ADJUDICATION ORDER UNDER RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST SHRI GAUTAM PATEL.

 

1.      Securities and Exchange Board of India (hereinafter referred to as �SEBI�) vide order dated October 14, 2004, appointed the undersigned� as the Adjudicating Officer to inquire into and adjudge under Section 15I� and,� Section 15A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the �SEBI Act�) the violation of section 11C of the SEBI Act alleged to have been committed by Shri Gautam Patel (hereinafter referred to as the noticee) by not complying with the summons issued by SEBI requiring his personal appearance before the investigating authority in connection with the investigation launched by SEBI in the scrip of Sword & Shield Pharma Ltd. (hereinafter referred to as SSPL).�� It is noted that SEBI issued summons / letter IVD/ID3/PKB/SSPL/20292/2004 dated September 9, 2004 requiring the noticee to appear before the investigating authority of SEBI on September 16, 2004. It is alleged that the noticee did not appear before the Investigating Authority as required by SEBI vide summons/letter IVD/ID3/PKB/SSPL/20292/2004 �dated September 9, 2004.� In view of the alleged non compliance of summons issued by SEBI, Adjudication Proceedings were initiated against the noticee.

 

 

 

NOTICE AND REPLY

2.      A notice no. A&E/BS/33259/2005 dated February 9, 2005 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the �Rules�) seeking reply as to why an inquiry should not be held against him for the violations alleged to have been committed by him.

3.      In response to the said notice, the noticee vide his letter dated February 28, 2005 submitted the following

a)                 �As I am not even a graduate, I was not aware of the provisions of SEBI Act and various regulations. I was under a genuine belief that summons dated September 9, 2004 received by me was a copy for my information only. I did not understand the contents of the summons and was not aware of my obligations.

b)                 As the transactions were more than three years old, I had forgotten about the same. Further, In the city of Rajkot, no proper legal advise or guidance or knowledge about securities law is available. Further, it is believed by the investors that their brokers and sub-brokers have to furnish the information as asked by SEBI as all details and particulars of transactions are available with them.

c)                  I am not a registered intermediary with SEBI and hence do not come within the ambit, purview and jurisdiction of SEBI. No defined legal relationship exist between me and SEBI.

d)                 In view of the decisions of the Securities Appellate Tribunal in� Contact Consultancy Services Pvt. Ltd Vs SEBI ( SAT� Appeal No 138/2004) and Reliance Industries Vs SEBI ( Appeal No: 39 of 2002) no penalty need to be imposed in the matter in view of the mitigating factors.

4.      Upon considering the said reply submitted by the noticee, it was felt that an inquiry may be conducted and the noticee was advised to attend the hearing scheduled on March 16, 2005. However as the noticee failed to attend the said hearing, opportunity of hearing was granted to him on April 19, 2005 and May 19, 2005. However, it is noted that the noticee failed to attend the inquiry scheduled on the above dates.

 

CONSIDERATION OF EVIDENCE AND FINDINGS

5.      The allegation against the noticee is that he failed to comply with the summons issued by SEBI.� It is noted that SEBI issued summons / letter IVD/ID3/PKB/SSPL/20292/2004 dated September 9, 2004 requiring the noticee to appear before the Investigating Authority on September 16, 2004 in connection with the investigations initiated by SEBI in the scrip of SSPL.

6.      It is noted from the evidence available on record that the noticee failed to reply to the said notice. Further it is noted that the noticee did not appear before the investigating authority . In this regard it is noted that the noticee admitted in his reply to the show cause notice in the adjudication proceedings that he did not reply to the summons / letter IVD/ID3/PKB/SSPL/20292/2004 dated September 9, 2004 as he was not aware of the SEBI Act and various Regulations.

7.      In this regard it is pertinent to note that the summons / letter IVD/ID3/PKB/SSPL/20292/2004 dated September 9, 2004 was issued to the noticee requiring the noticee to appear before the investigating authority of SEBI on September 16, 2004 along with related documents pertaining to his dealings in the scrip of SSPL. However, the noticee failed to appear before the investigating authority on the said date. In this regard Section 11C (3) empowers the investigating authority to require any person associated with securities market to furnish such information or produce such records as may be required by the authority. Further in terms of the provisions of Section 11C(5) the investigating authority may examine on oath any such person and for that purpose may require any such person to appear before it personally. Though no reply has been submitted by the noticee in response to the summons issued to him, it is observed from the reply dated February 28, 2005 submitted by the noticee that as he is not a registered intermediary he does not come within the jurisdiction of SEBI.� In this regard it is pertinent to mention that the Honourable Gujarat High Court in Spl. Civil Application No 2692 and 2694 of 1996 Karnavati Fincap Ltd Vs SEBI held that the power to call for information and documents relevant for enquiry even from persons against whom the enquiry has not been instituted vests in SEBI.

8.      �In this regard it is pertinent to mention that during the course of the investigation it prima facie appeared to the investigating authority that the noticee had traded substantially in the scrip of SSPL and it is in this context that the noticee was summoned to appear before the investigating authority.

9.      In the present case on perusal of the summons dated September 9, 2004 issued to the noticee it is noted that the contents of the same clearly explained in unambiguous terms that the personal appearance of the noticee before the investigating authority was required in connection with the investigation launched by SEBI with regard to the buying, selling and dealings in the scrip of SSPL. Hence there was no material to suggest that this was only a copy for the information of the noticee as contended by him. It is noted that by not appearing before the investigating authority the noticee violated the provisions of Section 11C(3) and 11C(5) of the SEBI Act.

10. �The contention of the noticee that it is not a SEBI registered intermediary and hence is not bound to comply with the summons is devoid of merit as it is clear from the above legal provisions that SEBI may require any person associated with securities market to furnish such information and may if necessary examine such person on oath.

11. In view of the above it can be concluded that the failure on the part of the noticee to appear before the investigating authority of SEBI and submit the required information is established.�

12. In this regard Section 15A(a) of SEBI Act provides the following :

15A. Penalty for failure to furnish information, return, etc: 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 to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less�.

13. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely;

 

a)                 the amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of the default

b)                 the amount of loss caused to an investor or group of investors as a result of the default

c)                  the repetitive nature of the default

14. It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default.� Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of the available facts and data.� However, with regard to the repetitive nature of the default it is noted that the investigating authority had issued only one summons to the noticee. Hence it can not be said that the default was repetitive in nature. However the non appearance of the entity in the personal hearing granted in the adjudication proceedings on three occasions i.e. on March 16, 2005, April 19, 2005 and May 19, 2005, shows that the noticee has been adopting a non co-operative attitude. Timely submission of information is very important in conducting investigation proceedings and non cooperation by any person will hamper the investigation process. Such actions are detrimental to the interest of the investors and securities market.� The failure on the part of the noticee to appear before the investigating authority hampered the investigation process. Hence the violation committed by the noticee has to be taken seriously in view of the facts and circumstances of the case.

 

ORDER

15. Considering the facts and circumstances of the case it is established that Shri. Gautam Patel failed to appear before the investigating authority of SEBI in response to the summons issued by it. However considering the fact that only one summons was issued to Shri Gautam Patel by the investigating authority, I am inclined to take a lenient view with regard to the quantum of penalty attracted in respect of the violation in the matter. For the failure on the part of Shri. Gautam Patel to appear before the investigating authority of SEBI and furnish necessary information to SEBI, in terms of the provisions of Section 15 A(a) of the SEBI Act, I , hereby impose a penalty of Rs.20,000/-� on Shri. Gautam Patel .

16. The penalty shall be paid by way of demand draft drawn in favour of �SEBI � Penalties Remittable to Government of India� payable at Mumbai within 45 days of receipt of this order. The said demand draft� shall be forwarded to General Manager, Investigation Department (ID3), Securities and Exchange Board of India, Mittal Court, �B� Wing, First Floor, 224, Nariman Point, Mumbai -400 021.

17. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are sent to Shri Gautam Patel and to SEBI.���

 

 

PLACE: MUMBAI��������������������������������������������������� BIJU. S

JUNE 30, 2005�������� ����������������������� ������������������� ��� ADJUDICATING OFFICER