SECURITIES AND EXCHANGE BOARD OF INDIA

 

 

01.          Securities and Exchange Board of India (SEBI) conducted investigation into the dematerialization of shares of Accurate Exports Ltd., (hereinafter referred to as �AEL�), listed in the Stock Exchange, Mumbai (BSE).

 

02.          Pursuant to the aforesaid investigation, SEBI appointed, vide order dated July 16, 2004, the undersigned as the Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter Adjudication Rules) read with Sec. 15 I of SEBI Act, 1992 to inquire into and adjudge the failure of Equisearch Broking Pvt. Ltd. (EBL, Member, Stock Exchange, Mumbai), to comply with the summons of SEBI in violation of Sec.11C (6) for which penalty may be imposed under Sec. 15A of SEBI Act, 1992. The aforesaid appointment was communicated vide proceedings of the Whole Time Member, SEBI, dated July 30, 2004.

 

03.          The undersigned issued notice (SCN) dated October 14, 2004 under SEBI Adjudication Rules to EBL, communicating the allegations levelled against it and calling up on it as to why an inquiry in terms of the said Rules should not be conducted against it.

 

04.          EBL replied to the SCN vide its letter dated February 14, 2005. It was stated that in response to the summons dated March 08, 2005, EBL had sought 15 days additional time, vide its letter dated March 17, 2004. In this regard, copy of the said letter, having SEBI�s acknowledgement, was enclosed. EBL further stated that it had already furnished required information in response to summons dated January 09, 2004, vide its letter dated February 04, 2004. Copy of this letter, with SEBI�s acknowledgement, was also enclosed.�

 

05.          In the above circumstances the undersigned thought it fit to hold an inquiry in the matter. Accordingly, inquiry along with the personal hearing in the enquiry proceeding against EBL, was held on February 14, 2005. M/s. Prakash Shah and Vijay Gandhi appeared on behalf of EBL and consented for the joint proceedings and made submissions. It was submitted that EBL was neither aware, nor connected with the demat of AEL and undertook to file a detailed reply to support this contention, by February 18, 2004. On a query that despite EBL based at Mumbai, why the additional time was sought in response to a summon issued by Investigating Authority.� It was submitted that since the transaction has taken place in Ahmedabad branch office and as the Directors of EBL were also located in Ahmedabad, EBL sought additional time of 15 days for its representatives to appear in person before Investigating Authority.

 

06.          From the material on record it is seen that SEBI launched investigation on the various aspect of AEL, including the alleged dematerialization of shares higher than its paid-up capital and the subsequent trading in its scrip in the secondary markets. The Investigation Department issued summons dated March 08, 2004 to EBL, summoning its representative to appear before the Investigating Officer on March 17, 2004.

 

07.          From the material on record, it appears that the Investigating Officer (IO) had earlier issued summons dated January 09, 2004 to EBL, seeking specified information and documents. Copy of this summons is however not furnished to me by the IO.� Nevertheless, the reply given by EBL to this summons vide its letter dated February 04, 2004, is connected to this proceedings. A copy of this reply, having SEBI�s acknowledgement was furnished by EBL in the inquiry. In this reply, EBL has furnished the transactions details in AEL shares for its clients from May 01, 2001 to March 03, 2002 (annexure � 1, copy not enclosed), details of off market trades in AEL (nil), bank account and demat details of client (in annexure � 2, copy not enclosed) and also copy of EBL�s demat account (in annexure, copy not enclosed). It is after this reply that the IO has issued summons dated March 08, 2004 to EBL. From a careful reading of the summons dated March 08, 2004, it is clear that the IO only required the representative of EBL to be present before him in connection with the investigation in AEL. The summons dated March 08, 2004 did not seek any specific documents and information and neither is there any mention of annexure to the summons dated March 08, 2004. Therefore, it may be inferred that the IO was reasonably satisfied about the requirements of documents and information sought from EBL vide summons dated January 09, 2004. But most importantly, over and above this, the IO wanted to investigate EBL in person.� EBL�s representative did not present himself before the IO on March 17, 2004, but vide letter dated March 17, 2004 sough 15 days additional time, without citing any reason. The submission made by EBL during the hearing on February 14, 2005 before me, that its directors are in Ahmedabad, appear more of an afterthought. If there was any constraint in complying with the summons on March 17, 2004, EBL should have stated the same fact in its reply dated March 17, 2004. It has not done so.

 

08.          From the material on record there is nothing to suggest that fresh summons were issued by the IO, subsequent to summon dated March 8, 2004, to EBL as per the latter�s request. From the conduct of the EBL in responding to the summons dated January 09, 2004, I am of the view that substantial information was provided to IO by EBL.

 

09.          It is also a fact that although EBL has not complied with the summons dated March 08, 2004 without citing any justified reasons for the same, the IO has also not issued another summons to EBL. Further the information provided by EBL vide its letter dated February 4, 2004, has not been found mentioned in the records made available to me.� The IO has also not mentioned in his summons dated March 8, 2004that the information provided by EBL vide letter dated February 4, 2004 was not sufficient and that is why EBL was required to attend in person the office of IO.� Section 15 A (a) of SEBI Act, under which the present proceedings are initiated, can be invoked only "if any person, who is required under this Act or any rules or regulations made thereunder to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable �.".� In case of EBL, it has furnished the documents as required vide SEBI's summon but failed to appear in person.� In my considered opinion the adjudication penalty in the present case can not be imposed under Section 15 A (a) of SEBI Act, simply for not attending in person the office of IO in response to summon.

 

10.          I therefore do not impose any penalty on Equisearch Broking Pvt. Ltd for the reasons discussed above.

 

 

DATE: MAY 20, 2005��������������������������������������������� AMIT PRADHAN

PLACE: MUMBAI� ����������������������������������������������������������� ADJUDICATING OFFICER