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ORDER UNDER RULE 5(1) OF THE
SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING
OFFICER) RULES, 1995 READ WITH SECTION 15A(a) OF THE
SEBI ACT, 1992 AGAINST SHRI G. N. JOHARI BACKGROUND: 1.������ M/s Cyberspace Limited. (formerly known as Cyberspace Infosys
Ltd and for brevity�s sake, hereinafter referred to as �CL�) �is holding about 47% of the equity shares of one
of its group companies called Century Consultants Ltd. (hereinafter referred to
as CCL)�� a member of NSE, BSE and OTCEI.
CCL in turn is holding 21% of the total equity paid up capital of �CL�. �Shri G.N. Johari �(hereinafter
referred to GNJ) one of the common promoters/ directors of �CL� and CCL was
allegedly found to be acting in concert with the remaining promoters/directors of
CL and CCL in the commission of irregularities in the trading of the shares of
the �CL� and creation of artificial volumes. � 2.������ In view of the same, the
Securities and Exchange Board of India (for
brevity�s sake, hereinafter referred to as the SEBI) initiated investigation
proceedings as regards the dealings in the shares of �CL� for alleged market
manipulation and irregularities in the trading of the said shares.� 3. ����� Pursuant to the same, the Investigating Authority issued summons
under section 11(3) of the SEBI Act, 1992 (for brevity�s sake referred to as
the Act) upon GNJ on June 3, 2002, whereunder was
advised to appear before the Investigating Authority on June 17, 2002 along
with all the documents that he intended to rely upon in his defense or any
other documents relevant to the proceedings initiated by SEBI in this
regard. It was made clear to
GNJ that in case he failed to appear before the investigating authority; necessary
action would be initiated against him under the relevant provisions of the Act. 4.����� Upon his failure to so appear before the investigating authority,
summons were once again issued to GNJ
on June17,2002 seeking his attendance before the investigating authority on June 25, 2002 along with the
documents relating to his investment in CL. It appears that on this occasion the
investigating team of SEBI enlisted the assistance of the CBI for serving the
summons upon GNJ. The CBI vide their letter dated 5.������ Thus GNJ was found to have failed to comply with the summons
issued by SEBI resulting in the violation of Regulation 9 of the SEBI (Prohibition
of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 1995 (hereinafter referred to as FUTP Regulations). � ��������� SHOW
CAUSE NOTICE/ REPLY/ PERSONAL HEARING: 6.������ Accordingly, adjudicating proceedings
were initiated in the first instant by the issuance of a notice dated July 27,
2004 by the previously appointed adjudicating officer to GNJ under Section 15-I
of the SEBI Act, 1992 read with Rule 4 of the SEBI (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, whereunder GNJ was
asked to show cause as to� why enquiry
proceedings should not be held against him for the alleged violation of the
provisions of Regulation 9 of the FUTP
Regulations and why penalty should not be imposed upon him under section
15A(a) of the Act. GNJ was
advised to make his submissions, if any, along with supporting documents that
he wished to rely upon, within 14 days from the date of the receipt of the
notice. 7.���� However the said notice was
returned undelivered with the remark that in spite of the postman going repeatedly
to the residence of GNJ on 3.8.04, 4.8.04, 9.8.04, 9.8.04, 10.8.04, 11.8.04 and
leaving a message behind for GNJ, he was never available at home. Thus it was
apparent that GNJ had constantly tried to evade the summon process. �� 8.���� Subsequently I was appointed as the
Adjudicating Officer vide the order of the Chairman,
SEBI dated 9.������ Since GNJ had been granted adequate opportunities
to present his case which he had failed to avail, the inquiry was proceeded
with in his absence. CONSIDERATION
OF EVIDENCE AND FINDINGS 10.���� I
have taken into consideration the facts and circumstance of the case, the
material available on record, and the relevant regulatory provisions as also
the rationale behind the said provisions. 11.���� The
allegation against GNJ is that he had failed to appear before SEBI in response
to the summons served upon him. From the records it is noted that even though SEBI
sent the summons on two occasions to GNJ advising him to appear before the investigating
authority in connection with the investigations initiated by SEBI in the scrip
of CL and also produce the documents pertaining to his investments in CL along
with the details as mentioned in the annexure to the summons and although the
summons sent on the second occasion was served upon by him. GNJ neither
appeared before the investigating authority nor submitted the required information
and documents. 12.���� It is pertinent to note here that GNJ did not
even cooperate in the present proceedings in that he consistently tried to
evade the summon process and thus failed to avail the opportunity of personal hearing �granted to
him.� In the absence of any explanation on
record by GNJ for his non appearance before the investigating authority and non
submission of the said information or even his failure to participate in the
adjudicating proceedings, it can be concluded that there is a willful default on
the part of GNJ not to co-operate in the investigation proceedings. � 13.���� Every
person connected with an investigation process is under an obligation to provide
the information as sought for by the Investigating Authority.� The decision to call for such information and
the judgment as to its relevancy is completely the discretion of the investigating
authority and is in furtherance of the discharge of his official duties. The noticee under the summons is in turn under a legal and
moral obligation to cooperate with the Investigating Authority and furnish the
required information. 14.���� The
same is evident from the relevant portions of Regulation 9 of FUTP Regulations which
reads as under: �������
1)����� It shall be the duty of every person in respect of whom an
investigation has been ordered under regulation 8 to produce to the
Investigating Officer such books, accounts and other documents in his custody
or control and furnish him with such statements and information as the said
officer may reasonably require for the purposes of the investigation. 2)������ Without
prejudice to the generality of the provisions of sub-regulation (1), such
person shall - ���������� (a) ���; ���������� (b) ���; ���������� (c) ��.. ���������� (3) ��. �(4)
��� It
shall be the duty of every person concerned, to give to the Investigating
Officer, all such assistance and otherwise extend all such co- operation as may
reasonably be required in connection with the investigation and to furnish
information relevant to such investigation as may be reasonably sought by such
officer. 15.���� It
would also be relevant in this connection to refer to the judgment of the Hon'ble High Court of Bombay in the Writ Petition No.1972
of 1994 filed by ANZ Grindlays
and others which inter alia held as
under: �No person can maintain the dignity or cherish
prestige by avoiding due process of law.�
Law being a guardian, it maintains and protects the dignity and honour of every person.� Dignified and honourable persons have to stand the test and trial
articulated by Law.� And in obedience, he
or she has to submit to the process.�
Cherishing majesty of law and its process is a inner core of the dignity of individual in a
Democratic World, which runs on the wheel of Rule of Law.� 16.���� In view of the fact that GNJ did not comply
with the summons issued by SEBI or furnish the documents and information
mentioned in the summons, it is established that he has violated the above
mentioned provisions of the law and is therefore liable under Section 15A(a) of
the Act .� 17.���� Section 15A(a)
of the Act reads as under. �� ������ Penalty for failure to
furnish information, return, etc. 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� 18.���� The provisions
of Section 15J of the 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 19.���� Upon perusal of the provisions enumerated
above, it is clear that the adjudicating officer is required to have due regard
to the factors stated in the section.�
The same is a direction and not an option, which is however to be
exercised with due regard to his discretion. This discretion is to be exercised
judiciously, depending upon the facts and circumstances of each case as well as
after analysing all the relevant material available on record especially in the
case of failure to perform statutory obligations. 20.���� In the present case, there is no dispute
regarding the fact that the investigating authority repeatedly called
upon GNJ to appear before him and to produce all the documents relating to his
investments in CL along with the details given in the annexure. GNJ was given
adequate opportunity and reasonable time to respond to the summons and furnish
the information available with him.� The
said information was required for the purpose of the investigation being conducted
by SEBI in respect of the speculative transactions in the scrip of CL and his
possible involvement in the said transactions.�
�The information was sought from GNJ
in terms of Regulation 9 of the FUTP Regulations. However by failing to appear
before the investigating authority and furnish the documents and information
sought by SEBI, GNJ �not only thwarted
the attempts of SEBI to effectively complete the investigation proceedings,
which perhaps could have concluded earlier �but also violated the provisions of Regulation
9 of the FUTP Regulations. Taking into account the sensitivity of the
securities market, an early conclusion of investigation is a very important
objective. Moreover an evasion of the regulatory provisions of
the regulator issued in the interests of the investors or non adherence to the
same for any reason whatsoever is bound to affect the interests of such
investors as also the sound and smooth functioning of the capital market. If no
cognizance were to be taken of any breach of such provisions and no liability
fixed there upon, the entire purpose of incorporating the provisions in the
said enactments would become redundant. 21.���� On a judicious exercise of the
discretion conferred upon me, bearing in mind the facts and circumstances of
this case, especially the consistent refusal on the part of GNJ to cooperate in
the present proceedings and also the factors enumerated in Section 15J of the
Act, I am inclined to hold that although the penalty need not be imposed in
terms of the provisions prescribed under Section 15 A(a)
of the SEBI Act, �the imposition of penalty is very much
necessitated. ������� ORDER: 22.���� In
view of the foregoing, in exercise of the powers conferred upon me under Rule 5
of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the
Adjudicating Officer) Rules, 1995, and in the interest of justice, equity and
good conscience I think it appropriate to levy a penalty of Rs.
2,00,000/- upon Shri G.N. Johari. 23.���� 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 Shri Sanjiv Dutt, Deputy General
Manager, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman
Point, Mumbai � 400021. PLACE: MUMBAI���������������������������� �������������� ��� �������G. BABITA RAYUDU
DATE: DECEMBER 3, 2004� � ������� ��������� ADJUDICATING OFFICER
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