NDTV gets relief as Bombay HC sets aside SEBI order rejecting condonation of delay

Granting relief to New Delhi Television Ltd (NDTV), the Bombay High Court on Wednesday allowed its petition seeking condonation of delay in filing a settlement application in proceedings initiated by the Securities and Exchange Board of India (SEBI) against the news network for alleged violations..In doing so, the High Court set aside orders of the SEBI under the Securities Contract (Regulation) Act, 1956, which had rejected NDTV’s applications for condonation of delay..A Division Bench of Justices Akil Kureshi and Justice SJ Kathawalla passed the judgment on Wednesday. .While stating that the grounds made out by the petitioners were elaborate and sufficient, the Court held that SEBI summarily rejected the settlement application by recording a one-line reason that its panel of whole-time members did not find the reasons sufficient. .The Court held, .“We find that the Board (SEBI) committed a serious error in rejecting both the applications for condonation of delay.” .Case Background .SEBI, through its show-cause notice dated February 12, 2015, had initiated proceedings against NDTV alleging violation of Clause 36 of the listing agreement. It was claimed that NDTV failed to disclose a tax demand of Rs. 450 crore, which was raised under an assessment order dated February 21, 2014 against the company for the year 2009-10. .SEBI thereafter issued a corrigendum to the first show-cause notice on March 17, 2015..NDTV filed a reply to the show-cause notice, contending that the news network was under legal advice and bonafide belief that the tax demand was not required to be reported under Clause 36 of the listing agreement. In this regard, NDTV submitted additional documents to SEBI..On June 4, 2015, SEBI passed an order holding NDTV liable for violation of Clause 36 and imposed a penalty of Rs. 25 lakh under Section 23A of the Securities Contracts (Regulation) Act, 1956..Aggrieved by this order, NDTV filed appeal before the Security Appellate Tribunal (SAT). At the time of filing the plea before High Court, the appeal was pending before SAT..Moreover, on August 20, 2015, SEBI issued another show-cause notice against the company, its key managerial persons and the Directors. The SEBI alleged non-disclosure of a tax demand of Rs. 450 crore, delayed disclosure of sale of shares by group CEO KVL Narayan Rao, and delayed disclosure under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992..On June 8, 2016, the SEBI issued a third show-cause notice to the news network, alleging further non-disclosures under provisions of the SEBI Regulations of 1997 for Substantial Acquisition of Shares and Takeovers. .NDTV sought a settlement in all three cases. However, SEBI, through an order of July 23, 2017, rejected its application for condonation of delay and returned the settlement applications. .This promoted NDTV to approach the Bombay High Court..Submissions by the Parties.Advocates Fereshte Sethna (DMD Advocates), Adhiraj Malhotra and Lokesh Aidasani, appearing for NDTV, argued that no personal hearing was granted by the SEBI, which was required under the statutory provisions..The petitioner also claimed that the SEBI order does not give any reasoning for its rejection of delay condonation, despite the fact that NDTV cited sufficient grounds..It was further submitted that in view of statutory provisions, the delay should have be construed liberally by the Board..Advocate Sethna argued,.“The very purpose of legislation is to bring about settlement as far as possible. The legislative intent cannot be destroyed by adopting a technical approach. SEBI thus committed a serious error in not entertaining settlement applications on merits simply rejecting on the ground of delay.” .However, opposing the plea by NDTV, Senior Counsel Shiraz Rustomjee and advocates Jai Chhabria, Mihir Mody, Nirav Parmar and Arnav Misra, who appeared for SEBI, contended that the delay in both the cases was substantial and that it was not satisfactorily explained..Rustomjee submitted, .“SEBI considered the applications on merits and recorded that for want of satisfactory reasons, delay cannot be condoned. The orders, therefore, cannot be termed as unreasoned orders. “.Closing his arguments, Rustomjee stated that the SEBI was under no obligation to grant any personal hearing, which, as a norm, is not granted at the stage of considering applications for condonation of delay. .What the Bombay High Court observed and held .The Court observed that sub-regulation 4 of the Securities and Exchange Board of India (Settlement Administrative and Civil Proceedings) Regulations, 2014 provides for an application for settlement. .It was noted that an application before the Board for settlement would be maintainable when a specified case is pending before the tribunal or in the court..Upholding NDTV’s claim, the Court noted that the power of condonation of delay has to be construed liberally. .“Ordinarily, the Courts always give precedence to decisions of disputes on merits instead of terminating proceedings on a technicality.”.The Court also observed that the settlement was offered in order to save time, cost, and to bring an early end to the litigation..It went on to observe that a bare perusal of the SEBI orders suggested that the Board had not cited any reasons for rejecting the applications of NDTV. Justice Akil Kureshi, who authored the judgment, observed,.“Mere statement that the panel of whole-time members did not find the reasons given as sufficient, would not constitute proper reasons for dealing with the applications.” .The Court also noted that despite the facts and grounds in both the applications being different, they were met with the same response from the Board, and were rejected citing an identical one-line reasoning..With these observations, the Court set aside the orders and allowed the petition by directing SEBI to decide the settlement applications on merits..While disposing of the plea, the Division Bench held that any order passed after the filing of the settlement in respect of the show-cause notice would be rendered invalid..Read the judgment: