INDIAN COMMODITY EXCHANGE LIMITED versus NEPTUNE OVERSEAS LIMITED & ORS.
[2020] 13 S.C.R. 129, Supreme Court of India, 2020
Outcome: Disposed off
Segment: Ratio
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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, 7
and 8 – Respondent No.1 is Company (NOL) and respondent No.2
is the founder and CEO of National Multi Commodity Exchange
India Limited (NMCE) as well as Managing Director of NOL –
Respondent No.2 was served with a detailed show cause notice dated
21.06.2011 on basis of a communication by a independent journalist
to Forward Markets Commission (FMC) which alleged trading
irregularities within NMCE along with an allegtion of abuse of
position by respondent nos.1 and 2 – The notice gave respondent
no.2 a period of 10 days to respond and liberty to peruse any
documents within a period of 07 days from the date of receipt of
notice – Respondent no.2 requested for copies of documents,
questioned the jurisdiction of the FMC and made repeated requests
for adjournments – The respondent no.1 challenged the show cause
notice before the High Court – The High Court gave respondent
no.1 liberty to appear before the FMC and held that FMC is yet to
take a final view, it was premature effort of respondent no.1 to
approach the High Court – Before the FMC, the grievance of
respondent no.2 that entire documentation was not supplied was
rejected and it was reasoned that all documents were either available
in public domain or not relevant – On 20.07.2011, the
request for
adjournment was denied – By order dated 23.07.2011, the FMC
opined against respondent nos.1 and 2 and held hat respondent
no.2 was in complete breach of his fiduciary responsibility to the
NMCE by systematically defrauding misusing and misappropriating
its property – However, the Division Bench of the High Court held
that FMC had not serviced show cause notice on respondent no.1,
consequently, quashed the order dated 23.07.2011 – The Supreme
Court set aside the order of the Division Bench of the High Court
and directed the respondents to approach the Securities Appellate
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   [2020] 13 S.C.R. 129
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Tribunal (SAT) against the order dated 23.07.2011 – SAT found
absence of any show cause notice to respondent no.1 – SAT also
noted on the issue of request for adjournment on 20.07.2011 that
only two weeks had elapsed from the date when the documents were
supplied and thus, further request for adjournment was not
unreasonable as the documents were voluminous – The time to file
reply was also found inadquate – Therefore, the order dated
23.07.2011 passed by FMC was set aside and the successor to the
FMC, the SEBI was directed to grant adequate time to respondent
nos.1 and 2 to file their reply and the application for supply of
documents, if any, and the issue of jurisdiction to be decided in
accordance with law – Aggrieved, the SEBI and ICEL (successor of
NMCE) filed appeals before the Supreme Court – Held: When
reliance is placed on voluminous documents (4000 pages) it would
not be fair to expect that the party in question ferrets through its
own record trying to locate the documents, when on basis of
formation of an opinion for issuance of the show cause notice,
logic and requirement of law both would dictate that the show cause
notice should be comprehensive enough with full supporting
documents being hand over – The answer cannot be that party is
free to inspect 4000 pages on its own – SAT was right that adequate
opportunity was not given – As documents were voluminous,
reasonable time had to be given to respond to
the same – As far as
service of notice to respondent no.1 is concerned, both respondents
are joined in all purposes – Thus, there was no failure to serve
show cause notice to respondent no.1 merely because no such notice
was addressed to it – In the conspectus of the factual position, the
following directions are issued: (i) the show cause notice dated
21.06.2011 would be treated as a show cause notice to both
respondent nos.1 and 2; (ii) the list of documents asked by
respondents to be supplied by SEBI; (iii) Respondents granted
opportunity to file their reply to show cause notice; (iv) SEBI would
give an opportunity for personal hearing to both the parties and
take final view of the matter.
Natural Justice – Show cause notice with documents – Held:
The show cause notice should be comprehensive enough with full
supporting documents being handed over.
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Natural Justice – Opportunity to be heard – Held: Looking
into the enormity of the contents of the show cause notice running
into 150 pages with documents spanning 4,000 pages supporting
it, a reasonable time had to be given to respond to the same – After
handing over the copies of the documents, the proceedings were
concluded within the span of two weeks, which cannot be said to
be an adequate opportunity – An opportunity of hearing is not a
mere nicety but a valuable right – That it does not fall in a
straitjacket formula is the accepted legal position – The question is
whether there was substantial compliance of the principles of natural
justice and whether there were unnecessary adjournments being
sought, which were declined.
Company Law – Corporate veil – Respondent No.1 is Company
(NOL) and respondent No.2 is the founder and CEO of National
Multi Commodity Exchange India Limited (NMCE) as well as
Managing Director of NOL – Respondent No.2 was served with a
detailed show cause notice – Held: Respondent No.1 herein is a
separate legal entity being a registered company, but the concept
of piercing the veil is not unknown to law – By this process, the law
either goes behind the corporate personality to the individual
members or ignores the separate personality of the company – This
course is adopted when it is found that the principle of corporate
personality is flagrantly opposed to justice, convenience or the
interest of the Revenue – This Court is,
thus, not able to hold that
there was a failure to serve show cause notice to respondent No.1
herein merely because no such notice was specifically addressed to
it.
Disposing of the appeals, the Court
HELD: 1. This Court has no doubts that a proper show
cause notice was served on Respondent No.2.  The moot point,
however, remains as to what is the effect of not serving him with
the 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 the
documents would have been within the custody of the Respondent
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
OVERSEAS LTD.
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No. 2 herein or for that matter with Respondent No.1 herein.
However, this would not encompass all the documents.  Not only
that, when reliance is placed on as many as 4,000 pages of
documents, it would not be fair to expect that the party in question
ferrets through its own record trying to locate the documents,
when on basis of formation of an opinion for issuance of the show
cause notice, logic and requirement of law both would dictate
that the show cause notice should be comprehensive enough with
full supporting documents being handed over.  The answer cannot
be that they are free to inspect 4,000 pages on their own!  In fact,
in so many terms, ultimately most of those documents were made
available and it would not be appropriate to go back into the issue
of whether the documents should have been supplied or not.  In
a sense, that chapter closed with the supply of documents on
05.07.2011 even though some more documents were sought
thereafter.[Para 32][146-E-H]
3. This Court fails to appreciate why there should have been
a cussedness in handing over mere copies of documents when
serious allegations and serious consequences which would flow
to the respondents herein. Not only that, the endeavour to
conclude the proceedings within a span of two weeks thereafter
cannot, in view of this Court, be said to be an adequate opportunity
as has been found by the SAT. An opportunity of hearing is not a
mere nicety but a
valuable right. That it does not fall in a
straitjacket formula is no doubt the accepted legal position
[Dharampal Satyapal Ltd.]. The question is whether there was
substantial compliance of the principles of natural justice
[Chairman, Board of Mining Examination] and whether there were
unnecessary adjournments being sought, which were declined
[Titaghur Paper Mills Co. Ltd. and Anr. and Cement Workers
Karamchari Sangh]  [Para 33][147-A-C]
4. This Court does feel that there was an endeavour to some
extent by Respondent No.2 herein to prolong the proceedings
but then looking into the enormity of the contents of the show
cause notice running into 150 pages with documents spanning
4,000 pages supporting it, a reasonable time had to be given to
respond to the same. The manner in which the proceedings were
sought to be closed raises serious doubts that a fair process and
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opportunity has been extended to Respondent No.2 herein.  [Para
34][147-C-E]
5. There is, thus, to some extent truth in what has been
alleged by the appellants before us, i.e., that Respondent Nos.1
and 2 herein are conveniently playing this game of coming up
separately even though they are joined in all purposes. This Court
is conscious of the fact that Respondent No.1 herein is a separate
legal entity being a registered company, but the concept of piercing
the veil is not unknown to law. By this process, the law either
goes behind the corporate personality to the individual members
or ignores the separate personality of the company. This course
is adopted when it is found that the principle of corporate
personality is flagrantly opposed to justice, convenience or the
interest of the Revenue. This Court is, thus, not able to hold that
there was a failure to serve show cause notice to Respondent
No.1 herein merely because no such notice was specifically
addressed to it. This Court conscious of the fact that there was
some concession made before the Division Bench of the Gujarat
High Court by the counsel for the FMC. Be that as it may, this
Court is of the view that it would be a hyper technicality now to
say that Respondent No.1 herein should be served a fresh show
cause notice, more so in view of the directions which we are
proceeding to pass in the present judgment.  [Para 35][148-A-D]
6. In the conspectus of the factual position from the
proceedings
which have taken place and the legal principles
discussed, this Court is of the view that the following directions
would subserve the interest of justice and perfect the rights of
the parties:
i.
No fresh show cause notice is required to be served
on Respondent No.1 herein and the show cause notice
dated 21.6.2011 would be treated as a show cause
notice to both Respondent Nos.1 and 2 herein.
ii.
The documents already asked for by Respondent No.1
and 2 herein and not supplied should be supplied.  In
order to obtain clarity on this issue, we direct that a
list of documents sought for by either respondents
be supplied to the SEBI within two weeks from the
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
OVERSEAS LTD.
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date of this order and those documents are to be
supplied by SEBI within two weeks thereafter.
iii.
Respondent Nos. 1 and 2 herein are granted
opportunity to file their reply to the show cause notice
without any further delay within a period of four weeks
after receiving aforementioned documents.
iv.
The SEBI would thereafter proceed to give an
opportunity for personal hearing both to Respondent
Nos.1 and 2 herein and these proceedings are to go
on, on a day-to-day basis and no request for
adjournment will be entertained in this behalf from
either respondents..
v.
The SEBI would take a final view on the subject
matter thereafter.
vi.
Needless to say, if Respondent Nos.1 and 2 herein
are aggrieved by the same, the remedy against the
same lies before the SAT.
vii.
This Court makes it clear that 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.  In fact, 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.  [Para
39][149-C-H; 150-A-C]
Chairman, Board of Mining Examination and Chief
Inspector of Mines and Anr. v. Ramjee (1977) 2 SCC
256 : [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 Karamchari
Sangh v. Jaipur Udyog Limited and Ors. (2008) 4 SCC
701 : [2008] 5 SCR 276; Dharampal Satyapal Ltd. v.
Deputy Commissioner of Central Excise, Gauhati and
Ors. (2015) 8 SCC 519 : [2015] 6 SCR 437; New
Horizons Limited and Another v. Union of India and
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Others (1995) 1 SCC 478 : [1994] 5 Suppl.  SCR  310
– referred to.
Case Law Reference
[1977]  2 SCR  904
referred to
Para 24
[1983]  2 SCR  743 
referred to
Para  24
[2008] 5 SCR 276 
referred to
Para  24
[2015] 6 SCR 437 
referred to
Para  24
[1994]  5 Suppl.  SCR  310 
referred to
Para  35
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9037
OF 2019
From the Judgment and Order dated 18.10.2019 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 96 of 2018.
With
Civil Appeal No. 629 of 2020.
Mohit D. Ram, Pratap Venugopal, Ms. Surekha Raman, Ms. Ayushi
Gaur, Ms. Ila Haldia,  Akhil Abraham Roy For M/S. K J John And Co,
Abhinav Agrawal, Rishabh Parikh, Advs.  for the appearing parties.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
1. A lot of noise but no music!  The present case is a classic one
where multiple proceedings have been initiated but have resulted in no
culmination over a period just short of a decade.  And this is not so
because of any interdicts from the courts in preventing these legal
proceedings, yet the proceedings have hardly moved.  The result is that
the culpability of the first two respondents herein has not been determined
– thus, a cloud hangs over their conduct and that is all.
2.We now turn to The Forward Contracts (Regulation) Act, 1952
(hereinafter referred to as the ‘said Act’; since repealed by the Finance
Act, 2015),as the proceedings against the first two respondents herein
emanated from the powers
exercised under the said Act. The said Act
aimed to regulate certain matters relating to forward contracts, prohibition
of options in goods and for other connected matters.  A reading of the
statement of objects and reasons shows that the said Act 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.
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
OVERSEAS LTD. [SANJAY KISHAN KAUL, J.]
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3. Chapter II of the said Act provides for the Forward Markets
Commission (for short ‘FMC’), an authority to regulate commodities
futures market, which was established under Section 3, with its  functions
being provided under Section 4 of the said Act. The functions, inter
alia, were to advise the Central Government in respect of the recognition
of, or the withdrawal of recognition from, any association or in respect
of any other matter arising out of the administration of this Act; and to
keep forward markets under observation. Chapter III deals with the
recognition of associations concerned with the regulations and control
of forward contracts.  An application for such recognition of associations
had to be made under Section 5 of the said Act for grant of recognition
under Section 6.  Section 7 of the said Act dealt with withdrawal of
recognition.  The Central Government had the power under Section 8 to
call for periodical returns or direct inquiries to be made.  Suffice to say
that it is in exercise of these powers under Section 8(2) of the said Act
that the proceedings against Respondent Nos.1 & 2 herein commenced.
4. In the aforesaid play of the said Act, we now turn to National
Multi Commodity Exchange of India Limited (for short ‘NMCE’), which
is an association registered under the provisions of the said Act.  NMCE
is registered with the FMC, under Section 14B of the said Act.  The
subsequent development has
been that in pursuance of a scheme of
amalgamation, concluded in 2018, the Indian Commodity Exchange
Limited (for short ‘ICEL’), who is the Appellant before us, emerged as
the successor of NMCE.
5. Respondent No. 1 herein, Neptune Overseas Limited (for short
‘NOL’) is a company registered under the Companies Act, 1956 dealing
with  export/import and trading in various commodities including rubber.
This company is the core promoter of NMCE, being its largest
shareholder with 30.18% shareholding.  The role of Mr. Kailash
Ramkishan Gupta, Respondent No.2 herein, was dual in character – he
was the founder and CEO of NMCE as well as the Managing Director
of NOL.  The other related development is that the FMC, in view of the
said Act being repealed, itself merged with the Securities and Exchange
Board 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 abuse
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of position by Respondent Nos.1 & 2 herein. The proceedings that
transpired thereafter, and the related compliance with principles of natural
justice 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, exercising
powers under Sections 8(2) and 8(4) of the said Act as set out
hereinabove, read with the Government of India Notification S.O.
No.1162 dated 4.5.1960.  A detailed show cause notice dated 21.6.2011
was served under Section 4(b) of the said Act.  Section 4 (b) of the said
Act reads as under:
“4. Functions of the Commission.—The functions of the
Commission shall be—
(a) xxxx  xxxx
xxxx
xxxx
      xxxx
(b) to keep forward markets under observation and to take such
action in relation to them as it may consider necessary, in exercise
of the powers assigned to it by or under this Act;]
xxxx
  xxxx
xxxx
xxxx
       xxxx”
8. This notice, running into about 150 pages,was addressed to
Respondent No.2 herein, in his capacity as Vice Chairman of NMCE
and Chairman and Managing Director of Respondent No.1, NOL giving
him a period of 10 days from the date of receipt of notice to respond. A
personal hearing was fixed for 4.7.2011. Liberty was granted to
Respondent No.2 herein to peruse any documents within a period of 7
days from the date of receipt of notice, if he so desired.  This resulted in
a series of communications from 22.6.2011 to
20.7.2011, including  the
request of Respondent No.2 herein for copies of documents relied upon
in the show cause notice, a questioning of the jurisdiction of the FMC,
and repeated requests for adjournments.  Most of these letters were by
Respondent No.2 herein but on record is also a letter dated 2.7.2011
addressed by Respondent No.1 herein and signed by Respondent No.2
herein.  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. However, possibly to put the matter at rest, some
documents were supplied on 5.7.2011 and the hearing was consequently
adjourned to 13.7.2011.
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
OVERSEAS LTD. [SANJAY KISHAN KAUL, J.]
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9. In the course of these developments, parallel proceedings were
initiated by Respondent No.1 herein by filing Special Civil Application
No.8377 of 2011 before the Gujarat High Court. These proceedings
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 learned Single Judge
who considered the matter, construed the issuance of the show cause
notice to Respondent No.1 to be through Respondent No.2 herein.
Thus, in terms of order dated 8.7.2011, it was opined that
opportunity of hearing had been and was being provided to Respondent
No.1 herein, who could furnish a reply to the show cause notice as well
as  appear personally with material in its support. 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.  The
conclusion was that the final view was yet to be taken by the FMC, and
only a show cause notice had been issued. As such, in the absence of
any adjudication on merits, it was a premature effort on the part of
Respondent No.1 herein to approach the High Court.
10. On the day of the aforesaid order being passed, once again, a
grievance of entire documentation not being supplied was raised by
Respondent No.2
herein. This request was rejected by the FMC with
the reasoning that all documents were either available in the public domain
or not relevant.  The subsequent endeavour of Respondent No.2 herein,
to seek adjournment on 20.7.2011 in a bid to raise issues of jurisdiction
was not accepted.  The order of the FMC dated 20.7.2011 recorded that
three adjournments had already been granted.  Thus, the endeavour of
Respondent No.2 herein, either in his own name or on behalf of
Respondent No.1 herein, was only to seek postponement of the
proceedings. As a last opportunity, Respondent Nos.1 and 2 herein were
given time in the post-lunch recess session to address the FMC on the
issue of jurisdiction, if they so desired, but the counsel for the said
respondents only expressed the request for adjournment, which was
apparently 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 against
Respondent Nos.1 and 2 herein.  The endeavour of Respondent No.2
herein to repeatedly seek adjournments was highlighted, especially as
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the proceedings in the High Court were filed only by Respondent No.1
herein, albeit through Respondent No.2 herein. On jurisdiction, 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.  The relevant provisions read as under:
“8. Power of Central Government to call for periodical
returns or direct inquiries to be made.—
[(1) Every recognised association and every member thereof shall
furnish to the Central Government such periodical returns relating
to its affairs, or the affairs of its members, or his affairs, as the
case 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 to
do, it may, by order in writing,—
(a) xxxx     xxxx
xxxx
     xxxx
   xxxx
(b) appoint one or more persons to make an inquiry in relation to
the affairs of such association or the affairs of any of its members
and submit a report of the result of such inquiry to the Central
Government within such time as may be specified in the order or,
in the alternative, direct the inquiry to be made, and the report to
be submitted, by the governing body of such association acting
jointly with one or more representatives of the Central
Government; and”
12. This power of the Central Government had been delegated to
the officers of the FMC by Government Notification S.O. Nos.1162 and
928
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 to
be non-cooperative. On the basis of the documents gathered and
statements recorded during the course of inquiry, 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 the NMCE to take
appropriate legal action against Respondent No.2 herein and his family
members who benefitted from his acts.
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
OVERSEAS LTD. [SANJAY KISHAN KAUL, J.]
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13. In the meantime, the parallel proceedings in the High Court
before the learned Single Judge discussed aforesaid, resulted in an intra
court appeal filed by Respondent No.1 herein, once again, through
Respondent No.2 herein, in LPA No.1039/2011 filed on 15.7.2011.
Interestingly, now Respondent No.2 herein filed an impleadment
application to implead himself in his personal capacity, which was allowed.
The appeal was also amended to raise a challenge to the order dated
23.7.2011 which had been passed by the FMC.
14. The Division Bench of the Gujarat High Court in terms of its
order dated 9.2.2012 allowed the appeal on the short ground that the
FMC had not served the show cause notice on Respondent No.1 herein
and the NMCE, effectively depriving them of the opportunity to present
their case before the FMC. Consequently, the order of the FMC dated
23.7.2011 was quashed. The violation of the principles of natural justice
is all that weighed with the Division Bench, without getting into the merits
of the case.It also opined that if any documents were in possession of
FMC and had not been supplied to Respondent No.1 herein, the same
should be supplied subject to payment of usual charges.
15. The successor entity of the FMC, the SEBI, challenged this
order by way of a Special Leave Petition before this Court, being SLP
No.10225-10227 of 2012 and in terms of an interim order dated 22.3.2012,
the operation of the order of
the Division Bench dated 9.2.2012 was
stayed.  The consequence of this was that the order of the FMC dated
23.7.2011 stood revived. That it had consequences was not in doubt as
various proceedings were initiated thereafter both civil and criminal.  The
matter, however, remained at this stage before the Supreme Court right
till the passing of the order on 7.3.2018, 6 years later, in terms whereof
the order of the High Court was set aside, which, had re-started the
proceedings against Respondent Nos.1 and 2 herein.  An opportunity
was given to the respondents herein to approach the Securities Appellate
Tribunal, Mumbai (for short ‘SAT’) by way of a statutory appeal against
the order dated 23.7.2011. A 30 day time period was granted for the
same. On the appeal being filed, it was held, that the SAT “will hear the
appeal on merits.” Not only that, the interim order passed on 22.3.2012
by this Court was directed to continue to have effect, and any proceedings
initiated 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 judgment
of the Division Bench was specifically set aside.
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16. We may note that one of the main issues before us is the
consequence of the aforesaid order in view of what has transpired before
the SAT and the High Court thereafter.
17. Respondent Nos.1 and 2 herein, in pursuance of the aforesaid
liberty, filed Appeal No.96 of 2018 before the SAT, which passed the
order dated 18.10.2019. It appears that the substratum of the pleas raised
by Respondent Nos.1 and 2 herein was the lack of adequate and proper
opportunity of hearing given to them, before passing of the order dated
23.7.2011.The requests for provision of further documents which had
been denied earlier and the lack of jurisdiction of the FMC to issue the
show cause notice under the said Act were re-agitated.  The order dated
18.10.2019 of the SAT, impugned before this Court is predicated on the
absence of any show cause notice to Respondent No.1 herein.  This
aspect was noted to have been conceded by the FMC before the Division
Bench 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 for
the appellants is vehemently contested by Mr. P.S. Champaneri,
learned Assistant Solicitor General of India and learned Advocate
Mr. Navin Pahwa, appearing for respondent No.3 and 7, however,
they have agreed that no show cause notice has been issued either
to the appellant No.1 and/or respondent No.3-NMC by respondent
No.1-Commission. At this stage,
learned counsel for the
respondent No.1 Commission Mr. Champaneri states that they
will be issuing a show cause notice to the appellants as well as
respondent 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 by
the SAT to reach a conclusion that once a concession has been made by
the concerned authorities themselves and undisputedly no notice was
issued to Respondent No. 1 herein and NMCE, the proceedings must
emanate from the show cause stage.  The SAT did take cognizance of
the developments that had taken place subsequent to the issuance of
show cause notice, focusing on the allegedly arbitrary denial of documents,
to the requests made by Respondent No.2 herein. On the issue of request
for adjournment on 20.7.2011, the SAT noted that only two weeks had
elapsed from the date when the documents were supplied and, thus,
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further request for adjournment could not be said to be unreasonable
especially as the documents were voluminous, running into thousands of
pages. Thus, the time period for filing the reply was found to be
inadequate. Consequently, the order dated 23.7.2011 passed on a Saturday,
a non-working day of the FMC, was set aside and a reasonable
opportunity was directed to be given to Respondent No.2 herein and the
NMCE for the purposes of filing objections/reply to the show cause
notice.
19. The successor to the FMC, SEBI was directed to grant
adequate time to Respondent Nos.1 and 2 herein to file their reply and if
an application requesting the supply of documents was filed, the same
was to be dealt with in accordance with law. The issue of jurisdiction
was also to be considered and decided by the SEBI in accordance with
law.
20. The appeals before this Court have emanated under Section
15Z of the Securities and Exchange Board of India Act, 1992 – Civil
Appeal No.9037 of 2019 having been filed by the Indian Commodity
Exchange Limited (the successor of NMCE) while Civil Appeal No.629
of 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 in
Civil Appeal No. 9037/2019 and interim order was passed directing status
quo with regard to operation of the impugned order to the extent it operated
against the appellant. The SEBI’s appeal was tagged with this
matter.
There are other appeals also but it was agreed that these two appeals
should be taken up first as they may have ramifications on the result of
those appeals. This was recorded in order dated 11.9.2020. Thus, these
two appeals were heard and judgment reserved on 5.11.2020 after hearing
learned counsels for the parties.
21. We have gone through the record before us and perused the
synopses placed before us apart from the submissions made in Court.
22. 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 us. Thus, the
denial of opportunity to be heard is really being claimed only by
Respondent Nos.1 and 2 herein.  In fact, what has been urged before us
by the ICEL is that, while the challenge before the Gujarat High Court
was laid only by Respondent No.1 herein, it is Respondent No.2 herein
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who was simultaneously seeking adjournments before the FMC on one
pretext or the other. This is despite the fact that Respondent Nos.1 and
2 herein were addressing communications to the FMC interchangeably
on the same subject matter.  As such, Respondent No.1 herein was fully
aware of the show cause notice and acknowledged the same as one,
which had been addressed to the said respondent.  Not only that, there
was no grievance ever made at the stage of final hearing before the
learned Single Judge about the absence of show cause notice.  This
aspect was sought to be brought in only at the stage of appeal, for the
first time, that too by amending it after the order dated 23.7.2011 was
passed wherein the acts of Respondent No.2 herein of siphoning off
money and interlinked issues was stated to require investigation and an
adverse finding resulted.  However, to our mind, that is not very relevant
at this stage because that would amount to going into the merits of the
controversy, which is not to be examined by us.
23. Mr. Dushyant Dave, learned senior counsel appearing for the
ICEL, sought to emphasise that the two respondents are only playing
games, when they are really one and the same entity.  In a sense, it was
argued, that the corporate veil must be pierced to see what is really the
endeavour of the said two respondents.  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.
24. In order to substantiate the contention learned counsel referred
to the following judgments and related principles:
1. Chairman, Board of Mining Examination and Chief
Inspector of Mines and Anr. v. Ramjee1 : Compliance of
principles of natural justice requires only a substantial compliance
and not every miniscule violation would spell illegality.
2.  Titaghur Paper Mills Co. Ltd. and Anr. v. State of Orissa
and Ors.2 and Cement Workers Karamchari Sangh v. Jaipur
INDIAN COMMODITY EXCHANGE LTD. v. NEPTUNE
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1 (1977) 2 SCC 256
2 (1983) 2 SCC 433
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Udyog Limited and Ors.3 : Mere denial of adjournment would
not always be violative of principles of natural justice, i.e.,
adjournment is not a birthright.
3. Dharampal Satyapal Ltd. v. Deputy Commissioner of
Central Excise, Gauhati and Ors.4 :  Principles of natural justice
cannot be applied in a straitjacket formula and at times the futility
of giving relief is a matter of consideration.  It all depends upon
the extent to which a person is likely to be affected.  Not every
case where there is a violation of principles of natural justice,
would the action be struck down and the matter referred back to
the authorities to take a fresh decision after complying with the
procedural requirement.  Therefore, every violation of a facet of
natural justice may not lead to the conclusion that order passed is
always null and void. The validity of the order has to be decided
on the touchstone of prejudice. The ultimate test is always the
same, viz., the test of prejudice or the test of fair hearing.
25. Mr. C.U. Singh, learned senior counsel canvassing the case
of the SEBI supported the plea raised by ICEL. He laid emphasis on the
fact that the judgment of this Court in the earlier proceedings being SLP
No.10225-10227 of 2012 dated 7.3.2018, 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. This, he sought to support by the fact that in those proceedings,
this Court in its wisdom considered it appropriate to continue the interim
order, which in turn meant that all proceedings initiated in pursuance of
the order passed on 23.7.2011 would continue, subject to the final outcome
of the proceedings before the SAT. 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
3 (2008) 4 SCC 701
4 (2015) 8 SCC 519
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Respondent Nos.1 and 2 herein required a piercing of the corporate veil
in view of the gross mismanagement.
26. On the other hand, the defence of the impugned order was
vehemently led by Mr. Rishabh Parikh, who did full justice to the task at
hand despite two senior counsels on the opposing side. It was his
submission that the present proceedings being in the nature of an appeal
under Section 15Z of the SEBI Act, it must answer the parameters of
the provisions. The said provision reads as under:
“15Z. Appeal to Supreme Court.—Any person aggrieved by
any decision or order of the Securities Appellate Tribunal may file
an appeal to the Supreme Court within sixty days from the date of
communication of the decision or order of the Securities Appellate
Tribunal to him on any question of law arising out of such order:
Provided that the Supreme Court may, if it is satisfied that the
applicant was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further period
not 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 was
stated that it had no locus to file the appeal as the issue related only to
Respondent Nos.1 and 2 herein.  But we negate this contention at the
threshold itself. ICEL had to approach this Court, as failure to serve
show cause notice to it was one of the grounds which weighed with the
SAT, even though ICEL was not making any such claim.
28. 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 (which
fact, as aforesaid,  is no longer relevant). Insofar as the direction of this
Court in terms of the order dated 7.3.2018 is concerned, it was submitted
that the direction to the SAT to decide the matter on merits would
encompass every aspect, including the one about the plea of violation of
principles of natural justice.
29. Learned counsel contended that 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.In
case of Respondent No.1 herein, the show cause notice was never issued
but the shares it held in NMCE numbering 29,32,280 shares were
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cancelled by the FMC in its 23.7.2011 order.  The order in question had
also prohibited Respondent No.1 from holding any shares in any
association or exchange recognised by the Government in excess of 2%
of the issued capital. Thus, the rights of Respondent No.1 herein had
been clearly affected without even the courtesy of a show cause notice.
Insofar as Respondent No.2 herein is concerned, there was stated to be
a violation to the extent that no reasonable opportunity of hearing had
been granted as a 150 page long show cause notice was handed over
without any documents. The documents running into more than 4,000
pages were made available only on 5.7.2011 and the matter was closed
in a period of 14 days denying Respondent No.2 herein the adjournment
sought.
30. The task before us is all the more difficult because both set of
arguments in a sense would have their appeal at the first blush. We
have, thus, endeavoured to charter a course based on the pleas and the
documents before us, as also the manner of conduct of the proceedings
by the FMC and the nature of defences, technical or on merits sought to
be raised by the first two respondents.
31. We have no doubt that a proper show cause notice was served
on Respondent No.2 herein. The moot point, however, remains as to
what is the effect of not serving him with the documents he sought for
and 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 documents
would have been within the custody of the Respondent No. 2 herein or
for that matter with Respondent No.1 herein.  However, this would not
encompass all the documents.  Not only that, when reliance is placed on
as many as 4,000 pages of documents, it would not be fair to expect that
the party in question ferrets through its own record trying to locate the
documents, when on basis of formation of an opinion for issuance of the
show cause notice, logic and requirement of law both would dictate that
the show cause notice should be comprehensive enough with full
supporting documents being handed over. The answer cannot be that
they are free to inspect 4,000 pages on their own! In fact, in so many
terms, ultimately most of those documents were made available and it
would not be appropriate to go back into the issue of whether the
documents should have been supplied or not.  In a sense, that chapter
closed with the supply of documents on 5.7.2011 even though some
more documents were sought thereafter.
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33. We fail to appreciate why there should have been a cussedness
in handing over mere copies of documents when serious allegations and
serious consequences which would flow to the respondents herein.  Not
only that, the endeavour to conclude the proceedings within a span of
two weeks thereafter cannot, in our view, be said to be an adequate
opportunity as has been found by the SAT.  An opportunity of hearing is
not a mere nicety but a valuable right.  That it does not fall in a straitjacket
formula is no doubt the accepted legal position [Dharampal Satyapal
Ltd.5].The question is whether there was substantial compliance of the
principles of natural justice [Chairman, Board of Mining
Examination6] and whether there were unnecessary adjournments being
sought, which were declined [Titaghur Paper Mills Co. Ltd. and Anr.7
and Cement Workers Karamchari Sangh8]
34. We do feel that there was an endeavour to some extent by
Respondent No.2 herein to prolong the proceedings but then looking into
the enormity of the contents of the show cause notice running into 150
pages with  documents spanning 4,000 pages supporting it, a reasonable
time had to be given to respond to the same.We may note that the whole
enquiry was at the behest of “independent enterprising journalist.”  The
manner in which the proceedings were sought to be closed raises serious
doubts in our mind that a fair process and opportunity has been extended
to Respondent No.2 herein.
35. Insofar as
Respondent No.1 herein is concerned, not even a
formal show cause notice has been issued. However, the fact remains
that the communications addressed by Respondent Nos.1 and 2 herein
do give rise to a clear and unequivocal view that it was understood as a
notice both to Respondent Nos.1 and 2 herein.  That is how the parties
understood it. There is no doubt about the fact that Respondent No.1
herein made an endeavour to approach the High Court challenging the
show cause notice at that time without being joined by Respondent No.2
herein -though it was through Respondent No.2 but that endeavour failed
as 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 the
FMC 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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herein joined the proceedings as a party in his personal capacity.  There
is, thus, to some extent truth in what has been alleged by the appellants
before us, i.e., that Respondent Nos.1and 2 herein are conveniently
playing this game of coming up separately even though they are joined in
all purposes.  We are conscious of the fact that Respondent No.1 herein
is a separate legal entity being a registered company, but the concept of
piercing the veil is not unknown to law. By this process, the law either
goes behind the corporate personality to the individual members or ignores
the separate personality of the company. This course is adopted when it
is found that the principle of corporate personality is flagrantly opposed
to justice, convenience or the interest of the Revenue.9 We are, thus, not
able to hold that there was a failure to serve show cause notice to
Respondent No.1 herein merely because no such notice was specifically
addressed to it. We are conscious of the fact that there was some
concession made before the Division Bench of the Gujarat High Court
by the counsel for the FMC. Be that as it may, we are of the view that
it would be a hyper technicality now to say that Respondent No.1 herein
should be served a fresh show cause notice, more so in view of the
directions which we are proceeding to pass in the present judgment.
36. We now come to the plea based on the directions passed by
this Court on 7.3.2018
in the earlier appeal.  No doubt the findings of the
Division Bench of the High Court based on the violation of the principles
of natural justice were set aside.  But this setting aside will have to be
read in the context of the fact that it was felt that Respondent Nos.1 and
2 had an adequate alternative remedy of appeal before the SAT.  Not
too much can be read into the use of the expression that the appeal had
to be decided “on merits.” 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.
37. Similarly, the continuation of the interim order passed ealier in
those proceedings on 22.3.2012, has to be read in the context of other
consequential proceedings having been initiated.  The objective was that
those proceedings should not be brought to a naught at this stage; but
even 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 contended
by the appellant that so many different proceedings have emanated and,
9 New Horizons Limited and Another v. Union of India and Others. (1995) 1 SCC
478
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thus, giving a fresh opportunity by issuing a fresh show cause notice
having fresh proceedings before the SEBI would serve no effective
purpose and yet the summary of those proceedings given to us show
hardly any progress.  It is not as if those proceedings are anywhere near
an advanced stage.
38. The impugned order of the SAT dated 18.10.2019 is predicated
on a plea of lack of adequate opportunity and there is no examination on
merits.  The questions, thus, arises 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.
39. We have already taken a view that directions passed by the
SAT for the case to begin with the service of fresh show cause notices
would not be an appropriate direction. In the conspectus of the factual
position from the proceedings which have taken place and the legal
principles discussed, we are of the view that the following directions
would subserve the interest of justice and perfect the rights of the parties:
(i)
No fresh show cause notice is required to be served on
Respondent No.1 herein and the show cause notice dated
21.6.2011 would be treated as a show cause notice to both
Respondent Nos.1 and 2 herein.
(ii)
The documents already asked for by Respondent No.1 and
2 herein and not supplied should be supplied.  In order to
obtain clarity on this issue, we direct that a list of documents
sought
for by either respondents be supplied to the SEBI
within two weeks from the date of this order and those
documents are to be supplied by SEBI within two weeks
thereafter.
(iii)
Respondent Nos.1 and 2 herein are granted opportunity to
file their reply to the show cause notice without any further
delay within a period of four weeks after receiving
aforementioned documents.
(iv)
The SEBI would thereafter proceed to give an opportunity
for personal hearing both to Respondent Nos.1 and 2 herein
and these proceedings are to go on, on a day-to-day basis
and no request for adjournment will be entertained in this
behalf from either respondents..
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(v)
The SEBI would take a final view on the subject matter
thereafter.
(vi)
Needless to say, if Respondent Nos.1 and 2 herein are
aggrieved by the same, the remedy against the same lies
before the SAT.
(vii)
We make it clear that 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.
In fact, 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.
40. The effect of the aforesaid direction is that the order of the
FMC dated 23.7.2011 has been set aside and a fresh order has to be
passed. The different proceedings initiated, still pending almost at a nascent
stage, are in pursuance of that order.  The natural consequence, thus,
would be that those proceedings would have to be kept in abeyance for
the time being, till a view is taken by SEBI in pursuance of the directions
passed by this order and would have to abide by the decision taken by
the SEBI or in appeal arising therefrom.  We clarify that were Respondent
Nos.1 and 2 herein to fail in their endeavours, it will not mean that those
other proceedings have to start de novo and can continue from the
stage where they are, subject, of course, to the nature of directions
passed afresh by SEBI.  Really speaking, this
would not result in much
of a delay considering that nothing has happened till now.
41. We, thus, dispose of the appeals with the modification of the
impugned order to the aforesaid extent leaving the parties to bear their
own costs and with the hope that the proceedings initiated against
Respondent Nos.1 and 2 herein, at least, now see the light of the day in
not too far a time ahead.
Ankit Gyan
Appeals disposed of.