"The Board Has Committed A Serious Error" Bombay HC Grants Relief To NDTV, Sets aside SEBI's Orders Rejecting Condonation Of Delay [Read Judgment]

The Bombay High Court on Wednesday allowed a petition filed by New Delhi Television Ltd and set aside orders passed by the Securities and Exchange Board of India rejecting NDTV's applications for condonation of delay in filing settlement applications after SEBI initiated adjudication proceedings against the channel for alleged violations of the Securities Contract (Regulation) Act, 1956.

Division bench of Justice Akil Kureshi and Justice SJ Kathawalla held that the grounds made out for condonation of delay applications filed by NDTV were elaborate and sufficient. Court said-

"These grounds were summarily rejected by recording one-line reason that the panel of whole-time members did not find the reasons sufficient.

In our opinion, the Board has committed a serious error."

Case Background

NDTV filed the writ petition in 2018 challenging orders dated August 23, 2017 and August 31, 2017 passed by SEBI rejecting two separate applications moved by NDTV for condonation of delay in filing settlement applications. The settlement applications were filed after SEBI initiated adjudication proceedings against the petitioner through a show-cause notice dated February 12, 2015 alleging violation of clause 36 of listing agreement on the ground that there was non-disclosure of a tax demand of Rs.450 crores which was raised under an assessment order dated February 21, 2014 against the company for the year 2009-2010. SEBI thereafter issued a corrigendum to the first show-cause notice on March 17, 2015.

NDTV filed its reply before SEBI contending that they were under legal advice and bona fide belief that the tax demand was not required to be reported under clause 36 of the listing agreement. They submitted additional documents under communications dated April 10, 2015 and May 12,2015. On June 6, 2015, SEBI passed order holding the petitioner liable for violation of clause 36 of the listing agreement and imposed a penalty of Rs.25 lakhs under section 23A of the Securities Contracts (Regulation) Act, 1956.

An appeal was filed against the said order by NDTV and on August 20, 2015 second show-cause notice was issued against the petitioner company and its Directors with additional allegation of delayed disclosure of certain sale of shares by KVL Narayan Rao, Group CEO and Executive Vice-Chairman and delayed disclosure by the petitioner under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. On June 8, 2016 a third show-cause notice was issued alleging further non-disclosures by NDTV.

Submissions

Advocates Fereshte Sethna and Adhiraj Malhotra submitted on behalf of NDTV that there was no contravention of SCRA and the issue of non-disclosure of tax demand as opposed what was alleged in the first two show-cause notices. Whereas, with respect to the allegations in the third show-cause notice, the case of the petitioner was that it could trace the proof of some of the disclosures but could not trace the proof of the rest.

Petitioners had made out sufficient grounds for condoning delay. Therefore, delay ought to have been condoned. Under the circumstances, without conceding to the correctness of the allegations made in the said show-cause notices, the petitioner took a decision to seek settlement of all the three cases, petitioner's advocates submitted. The said settlement application was returned on the ground that application for condonation of delay had not been filed. Later, the applications for condonation of delay were rejected.

Whereas, Senior Counsel Shiraz Rustomjee appeared for SEBI and argued that delay in both the cases was substantial which was not satisfactorily explained. The applications for condonation of delay did not disclose any ground for such long delay.

Rustomjee said-

"The orders, therefore, cannot be termed as unreasoned orders. The reasons, howsoever brief, have been recorded."

Judgement

The bench examined provisions of the SEBI Act, 1992, SEBI (Settlement of Administrative and Civil Proceedings) Regulations 2014 and noted-

"Bare perusal of both the impugned orders would suggest that the Board had not cited any reasons for rejecting the respective obligations of the petitioner for condonation of the delay. Mere statement that the panel of wholetime members did not find the reasons given as sufficient, would not constitute proper reasons for dealing with the applications.

Facts and grounds stated in both the delay condonation applications were different. However, both applications met with the same response from the Board. Citing identical one-line consideration both applications were rejected. It ought to have been appreciated that the result of rejection of delay condonation applications would be to terminate respective settlement applications without consideration on merits."

Observing that the grounds made out for condonation of delay were elaborate and sufficient, the bench set aside both the impugned orders passed by SEBI and allowed the petition 

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