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TMI Blog2023 (12) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... for vicarious liability only in respect of criminal proceedings initiated against a Company for contravention of the SEBI Act - Allegation of manipulative scheme - HELD THAT:- There is a distinction between offence and contravention . Consequently, one has to see the intention of the Parliament when it uses the word offence or where it uses the word contravention . Section 27 prior to the amendment i.e. prior to March 08, 2019 had no application to civil liability and only after the amendment w.e.f. March 08, 2019 that Section 27 provided for vicarious liability on both criminal and civil liability for contravention of the SEBI Act, Rules and Regulations. Finance Act, 2018 did not give retrospective effect to this amendment nor can such effect be inferred by necessary implication from the language of the amendment. The amendment, being substantive in nature can only be prospective and cannot have any retrospective application. The impugned order holding the amendment to be clarificatory in nature is thus patently erroneous. The meaning of the term offence is required to be understood in the context in which it is used in the legislation. A suggestion that the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igence was discharged and, therefore, the onus shifted back to SEBI to show that the Managing Director was responsible for the execution of the trades in question. In the absence of any finding being given by the AO establishing direct involvement or knowledge of the Managing Director in the execution of the trades the finding that the Managing Director was complicit in the execution of the trades with the two officers is purely based on surmises and conjectures. Thus, on this score noticee no. 2 i.e. the Managing Director cannot be held responsible for the execution of the shares in the facts and circumstances of the present case. The limited role played by the Board was only to take note of the transactions after they had been executed by the two senior executives. Without considering the findings of the WTM the AO in the impugned order has misdirected itself in holding that the Managing Director was responsible under Section 27 of the SEBI Act merely on the ground that he was the Managing Director. Assuming that Section 27 of the SEBI Act is applicable for civil proceedings, we find that the requirement to impute a vicarious liability is not satisfied. The law is well sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption to hold that the noticee no. 2 was implicitly involved in the transactions on the ground of being a Managing Director and which implies a high level of accountability of knowledge of overall functioning of the Company. The burden under Section 27 was discharged by noticee no. 2 and the AO has miserably failed to prove that noticee no. 2 was involved in the execution of the trades carried out by two senior executives. Inordinate delay in the initiation of the proceedings against the noticees - Both noticee nos. 3 and 4 are involved inter alia in the business of construction of building, infrastructure, setting up of a Special Economic Zone (SEZ) and acquisition of properties and invested their idle funds by lending the same by way of short term inter corporate deposits to other companies in order to earn interest and, if necessary, also avail inter corporate deposits from other companies by paying interest - After 10 years the show cause notice dated 21.11.2017 was issued alleging that noticee nos. 3 and 4 were promoted by the Reliance Group and that noticee nos. 3 and 4 by financing the monies to Vinamra were complicit and aided and abetted the manipulation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on the basis of which a show cause notice is issued. Since the show cause notice is on the basis of the investigation report there was an obligation imposed upon the respondent to provide the documents asked for by the appellants which they failed to supply. Non supply of the documents was violative of the principles of natural justice. We are also of the opinion that prejudice caused because of non-disclosure of the relevant material was writ large. On merits finding has been given by the AO that on a combined reading of the Facility Agreement and Agency Agreement it can be inferred that noticee nos. 3 and 4 had prior knowledge of the scheme of alleged manipulative trades by RIL and that noticee nos. 3 and 4 were fully aware that the funds given by them to Vinamra was meant for financing the alleged trades in question and, therefore, noticee nos. 3 and 4 aided and abetted in the manipulative scheme. This finding in our opinion cannot be sustained as Facility Agreement was signed on August 04, 2007 and September 22, 2007. The execution of these documents is not disputed nor there is any allegation that these agreements were manufactured for the purpose of this case. The sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Vinamra were utilised by the 12 agents for the purpose of funding the manipulative trades of RIL is patently erroneous and cannot be sustained. The ICDs given by noticee nos. 3 and 4 were from September to March whereas the funds required by the 12 agents were from November 01, 2007 to November 06, 2007 when they took short positions in the futures segment. AO however has considered the entire loans of Rs. 2775 crores given by noticee no. 3 and Rs. 550 crores given by noticee no. 4 from the period September 2007 to March 2008. We may note that noticee no. 4 did not lend any money to Vinamra between November 01, 2007 to November 06, 2007 and that noticee no. 3 had given a loan of Rs. 350 crores in two transactions of November 05, 2007 and November 06, 2007 to Vinamra. Thus, the finding of the AO that Rs. 2775 crores and Rs. 550 crores totalling Rs. 3325 crores were given by noticee nos. 3 and 4 that funded the 12 agents for the alleged trades is patently erroneous. One of the basic charge against noticee nos. 3 and 4 was that noticee nos. 3 and 4 were promoted by Reliance Group. This allegation was found to be false. The AO found that Anand Jain was the Chairman of noticee n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai SEZ Private Limited and Rs. 10 crores have been imposed upon noticee no. 4 Mumbai SEZ Limited. All the four noticees have filed the appeals before this Tribunal. 2. The facts leading to the filing of the present appeals is, that SEBI conducted an investigation in the trading of the scrip of Reliance Petroleum Limited ( RPL for convenience) for the period November 01, 2007 to November 29, 2007 to ascertain as to whether there was any violation of the SEBI Act and its Rules and Regulations. 3. It was observed that a resolution was passed by the Board of Directors on March 29, 2007 approving an operating plan for the year 2007-2008 and resource requirements for the subsequent two years i.e. approximately Rs. 87,000 crores. Thereafter, RIL decided to sell approximately 5% of its shareholding in November 2007. 4. It was also observed that the Company RIL appointed 12 agents to undertake transactions in the November 2007 RPL Futures. The settlement period was November 01, 2007 to November 29, 2007. These 12 agents took short positions in the Futures and Options ( F O ) segment on behalf of the Company while the Company undertook transactions in RPL shares in the Cash Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would be liable to the proceeded against and punished accordingly under Section 27 of the SEBI Act. The Show cause notice also alleged that Navi Mumbai SEZ Private Limited and Mumbai SEZ Limited, noticees no. 3 and 4 financed the whole manipulation scheme by funding the 12 named entities thereby were complicit in the scheme of manipulation to make undue gains and have consequently violated Regulations 3 and 4 of the PFUTP Regulations. 9. The AO after considering the material evidence on record and after considering the replies of the appellants and the submissions made by them upheld the allegations made in the show cause notice and imposed penalties for violations committed by the appellants under the SEBI Act. 10. We have heard Shri Somasekhar Sundaresan, the learned counsel, Shri Raghav Shankar, the learned counsel for the appellants and Shri Arvind Datar, the learned senior counsel and Shri Shiraz Rustomjee, the learned senior counsel for the respondent. 11. Before we proceed, we may observe that noticees no. 2, 3 and 4 were not parties to the proceedings before the WTM. 12. The AO in the impugned order held that the Company had violated the SEBI Act and the PF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o implement the decision of the Board of RIL. The AO further observed that even if such an agreement existed it would go against the interest of RIL whereby the Managing Director does not have any oversight over the decisions relevant to the Company. In paragraph 71, the AO observed that he finds it difficult to believe that the entire asset sale as decided in the Board meeting dated March 29, 2007 was left at the discretion of the two officers without the supervision of the Managing Director. The AO in paragraph 72, 73 and 74 came to the conclusion that the two officers were not competent to take the decisions independently. In paragraph 72, the AO held that authorising two officials to independently carry out the trading activities was not desirable in any corporate structure and, therefore, came to the conclusion that the intention of the Board of RIL was never to put the entire responsibility of the activities on the said officials without an oversight of the Managing Director who is also a Member of the Board of RIL. In paragraph 72 the AO came to the conclusion that it is highly unlikely that noticee no. 2 was not aware of the transactions in the cash and F O segment executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced by the word contravention . It was urged that the Parliament was of the view that Section 27 of the SEBI Act as it stood prior to the amendment imposed vicarious liability only for offences giving rise to criminal punishment and, consequently, amended Section 27 to bring in vicarious liability for contravention of the SEBI Act and the Regulations giving rise to civil penalties. It was urged, that if offence is the same as contravention then there was no need for the Parliament to replace the term offence with contravention and the Notes on Clauses to the Finance Bill reinforces this interpretation. 21. It was contended, that reliance by the respondents of the judgment in Standard Chartered Bank vs. Directorate of Enforcement, (2006) 4 SCC 278 was misplaced and not applicable to the facts of the present case. It was further urged, that SEBI had been consistently accepting the legal position and the WTMs and the AO have consistently passed various orders holding that Section 27 prior to amendment w.e.f. March 08, 2019 did not provide for vicarious liability in respect of civil liability of a Company. In this regard, the learned counsel drew the attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Sunil Bharti Mittal vs. CBI (2015) 4 SCC 609 and Shiv Kumar Jatia vs. State of NCT, (2019) 17 SCC 193. 24. It was also urged, that in the instant case SEBI did not proceed against the two individuals who had an active role in the alleged contravention but SEBI chose only to proceed against the Managing Director, noticee no. 2 only on the basis of his designation. It was submitted that it is an established law that charges should be framed against a person who had an active role and, therefore, the procedure adopted by SEBI in targeting noticee no. 2 for reasons best known to them was wholly erroneous and malafide. 25. It was contended that the proviso to Section 27 requires such person to prove that the offence was committed without his knowledge . It was contended that if knowledge is relevant then state of mind cannot be irrelevant and it cannot be argued by the respondent that such person has to bring more proof then what had been shown. The learned counsel contended that Section 27 does not introduce a regime of strict liability of the Managing Director for any and all violations of law by the Company. It was urged, that a conglomerate such as RIL wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution was passed to raise funds and that the said resolutions does not in any way indicate that it allowed the two officers of the Company to trade and generate funds for the Company. The learned senior counsel further contended that it is unbelievable that the two officers could have carried out the manipulative trades by themselves without the oversight and involvement of the Managing Director or the Board. The learned counsel contended that the well-planned transaction could not have happened without the approval of the Managing Director and that Alok Agarwal, L V Merchant and Sandeep Agarwal could not have done the transactions all by themselves as it was not an ordinary sale of 5% of the RPL shares. 30. The learned senior counsel contended that the language of Section 27 makes it clear that it applies to civil adjudication. The learned senior counsel contended that the word offence has not been defined under the SEBI Act and therefore the meaning must be understood as defined in the General Clauses Act which defines offence as an act or omission made punishable by law for the time being in force. It was urged, that Section 27 only enunciate the general principle, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of RNRL vs. RIL, (2010) 7 SCC 1, SMS Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89, K.K. Ahuja vs. V.K Vora and Anr. (2009) 10 SCC 48. 34. The learned senior counsel further stated that there are various decisions of this Tribunal where it has held that Section 27 applies to a Managing Director. In support of his submission the learned counsel placed reliance in the decision in Rahul H Shah vs. SEBI (2004) SCC OnLine SAT 77, Almondz Global Securities vs. SEBI in Appeal No. 275 of 2014 decided on 13.05.2016, Mohan Lall Chauhan vs. SEBI in Appeal No. 516 of 2021 decided on August 24, 2022, N. Narayanan vs. SEBI in Appeal No. 29 of 2012 decided on 05.10.2012, NSE vs. SEBI (dark-fibre) in Appeal No. 334 of 2019 decided on August 09, 2023, NSE vs. SEBI (Colocation) in Appeal No. 333 of 2019 decided 23.01.2023 and in the case of Secretary of State for Trade and Industry vs. Baker and Ors. (2000) 1 BCLC 523 (UK-Court of Appeal). It was thus urged, that the contention of noticee no. 2 that he was unaware in the matter of sales of RPL shares cannot be believed. 35. The learned senior counsel also placed reliance upon Section 106 and 114 (f) and (g) of the Evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PFUTP Regulations? (iv) Whether there has been undue delay in the initiation of the proceedings by the AO. 38. Before dealing with the submissions, it would be appropriate to consider the relevant provisions of the SEBI Act, namely, Section 15HA, 24, 26 and 27 of the SEBI Act. For facility, the same are extracted below:- Penalty for fraudulent and unfair trade practices. 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty [which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher. Offences. 24. (1) Without prejudice to any award of penalty by the adjudicating officer [or the Board] under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to [ten years, or with fine, which may extend to twenty-five crore rupees or with both]. (2) If any person fails to pay the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the [contravention] and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the [contravention] was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such [contravention]. (2) Notwithstanding anything contained in sub-section (1), where an [contravention] under this Act has been committed by a company and it is proved that the [contravention] has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the [contravention] and shall be liable to be proceeded against and punished accordingly. Explanation : For the purposes of this section,- (a) company mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Board, an offence against the company can be tried by a Court of law and, under Section 27, where an offence is committed by the company then any person responsible to the company or was in charge of the company shall be liable to be proceeded with and punished accordingly. 41. Thus, a harmonious reading of Section 24, 26 and 27 of the SEBI Act makes it clear that the intention of the legislature was that upon a failure to do something prescribed by the statute would be an offence tried in a Court of law and the person in charge of or who was responsible for the conduct of the business of the company would be proceeded with and punished accordingly. 42. The term offence and contravention has not been defined under the Act. Under Section 3(38) of the General Clauses Act offence means any act or omission made punishable by any law for the time being in force. Black s Law Dictionary, 7th Edition defines offence as a violation of the law. Stroud s Judicial Dictionary, 7th Edition defines offence as equivalent to a crime and the intention of the legislature is that failure to do something prescribed by statute may be described as an offence. 43. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , makes it clear that Section 27 of the SEBI Act did not include within its scope the levy of civil penalties for the alleged violation of the provisions of the SEBI Act and the PFUTP Regulations. The pre-amendment Section 27 specifically restricted the imposition of vicarious liability for commission of offences by companies to cases involving offences by companies. Section 24 of the SEBI Act clearly sets out the scope of the term offences to be exclusively tried by the Special Courts established under Section 26 of the SEBI Act. 47. The Notes on Clauses appended to the Finance Bill, 2018 by which Section 27 was amended indicates that the legislature felt that there was a need to enlarge the scope of the Section to cover enforcement proceedings by expanding the legislative provision for vicarious liability to cover not only offences within the meaning of the SEBI Act but also any contravention. 48. We are thus of the view, that Section 27 prior to the amendment i.e. prior to March 08, 2019 had no application to civil liability and only after the amendment w.e.f. March 08, 2019 that Section 27 provided for vicarious liability on both criminal and civil liability f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntravention making it clear that the Parliamentary intention was to enlarge the scope to include civil proceedings as well. 53. The findings in paragraphs 62-63 of the impugned order that Section 27 always covered civil proceedings in its purview and that the amendment was clarificatory in nature is irreconcilable with the scheme and legislative history of the SEBI Act. 54. This view of ours is fortified by the fact that SEBI since inception has accepted the fact that Section 27 does not provide for vicarious liability in respect of civil liability of a company arising out the violations committed by the company. As recent as on 24.02.2022 in re: Pentamedia Graphics Ltd. And Ors., a WTM of SEBI held:- regarding applicability of the Section 27 of the SEBI Act, 1992 for violation of Regulation 5(1) of PFUTP Regulations, 1995, I note that during the relevant period (i.e. 2002-03), Section 27 provided for the vicarious liability of certain persons who were in charge of and was responsible to the company where an offence is committed by a company. Section 27 at that time did not provide for the vicarious liability in respect of the civil liability of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ARSS Infrastructure Projects Limited WTM/AB/IVD/ID19/14342/2021-22 (11) SEBI Final Order dated 21.12.2021 in the matter of K Lifestyle Industries Limited WTM/AB/IVD/ID19/14495/2021-22 (12) SEBI Adjudication Order dated 21.12.2021 in the matter of Edynamics Solutions Limited SM/AD/2022-23/22324-22327 (13) SEBI Final Order dated 21.12.2021 in the matter of Nu Tek India Limited WTM/AB/IVD/ID19/14527/2021-22 (14) SEBI Adjudication Order dated 12.01.2022 in the matter of Blue Circle Services Limited MC/RM/2021-22/14712-14715 (15) SEBI Final Order dated 20.01.2022 in the matter of Landmarc Leisure Corporation Limited WTM/AB//IVD/ID19/14750/2021-22 (16) SEBI Final Order dated 28.02.2022 in the matter of Hit Kit Global Solutions Ltd. WTM/AB/IVD/ID19/15232/2021-22 (17) SEBI Final Order dated 21.03.2022 in the matter of Quest Financial Services Limited WTM/AB/IVD/ID19/15432/2021-22 (18) SEBI Final Order dated 24.03.2022 in the matter of GDR Issue by Pentamedia Graphics Limited WTM/AB/IVD/ID4/15397/2021-22 (19) SEBI Final Order dated 21.04.2022 in the matter of Dalmia Industrial Development Limited WTM/AB/IVD/ID19/16060/2022-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was concerned. We may note at this stage that Section 68 of the FERA Act is more or less pari materia with the amended provisions of Section 27 of the SEBI Act w.e.f. March 08, 2019. However, Section 27 of the SEBI Act prior to amendment was totally different and distinct from the provision of Section 68 of the FERA Act. Thus, reliance on the decision of the Standard Chartered was misplaced. In Standard Chartered (supra) the Supreme Court held that the phrase contravention takes within its fold both civil as well as criminal violations in the context of Section 68 of FERA. In sharp contrast, at all times relevant to this appeal, Section 27 of the SEBI Act, did not use the word contravention at all, and when Parliament amended it in 2018, explicitly, Parliament stated that the intention was to enlarge the scope to include enforcement proceedings. 58. The meaning of the term offence is required to be understood in the context in which it is used in the legislation. A suggestion that the term offence as occurring in the SEBI Act also covers civil proceedings is at odds with the range of provisions in Chapter VII of the SEBI Act which is a facet that was not even examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Normal 3,000 8 Total Capex 87,000 12 Total Funding 87,000 62. The minutes of the Board also authorized Alok Agarwal, the CFO and LV Merchant (Controller Accounts), senior executives of the Company to explore, identify and implement optimal avenues of funding . 63. On 19.11.2007, RIL s Board noted an update from Alok Agarwal and the minutes recorded as follows: The Board was informed of the progress made towards raising of resources for the Company s ongoing projects in line with the fund raising program as earlier authorised by the Board of Directors at the budget meeting held in March 2007. The Board was also informed that after exploring various means of finance, the company is disposing RPL shares of up to 5% through trades in RPL securities. Board noted the same. 64. It is a matter of record that: (a) One of the funding avenues identified by Alok Agarwal and L V Merchant for meeting the fund requirements was to sell RPL shares held by RIL represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons that the funds are being raised by disposing 5% of RPL shares through trades in RPL securities. In view of this impeccable evidence, notice No. 2 had discharged the burden under Section 27 of the Act and the onus shifted upon SEBI to prove that notice No. 2 was complicit. The finding that the appellant was complicit to the violations committed by the company and, therefore, liable under Section 27 of the Act is patently erroneous and is based on surmises and conjectures. 67. We find that a specific denial was made by noticee no. 2 of his involvement in the trades executed by the two officers of the company. We also find that the AO in paragraph 64 holds that it is relevant to examine the role of the Managing Director in terms of direct involvement or knowledge with regard to the manipulative scheme or trades undertaken by the company. We find that the AO failed to establish either direct involvement or knowledge of the Managing Director with regard to the trades undertaken by the company and, therefore, the finding that the Managing Director was complicit to the violations committed by the company through its two officers is based on surmises and conjectures and on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minutes of the meeting of the Board are conclusive evidence of the proceedings recorded therein. When the Board by a resolution explicitly authorised two senior officers of the company to implement funding avenues, the effect of such resolution is to empower these two executives for execution of the transactions in question. On this basis, the AO cannot brush aside this evidence while holding that the Managing Director was responsible for the execution of the trades. 71. Assuming that Section 27 of the SEBI Act is applicable for civil proceedings, we find that the requirement to impute a vicarious liability is not satisfied. The law is well settled that the mere fact that a person holds a designation of Managing Director does not suffice for imputing a vicarious liability to such person. It has been repeatedly held that the proof of active role in the alleged contravention in issue must be demonstrated by clear and concrete evidence of his active role coupled with criminal intent as a necessary pre-condition for affixing vicarious liability. This view of ours is fortified by a decision of the Supreme Court in Sunil Bharati Mittal vs. CBI, (2015) 4 SCC 609 wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onspiracy, it would be difficult to prove the dual charges particularly against the appellant (A-1). The charge of conspiracy having failed, the most material and integral part of the prosecution story against the appellant disappears. The only ground on the basis of which the High Court has convicted him is that as he was the Chairman of the Managing Committee, he must be held to be vicariously liable for any order given or misappropriation committed by the other accused. The High Court, however, has not referred to the concept of vicarious liability but the findings of the High Court seem to indicate that this was the central idea in the mind of the High Court for convicting the appellant. In a criminal case of such a serious nature mens rea cannot be excluded and once the charge of conspiracy failed the onus lay on the prosecution to prove affirmatively that the appellant was directly and personally connected with acts or omissions pertaining to Items 2, 3 and 4. It is conceded by Mr Phadke that no such direct evidence is forthcoming and he tried to argue that as the appellant was Chairman of the Sangh and used to sign papers and approve various tenders, even as a matter of rout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. At the same time it is observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides for. It is further held by this Court, an individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision. 21. By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y function to any officers of the Company to the exclusion of the Managing Director. The contention of the respondent that the Managing Director is responsible for the day to day affairs of the Company and the officials report to him and, therefore, the Managing Director is responsible is deemed to be in the knowledge of the transactions is not applicable in the case in hand, especially when the Board had specifically authorised the two senior most officials to execute the trades in question. We also find that in the instant case the two officials have reported to the Board and not to the Managing Director. 74. In view of the aforesaid, the decisions cited by the learned counsel for the respondents are not applicable to the facts of the present case and are distinguishable. Reliance on the decision of the Supreme Court in Apex Laboratories Private Limited vs Deputy Commissioner of Income Tax, Large Tax Payer Unit-II (2022) 7 SCC 98 is misplaced and is of no assistance to the respondent. The said decision dealt with Section 37 of the Income Tax Act, 1961 wherein the Explanation 1 to Section 37 used the word offence and, on that basis, the Supreme Court disallowed the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso distinguishable. This Tribunal held that the Managing Director of NSE was liable under Section 27(1) for not verifying the license of Sampark at the time of due diligence. The Managing Director was held liable and accountable for failure to verify the license as there was no positive evidence of any officer being made responsible for execution of the activity, namely, checking of the licence. In contrast with the present case, we find that in the instant appeal there is clear evidence that the Board specifically and directly authorised two senior executives to explore, identify and implement the divestment of investment. Similarly, the decision of this Tribunal in Sayanti Sen vs SEBI 2019 SCC OnLine SAT 132 is also not applicable as we find that the issue whether Section 27 applies to civil proceedings under SEBI Act was never raised by the parties nor considered by the Tribunal. It was a case as to whether an individual fell within the definition of the term officer in default under Section 5(g) of the Companies Act, 1956. Similarly, in NSE vs. SEBI (Colocation matter) in Appeal No. 333 of 2019 decided on 23.01.2023 this Tribunal observed that the Managing Director a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion, that whereas the AO recognises that knowledge by the appellant was a pre-requisite for a finding that noticee no. 2 was liable for RIL s alleged violation yet without giving a conclusive finding has travelled beyond the show cause notice to conclude in paragraph 72 of the impugned order that noticee no. 2 had implicit knowledge of the alleged trades and authorised the implementation plan. The AO further went on to hold that it is highly unlikely that noitcee no. 2 was not aware of the execution of the trades. The findings given by the AO in our opinion is purely based on surmises and conjectures. 77. In this regard, the word complicit means involvement with others in an activity which is unlawful. On the other hand, the word implicit is suggestive though not directly expressed. 78. Thus, in the absence of any specific finding by the AO on noticee no. 2 complicit involvement in the execution of the implementation plan or in the execution of the trades, the AO cannot dwell into surmises and conjectures and base its findings on presumption to hold that the noticee no. 2 was implicitly involved in the transactions on the ground of being a Managing Director and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to prove that noticee no. 2 was involved in the execution of the trades carried out by two senior executives. 81. Noticee no. 3 was incorporated on 15.06.2004 and noticee no. 4 was incorporated on 05.04.2000. Both noticee nos. 3 and 4 are involved inter alia in the business of construction of building, infrastructure, setting up of a Special Economic Zone (SEZ) and acquisition of properties. 82. Noticee nos. 3 and 4 invested their idle funds by lending the same by way of short term inter corporate deposits to other companies in order to earn interest and, if necessary, also avail inter corporate deposits from other companies by paying interest. 83. On 04.08.2007, noticee no. 4 entered into a Facility Agreement with Vinamra Universal Traders Pvt. Ltd. ( Vinamra ) in terms of which the parties agreed to place short-term Inter-Corporate Deposits ( ICDs ) with each other from time to time on agreed terms and conditions. Vinamra was also a company involved in the business of investments. The key terms of the Facility Agreement were as follows: (i) Article 1.1. provided that the aggregate overall limit of the facility under the agreement was Rs. 600 crore. (ii) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationship with Reliance Industries Ltd. ( RIL ) and (iii) confirmed that there were no fund transfers executed by it with RIL during the period 01.04.2007 to 31.03.2008. Since then, there was no further communication between Noticee nos. 3 and 4 and SEBI in this connection after the aforementioned letter of April 2010. 89. On 21.11.2017, i.e. after ten years the noticee nos. 3 and 4 received a show cause notice from the respondent. The show cause notice was issued to RIL (being notice no. 1), Chairman and Managing Director of RIL (being noticee no. 2), Navi Mumbai SEZ (being noticee no. 3) and Mumbai SEZ (being noticee no. 4). 90. The show cause notice substantially referred to the transactions stated to have been carried out by RIL and its agents during the month of November 2007, wherein, it was inter alia alleged that: (i) RIL took short positions through 12 entities acting as its agents in November 2007 RPL Futures by breaching the client-wise position limit prescribed under certain circulars issued by SEBI. (ii) RIL depressed the settlement price of November 2007 RPL Futures by dumping large number of shares in the cash market during the last ten minutes of hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the quantum of loans advanced by them to Vinamra. 94. We have heard Shri Raghav Shankar, the learned counsel for the appellants and Shri Shiraz Rustomjee, the learned senior counsel for the respondent. 95. The issue framed by the AO against noticee nos. 3 and 4 was whether noticee no. 3 and 4 have aided and abetted noticee no. 1 by providing funds to one of the agents appointed by noticee no. 1 who in turn provided funds to the other agents appointed by noticee no. 1 resulting in violation of Regulations 3 and 4 of the PFUTP Regulations. 96. From a perusal of the show cause notice it indicates that it is not SEBI s case that noticee nos. 3 and 4 were involved in undertaking the transactions in connection with RPL shares and futures in the month of November 2007, rather it is SEBI s case that these transactions were allegedly financed by monies traceable to the noticee nos. 3 and 4 and therefore noticee nos. 3 and 4 were complicit in the contravention allegedly committed by RIL. 97. The learned counsel for noticee nos. 3 and 4 contended that there is an unexplained delay in the initiation of the proceedings and denial of natural justice. It was urged, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the PFUTP Regulations is purely based on surmises and conjectures. The finding that there was a nexus between the Facility Agreements executed by the noticees with Vinamra and the impugned trades carried out by RIL and its agents is patently erroneous. It was urged, that the Facility Agreement was executed prior in point of time before the alleged trades were executed by RIL and, therefore, it cannot lead to any presumption that the loan given by noticee nos. 3 and 4 to Vinamra was for the purposes for the 12 agents to trade by taking open positions. It was urged that the impugned order is based on pure conjectures and on the assumption that the Facility Agreements were entered into solely for the purpose of funding RIL transactions in the November 2007 futures market. Further, the impugned order proceeds on an erroneous basis that the inter corporate deposit (ICDs) of Rs. 2775 crores in case of noticee no. 3 and Rs. 550 crores in the case of noticee no. 4 were in fact meant for the purpose of funding manipulative trade of RIL. 101. Having heard the learned counsel for the parties, we are of the opinion that there is an inordinate delay in the issuance of the show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case, nature of default, prejudice caused etc. The Supreme Court in Sunil Krishna Khatian (supra) have held and reconfirmed the settled law that in the absence of limitation prescribed by an enactment the authority has to exercise the power within a reasonable time and that this would depend upon the facts of each case and whether the violation was hidden and camouflaged or whether the authority had or had not the knowledge of the alleged violation. 106. This Tribunal in a plethora of cased have quashed the proceedings and the impugned order on the ground of inordinate delay. 107. In Mr. Rakesh Kathotia vs. SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019 this Tribunal held:- 23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras [(1989)3 SCC 483: AIR SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 112. In view of the aforesaid, we are of the view that time starts to run from the date of commission of the alleged violation. The respondents being aware of this fact and having knowledge of the alleged transactions chose deliberately not to initiate proceedings and, consequently, the action of the respondents cannot be justified by initiating a belated show cause notice. 113. On account of the delay serious prejudice has been caused to the noticees. In HB Stockholdings Ltd. Vs. SEBI 2013 SCC OnLine SAT 56 this Tribunal while dealing with the delay of 11 years in the issuance of a show cause notice held: human memory has a short shelf life. Allowing matters to go on and on for years together serves no purpose, rather it risks loss of evidence such as important documents which may get destroyed while the issue gathers dust in this backgrounds, the Appellants were compelled to make a feeble attempt to defend their case on the basis of scanty and incomplete materials supplied by the Respondent. 114. Similarly, in Libord Finance Ltd. Vs WTM, SEBI 2008 SCC OnLine SAT 46 this Tribunal observed: how could anyone file a proper reply after a lapse of more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and cannot be sustained. The finding that the appellants consequently contravened PFUTP Regulations cannot be sustained. 118. In this regard, we may note that noticee nos. 3 and 4 had executed Facility Agreement with Vinamra on August 04, 2007 and September 22, 2007 much before RIL took a decision in an around October 30, 2007 to sell 5% stake in RPL. Between October 30, 2007 and November 03, 2007 RIL appointed 12 agents to undertake transactions in November 2007 future segment for RPL shares. Agency Agreement was executed during this period between RIL and the 12 agents. Short positions were taken by the 12 agents between November 01, 2007 and November 06, 2007. 119. Based on the aforesaid facts, a finding has been given by the AO that on a combined reading of the Facility Agreement and Agency Agreement it can be inferred that noticee nos. 3 and 4 had prior knowledge of the scheme of alleged manipulative trades by RIL and that noticee nos. 3 and 4 were fully aware that the funds given by them to Vinamra was meant for financing the alleged trades in question and, therefore, noticee nos. 3 and 4 aided and abetted in the manipulative scheme. This finding in our opinion cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he November 2007 futures market is wholly erroneous. Pursuant to the Facility Agreements ICDs were placed as early as on September 2007 much before the subject transactions took place and continued to be placed from time to time till March 2008. The finding given by the AO that Rs. 2,775 crores advanced by noticee nos. 3 and Rs. 550 crores advanced by noticee no. 4, to Vinamra were utilised by the 12 agents for the purpose of funding the manipulative trades of RIL is patently erroneous and cannot be sustained. The ICDs given by noticee nos. 3 and 4 were from September to March whereas the funds required by the 12 agents were from November 01, 2007 to November 06, 2007 when they took short positions in the futures segment. 124. Assuming without admitting that the noticee nos. 3 and 4 had knowledge and provided funds for the alleged manipulative trades only those funds that flowed between November 01, 2007 and November 06, 2007 could at best have a nexus with the taking of the short positions in the November 2007 futures. The AO however has considered the entire loans of Rs. 2775 crores given by noticee no. 3 and Rs. 550 crores given by noticee no. 4 from the period September 2007 ..... 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