The Mumbai Securities Appellate Tribunal ( SAT ) has held that proceedings u/s 12A of the Securities and Exchange Board of India (SEBI) Act should be initiated within a reasonable time; Securities Appellate Tribunal quashes the order passed by the Assessing Officer.
Securities and Exchange Board of India (SEBI) conducted an investigation in respect of irregular trading activities of certain entities in the scrip of Sterling International Enterprises Ltd. during the period May 1, 2008, to September 30, 2009. Based on the investigation, a show-cause notice dated February 12, 2020, was issued to the appellant along with other entities to show cause as to why an inquiry should not be initiated and a penalty should not be imposed under Section 15HA of the SEBI Act for violation of Section 12A of the SEBI Act read with Regulations 3 and 4 of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. The show-cause notice alleged that 29 entities are connected to each other and that they traded among themselves in the scrip and created the misleading appearance of trading which were violative of Regulations 3 and 4 of the PFUTP Regulations.
The appellant, Yatin Pandya HUFon receipt of the show cause notice submitted that there is an inordinate delay in the issuance of the show-cause notice and at this belated stage the appellant is unable to collate the exact circumstances and situation with regard to the trades executed by him. It was contended that such delay has not only caused prejudice but has placed him in a disadvantageous position and is unable him to defend the allegations leveled against him. Further submitted by the appellant that he had no connection with the other entities and cannot be connected solely on the basis of a person who has introduced the appellant in the KYC application.It was also submitted that the appellant had applied for inspection of documents which was denied and such denial was violative of the principles of natural justice.
The Tribunal observed that there is an inordinate delay in the issuance of the show cause notice. The disputed trades are for the year 2008-2009. The investigation into the irregular trading activities was conducted during the period May 1, 2008, to September 30, 2009. After the investigation, it has taken the respondent more than 11 years to issue the show cause notice. There is no explanation in the impugned order as to why the show cause notice could not be issued earlier.
The Coram of Sri Justice Tarun Agarwala, Presiding Officer, and Sri Justice M. T. Joshi, Judicial Member while allowing the appeal with a cost of Rs. 25,000/- has held that “We are of the view that there was an inordinate delay in the issuance of the show cause notice. On account of this delay, serious prejudice was caused to the appellant as he was unable to collate the circumstances in executing the trades. We are further of the opinion that old and stale disputes should not be raised. Thus, on this short ground, the impugned order is liable to be quashed”.Further held by the Tribunal that, “merely by supplying the documents is not sufficient compliance and in the event, the appellant applies for inspection of the documents, such right cannot be denied by the AO only on the ground that documents have been supplied. Denial of the inspection, in our view, is a violation of principles of natural justice as embodied in Article 14 of the Constitution of India. ”
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