Module 8: Securities Litigation & Enforcement

Section 11C allows SEBI to investigate if it has reasonable ground to believe that transactions are being dealt with in a manner detrimental to investors or the securities market. The threshold is low - not conclusive proof.

An SCN must contain charges, material facts, evidence reference, proposed action, and time for reply. The final penalty amount is not mentioned in SCN - only the proposed/contemplated action. Final penalty is determined after hearing.

Under most SEBI regulations, the minimum time for reply to SCN is 21 days. Extensions are usually granted upon request.

Audi Alteram Partem means "hear the other side" - a fundamental principle of natural justice requiring that no person be condemned without being given opportunity to be heard.

Under Section 11C(5), search and seizure requires prior authorization from a Magistrate. SEBI cannot conduct search on its own authority.

Internal notes/communications not relied upon in the SCN are generally not required to be provided. Inspection right covers documents specifically relied upon by SEBI in framing charges.

Section 15-I(3) mandates that no penalty shall be imposed unless the person has been given a reasonable opportunity of being heard. This is a fundamental requirement.

IMSS is SEBI's surveillance system that automatically flags unusual trading patterns, price movements, and volume spikes for potential investigation.

Section 15T(2) provides that appeal must be filed within 45 days from the date on which copy of the order is received. Not from date of order.

SAT has jurisdiction over orders, not administrative/policy matters. SEBI policy circulars are not orders appealable to SAT - they must be challenged via writ in High Court.

Stay requires prima facie case, irreparable harm, and balance of convenience. Guarantee of winning is not required - only an arguable case on merits.

Rule 18 allows fresh evidence only if SAT is satisfied that it was not available or could not be produced before SEBI. It is not automatic.

Securities proceedings are civil in nature. The standard is preponderance of probability. However, for serious charges like fraud, a higher degree of probability is expected.

SAT can examine both facts and law. It has the power to re-appreciate evidence and substitute its findings for those of SEBI.

If the 45th day is a public holiday, the next working day applies for filing the appeal.

Section 15Z provides that appeal to Supreme Court must be filed within 60 days from the date of communication of SAT order.

Section 15Z explicitly limits appeals to questions of law arising out of the SAT order. Pure factual disputes are not entertainable.

In Kishore R. Ajmera, the Supreme Court emphasized that vague allegations without clear particulars violate principles of natural justice. Circumstantial evidence is permissible if cogent.

Interpretation of statutory provisions is a question of law. Credibility of witnesses, weight of evidence, and factual inferences are questions of fact not entertainable under S.15Z.

If S.15Z appeal is not maintainable (e.g., involves only facts), a Special Leave Petition under Article 136 may be filed, though it is discretionary.

Section 24 provides for imprisonment which may extend to 10 years, or fine up to Rs. 25 crore, or both.

Section 26 mandates that no court shall take cognizance except on complaint by SEBI or its authorized officer. FIR is not required.

Section 24A allows compounding of offences "not being an offence punishable with imprisonment only." If only imprisonment is prescribed (no fine alternative), compounding is not available.

Section 27 makes persons in charge of and responsible for conduct of business liable. They can escape liability by proving lack of knowledge or due diligence.

Section 24 expressly states "without prejudice to any award of penalty." Civil and criminal proceedings can proceed simultaneously - this is not double jeopardy.

For criminal prosecution, mens rea (criminal intent) is essential. Mere negligence or inadvertence does not constitute criminal offence under Section 24.

Section 24A allows compounding either before or after the institution of any proceeding. Compounding can be sought at any stage.

Article 20(3) right against self-incrimination applies to criminal proceedings. In civil proceedings, silence may attract adverse inference.

Section 28A provides for attachment, arrest, and receiver appointment. Criminal prosecution is a separate track under Section 24, not a recovery mode under S.28A.

Recovery proceedings require final order with no pending stay. If SAT/Supreme Court has granted stay, recovery cannot proceed.

Garnishee order directs the bank or third party holding money of the defaulter to pay that amount to SEBI. It is used for recovering money from bank accounts.

Disgorgement is a remedial measure to strip illegal gains - not punitive. It can be imposed alongside penalty for the same violation.

Section 11(4)(d) allows SEBI to freeze accounts during investigation to preserve assets pending inquiry - before any final order.

Recovery Officer orders are appealable to SAT under Section 15T, like other SEBI orders.

Third party whose property is wrongly attached can file objection before Recovery Officer with documentary proof of ownership.

IOSCO MMoU is a multilateral agreement among securities regulators worldwide for information sharing and enforcement cooperation.

MMoU permits use for civil/administrative enforcement; for criminal prosecution, consent of providing authority is required.

SEBI became a signatory to IOSCO MMoU in 2003.

Section 11(2)(ia) empowers SEBI to gather information for cooperation with foreign securities regulators under bilateral/multilateral agreements.

MMoU allows refusal if sharing would be prejudicial to sovereignty, security, or public interest. Mere inconvenience or cost is not valid ground.

Unsolicited sharing means proactively sharing information when a regulator discovers violations affecting another jurisdiction, without waiting for formal request.

Nemo Judex in Causa Sua means no one should be judge in their own cause - ensuring impartiality of the adjudicating authority.

Section 15T(2) provides limitation runs from date of receipt of order copy, not from date of order or upload.

In Abhijit Rajan, the Court held that trading while in possession of UPSI raises adverse presumption, and burden shifts to accused to rebut.

Both agencies can investigate their respective jurisdictions - SEBI for SEBI Act violations, Police/EOW for IPC/BNS offences.

Disgorged amounts are typically directed to be deposited in the Investor Protection Fund.

For criminal matters, MLAT (Mutual Legal Assistance Treaty) framework is used in addition to/instead of IOSCO MMoU.

SAT has wide interim relief powers including complete stay, conditional stay, partial stay, and status quo orders.

If freezing causes genuine operational hardship, apply to RO/SEBI for partial release for essential operations like salary payments.

Perversity means findings contrary to record or based on no evidence at all. Mere disagreement with findings is not perversity.