Order against Onlooker Investment (P) Ltd & Habiscus Investment (P) Ltd

SECURITIES AND EXCHANGES BOARD OF INDIA 

ADJUDICATION ORDER

UNDER

SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

READ WITH

SECTION 15A(a) OF SEBI ACT, 1992

AGAINST

FOR NON COMPLIANCE WITH REGULATION 9 OF SEBI (FUTP) REGULATIONS, 1995

I was appointed as Adjudicating Officer by SEBI vide order dated 23^rd June, 2003 to inquire into and adjudge under Section 15A(a) of SEBI Act, 1992 the alleged non compliance of summons issued by the Investigating Authority, by the aforesaid entities for appearing in person and for production of documents and submission of information pertaining to investigation in the matter of alleged irregularities in the transactions of shares of Roofit Industries Ltd. (“RIL”).

Accordingly, a show cause notice dated 1^st September 2003 was issued to the aforesaid entities. The said show cause notice alleges that the noticees did not comply with the summons dated 23.07.02 and reminder dated 05.09.02 issued by SEBI to be present on 01.08.02 and 16.09.02 respectively and for producing certain documents and submission of information to the investigating authority as detailed hereinafter. Vide summons dated 23^rd July 02, the noticees were called upon to furnish details of their shareholding, demat and bank account statements, their trades in scrip in of RIL and relationship with RIL etc.

The show cause notices were served on the notices on 04.11.04 through Mr. Vishwas Pathak, Advocate High Court, as per the authorization of the noticees dated 03.11.04.

REPLY AND PERSONAL HEARING

Mr. Vishwas Pathak filed reply to notice vide letter dated 22.11.04 on behalf of the noticees. In the personal hearing on 25.11.04 Mr. V. Ravi Kumar, practicing Company Secretary appeared on behalf of the noticees. The submissions made in the letter and in the hearing are as follows:

The noticees admitted having received summons dated 23.07.02, but stated that they had sought extension of time till 30.09.02 to submit documents sought by SEBI as it pertained to previous years and needed compilation from different sources and finalization of the their accounts was in progress. Due to the losses suffered by the noticees, many staff left their services.

It was contented that the expansion and diversification plans of the noticees were stalled because of SEBI’s misdirected investigation; the negative publicity generated by SEBI investigation resulted in lenders backing off from financing, causing near bankruptcy.

It was further contented that the information sought by SEBI vide its summons was for the period 08.11.00 to 06.02.01 and 22.01.01 to 04.05.01 whereas the alleged price manipulation in the scrip of RIL related to the time period October 1999 to December 1999 and hence irrelevant.

The information sought vide summons dated 23.07.02 were furnished in the adjudication proceedings as Annexure I to X to the reply dated 22.11.04. It was submitted that the noticees have incurred severe losses and as many of their employees have left, their capacity to pay penalty is severely restricted. It was prayed that the proceedings be dropped.

APPRECIATION OF EVIDENCE AND FINDINGS

Vide summons dated 23.07.02 and 01.08.02, the company was called upon to furnish the following information/ documents:

1. Name and Address of promoters and directors during the last 3 financial years.

2 The complete details of shareholding pattern (Names of the shareholder, No of shares held by them. % of shares held by them to total capital) as on March 2000 and March 2001.

3. The names and addresses of group / associated entities.

4 Details of settlement wise/ broker wise trade executed in the scrip of M/s Roofit Industries Ltd. for the time periods March 2000 to March 2001 be given in the following format.

Sr. No	Name and address of the trading member	Exchange/sett. No./ period	Date of trading	Gross Purchase	Rate	Gross sale	Rate	Net quantity

5. A copy of the ‘Demat Securities’ of all the Demat / Beneficiary ‘ accounts in the name of the company and associated entities name from March 2000 to March 2001 highlighting the movement of shares into and out of the Company’s account.

6 To furnish a copy of the statement of all bank accounts for the time period March 2000 to March 2001 highlighting the payments made or received from the broker regarding trades in M/s Roofit.

7 To submit demat account no i.e.

Client Name	Client ID	DP Name

8 To confirm whether :

 a) the noticee had/ have given any loan to the RIL

 b) Group /associated entities had /have given loan to the captioned company. If yes, then details of such transactions /loans  /arrangements be furnished.

9. To confirm whether :

a)       The noticee had /have received any loan from the RIL

b)       group / associated entities had /have received any loan from the RIL . If yes , then details of all such transactions /loans / arrangements.

10) To confirm whether :-

a) the noticee and its promoters /directors are / were directly or indirectly related to the captioned company. If yes, then details of such relationship be provided.

In response to SEBI’s summons, the noticees vide their letters dated 12.08.02 sought time till 31.08.02 for providing details of information sought. Vide letter dated 28.08.02 further extension was sought by the noticees till 30.09.02 to submit the information/documents sought. SEBI vide its letter dated 05.09.02 once again advised the company to submit the information latest by 16.09.02. In response, vide their letters dated 16.09.02, the noticees reiterated their request for time till 30.09.02 to submit the documents and information sought. Subsequently, vide their letters dated 30.09.02, 28.09.02, 25.09.02 and 30.09.02 respectively, the four noticees once again sought extension of time, which was not granted. From the material on record there is nothing to suggest that the noticees have filed the information/documents sought.

Vide reply dated 22.11.04 to the SCN issued by Adjudicating Officer, certain information was provided by the noticees as Annexure I to X thereto. Submission of information after more than 2 years and that too to the Adjudicating Officer and not to the Investigating Authority who had sought the information cannot be treated as compliance. The information was required by the Investigating Officer for the purpose of investigation. The present proceeding is concerned with non-compliance of the summons issued by SEBI calling upon the noticees to furnish certain information and documents as required by the Investigating Authority for the purpose of investigating into the scrip of Roofit Industries Ltd.

APPRECIATION OF EVIDENCE AND FINDINGS

It is noticed that despite issuance of summons and repeated extension of time to submit the information, the notices failed to furnish the information sought by SEBI on the ground that they were finalizing their accounts, having shortage of staff and the information sought is yet to be compiled.  The explanation is not satisfactory. The noticee did not cooperate with the Regulator and furnish the information required despite repeated extension of time. There is no material to suggest that the noticees have furnished even part information / documents sought by SEBI vide its summons.

SEBI had sought the name and address of the promoters and directors during the last 3 years (query 1) and names and address of the noticees’ group companies (query 3) and demat account details (query 7). Even this is basic information which should be readily available was not furnished.

Further, the noticees did not provide the details of trades in RIL scrip in the format provided etc (query 4). This information would be very crucial for SEBI to establish if artificial trades were being done in the scrip of RIL by entities associated with it.

Even copies of demat (query 5) and bank account (query 6) statements for the specified period were not furnished. There was no compiling of information involved in merely sending copies of the statement for the relevant period would have been in compliance with queries 5 & 6 of the summons. The demat statement would establish the movement of RIL scrip in their respective demat account during the said period and help the investigating Authority to arrive at a conclusion as to the complicity of the noticees in the alleged price manipulation. The noticees have not provided copies of the same to SEBI. Similarly, the bank account statements would help the investigating team to track the funds flow from or to RIL or its associates during the period of price manipulations. The noticees did not provide the bank account statements also to SEBI. Tracking of cash flow, funds flow and flow of securities is an important step in the investigation process and non-furnishing the same would stonewall the progress of the investigation.

It is significant to note here that printouts of demat account (annexure V to reply dated 22.11.04) and bank account statement (annexure VI to reply dated 22.11.04) have been taken in 2002 and 2001 respectively. This being so, it is not understood as to why these statements were not submitted to the Investigation Authority at the relevant time i.e. in September, 2002. Therefore, the contention that compilation of information was being attended to and there was delay is contrary to the evidence on record. It is clear that despite being in possession of the bank statement and demat statement, these were not filed in response to the summons of the Investigating Authority. The details in this regard are as in table below:

 

Noticee	Period for which info was sought vide summons	Period	Printout dated	Period for which info was sought vide summons	Period	Printout dated
1	Mar-00 to Mar-01	01.10.99 to 01.04.01 02.04.01 to 31.05.01	19.09.02 19.09.02	Mar-00 to Mar-01	01.05.01 to 31.05.01 01.04.01 to 30.04.01 01.03.01 to 31.03.01 01.02.01 to 28.02.01 01.01.01 to 31.01.01 01.12.00 to 31.12.00 01.11.00 to 30.11.00	02.06.01 04.05.01 04.04.01 01.03.01 01.02.01 04.01.01 04.12.00
2	Mar-00 to Mar-01	01.10.99 to 01.04.01 02.04.01 to 31.05.01	19.09.02	Mar-00 to Mar-01	01.05.01 to 31.05.01 01.03.01 to 31.03.01 01.02.01 to 28.02.01 01.01.01 to 31.01.01 01.12.00 to 31.12.00 01.12.99 to 31.12.99 01.11.99 to 31.11.99 01.10.99 to 31.10.99	02.06.01 04.04.01 01.03.01 01.02.01 04.01.01 04.01.00 02.12.99 13.11.99
3	Mar-00 to Mar-01	01.11.00 to 01.04.01 02.04.01 to 31.05.01	19.09.02 19.09.02	Mar-00 to Mar-01	01.05.01 to 31.05.01 01.04.01 to 30.04.01 01.03.01 to 31.03.01 01.02.01 to 28.02.01 01.01.01 to 31.01.01 01.12.00 to 31.12.00 01.11.00 to 30.11.00	02.06.01 04.05.01 04.04.01 01.03.01 01.02.01 04.01.01 04.12.00
4	Mar-00 to Mar-01	20.04.01 to 03.05.01 04.05.01 to 07.05.01 18.05.01 to 31.05.01	N.A. N.A. N.A.	Mar-00 to Mar-01	01.05.01 to 31.05.01	02.06.01

It is seen from the table above that Onlooker Investment (Noticee 1) had the printout of the demat statement for the period sought on 19.09.02 itself and did not furnish the same to SEBI. The printouts of the bank account statement pertaining to the period Nov-00 to March-01 were also available between 04.12.00 to 04.04.01 but were not furnished to SEBI. It is also seen that Noticee 1, even at this belated stage has not furnished bank statement for the period Mar-Oct-00.

It is seen from the table above that Habiscus Investment (Noticee 2) had the printout of the demat statement for the period sought on 19.09.02 itself and did not furnish the same to SEBI. The printouts of the bank account statement pertaining to the period Dec-00 to March-01 were also available between 04.1.00 to 04.03.01 but were not furnished to SEBI. It is also seen that Noticee 2, even at this belated stage has not furnished bank statement for the period Mar-Nov-00.

It is seen from the table above that Mayfair Realtors (Noticee 3) had the printout of the demat statement for the period Nov-00 to April-01 on 19.09.02 itself and did not furnish the same to SEBI. However, even at the belated stage Notice 3 had not filed the demat statement for the period Mar-Oct-00. The printouts of the bank account statement pertaining to the period Nov-00 to March-01 were also available between 04.12.00 to 04.04.01 but were not furnished to SEBI. It is also seen that Noticee 3, even at this belated stage has not furnished bank statement for the period Mar-Oct-00. It is very clear that Noticees 1 to 3 had the demat and bank account statements at the time when it was sought vide summons, but chose not to respond to the same in utter defiance of the regulator.

It is seen from the table above that Akira Investment Pvt Ltd (Noticee 4) had filed printouts of the demat statement and bank account for the period which is not sought by SEBI.

Even details of loans given / received to / from RIL and relationship with RIL sought vide query No. 8, 9 & 10 respectively of SEBI’s summons do not require that much time and manpower to compile. Here again, notwithstanding the delay, the noticees have not provided the required information.

The conduct of the noticees in not responding to the summons issued and non-furnishing of information which is vital for the investigation is highly irregular. The conduct in withholding important information appears to be deliberate and contumacious to the statutory obligations as held by the Supreme Court in Hindustan Steels Vs State of Orissa 1969 2 SCC 627 and Graver & Weil Vs CCE (1995) 1SCC 77. It is noticed that despite issuance of summons and repeated extension of time to submit the information, the companies failed to furnish any information/documents sought by SEBI. It appears that the companies have treated the whole affair rather casually and in defiance of the Regulator. These information are required by the Regulator to satisfy itself whether there were any artificial trades in the shares of RIL. This information was within the realm of these companies and could have been provided easily and there is no material to suggest that this was furnished by the company. Under the circumstances, the explanation of these companies in the hearing and in their replies dated 22.11.04, as discussed earlier are unacceptable.

As can be seen, the summons dated 23^rd July, 2002 SEBI had sought important information having a bearing on the investigations into the share holding details of RIL. From the material on record it is seen that SEBI had initiated preliminary investigations in the matter of shareholding pattern of RIL and price manipulation in the shares of RIL, in December 2001 on the basis of a complaint that the entire shares of RIL was directly and indirectly held by the management of the company. Low floating stock of the company creates conditions for price manipulation. The price of RIL scrip moved up from Rs.127 to Rs.268 and the volumes traded increased from 2,100 shares to 113,400 shares within that period.

Against this background, the details sought by SEBI vide its summons dated 23^rd July 02 is absolutely vital for SEBI to carry out its solemn objective of investor protection and regulation of capital markets. Needless to say, non co-operation of such nature by the companies which is being probed for its transactions in securities would hamper the progress of investigations. It is of utmost importance that vital information is collected quickly by the investigating authorities and analyze the same before deciding on what future course the investigation should proceed. It is clear that the companies did not comply with the summons and did not furnish the necessary information as detailed above despite several extension of time to submit the same despite readily having the information/documents in their possession. These companies have adopted dilatory tactics to delay and hamper the investigations. SEBI is mandated to protect the interest of investors in securities. Stock Markets by nature are highly dynamic and corrective action need to be taken effectively and efficiently without loss of time in the larger public interest as demanded by the exigencies of situation.

In terms of Regulation 9 (3) of SEBI (FUTP) Regulations, 1995, the investigating officer shall have the power to examine orally and to record the statement of the person concerned. As per Regulation 9(1), it shall be the duty of every person in respect of whom the investigation has been ordered 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 purpose of investigation.

In view of the foregoing, it is established that there is no compliance whatsoever to any of the queries of the summons issued by the Investigating Officer of SEBI on 23^rd July 02 and letter dated 5^th September 02. It is also seen that the noticees 1-4 deliberately did not furnish information/document which was already in their possession in respect of queries 5 & 6, as discussed earlier. The noticees did not cooperate with the Investigating Officer and did not comply with the summons issued in a matter involving larger public interest as the information was sought in terms of the summons to investigate into the price manipulation in the scrip of RIL which as seen earlier had witnessed unusual rise in prices and volumes traded within a short period of 3 months.

This type of non compliance with the summons issued, adopting dilatory tactics and stonewalling the investigations into the price rigging in the shares of Roofit Industries Ltd. launched by the statutory regulator in the larger public interest with the avowed objective of protecting the interest of investors in the securities market calls for a deterrent penalty that sends a signal to all those connected with the securities market that such callous and indifferent attitude will not be viewed leniently.

 

The learned counsel submitted that the noticees incurred losses and their capacity to pay penalty is restricted in view of their financial difficulties. The learned counsel relied on the order of the Hon’ble SAT in Alkan Projects (P) Ltd. Vs SEBI (Appeal No.88/04) in this regard vide letter dated 29.11.04. It was informed that losses were incurred as under :

 

Name	B/S as on	P&L for the period	Profit (Amt in Rs)
Onlooker Investment (P) Ltd.	31.03.98	Apr-97 to Mar-98	-3,198
Habiscus Invsetment (P) Ltd.	31.03.98	Apr-97 to Mar-98	-3,414
Mayfair Realtors (P) Ltd.	31.03.01	Apr-00 to Mar-01	-2,382,131

 

 

ORDER:-

Having regard to the factors contained in Section 15J of SEBI Act, 1992 and following the order of Hon’ble SAT in Appeal No.88/04 cited supra, I hereby impose a penalty of Rs.30,000/- each on the undernoted entities under Section 15A (a) of SEBI Act, 1992.

 

The companies shall pay the penalty as above, by way of Demand Draft drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days from the date of receipt of this order.

The payment shall be forwarded to Mr. C.S.Kahlon, Executive Director, SEBI, Mittal Court, B-Wing, 1^st Floor, 224 Nariman Point, Mumbai-400 021.

 Date: June 01, 2005                                                          S V KRISHNA MOHAN

 Place : Mumbai                                        ADJUDICATING & ENQUIRY OFFICER