India: Delhi High Court On SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995

Case1 snippets:

  • SEBI issues show cause notice to the Petitioner & others for violating insider-trading norms ;
  • Hon'ble High Court sets aside SEBI's order in the Himalaya Granite matter;
  • Directs SEBI board to re-examine the case if required and pass fresh order;
  • The Hon'ble Court observed that adjudicating proceedings were not followed under prescribed norms;
  • The Hon'ble Court held that the Whole-Time Member (WTM) has not formed an independent opinion required to adjudging the matters

The Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (the "Rules"), were promulgated under the Securities and Exchange Board of India Act, 1992 (the "Act"), for cases where the Board is of the opinion that there are grounds for adjudging under any of the provisions in Chapter VI-A2 of the Act; the Board may appoint any of its officers not below the rank of Division Chief to be the adjudicating officer for holding an inquiry for the said purpose.

As per Rule 4 of the Rules, for the purpose of holding an enquiry, following procedure is required to be followed:

  1. For holding an inquiry for the purpose of adjudging, under sections of Chapter VI-A of the Act, whether any person has committed contraventions as specified in any of such sections, the adjudicating officer shall, in the first instance, issue a notice to such person requiring him to show cause within such period as may be specified in the notice (being not less than 14 days from the date of service thereof) why an inquiry should not be held against him;
  2. Every notice, as stated above, to any such person shall indicate the nature of offence alleged to have been committed by him;
  3. After considering the cause, if any, shown by such person, the adjudicating officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person before the adjudicating officer, either personally or through his lawyer or other authorized representative;
  4. On the date fixed, the adjudicating officer shall explain to the person proceeded against or his lawyer or authorized representative, the offence, alleged to have been committed by such person indicating the provisions of the Act, rules or regulations in respect of which contravention is alleged to have taken place;
  5. The adjudicating officer shall then give an opportunity to such person to produce such documents or evidence, as he may consider relevant to the inquiry and if necessary the hearing may be adjourned to a future date and in taking such evidence the adjudicating officer shall not be bound to observe the provisions of the Evidence Act, 1872;

    Provided that the notice and the personal hearing, referred to above may, at the request of the person concerned, be waived.
  6. While holding an inquiry under this rule the adjudicating officer shall have the power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which, in the opinion of the adjudicating officer, may be useful for or relevant to, the subject-matter of the inquiry;
  7. If any person fails, neglects or refuses to appear as required before the adjudicating officer, the adjudicating officer may proceed with the inquiry in the absence of such person after recording the reasons for doing so. Further, the Board can (if required) in its discretion, appoint a presenting officer in an inquiry;

Upon consideration of the evidence produced before the adjudicating officer, if the officer is satisfied that the person has become liable to penalty under any of the sections specified in section 15-I(1)3, he may, by order in writing, impose such penalty as he thinks fit in accordance with the provisions of the relevant section or sections specified in section 15-I. However, while adjudging the quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; and (c) the repetitive nature of the default. Further, every order (dated and signed by the adjudicating officer) made under sub-rule (1) shall specify the provisions of the Act in respect of which the default has taken place and shall contain brief reasons for such decisions.4

The adjudicating officer is required to send a copy of every order made by him under the Rules  to the person concerned and to the Board.5

Further, Rule 7 of the Rules prescribes the manner in which a notice or an order issued under the Rules has to be served on the person. These include:

  1. by delivering or tendering it to that person or his duly authorized agent;
  2. by sending it to the person by fax or electronic mail6 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;
  3. if it cannot be served as per (a) or (b) above, then 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
  4. if it cannot be affixed on the outer door, by publishing the notice in at least two newspapers, one in an 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.

As it can be seen from above, the Rules prescribe a robust and a clear roadmap on how an inquiry is to be made and its outcome is to be handled.

Case-at-hand before Hon'ble Delhi High Court7

The case pertains to a showcause notice issued by SEBI to the petitioner, who held over 5% stake in a listed-company named Himalaya Granites (the 'Company'), but failed to make disclosures under the Prohibition of Insider Trading (PIT) norms. The petitioner contested the move on the ground that the SEBI Board didn't follow the prescribed procedure provided under the Rules. It was averred by the Petitioner that the group of assistant managers of SEBI recommended proceedings against the entities without taking WTM's opinion and therefore, the appointment of adjudicating officer was without jurisdiction. Further, the penalty was imposed without a prior order under the PIT regulations.

Ruling by the Hon'ble Court

After deliberating upon the merits of the case in light of the applicable laws, the Hon'ble Court set aside SEBI's impugned order and asked the SEBI board or a WTM to examine the case as per the laws and accordingly pass a fresh order. The Hon'ble Court held that:

  1. A WTM had not formed "independent opinion' on whether there are grounds for adjudication in the said matter;
  2. As per the mandate of the Rules, it is apparent that formation of an opinion by the board is a pre-condition for the appointment of the adjudicating officer. In other words, in absence of such an opinion, an adjudicating officer cannot be appointed and any such appointment will be without jurisdiction;
  3. Typically, a whole-time member independently takes a call whether the case is fit for the adjudication, irrespective of the suggestion expressed by his juniors;
  4. If the board/member is of opinion that there are grounds for adjudging, then accordingly it appoints an adjudicating officer to hold an inquiry.
  5. While the SEBI pleaded that the adjudication was initiated after the member was prima facie satisfied that there are sufficient grounds to inquire into the matter and adjudicated upon the alleged violations; the Hon'ble Court held that there was no scope for inferring formation of such opinion merely for reason that an adjudicating officer has been appointed and other officers have forwarded their recommendations for such an action.
  6. The Hon'ble Court held8 that:

    "The formation of an opinion that there are grounds for adjudging under Chapter VIA of the Act is the necessary pre-requisite for the Board to exercise its jurisdiction. Absent such opinion, the Board would have no jurisdiction to appoint an Adjudicating Officer. There is no dispute as to the above proposition. The only controversy is whether the fact that the Board (Whole Time Member) had formed such opinion can be inferred from appointment of the Adjudicating Authority. Plainly, there is no scope for inferring formation of such opinion merely for the reason that an Adjudicating Officer has been appointed and other officers have forwarded their recommendations for such an action. As stated above, the Board has to form an independent opinion that there are grounds for adjudging under Chapter VIA of the Act. It is not necessary for the Board to elaborate its opinion or to provide reasons for the same. However, the least that is required for the Board is to state in unequivocal terms that in its opinion, there are grounds for adjudging under Chapter VIA of the Act before proceeding to appoint an Adjudicating Officer. It is necessary that the record clearly bears out that there is an application of mind on the part of the Board. The power to appoint an Adjudicating Officer has been delegated to the Whole Time Member. Therefore, it was necessary for him to have formed such opinion before proceeding further."

The judgment, if seen in the right perspective, is worthy of appreciation as it confirms the position that prescribed procedures need to be followed to ensure that authorities exercise their statutory powers carefully and consciously after satisfying themselves that the necessary conditions allowing exercise of powers have been met.


1. Amit Jain Vs. Securities and Exchange Board of India and Ors. ( MANU/DE/2408/2018 )

2. Chapter under the Act for Penalties and Adjudication

3. Power to Adjudicate

4. Rule 5 (Order of the adjudicating officer) of the Rules

5. Rule 6 (Copy of the Order) of the Rules

6. 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.

7. Amit Jain (supra) – Order dated 09.07.18

8. Para 36 of order dated 09.07.18

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions