Delhi HC sets aside attachment order passed by SEBI Recovery Officer

A Delhi High Court bench of Justice Rajiv Shakdher has struck down an order passed by the Recovery Officer of the Securities and Exchange Board of India (SEBI), as being non-est law..The petitioner, Balvir Singh, was a director of Alchemist Infra Realty Ltd., a company against which orders were passed by the SEBI in 2013. These orders were passed in view of a collective investment scheme that was launched by Alchemist without obtaining prior registration from SEBI..The orders, inter alia, required Alchemist to stop collecting any money, refund all dues and wind-up the said scheme. The aforesaid orders were passed against Alchemist and three of its directors (excluding the petitioner). In the event of failure to comply with the said order, SEBI said it would initiate prosecution and adjudication proceedings against Alchemist and the directors..The second part of the order also barred its directors (including the petitioner) from accessing the securities market, till all the collective investment schemes are wound up by the Company and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them..The Recovery Officer, however, through an order passed in March 2017, attached all accounts and lockers held by the petitioner..Under the SEBI Act, 1992, the Recovery Officer is granted the same powers as a Recovery Officer under the provisions of the Income Tax Act, 1961. Accordingly, Clause 2 of Schedule 2 of the Income Tax Act requires the Recovery Officer to issue a 15-day demand notice to the defaulter, for a response. Clause 3 further prohibits any action prior to expiry of the said 15 day time period, unless the Officer is of the belief that the defaulter is likely to conceal, remove or dispose of such property..In this case, however, the order of attachment was passed simultaneously with the issuance of recovery certificate without giving requisite notice prior to issuance of the impugned order of attachment..The grievance of the petitioner was thus two-fold:.1) That, given the distinction made by the SEBI in its 2013 order, the petitioner isn’t liable to refund any sum and is only barred from accessing the securities market till the time the other named directors have complied with the orders of refunding and winding up. Accordingly, his property is not liable to attachment, to begin with..2) That, he wasn’t given a hearing as he is entitled to under Clause 2 of Schedule 2 of the Income Tax Act.Not convinced with the reasoning provided with the Recovery Officer in his defence, the Delhi High Court set aside the order of attachment while giving liberty to the Recovery Officer to issue a fresh demand notice pursuant to recovery certificate drawn up by him, giving an opportunity to the petitioner to respond..Further, the Court also ruled that if in the course of such hearing, the Recovery Officer is convinced that he could not have characterised the petitioner as a defaulter, the SEBI would have to return to the petitioner the money held by it in trust..Senior Advocate Sunil Kumar, along with Uday Gupta and Hiren Dasan appeared for the petitioner. Senior Advocate Neeraj Malhotra, along with Ashish Aggarwal appeared for SEBI..Read the judgment: