Functioning of SEBI will be hampered if exercise of every power is preceded by mandatory personal hearing: Bombay High Court

The Bombay High Court Bench of Justices Nitin Jamdar and Milind Jadhav recently observed that Securities and Exchange Board of India (SEBI) cannot be expected to grant mandatory personal hearings before every exercise of its power. .In the instant case, the High Court declined to interfere with SEBI's decision not to grant 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 (JK Paper v. SEBI). .The Court noted that there were no specific provisions in the 2014 regulations which mandated that an opportunity for personal hearing should be given. As such, the Bench said, ."The apprehension expressed by the SEBI that by reading duty to give personal hearing in this Regulation would have adverse ramifications on its working cannot be said to be unwarranted."."The 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."Bombay High Court.It further reasoned that JK Paper could not prove they were a special case or that there were any extra-ordinary circumstances warranting a personal hearing..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.The court held..The Regulations of 2014 lay down various regulatory measures regarding schemes on the following aspects:Direct or indirect benefit to employees of the company.Dealing, subscribing to or purchasing securities of the company, directly or indirectly..Their object is to check and prevent manipulation of share prices in the larger interest of the investors..JK Paper had sought a relaxation from the applicability of these Regulations. To this end, they filed an exemption application before the SEBI under Regulation 29, which allowed for the relaxation of the strict enforcement of the regulations..SEBI, however, rejected the application, but did not spell out the specific reasons for rejection..In an appeal challenging the order, the Securities Appellate Tribunal directed SEBI to give a reasoned order for rejecting the application within a set time limit..SEBI, in turn, sought for more reasons through an email communication thereafter. Whereas a request was made by JK Paper for a personal hearing, SEBI informed that all relevant submissions had already been brought on record. It added that, if required, additional written submissions can be filed. However, SEBI stated that a peroinal hearing was not required..The refusal of SEBI to grant JK Paper a personal hearing was challenged before the Bombay High Court. JK Paper submitted three grounds in the plea:.The proceedings before SEBI were quasi-judicial in nature. Therefore, a personal hearing is necessary.The language of Regulation 29 provided for a personal hearing.Whatever may be the nature of the power, considering the consequences, a personal hearing should be given..JK Paper also requested to grant personal hearing “to serve the ends of justice” besides the other legal submissions..However, all these grounds were rejected by the Bombay High Court, which held, "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.".The Court further observed that “if SEBI finds that exemption need not be granted, it will give reasons for the same which can be tested in appeal. If the conditions are arbitrarily imposed or that the exercise is perverse, the validity can be challenged.”.Given that in this case SEBI had also allowed JK Paper to file written submissions, the Court added that "the power in question is a discretionary power and the use of this discretion can be challenged in appeal within the well settled parameters. Full transparency is maintained by permitting written submissions providing reasons and the right to appeal.".Therefore, the writ petition challenging the SEBI's refusal to allow a personal hearing was dismissed. .Senior Advocate Janak Dwarkadas with Advocates Ameya Gokhale and Radhika Indurkar (Shardul Amarchand Mangaldas & Co.) appeared for JK Paper. Senior Advocate Rafique Dada with Advocates Omprakash Jha and Shivani Kumbhojkar (The Law Point) appeared for the SEBI..Read order here: