Home | Back | ||||||||||||||||||||||||||||||||||||||||||
ORDER UNDER RULE 5 OF THE SEBI
(PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING
PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15A OF
THE SEBI ACT, 1992 AGAINST �SHRI ASHUTOSH KOTHARI ��������� BACKGROUND: 1.
SEBI had initiated an investigation into the
violations alleged to have been committed by various entities during the
allotment of shares of Design Auto Systems Ltd.(�DASL�) on swap and
preferential basis as also the possible violation of the provisions of the SEBI
Act, 1992, SEBI (Prohibition
of Fraudulent and Unfair Trade Practices relating the Securities Market)
Regulations, 1995 and the SEBI (Stock brokers and Sub-brokers) Regulations,
1992 (hereinafter referred to as the Act, the FUTP Regulations and the Broker
Regulations, respectively).� The scrip of
DASL was listed on the Stock Exchange, Mumbai (BSE), Madhya Pradesh Stock
Exchange (MPSE) and Ahmedabad Stock Exchange (ASE) at
the time of investigation.� The trading
details of various entities that had traded in the scrip of DASL were
collected.� Upon analyzing the allotment
details and the trading patterns of the entities that had traded in the scrip
of DASL, it was inter alia observed that Shri Ashutosh Kothari (for brevity�s sake, hereinafter referred to as
�AK�) was one of the entities, alleged to have traded extensively in the scrip
of DASL at the relevant point of time. 2.������ In view of the same, the investigating authority issued
summons under Sections 11C (3) and 11C (5) upon AK seeking his
personal appearance and the production of the relevant documents as stated in
the annexures therein. It was further made clear to AK 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. The details of
the summons issued to him are as under:
��������
It has been alleged that although the summon dated �������� NOTICE/ REPLY/ PERSONAL HEARING: 3.������ In view thereof, I was appointed
as the Adjudicating Officer vide the order of the
Whole Time Member, SEBI dated 4.������ However the said notice returned
undelivered with a remark �left�.���
Subsequently, notices dated 5.
In
view of the same, a notice dated 6.������ Subsequently, however the AK appeared in
the office of the undersigned on CONSIDERATION
OF EVIDENCE AND FINDINGS 7.
I
have considered at length the facts and circumstances of the case, the findings in
the investigation report that are relevant to the issue under consideration, as also the relevant regulatory
provisions. While taking into account the issues highlighted in the investigation
report as against the AK, I consider it necessary to recapitulate certain facts in brief, giving rise
to the present proceedings.
8.
BBL was allotted 10 crore
unlisted shares of DASL at Rs.10/- per share on a preferential basis on 9.������ The issued subscribed and paid up
capital of DASL is Rs. 107.325 crore
which can be broken down thus: Till 11.07.1994 � 62.25 lakh
shares at Rs 10 per share�� ���������� =����������� Rs.6.225 crores On
06.12.1999 � Allotment of 11 lakh shares at Rs 10 per
share� �������������������������� on
a preferential basis to its promoters and �������������������������� associates
namely Vargin Finance Pvt. Ltd., ������������
��������������Sarvesh Garg
and Rita Garg.������������������ ������ =���������� Rs. 1.10 crores On 29.10.2001 � Allotment of 10 crore
shares at Rs. 10 per share ����������������������� on
a preferential basis to Bonanza Biotech Ltd =���� ���� Rs. 100� crores ����� �������������������������������������������������������������������������������������������Rs. 107.325 crores 10.���� While 62.25 lakh
shares of DASL are listed at all the stock exchanges named above, 10.11 crore shares of DASL, issued on a preferential basis to BBL
were not granted listing permission at BSE though they are listed at the
MPSE.� No listing application in that
regard was made with the ASE. 11.���� These 10 crore
unlisted shares allotted on a preferential basis to BBL, which were
dematerialized and credited to their account by CDSL, were found to have been
delivered in the market by BBL, by transferring them into the demat accounts of various brokers and other entities, one
among them being the AK. These shares were then offloaded into market to cheat
the innocent investors. In view of the same, SEBI initiated an investigation to
track the flow of the unlisted securities from BBL to the various entities and
the violations committed by them in the said process.� During the course of investigation, it was
found that AK was one among the many recipients of the unlisted shares of BBL
and had received 1,50,00,000 unlisted shares of DASL
in his demat account.�
In order to seek further information in this regard, summons under Section
11C(3) of the Act, were sent to AK, which were
allegedly non complied with by AK and hence the present proceedings.� 12.���� There is on record the acknowledgement by
AK of the summons dated i.
Trades,
if any, executed by AK in the shares of DASL during the financial years 2000-01
and 2001-02. ii.
The
details of the entities with whom AK had traded in the scrip, iii.
Names
of the other scrips in which AK had traded, if at
all, during the said years, iv.
The
details of shares of DASL held in demat form during
the period from August 2001 to January 2002 v.
Copies
of the demat transaction statements, vi.
Details
of the bank statements showing the funds flow corresponding to the said
transactions vii.
Other
details relating to the dealings in the shares of DASL through the stock
exchange mechanism viz., name of the broker/sub-broker, date/settlement no,
details of the purchases/sales made, details of the demat
account where the delivery obligation was met etc., viii.
Similar
such information relevant to the off market transactions in the scrip of DASL
if any, in the period between November 2001 to January 2002 ix.
Details
of entities through whom, AK had traded, if at all, in the scrip of DASL during
the said period x.
Details
for the period between November 2001 to January 2002 in respect of the entities
through whom AK had dealt in the scrip of DASL xi.
Details
relating to the cheque, the issuing bank, collecting
banks and their accounts thereof. 13.
During
the course of investigation, it was found that AK had a demat account
no.INXXXXXXXXXXXXXXX and 1.50 crore unlisted shares
of DASL was transferred by BBL to this account on December 27, 2001 and again
transferred back to the account of BBL on January 10, 2002.� Thus, 1.50 crores
of unlisted shares of DASL had moved in & out of demat
account of AK all within the matter of 14 days.�
14.
Further the total holding of AK in DASL as on
December 27, 2005 was 1,50,00,000 shares amounting to more than 13.98% of the
total paid up capital of DASL as on that date (both listed and unlisted).� Being unlisted shares, the percentage holding
of AK would go up to 15% of the unlisted capital.� In this context, to gather further
information in this regard, further trading details and other related
information was called for from him by serving the said summons.� 15.
However as stated earlier, AK appeared before me on
16.
I
have examined the contentions advanced by AK and the copy of his driving
license as also his contentions of not having received the said summons.� In order to
examine the factual aspect of the case to the extent possible, given the
constraints of lack of any other information available on record; I contacted Arihant Capital Markets Limited (Arihant);
the Depository Participant at 17.
Upon perusal of the said documents, it is observed
that corroborating with the findings of the investigation, AK had indeed opened a demat
account No INXXXXXXXXXXXXXXXX with Arihant Capital
Markets Limited �While observing the movement of the shares debited/credited from/to the demat account
of AK, the following details in respect thereof are noted:-
18.���� Upon analysis of this demat
statement, it is apparent that one and a half crore unlisted
shares of DASL had moved in and out of the demat
account of AK from/to the account of BBL, all within a matter of 14 days.� It transpires that BBL is the entity found
(as per the findings of investigation) to be responsible for offloading the
unlisted shares of DASL into the market, with the assistance of various brokers
and other entities. 19.���� Thus, there is no dispute of the shares in
question having being transferred to the demat
account of AK, opened on 20.
I
have however noted the fact that from the date of the opening of the demat account i.e 21.���� Be
that as it may, I have examined the provisions of Section 11C(3)
of the Act which read as
under: �������
�The Investigating Authority may
require any intermediary or any person associated with securities market in any
manner to furnish such information to or produce such books, or registers, or
other documents, or record before him or any person authorised
by it in this behalf as it may consider necessary if the furnishing of such
information or the production of such books, or registers or other documents,
or record is relevant or necessary for the purposes of its investigation�. 22.���� Thus
every entity connected with an investigation process is under an obligation to
provide the information as sought for by the Investigating Authority. 23.���� From a perusal of the Annexure listing the
information sought for from AK by the investigating authority, it is clear that
this information was crucial and central to the investigation findings. It is a
serious case of excess dematerialized unlisted shares than the authorized
capital being traded in the market. 24.���� The details of the deals entered into by
AK, the entities with whom AK had transacted would have indicated the extent of
his transactions and the relationship if any, with any other entity directly or
indirectly involved in these transactions, while the details of the bank
statements would certainly have indicated the funding pattern of the
transactions entered into by AK. 25. ��� However, AK did not provide any of the said
information. Although there is evidence on record that the said summons were
acknowledged by him or on his behalf, AK has denied receiving the said summons
and has also denied any association with the person stated to have receive the
said summons.� Further, AK has also
denied receiving the notice of hearing dated 26.���� These facts clubbed together indicate that
the visit of the AK to this office on 27.���� Based on these facts and the evidence on
record regards the receipt of the summon dated 28.���� At the time of levying penalty certain
factors are also be taken in to account by the adjudicating officer, as is
evident from the provisions of Section 15J of the Act which also find mention
in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by
the Adjudicating Officer) Rules, 1995 i.e. the amount of disproportionate gain
or unfair advantage, wherever quantifiable, made as a result of the default;
the amount of loss caused to an investor or group of investors as a result of
the default and the repetitive nature of the default. 29.���� These factors mentioned above, are to be
relied upon with due discretion that 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. In
the present case, taking into consideration my views as above and
in the absence of any reason or record to disbelieve or nullify these findings,
although there is a violation of Section 15A of the ��Act, ��there
��is ��no
��material �available on record as to the disproportionate gain or unfair advantage enjoyed by AK
as a result of the default nor is there on record any mention of an undue gain
or advantage enjoyed by him. Moreover this is a first time violation, if at
all, wherein the shares in question in a one time transaction, were
credited/debited into the demat account of the
acquirer within a period of fourteen days, apparently to facilitate a fraudulent
activity which took place with the knowledge and participation of the AK in the
hope of earning some commission in the whole deal. Hence
necessary cognizance of the same needs to be taken.� 30.���� In view of the above, the commensurate
penalty to be levied in the instant case should therefore be fixed, keeping in
mind the nature of violation, the extent to which the violation has affected
the interest of the investors in securities and the facts and circumstances of
the case as discussed earlier in detail. PENALTY: 31.���� Upon
a cumulative analysis of the facts of the case, I 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 is appropriate to levy a
penalty of Rs.40,000/-(Rupees Forty Thousand only) on Shri Ashutosh Kothari. 32.���� 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 P K Bindlish,
General Manager, Securities and Exchange Board of India, Mittal Court, B Wing,
224 Nariman Point, Mumbai � 400021. ��������� PLACE:
MUMBAI�������������������������� G.
BABITA RAYUDU ��
DATE:
|
![]() | Printer Friendly page | ![]() | Email this page |
The site is best viewed in Internet Explorer 11.0+, Firefox 24+ or Chrome 33+.