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SAT: Undue delay causes prejudice

Finsec Law Advisors

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On January 07, 2021, in the matter of Kaushik Rajnikant Mehta (Appellant) v. Securities Exchange Board of India (SEBI), the Securities Appellate Tribunal (SAT), while affirming the SEBI order, reduced the quantum of penalty imposed on the appellants from ₹5 lakh rupees to ₹2.5 lakh rupees on account of undue delay.

A show cause notice was issued on November 20, 2013 alleging that the appellant, and other connected entities, indulged in synchronized trading. The AO passed an order on February 16, 2015 imposing a penalty of ₹6 lakh. On an appeal, by an order dated March 14, 2016, SAT set aside this order and remanded the matter to SEBI to pass a fresh order. Thereafter, after more than two years, SEBI appointed an AO on March 17, 2018 to decide the matter afresh. Further extending the delay, it was observed by SAT that nothing was done by this AO and a new AO was appointed on March 18, 2019. After another 9 months, in December 2019, a date of hearing was fixed. Finally, the impugned order in the present appeal was passed on March 20, 2020.

It was contended by the appellants, among other things, that there had been an inordinate delay in the disposal of the matter. The alleged synchronised trades were executed between the years 2008-2010, and the impugned order had been passed after a period of 10 years. Thus, it was contended that such delay caused prejudice and the impugned order was liable to be quashed.

Agreeing with this contention, SAT held that undue delay in disposal of a case causes prejudice to the person prosecuted. It stated that when no steps were taken for more than two years after the matter was remanded to SEBI, it leads to a presumption that SEBI does not wish to pursue the matter further. Further, it has been re-iterated that once the show-cause notice has been issued, the matter must be decided at the earliest by the authority. In light of the above, SAT held that the inordinate delay becomes a mitigating factor while deciding the quantum of penalty, and thereby reduced the penalty.

This order follows earlier jurisprudence of SAT concerning the delay in initiation or completion of proceedings by SEBI, in orders such as Mr. Sanjay Jhalani & Anr. v. WTM, SEBI, Ashok Shivlal Rupani v. SEBI, and Pragnesh Vishnubhai Patel v. SEBI to name a few. This unequivocal observation by SAT that delay by SEBI causes prejudice to the appellant may lead to faster completion of long pending proceedings.