BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.186 of 2010
Date of decision: 3.8.2011 M/s. Amadhi Investments Limited
1st Floor, Shop No.2, 163,
Patel Vyas Opposite Memnagar Petrol Pump
Near Kodiyar Mata Mandir, Memnagar,
Ahmedabad – 38005.
….. Appellant Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A,
G – Block, Bandra Kurla Complex,
Mumbai – 400 051.
…...Respondent Mr. Somasekhar Sundaresan, Advocate with Mr. Paras Parekh and Ms. Anamika Dubey,
Advocates for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for the Respondent.
CORAM : Justice N.K. Sodhi, Presiding Officer
P.K. Malhotra, Member
S.S.N. Moorthy, Member
Per : Justice N.K. Sodhi, Presiding Officer
It is not necessary to state the facts in detail as we are remanding the case to the
Securities and Exchange Board of India (for short the Board) for a fresh trial. This
appeal is also an offshoot of the Initial P ublic Offerings (IPO) scam that was unearthed
by the Board. The Board found that the scam had been perpetrated by certain entities that
opened many demat accounts in fictitious/benami names and these entities
cornered/acquired the shares of those comp anies allotted in the IPOs by making large
number of applications of small value so as to make them eligible for allotment under the
retail category. The strategy adopted was that subsequent to the receipt of the IPO
allotment, these fictitious/benami allottees tr ansferred the shares of their principals who
have been described as key operators who controlled th eir accounts and who, in turn,
transferred most of the shares to the fi nanciers who had made available funds for
executing the game plan. In view of the booming market, the key operators in some
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cases and the financiers in most of the cases sold most of the shares on the first day of
listing or soon thereafter thereby making a wind fall gain of the price difference between
the issue price and the listing/sale price. Th e appellant before us is alleged to have
played the role of a financier by financing so me of the transactions of one of the key
operators namely M/s. Sugandh Estates and In vestment Pvt. Ltd. (for short Sugandh).
The show cause notice dated December 16, 2008 i ssued to the appellan t alleges that it
had financed the transactions of Sugandh in 3 different IPOs of IDFC, Sasken
Communications and FCS Software . It is pertinent to men tion here that the Board had
initiated proceedings against Sugandh also under sections 11 and 11B of the Securities
and Exchange Board of India Act, 1992 (for short the Act) and also adjudication
proceedings under Chapter IVA of the Act for imposition of monetary penalties for
having played the role of a ke y operator in the scam. On r eceipt of the two show cause
notices, Sugandh filed its replies and thereaf ter went in consent proceedings by making
an application for a consent order in terms of the circular dated April 20, 2007 issued by
the Board. By order dated 10.2.2009 two whole time members of the Board accepted the
recommendations of the High Powered Committee and accepted the revised terms as
offered by Sugandh and disposed of all the pending proceedings against it in terms of the
directions contained therein. The consent order is without denial or admission of the
guilt.
- As already stated, the appellant had al so received a show cause notice dated
December 16, 2008 and it asked for inspection of the records available with the Board.
The grievance of the appellant is that only partial inspection of the record was allowed in
which the documents which the Board had collected from the appellant during the course
of the investigations had b een made available and no othe r record was allowed to be
inspected. The appellant th en filed a detailed application dated May 15, 2009 with a
request to the Board to furnish some documents including the statements and replies, if
any, given by any representative of Sugandh and also a copy of the ledger account of the
appellant as maintained by Sugandh in its books of accounts. Copies of demat statements
of Sugandh showing transactions in the sc rips of IDFC, Sasken Communications and
FCS Software. Copies of several other documents were also sought which were declined.
The appellant claims that since the relevant documents were not made available, it could
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not file its reply to the show cause notice. The whole time member by his order of April
6, 2010 found the appellant guilty of the charge s levelled against it. The appellant has
been found to have violated section 12 A of the Act and Regulations 3 and 4(1) of the
Securities and Exchange Board of India (P rohibition of Fraudulent and Unfair Trade
Practices relating to Securities Market) Re gulations, 2003. The appellant has been
restrained from dealing in the securities mark et for a period of one year from the date of
the order and has also been directed to disgorge the un lawful gain of ` 98,77,166
including interest which it is said to have made as a result of having financed the
transactions of Sugandh in the aforesaid 3 IPOs. Hence this appeal.
- We have heard the learned counsel for th e parties. The primary grievance of the
appellant is that it was not furnished with the relevant documents nor was it allowed to
inspect the records which prevented it from filing a reply to the show cause notice. I find
merit in this contention. As already noticed, the appellant is said to have financed the
transactions of Sugandh in th e 3 IPOs. It wanted copies of the statements, if any,
recorded on behalf of Sugandh and also the replies filed by it to the show cause notices
issued to it to know what stand it had take n qua the allegations levelled against it.
Similarly, the ledger account of the appellant that was maintained by Sugandh in its
books of account was relevant and so also th e demat statements of Sugandh showing the
transactions in the 3 scrips for which the appellant is said to have financed it to corner the
shares. Since these documents were not furnished to the appellant nor was it allowed full
inspection of the record, I am clearly of the view that the principles of natural justice
were grossly violated and the appellant was prevented from filing a proper reply to the
show cause notice. The application filed by the appellant for the supply of documents
has been rejected by the whole time member primarily on the ground that most of the
documents copies of which were sought by the appellant were not being relied upon by
the Board in the show cause notice. I do not find any merit in this ground of rejection.
Documents which are relevant for the pur pose of preparing the defence ought to be
furnished to the delinquent irrespective of th e fact whether they are being relied upon by
the Board. The learned counsel for the respondent strenuously argued that the
documents on which the Board does not place reliance are not required to be furnished to
the delinquent and he cited our recent decisi on in Price Waterhous e vs. Securities and
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Exchange Board of India Appeal no.8 of 2011 decided on June 1, 2011 wherein one of us
(Presiding Officer) observed as under:-
“During the course of these invest igations the Board has collected a
plethora of documents/material and r ecorded statements of very large
number of persons and basing itself on a part of that material and relying
on some of the statements recorded, it has issued the show cause notices
levelling very serious charges against the appellants. The appellants have a
lurking fear that the Board has sel ectively picked up that material and
relied upon those statements which go ag ainst the former and left out the
rest which could support the appellants…………………………………….
…………………………………….……………………………………….
I am also of the view that fairne ss demands that the entire material
collected during the course of investig ations should be made available for
inspection to the person whose conduc t is in question. Whether it helps
him or not is irrelevant. Equally immaterial is the fact that the authority is
or is not relying upon the same. The authority may not rely upon it but the
delinquent could in support of his case. The reas on is that every enquiry
has to conform to the basic rules of natural justice and one of the
elementary principles is that every action must be fair, just and reasonable.
Withholding evidence whether exculpatory or incriminatory is neither fair
nor just. In Kashinath Dikshita v. Union of India AIR 1986 S.C. 2118
the Supreme Court in similar circumst ances very aptly observed in para 9
of their order as under:
“If only the disciplinary aut hority had asked itself the
question : “What is the harm in making available the
material?” and weighed the pros and cons, the disciplinary
authority could not reasonably have adopted such a rigid
and adamant attitude. On the one hand there was the risk of
the time and effort invested in the departmental enquiry
being wasted if the Courts came to the conclusion that
failure to supply these materi als would be tantamount to
denial of reasonable opportunity to the appellant to defend
himself. On the other hand by making available the copies
of the documents and statemen ts the disciplinary authority
was not running any risk. There was nothing confidential or
privileged in it. It is not even the case of the respondent that
there was involved any consideration of security of State or
privilege.”
The aforesaid observations apply with full force to the case in hand. I
wonder what prejudice would be caused to the Board if the entire material
collected by it is shown to the appellants. It could only advance the cause
of justice. The purpose of the enquiry which the Board is conducting, like
any other enquiry, is to reach at the truth and in pursuit of this purpose
evidence which is oral and documentary has been collected. It is possible
that the whole evidence is against th e appellants. Equally, it may be that
the evidence is partly in their favour and the rest of it is overwhelmingly
against them. Some of it may even seem irrelevant to the Board. Yet, the
issue is whether the Board can sift and select the material to be provided to
the appellants and base the show cause notice on that and withhold the rest
on the plea that it is not relying on the same. I am of the firm view that the
Board is not entitled to select and supply as that would be most unfair and
unjust. In the very nature of th ings, the Board woul d rely upon only the
material that supports its case agai nst the appellants and not on the one
that supports them and if this position is accepted as correct, the Board
might succeed but the truth shall be s acrificed and justice shall be the
casualty. Such a course shall be unj ust and unfair and I cannot persuade
myself to uphold it. As already observed, the Board is under a duty to find
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the truth and if it is permitted to keep back any material, the truth may not
be found resulting in injustice. In Regina v. Leyland Justices, Ex parte
Hawthorn (1979) Q.B. 283 , the applicant was the driver of a car which
collided with another car being dr iven in the opposite direction. Two
witnesses gave statements to the police, but those statements were not
disclosed to the applicant, who di d not know of the existence of the
witnesses. He was charged with dr iving without due care and attention,
contrary to section 3 of the Road Traffic Act 1972. The prosecution did
not call the witnesses to give evid ence and the applicant was convicted.
His insurers then received the police report on the accident which referred
to the statements of those witnesses. On an application for an order of
certiorari to quash the conviction, Lord Widgery C.J. of the Divisional
Court with whom May and Tudor Evans JJ concurred, held that there was
a clear denial of natural justice to a defendant which had deprived him of a
fair trial and certiorari was the appr opriate remedy even when it was the
prosecution and not the tribunal whic h had erred by failing to observe the
rules of natural justice. The learne d Judges held that when a defendant
was deprived of the elementary right to be notified of material witnesses
known to the police, certiorari should issue to quash the conviction. This
view was followed in R v. Blundeston Prison Board of Visitors, ex
parte Fox-Taylor (1982) 1 All ER 646 where, as a result of a fight with a
fellow prisoner, the applicant was charged with an offence against
discipline and brought before the board of visitors of the prison. He denied
that he was guilty of th e charge. He gave evidence in his defence but
called no witnesses to support his acc ount of what had happened because
he was unaware that there were any. After hearing evidence from the
other prisoner involved in the fight and the prison o fficer in charge of the
case, the board found the applicant guilty and, in consequence, he lost 90
days’ remission. The applicant subsequently discovered that another
prisoner had witnessed the fight and th at, prior to the hearing before the
board of visitors, that prisoner had reported the fact to the prison officer in
charge of the case. The prison author ities never brought the existence of
the other prisoner as a potential witness to the attention of the applicant or
the board of visitors. The applicant applied to the court for an order of
certiorari to quash the board’s deci sion contending that because he had
been denied the opportunity of havi ng a witness who could have given
evidence in support of his defence, there had been a breach of the rules of
natural justice. Upholding the plea of the applicant, Phillips J of the
Queen’s Bench Division held that wh ere there was an inquiry by a board
of visitors, the prison authorities were under a duty to take such steps as
were reasonably practicable in the circumstances to see that the names of
potential witnesses were brought to the attention of the bo ard so that the
board could make a full and fair inve stigation. Since there was no reason
why the board should not have been in formed of the w itness’s existence
and since the inaction of the prison authorities had substantially prejudiced
the applicant by depriving him of an opportunity of calling the witness and
thereby caused him to lose 90 days’ re mission, there had been a breach of
the rules of natural justice. The view taken in the aforesaid cases
including that of the Su preme Court in Kashinath Dikshita’s case (supra)
supports the submissions made on beha lf of the appellants. Moreover,
Board is a statutory authority and it is ‘State’ as defined in Article 12 of
the Constitution and its actions must conform to Part III thereof which can
be tested on the touchstone of Artic le 14. It cannot act arbitrarily and its
actions must be just and fair. I cannot agree with the learned Advocate
General that since no request had been made on behalf of the appellants,
they are not entitled to have access to the entire material. How could they
make such a request when they were not aware of the material that was
collected by the Board behind thei r back during the course of the
investigations. The rules of natural justi ce would have been met if the
Board had allowed them full access to the material collected by it during
the course of the investigations while giving them inspection leaving it to
6
them to use that material in whatever manner they wanted to. In this view
of the matter, I hold that the Board was not justified in allowing partial
inspection of the material to the appellants and that they should have been
given access to the entire material co llected during the investigations. Not
having done this, the principles of natural justice have been violated.”
These observations fully apply to the case in hand. It must be remembered that gone are
the days when public bodies and statutory regulators could work in the cover of darkness
and keep back certain documents from the de linquents for different technical reasons.
Today we are in an era where the Right to Information Act is in place and the need of the
hour is that public bodies and statutory regul ators function transparently in the open
gauge of all concerned. Sunlight is the best disinfectant and public faith in these statutory
bodies would be further strengthened if they function transparently. There is nothing
confidential or privileged in the documents s ought for. This is not a case involving
security of state. The Board must allow full inspection of the record. Since we are
accepting the plea that there has been violation of the principles of natural justice, it is not
necessary for us to examine the other conten tions raised by the le arned counsel for the
parties which are kept open.
In the result, the appeal is allowed and the impugned order set aside. The case is
remanded to the Board with a direction that the appellant be allowed complete inspection
of the records pertaining to the charge levelled against it in the show cause notice and
thereafter allow the appellant to file its reply and proceed further in accordance with law.
The matter is quite old and, therefore, it w ould be appreciated if the proceedings are
expedited and concluded at the earliest. There is no order as to costs.
Sd/-
Justice N.K.Sodhi
Presiding Officer
3.8.2011
RHN
7
Per : P. K. Malhotra, (for self and S. S. N. Moorthy)
We have the privilege of going through the order prep ared by learned Presiding
Officer and we agree with him that the ca se be remanded to th e Board because non
furnishing of certain documents to the appellan t has resulted in violation of principles of
natural justice and the appellant was preven ted from filing a proper reply to the show
cause notice. However, with due respect, we are unable to persuade ourselves for issue
of a direction to the Board that the appellant be allowed complete inspection of the
records. In a recent order of this Tribunal in the case of Price Waterhouse, referred to
above, we have observed that it is elementa ry principle of law that a person who is
required to answer the charge must know not only the accu sation but also the testimony
by which the accusation is supported. We have also observed that he must be given a fair
chance to hear the evidence in support of the charge and to put such relevant questions by
way of cross-examination as he desires. He should also be given a chance to rebut the
evidence laid against him. The foundation of a show cause notice is the statements of
witnesses which are referred to and relied upon in the show cause notice and in case the
delinquent is not allowed copies of the statements and cross-examination of the witnesses
relied upon in the show cause notice, it will lead to gross violation of principles of natural
justice. On the issue whether the delinque nt should be allowed inspection of all the
material that might have been collected during the course of investigation but not relied
upon in the show cause notice, we have observed as under:-
“16. We have given our thoughtful consideration to the prayer made by
the appellants. After hearing both the parties and perusing the record, we
are inclined to agree with learned A dvocate General that in the facts and
circumstances of this case, it is not appropriate nor it is the requirement of
principles of natural justice that appellant should be allowed inspection of
all the material that might have been collected during the course of
investigation but has not been relied upon in the show cause notice. In the
case law discussed above, it has been abundantly made clear that what
particular rule of natural justice should apply to a given case must depend
to a great extent on the facts and circumstances of the case, the framework
of the law under which the inquiry is held and the constitution of the
Tribunal or body of persons appoin ted for the purpose. There is no
provision in the Act that all materi al collected during the course of
investigation should be made ava ilable to the appellant. Mr. Janak
Dwarkadas is right when he argues that this case is sui generis. As per
promoter’s own admission, the account s were manipulated / forged for a
number of years. A fraud of worst ki nd was perpetrated in the affairs of a
listed company which had international ramifications. The shares of
Satyam are listed in the stock exchange s outside the country also. It is a
8
matter of record that even the Gove rnment had to intervene and handover
the affairs of Satyam to a Board constituted by the Central Government to
ensure that country’s international re putation is not adversely affected. It
is also a matter of record that ma ny government agencies including the
Central Bureau of Investigation, Enforcement Directorate and the Income
Tax Department are investigating into the affairs of Satyam to see what
kind of violation of law has been committed so that appropriate action can
be taken against persons involved in the fraud. The present show cause
notice has been issued by the Board on the basis of evidence collected by
it which prima-facie shows that there might have been complicity of the
auditors in manipulation of account s and they might have aided and
abetted the company in making such a large scale manipulation and that
too for a number of years. If any ma terial collected during the course of
investigation has not been relied upon in the show cause notice, it will not
deprive the appellant to produce its defence before the Board to show that
it was not a party to the fraud. In our this view, we are supported by the
judgment of the Supreme Court in the case of Natwar Singh vs Director of
Enforcement (2010) 13 SCC 255 where th e Apex Court has observed that
even the principles of natural justic e do not require supply of documents
upon which no reliance has been placed by the authority to set the law into
motion. Supply of relied on documents based on which the law has been
set into motion would meet the require ments of the principles of natural
justice. The situation may be diffe rent in a criminal case where the
investigation report is placed before the court and the accused person asks
for copy of the material collected duri ng the course of investigation. This
is not so here. In the facts and circumstances of the present case, we are of
the considered view that the appellan ts are not entitled to the material
collected during the course of inve stigation by the Board which has not
been relied upon in the show cause notice. This prayer of the appellants is,
therefore, rejected.”
- For the reasons given hereunder, we are of the considered view that the legal
position discussed above squarely applies to th e facts of the present case also. Let us
now look at the facts. The appellant re ceived a show cause notice dated December 16,
2008 and it asked for inspection of records ava ilable with the Board. As noted in the
earlier part of this order, th e appellant was allowed partial inspection of the record. The
appellant then filed a deta iled application dated May 15, 2009 furnishing a list of
additional documents intended to be inspected. It was also stated that the list was not
exhaustive but only illustrative and inspection of the following documents was sought:-
“1. Statement and replies, if any given by any repres entative of M/s
Sugandh Estate and Investments Pvt. Ltd since investigation in the
IPO of IDFC, Sasken Communication and FCS Software etc. - Order including Consent Order, if any passed against M/s Sugandh
Estate and Investments Pvt. Ltd. - A copy of the ledger account of M/s Amadhi, furnished by M/s
Sugandh Estate and Investments Pvt. Ltd from its books of accounts. - Copy of all Demat statement of M/s Sugandh Estate and Investments
Pvt. Ltd showing transaction of IDFC, Sasken Communication and
FCS Software.
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- Copy of all Bank statement of M/ s Sugandh Estate and Investments
Pvt. Ltd showing transaction of IDFC, Sasken Communication and
FCS Software. - Copy of Documents, Statements , Reports, communi cation or any
other materials showing and establ ishing that M/s Sugandh Estate
and Investments Pvt. Ltd acted as key operators and cornered shares
in various IPO’s including IDFC , Sasken Communication and FCS
Software in concert with noticee. - Copy of Documents, Statements , Reports, communi cation or any
other materials relating to the s ubscription and allotment of those
cornered shares in retail category and role of RTA. - Copy of Order, if any, passed t ill date, Documents, Statements,
Reports, communication or any other materials relating to the Karvy
Group. - Copy of Documents, Statements , Reports, communi cation or any
other materials relating to the obs ervations that “the noticee has
defrauded the …… and standing as ultimate beneficiary in
connection with the IPO of above mentioned companies.” - Copy of Documents, Statements, Reports, communication, extracts
or any other materials relating to reference if any received from
various Government agencies like RBI, SFIO, Parliamentary
Standing Committee and other agen cies indicating our role or
involving our name therein. - Copy of Documents, Statements , Reports, communi cation or any
other materials relating to the ba sis on which logical conclusion,
claimed to have been arrived at by the Board.”
Since inspection of these documents was not allowed the appellant chose not to appear
before the whole time member and the whole time member passed the impugned order on
merits after considering the show cause notice, the submissions of the appellant and other
material on record. In the said order, he has also dealt with the letter dated May 15, 2009
and rejected request of the appellant for in spection of additional documents observing as
under:-
“4.1 Amadhi submitted that without inspection of the additional
documents listed in its letter da ted May 15, 2009, it is handicapped to
defend itself. The said letter was pe rused. It was observed that Amadhi
was asking for documents which in the opinion of Mr. Kharidia could
have been relied upon by SEBI to determine its role. Vide letter dated
February 24, 2010 stated th at the list of documents stated in the letter
dated May 15, 2009 was merely illustra tive and it might seek further
documents. The list was perused. The first item listed the statements, if
any, of SEIPL. The presenting officer stated that SEBI was not relying on
such statements for the charge. The second item listed consent order
passed by SEBI against SEIPL. The presenting officer responded that
SEBI was not relying on such order for the charge. Besides, the consent
orders are available in public domain. A perusal of the other additional
documents sought for inspection indicated that these were either available
10
in public domain, or not being relied upon by SEBI for the charge or have
no bearing on the matter in hand. For example, Amadhi has sought
documents relating to any reference r eceived from parliamentary standing
committee indicating its role. The presenting officer clarified that the
charge relies mostly on demat and bank statements of Amadhi which
establish the flow of funds and securities between Amadhi and the KO and
these have already been provided. I ag reed with the presenting officer. I
found that Amadhi attempting to use SEBI to gather even those documents
which it did not need for its defence, with the sole aim of delaying the
disposal of the proceedings. SEBI cannot be obliged to provide the
documents which have no bearing on the matter or which, in the opinion
of Mr. Kharidia, could have been relied by SEBI. Moreover, there was no
dispute about the transactions. Hence the demand for inspection of
additional documents was rejected.”
- It is settled legal positio n that an authority holding an inquiry resulting in civil
consequences should conduct inquiry in accord ance with the procedure laid down in the
rules. In case no ru les are laid down for c onducting an inquiry, the authority is required
to follow the principles of natural justice. The present proceedings against the appellant
were initiated under Sections 11 and 11B of the Act. While the Central Government has
framed rules, namely, the Securities and Exchange Board of India (Procedure for Holding
Inquiry and Imposing Penalties by Adjudi cating Officer) Rules, 1995 for conducting
adjudication proceedings under Chapter VIA of the Act, no such rules have been framed
for exercise of the powers by the Board under S ections 11 or 11B of the Act. The only
requirement under the Act for exercising these powers is that before or after passing such
order, the Board is required to give an opport unity of hearing. Needless to say that such
opportunity of hearing cannot be an empty formality but an effective opportunity
following the principles of natural justice. Do the rules of natural justice require that an
authority must allow inspection of all the ma terial in its possession which is not even
referred to or relied upon in an inquiry against the delinquent? We are of the considered
view that the answer to this issue has to be in the nega tive. It needs no over emphasis
that the aim of the rules of natural justice is to secure justice or to put it negatively to
prevent miscarriage of justice. In a caten a of cases the Apex Court has observed that
what particular rule of natural justice should apply to a given case must depend to a great
extent on the facts and circumstances of that case, the framework of the law under which
the enquiry is held and the constitution of Tribunal or body of persons appointed for that
purpose. It has also been held by the Apex Court that while applying the principles of
natural justice it must be borne in mind that they are not immutable but flexible and they
11
are not cast in a rigid mould and they cannot be put in legal straight jacket. Whether the
requirements of natural justice have been complied with or not has to be considered in the
context of the facts and circumstances of a pa rticular case. (See Ravi. S. Naik vs. Union
of India AIR 1994 SC 1558). In the case of Natwar Singh vs. Director of Enforcement
(2010) 13 SCC 255 the Hon’ble Supreme Court has observed that “the principles of
natural justice are not intended to operate as roadblocks to obstruct statutory
inquiries. Duty of adequate disclosure is only an additional procedural safeguard in
order to ensure the attainment of fairness and it has its own limitations. The extent
of its applicability depends on the statutory framework.” (emphasis supplied) In this
case the issue before the Supreme Court was whether a noticee served with show cause
notice under Rule 4(1) of the Foreign Exch ange Management (Adjudication Proceedings
and Appeal) Rules, 2000 is entitled to demand furnishing of all the documents in
possession of the adjudicati ng authority including those documents upon which no
reliance has been placed to issue a notice requiring him to show cause why an enquiry
should not be held against him. This is how the Court has answered the issue:-
“In this regard, the learned Senior Counsel for the appellant pressed into
service the doctrine of duty of adequate disclosure which according to him
is an essential part of the principles of natural justice and doctrine of
fairness. A bare reading of the provisions of the Act and the Rules do not
support the plea taken by the appellants in this regard. Even the principles
of natural justice do not require supply of documents upon which no
reliance has been placed by the aut hority to set the law into motion.
Supply of relied on documents based on which the law has been set into
motion would meet the requirements of th e principles of natural justice.
No court can compel the authority to deviate from the statute and exercise
the power in altogether a different manner than the prescribed one.”
In the case in hand, in the absence of any rules for conducting inquiry for exercise of
powers under Sections 11 & 11B of the Act, the Board is only required to conduct the
inquiry in accordance with the principles of natural justice. The appellant is said to have
financed the transactions of Sugandh in 3 IPOs namely IDFC, Sasken Communication
and FCS Software. The details of finance alleged to have been provided by the appellant
to Sugandh and shares received by the appellant from Sugandh are also given.
Admittedly, proceedings were initiated by the Board against Sugandh also which were
disposed of in terms of the consent order passed by the Board. Sinc e the charge against
the appellant is of financi ng the IPO transactions entere d into by Sugandh, surely the
12
material available with the Board relating to Su gandh which is the basis of the charge
against the appellant is relevant for the appella nt to enable it to prepare its defence. The
Board cannot deny inspection of such material to the appellant. Since the allegation
against the appellant in the s how cause notice is of acting as a financier of Sugandh, we
are of the considered view that documents relating to Sugandh were necessary for the
appellant to prepare its defence. Not allowing inspection of these documents, if available
with the Board, has deprived the appellant in making a proper representation. During the
course of hearing, the respondent was asked to file an affidavit as to whether statement of
any representative of Sugandh was recorded du ring investigation or at any stage of the
proceedings. In the affidavit filed on Augus t 1, 2011, it is stated that statement of any
representative of Sugandh was not recorded by the Board in the proceedings against it.
The Board has also stated that consent order passed by the Board in the case of Sugandh
is also in public domain. Learned counsel for the appellant, therefore, has not insisted for
allowing inspection of the said consent order. However, in respect of other documents at
serial nos. 3 to 6, we find that all these doc uments relate to tran sactions by Sugandh in
relations to three IPOs. Denial of inspecti on of these documents to the appellant, in our
opinion, has prevented it from making effectiv e defence in respect of the charge.
However, we fail to understand how the appe llant has been deprived of making a proper
representation in refusing inspection of documents referred to at serial nos. 7 to 11 of the
said letter. None of these documents have been referred to or relied upon either in the
show cause notice or in the impugned order. If any material collected during the course
of investigation has not been relied upon in th e show cause notice, it will not deprive the
appellant to present his case before the Board. We have no hesitation in holding that the
whole time member was right in observing that inspection of these documents was asked
for with the sole aim of delaying the disposal of the proceedings and that the Board is not
obliged to provide inspection of these documents.
- We are, therefore, of the considered vi ew that the appellant is not entitled to
inspection of complete records pertaining to th e case. In fact, no such prayer was made
to the Board and no such prayer has been made in the appeal. The argument of learned
counsel for the appellant was that the principles of natural ju stice have been violated as
13
the Board has not allowed inspection of all the documents as requested by the appellant
and more particularly those mentioned in the letter dated May 15, 2009.
For the reasons recorded above, we a llow the appeal and set aside the impugned
order. The case is remanded to the Board with a direction that the appellant be allowed
inspection of (i) repl ies, if any, given by the repres entative of Sugandh relating to
investigation in the IPO of IDFC, Sasken Communication and FCS Software Ltd. and (ii)
documents referred to at serial nos. 3 to 6 of the letter dated May 15, 2009 of the
appellant and thereafte r allow the appellant to file its reply and proceed further in
accordance with law.
Sd/-
P. K. Malhotra
Member
Sd/-
S. S. N. Moorthy
Member
Order of the Tribunal:
The appeal is allowed and the impugned order set aside. The case is remanded to
the Board with a direction that the appellant be allowed inspec tion of (i) replies, if any,
given by representative of Sugandh relating to investigation in the IPOs of IDFC, Sasken
Communication and FCS Software Ltd. and (ii) documents referred to at serial nos. 3 to 6
of appellant’s letter dated May 15, 2009 and thereafter allow the appellant to file its reply
and proceed further in accordance with law. The matter is quite old and, therefore, it
would be appreciated if the proceedings ar e expedited and concluded at the earliest.
There is no order as to costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
P. K. Malhotra
Member
Sd/-
S. S. N. Moorthy
Member
3.8.2011
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