Bombay HC: SEBI functioning will be hampered if exercise of its powers are preceded by mandatory personal hearing
The Bombay High Court bench of Justices Nitin Jamdar and Milind Jadhav observed, "…it will hamper the functioning of the SEBI if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provides for it or not."
The Petitioner – JK Paper Limited, had requested the Respondent – Securities and Exchange Board of India (SEBI) for a personal hearing regarding exemption application filed by it under a regulation governing employee stock options. The Board of SEBI refused the request for personal hearing.
The Petitioner had filed the petition to direct the Board to grant a personal hearing. The question before the court was whether the Board is obliged to grant a personal hearing to the petitioner while considering an exemption application under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.
The Petitioner had filed an appeal before the Securities Appellate Tribunal (SAT) under the Act of 1992 and the Securities Appellate Tribunal (Procedure) Rules, 2000. The Appellate Tribunal had allowed the appeal on 11 August 2020.
The Appellate Tribunal held that the SEBI had to give reasons in the order rejecting the exemption application. The Tribunal directed the SEBI to pass a reasoned order within the set time limit. The SEBI replied on 14 September 2020 stating that all the relevant submissions have been brought on record and there is no such requirement for a personal hearing.
Since the request for a personal hearing was refused, the Petitioner had approached Bombay High Court with a prayer that SEBI should be directed to give an opportunity for hearing to the Petitioner in respect its exemption application.
The Petitioner framed its prayer on three grounds. First, the proceedings are quasi-judicial in nature and therefore a personal hearing is necessary and contended that the language of Regulation 29 of the Regulations of 2014 provides for a personal hearing.
Lastly, the petitioner's prayed that whatever may be the nature of the power, considering the consequences, a personal hearing should be given. Besides the legal position, the Petitioner requested that in the facts of the case, it would serve the ends of justice, if a personal hearing is given.
The High Court after analyzing the facts denied granting JK Paper Ltd. an opportunity for a personal physical hearing with respect to an application made for exemption from the SEBI (Share Based Employee Benefits) Regulations, 2014, which were otherwise applicable to an employee stock option scheme started by JK Papers.
The Court remarked that there were no specific provisions in the 2014 regulations which mandated that an opportunity for personal hearing should be given. The petitioner had failed to establish that they were a special case or that there were any extra-ordinary circumstances warranting a personal hearing.
The High Court observed that "SEBI has framed several regulations on various aspects of the securities market. A large number of applications are filed before it. It will hamper the functioning of the SEBI if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provides for it or not."
The court was also of the opinion that, "It is a settled position that the requirement of compliance with the principle of natural justice can vary in different situations and conditions. Even where situations where principles of natural justice require an opportunity of hearing, it does not in all circumstances mean a personal hearing."
All of the grounds were rejected by the Bombay High Court as there is no duty on the Board while considering an exemption application under Regulation 29 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to give a personal hearing to the applicant. Therefore, the writ petitions challenging the SEBI's refusal to allow a personal hearing were quashed accordingly.