SAT Sets Aside SEBI's ₹50 Lakh Penalty On Citrus Check Inns Directors Over Violation Of Natural Justice

The Securities Appellate Tribunal (SAT) has set aside a ₹50 lakh penalty imposed by the Securities and Exchange Board of India (SEBI) on three directors of Citrus Check Inns Limited.

It held that the adjudication proceedings were vitiated by a violation of the principles of natural justice due to improper service of notices.

A coram of Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar allowed the appeals filed by Omprakash Basantlal Goenka, Prakash Ganpat Utekar, and Venkatraman Natarajan.

The appeals were directed against SEBI's adjudication order dated December 28, 2018.

Under that order, SEBI had imposed a joint and several penalty of ₹50 lakh on the appellants and other noticees. The regulator alleged that they had failed to comply with its interim and confirmatory directions restraining Citrus Check Inns Limited from collecting money from investors and launching new schemes.

The proceedings traced their origin to a complaint received by SEBI in 2014. The complaint alleged that Citrus Check Inns was operating a ponzi scheme and was not refunding investors.

Following an investigation, SEBI concluded that the company was carrying on Collective Investment Scheme activities. It then passed interim and confirmatory orders restraining the company and its directors from collecting funds.

SEBI subsequently issued a show cause notice in July 2017. It alleged that the company and its directors had continued mobilising funds in violation of those directions.

The appellants challenged the penalty order before the Tribunal. They contended that they were never served with the show cause notice, hearing notices or the impugned order.

According to the appellants, the notices were sent to company addresses and email accounts controlled by the Insolvency Resolution Professional after the company entered the Corporate Insolvency Resolution Process.

The appellants maintained that they learnt of the proceedings only in December 2024, when they received demand notices followed by attachment notices.

SEBI, however, said it had made several attempts to serve the notices. According to the regulator, the notices were sent by post and email, published in newspapers and also uploaded on its website.

The Tribunal observed that the proceedings were governed by the unamended Rule 7 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The provision required service by delivering or tendering the notice to the concerned person or an authorised agent.

Relying on its earlier decision in *Uma Karthikeyan v. SEBI*, the Tribunal noted that SEBI could not bypass the requirement of attempting personal service. It could not directly resort to alternative modes of service.

"The above judgment has remained unchallenged and binding on SEBI. Therefore, in our considered view, the impugned order suffers from violation of principles of natural justice," the tribunal held.

Accordingly, the tribunal set aside the December 28, 2018 order insofar as it related to the appellants. It remanded the matter to SEBI for fresh consideration and directed that the appellants be given an opportunity to file replies and participate in the proceedings.

For Appellants: Advocates Aansh Desai and Vinay Chauhan

For Respondents: Gulnar Mistry, Bhushan Shah and Abhishek Nair