Indian Commodity Exchange … vs Neptune Overseas Limited on 27 November, 2020

Try out our Premium Member services: Virtual Legal Assistant, Query Alert Service and an ad-free experience. Free for one month and pay only if you like it.

Supreme Court of India

Indian Commodity Exchange … vs Neptune Overseas Limited on 27 November, 2020

Author: Sanjay Kishan Kaul

Bench: Sanjay Kishan Kaul, Hrishikesh Roy


                                       IN THE SUPREME COURT OF INDIA
                                        CIVIL APPELLATE JURISDICTION

                                           CIVIL APPEAL No.9037 of 2019

                         INDIAN COMMODITY EXCHANGE LIMITED …Appellant


                         NEPTUNE OVERSEAS LIMITED & ORS.                     …Respondents


                         Civil Appeal No.629/2020



1. A lot of noise but no music! The present case is a classic one

where multiple proceedings have been initiated but have resulted in no
Signature Not Verified

Digitally signed by
culmination over a period just short of a decade. And this is not so
Anita Malhotra
Date: 2020.11.28
13:11:21 IST

because of any interdicts from the courts in preventing these legal

proceedings, yet the proceedings have hardly moved. The result is that

the culpability of the first two respondents herein has not been

determined – thus, a cloud hangs over their conduct and that is all.

2. We now turn to The Forward Contracts (Regulation) Act, 1952

(hereinafter referred to as the ‘said Act’; since repealed by the Finance

Act, 2015),as the proceedings against the first two respondents herein

emanated from the powers exercised under the said Act. The said Act

aimed to regulate certain matters relating to forward contracts,

prohibition of options in goods and for other connected matters. A

reading of the statement of objects and reasons shows that the said Act

was a sequitur to the initial prohibition of forward trading in certain

commodities as a result of the Central Government issuing orders under

Rule 81 of the Defence of India Rules during the war period.

3. Chapter II of the said Act provides for the Forward Markets

Commission (for short ‘FMC’), an authority to regulate commodities

futures market, which was established under Section 3, with its functions

being provided under Section 4 of the said Act. The functions, inter alia,

were to advise the Central Government in respect of the recognition of,

or the withdrawal of recognition from, any association or in respect of

any other matter arising out of the administration of this Act; and to keep

forward markets under observation. Chapter III deals with the

recognition of associations concerned with the regulations and control of

forward contracts. An application for such recognition of associations

had to be made under Section 5 of the said Act for grant of recognition

under Section 6. Section 7 of the said Act dealt with withdrawal of

recognition. The Central Government had the power under Section 8 to

call for periodical returns or direct inquiries to be made. Suffice to say

that it is in exercise of these powers under Section 8(2) of the said Act

that the proceedings against Respondent Nos.1 & 2 herein commenced.

4. In the aforesaid play of the said Act, we now turn to National Multi

Commodity Exchange of India Limited (for short ‘NMCE’), which is an

association registered under the provisions of the said Act. NMCE is

registered with the FMC, under Section 14B of the said Act. The

subsequent development has been that in pursuance of a scheme of

amalgamation, concluded in 2018, the Indian Commodity Exchange

Limited (for short ‘ICEL’), who is the Appellant before us, emerged as

the successor of NMCE.

5. Respondent No. 1 herein, Neptune Overseas Limited (for short

‘NOL’) is a company registered under the Companies Act, 1956 dealing

with export/import and trading in various commodities including rubber.

This company is the core promoter of NMCE, being its largest

shareholder with 30.18% shareholding. The role of Mr. Kailash

Ramkishan Gupta, Respondent No.2 herein, was dual in character – he

was the founder and CEO of NMCE as well as the Managing Director of

NOL. The other related development is that the FMC, in view of the said

Act being repealed, itself merged with the Securities and Exchange Board

of India (for short ‘SEBI’) with effect from 28.9.2015.

6. The genesis of the dispute is a communication dated 28.11.2010,

made by a stated independent journalist to the FMC alleging, inter alia,

trading irregularities within the NMCE along with an allegation of abuse

of position by Respondent Nos.1 & 2 herein. The proceedings that

transpired thereafter, and the related compliance with principles of

natural justice form the subject matter of the present litigation.

7. The FMC, on the basis of the abovementioned complaint, initiated

an inquiry into the affairs of NMCE on 14.12.2010, exercising powers

under Sections 8(2) and 8(4) of the said Act as set out hereinabove, read

with the Government of India Notification S.O. No.1162 dated 4.5.1960.

A detailed show cause notice dated 21.6.2011 was served under Section

4(b) of the said Act. Section 4 (b) of the said Act reads as under:

“4. Functions of the Commission.—The functions of the
Commission shall be—

(a)xxxx xxxx xxxx xxxx xxxx

(b) to keep forward markets under observation and to take such
action in relation to them as it may consider necessary, in exercise
of the powers assigned to it by or under this Act;]

xxxx xxxx xxxx xxxx xxxx”

8. This notice, running into about 150 pages,was addressed to

Respondent No.2 herein, in his capacity as Vice Chairman of NMCE and

Chairman and Managing Director of Respondent No.1, NOL giving him

a period of 10 days from the date of receipt of notice to respond. A

personal hearing was fixed for 4.7.2011. Liberty was granted to

Respondent No.2 herein to peruse any documents within a period of 7

days from the date of receipt of notice, if he so desired. This resulted in a

series of communications from 22.6.2011 to 20.7.2011, including the

request of Respondent No.2 herein for copies of documents relied upon

in the show cause notice, a questioning of the jurisdiction of the FMC,

and repeated requests for adjournments. Most of these letters were by

Respondent No.2 herein but on record is also a letter dated 2.7.2011

addressed by Respondent No.1 herein and signed by Respondent No.2

herein. The stand of FMC was that most of the documents were already

under the control of Respondent No.2 herein or were either irrelevant or

not relied upon. However, possibly to put the matter at rest, some

documents were supplied on 5.7.2011 and the hearing was consequently

adjourned to 13.7.2011.

9. In the course of these developments, parallel proceedings were

initiated by Respondent No.1 herein by filing Special Civil Application

No.8377 of 2011 before the Gujarat High Court. These proceedings

sought to challenge the show cause notice and, inter alia, raised the issue

that FMC had no jurisdiction, power or authority to commence or
continue any enquiry or issue any directions.. The learned Single Judge

who considered the matter, construed the issuance of the show cause

notice to Respondent No.1 to be through Respondent No.2 herein.

Thus, in terms of order dated 8.7.2011, it was opined that

opportunity of hearing had been and was being provided to Respondent

No.1 herein, who could furnish a reply to the show cause notice as well

as appear personally with material in its support. The principles of

natural justice were observed to have been complied with and

Respondent No.1 herein was given liberty to appear before the FMC in

pursuance to the show cause notice and produce the material in support

thereof. The conclusion was that the final view was yet to be taken by

the FMC, and only a show cause notice had been issued. As such, in the

absence of any adjudication on merits, it was a premature effort on the

part of Respondent No.1 herein to approach the High Court.

10. On the day of the aforesaid order being passed, once again, a

grievance of entire documentation not being supplied was raised by

Respondent No.2 herein. This request was rejected by the FMC with the

reasoning that all documents were either available in the public domain

or not relevant. The subsequent endeavour of Respondent No.2 herein, to

seek adjournment on 20.7.2011 in a bid to raise issues of jurisdiction was

not accepted. The order of the FMC dated 20.7.2011 recorded that three

adjournments had already been granted. Thus, the endeavour of

Respondent No.2 herein, either in his own name or on behalf of

Respondent No.1 herein, was only to seek postponement of the

proceedings. As a last opportunity, Respondent Nos.1 and 2 herein were

given time in the post-lunch recess session to address the FMC on the

issue of jurisdiction, if they so desired, but the counsel for the said

respondents only expressed the request for adjournment, which was

apparently the only instructions to her. The proceedings were, thus,

closed for orders and that order was pronounced on 23.7.2011.

11. The aforesaid order dated 23.7.2011 of the FMC opined against

Respondent Nos.1 and 2 herein. The endeavour of Respondent No.2

herein to repeatedly seek adjournments was highlighted, especially as the

proceedings in the High Court were filed only by Respondent No.1

herein, albeit through Respondent No.2 herein. On jurisdiction, the FMC

clarified that Section 8(2)(b) of the said Act empowers the Central

Government to make an inquiry in relation to the affairs of a registered

association. The relevant provisions read as under:

“8. Power of Central Government to call for periodical returns
or direct inquiries to be made.—

[(1) Every recognised association and every member thereof shall
furnish to the Central Government such periodical returns relating
to its affairs, or the affairs of its members, or his affairs, as the case
may be, as may be prescribed.]

(2) Without prejudice to the provisions contained in sub-section (1)
where the Central Government considers it expedient so to do, it
may, by order in writing,—

(a) xxxx xxxx xxxx xxxx xxxx

(b) appoint one or more persons to make an inquiry in relation to
the affairs of such association or the affairs of any of its members
and submit a report of the result of such inquiry to the Central
Government within such time as may be specified in the order or,
in the alternative, direct the inquiry to be made, and the report to
be submitted, by the governing body of such association acting
jointly with one or more representatives of the Central
Government; and”

12. This power of the Central Government had been delegated to the

officers of the FMC by Government Notification S.O. Nos.1162 and 928

dated 4.4.1960 and 12.3.1964 respectively. On examination of merits,

the attitude and the approach of Respondent No.2 herein was found to be

non-cooperative. On the basis of the documents gathered and statements

recorded during the course of inquiry, Respondent No.2 herein was held

to be in complete breach of his fiduciary responsibility to the NMCE by

systematically defrauding, misusing and misappropriating its property

and committing a series of crimes under various laws for benefiting

himself. Directions were issued to the NMCE to take appropriate legal

action against Respondent No.2 herein and his family members who

benefitted from his acts.

13. In the meantime, the parallel proceedings in the High Court before

the learned Single Judge discussed aforesaid, resulted in an intra court

appeal filed by Respondent No.1 herein, once again, through Respondent

No.2 herein, in LPA No.1039/2011 filed on 15.7.2011. Interestingly, now

Respondent No.2 herein filed an impleadment application to implead

himself in his personal capacity, which was allowed. The appeal was

also amended to raise a challenge to the order dated 23.7.2011 which had

been passed by the FMC.

14. The Division Bench of the Gujarat High Court in terms of its order

dated 9.2.2012 allowed the appeal on the short ground that the FMC had

not served the show cause notice on Respondent No.1 herein and the

NMCE, effectively depriving them of the opportunity to present their

case before the FMC. Consequently, the order of the FMC dated

23.7.2011 was quashed. The violation of the principles of natural justice

is all that weighed with the Division Bench, without getting into the

merits of the case. It also opined that if any documents were in

possession of FMC and had not been supplied to Respondent No.1

herein, the same should be supplied subject to payment of usual charges.

15. The successor entity of the FMC, the SEBI, challenged this order

by way of a Special Leave Petition before this Court, being SLP

No.10225-10227 of 2012 and in terms of an interim order dated

22.3.2012, the operation of the order of the Division Bench dated

9.2.2012 was stayed. The consequence of this was that the order of the

FMC dated 23.7.2011 stood revived. That it had consequences was not

in doubt as various proceedings were initiated thereafter both civil and

criminal. The matter, however, remained at this stage before the Supreme

Court right till the passing of the order on 7.3.2018, 6 years later, in terms

whereof the order of the High Court was set aside, which, had re-started

the proceedings against Respondent Nos.1 and 2 herein. An opportunity

was given to the respondents herein to approach the Securities Appellate

Tribunal, Mumbai (for short ‘SAT’) by way of a statutory appeal against

the order dated 23.7.2011. A 30 day time period was granted for the

same. On the appeal being filed, it was held, that the SAT “will hear the

appeal on merits.” Not only that, the interim order passed on 22.3.2012

by this Court was directed to continue to have effect, and any

proceedings initiated in pursuance of the order dated 23.7.2011 passed by

the FMC (now SEBI) was to abide by the final result of the appeal. The

judgment of the Division Bench was specifically set aside.

16. We may note that one of the main issues before us is the

consequence of the aforesaid order in view of what has transpired before

the SAT and the High Court thereafter.

17. Respondent Nos.1 and 2 herein, in pursuance of the aforesaid

liberty, filed Appeal No.96 of 2018 before the SAT, which passed the

order dated 18.10.2019. It appears that the substratum of the pleas raised

by Respondent Nos.1 and 2 herein was the lack of adequate and proper

opportunity of hearing given to them, before passing of the order dated

23.7.2011.The requests for provision of further documents which had

been denied earlier and the lack of jurisdiction of the FMC to issue the

show cause notice under the said Act were re-agitated. The order dated

18.10.2019 of the SAT, impugned before this Court is predicated on the

absence of any show cause notice to Respondent No.1 herein. This

aspect was noted to have been conceded by the FMC before the Division

Bench of the High Court along with an assurance to carry out the same.

The relevant extract in this behalf is as under:

“9. The aforesaid contentions raised by the learned counsel for the
appellants is vehemently contested by Mr. P.S. Champaneri,
learned Assistant Solicitor General of India and learned Advocate
Mr. Navin Pahwa, appearing for respondent No.3 and 7, however,
they have agreed that no show cause notice has been issued either
to the appellant No.1 and/or respondent No.3-NMC by respondent
No.1-Commission. At this stage, learned counsel for the
respondent No.1 Commission Mr. Champaneri states that they will
be issuing a show cause notice to the appellants as well as
respondent No.3 as contemplated under the Forward Contracts
(Regulation) Act
, 1952 and Forward Contracts (Regulation) Rules,

18. The concession made on behalf of FMC was relied upon by the

SAT to reach a conclusion that once a concession has been made by the

concerned authorities themselves and undisputedly no notice was issued

to Respondent No. 1 herein and NMCE, the proceedings must emanate

from the show cause stage. The SAT did take cognizance of the

developments that had taken place subsequent to the issuance of show

cause notice, focusing on the allegedly arbitrary denial of documents, to

the requests made by Respondent No.2 herein. On the issue of request

for adjournment on 20.7.2011, the SAT noted that only two weeks had

elapsed from the date when the documents were supplied and, thus,

further request for adjournment could not be said to be unreasonable

especially as the documents were voluminous, running into thousands of

pages. Thus, the time period for filing the reply was found to be

inadequate. Consequently, the order dated 23.7.2011 passed on a

Saturday, a non-working day of the FMC, was set aside and a reasonable

opportunity was directed to be given to Respondent No.2 herein and the

NMCE for the purposes of filing objections/reply to the show cause


19. The successor to the FMC, SEBI was directed to grant adequate

time to Respondent Nos.1 and 2 herein to file their reply and if an

application requesting the supply of documents was filed, the same was

to be dealt with in accordance with law. The issue of jurisdiction was
also to be considered and decided by the SEBI in accordance with law.

20. The appeals before this Court have emanated under Section 15Z of

the Securities and Exchange Board of India Act, 1992 – Civil Appeal

No.9037 of 2019 having been filed by the Indian Commodity Exchange

Limited (the successor of NMCE) while Civil Appeal No.629 of 2020 is

by the SEBI, the successor of the FMC with NOL and Mr. Kailash being

common respondents. Notice was issued on 2.12.2019 in Civil Appeal

No. 9037/2019 and interim order was passed directing status quo with

regard to operation of the impugned order to the extent it operated against

the appellant. The SEBI’s appeal was tagged with this matter. There are

other appeals also but it was agreed that these two appeals should be

taken up first as they may have ramifications on the result of those

appeals. This was recorded in order dated 11.9.2020. Thus, these two

appeals were heard and judgment reserved on 5.11.2020 after hearing

learned counsels for the parties.

21. We have gone through the record before us and perused the

synopses placed before us apart from the submissions made in Court.


22. The stand of the ICEL becomes relevant to the extent that the order

of the SAT is predicated on ICEL not being served the show cause notice.

This really does not withstand scrutiny, for the reason they had not sought

so and, in fact, are themselves in appeal before us. Thus, the denial of

opportunity to be heard is really being claimed only by Respondent Nos.1

and 2 herein. In fact, what has been urged before us by the ICEL is that,

while the challenge before the Gujarat High Court was laid only by

Respondent No.1 herein, it is Respondent No.2 herein who was

simultaneously seeking adjournments before the FMC on one pretext or

the other. This is despite the fact that Respondent Nos.1 and 2 herein

were addressing communications to the FMC interchangeably on the

same subject matter. As such, Respondent No.1 herein was fully aware

of the show cause notice and acknowledged the same as one, which had

been addressed to the said respondent. Not only that, there was no

grievance ever made at the stage of final hearing before the learned

Single Judge about the absence of show cause notice. This aspect was

sought to be brought in only at the stage of appeal, for the first time, that

too by amending it after the order dated 23.7.2011 was passed wherein

the acts of Respondent No.2 herein of siphoning off money and

interlinked issues was stated to require investigation and an adverse

finding resulted. However, to our mind, that is not very relevant at this

stage because that would amount to going into the merits of the

controversy, which is not to be examined by us.

23. Mr. Dushyant Dave, learned senior counsel appearing for the

ICEL, sought to emphasise that the two respondents are only playing

games, when they are really one and the same entity. In a sense, it was

argued, that the corporate veil must be pierced to see what is really the

endeavour of the said two respondents. Principles of natural justice, it

was urged, have to be seen in a holistic frame and cannot have a

straitjacket formula. It was urged that adequate opportunities had been

granted to both the respondents and the third entity for whose benefit the

order was passed by the SAT, i.e., the NMCE is predecessor entity of the

ICEL who itself has come up in appeal against the said order. The

communications as well as the proceedings in the High Court all give rise

only to one conclusion that the two entities are treated as one and the

same by the said entities themselves.


24. In order to substantiate the contention learned counsel referred to

the following judgments and related principles:

1. Chairman, Board of Mining Examination and Chief Inspector

of Mines and Anr. v. Ramjee1: Compliance of principles of natural

justice requires only a substantial compliance and not every

miniscule violation would spell illegality.

2. Titaghur Paper Mills Co. Ltd. and Anr. v. State of Orissa

and Ors.2 and Cement Workers Karamchari Sangh v. Jaipur

Udyog Limited and Ors.3: Mere denial of adjournment would not

always be violative of principles of natural justice, i.e.,

adjournment is not a birthright.

3. Dharampal Satyapal Ltd. v. Deputy Commissioner of

Central Excise, Gauhati and Ors.4: Principles of natural justice

cannot be applied in a straitjacket formula and at times the futility

of giving relief is a matter of consideration. It all depends upon the

extent to which a person is likely to be affected. Not every case

where there is a violation of principles of natural justice, would the

1(1977) 2 SCC 256
2(1983) 2 SCC 433
3(2008) 4 SCC 701
4(2015) 8 SCC 519

action be struck down and the matter referred back to the

authorities to take a fresh decision after complying with the

procedural requirement. Therefore, every violation of a facet of

natural justice may not lead to the conclusion that order passed is

always null and void. The validity of the order has to be decided on

the touchstone of prejudice. The ultimate test is always the same,

viz., the test of prejudice or the test of fair hearing.

25. Mr. C.U. Singh, learned senior counsel canvassing the case of the

SEBI supported the plea raised by ICEL. He laid emphasis on the fact

that the judgment of this Court in the earlier proceedings being SLP

No.10225-10227 of 2012 dated 7.3.2018, had put a quietus to the issue of

any plea of violation of the principles of natural justice. This submission

was based on the fact that the order of the Division Bench of the Gujarat

High Court was predicated solely on denial of opportunity of fair hearing

and that order had been set aside by the Supreme Court. The relegation

of the proceedings to the SAT did not imply, in his view, that the whole

chapter would be reopened, because this Court specifically opined that

the appeal would be heard “on merits.” It was his submission, that any

other reading would negate the very words and spirit of the order of this

Court. This, he sought to support by the fact that in those proceedings,

this Court in its wisdom considered it appropriate to continue the interim

order, which in turn meant that all proceedings initiated in pursuance of

the order passed on 23.7.2011 would continue, subject to the final

outcome of the proceedings before the SAT. He also emphasised on the

fact that enough opportunity was granted and no prejudice had been

caused to Respondent Nos. 1 and 2 herein. No answer had been provided

to the act of omission or commission of Respondent Nos.1 and 2 herein

as specified in the show cause notice and the inter se relationship of

Respondent Nos.1 and 2 herein required a piercing of the corporate veil

in view of the gross mismanagement.

26. On the other hand, the defence of the impugned order was

vehemently led by Mr. Rishabh Parikh, who did full justice to the task at

hand despite two senior counsels on the opposing side. It was his

submission that the present proceedings being in the nature of an appeal

under Section 15Z of the SEBI Act, it must answer the parameters of the

provisions. The said provision reads as under:

“15Z. Appeal to Supreme Court.—Any person aggrieved by any
decision or order of the Securities Appellate Tribunal may file an

appeal to the Supreme Court within sixty days from the date of
communication of the decision or order of the Securities Appellate
Tribunal to him on any question of law arising out of such order:
Provided that the Supreme Court may, if it is satisfied that the
applicant was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further period
not exceeding sixty days.”

27. It was his submission that there was no question of law and, thus,

the appeal was not maintainable. On the appeal of the ICEL, it was

stated that it had no locus to file the appeal as the issue related only to

Respondent Nos.1 and 2 herein. But we negate this contention at the

threshold itself. ICEL had to approach this Court, as failure to serve

show cause notice to it was one of the grounds which weighed with the

SAT, even though ICEL was not making any such claim.

28. Learned counsel strongly relied on the fact that the counsel for

FMC had conceded before the Division Bench that no show cause notice

was ever served upon Respondent No.1 herein and NMCE (which fact, as

aforesaid, is no longer relevant). Insofar as the direction of this Court in

terms of the order dated 7.3.2018 is concerned, it was submitted that the

direction to the SAT to decide the matter on merits would encompass

every aspect, including the one about the plea of violation of principles of

natural justice.

29. Learned counsel contended that the common thread of the

arguments of both Respondent Nos.1 and 2 herein was that there has been

a violation of the principles of natural justice qua both of them. In case

of Respondent No.1 herein, the show cause notice was never issued but

the shares it held in NMCE numbering 29,32,280 shares were cancelled

by the FMC in its 23.7.2011 order. The order in question had also

prohibited Respondent No.1 from holding any shares in any association

or exchange recognised by the Government in excess of 2% of the issued

capital. Thus, the rights of Respondent No.1 herein had been clearly

affected without even the courtesy of a show cause notice. Insofar as

Respondent No.2 herein is concerned, there was stated to be a violation

to the extent that no reasonable opportunity of hearing had been granted

as a 150 page long show cause notice was handed over without any

documents. The documents running into more than 4,000 pages were

made available only on 5.7.2011 and the matter was closed in a period of

14 days denying Respondent No.2 herein the adjournment sought.


30. The task before us is all the more difficult because both set of

arguments in a sense would have their appeal at the first blush. We have,

thus, endeavoured to charter a course based on the pleas and the

documents before us, as also the manner of conduct of the proceedings

by the FMC and the nature of defences, technical or on merits sought to

be raised by the first two respondents.

31. We have no doubt that a proper show cause notice was served on

Respondent No.2 herein. The moot point, however, remains as to what is

the effect of not serving him with the documents he sought for and within

the compass of time, which was given to him to respond.

32. Once again, it may be stated that a large part of the documents

would have been within the custody of the Respondent No. 2 herein or

for that matter with Respondent No.1 herein. However, this would not

encompass all the documents. Not only that, when reliance is placed on

as many as 4,000 pages of documents, it would not be fair to expect that

the party in question ferrets through its own record trying to locate the

documents, when on basis of formation of an opinion for issuance of the

show cause notice, logic and requirement of law both would dictate that

the show cause notice should be comprehensive enough with full

supporting documents being handed over. The answer cannot be that

they are free to inspect 4,000 pages on their own! In fact, in so many

terms, ultimately most of those documents were made available and it

would not be appropriate to go back into the issue of whether the

documents should have been supplied or not. In a sense, that chapter

closed with the supply of documents on 5.7.2011 even though some more

documents were sought thereafter.

33. We fail to appreciate why there should have been a cussedness in

handing over mere copies of documents when serious allegations and

serious consequences which would flow to the respondents herein. Not

only that, the endeavour to conclude the proceedings within a span of two

weeks thereafter cannot, in our view, be said to be an adequate

opportunity as has been found by the SAT. An opportunity of hearing is

not a mere nicety but a valuable right. That it does not fall in a

straitjacket formula is no doubt the accepted legal position [Dharampal

Satyapal Ltd.5].The question is whether there was substantial compliance

of the principles of natural justice [Chairman, Board of Mining

Examination6] and whether there were unnecessary adjournments being

sought, which were declined [Titaghur Paper Mills Co. Ltd. and Anr. 7

and Cement Workers Karamchari Sangh8]

34. We do feel that there was an endeavour to some extent by

Respondent No.2 herein to prolong the proceedings but then looking into

the enormity of the contents of the show cause notice running into 150

pages with documents spanning 4,000 pages supporting it, a reasonable

time had to be given to respond to the same. We may note that the whole

enquiry was at the behest of “independent enterprising journalist.” The

manner in which the proceedings were sought to be closed raises serious

doubts in our mind that a fair process and opportunity has been extended

to Respondent No.2 herein.

35. Insofar as Respondent No.1 herein is concerned, not even a formal

show cause notice has been issued. However, the fact remains that the

communications addressed by Respondent Nos.1 and 2 herein do give

rise to a clear and unequivocal view that it was understood as a notice

both to Respondent Nos.1 and 2 herein. That is how the parties

understood it. There is no doubt about the fact that Respondent No.1

herein made an endeavour to approach the High Court challenging the

show cause notice at that time without being joined by Respondent No.2

herein -though it was through Respondent No.2 but that endeavour failed

as the proceedings before the FMC had not culminated into any order. It

is only in the Letters Patent Appeal filed against that the order of the

FMC dated 23.7.2011 was sought to be assailed and Respondent No.2

herein joined the proceedings as a party in his personal capacity. There

is, thus, to some extent truth in what has been alleged by the appellants

before us, i.e., that Respondent Nos.1 and 2 herein are conveniently

playing this game of coming up separately even though they are joined in

all purposes. We are conscious of the fact that Respondent No.1 herein is

a separate legal entity being a registered company, but the concept of

piercing the veil is not unknown to law. By this process, the law either

goes behind the corporate personality to the individual members or

ignores the separate personality of the company. This course is adopted

when it is found that the principle of corporate personality is flagrantly

opposed to justice, convenience or the interest of the Revenue. 9 We are,

thus, not able to hold that there was a failure to serve show cause notice

to Respondent No.1 herein merely because no such notice was

specifically addressed to it. We are conscious of the fact that there was

some concession made before the Division Bench of the Gujarat High

Court by the counsel for the FMC. Be that as it may, we are of the view

that it would be a hyper technicality now to say that Respondent No.1

herein should be served a fresh show cause notice, more so in view of the

directions which we are proceeding to pass in the present judgment.

36. We now come to the plea based on the directions passed by this

Court on 7.3.2018 in the earlier appeal. No doubt the findings of the

Division Bench of the High Court based on the violation of the principles

of natural justice were set aside. But this setting aside will have to be

read in the context of the fact that it was felt that Respondent Nos.1 and 2

had an adequate alternative remedy of appeal before the SAT. Not too

much can be read into the use of the expression that the appeal had to be

decided “on merits.” The merits of a case include of factual and legal
9New Horizons Limited and Another v. Union of India and Others. (1995) 1 SCC

pleas. A plea of lack of opportunity to defend its case is also a legal plea.

The order read as a whole only gives rise to the conclusion that the

hearing was shifted to the SAT instead of before the High Court, in view

of it being the competent body.

37. Similarly, the continuation of the interim order passed ealier in

those proceedings on 22.3.2012, has to be read in the context of other

consequential proceedings having been initiated. The objective was that

those proceedings should not be brought to a naught at this stage; but

even those were to abide by the result of the appeal before the SAT. We

may also note with regret that on the one hand it has been contended by

the appellant that so many different proceedings have emanated and,

thus, giving a fresh opportunity by issuing a fresh show cause notice

having fresh proceedings before the SEBI would serve no effective

purpose and yet the summary of those proceedings given to us show

hardly any progress. It is not as if those proceedings are anywhere near

an advanced stage.

38. The impugned order of the SAT dated 18.10.2019 is predicated on

a plea of lack of adequate opportunity and there is no examination on

merits. The questions, thus, arises what would be the appropriate

directions to be passed since Respondent Nos.1 and 2 have to succeed in

view of our aforesaid observations and what will be the nature of

relegated proceedings.

39. We have already taken a view that directions passed by the SAT for

the case to begin with the service of fresh show cause notices would not

be an appropriate direction. In the conspectus of the factual position from

the proceedings which have taken place and the legal principles

discussed, we are of the view that the following directions would

subserve the interest of justice and perfect the rights of the parties:

i. No fresh show cause notice is required to be served on

Respondent No.1 herein and the show cause notice dated

21.6.2011 would be treated as a show cause notice to both

Respondent Nos.1 and 2 herein.

ii. The documents already asked for by Respondent No.1 and 2

herein and not supplied should be supplied. In order to obtain

clarity on this issue, we direct that a list of documents sought for

by either respondents be supplied to the SEBI within two weeks

from the date of this order and those documents are to be supplied

by SEBI within two weeks thereafter.

iii. Respondent Nos.1 and 2 herein are granted opportunity to

file their reply to the show cause notice without any further delay

within a period of four weeks after receiving aforementioned


iv. The SEBI would thereafter proceed to give an opportunity

for personal hearing both to Respondent Nos.1 and 2 herein and

these proceedings are to go on, on a day-to-day basis and no

request for adjournment will be entertained in this behalf from

either respondents..

v. The SEBI would take a final view on the subject matter


vi. Needless to say, if Respondent Nos.1 and 2 herein are

aggrieved by the same, the remedy against the same lies before the


vii. We make it clear that all pleas as raised by Respondent

Nos.1 and 2 herein would be considered by the SEBI, legal or

factual including but not confined to aspects of jurisdiction. In

fact, this is the very purpose of relegating the proceedings before

the SEBI and not to SAT as the right of appeal is a valuable right to

be exercised after adequate opportunity at the first adjudication

stage level.

40. The effect of the aforesaid direction is that the order of the FMC

dated 23.7.2011 has been set aside and a fresh order has to be passed.

The different proceedings initiated, still pending almost at a nascent

stage, are in pursuance of that order. The natural consequence, thus,

would be that those proceedings would have to be kept in abeyance for

the time being, till a view is taken by SEBI in pursuance of the directions

passed by this order and would have to abide by the decision taken by the

SEBI or in appeal arising therefrom. We clarify that were Respondent

Nos.1 and 2 herein to fail in their endeavours, it will not mean that those

other proceedings have to start de novo and can continue from the stage

where they are, subject, of course, to the nature of directions passed

afresh by SEBI. Really speaking, this would not result in much of a

delay considering that nothing has happened till now.

41. We, thus, dispose of the appeals with the modification of the

impugned order to the aforesaid extent leaving the parties to bear their

own costs and with the hope that the proceedings initiated against

Respondent Nos.1 and 2 herein, at least, now see the light of the day in

not too far a time ahead.


[Sanjay Kishan Kaul]


[Hrishikesh Roy]
New Delhi.

November 27, 2020.


Source link