A. O. NO: ACR/75/2005

 

1. Vide order dated December 28, 2004, issued by Securities and Exchange Board of India (hereinafter referred to as �SEBI�), I was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to enquire into and to adjudge under Sec.15-I of Securities and Exchange Board of India Act, 1992 for the alleged violation of Sec. 11C of Securities and Exchange Board of India Act, 1992 against �Shri Vinod K. Shukla having his address at 53/2, Arunoday Society, Alkapuri, Vadodara.� For the sake of convenience, the said Shri Vinod K. Shukla will be referred hereinafter in this order as �the noticee�. 

2.     As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the shares of Ojas Technochem Products Ltd., the scrip of which is listed on the stock exchanges. During the course of the said investigation, summons dated June 19, 2003 was issued by the investigating authority of SEBI which was sent vide letter No. IES/ID4/SBM/SS/11940/2003 dated June 19, 2003 directing the noticee to furnish the information specified in the said letter by June 27, 2003. The investigating authority also directed the noticee to appear before him on the said date. �The said summons was sent by courier.� The noticee, vide letter dated June 25, 2003, expressed his inability to appear before the investigating authority as he had to attend the marriage of one of his close relatives and requested the investigating authority to fix some other convenient date for his presence. �

 

3.     Subsequently, the investigating authority issued a fresh summons on January 19, 2004 directing the noticee to furnish the information and produce certain documents mentioned in the covering letter to the said summons apart from all the documents relating to the transactions of the noticee in the scrip of Ojas Technochem Products Ltd., by January 31, 2004 and to appear before him on February 4, 2004. The said summons dated January 19, 2004 was sent by registered post acknowledgement due and the same was duly delivered. However, as per the information furnished to me, there was no compliance of the said summons by the noticee. The office of the investigating authority vide letter No. IVD/ID3/PKB/JS/OTPL/2319/04, dated February 4, 2004 advised the noticee to appear in person on February 17, 2004 before the investigating authority and to produce all the documents directed to be produced vide the aforesaid summons dated January 19, 2004. The said letter was sent by registered post acknowledgement due and was duly delivered as is evident from a photocopy of postal acknowledgement made available to me.�

 

4.     I issued a notice dated June 21, 2005 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against him and penalty be not imposed under Sec. 15A(a) of Securities and Exchange Board of India Act, 1992 for his failure to produce the documents and furnish the information as required by the investigating authority vide the aforesaid summonses. The said notice was sent by registered post acknowledgement due and was delivered at the address of the noticee as is evident from the postal acknowledgement card received by my office. Vide the aforesaid notice, it was advised that the noticee might �file his reply within a period of fourteen days from the date of receipt of the said notice. It was clearly indicated in the notice that in case the noticee fails to give reply to the notice as aforesaid, it would be presumed that the noticee had no reply to submit and the matter would be proceeded with. However, my office was not in receipt of any reply from the noticee.

 

5.     In the above circumstances, I was of the opinion that an inquiry should be held in the matter against the noticee and accordingly a notice of inquiry under Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued on July 12, 2005 by me. The said notice was sent by registered post acknowledgment due and was delivered at the address of the noticee as is evident from the postal acknowledgement card received by my office. As per the said notice of inquiry, the noticee was advised to appear either himself or through his authorized representative/ lawyer on July 21, 2005 at 1200 hrs before me.� However, on the said date or on any subsequent day till date neither the noticee nor his authorized representative/ lawyer appeared before me. Further, my office did not receive any communication from the noticee requesting for adjournment of personal hearing etc.,

 

 

6.     �Before deciding the issues which required to be examined by me, the provisions of Securities and Exchange Board of India Act, 1992 with respect to the issuance of summons by the investigating authorities and the consequences of non- compliance are perused by me. Sec. 11C of Securities and Exchange Board of India Act, 1992, interalia provides that 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 persons authorized by him. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty by the Adjudicating Officer in case of any person, who is required under Securities and Exchange Board of India Act, 1992 or any rules or regulations made thereunder to furnish any document, return or report, fails to furnish the same, he shall be liable to a penalty of Rupees One lakh for each day during such failure continues or Rupees one crore, whichever is less.

 

7.     It was alleged by SEBI that the noticee failed to comply with the summonses dated June 19, 2003 and January 19, 2004 issued by the investigating authority as mentioned above. It was further alleged that the noticee also failed to respond to the letter dated February 4, 2004 issued by the office of the investigating authority.

8.     �Vide the summons dated June 19, 2003, the investigating authority directed the noticee to produce all the documents upon which �the noticee intends to rely in support of his defence or which may be material for the purpose of� investigation.� However, the covering letter to the aforesaid� summons dated June 19, 2003 which was signed by the investigating authority himself advises the noticee to bring the trading details in the scrip of Ojas Technochem Products Ltd., for the period of November 1999 to March 2000 as per the following format:

�

Name, address and contact no. of the client.	Quantity bought by the client during the above mentioned period with distinctive no. of shares taken as delivery	Quantity sold by the client during the above mentioned period with a distinctive no. shares that were sold.	Introducer�s detail including address and contact no.

�

9.     Apart from the above, the noticee was also advised to bring the details of payments made/ received from the clients in respect of trading in the scrip of Ojas Technochem Prodcuts Ltd. The noticee was also advised to inform the details of registration in case any of his clients acted as sub broker.

�

10. ��I have carefully perused the above summons dated June 19, 2003 and its covering letter of the same date. The summons does not give any description of the documents / information required to be furnished by the noticee and vaguely directs the noticee to produce all the documents upon which the noticee intends to rely in support of his defence or which may be material for the purpose of investigation. In this connection, it is to be noted that no proceedings were launched against the noticee at the time of issuance of the aforesaid summons dated June 19, 2003 and only summons was issued to the noticee in the course of investigation for the purpose of gathering evidence.� Therefore, the question of the noticee producing any documents in his �defence� does not arise. Similarly, in my opinion, the option of deciding as to the materiality or immateriality of the documents for the purpose of investigation cannot be left to the discretion of the noticee by the investigating authority. In order to fix liability and to impose penalty for the failure of production of documents, returns or reports to the Board in terms of Sec.15A (a) of Securities and Exchange Board of India Act, 1992, such documents, returns or reports should be specified in the summons. In the instant case, there is an ambiguity as to the information required to be furnished by the noticee. Though the investigating authority advised the noticee to furnish the aforesaid details like name, address and contact number of the client, quantity bought by the client etc., vide the covering letter to the aforesaid summons dated June 19, 2003, it appears that the said information cannot be furnished by the noticee as such information has to be obtained from a broker or sub broker and not from an individual client.� In my view, summons that was intended to be issued to a broker/ sub broker was inadvertently issued to the noticee by the investigating authority. The said inadvertence, it appears, was noticed by the investigating authority and therefore, in the subsequent summons the information sought and documents required to be produced were entirely different.

 

11. �Subsequent summons dated January 19, 2004 directed the noticee to furnish the information required in the covering letter to the said summons by January 31, 2004 and to produce all the documents relating to his transactions in Ojas Technochem Products Ltd.� Covering letter to the said summons dated January 19, 2004 advised the noticee �to bring the following documents� along with him �while coming to the office of Securities and Exchange Board of India�. The �documents� which were advised to be brought by the noticee were (a) quantity of shares bought/ sold by the noticee and the rate at which the transactions took place� (b) the distinctive number of the shares dealt in by the noticee (c) name of the broker/ sub broker and details of the introducer with address and contact numbers, if the noticee had acted as a sub broker (d) the noticee�s bank statement for the period August 1999 to March 2000 (e) number of shares of the company held by the noticee� as on 1^st April 1999, 1^st April 2000 and on 1^st April 2001.

 

12. �From a copy of the postal acknowledgement made available to me, I found that the aforesaid summons was delivered at the address of the noticee.

 

13. �I have carefully perused the above summons dated January 19, 2004 and its covering letter of the same date. The operative portion of the said summons reads as follows: �you are hereby summoned to furnish the information required in the covering letter to the summon by 31^st January 2004 and to appear in person on 4^th �February 2004 at 2:30 PM before the Investigating Authority. You are further directed to produce on that date all the documents relating to your transactions in Ojas Technochem Products Ltd. You are summoned to remain present with the documents at the following address:�� The covering letter to the summons dated January 19, 2004 was signed by Shri Jainendra Shandilya, an officer posted to the Investigations Department of SEBI advised the noticee to bring the following documents �while coming to the office of Securities and Exchange Board of India�.� From the above, it is clear that there was an ambiguity as far as the date stipulated for complying with the summons for furnishing of documents issued by the investigating authority. As per the summons signed by the investigating authority, the information specified in the covering letter was to be furnished by January 31, 2004 whereas the said covering letter requires the noticee to �bring� the information/ documents �while coming to the office of Securities and Exchange Board of India�.� As per the summons, the noticee was required to attend the office of Securities and Exchange Board of India on February 4, 2004. However, I am not of the view that the above said ambiguity or discrepancy caused any hindrance for the noticee to furnish the documents at least by a later date.

 

14. �The subsequent letter dated February 4, 2004, in my opinion cannot be taken into consideration by me as it was not a requisition issued under Sec.11C of Securities and Exchange Board of India Act, 1992. Sec.11C (3) provides that the investigating authority may require any intermediary or any person associated with the 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 authorized by him� 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. From the above, it is clear that it is only the investigating authority that is empowered to require an intermediary or any person associated with the securities market to furnish information or produce books, registers, documents etc., before himself or any person authorized by him. In the instant case, no requisition/ summons under Sec.11C (3) was issued on February 4, 2004 but only a letter was issued by Shri Jainendra Shandilya, an officer subordinate to the investigating authority. Therefore, the said letter cannot be termed as a requisition/summons under Sec.11C (3) and non compliance of the same does not attract the provisions of Sec.15A (a) for imposition of penalty.

�

15. �From the preceding paragraphs, it may be seen that the noticee was required to produce certain information/ documents on three occasions. The information sought to be furnished vide summons dated June 19, 2003, in my opinion cannot be furnished by the noticee as such information was available only with an intermediary and not with the noticee who is only an individual client. On the second occasion, summons was issued on January 19, 2004 by the investigating authority, and the same was duly delivered at the address of the noticee, however, there was no compliance of the same by the noticee. On the third occasion, a letter was issued by Shri Jainendra Shandilya which cannot be termed as a requisition under Sec. 11C(3) of Securities and Exchange Board of India Act, 1992 and therefore no penalty can be imposed for the failure of the noticee to comply with the same. To sum up, it is proved that the noticee failed to comply with the summons dated January 19, 2004 and such non compliance is established.

 

16. �Since the failure of producing the documents before the Investigating Authority of SEBI by the noticee is established, the quantum of penalty has to be decided by me.

 

17. �Section 15A (a) of Securities and Exchange Board of India Act, 1992 prescribes a penalty of one lakh rupees for each day during which the failure to furnish any documents etc. to SEBI continues or Rs. one crore whichever is less.

 

18. ��To determine the quantum of penalty under Section 15A (a), I�� considered the following factors as provided in the section 15J of Securities and Exchange Board of India 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 group of investors as a result of the default and; (c) the repetitive nature of the default.

 

19. �As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the noticee. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default.

 

20. �The violation committed by the noticee was not repetitive in nature as he failed to furnish the required information to the investigating authority of SEBI, only on one occasion i.e., in response to the summons dated January 19, 2004. �Further, there is no information on record which proves that the noticee committed similar violations in the past.

 

21.               ��While determining the quantum of penalty, I have also taken into consideration various recent decisions of the Hon�ble Securities Appellate Tribunal. In the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No.95 of 2004) the penalty of Rs.75,00,000 imposed by the Adjudicating Officer in a case facts of which are similar to the instant case was reduced to Rs.15,000 by the Hon�ble Securities Appellate Tribunal. In the said matter, the Hon�ble Securities Appellate Tribunal also observed that the provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have also referred to various recent decisions of the Hon�ble Securities Appellate Tribunal with respect to the penalties imposed by adjudicating officers in cases similar to the instant one.

 

�ORDER

22. �Therefore in exercise of the powers conferred under section 15-1(2) read with Sec. 11C, Sec. 15 A(a) of the Securities and Exchange Board of India Act, 1992 and Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs. 30,000 (Rupees thirty thousand only) on Shri Vinod K. Shukla. �In my view, the above penalty is commensurate with the default of the noticee, in the facts and circumstances of the case.

 

23. �The noticee shall pay the amount of penalty imposed with respect to each of them 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 Shri P. K. Bindlish, General Manager, Securities and Exchange Board of India, Mittal Court, �B� Wing, 1^st Floor, 224, Nariman Point, Mumbai � 400 021.

 

24. �In terms 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 the noticee and also to Securities and Exchange Board of India.��

 

Date:�� July 29, 2005������� ��������� ������������������ A. Chandra Sekhar Rao

Place: Mumbai��������������������������������������������� Adjudicating Officer