IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

  

Appeal No. 3/2005

 

Date of Hearing	13.4.2005
Date of Decision	18.4.2005

 

In the matter of:

 

Vinod C. Shah	Appellant – Represented by
	Mr. J.J. Bhatt, Advocate
Versus
Securities & Exchange Board	Respondent –Represented by
of India	Mr. Shaunak Satpute, Advocate

 

Coram:

            Justice Kumar Rajaratnam, Presiding Officer

             

 

Per:  Justice Kumar Rajaratnam, Presiding Officer

 

 

   1.            Appeal is taken up with consent of parties.

   2.            The appellant challenges the order passed by the adjudicating officer of SEBI dated 8.7.2004.  By the impugned order, the appellant was directed to pay a penalty of Rs. 2 lakh for violating the provisions of Section 15A of the SEBI Act.

   3.            Section 15A deals with penalty for failure to furnish information.  The facts very briefly are that it is alleged that the appellant was a director of M/s. CDP Fincap Pvt. Ltd., Rituja Finvest Pvt. Ltd. and Damayanti Finvest Pvt. Ltd. (hereinafter referred to as “the Group of Companies”).

   4.            The gamut of the charge was that the group of companies had traded in shares of a scrip referred to in the impugned order as KBL.  The respondent wanted further information from the appellant.  The allegation further is that the appellant did not cooperate with the respondent since he was a director of the group of companies.  

   5.            A lot of time of SEBI and of this Tribunal could have been saved if only the adjudicating officer had made a reference to the earlier orders passed by the Chairman and the Whole Time Member.  From these orders it is clear that the appellant was only a clerk working with Damayati Finvest.

   6.            The appellant worked as a clerk from February 1998 to June 1998 on a salary of Rs. 8500 per month, marked before me as Exhibit D.  After leaving the company, the appellant joined another company known as Classic Collection in October 1998.

   7.            It is the contention of the appellant that he never discharged any function as a director nor did he have any information relating to KBL.  The show cause notice dated 21.10.2003 was never served on the appellant since the appellant had left the service of the respondent.  

   8.            The learned counsel for the respondent took me through earlier orders passed by SEBI where there is a finding by SEBI that the appellant is a clerk in the group of companies.  In an order relating to the appellant in the case of BPL, Videocon and Sterlite, the Chairman by an order dated 19.2.2002 has accepted that the appellant is only a clerk and was not personally aware of the securities transactions entered into by the directors of Damayanti Finvest.  The operative portion of the order of the Chairman dated 19.2.2002 at para 33 reads as follows.

“33.  After taking into consideration the material and evidence gathered during the investigations in the price manipulation of BPL, Videocon and Sterlite.  I find that Damayanti group of companies acted in a manipulative manner.  These Damayanti Group companies also acted as front of Late Shri Harshad Mehta and had aided, abetted and assisted, Late Shri Harshad Mehta in his manipulative operations.  Shri Vinod Shah was also shown as Director of Damayanti Group of companies.  He has submitted that he was working only as a clerk and was not personally aware of securities transactions entered into by Shri Anil Doshi and Shri Dinesh Doshi on behalf of Damayanti Group entities.  I accept his submissions.  I, D.R. Mehta, in exercise of power conferred under Section 4(3) of SEBI Act read with section 11 and 11B of the SEBI Act and Regulation 11 and 12 of the SEBI (Prevention of Fraudulent and Unfair Trade Practises) Regulations, 1995, direct that Shri Vinod Shah be warned to be careful in future and to act diligently while discharging his duties.”

                                                            (Emphasis by Court)

   9.            In spite of it, the adjudicating officer still refers to the appellant as  a director of the group of companies.  Reference was also made to the order passed by the Whole Time Member dated 6.7.2004 wherein a finding has been given that the appellant was only a clerk for a short period of four months.  The order of the Whole Time Member dated 6.7.2004 at  para 3.18 reads as follows.  Page 94

“I find merit in the contention of Shri Vinod C. Shah that he was not the director of the company and worked as a clerk for a short period of about four months.  I also find merit in the contention that he was not aware of the transactions done by the company with various brokers in the scrip of Kreb Biochemicals Ltd. and all dealing were done by Shri Anil D. Doshi and Shri Dinesh Doshi who were  the promoters/directors of the company and holding shares/interest in the company.  Hence, I accept the submissions of Shri Vinod C. Shah.”

                                                            (Emphasis by Court)

10.            From this it is clear that in two of the findings, one by the Chairman and one by the Whole Time Member it is stated that the appellant was a clerk.  In the order dated 6.7.2004 the Whole Time Member has clearly spelt out that the appellant was not a director of the group of companies and was an employee of the company as a clerk for a short period of about 4 months.  The order of the Whole Time Member is dated 6.7.2004 and the impugned order which imposed a penalty of Rs. 2 lakhs is dated 8.7.2004. 

11.            The impugned order was passed within two days of the earlier order.

12.            It is rather curious that no reference has been made to both the orders passed by the Chairman and the Whole Time Member where a categorical finding has been given that the appellant was a clerk and working with the Group of Companies for a period of only 4 months. 

13.            The Tribunal’s time would have been saved for serious matters if the adjudicating officer had applied his mind to the earlier orders.

14.            The contention of the appellant was that he had worked in the Group of Companies from February to June 1998 and after that he was leaving in a small flat at Meera Road.  The appellant submits that he is a middle class person with a large family to maintain and by targeting him in this litigation without proper materials the respondent has caused enormous pain and agony to the appellant. 

15.            SEBI must get its act together if its valuable time is to be used for catching serious offenders otherwise the energy of SEBI will get dissipated. 

16.            Here is a classic case where even after two findings, one by the Chairman and one by the Whole Time Member, the adjudicating officer proceeds on the footing that the appellant is a director while in fact it is clearly a common ground that the appellant was a mere clerk and had left the company in June 1998.  Therefore any notice sent to the company would have been returned since the appellant was no longer working in the company.  The endorsements in the impugned order clearly indicate that the summons could not be delivered on the appellant.  How could summons be served on a person who within the knowledge of SEBI was no longer in the service of the Group of Companies.  The finding of the Whole Time Member as extracted before at para 3.18 by order dated 6.7.2004 accepts the contention of the appellant that the appellant worked as a clerk for a short period of 4 months.  It further stated that there was merit in the contention that the appellant was not aware of the transaction of the company with various brokers in the scrip of Kreb Biotech Ltd. and all dealings were done by the directors.  (See para 3.18 of the order dated 6.7.2004 by the Whole Time Member)

17.            For all these reasons, the impugned order is set aside and the appeal is allowed.  No order as to costs.

 

Justice Kumar Rajaratnam

Presiding Officer

 

 

Place: Mumbai

Date: 18.4.2005

 

 

//SR40518