or the hearing and in the event any adverse order is passed, while challenging the same, the petitioners can highlight all the grievances and grounds projected in the petition before the High Court of Delhi and this High Court.

Summary

Issues:
Challenging show-cause notice by SEBI under SEBI Act and PIT Regulations; Lack of full inspection of documents and records by petitioners; Delay in issuance of notice; Alleged violation of principles of natural justice.

Analysis:
1. Challenging show-cause notice: The petitioners sought relief through a writ petition under Article 226 challenging the show-cause notice issued by SEBI. The notice alleged insider trading violations by the petitioners, prompting them to request full inspection of all relevant materials. The petitioners contended that the notice was time-barred and raised concerns regarding the fairness of the adjudication proceedings initiated by SEBI.

2. Lack of full inspection: The petitioners argued that despite partial inspection of documents provided by SEBI, they were denied access to crucial materials such as the investigation report and internal file notings. This lack of complete inspection was a central grievance in the petition, highlighting concerns about the fairness and transparency of the adjudication process.

3. Delay in issuance of notice: The show-cause notice issued by SEBI was alleged to be significantly delayed, with the trading activity under scrutiny dating back to a period spanning from September 2006 to June 2008. The petitioners questioned the validity of a notice issued 10 years after the alleged violations, raising issues of procedural fairness and timeliness in regulatory actions.

4. Alleged violation of principles of natural justice: The petitioners contended that the adjudication proceedings initiated by SEBI lacked adherence to principles of natural justice, particularly in terms of providing full and unhindered inspection of relevant records and documents. The petitioners argued that this lack of access compromised their ability to defend against the allegations effectively, emphasizing concerns about procedural fairness and arbitrariness in the regulatory process.

In the judgment, the court expressed disinclination to interfere with the show-cause notice issued by SEBI, emphasizing that the petitioners could participate in the adjudication process without prejudice to their rights and contentions. The court noted that the petitioners had avenues to challenge any adverse orders passed by SEBI while highlighting grievances related to lack of inspection and alleged violations of natural justice. Ultimately, the court dismissed the writ petition, stating that the petitioners had the opportunity to defend themselves adequately within the regulatory framework and through legal recourse if necessary.