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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 ..... or convenience) of the Securities and Exchange Board of India ("SEBI" for convenience) imposing penalties under Section 15HA of the SEBI Act, 1992. A sum of Rs. 25 crores has been imposed upon Reliance Industries Limited noticee no. 1, Rs. 15 crores have been imposed upon noticee no. 2 Mukesh Ambani, Rs. 20 crores has been imposed upon noticee no. 3 Navi 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice issued by the WTM dated December 16, 2010 against the Company. 8. In so far as the appellant Mukesh Ambani is concerned the show cause notice alleged that he is the principal officer responsible for the day to day and overall operations of the Company and is deemed to be guilty of the offence committed by the Company 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 Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that in paragraph 67 of the impugned order it was observed that being a Managing Director implies a high level of accountability and knowledge of the overall functioning of the Company and that there was no agreement between noticee no. 2 (Mukesh Ambani) and the Board of RIL that limits the power of noticee no. 2's to 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an amendment to Section 27 of the SEBI Act w.e.f. March 08, 2019. The Notes on clauses to Finance Bill, 2018 indicates that the amendment to Section 27 was brought in to "enlarge the scope of section to cover enforcement proceedings" and accordingly, by the amending act, the word "offence" in Section 27 was replaced 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 consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of of active role in the alleged contravention must be demonstrated by clear and concrete evidence of his active role coupled with criminal intent as a necessary precondition for affixing vicarious liability. In support of his contention the learned counsel placed reliance in the decision of the Supreme 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 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, under Section 27 of the SEBI Act, the onus lay on the person in-charge to prove his innocence. 29. Shri Arvind Datar, the learned senior counsel contended that a perusal of the minutes of Board of RIL dated March 29, 2007 and November 19, 2007 indicates that only a general resolution 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director stands on a different position and since the Managing Director has wide powers and overall responsibilities, it cannot be said that noticee no. 2 had no knowledge. In support of his proposition the learned senior counsel placed reliance upon a decision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the present case the Managing Director of the Company can be held vicariously liable for penalties under Section 27 of the SEBI Act for contravention of Section 12A of the SEBI Act read with Regulations 3 and 4 of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who at the time the [contravention] was 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" means any body cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany 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 other hand, Black's Law Dictionary 7th Edition defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vil 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 for contravention of the SEBI Act, Rules and Regulations. 49. The contention that the 2018 amendment was cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company arising out of the violations committed by such company. However, after amendments made to Section 27 with effect from March 08, 2019, by the Finance Act, 2018, vicariou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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/ID19/16060/2022-23 (20) SEBI Final Order dated 29.06.2022 in the matter of Parsvnath Developers Limited WTM/AB/IVD/ID19/17508/2022-23 (21) SEBI Adjudication Order dated 29.08.2022 in the matter of Triveni Enterprises Limited JS/N/2022-23/18728-18730 (22) SEBI Final Order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 examined by the AO, much less ruled upon. We find that parliament was conscious of the usage of the two words "contravention" and "offence" in the SEBI Act and consciously chose to replace "offence" with "contravention" explicitly, in order to enlarge the scope of Section 27. 59. Thus, we hold that Section 27 of the SEBI Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding equity shares of RPL; and (b) Only these two senior executives assisted by one Sandeep Agarwal (employee of an RIL subsidiary), carried out the trades in RPL shares in both, Cash & F&O segments and raised Rs. 5,013 crore i.e. Rs. 4,500 crore in the Cash segment and Rs. 513 crore in F&O segment. (c) The impugned order records that Rs. 447.27 crore was the alleged unlawful profit. 65. The evidence contained in the minutes of these two Board meetings held on 29.03.2007 and 19.11.2007 makes it clear that: (a) The RIL Board approved the funding avenues and specifically and directly authorised Alok Agarwal and LV Merchant to the exclusion of the Managing Director to "explore, identify and implement" the means of raising of the funds. (b) The authorisation given to the two authorised persons, namely, Alok Agarwal and LV Merchant was not with any caveat for coming back to the Board for further instructions or directions. They were the persons made responsible to the Company for the divestment of the 5% RPL shares, without having to check back with the Board. It is not the case of SEBI that this authorisation was illegal. (c) The quantum and the manner of executing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 68. The burden under the proviso to Section 27(1) of the SEBI Act was completely discharged by the appellant when evidence was placed that two officers of high rank of the company were authorised to sell the shares of the Company. These two officers reported to the Board of Directors which approved the action of the two officers to sell the shares of the Company. The burden that the Managing Director of the Board of Directors exercised all due diligence 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. 69. We may also note that on the same transactions, the WTM had also passed an order and arrived at a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so. 43. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision. 44. When the company is the offendor, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect. One such example is Section 141 of the Negotiable Instruments Act, 1881. In Aneeta Hada (supra), the Court noted that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be a positive proof of his intention to commit the offence. We are however unable to agree with this somewhat broad statement of the law. In the absence of a charge of conspiracy the mere fact that [pic]the appellant happened to be the Chairman of the Committee would not make him criminally liable in a vicarious sense for items 2 to 4. There is no evidence either direct or circumstantial to show that apart from approving the purchase of fertilisers he knew that the firms from which the fertilisers were purchased did not exist. Similar is the case with the other two items. Indeed, if the Chairman was to be made liable then all members of the Committee viz. Tehsildar and other nominated members, would be equally liable because all of them participated in the deliberations of the meetings of the Committee, a conclusion which has not even been suggested by the prosecution. As Chairman of the Sangh the appellant had to deal with a large variety of matters and it would not be humanly possible for him to analyse and go into the details of every small matter in order to find out whether there has been any criminal breach of trust. In fact, the hero of the entire show seems to be A-3 who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, when the accused is a Company. It is held that vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the Statute. It is further held that Statutes indisputably must provide fixing such vicarious liability. It is also held that, even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. 22. In the judgment of this Court in the case of Sharad Kumar Sanghi vs. Sangita Rane while examining the allegations made against the Managing Director of a Company, in which, company was not made a party, this Court has held that when the allegations made against the Managing Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il said was prohibited and liable for action on the basis that providing freebies was illegal/ prohibited by law and/ or punishable. The question before the Supreme Court was whether giving of freebies to doctors was prohibited by law which was answered in the affirmative by the Supreme Court and in that contest it was held that the word "punishable" includes in its fold "civil wrongs" for which punishment can be given. Thus, the said decision does not advance SEBI's case of stating that for the purpose of SEBI Act the amendment was not a substantive amendment to enlarge the scope to cover civil wrongs. Similarly, the decision of this Tribunal in Janak Chimanlal Dave vs SEBI in Appeal No. 446 of 2020 decided on 20.09.2021 which follows Apex Laboratories Private Limited (supra) is also not relevant to the facts of this case. Reliance on the decision of the Supreme Court in S.M.S. Pharmaceuticals Ltd vs Neeta Bhalla (2005) 8 SCC 89 and the decision in K.K. Ahuja vs. V.K Vora and Anr. (2009) 10 SCC 48 is misplaced. In SMS Pharmaceuticals Ltd. (Supra) the Supreme Court held:- "9. The position of a managing director or a joint managing director in a company may be different. These per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Managing Director and the CEO acknowledged that specific functions were delegated and this Tribunal observed that the CEO and the Managing Director cannot pass on the responsibility to the delegates. The said decision is distinguishable as in the instant case we find that the Board of RIL had specifically authorised two persons to decide the disinvestment. The Managing Director, noticee no. 2 had not delegated its powers to the two authorised persons. It was the Board who had delegated the matter to the two officers. We may also point out that the show cause notice against noticee no. 2 specifically alleged that he was complicit to and responsible for the acts of noticee no. 1. For facility, paragraph 44 of the show cause notice is extracted below. "44. The Noticee No. 2 being the Managing Director of the Company in the principal officer responsible for the day-to-day and overall operations of the company. Further, Section 27 of the SEBI Act, 1992 mentions that where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of and was responsible to the company for the conduct of business of the company, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Board Resolution dated 27.07.2004 which is extracted from a judgement of the Hon'ble Supreme Court in Reliance Natural Resources Limited vs Reliance Industries Limited (2010) 7 SCC 1 to contend that the appellant had substantial powers of management is a desperate attempt on their part to sustain the impugned order. We find that the said decision was not made the basis of passing the impugned order. Further, it is not even SEBI's case that the resolution of 2004 which gave express powers to the Managing Director continued to subsist in 2007 when the subject transactions took place. In our opinion, the said decision has no bearing with the present case in as much as in the instant case the Board by a specific resolution dated March 29, 2007 exclusively vested relevant powers and functions in relation to the subject transaction to the two senior executives of the Company. The fact that noticee no. 2 may have otherwise enjoyed substantial powers of management is of no avail, when specific power were exclusively vested in the two senior executives through a resolution passed by the Board of Directors of the Company. 80. Considering the aforesaid, we are of the opinion that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within 1 day of being served a notice in writing calling for repayment. 84. On 22.09.2007 noticee no. 3 entered into a 'Facility Agreement' with Vinamra. The terms of the Facility Agreement between noticee no. 3 and Vinamra were similar to those of the agreement between noticee no. 4 and Vinamra, namely, (i) Article 1.1 provided that the aggregate overall limit of the facility under the agreement was Rs. 3500 crore. (ii) Article 3.1 specified a fixed rate of interest of 8% per annum. (iii) Article 4.1 stipulated that the borrower shall repay the amount of the loan within 15 days of being served a notice in writing calling for repayment. 85. Noticee nos. 3 and 4 placed ICDs with Vinamra in several tranches from time to time and earned interest thereon. In the case of noticee no. 4, funds in the cumulative amount of Rs. 500 crore were lent by it to Vinamra on various dates between 27.09.2007 and 31.03.2008, while noticee no. 3 lent funds in the cumulative amount of Rs. 2,775 crores to Vinamra on various dates between 03.10.2007 till 26.03.2008. It is not in dispute that the funds lent were repaid in full along with interest at the rates stipulated in the respective Facility A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraordinary gains. (iv) The above acts of RIL are in violation of Regulation 3 (a), (b), (c), (d) and Regulation 4(1),4(2) (d) &(e) of the PFUTP Regulations and SEBI Circular No. SMDRP/DC/CIR-10/01 dated 02.11.2001. 91. As regards noticee nos. 3 and 4, the show cause notice alleged that: (i) Noticee nos. 3 and 4 were promoted by the "Reliance Group" (ii) Anand Jain, Chairman of Noticee nos. 3 and 4 are closely associated with the Reliance Group as a strategic advisor to the Company. (iii) Noticee nos. 3 and 4 are located at the same address as Vinamra and Dharti (both of which acted as agents of RIL in taking positions in the futures market) (iv) Noticee nos. 3 and 4 and Vinamra have a common Director- Sanjay Punkhia. (v) Noticee nos. 3 and 4 financed the whole manipulation scheme by funding the front entries of RIL at the behest of RIL and its MD and was thereby complicit in the scheme of manipulation to make undue gains, and have also violated Regulations 3(b),(c),(d) and Regulations 4(2),(d) and (e) of PFUTP Regulations. 92. Noticee no. 3 and 4 contended that there was an undue delay in the initiation of proceedings and that they were not parties to the proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiation of the proceedings in as much as SEBI had taken an internal decision to await the decision in Section 11B proceedings against RIL and its agents before taking further action in the matter and that such proceedings eventually culminated in an order dated March 24, 2017 passed by the WTM and, thereafter, the show cause notice was issued in November 2017. Thus, there is no delay in the initiation of the proceedings. 98. The learned counsel urged, that the aforesaid reasoning is patently erroneous and against the provisions of the Limitation Act. It was contended that limitation runs from the date of the passing of the order and that the decision of SEBI to await the decision of the WTM's proceedings was patently erroneous. In support of his contention, the learned counsel placed reliance upon a decision of this Tribunal in Rakesh Kathotia vs. SEBI 2019 SCC OnLine SAT 74 and in Reliance Industries Holding Private Limited and Ors. vs. SEBI in Appeal No. 748 of 2021 decided on July 20, 2023. It was also urged, that on account of the delay in the initiation of proceedings the noticees were seriously prejudiced by the delay in the issuance of the show cause notice since no record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of ICDs placed by noticee nos. 3 and 4 with Vinamra. The said information was provided by the noticee on March 29, 2009. In February and March 2010 SEBI again addressed letters to noticee nos. 3 and 4 seeking further information which were duly supplied vide letter dated April 13, 2010. 102. 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 trade executed by RIL through its 11 agents. 103. The AO has rejected the contention of the appellants holding that there is no delay on the ground that SEBI had taken an internal decision to await the Section 11B proceedings against RIL and its agents before taking further action in the matter. In our opinion, such finding is patently perverse and against the basic principles of the Limitation Act. The Limitation starts running from the day the impugned order is passed. Limitation order does not stop on the whims and fancies of a regulator. The regulator cannot stop the clock on the ground that they would await the decision in proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsity v. Palitana Sugar Mill (2004) 12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) 11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held: "There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc." 108. Similar view was held in Ashok Shivlal Rupani & Anr. vs. SEBI (Appeal No. 417 of 2018 along with other connected appeals decided on August 22, 2019). Against the order of this Tribunal in the matter of Ashok Shivlal Rupani, SEBI filed Civil Appeal No. 8444-8445 of 2019 before the Supreme Court of India which was dismissed and the order of this Tribunal affirmed by the Supreme Court. 109. Similar view was again reiterated in the matter of Ashlesh Gunvantbhai Shah vs SEBI (Appeal No. 169 of 2019) and other connected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 231 of 2007 decided on 13.04.2018, Dr. V.K. Sukumaran & Anr. vs SEBI, Appeal No. 473 of 2020 decided on 24.08.2021 and Hindustan Times Ltd. vs Union of India & Ors. (1998) 2 SCC 242 has no application to the facts of the case and are irrelevant. 116. We also find that there is a violation of principles of natural justice in not supplying the documents to noticee nos. 3 and 4 which documents were relied upon in the show cause notice. We find that noticee nos. 3 and 4 had repeatedly addressed letters to SEBI on 11.06.2018 and 25.06.2018 requesting certain documents which were specifically mentioned in the show cause notice. Some of these documents were provided by SEBI vide letter dated 17.06.2019 and 08.03.2019. The documents which were not provided were specifically again asked for which also included a copy of the investigation report. Inspite of the specific request for supply of the documents which has not been disputed by the respondents, we find that the said documents were not supplied, especially the copy of the investigation report. The Supreme Court in T. Takano vs. SEBI (Supra) has clearly held that investigation report is an intrinsic component of the Board's satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L was the decision taken in an around October 30, 2007 to sell RPL shares. These facts are noted in paragraph 26 of the impugned order. On or before October 30, 2007 noticee no. 3 had already advanced funds to the tune of Rs. 625 crores and noticee no. 4 had loaned an amount of Rs. 45 crores on or before October 30, 2007. We are of the opinion, that as on the date of the execution of the Facility Agreement it was not possible for noticee nos. 3 and 4 to have knowledge that RIL would sell shares in the cash segment in November 2007 and that RIL would take positions in the futures segment through its agents. There is no evidence to show that prior to October 30, 2007 the decision of RIL to sell shares of RPL and appoint 12 agents was known to noticee nos. 3 and 4. 121. We are thus of the opinion, that the execution of the Facility Agreement had nothing to do with the Agency Agreement which came two months later and, therefore, the Facility Agreement and the Agency Agreement cannot be read together. The two agreements are wholly unconnected and cannot raise any kind of an inference as held by the AO in the impugned order. 122. The evidence that has been brought on record does not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3325 crores were given by noticee nos. 3 and 4 that funded the 12 agents for the alleged trades is patently erroneous. 125. We also find that 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 nos. 3 and 4 and that noticee nos. 3 and 4 were not promoted by the Reliance Group. Once this fact became clear that noticee nos. 3 and 4 were not promoted by the Reliance Group, the AO should have dropped the matter instead of going into a tirade that Anand Jain was closely associated with Reliance Group as a strategic advisor or that Sanjay Punkhia was a common director of noticee nos. 3 and 4 and Vinamra and, therefore, there is a connection between noticee nos. 3 and 4 with Reliance Group. In our view, the reasoning adopted by the AO in coming to a conclusion that noticee nos. 3 and 4 are connected to RIL is baseless and cannot be accepted. Such indirect connection without any further evidence of their involvement cannot be a ground to hold that noticee nos. 3 and 4 were aware of the manipulative trades allegedly conducted by RI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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