Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(SEBI) 24

SECURITIES AND EXCHANGE BOARD OF INDIA
E.S.INDIRESH, J
VISION-EI-TECH & SERVICES PRIVATE LIMITED – Appellant
Versus
SECURITY AND EXCHANGE BOARD OF INDIA (SEBI) – Respondent
WRIT PETITION NO. 3525 OF 2022 (GM-RES)|WRIT PETITION NO. 3519 OF 2022 (GM-RES)|WRIT PETITION NO. 25261 OF 2022 (GM-RES)

Advocates:
For the Appellants/Petitioners: ASHOK HARANALLI, ANIRUDH ANAND, D.L.N. RAO, SWATHI ASHOK, LAKSHMY IYENGAR, SABAHATH SULTANA
For the Respondents: R.V. SUBRAMANYA NAIK, NITIN PRASAD

Show-cause notices under SEBI Act for insider trading quashed if issued by incompetent authority below Division Chief rank, containing pre-determined conclusions, and for violating natural justice by non-disclosure of investigation report.

Headnote:(A) Securities and Exchange Board of India Act, 1992 - Sections 11B, 11(4A), 15-I, 15G, 19 - SEBI (Prohibition of Insider Trading) Regulations, 2015 - Regulations 3(1), 4(1), 4(2) - SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 - Rules 2(b), 2(c), 4 - Show-cause notices issued by Deputy General Manager alleging communication and trading while in possession of unpublished price sensitive information - Notices quashed as issued by incompetent authority below rank of Division Chief/Chief General Manager; language in notices indicating pre-determination and conclusiveness ('communicated UPSI', 'traded while in possession of UPSI'); violation of natural justice by non-disclosure of relied-upon documents including investigation report despite requests. (Paras 42-70)

(B) Administrative Law - Principles of natural justice - Show-cause notice must state material/grounds necessitating action and proposed penalty/action; conclusive/pre-determined language deprives effective opportunity to respond; non-supply of investigation report and key documents vitiates proceedings. (Paras 41, 51, 60, 67)

(C) Writ Jurisdiction - Article 226 - Interference with show-cause notice warranted where issued without jurisdiction by incompetent authority or suffers jurisdictional error/pre-determination; alternative remedy no bar. (Paras 56-59)

Facts of the case:
Petitioners, former directors/companies associated with a bank, challenged show-cause notices issued by Deputy General Manager alleging insider trading violations during 2017-2018 based on board meetings discussing capital raising. Notices issued under Section 11B after summons/questionnaires; petitioners replied, sought documents/investigation report (denied), alleged lack of jurisdiction, pre-determination, delay.

Findings of Court:
Notices issued by incompetent authority; contain pre-determined conclusions; violate natural justice by non-disclosure of key documents; delegation under Section 19 cannot override Section 15-I requirement of Division Chief rank or above.

Issues: (i) Whether notices liable to be quashed for pre-meditated action? (ii) Whether interference justified under Article 226 against notices for alleged insider trading? (Para 40)

Ratio Decidendi: Show-cause notices under Act for Section 15G violations must be issued by officer not below Division Chief rank; 'may' in Section 15-I read mandatorily with context; pre-conclusive language and non-disclosure of relied documents breach natural justice; writ maintainable against jurisdictionally defective notices.

Result: Writ petitions allowed; impugned notices in all three petitions quashed. (Para 70)

Table of Content
1. common issues in clubbed writ petitions. (Para 1 , 2)
2. wp 3525 facts: former director challenges sebi notice. (Para 3 , 4 , 5)
3. wp 3519 facts: insider trading allegations against director. (Para 6 , 7 , 8 , 9)
4. wp 25261 facts: companies challenge sebi jurisdiction. (Para 10 , 11)
5. petitioners argue dgm lacks jurisdiction under section 15-i. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19)
6. additional arguments on penalty, delay, and upsi access. (Para 20 , 21 , 22 , 23 , 24 , 25 , 26)
7. no connection to lvb; notices by incompetent authority. (Para 27 , 28 , 29 , 30 , 31)
8. respondents defend delegation under sections 11b, 19. (Para 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39)
9. notices pre-determined, violate natural justice principles. (Para 40 , 41 , 47 , 48 , 49 , 50 , 51 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69)
10. statutory interpretation: section 15-i mandates division chief. (Para 42 , 43 , 44 , 45 , 46 , 52 , 53 , 54 , 55)
11. writ maintainable against incompetent authority notices. (Para 56 , 57 , 58 , 59 , 60 , 61)
12. notices quashed for lack of jurisdiction and fairness. (Para 70)

CAV ORDER

1. In these writ petitions, the petitioners are assailing the notice dated 22.09.2021 (Annexure-A) issued by the respondent No.2-Deputy General Manager (for short, 'DGM'), as incompetent authority has issued impugned notice and accordingly, sought for quashing the same.

2. Since, the question of law involved in these writ petitions are common, and facts are similar in nature and further the grounds as urged by the learned counsel appearing for the parties are more or less identical in nature and therefore, the writ petitions were clubbed, heard together and disposed of by this common order.

FACTS IN W.P.NO.3525 OF 2022:

3. In W.P.No.3525 of 2022, the petitioner is Noticee No.8, challenging the impugned notice dated 22.09.2021 (Annexure-A).

4. It is the case of the petitioner that the petitioner was an Independent Director and Non- Executive Chairman of the Board of LVB, from April, 2013 to April, 2015. It is also stated that, the respondent No.2 has issued impugned notice, calling upon the petitioner to furnish the details to the questionnaire which related to trading, and details of petitioners' association with various entities as well as with LVB. The petitioner has answered to the questionnaire, however, the respondent No.2 has sought for personal appearance of the petitioner for Inquiry as to take evidence. The petitioner requested his personal appearance in the local office of the respondent-authority as per Annexure-B, however, the respondent No.2, did not accept the request made by the petitioner and on the other hand, the respondent No.2 issued impugned notice, alleging that, the petitioner is in possession of UPSI, as traded in the scripts of LVB, during the month of February, March and June of 2018. It is also alleged against the petitioner that, the mode of sharing of UPSI, is presumed on the basis that, the petitioner shares the minutes of meeting of the Board with one connected person.

5. It is further stated that, the UPSI relates to capital rising for LVB and the three connected persons have disputed their possession of UPSI and the adjudication is still pending against them. It is also stated that, the respondent No.2, erroneously come to the conclusion that, the connected persons had access to UPSI, and therefore, it is contended by the petitioner that, allegation has been made against the petitioner is devoid of merit and unsustainable in law. The petitioner has sought for certain documents as per Annexure-C, however, the respondent No.2, replied vide e-mail dated 22.10.2021 (Annexure-D). It is further stated that, since the petitioner was a covid survivor and as such, requested the respondent No.2 to allow his advocate to inspect the documents and same was denied to the petitioner. It is also stated that the petitioner sought for cross-examination of officials of LVB and JP Morgan India Pvt Ltd., as well as se

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2025 Supreme(Online)(SEBI) 24

SECURITIES AND EXCHANGE BOARD OF INDIAE.S.INDIRESH, JVISION-EI-TECH & SERVICES PRIVATE LIMITED – AppellantVersusSECURITY AND EXCHANGE BOARD OF INDIA (SEBI) – RespondentWRIT PETITION NO. 3525 OF 2022 (GM-RES)|WRIT PETITION NO. 3519 OF 2022 (GM-RES)|WRIT PETITION NO. 25261 OF 2022 (GM-RES)

Show-cause notices under SEBI Act for insider trading quashed if issued by incompetent authority below Division Chief rank, containing pre-determined conclusions, and for violating natural justice by non-disclosure of investigation report.

Cases Referred (4)

SECURITIES AND EXCHANGE BOARD OF INDIA
E.S.INDIRESH, J
VISION-EI-TECH & SERVICES PRIVATE LIMITED – Appellant
Versus
SECURITY AND EXCHANGE BOARD OF INDIA (SEBI) – Respondent
WRIT PETITION NO. 3525 OF 2022 (GM-RES)|WRIT PETITION NO. 3519 OF 2022 (GM-RES)|WRIT PETITION NO. 25261 OF 2022 (GM-RES)