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ORDER
UNDER
RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,
1995. Against Mr. Jay Shah
1134,
Girdharlal No Khancho, Lalabhat’s Pole, Manek
Chowk, Ahmedabad – 380 001. 1.0 Background 1.1 Shri Jay Shah is an investor who has been trading in
securities through M/s India Infoline Securities Pvt.
Ltd. trading member – National Stock Exchange of India Ltd. and Bombay Stock Exchange
Ltd. He
is also trading through M/s Pilot Credit
Capital Ltd., broker- Bombay Stock Exchange Ltd. (SEBI registration no. INB 011184935) under client code 7837. Shri Jay Shah
(hereinafter referred to as “JS”) is
a resident of 1134, Girdharlal No Khancho,
Lalabhat’s Pole, Manek
Chowk, Ahmedabad – 380 001. 1.2
The present
proceedings emanate from an investigation which is being conducted by SEBI to
look into the sudden spurt in trading volumes and market price of shares of IFSL
Ltd. (hereinafter referred to as “IFSL”)
which was formerly known as Interlink Financial Services Ltd. Based on the preliminary findings of the
investigation, SEBI, vide its order no. WTM/GA/14/ISD/9/05 dated September 28,
2005 (hereinafter referred to as “SEBI
Order / Order”) issued directions under section 11B and 11(4)(b) of SEBI
Act, 1992, restraining the promoters & directors of IFSL, certain clients and
certain brokers from dealing in the shares of IFSL. The SEBI order was posted
on SEBI website on the same day and also despatched to the various persons /
entities against whom directions were issued. As per para. 4.3 of the said order,
inter-alia, Shri Jay Shah was directed not to buy
sell or deal in securities of IFSL, directly or indirectly, till further
directions in this regard. The SEBI order was also sent to JS’s
broker M/s India Infoline Securities Pvt. Ltd.
(hereinafter referred to as “IISL”)
who had been restrained from executing further trades in IFSL for JS. 1.3
It is observed
that the SEBI order had been sent to JS at the address provided by BSE. However, the said order was returned back undelivered
with the remark that address was incomplete.
Subsequently the order was hand-delivered to JS through IISL on October
19, 2005. It was observed that JS traded in the shares of IFSL through Pilot
Credit Capital Ltd., (hereinafter referred to as “PCCL”) while the restraint order was in force. The details of trades are as under:-
1.4 In view of the alleged violation of SEBI order restraining JS
from trading in the shares of IFSL, SEBI has initiated adjudication proceedings
against JS u/s 15I of SEBI Act, 1992.
The undersigned has been appointed as Adjudicating Officer vide SEBI order dated 2.0 Notice / Reply / Personal Hearing 2.1 Accordingly I issued show cause
notice to JS vide letter dated 2.2 As no reply was received from JS in the stipulated time, it
was decided to conduct an inquiry in the matter. Accordingly, a notice of inquiry dated 2.3 Another notice of inquiry dated 2.4
Thereafter
another notice of inquiry
dated 2.5
The position
regarding delivery of notices is summarized below:-
Note: A) 1134, Girdharlal
No Khancho, Lalabhat’s Pole, Manek Chowk, Ahmedabad – 380 001 B) B-43 Sanjivani Apartment, Opp. Shreenand Nagar Part 1, Vastrapur, Ahmedabad – 380 015 2.6 The notices were sent to both the addresses of JS as mentioned
at (A) and (B) in the note above. The show
cause notice dated 3.0 Consideration of issues and findings 3.1 I now propose to discuss in detail the charge that has been
leveled against JS for being adjudicated in the present proceedings and my
findings on the same based on records available. JS has not made any
submissions in the matter despite having received the show cause notice & the
notice of hearing and having adequate time for making submissions. 3.2
The allegation /
charge against JS is that by trading in IFSL shares on October 11 and 14, 2005,
he has violated the directions issued vide SEBI order dated September 28, 2005
restraining him from trading in IFSL shares. The relevant issue here is whether
JS was aware of the SEBI order. 3.3
It is observed
that SEBI order had also been sent to JS at the address provided by BSE. However, the said order was returned back
undelivered with the remark that address was incomplete. Subsequently the order was hand-delivered to
JS through IISL on 3.4
As already
mentioned above, SEBI vide its ex-parte, ad interim
order dated 3.5
It is observed
that the SEBI order was sent to IISL who had been directed not to buy, sell or
deal in securities of IFSL on behalf of IFSL’s
promoters, directors and certain clients.
IISL is the broker of JS through whom he was trading in, inter alia, shares of IFSL. As per records, it is observed that IISL
communicated to SEBI that its Ahmedabad office personnel had informed JS on 3.6
As per
information available on records, it is observed that JS is an active investor
/ trader in the securities market. On
perusal of his trading details submitted by IISL, it is observed that during
the month of September 2005 his total trades amounted to Rs.64,14,27,016
(purchases Rs.31,49,17,311.36 and sales Rs.32,65,09,704.64). Considering the fact that he has traded on each of the 19
trading days during September 2005, the average daily trading volume amounts to
Rs.3,37,59,316.63 which is quite substantial.
Further the quantity of shares traded by JS varied from few hundred to
few lakh shares in each company. In view of the fact that JS traded on each
trading day and that too in large quantities and for large value, it would be
appropriate to consider him as a regular and large investor in the securities
market. A person who is so regularly associated /
involved in securities market activities cannot be ignorant of headline
grabbing news which was covered by the print and electronic media for many
days. 3.7
It is observed
that JS was trading heavily in the stock market on daily basis through IISL. However,
he has traded through IISL only till 3.8
The above
observation is further strengthened by the fact that JS’s
further trading in IFSL shares on October 11 and 14, 2005 was done through PCCL
and not through IISL. If JS was not aware
of SEBI order which restrained him from dealing in IFSL shares as also IISL
from dealing in these shares on his behalf then why did he trade through PCCL? The most logical explanation is that he was
well aware of the restrictions but deliberately violated the SEBI Order and
therefore entered into these transactions through PCCL. 3.9
While the SEBI
order was expressly delivered to JS on October 19, 2005, the circumstantial
evidence as summarized below indicate that he was aware of the order since September 28 / 29, 2005:- (i)
The SEBI order
dated (ii)
The SEBI order
was extensively covered by the print and electronic media and would have come
to notice of such persons / entities who are regularly
associated with the securities market. (iii)
It has been
submitted that the restraint imposed on JS from trading in IFSL shares vide the
SEBI order was communicated by IISL to JS on The above findings are further corroborated by the
following facts : (iv)
JS stopped
dealing with IISL after (v)
On October 11
and 14, 2005, JS has traded in IFSL shares through PCCL. This proves that he
was aware of the restraint placed by SEBI in respect of trading in IFSL shares. 3.10 Based on the evidence on record, I logically conclude that JS was well aware of the
directions passed against him vide SEBI order and deliberately violated the
same. My conclusion is further
strengthened by the fact that despite getting adequate opportunity, JS has not
made any submissions in his defense. 3.11 I therefore conclude that JS has deliberately violated the
directions issued vide SEBI order dated September 28, 2005 and is thus liable for penalty under Section
15HB of SEBI Act, 1992 which states as under:- “Penalty
for contravention where no separate penalty has been provided. 15HB. Whoever
fails to comply with any provisions of this Act, the rules or regulations made
or directions issued by the Board thereunder for
which no separate penalty has been provided, shall be liable to a penalty which
may extend to one crore rupees.” 3.12 While
imposing penalty it is important to consider the factors stipulated in section
15J of SEBI Act, 1992 which states as under : “15J Factors
to be taken into account by the adjudicating officer While adjudging quantum of penalty
under section 15-I, 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. “ 3.13 The available records do not indicate any
amount towards a quantifiable gain made by JS by entering into these
transactions in IFSL shares on October 11 and 14, 2005. Further the records also do not indicate any
loss been incurred by a specific investor or group of investors. JS has traded in the shares of IFSL on October 11 and 14,
2005 in violation of SEBI directions. His violation / default can be considered
as repetitive to that extent. 3.14 In the absence of any representation before me
during the adjudication proceedings, despite receiving notices, I am of the
view that there are no sufficient reasons for JS which prevented him from
complying with the directions issued against him by the SEBI Order. This
deliberate violation of SEBI directions is a manifestation of JS’s disrespect to the process of law and any lenient stand
taken by the adjudicating authority will set a bad precedent and send wrong
signals to the market participants. It cannot be denied that any violation of the
regulatory directions issued by the regulator in the interests of the investors
or non adherence to the same for any reason whatsoever is bound to affect the
interests of investors and deprive the investors of a fair and regulated
market. If the market players can go about violating the regulatory provisions
at will, the fairness and integrity of the market would be adversely affected
and investors would lose their faith in the market. It is therefore imperative
that such instances are curbed with a heavy hand and an appropriate deterrent
penalty is imposed on the violators. 3.15 On browsing through the SEBI website which is a public domain, it
is observed that JS has been involved in many other cases of market
misconduct. Some of the cases are
mentioned below:- a.
In the case of M/s
Shalibhadra Infosec Ltd.,
the adjudicating officer, vide order dated October 18, 2005, had imposed a penalty of Rs.10,00,000/- on JS for not complying with the summons
issued by investigating authority. In the appeal to the Securities Appellate
Tribunal (hereinafter called “SAT”),
JS submitted that he had not received the summons and agreed to submit the
information. SAT reverted the case to SEBI for further
view. As JS submitted the information,
no penalty was imposed. b.
Vide SEBI order
dated October 05, 2005, SEBI issued directions under section 11B and 11(4)(b)
of SEBI Act, 1992 against, inter alia, JS that he
would not buy, sell or deal in securities of M/s Ind Tra Deco Ltd. till further directions. c.
Vide SEBI order
no. WTM/GA/24/ISD/10/05 dated October 24, 2005 SEBI issued directions under section
11B and 11(4)(b) of SEBI Act, 1992 against,
inter alia, JS that he would not buy, sell or deal in
securities of M/s Mega Corporation Ltd. till further directions. Vide the same order,
JS was restrained from buying, selling or dealing in any securities till
further directions. 4.0 Penalty 4.1 Considering the material available on record, and upon a
judicious exercise of powers conferred upon me under Rule 5 of SEBI (Procedure
for Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules
1995, I impose a penalty of Rs. 10,00,000/-
(Rupees Ten Lakhs only) on Shri Jay Shah, resident of
1134, Girdharlal No Khancho,
Lalabhat’s Pole, Manek
Chowk, Ahmedabad – 380 001 under section 15 HB of SEBI Act, 1992. I think this
amount would be appropriate in view of the facts of the case. 4.2 The penalty amount shall be paid within a
period of 45 days from the date of receipt of this order through a cross demand
draft drawn in favour of “SEBI- Penalties remittable to the Government of India
and payable at Mumbai which may be sent to Mr. Sunil Kadam, Deputy General
Manager, SEBI, C – 4 A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai –
400 051. PLACE: MUMBAI PIYOOSH GUPTA DATE:
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