IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal
No. 90/02
& 90A/02
In the matter of:
Coram: ����������� Justice Kumar Rajaratnam, Presiding
Officer ����������� Dr. B. Samal, Member ����������� N.L. Lakhanpal, Member Per:� Justice Kumar Rajaratnam, Presiding Officer �1.
Appeal is taken up with the
consent of parties.� A common order is
also passed by consent in both appeals. �2.
In this appeal, the
appellants are aggrieved by the impugned order passed by SEBI dated �3. Both the sides agree to make their submissions on a preliminary issue as to� whether Regulation 29 of Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the �1992 Regulation�) is mandatory or directory.� Regulation 29, as it then was, reads as follows: �29 (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as it considers appropriate should not be imposed. (2)� The stock-broker shall within twenty-one days
of the date of the receipt of the show cause send a reply to the Board. (3)
The Board after considering the reply to the show-cause notice, if received,
shall as soon as possible but not later than thirty days from the receipt of the
reply, if any, pass such order as it deems fit. (4)
Every order passed under sub-regulation (3), shall be self-contained and give
reasons for the conclusions stated therein including justification of the
penalty imposed by that order. (5) The Board shall send a copy of the order under sub-regulation (3) to the stock-broker, stock exchange of which the stock-broker is the member.���������� (emphasis by court) �4. Before we proceed to deal with the submissions made by the counsel for the appellant and the respondent on the preliminary issue, it is necessary to briefly state that the 1992 Regulation stood amended on 27.9.2002 by an omnibus Regulation, which also included the method of enquiry and imposition of penalty of stock brokers and sub-brokers. �5. In supersession of the 1992 Regulation, a regulation known as Securities and Exchange Board of India (Procedure For Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the �2002 Regulation�) came into force , as stated earlier, on 27.9.2002.� This omnibus 2002 Regulation covered various entities as enunciated in Regulation 4 of the 2002 Regulation, which reads as follows: �4. An enquiry for the purpose of passing an order under these regulations may be held for contravention of any of the provisions of- (a)
����� the Securities and Exchange Board of
India (Stock-brokers and sub-brokers) Regulations, 1992; (b)������ the Securities and Exchange Board of
India (Insider Trading) Regulations, 1992; (c)������ the Securities and Exchange Board of
India (Merchant Bankers) Regulations, 1992; (d)������ the Securities and Exchange Board of
India (Portfolio Managers) Regulations, 1993; (e)������ the Securities and Exchange Board of
India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993; (f)������� the Securities and Exchange Board of
India (Underwriters) Regulations, 1993; (g)������ the Securities and Exchange Board of
India (Debenture Trustees) Regulations, 1993; (h)������ the Securities and Exchange Board of
India (Bankers to an Issue) Regulations, 1994; (i)������� the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 1995; (j)������� the Securities and Exchange Board of
India (Foreign Institutional Investors) Regulations, 1995; (k)������ the Securities and Exchange Board of
India (Custodian of Securities) Regulations, 1996; (l)������� the Securities and Exchange Board of
India (Depositories and Participants) Regulations, 1996; (m)���� the Securities and Exchange Board of India
(Venture Capital Funds) Regulations, 1996; (n)������ the Securities and Exchange Board of
India (Mutual Funds) Regulations, 1996; (o)������ the Securities and Exchange Board of
India (Substantial acquisition of shares and Takeovers) Regulations, 1997; (p)������ the Securities and Exchange Board of
India (Buy-Back of Securities) Regulations, 1998; (q)������ the Securities and Exchange Board of
India (Credit Rating Agencies) Regulations, 1999; (
r )���� the Securities and Exchange Board
of India (Collective Investment schemes) Regulations, 1999; (s)������ the Securities and Exchange Board of
India (Foreign Venture Capital Investors) Regulations, 2000.� �6. In other words, till 27.9.2002, each entity whether a broker, depository & participant, venture capital fund or a mutual fund had regulations of their own with regard to the procedure for conducting an enquiry.� However, after the introduction of 2002 Regulation, all the entities mentioned in Regulation 4 was subject to the same procedure with respect to holding of enquiry by Enquiry Officer and imposition of penalty.� Other important changes were also made in the 2002 Regulation.� One important change in the 2002 Regulation was Regulation 13, which reads as follows: �13. (1) The enquiry officer shall, after considering the written statement and the oral submissions, if any, of the intermediary and the provisions of the relevant Regulations, submit a report to the Chairman or a member designated in this behalf and recommend for the imposition of any of the following penalties by the Chairman or the member, as the case may be, with the justification for the imposition thereof :- (a)������ Minor penalties- ����������� (i)������� warning
or censure; (ii)������ prohibiting the intermediary to take up
any new assignment or mandate or launch a new scheme for a period upto six
months; (iii)���� debarring a partner or a whole-time
director of the intermediary from carrying out the activities as intermediary
in the intermediary firm or company and other capital market related
institutions for a period upto six months; (iv)���� suspension of certificate of registration
for a period upto three months; (v)������ debarring a branch or an office of the
intermediary from carrying out the activities for a period upto six months. ����������� (b)������ Major
penalties- ��� ����������������������� (i)������� cancellation of certificate of
registration; (ii)������ suspension of certificate of registration
for period exceeding three months. (2)
On receipt of the report from the enquiry officer, the Chairman or the member,
as the case may be, shall consider the same and issue a show-cause notice to
the intermediary as to why the action as it considers appropriate should not be
taken. (3)�� The intermediary shall within fifteen days
of the date of the receipt of the show-cause notice send a reply to the
Chairman or the member, as the case may be. (4)� The Chairman or the member, as the case
may be, after considering the reply to the show-cause notice, if received,
shall as soon as possible pass such order as it deems fit.����������� (5)� If the enquiry officer under sub-regulation
(1) has recommended imposing of a minor penalty and the Chairman or the member,
as the case may be, proposes imposing of a major penalty, he shall give a
notice to the intermediary to make written submission against the proposed
action within fifteen days after the receipt of the notice and the Chairman or
the member after taking into consideration the written submissions, if any,
shall pass such orders as deemed appropriate. (6)������ The Board or the member shall impose
major penalties only in the following circumstances, namely :- (a)������ the intermediary or any of its whole-time
directors or partners or its proprietor has been found guilty of price or
market manipulation of any scrip or index or assisting in such manipulation or
of insider trading; (b)������ the intermediary is guilty of violation
of conditions of registration; (c)������ the intermediary or any of its whole-time
directors or partners or its proprietor is found to be not a fit or proper
person; (d)������ failure to obey directions of the Board
passed under Section 11 or Section 11B of the Act or failure to obey order of
an adjudicating officer imposing monetary penalty passed under section 15-I of
the Act by the intermediary; or (e)������ repeated defaults by the intermediary for
which action can be taken against him under clause (a) of sub-regulation (1). (7)
Every order passed under sub-regulation (4)
shall be dated and signed by the Chairman or the member, as the case may
be.�� ������������������ (emphasis by
court) �7. For the purpose of the preliminary issue raised by both parties, we must have a careful look at the changes made in Regulation 13(4) (2002 Regulations) in so far as orders to be passed by the Chairman or the Member, as the case may be, after reply to show cause notice is received as compared to the 1992 Regulation which was then in force till 27.9.2002. �8.
Regulation 29(3) of the
1992 Regulation states that the Board, after considering the reply to the show
cause notice, if received, shall as soon as possible but not later than 30
days from the receipt of the reply, pass such order as it deems fit. This
was amended in the 2002 Regulation under Regulation 13(4), which reads as
follows: �(4) The Chairman or the member, as the case may be,
after considering the reply to the show-cause notice, if received, shall as
soon as possible pass such order as it deems fit.� �9. A comparison between the two relevant provisions would indicate that under the old Regulation, with which we are concerned with in the present case, there is a mandate that the Board shall pass orders as soon as possible but not later than 30 days from the receipt of the reply to show cause notice.� It is a negative clause.� This rigour was amended with the words �as soon as possible� in the 2002 Regulation.� The Tribunal had occasion to deal with the 1992 Regulation in Appeal No.59/2001 dated 24.1.2002 in the case of Atul Kanodia vs. Securities and Exchange Board of India.� The Tribunal took the view that under the old Regulation, namely, under 1992 Regulation, orders must be passed by the Board not later than one month after the proceedings are over by the Board.��� 10.
Two other regulations
require a brief mention.� Regulation 21
of the 2002 Regulations is the amendment of the earlier regulation.� Regulation 21 reads as follows: - �The
Regulation specified in clauses (a) to (s) of Regulation 4 shall stand amended
in the manner specified in the Schedule.� We have already referred to Regulation 4 in the earlier part of
the order. Regulation 23 of the 2002 Regulations saves actions done under
the old regulation and reads as follows.�
�(1)
Notwithstanding amendment of the regulations as specified in Regulation 21,
anything done or any action taken including any proceeding for inspections or
investigation or enquiry commenced or any notice issued under the said
Regulations before the commencement of these regulations shall be deemed to
have been done or taken under the corresponding provisions of these
regulations. ����������� (2)� In particular
and without prejudice to the generality of the � provisions
of sub-regulation (1) - ����������� (i)� an enquiry
proceeding initiated by the Board under the �������� relevant
Regulations and pending before the Board before the ��� commencement of these regulations shall be conducted and ����������� completed under the relevant
Regulations as if those are not ����� amended
as specified in regulation 21. (ii)� any order appointing an enquiry officer under the relevant Regulations and pending before such enquiry officer immediately before the commencement of these regulations shall ����������� be deemed to have been ordered under the corresponding provisions of these regulations.� 11.
In other words, any enquiry
proceedings pending after the amendment dated 27.9.2002 would continue to be
valid as if the Regulations have not been amended but only if the enquiry is
pending.�� 12.
Regulation 23 of the 2002
Regulations mandates that if the enquiry proceedings are pending before the
Board under the old regulation it shall be completed under the old regulation
as if the amendment had not come into force. 13.
In the back ground of the
legal position, it is necessary to advert to the preliminary objections that
Regulation 29 of the 1992 Regulation mandates the Board to pass an order not
later than 30 days from the receipt of the reply.� 14.
Mr. Sen, the learned senior
counsel for the appellant submitted that the order in this case was passed
beyond 30 days by the Board.� It was
consequently submitted by Mr. Sen that the impugned order is a non est
and is liable to be set aside.� 15.
Mr. Kapadia, the learned
senior counsel for SEBI submitted that the earlier pronouncement of the
Tribunal being made by the single member is not binding on this Tribunal.� It was further submitted that assuming that
the impugned order was passed after 30 days of the final reply the earlier
pronouncements were per incuriam and
requires reconsideration by this Tribunal.�
16.
Before we advert to the earlier
decision of the Tribunal it would be obviously necessary to determine whether
the impugned order has been passed beyond 30 days after the enquiry was
over.� 17.
The learned counsel for the
appellants submitted that the first appellant was a registered stock-broker
firm (registered with SEBI) and the second appellant was also a registered
sub-broker under the first appellant.� 18.
It was submitted by the
first appellant that it was one of the largest Indian Securities Group in the
country having 17 branches in India in addition to offices in London and New
York and trades in all major markets of the world.� It is also the only non-Japanese-Asian Group
to have obtained membership of the London Stock Exchange and is also a member
of NASDAQ.�� The appellants were also
Merchant Bankers and Portfolio Managers and is registered as such with
SEBI.� The appellant employs 250 persons
including Chartered Accountants and M.B.A professionals.� The turnover of the business of the first
appellant was Rs. 7432 crores in the BSE and NSE in the year 1999-2000.� The turnover increased to Rs. 14000 crores in
the year 2000-2001. 19.
On 2nd March,
2001 there was a substantial fall in the prices of the shares on BSE and on NSE
and investigation was conducted in connection with this aspect of the
matter.� The appellants fully co-operated
with the BSE and NSE� and states that all
trades made by the appellants were legal and genuine.� He submitted that all the details were
furnished to the respondent and none of the data that had been furnished to the
respondent reflected anything illegal or any attempt to artificially depress or
manipulate the prices of any scrip.�
Whenever additional information was required that was also furnished by
the appellant. 20.
It was further submitted by
Mr. Sen that on 13th March, 2001 an exposure of the scandal
involving the defence deal was unearthed by a website, namely,
Tehelka.com.� According to Mr. Sen, since
the appellant owned 14.5% stake in Buffalo
Networks Pvt. Ltd. which in-turn
owned Tehelka.com, the appellants were singled out for vicious actions by
various departments of the Central Government.�
On 23rd March there was an Income-tax raid on the
appellants.� On 27th March
2001 SEBI issued summons seeking to peruse the client ledger and accounts of the appellant
companies and other group of companies.�
The appellant submitted all the records that were required by SEBI.� 21.
It was further submitted by
the appellant in the course of the enquiry it only focused on the appellant�s
stake in Tehelka.com.� On 3rd
April, 2001 statements were recorded from the appellants on various aspects but
more particularly on the investigation of the appellant in Tehelka.com.� The appellant was also asked to furnish the
provisional balance-sheet of Buffalo Networks P. Ltd. which owned Tehelka.Com, and which had nothing to do with this
case. 22.
On 19th April,
2001 Mr. Shankar Sharma, Director of appellant No.1 was arrested and on that
very day an ex-parte order was passed by SEBI against the appellants under
Section 11B of the SEBI Act debarring the appellants from undertaking any fresh
business as stock-broker, merchant banker or port-folio manager pending
enquiry. 23.
The appellants challenged
the ex-parte order by the filing the Writ Petition No.1155 in the Bombay High
Court.� The High Court disposed of the
Writ Petition by treating the order passed by SEBI as a show cause notice and
directed SEBI to give a pre-decisional hearing for the appellants.� The appellants filed a detailed reply to the
allegations contained in the order which was treated as the show cause notice. 24.
On 25th May,
2001 order was passed by SEBI confirming the earlier order debarring the
appellant pending enquiry.� On 31st
May 2001, the Chairman, SEBI appointed an Enquiry Officer under Regulation 13
of the FUTP Regulations, read with the Stock Broker�s regulations both against
the appellants and against the two directors. 25.
The appellants it appears
approached the Tribunal and the Tribunal declined to interfere the order since
it was an interim order pending enquiry.�
Ultimately, the Enquiry Officer was appointed and charges were framed
against the appellant for breach of FUTP Regulations and allegations of
circular trading and other breaches of regulations such as depressing the
market by artificial and manipulative means. 26.
The Enquiry Officer held a
hearing some time later on 06.10.2001.�
The Enquiry Officer issued a fresh show cause notice on further
allegations.� The enquiry commenced under
the provisions of the 1992 Regulations. 27.
It was also submitted that
the copy given by the Enquiry Officer to Justice K. Venkataswami Commission was
different from the copy given to the appellant and that changes were conscious,
deliberate and misleading.� 28.
Ultimately the Enquiry
Officer made a report on 9th January 2002.� The Chairman of SEBI after perusal of the
enquiry report issued a show cause notice dated 10.01.2002.� Hearing was to be taken up on 29.01.02. 29.
Aggrieved by the short date
given by the respondent the appellant filed a Writ Petition no.824 of 2002 in
the Bombay High Court. �The High Court
directed fresh hearing and ordered that all these issues should be dealt with
by the respondent and further granted advance stay of 4 weeks against any
adverse order of the respondent.� 30.
Accordingly, the date of
hearing was fixed on 14.05.2002 by the respondent.� It was further heard on 12th June,
2002.� On that day (namely 24th
June, 2002) the respondent apparently declared that the hearing was over. 31.
The respondent however
granted opportunity to the appellant for filing written submissions within 7
days with effect from 24th June, 2002.� The Counsel for the appellants wanted 10 days
time and also insisted that there should be oral hearing.� The Chairman refused this request and stated
that the Board would consider a further hearing after written submissions were
filed.� The appellants declined the offer
of filing written submissions without oral hearing. 32.
Curiously the respondent
while the matter is pending before the respondent addressed a legal notice to
the appellant.� It was the stand of the
appellant that the respondent has become functus officio.� The appellant once again fixed 2nd
August 2002 for hearing, but no hearing took place on that day.� 33.
Hearing, as it is alleged,
took place on 9th August 2002 without any authority of law when the
matter was closed by the respondent.� On
12th September, 2002 the Board passed final orders canceling the
certificate of the 1st appellant as a stock-broker and port-folio
manager and of the 2nd appellant as a sub-broker. 34. The show cause notice issued by the respondent dated 10.1.2002 makes a clear reference to Regulation 29(1) of the old Regulation.� The relevant words used in the communication in the show cause notice dated 10.1.2002 reads as follows. �You are hereby called upon to show cause in
terms of Regulation 29(1) of Securities & Exchange Board of India (Stock
Brokers and Sub-Brokers) Regulations, 1992 and Regulation 35 of SEBI (Portfolio
Manager�s) Regulations, 1993 and Regulation 11 read with Regulation 12 of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 1995, as to why the penalty as considered appropriate by
the Board should not be imposed on you.� 35.
It is
not necessary to go into this point any further since in the facts and
circumstances of this case it is common ground that 29(1)(3) is the Regulation
which requires interpretation by this Tribunal.�
It would not be out of place also to mention that the 2002 Regulation
came into force on 27.9.2002 and by that time on 12.9.2002 the impugned order
had been passed.�� Therefore by no
stretch of imagination can be it be said that the 2002 Regulations will apply
since the impugned order itself was passed on 12.9.2002 before the 2002
Regulations, which came into force on 27.9.2002.� 36.
Now let
us factually determine whether SEBI Board passed its order not later than 30
days from the receipt of the reply of the appellant before dealing with the
legal submissions.� The first hearing was
on the 14.5.2002.� The second hearing was
on 24.6.2002.� On 24.6.2002 the Board
closed the hearing but gave the appellant an opportunity to file written
submissions.� This was unacceptable to
the appellants.� The appellant stated in
their letter that the matter was complex requiring oral hearing as ordered by
the Bombay High Court and even if the appellants decide to file written
submission as suggested by the Board, it cannot be a substitute for a proper
hearing.� This was the letter addressed
by the appellant to the respondent on the very same day namely 24.6.2002.� In reply, SEBI wrote a letter dated
26.6.2002.� The relevant portion of the
letter reads as follows: �It is not correct to say that although your
presentation remained inconclusive the Board choose to close the hearing at
5.45 p.m.� In fact, the Board has asked
you well in advance to complete your submissions by 6.00 p.m.�� It may also be noted that vide our letter
dated June 11,2002, we have indicated you to try and complete the oral
submissions before the Board in the hearing on 24.6.2002.� However, you could not complete the oral
submissions within the reasonable time given to you because of repetition in
your submissions, which was pointed out to you repeatedly by the Board during
the hearing.� The learned counsel even went
to the extent of saying that this is his style.�
In view of the same the Board had advised you to complete your
submissions and file additional written submissions, if any, which you have
agreed to file within ten days. As you had submitted that your submissions
were not properly recorded by the enquiry officer during the enquiry, the Board
had advised you to file your detailed written submissions indicating the
discrepancies, if any, so that the question of the Board wrongly recording your
submissions does not arise.� It
is common ground on a perusal of the records that the appellants did not agree
to file written submissions and such an agreement was never made by the
appellants. 37.
On
3.7.2002 the appellant sought for further hearing in the interest of justice
and equity.� On 11.7.2002 the Board wrote
a letter to the appellant through their counsel which stated that if no written
submissions are furnished within a week the Board would be constraint to
proceed further in the matter with the material available on record.� The relevant portion of the letter dated
11.7.2002 by SEBI reads as follows. �With
reference to your letter dated 3rd July 2002 on behalf of your
captioned clients we state that as directed by the Board in the hearing on 24th
June 2002 you were required to file written submissions within 10 days but you
have failed to do so and we have not yet received the same.� In further correspondence of SEBI you were
informed that on receipt of your written submissions if there were any issues
which you had not already submitted or personally urged before the Board then
the Board would consider giving you another hearing.� You will appreciate that your written
submissions are required to be placed before the Board for seeking approval for
another hearing. Hence,
we reiterate the contents of our letter dated 26th June, 2002 and
indicated that if you do not avail the opportunity of furnishing written
submissions within a week from receipt of this letter the Board would be
constrained to proceed further in the matter with the material available on
record and the submissions made by you hitherto. You
have made further allegations in the said letter which we deny and are not
dealing with the same.� We also deny your
allegations regarding SEBI taping your submissions, regarding SEBI�s officials
giving clarifications after the date of hearing etc.� 38.
Another
letter which was rather curious was written by the Board on 25.7.2002.� The respondent suo moto stated that
they have not received any written submissions and an allegation was made that
the counsel for the appellant had agreed to give written submissions and the
Board was to hear once again the case on 2.8.2002 at 2 p.m.� Once again the Board said that if the
appellant failed to take this opportunity SEBI shall proceed further in the
matter and pass appropriate orders.� The
letter dated 25.7.2002 addressed by the respondent to the appellant reads as
follows: �Please refer our letter no.
LGL/JR/12835/2002 dated 11.7.2002 addressed to your Advocates D.H. Law
Associates (copy enclosed).� We are yet
to receive written submissions in this matter, inspite of your Counsel having
agreed to do so within 10 days of the hearing held on 24.6.2002.� D.H. Law Associates, on your behalf, by
letters dated 24.6.2002 and 3.7.2002 sought for further hearing.� They were informed by SEBI vide letters dated
26.6.2002 and 11.7.2002 (copies enclosed) that on receipt of written
submissions the Board would give a hearing on the issues which you had not
already submitted or personally urged before the Board. I have been directed to inform you that the
Board has granted further personal hearing to you on 2.8.2002 at 14.00 hours at
the following address:- Securities
& Exchange Board of India 1st
Floor, Mittal Court, �B� Wing 224,
Nariman Point, Mumbai � 400 021 You are advised to file written submissions,
if any, two days before the aforesaid hearing. Please confirm your attendance on the
aforesaid date and time, within two days from the date of receipt of this
letter.� In case of failure to avail the
opportunity of said hearing, SEBI shall proceed further in the matter on the
basis of material available on record and the submission made by you hitherto.� Further, we would also place on record that
the letter dated 20.6.2002 of D.H. Law Associates was received by SEBI only on
25.6.2002.� 39.
On
30.7.2002 the appellant through his counsel sent a reply to the respondent
complaining that on 24.6.2002 the matter was closed and it was sought to be
reopened.� The relevant portion of the
letter of the appellant dated 30.7.2002 reads as follows: �Perhaps you are now directed by the
Tribunal to convey their intention to reopen the hearing.� You will appreciate that the Hearing was
concluded by the Tribunal itself on 24th June, 2002 (as recorded in
our letter of the same date) and our several requests for a full hearing went
unheeded.� In the interim, you took it
upon yourself to continue a futile correspondence.� Now that the Tribunal is functus
officio, it appears that you and/or the Tribunal wish to revive the
hearing.� That cannot be done.� Our clients are referred to the case of �M.J.
Patel vs. SEBI (Appeal No. 4/2002 before the Securities Appellate Tribunal,
Mumbai)� and submit that, with that knowledge, they are unable now to accede to
any further hearing.� The matter is now
closed and the Tribunal cannot pass any adverse Orders. It is our clients� contention (which we
understand is supported by SEBI) that the 30 day limitation/bar prescribed in
Regulation 29 of the SEBI (Stock Brokers and Sub Brokers) Regulations for
making its orders commences from the date of reply to the show cause notice and
is not referable to the hearings.�
Without prejudice, more than 30 days have passed from the closure of the
hearings.� The matter cannot be stretched
out or revived by fixing hearings after the period limited by Reg. 29. We also make it clear that the Board did not
direct the filing of any written submissions.�
It stated that it would not hear our clients any further, but would
permit our clients to file written submissions if they wished.� Our clients, on their part, made it clear
that this was unacceptable and that the matter was one which required a proper
hearing.� Our Counsel also made this very
clear, and stressed repeatedly that the matter required an effective oral
hearing only, as the nature of the false allegations leveled against our
clients and the complicated legal questions related inter alia to jurisdictions
and powers as well as the factual issues, were impossible to be properly
explained except through oral submissions.�
The Board has no power to direct our clients to file written submissions
when their full reply is already on record.�
What was required and denied was an opportunity to orally present their
case.� You will also refer to our letter
written the very day that the hearing was closed.� Our clients and Counsel made no commitment to
file written submissions.� 40.
The
stand of the appellant was clearly that the matter was closed and no
undertaking was given that written submission will be filed and that the
respondent did not pass appropriate orders within 30 days after the matter was
closed and a reliance was placed on the judgment of this Tribunal in Atul
Kanodia�s case (which we shall deal with a little later).� Another letter was written by the appellant
to the Board that any further hearing by the Board would be illegal and ultra
vires of its powers.� The letter dated
14.8.2002 reads as follows: �Under the instructions of our clients First
Global Stockbroking Pvt. Ltd. and Vruddhi Confinvest (India) Pvt. Ltd. we
address you as under. Our clients have learnt from newspaper
reports that a meeting of the Board was held on 9th August
2002.� Our clients further understand
that a statement was made by the Chairman, SEBI that our clients have not been
attending hearings.� Although they cannot
speak for the correctness of these reports, this statement is factually
incorrect. Our clients received notice of the SEBI
Board/Tribunal�s intention to revive the proceedings and hold a hearing on 2nd
August 2002.� The said hearing was not
held as the board did not meet.� No
notice of any hearing or meeting of 9th August 2002 was given to us
or our clients. May we point out that any such purported
hearing is and will be illegal and ultra vires your powers.� Further purported hearings without notice are
also illegal and void.� In this regard we
enclose herewith a copy of our letter dated 30th July 2002 for ready
reference. May we request the Chairman to issue
immediate instructions to reactivate our clients trading terminals which were
deactivated pursuant to the purported order under section 11B.� 41.
Instead
of dealing with the matter in accordance with law SEBI took the unusual step of
engaging a solicitor to send a Lawyer�s notice to the reply dated
14.8.2002.� This we find a little unusual
in view of the fact that the enquiry was pending before SEBI.��� A regulator does not send lawyer�s notice
when the matter is pending in enquiry.�
Be that as it may, Maneksha & Sethna, Solicitors on behalf of SEBI
sent a reply dated 22.8.2002.� The
relevant portion of the notice which is necessary for the purpose of this case
is that it was denied that the Board had become functus officio.� Paragraph
14 of the legal notice deals with this aspect of the matter which reads as
follows. �With reference to paragraph 6 of your said
letter, it is settled law that Regulation 29 is procedural and the period of
30 days is not mandatory and in any case in the matter at hand the hearing is
being given under the orders of the Hon�ble High Court passed in Writ Petition
filed by your clients.� However,
without prejudice to the aforesaid contentions the oral submissions/arguments
are considered as replies and therefore the time limit of 30 days cannot be
said to have expired as alleged by you in your said letter.� 42.
A
definite stand was taken by SEBI in its notice that Regulation 29 is procedural
and is not mandatory.� It is only to that
extent we have extracted the legal notice.�
Letter dated 27.8.2002 is a long letter addressed by the appellant to
the respondent in reply.� For the purpose
of determining the issue before this Court, it is necessary to understand the
stand taken by the appellant.� In his
letter amongst other things, the appellant has stated as follows. �On 25th July 2002, after it had
become functus officio, our clients were informed that the Tribunal had
purported to give a hearing on 2nd August, 2002.� The hearing was not held.� A hearing was purportedly held on 9th
August 2002 without notice to us even though the tribunal was functus officio.� 43.
On
12.9.2002, the impugned order is passed canceling the certificate of
registration granted to the appellants.�
It was further submitted that the order was passed on 12.9.2002 but
served on the appellant only on 23.9.2002.�
44.
We have
set out the sequence of events leading to the passing of the impugned
order.� The stand of the appellant was
that SEBI by letter dated 25.7.2002 had clearly stated that the appellants were
advised to file written submission, if any within 2 days and the matter would
be posted on 2.8.2002 at 2 p.m.; and if the appellant does not avail of the
opportunity, SEBI shall proceed with the matter in accordance with law.� The appellant took the stand in its letter
dated 30.7.2002 that the Board had become functus
officio and that the appellant had never made any commitment to file
written submission.� The same stand was
taken by the appellant in letter dated 14.8.2002 stating that any further
demand for hearing and filing of written statement was illegal and ultra vires
of the powers of the Board.� It is then
that the respondent took the unusual step of sending a legal notice.� As stated earlier, in the legal notice a
point was made by SEBI that the Regulation 29 is procedural and is not
mandatory.� Once again on 27.8.2002, the
appellant in reply reiterated that on 25.8.2002 the respondent had become functus officio.� 45.
It is
clear from the stand taken by the respondent on 11.7.2002 that the Board had
given a clear warning that if no written submissions were filed orders will be
passed in accordance with law.� If the
Regulation is to be read as mandatory, the Board ought to have passed order at
least within 30 days from 11.7.2002.�
SEBI purported to have a hearing on 2.8.2002 but no meeting took place
on 2.8.2002.� Even on 30.7.2002 the
appellant stated that the Board had become functus
officio.� Again on 14.8.2002, the
appellant reiterated that the board had become functus officio.� Again on
27.8.2002 the appellant had taken a legal stand that the Tribunal�s order is
beyond 30 days from 11.7.2002 and is a non est order i.e. on
12.9.2002.� 46.
To get
over this difficulty the respondent in a most unusual manner resorted to
sending a legal notice stating that the 30 day rule in old Regulation 29 was
not mandatory.� The respondent was
therefore fully aware that the appellant had taken the stand based on Kanodia�s
case that the order of the respondent should not be later than one month after
the hearing is over.� This is why the
legal notice also recognized the piquant situation in which SEBI found itself
in not passing the order not later than 30 days.� That is also why it took the unusual step of
sending the legal notice stating that Regulation 29 is not mandatory.� Therefore factually whether we take 11.7.2002
and add 7 days, or take 30.7.2002 when the appellant took the stand that the
Board had become functus officio, in both cases the order dated
12.9.2002 was beyond the period of 30 days. 47. It is abundantly clear from the minutes of the proceedings on 9th August 2002 with respect to the case of the appellants that even according to SEBI the proceedings in every conceivable form was closed on 9.8.2002.� We have examined the minutes of the proceedings with respect to this case.� It is shown as item no. 12.� We wish to extract these proceedings to show that on 9.8.2002 the matter was closed and the enquiry was over according to the Chairman.� Item no. 12 is extracted as follows: �M/s.� First Global Stock Broking (P) Limited and Vruddhi Confinvest were given notice to appear before the Board on August 2, 2002.� The letter dated July 30, 2002 of their Advocates, D.H. Law Associates, stating that they would not appear before the Board was taken note of.� The Board perused the correspondence pursuant to the last hearing held on June 24, 2002.� The Board directed that SEBI�s advocates should be instructed to move a notice of motion before the Hon�ble High Court, Mumbai to bring the above facts to its notice and indicate that SEBI would proceed in the matter. The meeting concluded with a vote of thanks to the Chair. ������ Sd/- CHAIRMAN� The
order passed by the Board on 12th September, 2002 is clearly out of
time. 48.
The
Tribunal in Atul Kanodia vs. SEBI reported in 2002 CCI-CJX-0006 SAT page
31 had to deal with the interpretation of the old Regulation 29(1)(3) before
the amendment.� In Atul Kanodia, it was
contended by the appellant that the impugned order was time barred and on this
ground itself the order deserves to be set aside.� The fact in that case are set out in the
judgment and reads as follows. �Shri Merchant submitted that the order is
bad in law as it is made beyond the mandatory time limit of 30 days prescribed
in the Regulation.� He submitted that in
terms of Regulation 29(3) in an inquiry proceeding the respondent is required
to pass the order of suspension or cancellation within 30 days of the receipt
of the reply to the show cause notice.�
In this context, he submitted that the inquiry officer submitted the
report on 10th May, 2001.� The
appellant submitted his explanation vide letter dated 19th June
2001.� The appellant was given a personal
hearing on 18th July, 2001.�
Since there was no response thereafter from the respondent, the
appellant again wrote on 7th August, 2001.� Though the appellant vide the said letter had
only requested to drop the proceedings, the respondent of its own, vide letter
dated 27th September, 2001 called the appellant for a hearing on 24th
October 2001, which the appellant did not attend as the hearing was considered
not necessary in view of the hearing already held on 18th July,
2001, that it was only a device to beat the requirement of time limit
prescribed in the Regulation.� The
respondent passed the impugned order on 26th December, 2001.� According to the learned counsel, the order
passed on 26th December 2001, on every count is beyond the statutory
limit prescribed in Regulation 29(3) and, therefore, void.� He submitted that the delay is (i) more than
five months from 19th July, 2001 (being statutory time limit for
passing the order, (ii) more than four months from 7th August, 2001
being the date of letter of the appellant, (iii) more than four months from 18th
August, 2001 in view of the hearing held on 18th July, 2001 (iv)
more than one month from 20th November, 2001 which was the last date
for issuing the order in view of the reply having been given vide letter dated
20th October, 2001 (v) more than 30 days from 24th
November, 2001 from the last date of hearing scheduled on 24th
October, 2001.� 49.
The
submissions of the learned counsel was referred to in the judgment in the
following words. �Learned counsel submitted that the language
of Regulation 29(3) is clear inasmuch as it requires the order to be made by
the respondent as soon as possible but not later than 30 days from the receipt
of the reply to the show cause notice.�
According to Shri Merchant, no discretion is available to the respondent
to enlarge the specific time limit prescribed in Regulation 29(3), that
wherever discretion is available the Regulation has clearly provided so.� He submitted that the obligation of
accountability fastened on the public authorities, that the mandatory
provisions of the Regulations are mend to protect the public interest by taking
timely action.� He submitted that 30 days
time limit has been prescribed in the Regulation intentionally.� In this context, he referred to several
Regulations notified by the respondent prescribing different time limits for
passing the order of suspension or cancellation of certificate of
registration.� By way of illustration he
cited SEBI (Custodian of Securities) Regulations, 1996 and SEBI (Depositories
and Participants) Regulations, 1996 which requires the respondent to pass
orders in just 14 days.� He also referred
to SEBI (Merchant Bankers) Regulations, 1992, SEBI (Portfolio Managers)
Regulations, 1993, SEBI (Registrar to and Issue and Share Transfer Agents)
Regulations, 1993, SEBI (Underwriters) Regulations, 1993, SEBI (Debenture
Trustees) Regulations, 1993, SBEI (Bankers to an Issue) Regulations, 1994 and
SEBI (Foreign Institutional Investors) Regulations, 1995 and stated that these
Regulations prescribe 30 days to pass the order as has been provided in the
Brokers Regulations.� Shri� Merchant stated that there are certain other
Regulations such SEBI (Prohibition of Fraudulent and Unfair Trade Practices)
Regulations, 1995 and SEBI (Venture Capital Funds) Regulations, 1996,
whereunder specific time limit has been prescribed for passing orders.� Learned counsel submitted that the object of
the Regulation is, thus, clear, as to where it has to be lenient and where it
has to be strict.� The Regulation have
provided for suitable measures, leaving little discretion to the respondent to
stretch out of the time limit.� Shri
Merchant further submitted that the respondent has not mentioned anywhere in
its pleadings or oral submissions on the authority which it has for enlarging
the statutory time limit, that the respondent has only tried to explain meekly
that there is no delay on its part and the order is not in any way
vitiated.� He submitted that Regulation 29(3)
is a prosecuting provision affecting the rights and obligations of the parties
and as such strict adherence to the requirements of the regulation is
required.� In support of this contention
he cited the decision of the Hon�ble Supreme Court in Ramchand v. Union of
India (1994) 1 SCC 44 and this Tribunal�s order in Doogar Associates Ltd. v.
SEBI (2001) CLC 1243.� Learned counsel
further submitted that since the respondent has not adhered to the strict time
schedule provided in Regulation 29(3), the order is bad and deserves to be set
aside.� The
Tribunal held that the scope of the expression replied in Sub-section (3)
included oral submissions.� The Tribunal
referred to Black Law�s Dictionary and also made a reference to the use of the
word �shall� in the sub-regulation and came to the conclusion that Regulation
29(3) was mandatory and summed up the position as follows: �The
mandate in Regulation 29(3) is clear and unambiguous.� The order required to be issued under
Regulation 29(3) is in public interest.�
The inquiry envisaged therein is an adversarial one.� The effect of the order is also clear.� It adversely affects the rights and
obligations of the stock broker.� In this
context the legislative intent is manifest in the words requiring the order to
be passed as soon as possible but not later than thirty days.� The emphasis to adhere to the requirement of
issuing early order comes from the words �but later than 30 days� used in the
Regulation.� If there was no such intention,
these words would not have been put in there, as is seen in the Regulations
relating to mutual funds, venture capital funds, etc.� By providing the outer time limit
specifically, the Legislature wanted the order to be passed in any case within
30 days if not possible at an early date.�
In this context it is also to be noted that an order under Regulation
29(3) is of serious consequences affecting the right to carry on business by
stock brokers.� It is also important from
the angle of investor protection.� In
this context the provisions of Regulation 31 is also to be noted which requires
the order of suspension or cancellation of certificate passed in sub-Regulation
(3) of Regulation 29 to be published in at least two daily newspaper by the
Board.� This requirement is indicative of
the importance of the order making it known to be public.� The respondent has not made any submission as
to in what way the order passed beyond the prescribed time limit is protected,
which is against the specific requirement in the Regulations.� The main thrust of the respondent�s
submission was that the order was passed within the time limit.� But this submission is contrary to the facts
available on record.� There is no
explanation from the respondent�s side as to in the light of the appellant�s
letter dated 22nd October, 2001 and non-appearance of the appellant
for hearing on 24th October, 2001, why the order was not made within
the time limit of 30 days therefrom.�
Even for argument sake, 22nd October, 2001 or still 24th
October, 2001 is taken as the date of hearing, still the order should have been
issued by 24th November 2001 whereas the order was actually issued
only on 26th December 2001.�
Taking into consideration the strict binding mandatory provisions of
Regulation 29(3) and the fact that the impugned order was passed beyond the
prescribed time limit of 30 days I am inclined to agree with the submission
made by Shri Merchant that the order is bad and cannot survive.� Therefore, the order deserves to be set
aside.� Accordingly
the impugned order was set aside on this preliminary issue by the Tribunal. 50.
Faced
with this delicate situation, Mr. Kapadia, the learned senior counsel for the
respondent submitted that the order in Atul Kanodia�s case will have to be
reconsidered and reviewed by the Three Member bench of the Tribunal.� He submitted that the earlier pronouncement
was not binding on the Tribunal after the Tribunal was upgraded to a
Multi-member bench by the amendment in 2002.�
The learned counsel for the respondent took us through various
authorities and submitted that Regulation 29(3) (as it then was) was directory
and not mandatory.� 51. Mr. Kapadia, the learned senior counsel for SEBI took us through the standard textbooks on the Interpretation of statutes.� Mr. Kapadia in his effort to request the Tribunal to reconsider the matter in Atul Kanodia�s case.� 52. The learned senior counsel placed heavy reliance on G.P. Singh�s Principles of Statutory Interpretation 9th edition.� The learned author at page 338 under the Heading �Mandatory and Directory Provisions� (6th Synopsis) states that no universal rule can be laid down as to whether mandatory enactment shall be considered directory only or obligatory with an implied nullification.� The learned author stated that the meaning and intention of the legislature must govern the matter, and these are to be ascertained not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other.� At page 340 Mr. Kapadia relied on the use of the words �as nearly as may be� in contrast to the words �at least� will prima facie indicate a directory requirement, negative words a mandatory requirement, �may� a directory requirement and �shall� a mandatory requirement.� At page 345 reliance was placed on the following words.� �But as further stated by Lord Woolf provisions intended to have that effect �will be few and far between� and in majority of cases the court�s task �will be to seek to do what is just in all the circumstances� of the case.� Further, sometimes a question of prejudice may also have to be considered while considering the effect of non-compliance with a procedural requirement.�� Again at page 357� he relied� on the following. �Further, if the statutory provision as to time is a condition for exercise of a statutory power as distinguished from a duty, the prescription as to time will be construed as mandatory.� But whether it be a case of statutory duty or statutory power, the statute may expressly or impliedly make the authority functus officio on expiry of the prescribed period.� Further though when a public authority is required to do a certain thing within a specified period, the same is ordinarily directory, it is equally well settled that when consequence for inaction on the part of the statutory authority within the specified time is expressly provided, it must be held to be imperative.� 53. The learned senior counsel again relying on Justice G.P. Singh�s Principles of Statutory Interpretation and fairly submitted that a statute may impliedly make the authority functus officio on the expiry of the prescribed period. Relying on the same author Mr. Kapadia, submitted that negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statute imperative.� He however submitted that considerations of general inconvenience which would have resulted in holding this enactment mandatory appear to have outweighed the effect of negative words in reaching the conclusion that they were in true meaning merely directory.� The learned counsel also relied on various pronouncements of the Supreme Court.� Reliance was placed on the judgement of State of UP vs. Manbodhan Lal Shrivastava reported in AIR 1957 SC 912� the Supreme Court held the question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed.� The meaning and intention of the legislature must govern, and these are to be ascertained not only from the phraseology of the provision, but also by considering its nature, its design, and the consequence which would follow from construing it the one way or the other.� 54. Reliance was also placed on the pronouncement of the Supreme Court in State of UP vs. Babu Ram reported in AIR 1961 SC 751.� He relied on the judgement to the effect that when the statute use the words �shall�, prima facie it is mandatory but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute.� Reliance was also placed on the Supreme Court judgement in Chet Ram Vashist vs. Municipal Corporation of Delhi reported in AIR 1981 SC 653 for the same proposition.� Mr. Kapadia also placed reliance on a Supreme Court judgment in B.B. Sugar Co. vs. Rampur Municipality reported in AIR 1965 SC 895 is as follows. �The question whether a particular provision of a statute which on the face of it appears mandatory � inasmuch as it uses the word �shall� as in the present case � or is merely directory cannot be resolved by laying down any general rule and depends upon the facts of each case and for that purpose the object of the statute in making the provision is the determining factor.� The purpose for which the provision has been made and its nature, the intention of the legislature in making the provision, the serious general inconvenience or injustice to persons resulting from whether the provision is read one way or the other, the relation of the particular provision to other provisions dealing with the same subject and other considerations which may arise on the facts of a particular case including the language of the provision, have all to be taken into account in arriving at the conclusion whether a particular provision is mandatory or directory. ����������� The question whether provisions in a statute are directory or imperative has very frequently arisen in this country, but it has been said that no general rule can be laid down, and that in every case the object of the statute must be looked at �� When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience, or injustice to persons who have no control over those entrusted with the duty, and at the same time would not promote the main object of the Legislature, it has been the practice to hold such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done.� 55. The learned senior counsel further submitted that Atul Kanodia�s case pronounced by a single member Tribunal was not taken up in appeal by the respondent.� The same is therefore res judicata only in the particular case in which the order is passed and the same is not a precedent.� He further stated that the Tribunal is not a court of record and a Tribunal�s decision is quasi judicial and therefore the decision cannot be called a precedent.� The same cannot even be binding on a single member bench.� It is further stated that pursuant to an amendment to the Securities & Exchange Board of India Act, 1992 Section 15Z was introduced with retrospective effect from 29th October 2002, by which the appeal from any decision or order of the Securities Appellate Tribunal could be made directly to the Supreme Court and that too on any question of law only.� Prior to the amendment the Appeal from any decision or order of the SAT could be made to the High Court on any question of fact or law arising out of the order.� It is submitted that by the aforesaid amendment the SAT has been elevated as being the last Court of Appeal on all questions of fact.� It is further submitted that Section 15L of the SEBI Act, 1992 was substituted by an amendment with retrospective effect from 29.10.2002 whereby the composition of the Securities Appellate Tribunal which earlier consisted of only one member has now been amended to consist of a Presiding Officer, whose qualification according to Section 15M must be that of a sitting or a retired judge of the Supreme Court or a sitting or a retired Chief Justice of a High Court and two other members.� The composition of the SAT has now been increased to three members.� It is stated that even though a judgment of the single member Tribunal and cannot be a precedent or binding on the present three member Tribunal.� It is submitted that a single member Tribunal having ceased to exist cannot be considered as a court of coordinate jurisdiction and in any event is not a court of coordinate jurisdiction to the three member Tribunal as the three member Tribunal has replaced the single member Tribunal. 56.
Without
prejudice to his earlier contentions, Mr. Kapadia submitted that in case the
Court holds that the Regulation 29(3) is mandatory, the enquiry under
Regulation 23 still continues.��� It was
submitted that Regulation 23(1) clearly says that any enquiry commenced under
the relevant Regulation before the commencement of the Enquiry Regulations
shall be deemed to have be done or taken under the corresponding provisions of
the Enquiry Regulations. Therefore if the Tribunal sets aside the SEBI�s order
dated 12.9.2002 on the ground that the same has not been passed within the
prescribed period under Regulation 29(3) as it then was and the said period is
mandatory the enquiry would be still pending as having been saved.� It was sought to be contended that only the
impugned order goes but the enquiry is pending. 57.
But we
wonder how useful all this will be to enable the Tribunal to review its own
order.� It is not in dispute that the
order of the Tribunal in Kanodia�s case has become final and binding on the
Tribunal since it has not been taken to the High Court or the Supreme
Court.� Once SEBI itself accepts its
proposition that Regulation 29(3) is mandatory, it is not open to this Tribunal
to say that Anil Kanodia�s case requires reconsideration only for the present
case before us especially taking into account the subsequent changes in the
legislation which filled in the lacunae.�
58.
SEBI
(Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002 was amended on 27.9.2002 to precisely overcome this
difficulty by introducing Regulation 13(4) which is relevant and reads as
follows:- �13(4)� The Chairman or the member, as the case may
be, after considering the reply to the show cause notice, if received, shall
as soon as possible pass such order as it deems fit.� 59.
In our
view the words �not later than 30 days� were replaced by the words �as soon as
possible� only to overcome the judgement of this Tribunal in Atul Kanodia�s
case and other subsequent observations by the single Member Tribunal.� 60.
The
question that also arises for consideration is whether it is permissible for
this Court to look at the subsequent amendment to know the intention of the
earlier legislation. 61.
The leading case on the
subject, which has received the approval of the Supreme Court, is Cape
Brandy Syndicate v. Inland Revenue Commr. 1921-2 KB 403.�� Lord Sterndale M.R. said:�� �I think it is clearly established in Attorney General v. Clarkson, 1900-1 QB 156 at pp. 163, 164, that subsequent legislation may be looked at in order to see the proper construction to be put upon an earlier Act where that earlier Act is ambiguous.� I quite agree that subsequent legislation if it proceeded on an erroneous construction of previous legislation cannot alter that previous legislation; but if there be any ambiguity in the earlier legislation, then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier Act�. 62. The Supreme Court, in Thiru Manickam and Co. vs. The State of Tamil Nadu (1977) 1 SCC 199, also relied on Cape Brandy Syndicate�s case and pronounced that if there is any ambiguity in the earlier legislation, then subsequent legislation may fix the proper interpretation, which is to be put on the earlier legislation. 63.
The Supreme Court, in Govinddas
and Others vs. Income-tax Officer and Another (1976) 103 ITR 123, also
pronounced as follows: �Now, it is a well-settled rule of
interpretation hallowed by time and sanctified by judicial decisions that,
unless the terms of a statute expressly so provide or necessarily require it,
retrospective operation should not be given to a statute so as to take away or
impair an existing right or create a new obligation or impose a new liability
otherwise than as regards matters of procedure.�
The general rule as stated by Halsbury in volume 36 of the Laws of
England (third edition) and reiterated in several decisions of this court as
well as English courts is that �all statutes other than those which are merely
declaratory or which relate only to matters of procedure or of evidence are
prima facie prospective� and retrospective operation should not be given to a
statute so as to affect, alter or destroy an existing right or create a new
liability or obligation unless that effect cannot be avoided without doing
violence to the language of the enactment.�
If the enactment is expressed in language which is fairly capable of
either interpretation, it ought to be construed as prospective only.� If we apply this principle of interpretation,
it is clear that sub-section (6) of section 171 applies only to a situation
where the assessment of a Hindu undivided family is completed under section 143
of the new Act.� It can have no
application where the assessment of a Hindu undivided family is completed under
the corresponding provisions of the old Act.� 64. Mr. Kapadia, learned counsel for SEBI, in his usual persuasive style, wanted the Tribunal to reconsider the earlier pronouncement in Kanodia�s case.� 65. Mr. S.K. Sen, appearing for the appellant relied on a number of pronouncements of the Court which we refer to briefly.� Reference was made to 1976 (2) SCC 128 in Hukam Chand Shyam Lal vs. UOI & Ors.��� It pronounced that - �It is well settled that where a power is required to be exercised by a certain authority in a certain way, it should be exercised in that manner or not at all, and all other models of performance are necessarily forbidden.� It is all the more necessary to observe this rule where power is of a drastic nature and its exercise in a mode other than the one provided will be violative of the fundamental principles of natural justice.� Now, in the present case, if the telephones of the appellants were to be disconnected on the ground of misuse, then they had to give, in consonance with the principles of natural justice, opportunity to the appellants to explain their conduct before taking action under Rule 427 read with Rules 416 and 421.� Resort to the wrong and more drastic course provided in Rule 422 on a ground which was not germane to an action under that rule, vitiates the impugned order, particularly when it is manifest that in making the impugned order, the General Manager was influenced more by this ground and less, if at all, by the existence of �public emergency� certified by the Delhi Administration.� 66. He next relied on a judgment of the Supreme Court in (1984) 4 Supreme Court Cases 356.� The Supreme Court pronounced that when, however, the language is plain and unambiguous, the Court must give effect to it whatever may be the consequence, for, in that case, the words of the statute speak the intention of the legislature.� When the language is explicit, its consequences are for the legislature and not for the courts to consider.� The argument of inconvenience and hardship is a dangerous one and is only admissible in construction where the meaning of the statute is obscure and there are two methods of construction.� In their anxiety to advance beneficent purpose of legislation, the courts must not yield to the temptation of seeking ambiguity when there is none.� For the same proposition reliance was placed on Bhavnagar University vs. Palitana Sugar Mill Pvt. Ltd. & Ors.� reported in AIR 2003 Supreme Court 511.� The Supreme Court at paragraph 42 & 43 pronounced as follows: �We are not oblivious of the law that when a public functionary is required to do a certain thing within a specified time, the same is ordinarily directory but it is equally well settled that when consequence for inaction on the part of the statutory authorities within such specified time is expressly provided, it must be held to be imperative. ����������� In Sutherland, Statutory Construction, 3rd Edition, Vol. 3 at p. 102 the law is stated as follows:- ����������� � �� unless the nature of the act to be performed, or the phraseology of the statute is such that the designation of time must be considered a limitation of the power of the officer.� At p. 107 it is pointed out that a statutory direction to private individuals should generally be considered as mandatory and that the rule is just the opposite to that which obtains with respect to public officers.� Again, at p. 109, it is pointed out that often the question as to whether a mandatory or directory construction should be given to a statutory provision may be determined by an expression in the statute itself of the result that shall follow non-compliance with the provision.� At p. 111 it is stated as follows: ����������� �As a corollary of the rule outlined above, the fact that no consequences of non-compliance are stated in the statute, has been considered as a factor tending towards a directory construction.� But this is only an element to be considered, and is by no means conclusive.� ����������� (See also Crawford on Statutory Construction, Article 269 at p. 535) 67. In (2002) 1 SCC 633 CIT vs. Anjum M.H. Ghaswala & Ors. the Supreme Court held as follows: �The need for the exercise of purposive interpretation would arise if the language of the statute is either ambiguous or conflicting or gives a meaning leading to absurdity.� There is no such problem in the provisions relevant herein.� Section 234-A, 234-B and 234-C in clear terms impose a mandate to collect interest at the rates stipulated therein.� The expression �shall� used in the said section cannot be construed as �may�.� Prior to the amendment brought about by the Finance Act, 1987, the legislature in the corresponding section pertaining to imposition of interest used the expression �may.�� The change brought about by the amending Act is a clear indication of the fact that the intention of the legislature was to make the collection of statutory interest mandatory.� 68. Mr. Sen relied on the judgement of the Supreme Court in AIR 1961 Supreme Court 751 (V 48 C 119) State of UP vs. Babu Ram, which is also relied by Mr. Kapadia, the learned counsel for the respondent.��� He has relied on this judgment to the effect that �Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction of obligation�(see Maxwell �On the Interpretation of Statutes� 69. Mr. Sen, the learned senior counsel for the appellant vehemently submitted that when the words �shall� is replaced by �may� indicate that the unamended provision was mandatory.� {see 1998 (4) SCC 82} 70. In� 2002 1 SCC 633 it was the other way round.� The Supreme Court held that the expression shall used in the sub-section cannot be construed as �may� because prior to the amendment, �may� was used and was changed to �shall�.� In other words, the Supreme Court looked at the unamended section and compared the amended section to ascertain the intention of the legislation. 71. Coming once again to the facts of the case, it is very clear that the appellant has, right at the outset, taken the stand before the respondent that any order passed after 30 days after the hearing is over, is not sustainable in law and is liable to be set aside. 72. The lawyer�s notice dated 22.8.2002 gives the impression that the respondent wishes to bring the cut off date of 22.8.2002 to make it appear that the impugned order was passed not later than 30 days from 22.8.2002.� The impugned order was passed on 12.9.2002.� On a careful perusal of lawyer�s notice dated 22.8.2002 it appears to us that the respondent is playing for time knowing very well that even according to the respondent the period expired on 11.7.2002 plus one week as mentioned in paragraph 37 of our order or 25.7.2002 as per letter of SEBI as mentioned in paragraph 38.� If these two dates are to be taken into account the impugned order on 12.9.2002 is not within the meaning of �not later than 30 days from receipt of the reply.���� Through out the proceedings the appellant has been consistent in taking the view that the respondent had breached the mandate under Regulation 29(3).� If this was argued for the first time by the appellant in this court it may have been possible to take a different view.� But from the nature of the correspondence entered into by the respondent and the appellants which we have adverted to in our order, it is clear that the order was passed in breach of Regulation 29(3).� It is precisely to get over this difficulty a lawyer�s notice dated 22.8.2004 was issued again daring the appellant to file written submissions (see at paragraph 19 of the legal notice.)� When it was the stand of the appellant much earlier that the appellant never agreed to file written statement unless oral submissions were permitted, which was not granted by SEBI.� 73. Two things have come out very clearly on the perusal of the records.� There was no assurance given by the appellants that they would file written submissions.� It was SEBI�s stand in various correspondence that the appellants had agreed to file written submissions.� It turns out from the record and from the letters addressed by the appellants that no such assurance was given.� Mr. Kapadia, the learned counsel for the respondent, as always fair, submitted that there is no material to show that the appellants had agreed to file written submissions. 74. We have carefully considered the elaborate submission of the learned senior counsel for SEBI and the submissions made by Mr. Sen, the learned senior counsel for the appellant. 75. The present case deals with a persons constitutional right to practice a profession of his choice as enshrined in Article 19(1)G of the Constitution and any action that affects his rights should be strictly in accordance with law.� It cannot be forgotten that the appellant�s certificate of registration as a broker and as a sub-broker has been cancelled.� 76. Any action by SEBI must strictly be in compliance with the Regulations.� {see (1995) 3 SCC 42} 77. The power to cancel or suspend registration is conferred by the Statute and is to be exercised in terms of the Statute itself.� Interpretation of Regulation 29(3) must be interpreted strictly in accordance with law and no word should be rendered otiose.� The word �shall� unless the context otherwise can be interpreted differently shall mean �shall�.� Legislature speaks through its legislation.� 78. We are of the view that it is not possible for the present Tribunal to overrule its earlier judgment merely because the Tribunal was upgraded in the year 2002 by certain amendments.� In any event even if it is possible to reconsider Atul Kanodia�s judgement, on a careful reading of the judgement, we feel that it does not require reconsideration for the simple reason that it has been accepted by SEBI since 24.1.2002 (date of judgement) and a lot of water has flown since then and it has become a binding precedent; the judgement has not been taken to the High Court or to the Supreme Court.� In that view of the matter, the judgement is not only binding on SEBI but is respectfully binding on us.�� We are not persuaded by the submissions of Mr. Kapadia, the learned senior counsel for SEBI that there should be a reconsideration of the judgment of Atul Kanodia only for this case.� The amendment in 2003 Regulation with the words �as soon as possible� in place of �not later than 30 days� is a clear� indication that the legislation after taking into account Kanodia�s case was pleased to overcome the lacunae that was pointed out in Kanodia�s case with respect to the 1992 Regulation. 79. We have carefully perused the records pertaining to this enquiry.� As clearly stated by us the proceedings as required under Regulation 29(3) was complete on 9.8.2002, even according to SEBI.� We have already extracted the minutes and we shall do so once again to satisfy ourselves that all proceedings were over before the Board under Regulation 29(3).� Item no. 12 of the Minutes reads as follows: �M/s.� First Global Stock Broking (P) Limited and Vruddhi Confinvest were given notice to appear before the Board on August 2, 2002.� The letter dated July 30, 2002 of their Advocates, D.H. Law Associates, stating that they would not appear before the Board was taken note of.� The Board perused the correspondence pursuant to the last hearing held on June 24, 2002.� The Board directed that SEBI�s advocates should be instructed to move a notice of motion before the Hon�ble High Court, Mumbai to bring the above facts to its notice and indicate that SEBI would proceed in the matter. The meeting concluded with a vote of thanks to the Chair. ������ Sd/- CHAIRMAN� Consequently it is clear even the Board had closed the matter on 9.8.2002 and the order dated 12.9.2003 is out of time.� 80. It is also clear that the appellant never agreed to file written statements and none of the records produced by SEBI indicates that the appellant agreed to file written statements.� The only stand taken by the appellant was that if written statements are to be filed a personal hearing was to be accorded which was denied by SEBI.� The records which we have perused clearly indicates that at no point of time the appellant agreed to file written statements.�� It is also not necessary to go into the aspect of this matter since SEBI itself has concluded on 9.8.2002 that the hearing was over.� 81. Mr. Kapadia, the learned senior counsel also submitted that even if the impugned order goes the enquiry is deemed to be pending by virtue of the amendment introduced in Regulation 23 of 2002 Regulation.� 82. Regulation 23 of the New Regulation cannot assist the respondent.� Regulation 23 only indicates that notwithstanding the amendment any action taken by SEBI before introduction of the new Regulation shall be deemed to have taken place under the old Regulations.� Regulation 23(2) will have to be read to understand that if action was taken under the old Regulation it will not be frustrated with the advent of the 2002 Regulations if pending.� It will continue as if the old Regulations are in force.� If that be so, Regulation 29(3) will continue to be in force since it is an admitted case the proceedings were commenced under the old Regulation. 83. Apart from this, when the order was passed on 12.9.2003 by the Board, the new Regulations were not in force at that time.� The Regulation came into force on 27.9.2002.� 84. For all these reasons, we do not think that the new Regulations can save the respondent from proceeding further in the matter as if the enquiry is pending.��� 85.
We are unable to persuade
ourselves that Atul Kanodia�s judgment requires reconsideration for the
following reasons: (1) ����� Judgment in
Kanodia�s case has become final and binding on SEBI and the matter was not
taken to the High Court or Supreme Court. (2)������ The Tribunal
itself has relied on the pronouncement in Kanodia�s case in disposing of
certain other matters, which have also become final and binding. (3)������ The reasoning
given in Kanodia�s case do not appear to be erroneous, which require
reconsideration at our hands. (4)������ The omnibus
amendment of 2002 (although the aims and objectives are not available for
amendments to Regulations) would clearly indicate that the amendments were
introduced to fill in the lacuna in Kanodia's case. (5)
On a reading of the
amendment in altering the words �as soon as possible� in place of �not later
than 30 days� would indicate that it was the intention of the Legislature to
reduce the rigour of the words �not later than 30 days� in 1992 Regulation by
the amendment in 2002 by the words �as soon as possible�. (6)
Respect for judicial
precedents, which have become final and binding. 86. For all these reasons, we do not think it appropriate to reconsider the pronouncement in Kanodia�s case.� Accordingly, following the judgement of Atul Kanodia reported in 2002 CCI-CJX-0006 SAT and for the reasons stated therein, the impugned order is set aside.� No order as to costs. �����
Place: Mumbai Date:� 3.12.2004 //sr04123//AVM ����������� The learned counsel for the respondent seeks leave of this
Court to stay this order to enable the respondent to file an appeal in the
Supreme Court.��� We do not think there
is any substantial question of law that arises for consideration in this appeal
to enable us to stay the order, nor is there any provision in the SEBI Act to
stay the order. ����������� After the
pronouncement of the order, the learned counsel for the appellant submitted
that in view of the impugned order being set aside, there should be a direction
to SEBI and the Stock Exchange to revive the bolt and to switch on the terminal
of the appellants.� It is needless to say
since the impugned order is set aside, the consequences will follow and no
specific direction is necessary.
Place: Mumbai Date:� 3.12.2004 |
|||||||||||||||||||||||||||||||
| Printer Friendly page | Email this page |