JK Paper Limited vs Securities And Exchange Board Of India

Sr. No,Particulars,Limit

A,"for the schemes enumerated in Part A, Part B or Part C of

Chapter III of these regulations",5%

B,"for the schemes enumerated in Part D, or Part E of Chapter E

of Chapter III of these regulations",2%

C,for all the schemes in aggregate,5%

(1) Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999",,

are hereby repealed.,,

(2) Notwithstanding such repeal, -",,

(a) ……..,,

(b) all listed companies having existing schemes to which these regulations apply are required to comply with these regulations in their,,

entirety within one year of the same coming into effect, subject to the following exceptions:",,

(i) ……..,,

(ii) trusts holding shares, for the purposes of implementing GEBS or RBS, which exceed ten per cent of the total value of the total assets of",,

the trust(s) as provided under these regulations, shall have a period of five years to bring down its holding in shares to such limitsâ€​",,

Similarly, we reproduce the text of the impugned communication / order dated February 3, 2020 as below since the contention is that the said",,

communication does not give the reasons for rejecting the application of the appellant.,,

“Dear Sir/Madam,",,

This has reference to your letter dated Oct 24, 2019 and subsequent correspondences whereby, exemption has been sought from the strict",,

enforcement of the Regulation 26(2) r/w Regulation 31(2)(b)(ii) of SEBI (Share Based Employee Benefit) Regulations, 2014 (“SBEB",,

Regulationsâ€​).,,

The SBEB Regulations prescribe a time frame of five years for compliance with Regulation 26(2) read with Regulation 31(2)(b)(ii) of SBEB,,

Regulations. The five-year period ended on October 27, 2019. Through the informal guidance letter dated June 29, 2018, it has been",,

notified that the schemes implemented by the Trust for the benefit of employees falls squarely within the purview of SBEB Regulations.,,

Pursuant to the above, it is observed that no demonstrable effort has been made to comply with the regulations.",,

Given the above, the request for exemption from the strict enforcement of the Regulation 26(2) r/w Regulation 31(2)(b)(ii) of SBEB",,

Regulations is thus found unsustainable and therefore it is being rejected. Also, SEBI may take action, as deemed fit, against the concerned",,

entities for non-compliance with SBEB Regulations.â€​,,

The learned senior counsel Shri Janak Dwarkadas appearing for the appellant vehemently argued that the respondent SEBI has passed direction to,,

the appellant without assigning any reasons whatsoever only on the ground that the five-year window for compliance of SBEB Regulations has,,

expired. Relying heavily on Institute of Chartered Accountants of India vs L.K. Ratna & Ors. (1986) 4 SCC 53 7the learned senior counsel strongly,,

contended that “in fairness and justice, the member is entitled to know why he has been found guilty. The case can be so serious that it can attract",,

the harsh penalties provided by the Act. Moreover, the member has been given a right of appeal to the High Court under Section 22-A of the Act. To",,

exercise his right of appeal effectively he must know the basis on which the Council has found him guilty. We have already pointed out that a finding,,

by the Council is the first determinative finding on the guilt of the member…. The Council must, therefore, state the reasons for its finding.â€",,

Accordingly, the learned senior counsel submitted that neither the appellant knows the reason for rejecting the application nor this Tribunal knows the",,

reason so as to effectively address the issue of whether the rejection has been done following the applicable law and the due process. Therefore,",,

while a provision for appeal has been provided to the appellant, effectively the appeal process has been vitiated. Apart from emphasizing the fact that",,

no reasons have been given the learned senior counsel contended that an opportunity is hearing is also required as L.K. Ratna (supra) is fully,,

applicable to the matter. The learned senior counsel also contended that the order relied on by the respondent, Nirma Industries Limited & Anr. Vs.",,

Securities and Exchange Board of India (Civil Appeal No. 6082 of 2008 dated May 9, 2013) is not applicable to the present matter since the basic",,

facts in Nirma relate to takeover regulations and the ruling is in that context and the relevant Takeover Regulation specifically states that no reasons,,

need to be given. In short, the learned senior counsel submitted that before passing a quasi-judicial order affecting the rights and privileges of a party,",,

the party is entitled to have a personal hearing and the reasons for rejecting its application have to be clearly stated in the order thus passed by a,,

regulatory authority not only for the appellant to know the reasons but also for her to effectively exercise her right to appeal against the said decision.,,

On the other hand, Shri Shyam Mehta, learned senior counsel representing SEBI contended that the impugned communication / order dated",,

February 3, 2020 has to be read with the communication providing informal guidance dated June 29, 2018 wherein detailed reasons were given why",,

the SBEB Regulations, 2014 were applicable to the appellant. Moreover, in the impugned order itself it is stated that the appellant had a five-year",,

window to comply with the regulations which has not been utilized and it is over on 27 October, 2019. Further, the appellant took its own time even in",,

seeking informal guidance. Despite being asked to do so on 29th December 2015, the appellant exercised it only on 27th May 2018. Even after the",,

informal guidance was received on 28 June, 2018 the appellant applied for relaxation on 24 October, 2019, just three days before expiry of the five-",,

year window for compliance. Therefore, it was contended that the appellant is belatedly taking shelter under an assumed limitation of the impugned",,

order that it does not contain reasons for rejection while the appellant has all along known the full applicability of the SBEB Regulations and the need,,

for compliance on or before October 27, 2019.",,

Further, emphasizing Regulations 29(1) as reproduced below for greater clarity-",,

“29. (1) The Board may suo motu or on an application made by a company, for reasons recorded in writing, grant relaxation from strict",,

compliance with any of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities,,

and the securities market.†the learned senior counsel for SEBI contended that only on providing exemption / relaxation SEBI is duty,,

bound to furnish the reasons for the same; not when an application for exemption / relaxation is rejected. This is to ensure, the learned",,

senior counsel contended, that such exemption / relaxation has been granted on bona fide consideration and in terms of the regulations",,

which is not a requirement for rejection of an application. He further emphasized the ratio in the matter of Nirma (supra) as laid down by,,

the Honâ€​ble Supreme Court that no reasons need to be given while rejecting an application for relaxation.,,

We do not agree with the interpretation of the regulatory provision as contended by the learned senior counsel for the respondent. Regulation 29(1),,

makes it abundantly clear that exemption / relaxation could be provided subject to conditions; that would imply that even a rejection has to provide,,

reasons as to why no relaxation can be granted. It could also state why a conditional exemption / relaxation / extension of time could or could not be,,

provided to the appellant as per the facts and circumstances of each application. Moreover, we also note that the appellant had been taking the view",,

that the SBEB Regulations, 2014 was not applicable to them because of certain specific provisions in the Trust Deed and in terms of their own",,

assessment which might or might not have been correct. Therefore, only through the informal guidance on 28 June, 2018 the appellant was clearly told",,

that the said regulations were indeed applicable to them and hence the application for exemption / relaxation since it did not effectively had a five-year,,

window. While we agree with the contention of the respondent that the appellant is responsible for delay in seeking the informal guidance as well as in,,

applying for relaxation, such a delay cannot support issuing a non-speaking order against the appellant. Further, though the Trust holds 97% of its",,

assets in the form of shares of the appellant company which needed to be brought down to below 10%; reasons given in the informal guidance; also,,

cannot support the same because of the language of Regulation 29(1) which provides for conditional relaxation, including granting some more time for",,

the appellant to comply. Therefore, we agree with the contention of the appellant that a non-speaking communication / order has adversely impacted",,

their right to appeal. And indeed, it has affected this Tribunalâ€​s own capacity to assess the merit of the rejection. It is true that the rejection order has",,

quoted the requirement that the Trust cannot have more than 10% of its portfolio of assets as the shares of the appellant company and the five-year,,

window for compliance had elapsed. These, are known facts / conditions; despite which the appellant sought exemption / relaxation under the",,

applicable regulations which needed to be addressed in the impugned communication which is not done. Therefore, this Tribunal is of the considered",,

view that the rights of the appellant has been impacted by the said order because of its non-speaking nature and Regulation 29(1) requires an,,

application of mind, explaining the reasons for rejection as well as for relaxation.",,

We would also like to reiterate at this stage that implementation of the Right to Information Act, 2005 and the various judgments emanating",,

on/from the same have emphasized the need for greater transparency as well as for providing reasons, at least in brief, in even in ordinary",,

administrative communications issued by various authorities. Therefore, application of such transparency requirements on the part of quasi-judicial",,

authorities has to be of a much higher order.,,

In the light of the above reasons, we quash the impugned communication / order and remit the matter to an Appropriate Authority of SEBI. The",,

said Authority will issue a reasoned order afresh after considering all the relevant facts, preferably within three months from the date of this order.",,

However, we make it clear that we are not expressing any opinion on the merit of the matter and the fresh Order shall not be impacted by any",,

observation that may be construed to that effect.,,

Having quashed the impugned Order on the basis of its non-speaking nature it is not necessary for us to go into the second issue raised by the,,

appellant as to whether invariably personal hearing is required to be given before passing any such directions. This question will be dealt in an,,

appropriate matter as and when it arises before us.,,

The appeal is allowed on above terms with no order as to costs.,,

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor,,

a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Presiding Officer on",,

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally,,

signed copy sent by fax and/or email.,,