The Securities Appellate Tribunal (SAT) has pulled up an adjudicating officer of Sebi for “inordinate delay” in issuing a show cause notice in a matter related to Shriram Insight Share Brokers Ltd. In addition, the tribunal has quashed a Sebi order, whereby the adjudicating officer had imposed a penalty of Rs 10 lakh on the brokerage house for certain violations.
The order came after Shriram Insight Share Brokers approached the tribunal against the Sebi order, passed in June 2020, on the ground that there was a delay on the part of the regulator in issuing the Show Cause Notice (SCN). Noting that the Securities and Exchange Board of India (Sebi) took seven-and-a-half years in issuing the SCN, the tribunal said the “view taken by the AO is patently erroneous and cannot be allowed to stand”.
“We are of the view, when a defense is raised by the appellant (brokerage house) it is the onerous duty of the AO, as a quasi judicial authority, to deal with the matter instead of skirting the issue and pushing it under the carpet without dealing with it. “The ground raised and not dealt with amounts to judicial indiscipline,” SAT said in an order passed on January 4.
In the present case, the tribunal noted that there was an inordinate delay in the issuance of the SCN. Further, no explanation was given by Sebi as to why the SCN could not be issued earlier.
“In the absence of any justification, we are of the view that the show cause notice was not issued within a reasonable time and, in fact there has been an inordinate delay in the issuance of the show cause notice. “We are further of the opinion that old and stale disputes should not be raised,” it added.
Even though there is no period of limitation prescribed in the Sebi Act in the issuance of a SCN or for completion of the adjudication proceedings, the tribunal have been relying on several Supreme Court judgments to make its point that the regulator should exercise its powers within a reasonable period.
Earlier, Sebi had conducted an inspection of the books of accounts pertaining to stock broking during January-February 2012 and later an inspection report was served to Shriram Insight Share Brokers in May 2012 and a reply was filed by it in June 2012. Thereafter, the SCN was eventually issued in December 2019 after seven-and-a-half years as to why an enquiry should not be held and penalty should not be imposed for the alleged violations.
In the notice, it was alleged that the broker committed certain violations, including non-settlement of running accounts and deficiencies in Know Your Clients (KYC) forms.