BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision: 22.1.2019
Appeal No.259 of 2017
Shri Manish V. Shah
83-A, A-1, Apartments,
Rajbhavan Road, 270,
Walakeshwar Road,
Mumbai – 400006.

….. Appellant
Versus
The Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4-A,
“G” Block, Bandra Kurla Complex,
Bandra (E), Mumbai – 400 051.

…… Respondent
Mr. L.S. Shetty, Advocate with Mr. U.R. Naik, Mr. Arnav Misra and Ms.
Sanika Lalit, Advocates i/b. L.S. Shetty & Associates for the Appellant.
Mr. S.P. Bharti, Advocate with Mr. Sameer Bindra, Advocate i/b. Juris
Corp. for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Per : Justice Tarun Agarwala (Oral)
1.

Securities and Exchange Board of India (hereinafter referred to as
‘SEBI’) passed an ex-parte ad-interim order dated 15th September, 2005
under Sections 11(4) and 11B of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as the ‘Act’) in the matter of M/s.
MCI Securities Pvt. Ltd directing the appellant who was one of the
Directors of MCI Securities Pvt. Ltd and also a Director in M/s. Maneklal
Chunilal Investments Pvt. Ltd. not to buy, sell or deal in securities in any
manner whatsoever, either for himself or on behalf of the clients till further
2
orders were passed by SEBI in this regard. The said directions were further
confirmed by SEBI vide order dated 3rd February, 2009.
2.

Subsequently, it was observed that inspite of the restraint order the
appellant had traded in the securities market on 29th September, 2005 and
30th September, 2005 on the National Stock Exchange of India Ltd. (NSE)
in five scrips. Based on this observation a show cause notice dated 15th
June, 2015 was issued to show cause as to why an inquiry should not be
initiated against the appellant in terms of Rule 4(1) of Securities and
Exchange Board of India (Procedure of Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of the
Act and why penalty be not imposed under Section 15HB of the Act.
Pursuant to the notice, the appellant submitted a reply on 21st September,
2016 and 1st October, 2016 contending that he had received the restraint
order of SEBI on 29th September, 2005 and immediately thereafter had
closed the account on 30th September, 2005. It was further contended that
there is a delay of 10 years in issuing the notice, and that, in any case, the
prohibition placed by SEBI under Section 11 of the Act was subsequently
lifted by SEBI. The appellant thus contended that there was no occasion
for the respondent to initiate penalty proceedings especially when the value
of the scrip was only Rs.27,709/-.
3.

Inspite of the aforesaid contention, the Adjudicating Officer by the
impugned order dated 30th November, 2016 held that the appellant had
violated the interim restraint order of SEBI dated 15th September, 2005,
having traded in five scrips and thus was liable for imposition of penalty.
The Adjudicating Officer by the impugned order imposed a penalty of
Rs.8,00,000/-. It may be noted here that inspite of the submission raised on
the question of delay in issuance of the show cause notice and on the
3
question that prohibition made under Sections 11(4) and 11B was lifted by
SEBI the Adjudicating Officer did not deal with these issues.
4. The appellant being aggrieved by the order of penalty imposed by the
Adjudicating Officer filed an appeal which was disposed of by the Tribunal
vide an order dated 6th March, 2017 permitting the appellant to withdraw
the appeal and giving liberty to file afresh. Based on the said order the
present appeal has been filed.
5. We have heard Shri L.S. Shetty, the learned counsel for the appellant
and Shri S.P. Bharati, the learned counsel for the respondent. The learned
counsel for the appellant contended that the appellant made a factual error
in contending before the Adjudicating Officer that he had received the
restraint order of SEBI dated 15th September, 2005 on 29th September,
2005. The learned counsel submitted that when correct facts came to his
knowledge it was found that the order of SEBI dated 15th September, 2005
which was sent by post on 20th September, 2005 was returned undelivered
and that the restraint order of SEBI dated 15th September, 2005 which was
forwarded also by the Inter-connected Stock Exchange of India by letter
dated 26th September, 2005 was infact received by the appellant on 5 th
October, 2005. These assertions have been made by the appellant in para
5.5 of the memo of appeal and the relevant letters dated 26th September,
2005 issued by the Inter-connected Stock Exchange of India Ltd and letter
dated 17th October, 2005 issued by SEBI have been annexed as Exhibit ‘I’
and ‘K’ respectively.
6.

The learned counsel submitted that there has been an inordinate delay
in the issuance of notice and on account of inordinate delay the proceedings
should be quashed. In any case, imposition of penalty of Rs.8,00,000/- is
very excessive and that the mitigating factors as envisaged under Section
4
15J ought to have been considered especially when the value of the scrip
was only Rs.27,709/-. It was also contended that the proceedings under
Sections 11(4) and 11B was closed by SEBI vide letter dated 27th March,
2015 which has been annexed as Exhibit ‘E’, the assertion of which has
been made in para 5.2 inspite of which penalty proceedings have been
initiated and imposed under Section 15HB which is wholely illegal and
without any justification.
7.

On the other hand, learned counsel for the respondent vehemently
contended that the appellant had himself admitted that he had received the
restraint order of SEBI dated 15th September, 2005 on 29th September, 2005
inspite of which he indulged in trading activities on 29th September, 2005
and again on 30th September, 2005 and, therefore, committed a gross
violation of the orders of SEBI and therefore became liable for imposition
of penalty under Section 15HB. It was also contended that the admissions
made by the appellant cannot be resiled now by contending for the first
time that the restraint order was only received by him on 5th October, 2005.
It was further contended that even though the prohibition was lifted by
SEBI in 2015, the said prohibition would have no effect on the adjudication
of the violation of the interim order by initiation of penalty proceedings.
8.

Having heard the learned counsel for the parties at some length, we
find that the ex-parte restraint order dated 15th September, 2005 was passed
by SEBI under Section 11(4) read with 11B of the Act. The interim order
that was passed was that the appellant was restrained from buying or selling
in securities in any manner whatsoever either for himself or on behalf of the
clients till further orders were issued by SEBI in this regard. The letter
dated 27th March, 2015 issued by SEBI intimates the appellant that the
competent authority has approved the disposal of the proceedings under
5
Section 11B of the Act against the appellant with no further action. It is
thus clear that the interim order dated 15th September, 2005 has merged
with the final order passed by SEBI in proceedings initiated under Section
11(4) read with Section 11B of the Act. Once the interim order merges
with the final order, the respondent can only initiate proceedings for
penalty, if any, for violation of the final order. No penalty proceedings can
be adjudicated against the interim order after final orders are passed. In the
instant case, the final order was communicated to the appellant vide letter
dated 27th March, 2015. The show cause notice for imposition of penalty
was issued on 15th June, 2015, that is, much after the disposal of the matter
under Sections 11(4) and 11B of the Act.
9.

In National Bal Bhawan & Anr. vs. Union of India & Ors. [2003
(9) SCC 671], the Supreme Court held that an interim order passed in a
pending Writ Petition merges with the final order. In B. P. L. Ltd. & Ors.
vs. R. Sudhakar & Ors. [2004 (7) SCC 219], the Supreme Court held that
interim orders operate during the pendency of the proceedings and comes to
an end upon the passing of the final order. In M/s. B. S. N. Joshi & Sons
Ltd. vs. Ajoy Mehta & Anr. [2009 (3) SCC 458], the Supreme Court held
that the interim order comes to an end and cannot continue after final orders
are passed.
10.

The penalty has been passed under Section 15HB. For facility, the
said provision is extracted as under:
“15HB. Penalty for contravention where no separate penalty
has been provided.- Whoever fails to comply with any
provision of this Act, the rules or the regulations made or
directions issued by the Board thereunder for which no
separate penalty has been provided, shall be liable to a penalty
which shall not be less than one lakh rupees but which may
extend to one crore rupees.”
6
A perusal of the aforesaid provision indicated that whoever fails to comply
with any direction issued by the Board would be liable to a penalty which
shall not be less than one lakh rupees and which may extend upto one crore
rupees. The interim direction issued by SEBI came to an end upon the
passing of the final order. Thus no penalty proceedings could be initiated
for violation of the interim order passed by SEBI after the final order was
passed by SEBI.
11.

In the light of the aforesaid, the impugned order cannot be sustained.

The initiation of penalty proceedings was ex-facie illegal and consequently
the impugned order cannot be sustained. In the light of the aforesaid, it is
not necessary for the Tribunal to deal on the question as to whether the
appellant received the interim order on 29th September, 2005 or on 5th
October, 2005 or on the question of inordinate delay in the issuance of the
show cause notice of 10 years or to consider the mitigating factors
enumerated under Section 15J of the Act.
12.

For the reasons stated aforesaid, the impugned order passed by the
Adjudicating Officer dated 30th November, 2016 is quashed and the appeal
is allowed. In the circumstances of the case, there shall be no order as to
costs.

Sd/-
Justice Tarun Agarwala
Presiding Officer
Sd/-
Dr. C. K. G. Nair
Member
22.1.2019
Prepared & Compared by
RHN