AMIT JAIN vs. SECURITIES AND EXCHANGE BOARD OF INDIA &ANR

IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 09.07.2018
+ W.P.(C) 8394/2014
AMIT JAIN .....Petitioner
versus
SECURITIES AND EXCHANGE BOARD OF
INDIA &ANR .....Respondents
Advocates who appeared in this case:
For the Petitioner: Mr Rishabh Jain, Advocate along with
petitioner in person.
For the Respondents: Mr Neeraj Malhotra, Senior Advocate with
Ms Sandhya Kohli, Ms Harshita Agarwal,
Ms Rupal Luthra and Ms Abhinandana,
Advocates for R-1/SEBI.

CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU

JUDGMENT
VIBHU BAKHRU, J
Introduction
1. The petitioner has filed the present petition under Article 226
and 227 of the Constitution of India impugning a show cause notice
dated 14.11.2013 (hereafter ‗the impugned notice‘) calling upon the
petitioner to show cause why an inquiry not be held in terms of Rule 4
of the Securities and Exchange Board of India (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
(hereafter ‗the Rules‘) and penalty not being imposed under Section

W.P.(C) 8394/2014 Page 1 of 22



15A(b) of the Securities and Exchange Board of India Act, 1992
(hereafter ‗the Act‘).
2. The impugned notice was issued for alleged violation of
Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992 (hereafter ‗the PIT Regulations‘).
3. The petitioner also prays that the proceedings leading to the
appointment of the Adjudicating Officer to adjudge the penalty be
quashed.

4. The principal allegation against the petitioner is that although he
held more than 5% shares in a listed company, Himalaya Granites
Ltd., he had failed to make the disclosure as required under Regulation
13(3) read with 13(5) of the PIT Regulations.
5. The petitioner contends that an Adjudicating Officer can be
appointed under Section 15-I of the Act only where the Securities and
Exchange Board of India (hereafter ‗the Board‘) forms an opinion that
there are grounds for adjudging under any provisions of Chapter VIA
of the Act (which includes Section 15A). However, in the present case,
no such opinion was formed by the Board and, therefore, the
appointment of the Adjudicating Officer is without jurisdiction. The
petitioner further claims that proceedings for imposition of penalty
cannot be initiated without a prior order under Regulation 14 of the
PIT Regulations and, therefore, the proceedings initiated against the
petitioner are without jurisdiction and contrary to law.

W.P.(C) 8394/2014 Page 2 of 22



Factual Background
6. The petitioner is a shareholder of a listed company, namely,
Himalaya Granites Ltd. By a letter dated 10.10.2011, the Bombay
Stock Exchange Ltd. (BSE) had informed the Board that Anirudh
Bubna Trust had acquired a significant number of shares of Himalaya
Granites Ltd. and hence was required to make the disclosures in terms
of the Securities and Exchange Board of India (Substantial Acquisition
of Shares and Takeovers) Regulations, 1997 (hereafter ‗the Takeover
Regulations‘) as well as the PIT Regulations.
7. On the basis of examination of the transaction statements, it was
found that three persons/entities, namely, Anirudh Bubna Trust, Spark
Securities Private Limited and the petitioner, had dealt with the shares
of the Himalaya Granites Limited. And, it was observed that the said
persons/entities had violated the Takeover Regulations and Regulation
13(3) and Regulation 13(5) of the PIT Regulations. The above was
discussed at the meeting of Group of Assistant General Managers of
SEBI held on 20.06.2012 and the said group recommended that the
adjudicating proceedings be initiated against the said persons/entities,
namely, Anirudh Bubna Trust, Spark Securities Private Limited and
the petitioner.
8. The aforesaid recommendations were considered by a
Committee of Division of Chiefs of the Board at a meeting held on
25.06.2012 and it was recommended that the adjudication proceedings
under Section 15A(b) of the Act be initiated against Anirudh Bubna

W.P.(C) 8394/2014 Page 3 of 22



Trust, Spark Securities Private Limited and the petitioner. In the case
of Anirudh Bubna Trust and Spark Securities Private Limited, it was
alleged that the said entities had not followed Regulations 7(1) and
7(2) of the Takeovers Regulations as well as Regulations 13(1) and
13(3) read with 13(5) of the PIT Regulations. However, in the case of
the petitioner, it was alleged that the petitioner had violated Regulation
13(3) read with 13(5) of the PIT Regulations.
9. The said recommendations were submitted for approval to the
superior officers and on 04.10.2013, the Whole Time Member
appended noting on the file; “Ms Anita Kenkare is appointed as
A.O.” . Thereafter, the Executive Director of the Board communicated
the decision for appointment of the Adjudicating Officer by a
communication dated 18.10.2013 captioned as “Proceedings of the
Whole Time Member appointing Adjudicating Officer.” The said note
stated that the Board had examined the alleged irregularities observed
in the matter of Himalaya Granites Ltd. and into possible violation of
the provisions of the Act and various Regulations made thereunder and
it, prima facie , appeared to the Whole Time Member of the Board that
Anirudh Bubna Trust and Spark Securities Private Limited had
violated Regulations 7(1) and 7(2) of the Takeovers Regulations as
well as Regulations 13(1) and 13(3) read with 13(5) of the PIT
Regulations. And, the petitioner had violated Regulations 13(3) read
with 13(5) of the PIT Regulations. The note further recorded that the
Whole Time Member was satisfied that there was sufficient grounds to
enquire into the affairs and adjudicate upon the alleged violation by

W.P.(C) 8394/2014 Page 4 of 22



the said entities under (a) the Act; (b) the Takeovers Regulation; and
(c) the PIT Regulations. Accordingly, the Whole Time Member had in
exercise of powers under Section 19 of the Act read with Section 15-I
of the Act and Rule 3 of the Rules appointed Ms Anita Kenkare as the
Adjudicating Officer (AO) by an order dated 04.10.2013 to enquire
into and to adjudge under Section 15A(b) of the Act.
10. The Adjudicating Officer issued the impugned notice on
14.11.2013. The enclosures with the said notice included a copy of the
appointment order appointing the Adjudicating Officer and the said
order was captioned as ―Proceedings of the Whole Time Member
appointing the Adjudicating Officer‖. In addition, the impugned
notice also enclosed a transaction statement of the petitioner during the
period 01.01.2009 to 15.03.2012 as well as the communications issued
by the Board to the BSE and to the company, Himalaya Granites Ltd.
11. On 09.01.2014, the petitioner appeared before the Adjudicating
Officer. Thereafter, on 10.01.2014, the petitioner sent a letter
requesting for a copy of the appointment letter/warrant through which
the present Whole Time Member had been appointed, and, also
requesting for a list of the powers delegated to the Whole Time
Member.
12. Thereafter, the petitioner sent letters on 10.01.2014, 15.01.2014,
and 20.01.2014. By the letter dated 10.01.2014, the petitioner
requested for information on whether the transaction conducted by the
petitioner had caused a loss to any investor or a group of investors of

W.P.(C) 8394/2014 Page 5 of 22



the Company; the letter dated 15.01.2014 was sent as a reminder to
furnish the requisite information; and, by the letter dated 20.01.2014,
the petitioner requested to be re-heard after giving the petitioner a
reasonable amount of time to examine the documents.
13. On 26.09.2014, the Assistant General Manager of the Board
sent a communication to the Respondent declining to disclose the
requisite information as requested for in the aforementioned letter.
Submissions

14. The learned counsel appearing for the petitioner advanced
contentions, essentially, on two fronts. First, he submitted that the
Board alone was vested with the power to form an opinion as required
under Rule 3 of the Rules before an Adjudicating Officer could be
appointed to adjudicate the question of any violation under Chapter
VIA of the Act. He submitted that in the present case, the Board had
not recorded any opinion and, therefore, the appointment of the
Adjudicating Officer was without jurisdiction.
15. Second, he submitted that the proceedings for imposing penalty
could not be initiated without a prior order under Regulation 14 of the
PIT Regulations. He submitted that in terms of Regulation 4A of the
PIT Regulations, the Board was required to undertake an investigation
if it suspects any violation of the PIT Regulations. He referred to the
PIT Regulations and submitted that the same contained provisions
with regard to investigations. The same also required the Board to
communicate the findings of the investigation and to provide an

W.P.(C) 8394/2014 Page 6 of 22



opportunity to the concerned person to respond to the said
investigation. The Board was empowered to issue orders under
Regulation 11 of the PIT Regulations after considering any
explanation that may be provided by the concerned party. He
submitted that Regulation 14 of the PIT Regulations expressly
provided that if a person had violated the provisions of the Regulation,
he would also be liable for appropriate action including under Chapter
VIA of the Act. He submitted that the scheme of the PIT Regulations
made it amply clear that the Board was first required to exhaust the
process of investigation and then form a firm opinion. The question
whether any penalty was required to be imposed would arise only after
the Board had formed a firm opinion. He submitted that any order
passed by the Board would also be appealable before the Securities
Appellate Tribunal in terms of Regulation 15 of the PIT Regulations.
He submitted that since the Board had not passed any order, it had also
effectively precluded the petitioner from exercising its right to appeal
under Section 15 of the PIT Regulations.
Reasons and Conclusion
16. Regulation 13(3) of the PIT Regulations requires a person who
holds more than 5% of the voting rights in any listed company to
disclose to the company number of shares or voting rights held by him
as well as the change in share holding if such change accedes 2% of
the total shareholding or voting rights in the company. Regulation
13(3) of the PIT Regulations is set out below:-

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― Continual disclosure.
(3) Any person who holds more than 5% shares for
voting rights in any listed company shall disclose to the
company the number of shares or voting rights held and
change in shareholding or voting rights, even if such
change results in shareholding falling below 5%, if there
has been change in such holdings from the last disclosure
made under sub-regulation (1) or under this sub-regulation;
and such change exceeds 2% of total shareholding or
voting rights in the company.‖
17. Regulation 13(5) of the PIT Regulations require the disclosure
under Regulation 13(3) to be made within two working days of the
receipt of intimation of allotment of shares or acquisition or sale of
shares or voting rights as the case may be.
18. The allegation against the petitioner is that he had failed to
make disclosure as required under Regulation 13(3) of the PIT
Regulations. It is alleged that the said violation was noticed on
examination of the transaction statement of the petitioner in respect of
the shares of the Himalaya Granites Ltd. during the period 01.01.2009
to 15.03.2012. It is further stated that BSE has also confirmed that no
disclosure as required was made by the petitioner.
19. Section 15A of the Act expressly provides for levy of penalty,
inter alia, for failure to file any return or furnish any information as
required under the Regulations framed on their behalf. According to
the respondents, the petitioner may be liable to penalty under Section
15A(b) of the Act, which reads as under:-


W.P.(C) 8394/2014 Page 8 of 22

20. In terms of Section 15-I of the Act, the Board is required to
appoint an officer not below the rank of Division Chief for holding
inquiry for the purposes of adjudging the levy of penalty, inter alia,
under Section 15A of the Act. Section 15-I of the Act is set out
below:-
― 15-I. Power to adjudicate – (1)For the purpose of
adjudging under sections 15A, 15B, 15C, 15D, 15E,
15F, 15G (15H, 15HA and 15HB), the Board shall
appoint any officer not below the rank of a Division
Chief to be an adjudicating officer for holding an
inquiry in the prescribed manner after giving any person
concerned a reasonable opportunity of being heard for
the purpose of imposing any penalty.
(2) While holding an inquiry the adjudicating officer
shall have power to summon and enforce the attendance
of any person acquainted with the facts and
circumstances, of the case to give evidence or to
produce any document which in the opinion of the
adjudicating officer, may be useful for or relevant to the
subject matter of the inquiry and if, on such inquiry, he

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is satisfied that the person has failed to comply with the
provisions of any of the sections specified in sub-section
(1), he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.
(3) The Board may call for and examine the record of
any proceedings under this section and if it considers
that the order passed by the adjudicating officer is
erroneous to the extent it is not in the interests of the
securities market, it any, after making or causing to be
made such inquiry as it deems necessary, pass an order
enhancing the quantum of penalty, if the circumstances
of the case so justify.
Provided that no such order shall be passed unless
the person concerned has been given an opportunity of
being heard in the matter.
Provided further that nothing contained in this
sub-section shall be applicable after an expiry of a
period of three months from the date of the order passed
by the adjudicating officer or disposal of the appeal
under section 15T, whichever is earlier.‖
21. In terms of Section 19 of the Act, the Board has the power to
delegate to any member, officer of the Board or any other person such
powers and functions under the Act as it may deem necessary. In
exercise of the said powers, the Board has issued a general order
whereby the powers and functions of “approval for adjudication” and
to appoint an Adjudicating Officer under Section 15-I of the Act has
been delegated to a Whole Time Member. Further, the Executive
Director has been delegated the power to sign and communicate the
order appointing an Adjudicating Officer/Designated Authority/
Inquiry Officer.

W.P.(C) 8394/2014 Page 10 of 22



22. In view of the above, there is no dispute that the Adjudicating
Officer to adjudge the question as to levy of penalty under Section
15A(b) is to be appointed by a Whole Time Member and the order
communicating the same can be signed by the Executive Director.
There is no controversy that in the present case, the appointment of the
Adjudicating Officer was approved by a Whole Time Member and the
order dated 18.10.2013 communicating the same was signed by the
Executive Director.

23. The questions that are required to be addressed in this petition
are (i) whether the Whole Time Member had formed an opinion that
there were grounds for adjudging penalty under Section 15A(b) of the
Act; and (ii) whether the Whole Time Member was required to pass an
order under Regulation 14 of the PIT Regulations before taking any
steps for appointing an Adjudicating Officer for adjudging any penalty
under Section 15A(b) of the Act.
24. The learned counsel appearing for the petitioner had referred to
Regulation 4A of the PIT Regulations and had contended that it was
mandatory for the Board (or its delegate) to make the necessary
inquiries for forming a, prima facie , opinion and to further follow the
procedure under Chapter III of the PIT Regulations.
25. Regulation 4A(1) of the PIT Regulations empowers the Board
to make inquiries in cases where the Board suspects that any person
has violated the provisions of the PIT Regulations in order to form a
prima facie opinion as to whether there is any such violation. In terms

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of Regulation 4A(2) of the PIT Regulations, the Board is also
empowered to appoint one or more officers to inspect the books and
records of insider(s) or any other person as referred to in Regulation
11(2)(i) of the Act – stock exchanges, mutual funds, other persons
associated with the security market, intermediaries and self regulatory
organizations in the security market. Regulation 5 of the PIT
Regulations provides for right of the Board to investigate and inspect
the books of accounts, records and other documents of insider(s) or
any other person as referred to in Section 11(2)(i) of the Act.
Regulation 6 of the PIT Regulations provides for the procedure for
investigation and Regulation 7 of the PIT Regulations provides for the
obligation of an insider who is being investigated. Regulation 8 of the
PIT Regulations mandates that the investigating authority would
submit a report to the Board. Regulation 9(1) of the PIT Regulations
mandates that the Board would consider the investigation report and
communicate the findings for the person suspected to be involved
insider trading or violation of these provisions. In terms of Regulation
9(2) of the PIT Regulations, the person to whom such findings have
been communicated is required to submit a reply within a period of
twenty one days; and in terms of Regulation 9(3) of the PIT
Regulations, the Board is required to take such measures as it deem fit
on receipt of the reply or explanation from the concerned person
furnished in terms of Regulation 9(2) of the PIT Regulations.
Regulation 10 of the PIT Regulations provides for appointment of an
auditor.

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26. Regulation 11 of the PIT Regulations expressly provides that
the Board may issue any or all of the orders as described therein.
Regulation 4 of the PIT Regulations provides that any person who
violates the PIT Regulations would be, inter alia , liable for any action
under Chapter VIA of the Act without prejudice to any directions that
may have been issued under Regulation 11 of the PIT Regulations.
27. Regulation 4A, 11 and 14 of the PIT Regulations are set out
below:-
― Power to make inquires and inspection
4A. (1) If the Board suspects that any person has
violated any provision of these regulations, it may make
inquiries with such persons or any other person as
mentioned in clause (i) of sub-section (2) of section 11
as deemed fit, to form a prima facie opinion as to
whether there is any violation of these regulations.
(2) The Board may appoint one or more officers to
inspect the books and records of insider(s) or any other
persons as mentioned in clause (i) of sub-section 11 for
the purpose of sub-regulation (1).‖
Directions by the Board
11. The Board may without prejudice to its right to
initiate criminal prosecution under section 24 or any
action under Chapter VIA of the Act, to protect the
interests of investor and in the interests of the securities
market and for due compliance with the provisions of
the Act, regulations made thereunder issue any or all of
the following order, namely:
(a) directing the insider or such person as
mentioned in clause (i) of sub-section (2) of

W.P.(C) 8394/2014 Page 13 of 22



section 11 of the Act not to deal in
securities in any particular manner;
(b) prohibiting the insider or such person as
mentioned in clause (i) of sub-section (2) of
section 11 of the Act from disposing of any
of the securities acquired in violation of
these regulations;
(c) restraining the insider to communicate or
counsel any person to deal in securities;
(d) declaring the transaction(s) in securities as
null and void;
(e) directing the person who acquired the
securities in violation of these regulations
to deliver the securities back to the seller:
Provided that in case the buyer is not in a
position to deliver such securities, the
market price prevailing at the time of
issuing of such direction or at the time of
transactions whichever is higher, shall be
paid to the seller;
(f) directing the person who has dealt in
securities in violation of these regulations
to transfer an amount or proceeds
equivalent to the cost price or market price
of securities, whichever is higher to the
investor protection fund of a recognized
stock exchange.‖
Action in case of default
14. Without prejudice to the directions under
regulation 11, if any person violates
provisions of these regulations, he shall be
liable for appropriate action under section
11, 11B, 11D, Chapter VIA and Section 24
of the Act.‖

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28. It is relevant to note that the Regulations 4 to 11A of the PIT
Regulations fall within Chapter 3 of the PIT Regulations but the said
chapter bears the caption ―investigation‖. As the caption indicates, the
provisions of Regulation 4A to Regulation 10 of the PIT Regulations
relate essentially to the investigation that may be conducted by the
Board either directly and/or indirectly.
29. Regulation 11 of the PIT Regulations provides for direction that
may be issued to protect the interest of the investors and the security
market. The opening sentence of Regulation 11 of the PIT
Regulations makes it expressly clear that the same is without prejudice
of the right of the Board to initiate criminal prosecution under Section
24 of the Act or any action under Chapter VIA of the Act. Similarly,
the opening sentence of Regulation 14 of the PIT Regulations also
makes it amply clear that if a person violates the provisions of the PIT
Regulations, he would be liable for an appropriate action under
Section 11, 11B and 11D, Chapter VIA and Section 24 of the Act.
And, this would be without prejudice to the power of the Board to
issue directions under Regulation 11 of the PIT Regulations.
30. It is, thus, clear from the above that it is not necessary for the
Board to exhaust the procedure as specified in the PIT Regulations
before initiating any independent action under Chapter VIA of the Act.
Section 15T of the Act provides for an appeal against any order of the
Board made under the PIT Regulations. It is clear from the scheme of
PIT Regulations that the Board is duly empowered to conduct

W.P.(C) 8394/2014 Page 15 of 22



investigations and pass orders under PIT Regulations and issue
directions as specified under Regulation 11 of the PIT Regulations.
However, the said procedure does not impinge or any way dilute the
powers of the Board to otherwise take action under the provisions of
Chapter VIA of the Act. In view of the above, the contention that the
Board was first required to determine whether the petitioner had
violated the PIT Regulations before appointing an Adjudicating
Officer under Section 15-I of the Act is unmerited. As noticed above,
the provisions of Chapter 3 of the PIT Regulations (which includes
Regulation 4A to Regulation 11A) provides self contained code for
conduct of the examination/investigation, which may culminate in the
directions as contemplated under Regulation 11 of the PIT
Regulations. However, it is not necessary that the procedure of
investigation must be carried out before the Board can form an opinion
that there are grounds for adjudging under any of the provisions in
Chapter VIA of the Act. It is also clear that if the investigation is
carried out in terms of PIT Regulations results in the issue of
directions under Regulation 11 of the PIT Regulations, the Board is
not precluded from directing criminal prosecution under Section 24 of
the Act or initiating an action under Chapter VI of the Act.
31. The next question to be examined is whether the proceedings
initiated are without jurisdiction as the Board has not formed any
opinion that there are grounds for adjudging under any provisions of
Chapter VIA of the Act.

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32. The Central Government has framed rules for holding inquiry
for the purposes of imposing penalty under Chapter VIA of the Act.
Rule 3 of the SEBI (Procedure for Holding Enquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 provided for
appointment of an Adjudicating Officer for holding an inquiry. The
said Rule reads as under:-
― Appointment of adjudicating officer for holding
inquiry .
3. Whenever the Board is of the opinion that there
are grounds for adjudging under any of the provisions
in Chapter VIA of the Act, it may appoint any of its
officer not below the rank of Division Chief to be an
adjudicating officer for holding an inquiry for the said
purpose.‖
33. It is apparent from the above that the formation of an opinion by
the Board that there are grounds for adjudging under any of the
provisions of Chapter VIA of the Act is a pre condition for
appointment of an Adjudicating Officer. It follows that in absence of
such an opinion, an Adjudicating Officer cannot be appointed and any
such appointment would be without jurisdiction. The respondent also
does not dispute the above proposition. It claims that the Board has
formed an opinion that there are grounds for adjudging under the
provisions of Chapter VIA of the Act and, therefore, the appointment
of the Adjudicating Officer cannot be faulted. In its counter affidavit,
the respondent has averred as under:-
―It is submitted that SEBI had examined into the alleged
irregularities in the trading in shares of Himalayan

W.P.(C) 8394/2014 Page 17 of 22



Granites Ltd. and into possible violation of the
provisions of the SEBI Act and PIT Regulations.
Further, the adjudication proceedings were initiated in
the matter after the Whole Time Member was prima-
facie satisfied that there are sufficient grounds to enquire
into the affairs and adjudicate upon the alleged
violations under the SEBI Act and PIT Regulations. It is
submitted that the same can be seen from Page no.66
(Annexure 10) of the writ petition containing the file
noting.‖
34. As noticed above, a Whole Time Member has been delegated
the power for appointing an Adjudicating Officer and, therefore,
before such appointment is made, the Whole Time Member is required
to form an opinion that there are grounds for adjudging under the
provisions of Chapter VIA of the Act. Admittedly, there is no noting
by the Whole Time Member expressly stating that he has formed such
an opinion. The only noting available on the file made by the Whole
Time Member is that “Ms Anita Kenkare is appointed as A.O.” .The
said noting is on a file put up to the Whole Time Member seeking
approval of the recommendations made by the Committee of Division
Chiefs and such recommendations includes the recommendations of
initiation of adjudicating proceedings under Section 15A(b) of the Act
against the petitioner. It is, thus, apparent that the Whole Time
Member had accepted the recommendations made as he has proceeded
to appoint an Adjudicating Officer. However, there is no noting that
indicates that he has independently formed any opinion that there are
grounds for adjudging under Chapter VIA of the Act.

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35. This Court is of the view that the noting made by the Whole
Time Member cannot be read as an expression of his opinion that there
are grounds for adjudging under Chapter VIA of the Act, which is a
pre condition for appointment of an Adjudicating officer. The
contention that the Whole Time Member was required to give reasons
and pass an order is unmerited. There is no such requirement under
the Rules. Further, an opinion to be formed is also not a judicial or
quasi judicial order, which would require the Whole Time Member to
articulate his reasons in detail. However, he as a delegate of the Board
is required to examine the allegations made and independently form
and express an opinion that there are grounds for adjudging under
Chapter VIA of the Act.
36. The formation of an opinion that there are grounds for
adjudging under Chapter VIA of the Act is the necessary pre-requisite
for the Board to exercise its jurisdiction. Absent such opinion, the
Board would have no jurisdiction to appoint an Adjudicating Officer.
There is no dispute as to the above proposition. The only controversy
is whether the fact that the Board (Whole Time Member) had formed
such opinion can be inferred from appointment of the Adjudicating
Authority. Plainly, there is no scope for inferring formation of such
opinion merely for the reason that an Adjudicating Officer has been
appointed and other officers have forwarded their recommendations
for such an action. As stated above, the Board has to form an
independent opinion that there are grounds for adjudging under
Chapter VIA of the Act. It is not necessary for the Board to elaborate

W.P.(C) 8394/2014 Page 19 of 22



its opinion or to provide reasons for the same. However, the least that
is required for the Board is to state in unequivocal terms that in its
opinion, there are grounds for adjudging under Chapter VIA of the Act
before proceeding to appoint an Adjudicating Officer. It is necessary
that the record clearly bears out that there is an application of mind on
the part of the Board. The power to appoint an Adjudicating Officer
has been delegated to the Whole Time Member. Therefore, it was
necessary for him to have formed such opinion before proceeding
further.
37. In Chhugamal Rajpal v. S.P. Chaliha: (1971) 79 ITR 603
(SC) , the Supreme Court considered a case relating to Section 148 of
the Income Tax Act, 1961. In terms of relevant provisions of the
Income Tax Act, 1961, the Income Tax Officer was required to have a
reason to believe that income had escaped assessment, before initiating
any action for reopening of the assessment and the Commissioner was
required to be satisfied that such action was warranted. In that case,
the concerned officer had merely stated ―Yes‖ against the question
―Whether the Commissioner is satisfied that it is a fit case to issue a
notice under Section 148 of the Act?‖ The Court concluded that the
Commissioner had mechanically recorded his permission as he could
not have come to such conclusion on the material placed before him.
In the present case, the Whole Time Member has not even made a
statement that he has formed an opinion that there are grounds for
adjudging levy of penalty under Chapter VIA of the Act. In the
Central India Electric Supply Co. Ltd. v. Income Tax Officer,

W.P.(C) 8394/2014 Page 20 of 22



Company Circle - X, New Delhi & Anr.:(2011) 333 ITR 237 (Delhi) ,
the Division Bench of this Court considered a case where an
endorsement ―Yes. The Board is satisfied‖ was made against a column
reading ―whether the Board was satisfied of the reasons recorded.‖
The said satisfaction was in the form of a rubber stamp. The Court
concluded that the same did not comply with the provisions of Section
151 of the Income Tax Act, 1961 which proscribed the issue of notice
under Section 148 of the Income Tax Act, 1961 beyond the specified
period unless the Central Board of Direct Taxes [referred to as the
Board] was satisfied on the reasons as recorded by the Income Tax
Officer that it is a fit case for issue of such notice.
38. There are number of decisions where the courts have not
accepted endorsement made mechanically as indicative of expression
of any opinion or satisfaction that the necessary statutory conditions
have been met.
39. In the present case, the Whole Time Member has not even made
an endorsement that he is of an opinion that there are grounds for
adjudging under Chapter VIA of the Act and, therefore, the question of
inferring that he had formed such an opinion does not arise.
40. In view of the above, the proceedings initiated against the
petitioner are set aside. The impugned notice is also set aside.
However, it is clarified that the Board/Whole Time Member may
examine the file and if the Board is of the view that there are grounds
for adjudging under Chapter VIA of the Act, an Adjudicating Officer

W.P.(C) 8394/2014 Page 21 of 22



may be appointed for holding an inquiry and pass an order in terms of
the Rules.
41. The petition is disposed of in the above terms.


VIBHU BAKHRU, J
JULY 09, 2018
MK




W.P.(C) 8394/2014 Page 22 of 22