KAVI ARORA versus SECURITIES & EXCHANGE BOARD OF INDIA

Citation: [2022] 19 S.C.R. 323 · Decided: 14-09-2022 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Dismissed

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Judgment (excerpt)

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KAVI ARORA
v.
SECURITIES & EXCHANGE BOARD OF INDIA
(Special Leave Petition (Civil) No. 15149 of 2021)
 SEPTEMBER 14, 2022
[INDIRA BANERJEE AND A. S. BOPANNA, JJ.]
Securities and Exchange Board of India Act, 1992 – s.15HA
– Securities and Exchange Board of India (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
– rr.3, 4 – Show Cause Notice was issued by Respondent-SEBI to
the Petitioner, who was MD and CEO of one Religare Finvest Limited
(RFL) [subsidiary of Religare Enterprises Ltd. (REL)], alleging
diversion of funds from RFL through several layers of conduit entities
for the ultimate benefit of promoters of REL and RFL – Writ petition
filed by the Petitioner seeking directions against SEBI, to furnish
the documents relied upon by it in the Show Cause Notice – Petitioner
also sought orders for supply of a copy of the opinion formed u/r.3
of the SEBI Adjudication Rules for constituting an Adjudicating
Authority to issue the aforesaid Show Cause Notice to the Petitioner
– Dismissed – On appeal, held: High Court rightly did not interfere
with the proceedings at the stage of the Show Cause Notice –
Petitioner was permitted to inspect the opinion formed u/r.3 of the
SEBI Adjudication Rules – There is apparently no rule which requires
SEBI to furnish the opinion u/r.3 to the noticee in its entirety –
Documents relied upon for formation of opinion u/r.3, are not
required to be disclosed to the noticee unless relied upon in the
inquiry – Further, in course of argument before the High Court, the
counsel for SEBI made a statement that SEBI would not rely on any
document apart from those which had been provided to the Petitioner
– It is well settled that documents which are not relied upon by the
Authority need not be supplied – Supreme Court by its interim order
had permitted SEBI to hold the inquiry, without relying upon any
documents, not supplied to the Petitioner – The interim order will
govern the inquiry – No infirmity in the impugned judgment of the
High Court – Securities Contract (Regulation) Act, 1956 – Securities
Contract (Regulation) (Procedure for holding inquiry and imposing
penalties) Rules, 2005.
[2022] 19 S.C.R. 323
323
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SUPREME COURT REPORTS
[2022] 19 S.C.R.
Dismissing the SLP, the Court
HELD: 1.1 At the stage of Rule 3, the Board appoints an
Adjudicating Officer if it is of the opinion that there are grounds
for adjudication under any of the provisions in Chapter VIA of
the SEBI Act. At this stage, the Board only decides whether
adjudication proceedings should be initiated or not. The formation
of opinion is not a formal inquiry proceeding involving any person
or persons against whom inquiry is contemplated. The
participation of the person against whom inquiry is contemplated
is not necessary. The Board forms its opinion, based on whether
there are prima facie materials or grounds for initiation of inquiry.
The opinion of the Board under Rule 3 has nothing to do with the
outcome of the enquiry. [Para 45][340-B-D]
1.2 After the Board forms its opinion to appoint an
Adjudicating Officer, comes the next stage, which is the stage
under Rule 4 of an inquiry for adjudging under Sections 15A,
15B, 15C, 15D, 15E, 15F, 15G, 15H, 15I, 15J and 15HB whether
any person has committed contraventions as specified in those
sections. The inquiry commences with a Show Cause Notice calling
upon the noticee to show cause why an inquiry should not be
held against him. The Show Cause Notice has to specify the nature
of offence alleged to have been committed and the penalty
proposed, to enable the noticee to effectively reply to the show
cause. A reading of Rule 4(3) makes it clear that, if after
considering the cause, if any shown by the noticee, the
Adjudicating Officer is of the opinion that an inquiry should be
held, he shall issue a notice fixing a date for appearance of that
person either personally or through his lawyer or other authorised
representative. The noticee is not required to be heard personally
or through lawyer before taking a decision to proceed with an
inquiry in respect of the contraventions alleged in the Show Cause
Notice. Decision to proceed or not to proceed with the inquiry
may be taken on the basis of the reply of the noticee to the Show
Cause Notice. Once it is decided to proceed with the inquiry, an
opportunity of personal hearing is mandatory. The inquiry has to
be conducted in accordance with law, in compliance with the

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