Judgment:
1. Was the appellant served with a copy of the summons issued to him during the course of investigations and whether he failed to respond to those summons are the two questions which arise for our consideration in this appeal filed under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short "the Act") challenging the order of the adjudicating officer imposing a penalty of Rs. 10 lacs on the appellant. Facts giving rise to the appeal lie in a narrow compass and these may first be noticed.
2. The appellant before us is the director of Top Telemedia Ltd. (for short 'TTL') and also a director of Top Media Entertainment Ltd. (for short 'TMEL'). TTL and TMEL are listed companies and their shares are listed, among others, on the Ahmedabad Stock Exchange and Bombay Stock Exchange. The Securities and Exchange Board of India (hereinafter called "the Board") ordered investigations into the dealings in the shares of TTL and TMEL and appointed an Investigating Officer to investigate into the possible violations, inter-alia, of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as the "FUTP Regulations" and "the Stock Broker Regulations" respectively). During the course of the investigations, the Investigating Officer issued summons dated February 25, 2003 to the appellant requiring him to appear on March 7, 2003 and March 10, 2003 in respect of his dealings in the scrips of the two companies. Both these companies have their offices at Ahmedabad and Pune and it is common case of the parties that summons had been sent to the appellant both at Pune and Ahmedabad. Four sets of summons were sent, two at Ahmedabad and two at Pune. These summons were addressed to the appellant on the address of TTL and TMEL. The appellant claims that he did not receive any of these summons though the impugned order points out that the summons sent to the appellant on the TTL address at Ahmedabad had been received by TTL on his behalf. Admittedly, the appellant did not appear before the Investigating Officer on the dates mentioned in the summons. It appears that the Board initiated adjudication proceedings against him for not complying with the summons and on account of his failure to produce the requisite information sought from him. An adjudicating officer was appointed on 8.8.2003 who is said to have issued a notice dated 27.11.2003 to the appellant under Rule 4(1) of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter called "the Rules"). Under this rule, the adjudicating officer, in the first instance, is required to issue a notice requiring the delinquent (appellant herein) to show cause why an inquiry be not held against him. Rule 4(2) of the Rules requires that every such notice shall indicate the nature of offence alleged to have been committed by the delinquent. It will be relevant to refer to the notice issued to the appellant in this case. Paragraphs 5 and 6 of this notice which are relevant for our purpose read as under: Shri Sujit Prasad, Dy. General Manager, in his capacity as Investigating authority had issued summons to you on 25th February, 2003, requiring you to appear on 7th March 2003 at 10.30 a.m. with a direction inter alia to produce all the documents/details as mentioned in Annexure I to the summons. A copy of the said summons is attached herewith. The postal department had returned the summons with an endorsement that they visited the addressee on 1.3.2003, 3.3.2003, 4.3.2003 and 5.3.2003 and the cover could not be delivered as the addressee was not available.
You failed to appear before the Investigating Authority on the said date.
Having said that the postal department had returned the summons with an endorsement that they visited the addressee on different dates but could not deliver the same as he was not available, the notice proceeds to state that the appellant had failed to appear before the Investigating Officer on the appointed date. No where else in the notice does the adjudicating officer state that the summons had ever been received by the appellant. This notice dated 27.11.2003 was received by the appellant on 4.6.2004 alongwith a copy of the summons dated 25.2.2003. The appellant filed his detailed reply on 12.7.2004 stating that it was for the first time that he received the show cause notice on 4.6.2004 and that he had never received the summons dated 25.2.2003 and, therefore, there was no question of his having failed to respond to those summons. He, however, furnished the details of his trading in the scrips of the two companies, namely TTL and TMEL alongwith the statement of his demat accounts. The adjudicating officer is alleged to have sent some more notices to the appellant through TTL and TMEL which were returned undelivered. By his order dated September 19, 2006 the adjudicating officer found that the summons dated 25.2.2003 had been served on the appellant through the Ahmedabad office of TTL and since he did not respond to the summons he had failed to furnish the requisite information within the meaning of Section 15A of the Act and accordingly imposed a monetary penalty of Rs. 10 lacs on him. It is against this order that the present appeal has been filed.
3. We have heard the learned Counsel for the parties and are of the view that the appeal deserves to be allowed on the ground that the summons issued by the investigating authority had not been served on the appellant and, therefore, he could not comply with the same. The show cause notice dated 27.11.2003 issued by the adjudicating officer says so. As already noticed, the adjudicating officer had issued a show cause notice to the appellant on 27.11.2003 and again on 28.4.2004 which were admittedly not delivered. The adjudicating officer then sent a letter dated 28.5.2004 addressed to the two companies at their Ahmedabad address requiring them to serve the show cause notices on the appellant. Copies of the show cause notices dated 27.11.2003 and 28.4.2004 were sent alongwith the letter dated 28.5.2004 which was admittedly received by the appellant on 4.6.2004. We have reproduced the relevant part of the show cause notice in the earlier part of the order and it states that the summons dated 25.2.2003 had not been served on the appellant. The case of the appellant is also that he never received the summons. The show cause notice issued by the adjudicating officer lends support to the case of the appellant. Rules 4(1) and 4(2) of the Rules require that the noticee has to be informed about the nature of the offence alleged to have been committed by him.
It was, therefore, incumbent upon the adjudicating officer to have stated in the show cause notice that the summons issued to the appellant by the Investigating Officer had been served on him and he had failed to respond to those summons. The show cause notice does not contain these particulars. On the other hand, it specifically mentions that the summons remained undelivered and proceeds on the assumption that the appellant had failed to appear before the investigating authority on the appointed date. We are satisfied that the show cause notice dated 27.11.2003 itself establishes the case of the appellant and casts a doubt on the stand taken by the respondent that the appellant had been served through TTL at its Ahmedabad office. The learned Counsel for the respondent strenuously urged that the appellant had been served and in support of her contention she placed reliance on the acknowledgement receipt which purports to have been received by TTL at its Ahmedabad office. The adjudicating officer has also relied on this acknowledgement receipt to hold that the summons had been received by the appellant through TTL. The appellant on the other hand is consistent in his stand in stating that the summons had never been received during the course of the investigations and that those were received for the first time on 4.6.2004 alongwith the letter dated 28.5.2004. Having regard to the conflicting stand taken by the parties it cannot be said with certainty that the appellant had been served with the summons for the non-compliance of which he has been levied the monetary penalty. In this view of the matter it could not be said that the appellant had failed to furnish the information required from him through those summons. As already noticed earlier, the findings recorded in the impugned order are not in consonance with the show cause notice issued by the adjudicating officer himself and that is what lends credence to the story put up by the appellant. We also notice that at no stage prior to the passing of the impugned order was the appellant informed either by the adjudicating officer or by the Board that he had been served with summons during the course of investigation and that he had failed to furnish the requisite information. This, in our view, is necessary. We have, therefore, no hesitation in giving the benefit of doubt to the appellant.
In the result, the appeal is allowed and the impugned order set aside leaving the parties to bear their own costs.