Case Summary: Securities and Exchange Board of India v. Amit Jain (2025) | Scope of Rule 3 of SEBI Adjudication Rules

This judgment of the Delhi High Court brings clarity to SEBI’s enforcement mechanism by holding that the appointment of an Adjudicating Officer under Rule 3 of the SEBI Adjudication Rules, 1995 is an administrative step that does not require the prior recording of a formal or reasoned opinion.

By clearly demarcating the boundary between administrative initiation and adjudicatory determination, the Court identifies the stage at which quasi-judicial satisfaction is legally required. The ruling thus restrains premature judicial interference at the show-cause stage while ensuring that procedural safeguards for noticees remain fully intact during the adjudicatory process.

Title of the Case: Securities and Exchange Board of India v. Amit Jain

Citation: LPA No. 412 of 2018 & LPA No. 550 of 2018

Court: Delhi High Court

Judges: Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar

Date of Judgment: 11 December 2025

Background of the Dispute

The respondent, Amit Jain, was a shareholder of Himalaya Granites Ltd., a listed company. Certain transactions in the company’s shares came under regulatory scrutiny following a communication dated 10 October 2011 from the Bombay Stock Exchange (BSE) to the Securities and Exchange Board of India.

The BSE indicated possible violations of:

• the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, and
• the SEBI (Prohibition of Insider Trading) Regulations, 1992,

specifically relating to non-disclosure requirements.

SEBI’s Internal Process

SEBI examined transaction statements of the concerned entities, including the respondent, for the period 1st January 2009 to 15 March 2012. It was prima facie observed that disclosures mandated under Regulations 13(3) and 13(5) of the Insider Trading Regulations, 1992 had not been made.

The matter progressed through SEBI’s internal hierarchy:

1. Group of Assistant General Managers (GAGMs) examined the material and recommended adjudication.
2. Committee of Division Chiefs of Surveillance (CDCS) concurred and advised initiation of proceedings under Section 15A(b) of the SEBI Act, 1992.
3. The file was placed before a Whole-Time Member.
4. Subsequently, Ms. Anita Kenkare was appointed as the Adjudicating Officer on 4 October 2013.

Pursuant to her appointment, a Show Cause Notice dated 14 November 2013 was issued to Amit Jain.

Challenge Before the Single Judge

Amit Jain challenged:

• the Show Cause Notice, and
• the appointment of the Adjudicating Officer,

by filing W.P.(C) 8394/2014 before the Delhi High Court.

Single Judge’s Findings (9 July 2018)

The learned Single Judge held that:

• Rule 3 of the SEBI Adjudication Rules, 1995 requires the Board to form an opinion that there exist grounds for adjudication, and
• such an opinion must be recorded prior to the appointment of an Adjudicating Officer.

Since no such recorded opinion was found, the Court:

• quashed the Show Cause Notice, and
• set aside the entire adjudication proceedings.

This decision triggered cross appeals:

• SEBI filed LPA 412/2018 challenging the quashing.
• Amit Jain filed LPA 550/2018, supporting the judgment but raising additional grounds.

Issues Before the Division Bench

The Division Bench considered, inter alia:

1. Whether the recording of a formal opinion is a condition precedent for appointing an Adjudicating Officer under Rule 3.
2. Whether the appointment of an AO is an administrative act or a quasi-judicial function.
3. Whether SEBI was required to pass an order under Regulation 14 of the PIT Regulations before initiating adjudication under Chapter VIA of the SEBI Act.

Statutory Framework Examined

The Court undertook a close reading of:

• Section 15A and Section 15-I of the SEBI Act, 1992
• Rules 3, 4, and 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
  Officer) Rules, 1995

Rule 3 empowers the Board to appoint an Adjudicating Officer “whenever the Board is of the opinion that there are grounds for adjudging” a contravention.

Rules 4 and 5, in contrast, govern:

• issuance of show cause notice,
• conduct of inquiry, and
• imposition of penalty after evidence is evaluated.

SEBI’s Arguments

SEBI contended that:

• the Single Judge conflated administrative initiation with adjudicatory determination,
• Rule 3 does not require a detailed or reasoned opinion at the appointment stage,
• the adjudicatory “satisfaction” regarding violation arises only under Rule 5, after inquiry,
• appointment of an AO does not prejudice the noticee.

SEBI relied on the Supreme Court’s reasoning in Kavi Arora v. SEBI to argue that procedural safeguards operate progressively, not front-loaded.

Amit Jain’s Arguments

The respondent argued that:

• the absence of a recorded opinion under Rule 3 vitiated jurisdiction,
• SEBI failed to follow the scheme of the Insider Trading Regulations,
• no investor harm or market impact was shown,
• he did not qualify as an “insider” under the Regulations,
• Regulation 14 of the PIT Regulations required SEBI to act under the regulatory framework before invoking Chapter VIA penalties.

Court’s Analysis

Nature of AO Appointment

The Division Bench held unequivocally that:

• Appointment of an Adjudicating Officer is an administrative act, not a quasi-judicial one.
• At this stage, SEBI merely sets the adjudicatory machinery in motion.

The Court clarified that Rule 3 requires only subjective administrative satisfaction, not a formal adjudicatory finding.

Misinterpretation by the Single Judge

The Bench found that the Single Judge:

• wrongly assumed that the Show Cause Notice was issued for imposing penalty, whereas
• under Rule 4, the notice merely asks why inquiry should not be held.

The determination of:

• whether a violation occurred, and
• whether penalty is warranted,

arises only under Rule 5, after inquiry and evidence.

Sequential Nature of the Rules

The Court emphasised the step-by-step statutory design:

1. Rule 3 – administrative appointment of AO.
2. Rule 4 – show cause and preliminary inquiry.
3. Rule 5 – adjudicatory satisfaction and penalty.

Requiring a detailed opinion at the Rule 3 stage would collapse this statutory sequence.

Regulation 14 of PIT Regulations

On this issue, the Court agreed with the Single Judge.

It held that:

• proceedings under Chapter VIA of the SEBI Act are independent of regulatory directions under the PIT Regulations,
• Regulation 14 does not impose a mandatory precondition before adjudication,
• remedial directions and penal proceedings can coexist.

Final Decision

LPA 412/2018 (SEBI’s appeal): Allowed

The Delhi High Court set aside the Single Judge’s order quashing the Show Cause Notice and upheld SEBI’s power to proceed with adjudication.

LPA 550/2018 (Amit Jain’s appeal): Dismissed

The Court rejected the respondent’s additional challenges and affirmed SEBI’s jurisdiction.

Costs: No order as to costs.

Significance of the Judgment

This decision is a landmark clarification on SEBI’s enforcement powers. It ensures that:

• regulatory proceedings are not stifled at inception,
• courts do not prematurely scrutinise administrative steps,
• noticees retain full opportunity to defend themselves during the inquiry,
• procedural discipline under the Adjudication Rules is preserved.

Conclusion

Delhi High Court’s ruling strikes a careful balance between regulatory efficiency and procedural fairness. By clearly demarcating administrative initiation from adjudicatory determination, the Court reinforces that natural justice operates progressively, rather than preemptively.

The judgment enhances SEBI’s ability to regulate securities markets effectively, while ensuring that penalties are imposed only after a thorough inquiry and a reasoned assessment of the facts. It will serve as a guiding precedent for future challenges to show cause notices and adjudicatory appointments under the SEBI Act.

Click Here to Read the Official Judgment

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