SAT Quashes 2010 SEBI Penalty Order Citing 13-Year Delay In Serving Adjudication Order

The Securities Appellate Tribunal (SAT) at Mumbai has set aside a 15-year-old penalty order passed by the Securities and Exchange Board of India (SEBI) against Prince Securities.

The tribunal held that, in the facts of the case, any further continuation of proceedings pursuant to an adjudication order that remained unserved on the appellant for 13 years would amount to an abuse of process of law.

A coram of Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar allowed the appeal filed by Prince Securities. It quashed a June 16, 2010 order imposing a penalty of ₹6 lakh for alleged violations of securities laws.

The case arose from SEBI's investigation into trading in the shares of Silicon Valley Infotech Pvt. Ltd. between November 2002 and April 2003.

According to the show cause notice, Prince Securities had allegedly colluded with Rocky Marketing Pvt. Ltd., Bubna Stock Broking Services Ltd., and certain promoter-related entities. SEBI alleged that the entities purchased 8.75 lakh shares of the company to create artificial trading volumes and manipulate the scrip price.

SEBI issued a show cause notice in 2009. However, repeated attempts to serve the notice and subsequent hearing notices were unsuccessful.

The notices were returned undelivered. After publishing notices in newspapers, the Adjudicating Officer proceeded ex parte and passed the penalty order.

Before the Tribunal, Prince Securities contended that neither the show cause notice, the hearing notice nor the final adjudication order had ever been served on it. It submitted that it first received a copy of the order in November 2023 through its broker, Zerodha Broking Ltd., and by email.

SEBI, on the other hand, argued that it had taken all possible steps to serve the appellant. It justified the ex parte proceedings on that basis.

Examining the record, the Tribunal noted that SEBI had detailed the efforts made to serve the show cause notice and hearing notice. However, it had offered no explanation for its failure to serve the final adjudication order for approximately 13 years.

“Thus, no explanation is forthcoming as to why the impugned order was not served for a period of 13 years. The alleged transactions are quarter century old. The Calcutta Stock Exchange has also been closed,” the Tribunal said.

The Tribunal further noted that SEBI had not specifically denied the appellant's assertion that the order was first communicated to it in November 2023.

“In the light of the facts recorded hereinabove, in our considered opinion, any further continuance of proceedings pursuant to the impugned order is abuse of process of law," it observed.

Accordingly, the tribunal allowed the appeal and set aside the penalty order. It also directed SEBI to refund the deposit made by the appellant pursuant to an interim order.

For Appellant: Advocate Himanshu Agarwal

For Respondent: Advocates Vyom Shah, Khushbu Chhadjed, Khushbu Trivedi and Pulkit Awasthi