2022 (1) TMI 1389 - AT - SEBI

Delay in the initiation of the proceedings by SEBI - AO has skirted the issue on the ground that since the appellant did not act with skill, care and diligence, it proceeded to hold that the appellant cannot be absolved for the lapses incurred by him and accordingly imposed a penalty - HELD THAT - Admittedly, the inspection was conducted in January / February 2012. Inspection was submitted on May 07, 2012 and a reply was given on June 14, 2012. Thereafter, nothing was done and the show cause notice was eventually issued on December 12, 2019 after 7 years. There has been an inordinate delay in the issuance of the show cause notice. The view taken by the AO is patently erroneous and cannot be allowed to stand. We are of the view, that when a defense is raised by the appellant it is the onerous duty of the AO, as a quasi judicial authority, to deal with the matter instead of skirting the issue and pushing it under the carpet without dealing with it. The ground raised and not dealt with amounts to judicial indiscipline. We are of the view, when a question of delay has been raised, it is imperative for the AO to deal with the issue. In the instant case, we find that there is an inordinate delay in the issuance of the show cause notice. No explanation whatsoever has been given by the respondent as to why the show cause notice could not be issued earlier. In the absence of any justification, we are of the view that the show cause notice was not issued within a reasonable time and, in fact there has been an inordinate delay in the issuance of the show cause notice. We are further of the opinion, that old and stale disputes should not be raised. Thus the impugned order cannot be sustained and is quashed. The appeal is allowed with costs.

Summary

Issues:
1. Delay in issuance of show cause notice.
2. Imposition of penalty by the Adjudicating Officer.
3. Compliance with regulatory requirements by the appellant.
4. Judicial discipline in dealing with raised contentions.

Issue 1: Delay in issuance of show cause notice

The appellant raised a defense regarding the inordinate delay in issuing the show cause notice, highlighting that the inspection took place in January/February 2012, with the notice being issued only in December 2019. The Appellate Tribunal emphasized the importance of addressing such delays, citing precedents like Ashlesh Gunvantbhai Shah vs. SEBI and Sanjay Jethalal Soni vs. SEBI. These cases underscored the necessity for regulatory authorities to act within a reasonable period, failing which the imposition of penalties becomes unjustified. The Tribunal found the delay in the present case to be significant, lacking any justification and thus rendering the penalty invalid.

Issue 2: Imposition of penalty by the Adjudicating Officer

The Adjudicating Officer imposed a penalty of Rs. 10 lakhs on the appellant for alleged violations, despite the appellant's contentions regarding the rectification of deficiencies and the delay in the issuance of the show cause notice. The Appellate Tribunal criticized the AO's decision, noting that the AO failed to address the appellant's defense adequately. The Tribunal emphasized the duty of quasi-judicial authorities to thoroughly consider raised issues rather than dismissing them without due consideration. The Tribunal deemed the AO's decision erroneous, highlighting the lack of justification for the penalty in light of the significant delay in the regulatory process.

Issue 3: Compliance with regulatory requirements by the appellant

The appellant, a registered broker with stock exchanges, had complied with the deficiencies highlighted during the inspection conducted in 2012. The appellant argued that the delayed show cause notice did not consider the rectification efforts and penalties imposed by stock exchanges. The Appellate Tribunal acknowledged the appellant's compliance efforts and penalties paid, emphasizing that the regulatory process should not resurrect old and resolved issues. The Tribunal stressed that penalties should not be imposed when deficiencies have been rectified, and delays in regulatory actions should not prejudice the appellant.

Issue 4: Judicial discipline in dealing with raised contentions

The Appellate Tribunal underscored the importance of judicial discipline in addressing raised contentions, particularly regarding delays in regulatory actions. Citing various precedents, the Tribunal emphasized the need for regulatory authorities to act within a reasonable period, as highlighted in judgments like Ashok Shivlal Rupani vs. SEBI. The Tribunal criticized the AO's failure to address the appellant's defense adequately and deemed the penalty unjustified due to the significant delay in the issuance of the show cause notice. The Tribunal quashed the penalty, emphasizing the necessity for regulatory authorities to act promptly and judiciously in enforcement actions.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal, emphasizing the significance of timely regulatory actions and the need for judicial discipline in dealing with enforcement matters.