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    SECURITIES AND EXCHANGE BOARD OF INDIA

    AP/AO-14/2005

     

    ADJUDICATION ORDER AGAINST M/S OM GAYATRI SECURITIES IN THE MATTER OF SOMPLAST LEATHER INDUSTRIES LTD UNDER RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15-I OF SECURITIES AND XCHANGE

    BOARD OF INDIA ACT, 1992.

     

    1.0  INTRODUCTION

     

    1.1  ���The instant proceeding is directed against the non furnishing of information, in compliance of summons issued by the Investigating Authority (IA) appointed under Section 11C(1) of the Securities and Exchange Board of India Act, 1992 (hereinafter called "Act").� Pursuant to the BSE's Investigation report received by SEBI wherein the trading pattern of the shares of Somplast Leather Industries Ltd. (SLIL) for the period from January 2, 2002 to October 01, 2002 was examined. The SEBI Board ordered an investigation to find out the alleged irregularities and possible violation of provisions of the Act and various rules and regulations framed there under.� During the said investigation by the Board, M/s Om Gayatri Securities (hereinafter referred as 'OGS') was summoned to provide certain information relating to its demat account, complete details of transactions in SLIL during the period of investigation, share holding in SLIL as on specific dates, etc.

     

    1.2  ��Based on the finding of the investigation report, prima facie it appeared to the Board, that the said OGS had failed to provide information in response to summon issued by the IA and made itself liable for initiation of action U/S �15A (a) of the Act.� Consequently, the undersigned has been appointed as an Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter called as "Rules") to inquire into the alleged violation of non-compliance of summon issued by the Investigating Officer. The aforesaid appointment was communicated vide proceedings of the Whole Time Member, SEBI, dated August 3, 2005.

     

    2.0  NOTICE

     

    2.1  ��A show cause notice (SCN) dated August 10, 2005 under Rule 4(1) of the said Rules was issued to OGS, communicating the detailed charges leveled against it.

     

    3.0  REPLY

     

    3.1 ��OGS did not reply to the SCN, though the time for filing the same had expired.��

     

    4.0  THE INQUIRY

     

    4.1  ��In view of the above, the undersigned was of the view that an inquiry should be held in the matter and a notice of inquiry was therefore issued to OGS vide letter dated September 9, 2005, fixing the date of inquiry on September 21, 2005.� Neither OGS nor his authorized representative appeared before the undersigned.� Also no request for adjournment was received for the inquiry on the cited dated. Therefore, the undersigned decided in terms of Rule 4(7) of the said Rules to proceed with the inquiry, as it appeared that OGS deliberately avoided filing of reply to the notice under Rule 4 (3) of the said Rules and also failed to appear for the inquiry despite service of notice of inquiry.�

     

    5.0  BACKGROUND

     

    5.1  ��SEBI received investigation report of the BSE vide letter dated May 31, 2003, wherein the trading pattern of the shares of Somplast for the period from January 02, 2002 to October 01, 2002 (settlement nos. 192 / 2001 � 2002 to 132 / 2002 � 2003) was examined. It was alleged that the company made a preferential issue of 2.425 crore equity shares of Rs. 10 each and dematerialized the additional shares with CDSL and NSDL without listing the additional shares on the exchange. Further, the company refused to dematerialize 900 shares held by Rajkot Investment Trust Ltd. under the pretext that those shares were stolen.

     

    5.2  ��A preliminary investigation was initiated by SEBI to look into the matters. Subsequently, a formal investigation into the dealings in the shares of Somplast Leather Industries Ltd. was initiated by SEBI and vide order dated September 23, 2004, Shri M. S. Ray (Division Chief) was appointed as the Investigating Authority (IA).

     

    5.3  ��IA issued summons to OGS and sought information relating to-

     

    (a)               Relevant Demat account statements

    (b)               Details of off-market transactions in the scrip of SLIL during the investigation period, if any,

    (c)                Details of brokers through whom OGS transacted

    (d)              Number of shares of SLIL, OGS was holding as on January 01, 2002 and September 30, 2002.

     

    5.4  ��However, no reply was received from the OGS.� The details of the summons seeking information from OGS is explained as under:

     

    Summons dated

    To be complied on

    18.11.04

    29.11.04

    20.10.04

    04.11.04

     

    5.5  ��Upon conclusion of Investigations certain serious violations were allegedly observed in respect of OGS viz. such as �(i) indulging in circular trade/reversal of trade/fictitious deals in connivance with other clients and trading members who acted in tandem which is in violation of provisions of regulations 4 (a), (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, (ii) failure to furnish information in violation of Section 11(3) and Section 11C (3) read with Section 15A of SEBI Act, 1992, etc. ��

     

    6.0  REPLY�

     

    6.1  ���It is observed that, OGS neither filed any reply nor made any oral submissions as nobody appeared for the personal hearing.� The notices were duly served on OGS during the present proceedings.� I now proceed with this inquiry on the basis of available material in the records.

     

     

     

    7.0  FINDINGS

     

    7.1        It is observed from the records that SEBI initiated investigations into the trading pattern of the shares of SLIL for the period from January 02, 2002 to October 01, 2002 (settlement nos. 192 / 2001 � 2002 to 132 / 2002 � 2003). �It was found that the SLIL made a preferential issue of 2.425 crore equity shares of Rs. 10 each and dematerialized the additional shares with CDSL and NSDL without listing the additional shares on the exchange. Further, the company refused to dematerialize 900 shares held by Rajkot Investment Trust Ltd.

     

    7.2        The Investigating Officer of SEBI issued summons to OGS to appear in person and also to furnish information / produce documents pertaining to its demat account, complete details of transaction in SLIL scrip during the period of investigation and share holding in SLIL as on specific dates. It is observed that following summons were sent to OGS:

     

    Summons dated

    To be complied on

    18.11.04

    29.11.04

    20.10.04

    04.11.04

     

    7.3        It is found that OGS has failed to respond to above summons and in doings so OGS has prevented the Investigating Authority from accessing the information / documents, relating to its dealings in the shares of SLIL and other related information as mentioned in the said summons. I have also observed that summons were issued quite in advance and sufficient time was given to the company to respond and assist the investigations being carried out.�

     

    7.4        The aforesaid information/documents sought vide above summons, according to me, were vital and crucial for the regulator to ascertain occurance of any irregularity and also enable it to take approriate counter measures to protect the interest of investors, in a time bound manner.

     

    7.5        The non co-operative attitude of OGS has even continued during the present proceedings of adjudication as well.� Show cause notice dated August 10, 2005 was issued to OGS and was given 14 days time to respond by way of written submissions, but this time too it has chosen not to reply.� This has further continued when nobody from OGS attended the personal hearing fixed on September 21, 2005 before me.

     

    7.6              Therefore it can be concluded that OGS has not complied with the provisions of Section 11 (3) and 11C (3) of SEBI Act, 1992 by way of non-compliance of statutory summons requiring it to file documents/informations, which was very crucial to the whole investigation process.�� I am of the considered view that it is a fit case for imposition of adjudication penalty against OGS under Section 15A (a) of SEBI Act, 1992.

     

    7.7              To determine the quantum of penalty under Section 15A (a), the undersigned considered the following factors as provided in the section 15J of SEBI Act, 1992 viz. (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 in group of investors as a result of the default and; (c) the repetitive nature of the default.

     

    7.8              From the material on record, the figures of disproportionate gains, unfair advantage or loss to the investors, cannot be ascertained.� However, the persistent non-co-operative attitude of OGS can be seen throughout the process of investigation and as well as in the present adjudication proceedings.� This is repetitive in nature and should be dealt firmly.� Further the charges, for which OGS was being investigated in its dealings in the shares of SLIL, were very serious in nature involving circular trading amounting to fraud.� The Complete defiance on the part of OGS has been observed towards the due process of law in the whole process.

     

    7.9              Therefore, in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, I hereby impose a penalty of Rs. 50,000/-(Fifty Thousands Only) on M/s Om Gayatri Securities for the reasons discussed above. This penalty is justified and appropriate in the light of discussions aforesaid.

     

    7.10          M/s Om Gayatri Securities shall pay the said amount of penalty by way of demand draft 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 should be forwarded to the Chief General Manager, Investigation Department, ID-5, Mittal Court, 1st Floor, B- Wing, 224, Nariman Point, Mumbai 400 021.

     

     

     

     

    DATE: SEPTEMBER 30, 2005������������������������������ AMIT PRADHAN

    PLACE: MUMBAI������������������������������������������������� ADJUDICATING OFFICER

     

     

     

     



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