BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on :12.7.2019
Date of Decision : 18.7.2019
Misc. Application No.302 of 2017
And
Appeal No.327 of 2017
Shri C.R. Rajesh Nair
C/o. Anil Agarwal, House No.8,
Bella Vista Colony, Dona Paula,
Panjim, Goa 403004.

….. Appellant
Versus
Securities & Exchange Board of India
SEBI Bhawan, Plot No.C-4A, G Block,
Bandra-Kurla Complex,
Bandra (East), Mumbai – 400050.

…… Respondent
Mr. Neville P. Lashkari, Advocate with Mr. Aditya Vyas,
Advocate i/b. Vertices Partners for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Anubhav Ghosh
and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the
Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
Per : Justice Tarun Agarwala
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Misc. Application No.302 of 2017
There is a delay of 99 days in filing the appeal. For the
reasons stated in the application, the delay is condoned.
The Misc. Application is allowed.

Appeal No.327 of 2017
1.

The impugned order has been passed against the
appellant for violation of the Securities and Exchange Board
of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and
the Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 1992 (hereinafter referred to as
‘PIT Regulations’) on the ground that the appellant, being the
Managing Director of M/s. Sigrun Holdings Ltd. (hereinafter
referred to as ‘SHL’) sold 45,000 shares of SHL on 24th May,
2010 while having knowledge/possession of the adverse
quarterly result of SHL which information was an
unpublished price sensitive information before the same were
announced to the general public by the stock exchange on
29th May, 2010. The appellant thus traded in the shares of
SHL while in possession of unpublished price sensitive
information and the appellant did not obtain prior approval
from the Board of SHL for trading in the shares. Further, it
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was found that the appellant had entered into opposite
transaction to purchase of one lakh shares of SHL on 5th
February, 2010.

Based on the aforesaid finding the
Adjudicating Officer imposed a penalty of Rs.5 lakhs under
Section 15G of the SEBI Act for violation of Regulation 3 of
the PIT Regulations. Further, a penalty of Rs.8 lakhs was
imposed for violation of Clause 3.3.1 of the Model Code of
Conduct prescribed under Regulation 12(1) of the PIT
Regulations and another sum of Rs.1 crore was imposed for
violation of Clause 4.2 of the Code of Conduct prescribed
under Part A of Schedule 1 under Regulation 12(1) of the PIT
Regulations.

The appellant, being aggrieved by the said
order, has filed the appeal on the ground that the impugned
order is an ex-parte order and that he had no knowledge of
the proceedings initiated by the Adjudicating Officer.
2.

The undisputed facts which are culled out from the
impugned order and from the affidavits filed in the appeal is,
that in relation to the alleged sale of 45,000 shares made by
the appellant SEBI issued an email in 2012 asking the
appellant to furnish certain information.

The said
information was supplied by the appellant to SEBI through
email on 13th May, 2013.

Similar information was also
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sought by SEBI from the appellant’s broker JHP Securities
Pvt. Ltd. (hereinafter referred to as ‘JHP’).

Certain
information was also supplied to SEBI by JHP. Based on the
information given and investigation made, a show cause
notice dated 15th September, 2014 was issued to the appellant
at the last known address which came back undelivered. The
show cause notice was thereafter affixed at the last known
address of the appellant. The Adjudicating Officer thereafter
issued a notice directing the appellant to appear for personal
hearing which notice also came back undelivered. The said
notice was subsequently served by affixation at the last
known address of the appellant. An attempt was also made
by the Adjudicating Officer to serve the show cause notice
through the appellant’s broker JHP. The said broker vide
letter dated 29th December, 2014 informed the Adjudicating
Officer that they had sent the show cause notice through
registered post but the same returned with the remark
“Unclaimed”. Effort was also made by the broker to deliver
the show cause notice personally but they found the door
locked. The broker also informed the Adjudicating Officer
that a scanned copy of the show cause notice was sent to the
appellant on his email id ranu.jain@sigrun.in.

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3.

Based on the aforesaid admitted facts the Adjudicating
Officer presumed sufficient service and proceeded ex-parte
and passed the impugned order imposing the penalty.
4.

The appellant contends that he had furnished the
desired information to SEBI through email dated March 13,
2013 and thereafter he did not receive any further queries
from SEBI. In July 2014, he sold his residence and shifted
and consequently the show cause notice and the notice for
hearing which was sent to his earlier residential address was
not received as he had already left that premises.
5.

The fact that the appellant had sold his residential
flat/house has not been disputed by SEBI. It was however
contended that service was made as per the procedure laid
down under the Securities and Exchange Board of India
(Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 at the last known address
and such procedure having been made in accordance with the
rules being followed, in that event, there was no illegality in
the service of the show cause notice done by the respondent.
It was thus contended that the principles of natural justice
was not violated.

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6.

We have heard Mr. Neville P. Lashkari, Advocate
assisted by Mr. Aditya Vyas, Advocate for the Appellant and
Mr. Gaurav Joshi, Senior Advocate assisted by Mr. Anubhav
Ghosh and Ms. Rashi Dalmia, Advocates for the Respondent.
7.

The show cause notice was issued admittedly to the
last known address of the appellant under the Securities and
Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995.
For facility, Rule 7 of the Rules is extracted as under:Service of notices and orders.
7. A notice or an order issued under these rules shall
be served on the person in the following manner, that is
to say,(a) by delivering or tendering it to that person or
his duly authorised agent ;
(b) by sending it to the person by registered post
with acknowledgement due to the address of
his place of residence or his last known place of
residence or the place where he carried on, or last
carried on, business or personally works, or last
worked, for gain:
(c)
if it cannot be served under clause (a) or
clause (b), by affixing it on the outer door or some
other conspicuous part of the premises in which
that person resides or is known to have last
resided, or carried on business or personally
works or last worked for gain and that written
report thereof should be witnessed by two
persons.

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8.

The aforesaid rule provided the manner of service of
the notice namely by delivering or tendering it to the person
or to his authorized agent or by sending it by registered post
acknowledgment due to the address of his place of residence
or his last known place of residence or the place where he
carried on, or last carried on, business. Rule 7(c) further
provided that if the person cannot be served under the modes
prescribed under Clause 7(a) and (b) in that event service
would be made by affixation at the place where he had last
resided or carried on business.
9.

In the instant case, we do not find anything on record to
indicate that any effort was made by the respondent to serve
the show cause notice personally. We do not find that any
effort was made to serve at the place where he carried on
business or had worked for gain. Thus, without complying
with the procedure adopted under Clause (a) and (b) of Rule
7 the respondent cannot take direct steps for affixation under
Clause (c). Further, we find that the show cause notice that
was sent by speed post came back undelivered. No effort
was made to find out as to whether the appellant was residing
at that premises or not. We are, further, of the opinion that
the mode of service prescribed under Rule 7 is not exhaustive
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and other modes of service was always available in addition
to the modes of service prescribed under Rule 7 i.e. for
example publication of the notice in an appropriate
newspaper or service through email. In this regard, we find
that SEBI was corresponding with the appellant through
email and information was supplied by the appellant through
email. This mode could have easily been adopted by the
respondent which they failed to do so.

Instead the
Adjudicating Officer made efforts to get the show cause
notice served through the broker of the appellant.

It is
strange that when the email id of the appellant was known to
the respondent which is quoted in the impugned order, but
made no effort to serve the show cause notice or the notice
for date of hearing through email.
10.

In addition to the modes prescribed under the Rules of
1995, other modes could also be utilized such as O29R2 of
CPC or under the Securities and Exchange Board of India
(Manner of Service of Summons and Notices issued by the
Board) (Amendment) Regulations, 2007 which has been
issued in exercise of the powers conferred by Section 30 of
the SEBI Act, 1992 which provides various modes for
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tendering notice to a person which also includes service by
electronic mail service.
11. Consequently, we are of the opinion that sufficient
service was not made upon the appellant. Since the show
cause notice was not served upon the appellant a vital right
was denied to him to reply to the show cause notice and
thereafter to defend himself. Such denial of right is violative
of the principles of natural justice as embodied under Article
14 of the Constitution of India.
12. In the light of the aforesaid, the impugned order, being
an ex-parte order, suffers from the vice of natural justice and
cannot be sustained.

The impugned order is accordingly
quashed. The appeal is allowed. The matter is remitted to
the Adjudicating Officer to pass a fresh order after serving
the show cause notice and after affording an opportunity of
hearing to the appellant. For this purpose, we direct the
appellant to appear before the Adjudicating Officer on 1st
August, 2019 on which date the Adjudicating Officer will
supply a copy of the show cause notice and the Adjudicating
Officer will proceed from there onwards. The appellant will
also supply the email address, residential address, business
address, mobile number, etc for necessary communication to
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be made by the Adjudicating Officer.

In the event, the
appellant does not appear before the Adjudicating officer on
the date fixed by us it would be open to the Adjudicating
Officer to proceed ex-parte and pass appropriate orders.
13. 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
Sd/Justice M.T. Joshi
Judicial Member
18.7.2019
Prepared and compared by
RHN