ORDER OF THE ADJUDICATING OFFICER UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995  IN THE MATTER  OF CMS  INFOTECH  LTD.

 

1.       Vide order dated August 25, 2004, issued by Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), Shri K.R.C.V. Seshachalam, Deputy Legal Adviser, SEBI was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to enquire into and to adjudge under Sec.15A of Securities and Exchange Board of India Act, 1992, the alleged violation of  providing alleged incorrect and misleading information by CMS  Infotech  Ltd., a company having its registered office in the state of West Bengal. The above order for adjudication follows the investigation carried out by SEBI in the matter of Universal Media Network Ltd.

 

2.       Subsequently, vide order dated December 28, 2004 I have been appointed as the Adjudicating Officer in the instant matter in place of the aforesaid Shri K.R.C.V. Seshachalam and the records of the instant case have been transferred to me. As per the said order dated December 28, 2004, I should proceed to deal with the instant case from such stage which was reached before the aforesaid transfer.

 

3.       Accordingly, I initiated the adjudication proceedings and issued show cause notice to CMS  Infotech  Ltd. (hereinafter referred to as ‘the noticee’, for the sake of convenience) on June 13, 2005 in terms of Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against it under the aforesaid rules and penalty should not be imposed under Sec.15A(a) of Securities and Exchange Board of India Act, 1992. The noticee issued reply to the aforesaid show cause notice on June 30, 2005 and subsequently inquiry was held by me in terms of the aforesaid rules in the instant matter.

 

 

 

4.       In the instant matter, I am of the view that it is pertinent to examine initially as to whether an inquiry can be conducted in terms of the provisions of Sec.15A (a) of Securities and Exchange Board of India Act, 1992 and Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 in cases where the allegation is that a person provided false and misleading information to the investigating authority of SEBI.

 

5.       Sec. 15A of Securities and Exchange Board of India Act, 1992 under which I have been directed to adjudge in the instant case, reads as follows:

          “Penalty for failure to furnish information, return, etc.

                        15A.     If any person, who is required under this Act or any rules or regulations made thereunder,—

                    (a)        to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less;

                    (b)        to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less;

                    (c)        to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.”

 

6.       Though the proceedings appointing the Adjudicating Officer did not specify the particular clause under which the adjudication should be conducted, I issued show cause notice to the noticee specifying Clause (a) of Sec.15A as it is the only provision out of the above three which provides for the cases of failure to furnish the documents to SEBI. 

 

7.       From the above provision of law read with Sec.15-I of Securities and Exchange Board of India Act, 1992, it can be seen that penalty can be imposed by the Adjudicating Officer in cases of failure to furnish any document, return or report to SEBI. The essential ingredient to attract Sec.15A (a) is that there should be a failure on part of any person who is required under Securities and Exchange Board of India Act, 1992 or any rules or regulations made thereunder to furnish any document, return or report to SEBI.

 

 

8.       The word ‘fail’, as per the Law Lexicon (P.Ramanatha Aiyar, 1997 Edn.) means to leave unperformed; to omit; to neglect; as distinguished from refuse, which latter involves an act of the will, while the former may be an act of inevitable necessity.

 

9.       In this connection, I referred to Interpretation of Statutes (ISBN 81 7012 7823)  authored by Shri Vepa P. Sarathi, an authority in the field of interpretation of statutes, as per which one of the fundamental principles of interpretation of statutes is that verbis legis non est recedendum. (you must not vary the words of statute). The courts should not make any interpretation contrary to the express words of an enactment. Nothing can be more unfortunate than a disturbance of a plain language of the legislature by the attempt to use equivalent terms.  In the instant case, the language of the statute is plain and crystal clear which does not require any interpretation other than its literal meaning.

 

10.   It is a well settled law that statutes imposing a fine, penalty or forfeiture other than a penalty in the nature of liquidated damages or other penalties in the nature of civil remedies are penal and ordinarily such statutes have to receive strict construction. Sec.15A is penal in nature as the penalty imposed thereunder is not in the nature of liquidated damages nor a civil remedy. Therefore, Sec.15
A(a) of Securities and Exchange Board of India Act, 1992 cannot be interpreted in such a way which brings false and misleading information also in its ambit.

 

11.   In light of the above, I am of the view that Sec.15A(a) deals with only those cases where there is a simple failure to furnish any documents, return or report to SEBI and the said provision of law does not cover the cases where the documents, returns or reports so filed were allegedly false and  misleading in nature. Also there is no other specific provision under Chapter VIA of Securities and Exchange Board of India Act, 1992 which provides for imposing monetary penalty in those cases where the information/ documents filed by a person are incorrect and misleading in nature.

 

 

 

 

 

12.   A perusal of paragraph No.2.4 of  the report submitted by the expert group constituted by SEBI under the Chairmanship of Mr. Justice M.H. Kania, former Chief Justice of India which reads as under, supports my above view:

“The group noted that as per the provisions of Chapter VIA of SEBI Act, SEBI can impose monetary penalty for the failure to furnish information or delay in furnishing information. However, there is no provision for monetary penalty for giving false information.

The Group felt that during the course of investigation under the provision of SEBI Act, SEBI may come across situations, where intermediaries/ persons associated with securities market furnish false information. In order to tackle the said situation, SEBI should have specific power under the SEBI Act, which would empower SEBI to initiate adjudication proceedings for furnishing false information”.

 

13.   Though the above view of the committee has a persuasive value as it was expressed by a committee of eminent jurists including a former Chief Justice of India.

 

14.   I therefore conclude that law does not permit me to adjudicate and impose penalty in cases where the information furnished by a person is allegedly false and misleading. Since the purpose of adjudication is to impose monetary penalty and since monetary penalty cannot be imposed in the instant case, I am not inclined to give any findings on the facts of the case as the same is, in my opinion, a futile exercise.

 

15.   The matter is accordingly disposed of.   

 

Date:   October 25, 2005                                    A. Chandra Sekhar Rao

Place: Mumbai                                                  Adjudicating Officer