2021 (4) TMI 1273 - HC - SEBI

Delay of 5 years or more in initiating action by the SEBI - HELD THAT - Issue of delay can also be looked into by the appellant SEBI while passing a final order keeping in view the various judgments. It is not a case where the show cause notice has not been issued by a competent authority and only on the point of delay, the notice could not have been quashed in the manner and method it has been done. See MR. MUKKARAM JAN VERSUS SECURITIES EXCHANGE BOARD OF INDIA 2021 (1) TMI 1174 - KARNATAKA HIGH COURT Petition preferred by the respondent against the show cause notice dated 20.10.2016 and notice dated 20.8.2019, was certainly a premature writ petition and therefore, the writ appeal is allowed. The order passed by the learned Single Judge is hereby set aside. The appellant SEBI is directed to conclude the proceedings within a period of six months from the date of receipt of certified copy of this judgment. The appellant Board shall not grant unnecessary adjournment in the matter and in case need so arises for grant of an adjournment, reasons for such adjournment shall be recorded in writing.

Summary

Issues:
1. Quashing of show cause notice issued by Securities Exchange Board of India.
2. Delay in initiating action by SEBI.
3. Premature writ petition challenging the show cause notice.

Issue 1: Quashing of Show Cause Notice
The appellant, SEBI, filed a writ appeal challenging the order quashing the show cause notice issued to a company and its directors for failing to distribute dividends within the statutory period. The Single Judge quashed the notice based on delay, citing judgments where SEBI's delays of 5 years or more were deemed unsustainable by the Securities Appellate Tribunal. The High Court held that while delay is a valid consideration, SEBI should address it in the final order rather than quash the notice prematurely. Referring to relevant judgments, the Court emphasized that interference with a show cause notice is not ideal unless it lacks jurisdiction or is illegal. The Court allowed the writ appeal, setting aside the Single Judge's order and directing SEBI to conclude the proceedings within six months without unnecessary adjournments.

Issue 2: Delay in Initiating Action by SEBI
SEBI, as the securities market regulator, issued a show cause notice to the company and its directors for violating the Companies Act by failing to distribute dividends timely. The Single Judge quashed the notice due to a delay of 4 to 6 years in issuing it and 7 to 9 years in holding the hearing. The Court referenced judgments where delays of 5 years or more were considered unsustainable by the Securities Appellate Tribunal. The High Court noted that SEBI should address delays in its final order instead of prematurely quashing notices. The Court directed SEBI to conclude the proceedings within six months, emphasizing the importance of timely resolution without unnecessary adjournments.

Issue 3: Premature Writ Petition Challenging Show Cause Notice
The High Court analyzed the premature nature of the writ petition filed against the show cause notice dated 20.10.2016 and a subsequent notice dated 20.8.2019. Citing legal principles, the Court highlighted that a writ should not be entertained against a mere show cause notice unless it lacks jurisdiction or is wholly illegal. The Court allowed the writ appeal, setting aside the Single Judge's order and instructing SEBI to conclude the proceedings within six months, while ensuring no unnecessary adjournments are granted. The judgment emphasized that the discretion to interfere with a show cause notice should be exercised cautiously, considering the rights of the parties involved.

This detailed analysis of the judgment addresses the quashing of the show cause notice, the issue of delay in SEBI's actions, and the premature nature of the writ petition challenging the notice. The High Court's decision provides clarity on the legal principles governing such matters and emphasizes the importance of timely resolution in regulatory proceedings.