Uma Karthikeyan And Others vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

Appeal No. 514 of 2020 is filed against the order dated November 29, 2019 passed by the Adjudicating Officer (‘AO’for short) of the

Securities and Exchange Board of India (‘SEBI’ for short) imposing a monetary penalty upon the appellant for a sum of Rs. 1 crore to be paid

jointly and severally by the appellant and other noticees for violating Section 12A of the SEBI Act read with Regulations 3 & 4 of the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (‘PFUTP Regulations’ for short). Appeal No. 513 of 2020 is filed

against the order dated January 2, 2019 passed by the Whole Time Member (‘WTM’ for short) of SEBI directing the appellant and other

noticees to bring back USD 27.244 million and further restraining the appellant from accessing the securities market for a period of five years.

There is a delay of 319 days in Appeal No. 514 of 2020 and 650 days in Appeal No. 513 of 2020 and consequently there is an application in both

the appeals for condonation of the delay. One of the grounds is that it was an ex parte order and that the appellant came to know about the impugned

orders only in September 2020 when the father of the appellant found that the bank accounts of the appellant were attached. Since the issue in both

the appeals is common, the same have been clubbed together and are being decided together. We had also directed the respondent to file a reply with

regard to service of notice.

The appellant contends that she was an employee director in the company which issued GDR in April 2008 and May 2008. She had submitted her

resignation which was accepted by the company in August 2012 and requisite Form 32 was submitted to the Registrar of Companies (RoC). The

appellant contends that she and her husband migrated to Australia and are residing there for the past seven years. The agreement for sale of the

residential house was executed in August 2012 and they had vacated the said house when they migrated to Australia. It was stated that the appellant

came to know about the impugned orders pursuant to the attachment of her bank account in September 2020 which was issued pursuant to an

attachment notice dated September 11, 2020. On this ground it was submitted that the delay should be condoned and that the impugned orders should

be set aside as the appellant was never served with the show cause notice at any moment of time and that the entire proceedings before the AO and

the WTM were ex parte without serving the notices to the appellant.

The reply filed by the respondent in both the appeals contends that the show cause notice was initially sent at the registered office of the Company

which came back undelivered and thereafter it was sent at the last known address of the appellant which also came back undelivered. Ultimately, the

hearing notice along with show cause notice was served upon the appellant at the last known address by affixation. It was submitted that the service

of the notice was sufficient and was in compliance with Rule 7(c) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995

(‘Rules of 1995’ for short).

We have heard Shri Somasekhar Sundaresan, the learned counsel for the appellant and Shri Shyam Mehta, the learned senior counsel for the

respondent.

We find that the stand of the respondent is untenable. The AO had issued the show cause notice on February 12, 2018 and the WTM had issued

the show cause notice on December 8, 2017. In both the appeals the service has been made by affixation at the last known address of the appellant.

This address was the residential house which has been vacated by the appellant in the year 2012. Thereafter she migrated with her husband to

Australia and are living there since then. The fact that the appellant vacated her residential address; the fact that she entered into agreement for sale;

and the fact that she has migrated to Australia and is living there since 2012 has not been denied.

The contention of the respondent that service under Rule 7(c) by affixation has been made which is sufficient is patently erroneous. For facility,

Rule 7 of the Rules of 1995 is extracted here under:-

 “Service of notices and orders.

A notice or an order issued under these rules shall be served on the person in the following manner, that is to say,â€

(a) by delivering or tendering it to that person or his duly authorised agent;

(b) by sending it to the person by fax or electronic mail or courier or speed post with acknowledgement due or registered post with acknowledgement

due to the address of his place of residence or his last known place of residence or the place where he carried on, or last carried on, business or

personally works, or last worked, for gain:

Provided that a notice sent by Fax shall bear a note that the same is being sent by fax and in case the document contains annexure, the number of

pages being sent shall also be mentioned :

Provided further that a notice sent through electronic mail shall be digitally signed by the competent authority and bouncing of the electronic mail shall

not constitute valid service;

(c) if it cannot be served under clause (a) or clause (b), by affixing it on the outer door or some other conspicuous part of the premises in which that

person resides or is known to have last resided, or carried on business or personally works or last worked for gain and that written report thereof

should be witnessed by two persons; or

(d) if it cannot be affixed on the outer door as per clause

(c), by publishing the notice in atleast two newspapers, one in a English daily newspaper having nationwide circulation and another in a newspaper

having wide circulation published in the language of the region where that person was last known to have resided or carried on business or personally

worked for gain.â€​

A perusal of the aforesaid rule will indicate that the first step for serving a notice upon a person is by delivering or tendering it to that person or to

his duly authorised agent as per Rule 7(a) of the Rules of 1995. In the instant case no steps have been taken by the respondent to serve the appellant

as per Rule 7(a) and straightway the respondent have taken steps under Rule 7(b) and thereafter under 7(c). In our view it was not open to the

respondent to jump or skip Rule 7(a) and serve notice under Rule 7(b) and 7(c). If service had been attempted under Rule 7(a) by delivering or

tendering it to that person i.e. by personal service the person tendering the service would have found out that the appellant had left the premises.

Affixation at the address which has been vacated by the appellant is no service in the eyes of law. Thus, in our opinion without attempting service

under Rule 7(a), affixation under Rule 7(c) becomes irregular. In any view service has been attempted by affixation on the address which had been

vacated by the appellant since 2012 which fact has not been denied. Thus, we are of the opinion that service is insufficient. The appellant was not

served with the show cause notice, etc.

We further find that no proof has been filed to show that the impugned order was served upon the appellant.

In the light of the aforesaid, we are of the opinion that the cause shown is sufficient. The delay in the filing the appeal has been properly explained.

The delay is condoned. The application is allowed.

We are also satisfied that in view of the aforesaid, the show cause notice was never served upon the appellant nor was the appellant aware of the

date of hearing and therefore the proceedings proceeded ex parte which was in violation of the principles of the natural justice. The impugned orders

cannot be sustained and are quashed in so far as it relates to the appellant. Both the appeals are allowed with no order as to costs. The matter is

remitted to the AO / WTM to pass a fresh order after serving the show cause notice and after giving an opportunity of hearing and thereafter proceed

in accordance with law. In this regard, we direct the appellant to appear personally or through Advocate before the AO and WTM on June 15, 2021

and from there onwards the authority will proceed in accordance with law. In the circumstances of the case parties shall bear their own costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.