WHY IT IS IMPORTANT TO REPLY ANY SHOW CAUSE NOTICE (SCN) ISSUED BY SEBI or BSE under SAST OR PIT REGULATIONS

WHY IT IS IMPORTANT TO REPLY ANY SHOW CAUSE NOTICE (SCN) ISSUED BY SEBI or BSE under SAST OR PIT REGULATIONS

It is found that the majoirty of companies or individuals fails to reply to any show cause notice issued by SEBI under SAST or PIT regulations.

It is important to answer  any Show Cause Notice (SCN) issued by SEBI or BSE under SAST or PIT regulations to the company or individual

MANDATORY REPORTING UNDER REGULATION 13(1) OF THE PIT REGULATIONS WITH IN 2 DAYS

Regulation 13(1) of the PIT Regulations requires any person who holds more than 5% shares in a company to disclose to the company in Form A, number of shares or voting rights held by him on becoming such holder within 2 working days of receipt of intimation of allotment of shares or the acquisition of shares or voting rights.

REPORTING AFTER ACQUISITION OF SHARES AGGREGATING TO 5% UNDER 29(1) READ WITH 29(3) OF THE SAST REGULATIONS

Similarly, Regulation 29(1) read with 29(3) of the SAST Regulations requires an acquirer, who acquires shares or voting rights in a target company aggregating to five per cent or more of shares of such target company to disclose their aggregate shareholding and voting rights in such target company to every stock exchange where the shares of the target company are listed and to the target company within 2 days of such acquisition.

Failure to reply the SCN or appear in person before and failure on the part of Noticee to furnish its reply, if any, towards the SCN within 15 days of its receipt, failing which, it shall be presumed that the Noticee has no reply to submit and the matter will be proceeded by SEBI on the basis of evidence available on record in terms of Rule 4(7) of the Adjudication Rules of SEBI.

It would also clearly mentioned in the aforesaid Notice of Hearing issued by adjudication authority of SEBI  that in case the Noticee fails to attend the hearing, the matter shall be proceeded on the basis of material available on record.

In majority of the cases initiated by the Adjudicating officer of the SEBI,it is observed that the Noticee did not submit any reply towards the SCN nor did they appear before the Adjudicating Officer on the date of hearing.

SUNBRIGHT STOCK BROKING LIMITED  CLASSIC CREDIT LTD. V. SEBI

The Hon’ble Securities Appellate Tribunal (hereinafter be referred to as, the “Hon’ble SAT”) in the matter of Adjudication Order in the matter of Sunbright Stock Broking Limited  Classic Credit Ltd. v. SEBI (Appeal No. 68 of 2003), wherein, it observed, “…the appellants did not file any reply to the second show-cause. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them”.

SANJAY KUMAR TAYAL & ORS. V. SEBI

The Hon’ble SAT in the matter of Sanjay Kumar Tayal & Ors. v. SEBI (Appeal No. 68 of 2013 dated February 11, 2014), wherein, it inter alia held that, “…appellants have neither filed reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges leveled against them in the show cause notices…”

 

 

DAVE HARIHAR KIRITBHAI V. SECURITIES AND EXCHANGE BOARD OF INDIA

The Hon’ble SAT in the matter of Dave Harihar Kiritbhai v. Securities and Exchange Board of India (Appeal No. 181 of 2014 dated December 19, 2014), wherein, it observed, “…further, it is being increasingly observed by the Tribunal that many persons/entities do not appear before SEBI (Respondent) to submit reply to SCN or, even worse, do not accept notices/letters of Respondent and when orders are passed ex-parte by Respondent, appear before Tribunal in appeal and claim non-receipt of notice and do not appear and/or submit reply to SCN but claim violation of principles of natural justice due to not being provided opportunity to reply to SCN or not provided personal hearing.

 This leads to unnecessary and avoidable loss of time and resources on part of all concerned and should be eschewed, to say the least. Hence, this case is being decided on basis of material before this Tribunal…”.

What Will Happen If Noticee Fails To Reply Show Cause Notice Issued By SEBI?

If the Noticee has deliberately failed to respond to the SCN and various Notices of Hearing despite due service of the notices upon him, it will be considered as violations under SEBI regulations. Moreover, in absence of any response towards the SCN and various notices of hearing from the Noticee, SEBI will be  concluding that the allegations and charges have been admitted by the Noticee due to his non-reaction or keeping silence on the subject and the adjudication proceedings against the Noticee are undertaken ex-parte on the basis of material available on record.

 

WHICH ACTION WILL SAVE THE NOTICEE OR COMPANY FROM SEBI ACTION FOR VIOLATION OF SAST OR PIT REGULATION.

  1. Noticee has to make mandated disclosures under the PIT Regulations and SAST Regulations .

  2. Failure to make disclosures on the part of Noticee would attract monetary penalty under Section 15A (b) of the SEBI Act.

  3. The monetary penalty that can be imposed by SEBI upon the Noticee taking into consideration the factors stipulated in Section 15J of the SEBI Act read with Rule 5 (2) of the Adjudication Rules of SEBI.

What Will Happen If Noticee Fails To Reply Show Cause Notice Issued By SEBI

If the Noticee has deliberately failed to respond to the SCN and various Notices of Hearing despite due service of the notices upon him, it will be considered as violations under SEBI regulations. Moreover, in absence of any response towards the SCN and various notices of hearing from the Noticee, SEBI will be  concluding that the allegations and charges have been admitted by the Noticee due to his non-reaction or keeping silence on the subject and the adjudication proceedings against the Noticee are undertaken ex-parte on the basis of material available on record.

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