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Right of appeal to be exercised after adequate opportunity at first adjudication stage level- SC

Right of appeal to be exercised after adequate opportunity at first adjudication stage level- SC relegated proceedings before SEBI



Indian Commodity Exchange Limited v. Neptune Overseas Limited & Ors.

Civil Appeal No.9037 Of 2019 With Civil Appeal No.629/2020

27th November, 2020.

Counsel for Appellant: Mr. Dushyant Dave, Mr. C.U. Singh.

Counsel for Respondents: Mr. Rishabh Parikh.


The Hon'ble Supreme Court Justices Sanjay Kishan Kaul and Hrishikesh Roy in this present case held that the order passed by the Forward Markets Commission is set aside and the proceedings initiated would have to abide by the decision taken by the SEBI since that is the natural consequence.


The Forward Contracts (Regulation) Act, 1952 was a sequitur to the initial prohibition of forward trading in certain commodities as a result of the Central Government issuing orders under Rule 81 of the Defence of India Rules during the war period. The National Multi Commodity Exchange of India Limited is registered with the FMC, under Section 14B of the said Act. Respondent No. 1 herein is a company registered under the Companies Act, 1956 dealing with export/import is the core promoter of NMCE, being its largest shareholder with 30.18% shareholding. Respondent No.2 herein was the founder and CEO of NMCE as well as the Managing Director of NOL. 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 abuse of position by Respondent Nos.1 & 2 herein. The FMC initiated an inquiry into the affairs of NMCE under Sections 8(2) and 8(4) of the said Act. A show cause notice was served addressing the 2nd Respondent giving him a period of 10 days from the date of receipt of notice to respond. It resulted in Respondent No.2 requesting for copies of documents relied upon in the show cause notice, a questioning of the jurisdiction of the FMC, and repeated requests for adjournments. The stand of FMC was that most of the documents were already under the control of Respondent No.2 herein or were either irrelevant or not relied upon.


Parallel proceedings were initiated by Respondent No.1 by filing Special Civil Application before the Gujarat High Court which sought to challenge the show cause notice and, inter alia, raised the issue that FMC had no jurisdiction, power or authority to commence or continue any enquiry or issue any directions. The principles of natural justice were observed to have been complied with and Respondent No.1 herein was given liberty to appear before the FMC in pursuance to the show cause notice and produce the material in support thereof. Thereafter, Respondent Nos.1 and 2 were given time in the post-lunch recess session to address the FMC on the issue of jurisdiction but the counsel for the said respondents only expressed the request for adjournment. the FMC clarified that Section 8(2)(b) of the said Act empowers the Central Government to make an inquiry in relation to the affairs of a registered association. Respondent No.2 herein was held to be in complete breach of his fiduciary responsibility to the NMCE by systematically defrauding, misusing and misappropriating its property and committing a series of crimes under various laws for benefiting himself. Directions were issued to take appropriate legal action. Meanwhile, the parallel proceedings in the High Court resulted in an intra court appeal filed by Respondent No.1, once again, through Respondent No.2 who now filed an impleadment application to implead himself in his personal capacity, which was allowed. Consequently, the order of the FMC was quashed.


The successor entity of the FMC, the SEBI, challenged this order by way of a Special Leave Petition before this Court. An opportunity was given to the respondents herein to approach the Securities Appellate Tribunal, Mumbai by way of a statutory appeal against the order for which a 30 day time period was granted. On the appeal being filed, it was held, that the SAT “will hear the appeal on merits.” The interim order passed by this Court was directed to continue to have effect, and any proceedings initiated in pursuance of the order passed by the FMC (now SEBI) were to abide by the final result of the appeal. The judgment of the Division Bench was specifically set aside. The stand of the ICEL becomes relevant to the extent that the order of the SAT is predicated on ICEL not being served the show cause notice. This really does not withstand scrutiny, for the reason they had not sought so and, in fact, are themselves in appeal before the court. Thus, the denial of opportunity to be heard is really being claimed only by Respondent Nos.1 and 2 herein.


The counsel for Appellants sought to emphasise that the two respondents are only playing games, when they are really one and the same entity. Principles of natural justice, it was urged, have to be seen in a holistic frame and cannot have a straitjacket formula. It was urged that adequate opportunities had been granted to both the respondents and the third entity for whose benefit the order was passed by the SAT, i.e., the NMCE is predecessor entity of the ICEL who itself has come up in appeal against the said order. The communications as well as the proceedings in the High Court all give rise only to one conclusion that the two entities are treated as one and the same by the said entities themselves. He relied upon Chairman, Board of Mining Examination and Chief Inspector of Mines and Anr. v. Ramjee (1977) 2 SCC 256 where it was held that compliance of principles of natural justice requires only a substantial compliance and not every miniscule violation would spell illegality and on Titaghur Paper Mills Co. Ltd. and Anr. v. State of Orissa and Ors. (1983) 2 SCC 433 and Cement Workers Karamchari Sangh v. Jaipur Udyog Limited and Ors. (2008) 4 SCC 701 where it was observed that mere denial of adjournment would not always be violative of principles of natural justice, i.e., adjournment is not a birthright.


The counsel laid emphasis on the fact that the judgment of this Court in the earlier proceedings, had put a quietus to the issue of any plea of violation of the principles of natural justice. This submission was based on the fact that the order of the Division Bench of the Gujarat High Court was predicated solely on denial of opportunity of fair hearing and that order had been set aside by the Supreme Court. The relegation of the proceedings to the SAT did not imply, in his view, that the whole chapter would be reopened, because this Court specifically opined that the appeal would be heard “on merits.” It was his submission, that any other reading would negate the very words and spirit of the order of this Court. He also emphasised on the fact that enough opportunity was granted and no prejudice had been caused to Respondent Nos. 1 and 2 herein. No answer had been provided to the act of omission or commission of Respondent Nos.1 and 2 herein as specified in the show cause notice and the inter se relationship of Respondent Nos.1 and 2 herein required a piercing of the corporate veil in view of the gross mismanagement.


The Respondent counsel submitted that there was no question of law and, thus, the appeal was not maintainable. On the appeal of the ICEL, it was stated that it had no locus to file the appeal as the issue related only to Respondent Nos.1 and 2 herein. But the court negated this contention at the threshold itself. Learned counsel strongly relied on the fact that the counsel for FMC had conceded before the Division Bench that no show cause notice was ever served upon Respondent No.1 herein and NMCE. The common thread of the arguments of both Respondent Nos.1 and 2 herein was that there has been a violation of the principles of natural justice qua both of them. The rights of Respondent No.1 herein had been clearly affected without even the courtesy of a show cause notice. Respondent No.2 was denied the adjournment sought.

The issue raised based on the contentions is as follows:

1) What would be the appropriate directions to be passed since Respondent Nos.1 and 2 have to succeed in view of our aforesaid observations and what will be the nature of relegated proceedings.


"The merits of a case include of factual and legal pleas. A plea of lack of opportunity to defend its case is also a legal plea. The order read as a whole only gives rise to the conclusion that the hearing was shifted to the SAT instead of before the High Court, in view of it being the competent body." (Para 36)


The court observed that the directions passed by the SAT for the case to begin with the service of fresh show cause notices would not be an appropriate direction. It held that the documents already asked for by Respondent No.1 and 2 herein and not supplied should be supplied to the SEBI and Respondent Nos.1 and 2 herein are granted opportunity to file their reply to the show cause notice without any further delay. The SEBI would thereafter proceed to give an opportunity for personal hearing both to Respondent Nos.1 and 2 herein and no request for adjournment will be entertained in this behalf from either respondents. If Respondent Nos.1 and 2 herein are aggrieved by the subject matter, the remedy against the same lies before the SAT. All pleas as raised by Respondent Nos.1 and 2 herein would be considered by the SEBI, legal or factual including but not confined to aspects of jurisdiction and this is the very purpose of relegating the proceedings before the SEBI and not to SAT as the right of appeal is a valuable right to be exercised after adequate opportunity at the first adjudication stage level. Hence, the appeal stands dismissed.



M. Maheswari


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