CHANDRAKANT AMRATLAL PAREKH Vs. ADJUDICATING OFFICER

JUDGEMENT

(1.) WHETHER an appeal lies against the communication dated January 22, 2007 sent by the adjudicating officer to the appellant informing the latter his decision to continue with the enquiry under Rule 4(3) of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter called the Rules) is the question which arises for our consideration in this appeal. Facts giving rise to this appeal which lie in a narrow compass are these: The Securities and Exchange Board of India (for short the Board) ordered investigations in respect of the irregularities allegedly committed in the Initial Public Offerings (IPOs) during the years 2003 to 2005. The investigation report revealed that a large number of intermediaries and others including the appellant had committed serious irregularities in the IPOs during the relevant period. On the basis of the report, the Board decided to initiate proceedings against the appellant under appellant and we are not concerned with those in the present case. We are only concerned with the adjudication proceedings which have been initiated against him. An adjudicating officer was appointed on May 25, 2006 to inquire into and adjudge under section 15HA of the Act the violations allegedly committed by the appellant. The adjudicating officer issued a notice dated June, 16, 2006 under Rule 4(1) of the Rules calling upon the appellant to show cause why an inquiry against him be not held in terms of section 15I of the Act. It is alleged that he (appellant) had acquired shares in various IPOs of the companies during the period 2003 to 2005 by making applications in the category reserved for retail investors through the medium of thousands of fictitious / benami applications. It is further alleged that the appellant had opened various demat accounts in fictitious names and made large number of applications for allotment of shares reserved for retail investors. The appellant is alleged to have violated Regulations 3, 4 and 6 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 which prohibit dealings in securities in a fraudulent manner. The appellant was required to file his reply within 15 days from the date of receipt of the notice. The appellant appeared before the adjudicating officer on 18.1.2007 through his counsel and filed a detailed reply pleading therein that the show cause notice was vague and devoid of substance and that there was no reason for the adjudicating officer to continue with the inquiry which, according to him, should be dropped. This plea of the appellant was considered by the adjudicating officer who did not find any substance therein and decided to conduct an inquiry in the matter. This decision was communicated to the appellant by letter dated January 22, 2007. It is against this communication that the present appeal has We have heard the learned counsel for the parties. Shri. Kumar Desai learned counsel for the respondent at the outset raised a preliminary objection that the impugned communication sent by the adjudicating officer was only a procedural order which does not affect the rights of the appellant and, therefore, the same is not appealable under section 15T of the Act. He placed reliance on a Division Bench judgment of the Bombay High Court in Harinarayan G. Bajaj v Securities Appellate Tribunal (2003) 42 SCL 548 in support of his plea. The learned counsel for the appellant controverted this submission and urged that the impugned communication affects the rights of the appellant and cannot be said to be procedural in nature. At this stage, we may refer to the relevant provisions of Section 15T of the Act and Rule 4 of the Rules which are reproduced hereunder for facility of reference: Sec. 15T Appeal to the Securities Appellate Tribunal. - (1) Save as provided in sub -section (2), any person aggrieved, - (a) by an order of the Board made, or (b) by an order made by an adjudicating officer under this Act, may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter. Holding of inquiry, Rule - 4(1). In holding an inquiry for the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H whether any person has committed contraventions as specified in any of sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H, the adjudicating offer 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 fourteen days from the date of service thereof) why an inquiry should not be held against him. (2) Every notice under sub -rule (1) to any such person shall indicate the nature of offence alleged to have been committed by him. (3) If, 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 date for the appearance of A reading of section 15T as reproduced above would make it clear that any person who feels aggrieved by an order made by an adjudicating officer can file an appeal before the Securities Appellate Tribunal. The words an order made by an adjudicating officer though wide would exclude merely procedural orders or those which do not affect the rights or liabilities of the parties. We cannot accept the contention that each and every order passed by the adjudicating officer could be appealed against. In Shankarlal Aggarwal & ors.. v. Shankarlal Poddar & ors. AIR 1965 SC 507 the learned judges of the Apex court were considering the words order or decision occurring in section 202 of the Companies Act, 1913 and agreed with the Bombay High Court that the words though wide would exclude merely procedural orders or orders which do not affect the rights of the parties. In Bant Singh Gill v. Shanti Devi AIR 1967 SC 1360 the provisions of section 34 of the Delhi and Ajmer Rent Control Act, 1952 came up for consideration and the word order used therein without any limitation was interpreted to exclude all interlocutory orders or other similar orders passed in the course of the trial of a suit. The order of the trial court holding that the suit had not abated and that it shall continue was held to be an interlocutory order against which no appeal could be filed though the said finding could be challenged in an appeal against the final order to be passed in the suit. In the case before us, the adjudicating officer is of the view that the appellant had not shown sufficient cause as a result of which the proceedings could not be dropped and that the inquiry shall continue. If the final order passed by the adjudicating officer goes against the appellant, it shall be open to him to challenge the said finding in that appeal. In that sense the order passed by the adjudicating officer is an interlocutory order against which no appeal would lie. The fact that the order is interlocutory is also clear from Rule 4(1) and (3) of the Rules. The adjudicating officer had issued a notice under Rule 4(1) in the first instance officer found that no cause had been shown and, therefore, the inquiry should be held. It is this decision which was communicated by the impugned letter. It follows that if the appellant had shown sufficient cause the adjudicating officer would have dropped the proceedings but this is not the case. Since the impugned letter communicates to the appellant that the inquiry shall continue, the decision taken by the adjudicating officer at this stage is obviously interlocutory in nature and does not affect the rights of the appellant. As already observed, if the final order goes against the appellant it will be open to him to challenge the same in appeal and in that appeal it will be open to him to challenge the decision of the adjudicating officer to continue with the inquiry. The order being interlocutory, we are of the considered view that no appeal is competent. In this view of the matter, the preliminary objection raised on behalf of the respondent is upheld. Consequently, the appeal is dismissed with no order as to the costs.