BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. AP/AO-22/2006-07]
Under Section 15-I of Securities and Exchange Board of India Act, 1992 read with Rule 4(3) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
In respect of
BASERA MARKETING PVT. LTD.
AND
In the matter of Investigations in
FAST CAPITAL GROWTH LTD.
1.0 Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) conducted investigations in the scrip of Fast Capital Growth Ltd. (hereinafter referred as ‘FCG’) for the period October 1995 to December 1995, as there was rapid price rise. The scrip is listed in CSE and BSE. Pursuant to this investigations, SEBI appointed Mr. K.R.C.V. Seshachalam (KRCS), as the Adjudicating Officer under Rule 3 of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 (hereinafter, Adjudication Rules) read with Section 15 I of SEBI Act, 1992 to inquire into and adjudge the alleged failure of Basera Marketing Pvt Ltd. (hereinafter referred as ‘noticee or BML’) to comply with the summons issued by the Investigating Officer, under provisions of Section 11(3) of SEBI Act, 1992, for which penalty is imposable under Sections 15A (a) of SEBI Act, 1992. The aforesaid appointment was conveyed vide order dated July 15, 2003 and vide order dated December 28, 2004, the matter was transferred to Mr. A. Chandrasekhar Rao (ACR). Subsequently, vide order dated February 03, 2006; the matter was transferred to the undersigned.
2.0 Before proceeding forward, it will be pertinent to understand the background of this case. FCG scrip witnessed sharp price rise during the period October to December 1995; from Rs. 14/- to Rs. 40/- in CSE and from Rs. 14.50 to Rs. 41/- in BSE. SEBI investigations revealed that maximum volumes were done by the clients of BSE member CRB Share Broking Ltd.; noticee being one among them. Investigation also revealed that BML’s was a net buyer of FCG shares; i.e. its trades were not squared off. Besides, investigations were unable to establish any link between BML and other client groups who traded large volumes or with the promoters of FCG. Moreover, investigation report notes that the performance of FCG in exceeding its financial projection could also be the cause of the price rise. It is in this context that the IO issued summons dated December 03, 1998 under Section 11 (3) of SEBI Act, 1992 to the MD of BML, requiring him to appear before the Regional Manager, Eastern Regional Office (ERO), who was assisting the IO in the investigations. It is alleged that there was no response to this summons, and hence this proceedings.
3.0 Upon examining the material on record, the following are my findings:
3.1 In page 15 of the IR, regarding the summons issued to BML, it is categorically stated that “summons returned undelivered”. Given this ambiguity in summons not being served, but the matter still being referred for adjudication, the then AO KRCS, vide letter dated September 26, 2003 sought the following documents from the IO:
3.1.1 Copies of summons issued to the entity
3.1.2 Copies of proof of service of said summons to the entity
3.1.3 Letter of acknowledgement received from any of the entity in response to the summons
3.1.4 Any other relevant correspondence
3.1.5 Copy of investigation report
3.2 In response, copy of the summons was made available to the then AO vide office note no. 2235 dated October 07, 2003. This note also mentions that proof of service of the summons was not available with the IO as the dispatch of summons was done by the SEBI ERO. ERO furnished details of the status of the summons issued, in a tabular form, copy of which was attached to this note. According to this tabular note, ERO dispatched summons to BML by courier as well as by RPAD, and the latter returned undelivered. However, the aforesaid ON did not enclose any document to evidence that the summons dated December 03, 1998 was indeed served on BML, through courier.
4.0 In order to decide the matter and in terms of Rule 4(1) of the Adjudication Rules, the undersigned issued a Show Cause Notice (SCN) dated May 12, 2006 to BML, at the address available on records, alleging non-compliance of summons dated December 03, 1998, issued by the Investigating Officer. The said SCN dispatched through registered post acknowledgement due, returned undelivered with the endorsement “not known”. The undersigned therefore, arranged to obtain the address of registered office of BML from the Ministry of Company Affairs web site and issued another SCN dated November 16, 2006, however I find no response of the same.
5.0 Before proceeding further in the matter and with an intention to bring the logical end to the proceedings I thought it fit to first examine whether there is a prima-facie charge against the noticee. Similar mandate is given under Rule 4 (3) of Adjudication Rules to the AO that if he is satisfied about the existence of charge then he shall hold further inquiry in the matter. From the material available on records, it is clear that the matter has been referred for Adjudication despite the fact that summons was not served on noticee, either through RPAD or courier. On the contrary, it is unambiguous that the summons dispatched through PRAD returned undelivered. From the material on record, there is nothing to suggest that fresh summons was issued to BML in the matter of FCG. If the summons is not served, then the legal obligation of BML to be present before the RM, ERO and furnish information/ documents does not arise. Logically, in the absence of legal obligation in the first place, default of obligation does not arise at all.
6.0 Even assuming, without conceding, that the summons was indeed served on BML through courier, it needs to be reiterated that even then it will not be possible for me to impose monetary penalty on BML; the terms of reference for this adjudication proceedings is under Section 15A (a) of SEBI Act, 1992 which is the enabling penal provision for not furnishing document, return or report to the Board. It is a well settled position of securities law of the land that penalty under 15A (a) of SEBI Act, 1992 cannot be imposed for not appearing before the IO. Not appearing before the IO in response is covered under the provision of Sections 11C(3) and 11C(5) of SEBI Act, 1992 r/w Regulation 8(1)(a) of FUTP, 2003 for which monetary penalty can be imposed under Section 15 HB of SEBI Act, 1992 beside the filing of prosecution under Section 11C (6) of SEBI Act. In the instant case though, neither is the summons served nor is there a mandate under Section 15 HB of SEBI Act, 1992.
7.0 The next issue to be dealt with is the information / documents that BML was required to produce before the RM (ERO). The summons issued to BML by the investigating officer on December 3, 1998 do not specify the documents which were to be produced by BML. The said summons direct BML to produce “all the documents upon which you intend to rely in support of your defence or which may be material for the purpose of the said investigation”. In this connection, it may be noted that no proceedings were launched against the entity as on the date of issuance of summons and no charges were levelled against it. Therefore, the question of BML producing the documents in support of its defence does not arise. Further, the summons directed BML to produce all those documents which may be material for the purpose of investigation. This implies that the investigating officer left it to the discretion of the entity as to the materiality of the documents which were required for the investigation to be carried out by SEBI. Rule 5, Order 16 of the Code of Civil Procedure, 1908 stipulates that every summons for the attendance of a person to give evidence or to produce a document shall describe with reasonable accuracy any particular document which the person summoned is called on to produce. In this connection, it may be noted that in the instant case, the investigating authority derived its powers in terms of Section 11 (3) of Securities and Exchange Board of India Act, 1992 under which the Board shall have the same powers as are vested in a civil court inter-alia, with respect to production of books of account and other documents. Therefore, the aforesaid provision of the Code of Civil Procedure, 1908 is very much applicable to the summons issued by the investigating officer. Hence, the undersigned is of the considered view that a summon cannot be enforced under Section 15A (a) of the SEBI Act, 1992 for the failure of a person to produce unspecified and unstipulated documents. To sum up, I hold that the summons issued by the investigating officer was vague, indistinct and unclear as far as the description of the documents required to be produced is concerned and therefore, no violation is established, even if the summons was served on BML.
8.0 Considering the aforesaid findings, I am not inclined to proceed further in the matter. Also in terms of Rule 4 (3) of Adjudication Rules the AO is obligated to proceed with the inquiry only if he is of the opinion that inquiry should be held. For the reasons recorded above, I am of the view that inquiry need not be held in the matter as the allegation is not supported by evidence.
9.0 For the reasons stated above, I hereby drop the charges against Basera Marketing Pvt. Ltd. in the instant Adjudication proceedings.
10.0 This order of adjudication is made and passed on 30th day of November 2006 at Mumbai.
AMIT PRADHAN
ADJUDICATING OFFICER