"WHAT IS TO BE DONE WHEN SERVED WITH A SHOW CAUSE NOTICE BY SEBI"

“MY EARNEST ENDEAVOUR TO CREATE LEGAL AWARENESS AMONG THOSE WHO ARE NOT WELL INFORMED”

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IN THE LAST FEW DAYS, THERE HAS BEEN AN INCREASE IN THE NUMBER OF PERSONS WHO HAVE CONTACTED ME ONLINE, SEEKING HELP, SO AS TO, WHAT IS TO BE DONE WITH THE SHOW CAUSE NOTICE, WHICH THEY HAVE RECEIVED FROM SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI), FOR AN ALLEGED OFFENCE AND/OR VIOLATION”.

Now the common reasons cited by most of these Noticees which I came to know, deserves to be enumerated hereinafter for the interest of the general public and a prompt action on their part will definitely save them from any future untoward circumstances:

1.??“Unaware of the fact that they were ever made a Director in the Company, where they were just working as Employees”.

2.??“Although served with Show Cause Notice or several Show Cause Notices from SEBI in the year 2017or 2018 or 2019, still they did not know whom to approach”.

3.??“Although being aware that they have only one trading account with only one broker since the year 2013 but recently came to know that another trading account was opened by their spouse in the year 2014 and few options trading have been done in that account”.

4.??“They do not have the required documents pertaining to trading and the exact trades which may have been executed by their BROKER long time ago”.

5.??“Although they have contacted their lawyer residing in their respective cities but have not been properly guided of the repercussions of the Show Cause ?Notice in SEBI matters”.

6.??“Since their Bank Account and Dematerialization Account are in freeze position, they are facing tremendous hardship in continuing with their living”.

7.??“They were unaware of the Law”.

PRECUATIONS TO BE MAINTAINED BY THE READERS TO PREVENT THE HAPPENING OF ANY UNTOWARD SITUATIONS: PART -I:

????????????????????????????????????????i.???Do not blindly sign any Document, Form, Blank paper, Agreement, etc, without understanding the meaning, content and purport thereof. ?

??????????????????????????????????????ii.???Do not hand over photocopies of your PAN CARD, AADHAR CARD, PASSPORT or any other document qualifying as an Identity Proof and Address proof document to anyone, without ascertaining the reason for the same. Thereafter, write the said reason on the photocopy, put your signature and present date, so that the photocopy can be used only for the said purpose and not for any other purpose and within a limited period of time.

?????????????????????????????????????iii.???If photocopies are being made from any Shop, keep an eye on any discarded copy being generated or not (due to the same being illegible). In the event, there is a discarded copy, then ask the Shopkeeper to return the discarded copy to you so that misuse of the same in any manner can be prevented.

?????????????????????????????????????iv.???Keep a check of all trades being executed in your trading account, by regularly checking Trading Ledger, Email, Messages on your Mobile and always insist for Contract Notes for all trades executed either by you or by the Broker under your instruction in your “UNIQUE CLIENT CODE” (UCC). A broker is not authorized to take any trade in your UCC without your authorization. In case of any discrepancy always report it to your Broker, Exchange and SEBI in writing.

???????????????????????????????????????v.???Take trades in the Stock Market only after understanding the risks involved in the market and do not fall in the trap of anyone promising to make you multi-millionaire by taking trades in a risky Segment of the Stock Market.

?????????????????????????????????????vi.???Take note that since the trades are being executed in your UCC, you will have to bear the responsibility of justifying the trades executed (unless you make immediate complaint of unauthorized trades) in your account and the subsequent plea that the trade has been executed by the Broker will not in any manner exonerate you, from the serious consequences of such trade.

????????????????????????????????????vii.???Always maintain separate Financial Year Wise Folder/Files for documents such as contract Notes, Ledger Statements, Income Tax Returns and always retain and/or insist for copies of Documents which you have knowingly signed.

PRECUATIONS TO BE MAINTAINED BY THE READERS TO PREVENT THE HAPPENING OF ANY UNTOWARD SITUATIONS: PART -II:

??????????????????????????????????viii.???For documents, which you may have unknowingly signed and come to know of it after a certain point of time then immediately or at the earliest available opportunity, take action either in the way of making a complaint before the appropriate Authority or lodging the complaint before the local Police Station.

?????????????????????????????????????ix.???Blaming an Advocate/ Advocate Counsel, who may not have knowledge in a particular domain of law will not enure to your benefit in any manner. Please understand that it is your responsibility to find out an Advocate/Advocate Counsel, who has expertise in that particular domain of law for which you have been served with a Show Cause Notice and the Regulatory Authority shall not consider this plea and will only treat it as an excuse.

???????????????????????????????????????x.???Do not sit tight over the Show Cause Notice for years and create a difficult situation for yourself. Always act promptly and do whatever is required to be done. Gather as many documents as possible which can negate the allegations in the Show Cause Notice. Remember, even if you hire the best Advocate Counsel and do not have any documents in favour of the merits of your case then you will really be in a difficult situation in terms of the case, as arguments cannot be made in vacuum.

?????????????????????????????????????xi.???Furthermore, you can always respond to the Show Cause Notice on your own to establish your points and you are also legally entitled to contest cases before the Court of Law as an in-person litigant. Thereby, you are under no compulsion to hire an Advocate or an Advocate Counsel to fight your case. All you need, is to attach the appropriate documents along with your Reply to substantiate your contentions in Reply to your Show Cause Notice.

???????????????????????????????????xii.???Check in matters, where Bank Account/ Dematerialization Account has been freezed, whether the Adjudicating Officer has already passed an Order or not. Also check whether any Order has been passed by the Recovery Officer. Accordingly, a certified copy of the same has to be requested from the concerned officer, so that appeal against the Order of Freeze can immediately be preferred before the Securities Appellate Tribunal (SAT), Mumbai.

??????????????????????????????????xiii.???It is settled law in India that “ignorance of Law is no excuse” and as such one cannot claim ignorance of the law as a defence to escape liability. Thereby, either you should be ready to face consequences for any violation or first ascertain the legality of your action before proceeding to do it in order to thwart the penalty being saddled on you. The idiom “Look before you Leap” squarely fits the circumstances being relied upon. ?

WHAT IS TO BE DONE BY ANYONE WHO IS FACING A SIMILAR SITUATION IN INDIA PART I:

A Show Cause Notice is served to apprise the Noticee of the alleged offence and/or violations committed by the Noticee and asks the Noticee to explain the alleged offence and/or violation within a stipulated period of time. The following needs to be borne in mind at the time of drafting the REPLY to the Show Cause Notice:

A.??Never ignore the Show Cause Notice, served from any Administrative Authority, Regulatory Authority, Quasi-Judicial Authority and/or Court of Law. Try to Reply to the Show Cause Notice within the stipulated period of time and if for any reason you are unable to REPLY within the stipulated period of time then request for an extension of time from such Regulatory Authority, by citing the difficulty.

B.??Respond appropriately, to each and every allegation raised in such Show Cause Notice. However, never make any misstatement and if ever any misstatement has been made unknowingly, immediately inform them by way of an Additional Reply.

C.??Attach all the necessary documents along with Reply, on the basis of which, response to the Show Cause Notice was prepared. All explanations and justifications must be supported by relevant documents to the extent possible.

D.?Without an iota of justification or evidence, do not just blindly blame your Broker or anyone else because to establish what is being contended, will require supporting documents as well. So be thoroughly prepared with your case on the basis of documents.

E.??In-person hearing in the Reply to the Show Cause Notice must always be requested, so that one can get the chance to explain the case in a better manner to the Adjudicating Officer.

F.??As far as the SEBI matters are concerned, after an Order has been passed by the Adjudicating Officer/Recovery Officer, the aggrieved person can appeal the Order before the Learned Securities Appellate Tribunal (SAT), Mumbai within the time limit of 45 days from the day of receipt of the said Order. Even after said specified period of 45 days the Learned SAT may allow an appeal, if the aggrieved person can satisfy the Learned SAT, with the reason for not filing the appeal.

G.?Thereafter, the Order of the Learned SAT can be challenged on any question of law before the Hon’ble Supreme Court of India, within a time limit of 60 days from the date of receiving a copy of the Order of decision of Learned SAT. The Hon’ble Supreme Court of India may further allow a period of 60 days for making an appeal, if it is satisfied that the Appellant was prevented from filing the appeal within the first 60 days due to sufficient cause.

WHAT IS TO BE DONE BY ANYONE WHO IS FACING A SIMILAR SITUATION IN INDIA PART II:

In case of matters where Bank Account and Dematerialization account is in freeze position, first ascertain to find out from www.sebi.gov.in, if any order has been passed against your PAN number. If yes, then request for a certified copy of the Order from the Recovery Officer, SEBI and/or Adjudicating Officer, SEBI to provide you with a certified copy of the last order passed against you. If within two weeks of writing a letter you do no receive any response then just file the appeal before the Learned SAT, with a website copy downloaded from the website of SEBI with a prayer for leave to file the appeal with the website copy and dispensation of filing of the certified copy. Thereafter, based on the merits of your case, the Learned SAT, will decide the case. If you are further aggrieved with the decision of the Learned SAT then you can appeal before the Hon’ble Supreme Court of India within 60 days from the passing of the Order and/or receipt of the certified copy.

(Note: The time gap between the date of applying of the certified copy and receipt of certified copy shall be excluded from the calculation of time limit of appeal).

Few websites which can be of great help:

www.sebi.gov.in

www.sat.gov.in

www.sci.gov.in

Hope my sincere effort of writing the above stated guidelines in respect of Show Cause Notice, will help in creating legal awareness among all and help the needy to pursue the actual course of action, if and when such untoward circumstances arise and also wishing that the same reaches to all who are in need to know.

Best Wishes,

Sohail Haque,

B.A.LL.B, LL.M (London),

Advocate Counsel.

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