Kavi Arora vs Securities & Exchange Board of India

HELD: 1.1 At the stage of Rule 3, the Board appoints an Adjudicating Officer if it is of the opinion that there are grounds for adjudication under any of the provisions in Chapter VIA of the SEBI Act. At this stage, the Board only decides whether adjudication proceedings should be initiated or not. The formation of opinion is not a formal inquiry proceeding involving any person or persons against whom inquiry is contemplated. The participation of the person against whom inquiry is contemplated is not necessary. The Board forms its opinion, based on whether there are prima facie materials or grounds for initiation of inquiry. The opinion of the Board under Rule 3 has nothing to do with the outcome of the enquiry. [Para 45][340-B-D]

1.2 After the Board forms its opinion to appoint an Adjudicating Officer, comes the next stage, which is the stage under Rule 4 of an inquiry for adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H, 15I, 15J and 15HB whether any person has committed contraventions as specified in those sections. The inquiry commences with a Show Cause Notice calling upon the noticee to show cause why an inquiry should not be held against him. The Show Cause Notice has to specify the nature of offence alleged to have been committed and the penalty proposed, to enable the noticee to effectively reply to the show cause. A reading of Rule 4(3) makes it clear that, if after considering the cause, if any shown by the noticee, the Adjudicating Officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for appearance of that person either personally or through his lawyer or other authorised representative. The noticee is not required to be heard personally or through lawyer before taking a decision to proceed with an inquiry in respect of the contraventions alleged in the Show Cause Notice. Decision to proceed or not to proceed with the inquiry may be taken on the basis of the reply of the noticee to the Show Cause Notice. Once it is decided to proceed with the inquiry, an opportunity of personal hearing is mandatory. The inquiry has to be conducted in accordance with law, in compliance with the principles of natural justice. In this case, the Board was of the opinion that there were grounds for adjudication and accordingly appointed Adjudicating Officer. Adjudicating Officer issued Show Cause Notice to the Petitioner to which the Petitioner gave a preliminary reply and thereafter sought documents as observed above. Inspection of some documents was permitted. After considering the reply, the Adjudicating Officer was of the opinion that inquiry should be held. Accordingly, a notice fixing a date for appearance was issued. There was no procedural irregularity, at least till the stage of notice fixing a date of hearing. [Paras 46, 47][340-D-H; 341-A-B]

1.3 In Course of argument before the High Court, counsel for the Respondent SEBI made a statement that SEBI would not rely on any document apart from those which had been provided to the Petitioner. It is well settled that the documents which are not relied upon by the Authority need not be supplied. [Paras 48, 49][341-C]

Natwar Singh v. Directorate of Enforcement and

Another (2010) 13 SCC 255 : [2010] 13 SCR 99 –

relied on.

1.4 The High Court rightly did not interfere with the proceedings at the stage of the Show Cause Notice. The Petitioner has apparently been permitted to inspect the opinion formed under Rule 3 of the SEBI Adjudication Rules. There is apparently no rule which requires SEBI to furnish the opinion under Rule 3 to the noticee in its entirety. The documents relied upon for formation of opinion under Rule 3, are not required to be disclosed to the noticee unless relied upon in the inquiry. In the event, the Petitioner is prejudiced by reason of any adverse order, based on any materials not supplied to the Petitioner, or any prejudice is demonstrated to have been caused to the Petitioner, it would be open to the Petitioner to approach the appropriate forum. This Court has by its interim order dated 27th September 2021 permitted Respondent SEBI to hold the inquiry, without relying upon any documents, not supplied to the Petitioner. The interim order will govern the inquiry. There is no infirmity in the impugned judgment and order of the High Court dismissing the writ petition filed by the Petitioner. [Paras 50-52][341-G-H; 342A-C] T. Takano v. SEBI 2022 SCC Online SC 210; Indian Commodity Exchange Limited v. Neptune Overseas

Limited 2020 SCC Online SC 967; Shashank

Vyankatesh Manohar v. Union of India 2014(1) MahLJ 838; Amit Jain v. Securities and Exchange Board of India and Another 2018 SCC Online Del 9784 –

referred to.