IN THE SECURITIES APPELLATE TRIBUNALMUMBAI
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 12th September 2002 wherein the registration granted to the first appellant as a broker & portfolio manager and to the second appellant as a sub-broker have been cancelled. 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
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