Delhi High Court: While hearing two cross letters patent appeals assailing the judgement dated 9-7-2018 (‘impugned order’) wherein the Single Judge of the Court had set aside adjudication proceedings under the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (‘SEBI Adjudication Rules’), the Division Bench of *Anil Kshetarpal, J and Harish Vaidyanathan Shankar, J, held that the appointment of an Adjudicating Officer (‘AO’) is an administrative step that does not require a prior, reasoned recorded opinion.
Background
The proceedings originated from a communication dated 10-10-2011 issued by the Bombay Stock Exchange to the Securities and Exchange Board of India (‘SEBI’), flagging suspected violations of disclosure requirements under the SEBI (Prohibition of Insider Trading) Regulations, 1992 (‘PIT Regulations’) by certain shareholders of Himalaya Granites Ltd., including the respondent. SEBI had conducted an internal examination of transaction statements for the relevant period and noted alleged non-compliance with Regulations 13(3) and 13(5) of the PIT Regulations.
Based on recommendations made by internal committees within SEBI, adjudication proceedings were proposed under Section 15A(b) of the SEBI Act, 1992. A Whole Time Member approved initiation of proceedings, following which an AO was appointed under Section 15-I of the Act read with Rule 3 of the Securities and Exchange Board of India Adjudication Rules. Pursuant to such appointment, a Show Cause Notice dated 14-11-2013 (‘SCN’) had been issued to the respondent.
The respondent challenged the SCN and the appointment of the AO by filing a writ petition. The Single Judge allowed the petition, holding that in the absence of a recorded opinion by SEBI under Rule 3 that grounds existed for adjudication, the appointment of the AO was without jurisdiction. Aggrieved, SEBI preferred an appeal. The respondent also filed a cross-appeal supporting the reasoning of the Single Judge while raising additional jurisdictional objections.
Analysis, Law and Decision
The Court undertook a detailed examination of the statutory framework governing adjudication under the Securities and Exchange Board of India Act and the SEBI Adjudication Rules. Interpreting Rules 3, 4 and 5 conjointly, the Court held that Rule 3 merely requires the Board to be of the opinion that grounds exist for adjudging a contravention, and such formation of opinion need not be expressed in the form of a detailed or reasoned order at the stage of appointment of an Adjudicating Officer.
The Court clarified that the appointment of an AO is an administrative act, intended to set the adjudicatory process in motion, and does not involve any determination of rights or liabilities of the noticee. The quasi-judicial function commences only after the AO issues notice under Rule 4, considers the reply, conducts an inquiry, and reaches satisfaction under Rule 5 regarding the existence of a contravention and liability to penalty. The Single Judge, the Court held, had conflated the administrative stage of appointment with the adjudicatory stage of imposition of penalty.
The Court further noted that the Show Cause Notice issued in the present case clearly called upon the respondent to explain why an inquiry should not be held and specified the alleged violations, thereby conforming to Rule 4. The requirement of forming an opinion regarding the existence of a violation and imposition of penalty arises only after evidence is considered during inquiry, as envisaged under Rule 5.
On the respondent’s appeal, the Court agreed with the Single Judge’s conclusion that the PIT Regulations do not mandate SEBI to first pass an order under Regulation 14 before initiating adjudication proceedings under Chapter VI-A of the SEBI Act. The Court held that remedial measures under the Regulations operate independently and in addition to SEBI’s statutory power to impose penalties under the Act.
Allowing SEBI’s appeal, the Delhi High Court set aside the findings of the Single Judge insofar as they invalidated the appointment of the Adjudicating Officer and the Show Cause Notice. The cross-appeal filed by the respondent was dismissed. The adjudication proceedings were restored to be continued in accordance with law. No order as to costs was passed.
[Securities Exchange Board of India v. Amit Jain, LPA No. 412 of 2018, decided on 11-12-2025]
*Judgment Authored by: Justice Harish Vaidyanathan Shankar
Advocates who appeared in this case:
For the Appellant: Pratap Venugopal, Neeraj Malhotra, Senior Advocates, Sandhya Kohli, Nimish Kumar, Advocates
For the Respondent: Rishabh Jain, Advocate