AND EXCHANGE BOARD OF
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
READ WITH SECTION 15G OF THE SEBI ACT, 1992
Dr ANJALI BEKE & ANJUDI PROPERTY AND INVESTMENT PRIVATE LIMITED
FOR VIOLATIONS OF SEBI (INSIDER TRADING) REGULATIONS, 1992
1.0 I was appointed as the Adjudicating Officer by SEBI to enquire into and adjudge under Section 15G of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the alleged violation of the provisions of the SEBI (Insider Trading) Regulations, 1992 (hereinafter referred to as the ‘said Regulations’) by Dr. Anjali Beke & Anjudi Property and Investment Private Limited (hereinafter referred to as ‘noticees’) for the transactions in the shares of Tata Finance Ltd (hereinafter referred as ‘TFL’) during March 2001.
2.0 SHOW CAUSE NOTICE
2.1 Accordingly, a Show Cause Notice under Rule 4(1) of the SEBI (Procedure for holding Enquiry and imposing Penalty by the Adjudicating Officer) Rules, 1995 was issued to the noticees alleging that,
(i) the noticees had sold shares of TFL on
The price sensitive information relates
to the loss of Rs.79.37 crores for the year ended March 2001 by Nishkalp
Investment and Trading Co Ltd, a wholly owned subsidiary of TFL. This
information was made public only on
2.2 It is alleged that Dr Anjali Beke knows Mr Dilip Pendse MD of TFL for the last 10 years. Mr Pendse was also the introducer for Anjudi Property and Investment Pvt. Ltd. (API) for its accounts with Canara Bank (A/c No. 25665), Citibank (A/c No. 0841096118) and with broker Malini Sanghvi Securities (P) Ltd. (MSS). Mr. Pendse and his wife, Anuradha Pendse were the Directors of Khudagawah Investment Ltd. (KIL) and Nalini Properties Pvt Ltd which had subscribed Rs. 25 lakhs each towards share application of Anjudi Property and Investment Pvt Ltd in April 2000, as against its paid up capital of Rs 20,000/- only .
Anjali Beke and APL vide letter dated
1. Dr Anjali Beke is a family friend of Shri Dilip Pendse for the last 15 years and had implicit faith in him.
2. Shri Pendse himself and his family members were her patients.
3. Anjali Beke is one of the directors of Anjudi Property and Investments Pvt Limited, which was incorporated in the first week of December 1999. Her husband Dr. Dilip Beke is another Director.
4 Shri Pendse wanted to form a private limited company. He informed Anjali Beke that being the Managing Director of TFL, the policy of the company prohibits him from taking up the directorship in any other company. Hence, at his request and on his assurance Dr Anjali Beke and her husband became the directors of Anjudi Property and Investments Pvt Limited. Shri Pendse took care of the formalities of incorporation and he himself administered the said company though at times he obtained her signature in various documents and papers through his assistants. She had no involvement in the administration or business of the said company. The records of the company were brought to the Registered Office i.e. the house of Dr Anjali Beke only in July/August 2001 and till then the same was with Shri Pendse. Since its incorporation Shri Pendse was looking after the entire business of the company. Neither Dr Anjali Beke nor her husband had received any remuneration from the company. Both of them were busy doctors and they had no time and inclination for transactions in the securities market.
5 It was submitted that when Shri Pendse gave her a cheque of Rs.114000/- in July 1999, stating that it was profit for trading in her name, she opened a separate A/c No.7112 with Dena Bank.
6 It was claimed that she never utilized the money from the above new account. Thereafter, Shri Pendse continued to trade in her name and she used to deposit the profit handed over by Shri Pendse in the said account.
7 Anjali Beke never treated the cash in the said deposit as her money rather she gave the signed blank cheque book to Shri Pendse. Occasionally she wrote the names and the amount in those cheques in her own handwriting as requested by Shri Pendse. (underlining supplied)
8 In September 2001 Dr. Anjali Beke was asked to attend the office of the CID Economic Offences Wing, Crawford Market. Mumbai. As tutored by Shri Pendse, she owned up the responsibility for the transactions of the company before the CID officials. However, she has claimed that she had no personal knowledge of these transactions
9 According to the learned counsel, Shri Pendse had taken undue advantage of acquaintance with his client and committed breach of trust.
10 It was submitted that Dr Anjali Beke never went to Canara Bank or Citibank to open accounts and she was ignorant about the arrangement of funds made by Shri Pendse. The alleged transactions were in fact done by Shri Pendse in her name.
The above points were reiterated in
the subsequent replies dated 1st
3.2 It was submitted that the paid up capital of Anjudi Property and Investment Pvt Ltd was Rs.20000/- only and it was beyond their means to conduct transactions in securities running into crores of rupees. The accounts in Dena Bank, Canara Bank and Citibank were opened in the name of Anjali Beke and Anjudi Property & Investments Pvt Ltd as per the direction of Shri Pendse and as per his directions the cheques were signed by Dr Anjali Beke. The transaction in the securities as alleged in the show cause notice were done by Shri Pendse and both Dr Anjali Beke and Anjudi Property were only benami holders.
3.3 It was submitted that Shri. Dilip Pendse was given blank cheques
and also blank debit slips of the Depository participant’s account of both API
and Dr. Anjali Beke. Therefore, Shri
Pendse was conducting the transactions based on the blank documents that were
given to him earlier. It was submitted
that Mr. Dilip Pendse was operating the account or conducting the transactions
even in the absence of his client when she was out of
3.4 Referring to Page 24 of the compilation of documents filed vide letter dated 21.1.2001 it was submitted that as per the same which is an extract of the passport of Dr Anjali Beke, she was away from India between 23.2.01 to 28.3.01. But Shri Dilip Pendse was conducting the transactions in her absence.
3.5 Page 27 & 28 of the compilation are extracts of API DP A/c for the debit instruction on 19.03.2001 when Dr Anjali was out of India In fact these are debit instruction slips signed by Dr Anjali Beke for the debit on 19.3.01.. It was submitted that these debit transaction slips were signed in blank forms and handed over to Dilip Pendse well in advance and that is how these transactions were executed during her absence.
29 of the compilation is another delivery instruction slip for the transaction of 20.03.2001 by Anjudi
Properties when Dr Anjali Beke
was out of
3.7 It was further submitted that his client was out of India between 15.12.99 to 19.1.00 as can be seen from entry in the passport on Page 23 of the compilation whereas Page 30-45 of the compilation are bills issued by MSS Securities for transactions in securities as detailed therein purportedly done by Dr Anjali Beke which is not possible as she was out of India during that period.
3.8 Page 46 to 56 contains copies of dividends warrants in favour of API which had the address of Mr. Pendse residence.
3.9 Page 59 of the compilation is a request to Depository Participants IIT Corporate Services Ltd for change in the address of the demat account of API wherein the address was changed from the residential address of Dilip Pendse to residential address of Dr. Anjali Beke which is also the registered office of API.
3.10 Pages 63 to 69 of the compilation are courier slips issued to API and Anjali Beke whereas the same is addressed to the residential address of Dilip Pendse. These documents were submitted in support of the argument that much of the correspondence was done from Shri Pendse’s office without the knowledge of Dr Anjali Beke.
3.11 Page 71 has the transcribed version of Page 70 of the compilation. This is a letter from MSS Securities. The learned counsel stated that this letter was seized by the Income Tax Dept and therefore could not be produced. By this letter the broker is demanding transfer of demat shares whereas the same is not addressed to either Dr. Anjali Beke or Anjudi Property but it was addressed to Mr. Dilip Pendse / Ashish. The learned counsel argued that this goes to establish that his client was not aware of the transactions done in her own name.
3.12 Page 72 of the compilation is a statement of Dr Anjali Beke submitted to the Income Tax authorities. In response to Q21 therein it was submitted that Dr Anjali Beke was not completely independent and depended on brokers. Answer of Q.11 is also relevant to state that Dr Anjali Beke was not involved in the day to day activities of the business.
3.13 Page 83 of the compilation is a statement of Mona K. Lundwani who looked after the accounts of Nalini Properties Ltd and also office administration. In response to Q. NO.8 she has replied that she was looking after accounts work relating to API also.
3.14 It was submitted that as per Page 95 of the compilation(which is a statement of Dr Anjali Beke to the ITO) the balance sheet of API were found at Merchant Chambers, 301/302, Mumbai which is the address of Nalini Properties belonging to Mr. Dilip Pendse.
3.15 Page 100 to 114 are documents relating the transactions in shares and issue of bank statements and all of them were signed by Ms Mona as authorized signatory of API, Dr Anjali Beke was not aware of these transactions.
3.16 It was finally submitted that Dr Anjali Beke did not conduct any transactions in securities based on the unpublished price sensitive information as alleged in the show cause notice.
3.17 Written arguments were filed on
4.0 APPRECIATION OF EVIDENCE AND FINDINGS
4.1 Nishkalp Investments and Trading Co Ltd(NITC) is a wholly owned subsidiary of Tata Finance Ltd. NITC had suffered provisional loss of Rs.79.37 crores for the year ended 31st March 2001. Shri Dilip S Pendse was the MD of TFL and also the director of NITC at the relevant time. The NAV of the investments of NITC was made available to Shri Pendse on a daily basis and estimated Profit & loss Statement of TFL for the quarter ended 31.3.2001 was put up to him 6.1.2001 .Further , in the Board meeting of NITC its loss was estimated at Rs.17.10 crores for the nine months ended 30th June 2001 as against the profit of Rs.11.46 crores for the 6 months period ended on 30th Sept 2000. The estimated erosion of NAV of the portfolio of NITC for the year ended 31.3.2001 was stated to be around Rs.146 crores.
The information regarding the loss suffered by NITC was made public on
4.3 She had sold 2.5 lakhs shares of TFL based on the unpublished price sensitive information received from Shri Pendse and made unjust profit as under;
4.4 It was argued that to become an insider, Dr Anjali Beke ought to have been a connected person with TFL or deemed to be a connected person with TFL and because of that connection she could have reasonably expected to have access to the unpublished price sensitive information or she received such unpublished price sensitive information of TFL. Since She is neither a director or deemed director and not even employed with TFL she cannot be called as an insider on that ground.
The same is examined
4.5 Regulation 2 (e) of the said Regulations reads as under;
“2. In these regulations, unless the context otherwise requires :—
(e) “insider” means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access by virtue of such connection to unpublished price sensitive information in respect of securities of the company, or who has received or has had access to such unpublished price sensitive information;”
In view of the above definition of ‘insider’ it is not necessary to show that in all cases of insider trading, a person(insider) is connected with or deemed to be connected with the company. When a person has received or had access to unpublished price sensitive information, he becomes an ‘insider’. It is possible that some times an insider may not be connected with or deemed to be connected with the company but would nevertheless become an insider for a limited period when he is in possession of unpublished price sensitive information which is not known to others and if such person trades on the basis of the said unpublished price sensitive information the same would be in contravention of the Regulation. In view of the above it is difficult to agree with the argument of the learned counsel that since Dr Anjali Beke is not a connected person or a person deemed to be a connected person in terms of the Regulations, she cannot be termed as an insider.
4.6 It is not disputed that Dr. Anjali Beke is a close associate of Mr. Dilip Pendse, the Managing Director of TFL. It is also not disputed that the impugned transactions have taken place immediately prior to making public the information relating to the loss suffered by NITC which is an unpublished price sensitive information, although it is the case of Dr. Anjali Beke that she is not aware of the impugned transactions because she trusted Mr. Dilip Pendse in whom she had faith having known him for many years. It is also stated that she herself filled the names of the payees and the amount in some of the cheques although it was done mostly by Mr. Dilip Pendse himself as she had given him blank cheque book signed. It is also significant to note that API had received a total of amount of Rs.50 Lakhs from Nalini Properties and Kudagawah Investments relating to Shri Dilip Pendse, Managing Director of TFL..
4.7 Dr Anjali Beke and API which is a closely held private limited company in which the Dr Anjali Beke and her husband Dr.Dilip Beke are insiders within the definition of the said term in the Regulations, it further remains to be seen whether they were in receipt of unpublished price sensitive information and traded on the said unpublished price sensitive information.
4.8 Unpublished price sensitive information is
defined as in Regulation 2(k) which was substituted by the SEBI (Insider
Trading) (Amendment) Regulations, 2002, w.e.f.
‘(k) “unpublished price sensitive information” means any information which relates to the following matters or is of concern, directly or indirectly, to a company, and is not generally known or published by such company for general information, but which if published or known, is likely to materially affect the price of securities of that company in the market—
(i) financial results (both half-yearly and annual) of the company;
(ii) intended declaration of dividends (both interim/final);
(iii) issue of shares by way of public rights, bonus, etc.;
(iv) any major expansion plans or execution of new projects;
(v) amalgamation, mergers and takeovers;
(vi) disposal of the whole or substantially the whole of the undertaking;
vii) such other information as may affect the earnings of the company;
(viii) any changes in policies, plans or operations of the company
In view of the above definition of unpublished price sensitive information there is no difficulty in holding that the provisional loss of Rs.79.37 crores by NITC and the estimated erosion of its NAV for Rs.146 crores as on 31st March 2001 is an unpublished price sensitive information till 30th April 2001 before it was made public on the said date as additional information to the Rights Issue prospectus of TFL. Anybody who is in possession of the aforesaid information prior to it being made public would be in a position to sell the shares and make huge profits at the expense of other shareholders who do not have such information. There cannot be any dispute as to the fact that Mr. Pendse being the director of TFL and also a director of NITC at the relevant time was in possession of the aforesaid unpublished price sensitive information relating to the financial health of NITC as above.
4.9 It is an admitted position that Dr Anjali Beke knew Mr Dilip Pendse for nearly 20 years as per the reply to the show cause notice and Shri Pendse himself and his family members were her patients. It is difficult to accept the contention of Dr Anjali Beke that she was only a benami holder and all the impugned transactions which according to her were done by Shri Pendse. If Dr. Anjali Beke is the benamidar of the said shares as claimed, there is nothing on record to show that the impugned transactions are permissible as per Section 3(2) of Benami Transactions (Prohibition) Act, 1988. All the parties, i.e. Dr. Anjali Beke and Dilip Pendse are also required to file statements before the Registrar of Companies under Section 187 of the Companies Act, 1956. There is no material to suggest that this has been complied with. Therefore, the contention of Dr. Anjali Beke that notwithstanding the fact that the shares are held by her in the depositories account she is not the real owner of shares is contrary to facts and law.
It is not disputed that the new A/c No.7112 at Dena Bank, Shivaji Park Branch was standing in her name. It is claimed that she had signed the blank cheque book of this account and handed it over to Shri Pendse at the very beginning as she had faith in him. This does not absolve her of her responsibility. It is her case that Shri Pendse used to trade in shares in her name. The Advocate in his reply dated 15.9.2003 had extracted the following statement of his client.
4.10 “Thereafter, also Mr Pendse continued to trade in shares in my name and I always used to deposit the said money which Mr Pendse used to hand over to me towards the profit in trade in the said new account opened by me in Dena Bank……” (underlining supplied)
4.11 “Since the amount was big I obtained a cheque book, signed all the cheque book and handed it over to Mr Pendse thereafter I did not know as to whose favor he issued these cheques. However, on some cheques he wanted me to write the names and the amount in my own handwriting which I did out of trust ” (underlining supplied)
4.12 Similarly, as regards the accounts in Canara Bank and Citibank are concerned it was submitted in the reply dated 15.9.2003 that Dr Anjali Beke is totally ignorant about the fund flows and operations thereof. She used to sign the blank cheques and used to hand it over to Mr Pendse (underlining supplied).
4.13 The above explanation is totally unsatisfactory when the bank accounts and depository accounts are standing in the name of Dr Anjali Beke and API, and transactions involving substantial sums of money were carried out, there is no gain saying that it was done at the instance of Shri Pendse. It was admitted that Dr. Anjali Beke drew the cheques in her own handwriting and deposited the money given by Mr. Pendse in her account but again attributed that the same was done at the instance of Shri Pendse.
4.14 When there is no dispute that the accounts in question belong to Dr Anjali Beke and API including the DP accounts, when the funds flowed into the said account and shares moved from the DP A/c on the debit instruction slips issued by Dr. Anjali Beke, she has mandated these transactions based on which the securities and funds moved and therefore she is responsible for the transactions and the consequences thereof. There is no gain saying in such matters to say that it was at the behest of someone else. It is pertinent to note that API which has a nominal capital of Rs.20000/-had received substantial amount of Rs 50 lakhs from Nalini Properties and Kudagawah Investments of Mr Dilip Pendse, Managing Director of TFL.
4.15 In view of the above, and having regard to the close acquaintance
of Dr Anjali Beke with Mr Dilip Pendse whom admittedly she knew for around 20
years it can be reasonably be concluded
that she had received the unpublished
price sensitive information from Mr Dilip Pendse and traded in the shares of
TFL in her own account for 20,000 shares and through API for 2.30 Lakh shares
on 28.03.2001 at a price of Rs.90/- per share in which she and her husband are
the directors. The demat transfer of the shares was done on
4.16 The standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct. The strict rules of Evidence Act and proof beyond reasonable doubt are not applicable to a proceeding of this nature. The Supreme Court’s decision in Gulabchand vs Kudilal AIR, 1966, SC 1734 and the decision of the Special Court for trial of offences relating to transactions in securities in the matter of National Housing Bank versus ANZ Grindlays Bank, 1998 (2 ) LJ 153 is relied upon in this regard.
5.0 UNJUST PROFIT MADE
5.1 The closing price of the shares of TFL on
5.2 In this regard, Section 15G of the SEBI Act, 1992 read as under prior to the amendment;
15G. If any insider who,—
(i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information; or
(ii) communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or
(iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information,
shall be liable to a penalty not exceeding five lakh rupees”
The said penalty was substituted by SEBI (Amendment) Act, 2002 with effect from 29.10.2002 whereby a penalty of twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.
5.3 It is
pertinent to refer to the order of the SAT in Appeal No.151/2004 dated 7.2.2005
in the matter of Rameshchandra Mansukhani NRI vs SEBI. It has been held by the Hon’ble Tribunal that
for irregularities that were committed prior to the amendment of the SEBI Act
on 29.10.2002, penalty as existing at the relevant period only is to be imposed
and not the new penalties under the amended Act. The SAT held that it is the common ground
that at the relevant period the maximum penalty was Rs.5 lacs. The amendment enhancing the penalty to Rs.5
crores came into force with effect from
“Penalties unless specifically made retrospective must inevitably be only with effect from the date of amendment. Accordingly, we hold that at the relevant time, the maximum penalty was Rs.5.00 lakhs”.
Having regard to the nature and gravity of charges established, the factors contained in Section 15 J of SEBI Act,1992 with particular reference to the unjust enrichment derived out of the impugned transactions and following the order of Securities Appellate tribunal in Appeal No.151/2004 dated 7.2.2005 cited above, a penalty of Rs. 5 Lakhs is imposed on Dr Anjali Beke and Anjudi Property & Investment Private Limited.
Both Dr Anjali Beke and Anjudi Property and Investment Private Limited are jointly and severally liable to pay the penalty amount immediately on receipt of this order through a crossed demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India’” and payable at Mumbai which may be sent to Shri.R.K.Nair, Executive Director, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman Point, Mumbai – 400021.
Date: 08, August 2005, S.V Krishna Mohan,
Place: Mumbai. Adjudicating Officer.