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SAT: No fresh Show Cause Notice when matter remanded back to SEBI

Finsec Law Advisors

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In its August 14, 2020 order in the matter of Devendra Suresh Gupta vs. Securities and Exchange Board of India, the Securities Appellate Tribunal (SAT) quashed an order by SEBI for issuing a fresh show cause notice (SCN) with a new allegation after the matter was remanded back to SEBI.

SEBI had passed an order on November 28, 2014 imposing penalty on the appellant. On March 18, 2016, SAT allowed the appeal on the ground that there was no clear finding concerning the relationship of the appellant with other noticees, and the matter was remanded back to SEBI for fresh order on merits and in accordance with the law.

However, SEBI did not initiate any proceedings for 45 months; post which sent a fresh SCN was issued to the appellant on December 30, 2019, alleging the appellant to be a connected person. Pursuant to this SCN, the adjudicating officer (AO) passed an order on February 25, 2020, imposing a penalty on the appellant. Aggrieved by this order, the appellant had filed an appeal before SAT.

In the matter of Vasudev Ramchandra Kamat vs. SEBI, SAT held that when a matter is remanded to SEBI, the AO is required to decide the matter afresh on the charges levelled in the SCN that was issued, and it is not open to the AO to issue a fresh SCN incorporating a new charge. Basing its decision on this judgment, SAT allowed the current appeal.

While SAT has rightly held that a new SCN with a new charge cannot form the basis of an order in such cases, it is interesting to note that while allowing the appeal SAT did not consider the inordinate delay of 45 months in re-initiating proceedings from when the matter was remanded back to SEBI. In cases such as Ashok Shivlal Rupani and Ors vs SEBI, SAT had considered extreme delay in initiating proceedings as sufficient cause in itself to quash an order passed by the AO.