Bombay High Court: A Division bench of Nitin Jamdar and Milind Jadhav, JJ., observed that there is no duty on the SEBI Board while considering an exemption application under Regulation 29 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to give a personal hearing.

Petitioner requested respondent– SEBI for a personal hearing regarding exemption application filed by it under a regulation governing employee stock options. Though SEBI Board refused the rest fro personal hearing.

Question in the present petition is:

Whether the Board is obliged to grant a personal hearing to the petitioner while considering an exemption application under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014?

Answer for the above-stated question is — NO.

Facts and reasons in regard to the above-stated have been laid down.

An employee welfare trust named JK Paper Welfare Trust was formed by the petitioner.

On an earlier date in the year 2018, petitioner sought clarification regarding the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. SEBI informed that the Regulations 2014 apply to the petitioner.

Petitioner sought relaxation from the applicability of Regulations under Regulation 29 of the Regulations of 2014, the SEBI empowered to grant relaxation for the strict compliance of the Regulations.

Securities Appellate Tribunal held that the SEBI had to give reasons in the order rejecting exemption application and hence tribunal directed the SEBI to pass a reasoned order within the set time limit.

Since the request for a personal hearing was refused, the Petitioner has approached this Court with a prayer that SEBI be directed to give an opportunity of hearing to the Petitioner in respect to its exemption application.

Counsel for the petitioner, Senior Advocate, Janak Dwarkadas and Rafique Dada, Senior Advocate for respondents — SEBI.

High Court’s decision

Relying upon Regulation 29, petitioner sought exemption from the strict compliance of Regulations 1(3), 1(4), 3(1), 26(2) and 31(2)(b)(i) and (ii).

Regulation 3 specifies the manner of implementation of the schemes.

Regulation 26 mandates certain conditions regarding the position of shares of the company.

Regulation 31 specifies certain compliances.

Regulation 29: Power to relax strict enforcement of the regulations

(1) The Board may suo motu or on an application made by a company, for reasons recorded in writing, grant relaxation from strict compliance with any of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market.

(2) A company making an application under sub-regulation (1), shall pay a non-refundable fee of rupees one lakh by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by RBI or by way of a banker’s cheque or demand draft payable at Mumbai in favour of the Board.”

The Petitioner’s first contention is that the Appellate Tribunal in its order dated 11 August 2020 held that the power under Regulation 29 is a quasi-judicial power and since it is a finding rendered in the litigation between the parties the same is binding on SEBI.

High Court rejected the above contention of the petitioner.

The second contention of the petitioner was that irrespective of the finding of the Tribunal, this Court should hold that the power under Regulation 29 is quasi-judicial power and therefore, a personal hearing is mandated.

Bench stated that the power to grant relaxation under Regulation 29 is a discretion to be exercised by the SEBI, and the conditions to be imposed are in the interest of the investors.

Refusal to grant an exception under Regulation 29 is not the origin of liability. Grant of exemption is a matter of exception from the general rule contained under the Regulations. In view of the said, the second contention was also rejected.

Next limb argument of the Petitioner was that, on looking at the consequences that would follow, whatever may be the nature of Regulation 29, in requirement of fairness, transparency and principles of natural justice, personal hearing be read into these provisions.

In Supreme Court’s decision of Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I, (2008) 14 SCC 151, it was observed that the requirement of giving reasonable opportunity of being heard is generally read into the provisions of a statute, particularly when the order has adverse civil consequences and this principle will hold good irrespective of whether the power conferred on the statutory body or the tribunal is administrative or quasi-judicial.

In the above-cited case, the Supreme Court observed that reading of requirement of personal hearing in a statute when there are consequences cannot be applied as a rule. It was also stated that no general rule of universal application can be laid down to the applicability of principle audi alteram partem in addition to the provision.

Regulations of 2014 are a code in itself. They regulate eployee stock option schemes in the larger interest of the onvestors.

Court stated that,

If SEBI finds that exemption need not be granted, it will give reasons for the same which can be tested in appeal. If the conditions are arbitrarily imposed or that the exercise is perverse, the validity can be challenged.

Petitioner’s argument which proceeds on the footing that the principles of natural justice in all circumstances include personal hearing which is not a correct position of law.

Power in question is a discretionary power and the use of this discretion can be challenged in appeal within the well-settled parameters. Full transparency is maintained by permitting written submissions providing reasons and the right to appeal.

The apprehension expressed by the SEBI that by reading duty to give personal hearing in this Regulation would have adverse ramifications on its working cannot be said to be unwarranted.

Functioning of SEBI will be hampered if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provider for it or not.

[JK Paper Ltd. v. SEBI,  2020 SCC OnLine Bom 1378, decided on 06-10-2020]

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