INDIAN COMMODITY EXCHANGE LIMITED versus NEPTUNE OVERSEAS LIMITED & ORS. on 27 November 2020

[2020] 13 S.C.R. 129

INDIAN COMMODITY EXCHANGE LIMITED

v.

NEPTUNE OVERSEAS LIMITED & ORS.

(Civil Appeal No. 9037 of 2019)

NOVEMBER 27, 2020

[SANJAY KISHAN KAUL AND HRISHIKESH ROY, JJ.]

Forward Contracts (Regulation) Act, 1952 – ss.3, 4, 5, 6, 7and 8 – Respondent No.1 is Company (NOL) and respondent No.2is the founder and CEO of National Multi Commodity ExchangeIndia Limited (NMCE) as well as Managing Director of NOL –Respondent No.2 was served with a detailed show cause notice dated21.06.2011 on basis of a communication by a independent journalistto Forward Markets Commission (FMC) which alleged tradingirregularities within NMCE along with an allegtion of abuse ofposition by respondent nos.1 and 2 – The notice gave respondentno.2 a period of 10 days to respond and liberty to peruse anydocuments within a period of 07 days from the date of receipt ofnotice – Respondent no.2 requested for copies of documents,questioned the jurisdiction of the FMC and made repeated requestsfor adjournments – The respondent no.1 challenged the show causenotice before the High Court – The High Court gave respondentno.1 liberty to appear before the FMC and held that FMC is yet totake a final view, it was premature effort of respondent no.1 toapproach the High Court – Before the FMC, the grievance ofrespondent no.2 that entire documentation was not supplied wasrejected and it was reasoned that all documents were either availablein public domain or not relevant – On 20.07.2011, the request foradjournment was denied – By order dated 23.07.2011, the FMCopined against respondent nos.1 and 2 and held hat respondentno.2 was in complete breach of his fiduciary responsibility to theNMCE by systematically defrauding misusing and misappropriatingits property – However, the Division Bench of the High Court heldthat FMC had not serviced show cause notice on respondent no.1,consequently, quashed the order dated 23.07.2011 – The SupremeCourt set aside the order of the Division Bench of the High Courtand directed the respondents to approach the Securities Appellate

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ATribunal (SAT) against the order dated 23.07.2011 – SAT foundabsence of any show cause notice to respondent no.1 – SAT alsonoted on the issue of request for adjournment on 20.07.2011 thatonly two weeks had elapsed from the date when the documents weresupplied and thus, further request for adjournment was notunreasonable as the documents were voluminous – The time to fileBreply was also found inadquate – Therefore, the order dated23.07.2011 passed by FMC was set aside and the successor to theFMC, the SEBI was directed to grant adequate time to respondentnos.1 and 2 to file their reply and the application for supply ofdocuments, if any, and the issue of jurisdiction to be decided inCaccordance with law – Aggrieved, the SEBI and ICEL (successor ofNMCE) filed appeals before the Supreme Court – Held: Whenreliance is placed on voluminous documents (4000 pages) it wouldnot be fair to expect that the party in question ferrets through itsown record trying to locate the documents, when on basis offormation of an opinion for issuance of the show cause notice,Dlogic and requirement of law both would dictate that the show causenotice should be comprehensive enough with full supportingdocuments being hand over – The answer cannot be that party isfree to inspect 4000 pages on its own – SAT was right that adequateopportunity was not given – As documents were voluminous,Ereasonable time had to be given to respond to the same – As far asservice of notice to respondent no.1 is concerned, both respondentsare joined in all purposes – Thus, there was no failure to serveshow cause notice to respondent no.1 merely because no such noticewas addressed to it – In the conspectus of the factual position, thefollowing directions are issued: (i) the show cause notice datedF21.06.2011 would be treated as a show cause notice to bothrespondent nos.1 and 2; (ii) the list of documents asked byrespondents to be supplied by SEBI; (iii) Respondents grantedopportunity to file their reply to show cause notice; (iv) SEBI wouldgive an opportunity for personal hearing to both the parties andGtake final view of the matter.

Natural Justice – Show cause notice with documents – Held:The show cause notice should be comprehensive enough with fullsupporting documents being handed over.

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Natural Justice – Opportunity to be heard – Held: Lookinginto the enormity of the contents of the show cause notice runninginto 150 pages with documents spanning 4,000 pages supportingit, a reasonable time had to be given to respond to the same – Afterhanding over the copies of the documents, the proceedings wereconcluded within the span of two weeks, which cannot be said tobe an adequate opportunity – An opportunity of hearing is not amere nicety but a valuable right – That it does not fall in astraitjacket formula is the accepted legal position – The question iswhether there was substantial compliance of the principles of naturaljustice and whether there were unnecessary adjournments beingsought, which were declined.

Company Law – Corporate veil – Respondent No.1 is Company(NOL) and respondent No.2 is the founder and CEO of NationalMulti Commodity Exchange India Limited (NMCE) as well asManaging Director of NOL – Respondent No.2 was served with adetailed show cause notice – Held: Respondent No.1 herein is aseparate legal entity being a registered company, but the conceptof piercing the veil is not unknown to law – By this process, the laweither goes behind the corporate personality to the individualmembers or ignores the separate personality of the company – Thiscourse is adopted when it is found that the principle of corporatepersonality is flagrantly opposed to justice, convenience or theinterest of the Revenue – This Court is, thus, not able to hold thatthere was a failure to serve show cause notice to respondent No.1herein merely because no such notice was specifically addressed toit.

Disposing of the appeals, the Court

Conclusion

Disposing of the appeals, the Court

HELD: 1. This Court has no doubts that a proper showcause notice was served on Respondent No.2. The moot point,however, remains as to what is the effect of not serving him withthe documents he sought for and within the compass of time,which was given to him to respond. [Para 31][146-D-E]

2. Once again, it may be stated that a large part of thedocuments would have been within the custody of the Respondent ABC

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ANo. 2 herein or for that matter with Respondent No.1 herein.However, this would not encompass all the documents. Not onlythat, when reliance is placed on as many as 4,000 pages ofdocuments, it would not be fair to expect that the party in questionferrets through its own record trying to locate the documents,when on basis of formation of an opinion for issuance of the showBcause notice, logic and requirement of law both would dictatethat the show cause notice should be comprehensive enough withfull supporting documents being handed over. The answer cannotbe that they are free to inspect 4,000 pages on their own! In fact,in so many terms, ultimately most of those documents were madeCavailable and it would not be appropriate to go back into the issueof whether the documents should have been supplied or not. Ina sense, that chapter closed with the supply of documents on05.07.2011 even though some more documents were soughtthereafter.[Para 32][146-E-H]

D3. This Court fails to appreciate why there should have beena cussedness in handing over mere copies of documents whenserious allegations and serious consequences which would flowto the respondents herein. Not only that, the endeavour toconclude the proceedings within a span of two weeks thereaftercannot, in view of this Court, be said to be an adequate opportunity Eas has been found by the SAT. An opportunity of hearing is not amere nicety but a valuable right. That it does not fall in astraitjacket formula is no doubt the accepted legal position[Dharampal Satyapal Ltd.]. The question is whether there wassubstantial compliance of the principles of natural justiceF[Chairman, Board of Mining Examination] and whether there wereunnecessary adjournments being sought, which were declined[Titaghur Paper Mills Co. Ltd. and Anr. and Cement WorkersKaramchari Sangh] [Para 33][147-A-C]

4. This Court does feel that there was an endeavour to someGextent by Respondent No.2 herein to prolong the proceedingsbut then looking into the enormity of the contents of the showcause notice running into 150 pages with documents spanning4,000 pages supporting it, a reasonable time had to be given torespond to the same. The manner in which the proceedings weresought to be closed raises serious doubts that a fair process andH

opportunity has been extended to Respondent No.2 herein. [Para34][147-C-E]

opportunity has been extended to Respondent No.2 herein. [Para34][147-C-E]

5. There is, thus, to some extent truth in what has beenalleged by the appellants before us, i.e., that Respondent Nos.1and 2 herein are conveniently playing this game of coming upseparately even though they are joined in all purposes. This Courtis conscious of the fact that Respondent No.1 herein is a separatelegal entity being a registered company, but the concept of piercingthe veil is not unknown to law. By this process, the law eithergoes behind the corporate personality to the individual membersor ignores the separate personality of the company. This courseis adopted when it is found that the principle of corporatepersonality is flagrantly opposed to justice, convenience or theinterest of the Revenue. This Court is, thus, not able to hold thatthere was a failure to serve show cause notice to RespondentNo.1 herein merely because no such notice was specificallyaddressed to it. This Court conscious of the fact that there wassome concession made before the Division Bench of the GujaratHigh Court by the counsel for the FMC. Be that as it may, thisCourt is of the view that it would be a hyper technicality now tosay that Respondent No.1 herein should be served a fresh showcause notice, more so in view of the directions which we areproceeding to pass in the present judgment. [Para 35][148-A-D]

6. In the conspectus of the factual position from theproceedings which have taken place and the legal principlesdiscussed, this Court is of the view that the following directionswould subserve the interest of justice and perfect the rights ofthe parties:

i.No fresh show cause notice is required to be servedon Respondent No.1 herein and the show cause noticedated 21.6.2011 would be treated as a show causenotice to both Respondent Nos.1 and 2 herein.

ii.The documents already asked for by Respondent No.1and 2 herein and not supplied should be supplied. Inorder to obtain clarity on this issue, we direct that alist of documents sought for by either respondentsbe supplied to the SEBI within two weeks from the AB

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134SUPREME COURT REPORTS

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date of this order and those documents are to besupplied by SEBI within two weeks thereafter.

iii.Respondent Nos. 1 and 2 herein are grantedopportunity to file their reply to the show cause noticewithout any further delay within a period of four weeksBafter receiving aforementioned documents.

iv.The SEBI would thereafter proceed to give anopportunity for personal hearing both to RespondentNos.1 and 2 herein and these proceedings are to goon, on a day-to-day basis and no request foradjournment will be entertained in this behalf fromeither respondents..

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v.The SEBI would take a final view on the subjectmatter thereafter.

vi.Needless to say, if Respondent Nos.1 and 2 hereinare aggrieved by the same, the remedy against thesame lies before the SAT.

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vii.This Court makes it clear that all pleas as raised byRespondent Nos.1 and 2 herein would be consideredby the SEBI, legal or factual including but not confinedEto aspects of jurisdiction. In fact, this is the verypurpose of relegating the proceedings before theSEBI and not to SAT as the right of appeal is avaluable right to be exercised after adequateopportunity at the first adjudication stage level. [Para39][149-C-H; 150-A-C]F

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Chairman, Board of Mining Examination and ChiefInspector of Mines and Anr. v. Ramjee (1977) 2 SCC256 : [1977] 2 SCR 904; Titaghur Paper Mills Co. Ltd.and Anr. v. State of Orissa and Ors (1983) 2 SCC 433: [1983] 2 SCR 743; Cement Workers KaramchariSangh v. Jaipur Udyog Limited and Ors. (2008) 4 SCC701 : [2008] 5 SCR 276; Dharampal Satyapal Ltd. v.Deputy Commissioner of Central Excise, Gauhati andOrs. (2015) 8 SCC 519 : [2015] 6 SCR 437; NewHorizons Limited and Another v. Union of India and G

Others (1995) 1 SCC 478 : [1994] 5 Suppl. SCR 310– referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9037OF 2019

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From the Judgment and Order dated 18.10.2019 of the SecuritiesAppellate Tribunal, Mumbai in Appeal No. 96 of 2018.

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Civil Appeal No. 629 of 2020.

Mohit D. Ram, Pratap Venugopal, Ms. Surekha Raman, Ms. AyushiGaur, Ms. Ila Haldia, Akhil Abraham Roy For M/S. K J John And Co,Abhinav Agrawal, Rishabh Parikh, Advs. for the appearing parties.

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The Judgment of the Court was delivered by SANJAY KISHAN KAUL, J.

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1. A lot of noise but no music! The present case is a classic onewhere multiple proceedings have been initiated but have resulted in noculmination over a period just short of a decade. And this is not sobecause of any interdicts from the courts in preventing these legalproceedings, yet the proceedings have hardly moved. The result is thatthe culpability of the first two respondents herein has not been determined– thus, a cloud hangs over their conduct and that is all.

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2. We now turn to The Forward Contracts (Regulation) Act, 1952(hereinafter referred to as the ‘said Act’; since repealed by the FinanceAct, 2015),as the proceedings against the first two respondents hereinemanated from the powers exercised under the said Act. The said Actaimed to regulate certain matters relating to forward contracts, prohibitionof options in goods and for other connected matters. A reading of thestatement of objects and reasons shows that the said Act was a sequiturto the initial prohibition of forward trading in certain commodities as aresult of the Central Government issuing orders under Rule 81 of theDefence of India Rules during the war period.

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A3. Chapter II of the said Act provides for the Forward MarketsCommission (for short ‘FMC’), an authority to regulate commoditiesfutures market, which was established under Section 3, with its functionsbeing provided under Section 4 of the said Act. The functions, interalia, were to advise the Central Government in respect of the recognitionof, or the withdrawal of recognition from, any association or in respectBof any other matter arising out of the administration of this Act; and tokeep forward markets under observation. Chapter III deals with therecognition of associations concerned with the regulations and controlof forward contracts. An application for such recognition of associationshad to be made under Section 5 of the said Act for grant of recognitionCunder Section 6. Section 7 of the said Act dealt with withdrawal ofrecognition. The Central Government had the power under Section 8 tocall for periodical returns or direct inquiries to be made. Suffice to saythat it is in exercise of these powers under Section 8(2) of the said Actthat the proceedings against Respondent Nos.1 & 2 herein commenced.D4. In the aforesaid play of the said Act, we now turn to NationalMulti Commodity Exchange of India Limited (for short ‘NMCE’), whichis an association registered under the provisions of the said Act. NMCEis registered with the FMC, under Section 14B of the said Act. Thesubsequent development has been that in pursuance of a scheme ofamalgamation, concluded in 2018, the Indian Commodity ExchangeELimited (for short ‘ICEL’), who is the Appellant before us, emerged asthe successor of NMCE.

5. Respondent No. 1 herein, Neptune Overseas Limited (for short‘NOL’) is a company registered under the Companies Act, 1956 dealingwith export/import and trading in various commodities including rubber.FThis company is the core promoter of NMCE, being its largestshareholder with 30.18% shareholding. The role of Mr. KailashRamkishan Gupta, Respondent No.2 herein, was dual in character – hewas the founder and CEO of NMCE as well as the Managing Directorof NOL. The other related development is that the FMC, in view of theGsaid Act being repealed, itself merged with the Securities and ExchangeBoard of India (for short ‘SEBI’) with effect from 28.9.2015.

6. The genesis of the dispute is a communication dated 28.11.2010,made by a stated independent journalist to the FMC alleging, inter alia,trading irregularities within the NMCE along with an allegation of abuseH

of position by Respondent Nos.1 & 2 herein. The proceedings thattranspired thereafter, and the related compliance with principles of naturaljustice form the subject matter of the present litigation.

7. The FMC, on the basis of the abovementioned complaint,initiated an inquiry into the affairs of NMCE on 14.12.2010, exercisingpowers under Sections 8(2) and 8(4) of the said Act as set outhereinabove, read with the Government of India Notification S.O.No.1162 dated 4.5.1960. A detailed show cause notice dated 21.6.2011was served under Section 4(b) of the said Act. Section 4 (b) of the saidAct reads as under:

“4. Functions of the Commission.—The functions of theCommission shall be—

(a) xxxx xxxxxxxxxxxx xxxx

(b) to keep forward markets under observation and to take suchaction in relation to them as it may consider necessary, in exerciseof the powers assigned to it by or under this Act;]

8. This notice, running into about 150 pages,was addressed toRespondent No.2 herein, in his capacity as Vice Chairman of NMCEand Chairman and Managing Director of Respondent No.1, NOL givinghim a period of 10 days from the date of receipt of notice to respond. Apersonal hearing was fixed for 4.7.2011. Liberty was granted toRespondent No.2 herein to peruse any documents within a period of 7days from the date of receipt of notice, if he so desired. This resulted ina series of communications from 22.6.2011 to 20.7.2011, including therequest of Respondent No.2 herein for copies of documents relied uponin the show cause notice, a questioning of the jurisdiction of the FMC,and repeated requests for adjournments. Most of these letters were byRespondent No.2 herein but on record is also a letter dated 2.7.2011addressed by Respondent No.1 herein and signed by Respondent No.2herein. The stand of FMC was that most of the documents were alreadyunder the control of Respondent No.2 herein or were either irrelevant ornot relied upon. However, possibly to put the matter at rest, somedocuments were supplied on 5.7.2011 and the hearing was consequentlyadjourned to 13.7.2011.

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A9. In the course of these developments, parallel proceedings wereinitiated by Respondent No.1 herein by filing Special Civil ApplicationNo.8377 of 2011 before the Gujarat High Court. These proceedingssought to challenge the show cause notice and, inter alia, raised theissue that FMC had no jurisdiction, power or authority to commence orcontinue any enquiry or issue any directions.. The learned Single JudgeBwho considered the matter, construed the issuance of the show causenotice to Respondent No.1 to be through Respondent No.2 herein.

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Thus, in terms of order dated 8.7.2011, it was opined thatopportunity of hearing had been and was being provided to RespondentNo.1 herein, who could furnish a reply to the show cause notice as wellCas appear personally with material in its support. The principles of naturaljustice were observed to have been complied with and Respondent No.1herein was given liberty to appear before the FMC in pursuance to theshow cause notice and produce the material in support thereof. Theconclusion was that the final view was yet to be taken by the FMC, andDonly a show cause notice had been issued. As such, in the absence ofany adjudication on merits, it was a premature effort on the part ofRespondent No.1 herein to approach the High Court.

10. On the day of the aforesaid order being passed, once again, agrievance of entire documentation not being supplied was raised byERespondent No.2 herein. This request was rejected by the FMC withthe reasoning that all documents were either available in the public domainor not relevant. The subsequent endeavour of Respondent No.2 herein,to seek adjournment on 20.7.2011 in a bid to raise issues of jurisdictionwas not accepted. The order of the FMC dated 20.7.2011 recorded thatthree adjournments had already been granted. Thus, the endeavour ofFRespondent No.2 herein, either in his own name or on behalf ofRespondent No.1 herein, was only to seek postponement of theproceedings. As a last opportunity, Respondent Nos.1 and 2 herein weregiven time in the post-lunch recess session to address the FMC on theissue of jurisdiction, if they so desired, but the counsel for the saidGrespondents only expressed the request for adjournment, which wasapparently the only instructions to her. The proceedings were, thus,closed for orders and that order was pronounced on 23.7.2011.

11. The aforesaid order dated 23.7.2011 of the FMC opined againstRespondent Nos.1 and 2 herein. The endeavour of Respondent No.2Hherein to repeatedly seek adjournments was highlighted, especially as the proceedings in the High Court were filed only by Respondent No.1herein, albeit through Respondent No.2 herein. On jurisdiction, the FMCclarified that Section 8(2)(b) of the said Act empowers the CentralGovernment to make an inquiry in relation to the affairs of a registeredassociation. The relevant provisions read as under:

“8. Power of Central Government to call for periodicalreturns or direct inquiries to be made.—

[(1) Every recognised association and every member thereof shallfurnish to the Central Government such periodical returns relatingto its affairs, or the affairs of its members, or his affairs, as thecase may be, as may be prescribed.]

(2) Without prejudice to the provisions contained in sub-section(1) where the Central Government considers it expedient so todo, it may, by order in writing,—

(a) xxxx xxxx

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(b) appoint one or more persons to make an inquiry in relation tothe affairs of such association or the affairs of any of its membersand submit a report of the result of such inquiry to the CentralGovernment within such time as may be specified in the order or,in the alternative, direct the inquiry to be made, and the report tobe submitted, by the governing body of such association actingjointly with one or more representatives of the CentralGovernment; and”

12. This power of the Central Government had been delegated tothe officers of the FMC by Government Notification S.O. Nos.1162 and928 dated 4.4.1960 and 12.3.1964 respectively. On examination of merits,the attitude and the approach of Respondent No.2 herein was found tobe non-cooperative. On the basis of the documents gathered andstatements recorded during the course of inquiry, Respondent No.2 hereinwas held to be in complete breach of his fiduciary responsibility to theNMCE by systematically defrauding, misusing and misappropriating itsproperty and committing a series of crimes under various laws forbenefiting himself. Directions were issued to the NMCE to takeappropriate legal action against Respondent No.2 herein and his familymembers who benefitted from his acts.

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A13. In the meantime, the parallel proceedings in the High Courtbefore the learned Single Judge discussed aforesaid, resulted in an intracourt appeal filed by Respondent No.1 herein, once again, throughRespondent No.2 herein, in LPA No.1039/2011 filed on 15.7.2011.Interestingly, now Respondent No.2 herein filed an impleadmentapplication to implead himself in his personal capacity, which was allowed.BThe appeal was also amended to raise a challenge to the order dated23.7.2011 which had been passed by the FMC.

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14. The Division Bench of the Gujarat High Court in terms of itsorder dated 9.2.2012 allowed the appeal on the short ground that theFMC had not served the show cause notice on Respondent No.1 hereinCand the NMCE, effectively depriving them of the opportunity to presenttheir case before the FMC. Consequently, the order of the FMC dated23.7.2011 was quashed. The violation of the principles of natural justiceis all that weighed with the Division Bench, without getting into the meritsof the case.It also opined that if any documents were in possession ofDFMC and had not been supplied to Respondent No.1 herein, the sameshould be supplied subject to payment of usual charges.

15. The successor entity of the FMC, the SEBI, challenged thisorder by way of a Special Leave Petition before this Court, being SLPNo.10225-10227 of 2012 and in terms of an interim order dated 22.3.2012,Ethe operation of the order of the Division Bench dated 9.2.2012 wasstayed. The consequence of this was that the order of the FMC dated23.7.2011 stood revived. That it had consequences was not in doubt asvarious proceedings were initiated thereafter both civil and criminal. Thematter, however, remained at this stage before the Supreme Court righttill the passing of the order on 7.3.2018, 6 years later, in terms whereofFthe order of the High Court was set aside, which, had re-started theproceedings against Respondent Nos.1 and 2 herein. An opportunitywas given to the respondents herein to approach the Securities AppellateTribunal, Mumbai (for short ‘SAT’) by way of a statutory appeal againstthe order dated 23.7.2011. A 30 day time period was granted for theGsame. On the appeal being filed, it was held, that the SAT “will hear theappeal on merits.” Not only that, the interim order passed on 22.3.2012by this Court was directed to continue to have effect, and any proceedingsinitiated in pursuance of the order dated 23.7.2011 passed by the FMC(now SEBI) was to abide by the final result of the appeal. The judgmentof the Division Bench was specifically set aside.H

16. We may note that one of the main issues before us is theconsequence of the aforesaid order in view of what has transpired beforethe SAT and the High Court thereafter.

17. Respondent Nos.1 and 2 herein, in pursuance of the aforesaidliberty, filed Appeal No.96 of 2018 before the SAT, which passed theorder dated 18.10.2019. It appears that the substratum of the pleas raisedby Respondent Nos.1 and 2 herein was the lack of adequate and properopportunity of hearing given to them, before passing of the order dated23.7.2011.The requests for provision of further documents which hadbeen denied earlier and the lack of jurisdiction of the FMC to issue theshow cause notice under the said Act were re-agitated. The order dated18.10.2019 of the SAT, impugned before this Court is predicated on theabsence of any show cause notice to Respondent No.1 herein. Thisaspect was noted to have been conceded by the FMC before the DivisionBench of the High Court along with an assurance to carry out the same.The relevant extract in this behalf is as under:

“9. The aforesaid contentions raised by the learned counsel forthe appellants is vehemently contested by Mr. P.S. Champaneri,learned Assistant Solicitor General of India and learned AdvocateMr. Navin Pahwa, appearing for respondent No.3 and 7, however,they have agreed that no show cause notice has been issued eitherto the appellant No.1 and/or respondent No.3-NMC by respondentNo.1-Commission. At this stage, learned counsel for therespondent No.1 Commission Mr. Champaneri states that theywill be issuing a show cause notice to the appellants as well asrespondent No.3 as contemplated under the Forward Contracts(Regulation) Act, 1952 and Forward Contracts (Regulation) Rules,1954.”

18. The concession made on behalf of FMC was relied upon bythe SAT to reach a conclusion that once a concession has been made bythe concerned authorities themselves and undisputedly no notice wasissued to Respondent No. 1 herein and NMCE, the proceedings mustemanate from the show cause stage. The SAT did take cognizance ofthe developments that had taken place subsequent to the issuance ofshow cause notice, focusing on the allegedly arbitrary denial of documents,to the requests made by Respondent No.2 herein. On the issue of requestfor adjournment on 20.7.2011, the SAT noted that only two weeks hadelapsed from the date when the documents were supplied and, thus, A

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Afurther request for adjournment could not be said to be unreasonableespecially as the documents were voluminous, running into thousands ofpages. Thus, the time period for filing the reply was found to beinadequate. Consequently, the order dated 23.7.2011 passed on a Saturday,a non-working day of the FMC, was set aside and a reasonableopportunity was directed to be given to Respondent No.2 herein and theBNMCE for the purposes of filing objections/reply to the show causenotice.

19. The successor to the FMC, SEBI was directed to grantadequate time to Respondent Nos.1 and 2 herein to file their reply and ifan application requesting the supply of documents was filed, the sameCwas to be dealt with in accordance with law. The issue of jurisdictionwas also to be considered and decided by the SEBI in accordance withlaw.

20. The appeals before this Court have emanated under Section15Z of the Securities and Exchange Board of India Act, 1992 – CivilDAppeal No.9037 of 2019 having been filed by the Indian CommodityExchange Limited (the successor of NMCE) while Civil Appeal No.629of 2020 is by the SEBI, the successor of the FMC with NOL and Mr.Kailash being common respondents. Notice was issued on 2.12.2019 inCivil Appeal No. 9037/2019 and interim order was passed directing statusEquo with regard to operation of the impugned order to the extent it operatedagainst the appellant. The SEBI’s appeal was tagged with this matter.There are other appeals also but it was agreed that these two appealsshould be taken up first as they may have ramifications on the result ofthose appeals. This was recorded in order dated 11.9.2020. Thus, thesetwo appeals were heard and judgment reserved on 5.11.2020 after hearingFlearned counsels for the parties.21. We have gone through the record before us and perused thesynopses placed before us apart from the submissions made in Court.

22. The stand of the ICEL becomes relevant to the extent that theGorder of the SAT is predicated on ICEL not being served the show causenotice. This really does not withstand scrutiny, for the reason they hadnot sought so and, in fact, are themselves in appeal before us. Thus, thedenial of opportunity to be heard is really being claimed only byRespondent Nos.1 and 2 herein. In fact, what has been urged before usby the ICEL is that, while the challenge before the Gujarat High CourtHwas laid only by Respondent No.1 herein, it is Respondent No.2 herein

who was simultaneously seeking adjournments before the FMC on onepretext or the other. This is despite the fact that Respondent Nos.1 and2 herein were addressing communications to the FMC interchangeablyon the same subject matter. As such, Respondent No.1 herein was fullyaware of the show cause notice and acknowledged the same as one,which had been addressed to the said respondent. Not only that, therewas no grievance ever made at the stage of final hearing before thelearned Single Judge about the absence of show cause notice. Thisaspect was sought to be brought in only at the stage of appeal, for thefirst time, that too by amending it after the order dated 23.7.2011 waspassed wherein the acts of Respondent No.2 herein of siphoning offmoney and interlinked issues was stated to require investigation and anadverse finding resulted. However, to our mind, that is not very relevantat this stage because that would amount to going into the merits of thecontroversy, which is not to be examined by us.

23. Mr. Dushyant Dave, learned senior counsel appearing for theICEL, sought to emphasise that the two respondents are only playinggames, when they are really one and the same entity. In a sense, it wasargued, that the corporate veil must be pierced to see what is really theendeavour of the said two respondents. Principles of natural justice, itwas urged, have to be seen in a holistic frame and cannot have astraitjacket formula. It was urged that adequate opportunities had beengranted to both the respondents and the third entity for whose benefitthe order was passed by the SAT, i.e., the NMCE is predecessor entityof the ICEL who itself has come up in appeal against the said order.The communications as well as the proceedings in the High Court allgive rise only to one conclusion that the two entities are treated as oneand the same by the said entities themselves.

24. In order to substantiate the contention learned counsel referredto the following judgments and related principles:

1. Chairman, Board of Mining Examination and ChiefInspector of Mines and Anr. v. Ramjee[1]: Compliance ofprinciples of natural justice requires only a substantial complianceand not every miniscule violation would spell illegality.

2. Titaghur Paper Mills Co. Ltd. and Anr. v. State of Orissaand Ors.[2]and Cement Workers Karamchari Sangh v. Jaipur 1 (1977) 2 SCC 256

2 (1983) 2 SCC 433

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AUdyog Limited and Ors.[3]: Mere denial of adjournment wouldnot always be violative of principles of natural justice, i.e.,adjournment is not a birthright.

3. Dharampal Satyapal Ltd. v. Deputy Commissioner ofCentral Excise, Gauhati and Ors.[4]: Principles of natural justiceBcannot be applied in a straitjacket formula and at times the futilityof giving relief is a matter of consideration. It all depends uponthe extent to which a person is likely to be affected. Not everycase where there is a violation of principles of natural justice,would the action be struck down and the matter referred back tothe authorities to take a fresh decision after complying with theCprocedural requirement. Therefore, every violation of a facet ofnatural justice may not lead to the conclusion that order passed isalways null and void. The validity of the order has to be decidedon the touchstone of prejudice. The ultimate test is always thesame, viz., the test of prejudice or the test of fair hearing.

D25. Mr. C.U. Singh, learned senior counsel canvassing the caseof the SEBI supported the plea raised by ICEL. He laid emphasis on thefact that the judgment of this Court in the earlier proceedings being SLPNo.10225-10227 of 2012 dated 7.3.2018, had put a quietus to the issueof any plea of violation of the principles of natural justice. This submissionEwas based on the fact that the order of the Division Bench of the GujaratHigh Court was predicated solely on denial of opportunity of fair hearingand that order had been set aside by the Supreme Court. The relegationof the proceedings to the SAT did not imply, in his view, that the wholechapter would be reopened, because this Court specifically opined thatthe appeal would be heard “on merits.” It was his submission, that anyFother reading would negate the very words and spirit of the order of thisCourt. This, he sought to support by the fact that in those proceedings,this Court in its wisdom considered it appropriate to continue the interimorder, which in turn meant that all proceedings initiated in pursuance ofthe order passed on 23.7.2011 would continue, subject to the final outcomeGof the proceedings before the SAT. He also emphasised on the fact thatenough opportunity was granted and no prejudice had been caused toRespondent Nos. 1 and 2 herein. No answer had been provided to theact of omission or commission of Respondent Nos.1 and 2 herein asspecified in the show cause notice and the inter se relationship of3 (2008) 4 SCC 701H4 (2015) 8 SCC 519

Respondent Nos.1 and 2 herein required a piercing of the corporate veilin view of the gross mismanagement.

26. On the other hand, the defence of the impugned order wasvehemently led by Mr. Rishabh Parikh, who did full justice to the task athand despite two senior counsels on the opposing side. It was hissubmission that the present proceedings being in the nature of an appealunder Section 15Z of the SEBI Act, it must answer the parameters ofthe provisions. The said provision reads as under:

“15Z. Appeal to Supreme Court.—Any person aggrieved byany decision or order of the Securities Appellate Tribunal may filean appeal to the Supreme Court within sixty days from the date ofcommunication of the decision or order of the Securities AppellateTribunal to him on any question of law arising out of such order:Provided that the Supreme Court may, if it is satisfied that theapplicant was prevented by sufficient cause from filing the appealwithin the said period, allow it to be filed within a further periodnot exceeding sixty days.”

.27. It was his submission that there was no question of law and,thus, the appeal was not maintainable. On the appeal of the ICEL, it wasstated that it had no locus to file the appeal as the issue related only toRespondent Nos.1 and 2 herein. But we negate this contention at thethreshold itself. ICEL had to approach this Court, as failure to serveshow cause notice to it was one of the grounds which weighed with theSAT, even though ICEL was not making any such claim.

28. Learned counsel strongly relied on the fact that the counselfor FMC had conceded before the Division Bench that no show causenotice was ever served upon Respondent No.1 herein and NMCE (whichfact, as aforesaid, is no longer relevant). Insofar as the direction of thisCourt in terms of the order dated 7.3.2018 is concerned, it was submittedthat the direction to the SAT to decide the matter on merits wouldencompass every aspect, including the one about the plea of violation ofprinciples of natural justice.

29. Learned counsel contended that the common thread of thearguments of both Respondent Nos.1 and 2 herein was that there hasbeen a violation of the principles of natural justice qua both of them.Incase of Respondent No.1 herein, the show cause notice was never issuedbut the shares it held in NMCE numbering 29,32,280 shares were A

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Acancelled by the FMC in its 23.7.2011 order. The order in question hadalso prohibited Respondent No.1 from holding any shares in anyassociation or exchange recognised by the Government in excess of 2%of the issued capital. Thus, the rights of Respondent No.1 herein hadbeen clearly affected without even the courtesy of a show cause notice.Insofar as Respondent No.2 herein is concerned, there was stated to beBa violation to the extent that no reasonable opportunity of hearing hadbeen granted as a 150 page long show cause notice was handed overwithout any documents. The documents running into more than 4,000pages were made available only on 5.7.2011 and the matter was closedin a period of 14 days denying Respondent No.2 herein the adjournmentCsought.

30. The task before us is all the more difficult because both set ofarguments in a sense would have their appeal at the first blush. Wehave, thus, endeavoured to charter a course based on the pleas and thedocuments before us, as also the manner of conduct of the proceedingsDby the FMC and the nature of defences, technical or on merits sought tobe raised by the first two respondents.

31. We have no doubt that a proper show cause notice was servedon Respondent No.2 herein. The moot point, however, remains as towhat is the effect of not serving him with the documents he sought forEand within the compass of time, which was given to him to respond.

32. Once again, it may be stated that a large part of the documentswould have been within the custody of the Respondent No. 2 herein orfor that matter with Respondent No.1 herein. However, this would notencompass all the documents. Not only that, when reliance is placed onFas many as 4,000 pages of documents, it would not be fair to expect thatthe party in question ferrets through its own record trying to locate thedocuments, when on basis of formation of an opinion for issuance of theshow cause notice, logic and requirement of law both would dictate thatthe show cause notice should be comprehensive enough with fullsupporting documents being handed over. The answer cannot be thatGthey are free to inspect 4,000 pages on their own! In fact, in so manyterms, ultimately most of those documents were made available and itwould not be appropriate to go back into the issue of whether thedocuments should have been supplied or not. In a sense, that chapterclosed with the supply of documents on 5.7.2011 even though someHmore documents were sought thereafter.

33. We fail to appreciate why there should have been a cussednessin handing over mere copies of documents when serious allegations andserious consequences which would flow to the respondents herein. Notonly that, the endeavour to conclude the proceedings within a span oftwo weeks thereafter cannot, in our view, be said to be an adequateopportunity as has been found by the SAT. An opportunity of hearing isnot a mere nicety but a valuable right. That it does not fall in a straitjacketformula is no doubt the accepted legal position [Dharampal SatyapalLtd.[5]].The question is whether there was substantial compliance of theprinciples of natural justice [Chairman, Board of MiningExamination[6]] and whether there were unnecessary adjournments beingsought, which were declined [Titaghur Paper Mills Co. Ltd. and Anr.[7]and Cement Workers Karamchari Sangh[8]]

34. We do feel that there was an endeavour to some extent byRespondent No.2 herein to prolong the proceedings but then looking intothe enormity of the contents of the show cause notice running into 150pages with documents spanning 4,000 pages supporting it, a reasonabletime had to be given to respond to the same.We may note that the wholeenquiry was at the behest of “independent enterprising journalist.” Themanner in which the proceedings were sought to be closed raises seriousdoubts in our mind that a fair process and opportunity has been extendedto Respondent No.2 herein.

35. Insofar as Respondent No.1 herein is concerned, not even aformal show cause notice has been issued. However, the fact remainsthat the communications addressed by Respondent Nos.1 and 2 hereindo give rise to a clear and unequivocal view that it was understood as anotice both to Respondent Nos.1 and 2 herein. That is how the partiesunderstood it. There is no doubt about the fact that Respondent No.1herein made an endeavour to approach the High Court challenging theshow cause notice at that time without being joined by Respondent No.2herein -though it was through Respondent No.2 but that endeavour failedas the proceedings before the FMC had not culminated into any order.It is only in the Letters Patent Appeal filed against that the order of theFMC dated 23.7.2011 was sought to be assailed and Respondent No.2

5 (supra)

6 (supra)

7 (supra)

8 (supra)

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Aherein joined the proceedings as a party in his personal capacity. Thereis, thus, to some extent truth in what has been alleged by the appellantsbefore us, i.e., that Respondent Nos.1and 2 herein are convenientlyplaying this game of coming up separately even though they are joined inall purposes. We are conscious of the fact that Respondent No.1 hereinis a separate legal entity being a registered company, but the concept ofBpiercing the veil is not unknown to law. By this process, the law eithergoes behind the corporate personality to the individual members or ignoresthe separate personality of the company. This course is adopted when itis found that the principle of corporate personality is flagrantly opposedto justice, convenience or the interest of the Revenue.[9] We are, thus, notCable to hold that there was a failure to serve show cause notice toRespondent No.1 herein merely because no such notice was specificallyaddressed to it. We are conscious of the fact that there was someconcession made before the Division Bench of the Gujarat High Courtby the counsel for the FMC. Be that as it may, we are of the view thatit would be a hyper technicality now to say that Respondent No.1 hereinDshould be served a fresh show cause notice, more so in view of thedirections which we are proceeding to pass in the present judgment.36. We now come to the plea based on the directions passed bythis Court on 7.3.2018 in the earlier appeal. No doubt the findings of theDivision Bench of the High Court based on the violation of the principlesEof natural justice were set aside. But this setting aside will have to beread in the context of the fact that it was felt that Respondent Nos.1 and2 had an adequate alternative remedy of appeal before the SAT. Nottoo much can be read into the use of the expression that the appeal hadto be decided “on merits.” The merits of a case include of factual andFlegal pleas. A plea of lack of opportunity to defend its case is also a legalplea. The order read as a whole only gives rise to the conclusion that thehearing was shifted to the SAT instead of before the High Court, in viewof it being the competent body.

37. Similarly, the continuation of the interim order passed ealier inthose proceedings on 22.3.2012, has to be read in the context of otherGconsequential proceedings having been initiated. The objective was thatthose proceedings should not be brought to a naught at this stage; buteven those were to abide by the result of the appeal before the SAT.We may also note with regret that on the one hand it has been contendedby the appellant that so many different proceedings have emanated and,H9 New Horizons Limited and Another v. Union of India and Others. (1995) 1 SCC478

thus, giving a fresh opportunity by issuing a fresh show cause noticehaving fresh proceedings before the SEBI would serve no effectivepurpose and yet the summary of those proceedings given to us showhardly any progress. It is not as if those proceedings are anywhere nearan advanced stage.

38. The impugned order of the SAT dated 18.10.2019 is predicatedon a plea of lack of adequate opportunity and there is no examination onmerits. The questions, thus, arises what would be the appropriatedirections to be passed since Respondent Nos.1 and 2 have to succeedin view of our aforesaid observations and what will be the nature ofrelegated proceedings.

39. We have already taken a view that directions passed by theSAT for the case to begin with the service of fresh show cause noticeswould not be an appropriate direction. In the conspectus of the factualposition from the proceedings which have taken place and the legalprinciples discussed, we are of the view that the following directionswould subserve the interest of justice and perfect the rights of the parties:

(i) No fresh show cause notice is required to be served onRespondent No.1 herein and the show cause notice dated21.6.2011 would be treated as a show cause notice to bothRespondent Nos.1 and 2 herein.

(ii) The documents already asked for by Respondent No.1 and2 herein and not supplied should be supplied. In order toobtain clarity on this issue, we direct that a list of documentssought for by either respondents be supplied to the SEBIwithin two weeks from the date of this order and thosedocuments are to be supplied by SEBI within two weeksthereafter.

(iii) Respondent Nos.1 and 2 herein are granted opportunity tofile their reply to the show cause notice without any furtherdelay within a period of four weeks after receivingaforementioned documents.

(iv) The SEBI would thereafter proceed to give an opportunityfor personal hearing both to Respondent Nos.1 and 2 hereinand these proceedings are to go on, on a day-to-day basisand no request for adjournment will be entertained in thisbehalf from either respondents..

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A(v)The SEBI would take a final view on the subject matterthereafter.

(vi) Needless to say, if Respondent Nos.1 and 2 herein areaggrieved by the same, the remedy against the same liesbefore the SAT.

B

(vii) We make it clear that all pleas as raised by RespondentNos.1 and 2 herein would be considered by the SEBI, legalor factual including but not confined to aspects of jurisdiction.In fact, this is the very purpose of relegating the proceedingsbefore the SEBI and not to SAT as the right of appeal is aCvaluable right to be exercised after adequate opportunity atthe first adjudication stage level.

40. The effect of the aforesaid direction is that the order of theFMC dated 23.7.2011 has been set aside and a fresh order has to bepassed. The different proceedings initiated, still pending almost at a nascent

Dstage, are in pursuance of that order. The natural consequence, thus,would be that those proceedings would have to be kept in abeyance forthe time being, till a view is taken by SEBI in pursuance of the directionspassed by this order and would have to abide by the decision taken bythe SEBI or in appeal arising therefrom. We clarify that were RespondentNos.1 and 2 herein to fail in their endeavours, it will not mean that thoseEother proceedings have to start de novo and can continue from thestage where they are, subject, of course, to the nature of directionspassed afresh by SEBI. Really speaking, this would not result in muchof a delay considering that nothing has happened till now.

41. We, thus, dispose of the appeals with the modification of theFimpugned order to the aforesaid extent leaving the parties to bear theirown costs and with the hope that the proceedings initiated againstRespondent Nos.1 and 2 herein, at least, now see the light of the day innot too far a time ahead.

GAnkit Gyan

Appeals disposed of.

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