Order Against Rishabh Securities Ltd

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, the alleged violation of 11C of Securities and Exchange Board of India Act, 1992 against Rishabh Securities Ltd., a company incorporated under Companies Act, 1956 and having its office at Chakravarthy Complex, Narangpura, Ahmedabad – 380 009. For the sake of convenience, the said Rishabh Securities Ltd. will be referred hereinafter in this order as ‘the noticee’ or ‘the company’.
   
    
2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the shares of GCCL Infrastructure and Projects Ltd. During the course of the said investigation, summons dated December 18, 2003, was issued by Shri M.S. Ray, Investigating Authority of SEBI in the matter, directing the noticee to furnish the information and produce certain documents mentioned in the annexure to the said summons by December 30, 2003. As per the unattested photocopies of documents made available to me by SEBI, the aforesaid summons dated December 18, 2003 was sent by speed post - acknowledgement due and the same was received by the noticee. However, it was alleged that there was no compliance of the said summons by the noticee. 
   
    
3. In view of the above, I issued a notice dated February 8, 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 it and penalty be not imposed under Sec. 15A(a) of Securities and Exchange Board of India Act, 1992. The said notice dated February 8, 2005 was sent to the noticee by registered post with acknowledgment due. From the postal acknowledgement received by my office, it was noticed that the aforesaid notice dated March 10, 2005 was received by the noticee. Since there was no reply to the said notice by the noticee within 15 days, the time which was stipulated by me for the noticee to file its reply, I was of the opinion that an inquiry should be held in the matter and accordingly a notice of inquiry dated March 24, 2005 in terms of Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 was issued to the noticee fixing April 13, 2005 as the date of inquiry. It was advised that the noticee or his authorised representative/ lawyer may appear for the inquiry at my office at Mumbai on the above date. The said notice was sent by speed post acknowledgment due. The said notice of inquiry dated March 24, 2005 was received by the noticee as evident from the acknowledgement card received by my office.
   
    
4. On April 13, 2005, no authorised representative or lawyer of the noticee appeared before me. Therefore, I have decided to proceed with the inquiry in the absence of the noticee in terms of Reg. 4 (7) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 as I was of the opinion that the noticee failed to appear without any sufficient cause.
   
    
5. Before deciding the issues which require 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 it. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty of Rupees one lakh for each day during such failure continues or Rupees one crore, whichever is less by the Adjudicating Officer in case 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.
   
    
6. It was alleged by SEBI that the noticee failed to comply with the summons dated December 18, 2003 issued by the investigating authority as mentioned above.
   
    
7. The noticee did not dispute the fact that the investigating authority of SEBI issued the summons. The noticee also did not dispute the receipt of summons by it. Further, from a photocopy of postal acknowledgment made available to me to SEBI,  I noticed that the summons dated December 18, 2003 was received by the noticee. Therefore, I find that non- compliance with the summons issued by the investigating authority of SEBI by the noticee is established. 
   
    
8.  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.
   
    
9.  As I mentioned above, Section 15A (a) of Securities and Exchange Board of India Act, 1992 prescribes a penalty of Rs. one lakh for each day during which the failure to furnish any documents etc. to SEBI continues or Rs. One crore whichever is less.
    
10. To determine the quantum of penalty under Section 15A (a), I considered the following factors as provided in 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. 
    
     
11. 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. Further, the default of the noticee was not repetitive in nature as it failed to furnish the required information to the Investigating Authority of SEBI only once. 
     
12.  I have also considered the decision of the Hon’ble Securities Appellate Tribunal (SAT) in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004). In the said matter, the penalty of Rupees Seventy five lakhs imposed by the Adjudicating Officer was reduced to Rupees fifteen thousand by SAT. Adjudication in the said matter was initiated by SEBI for the non-compliance of summons issued by the investigating authority of SEBI by Mayfair Paper & Board Pvt. Ltd. SAT further held that provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have considered all the aspects of the said judgment of SAT. 
    
    ORDER
    
     
13.  From the preceding paragraphs of this order, it can be seen that though the non- compliance of summons issued by the investigating authority by the noticee is established, none of the factors prescribed under Sec. 15J acted against the noticee. Further, I have noted that SAT in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004) held that provision for higher penalties does not mean that SEBI should impose sky high penalties. Therefore in exercise of the powers conferred under section 15-1(2) read with 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.35000/- (Rupees thirty five thousand only) on Rishabh Securities Ltd. The noticee 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 Shri M.S. Ray, Officer on Special Duty, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai-400021.
    
    
14. 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: April 27, 2005                                       A. Chandra Sekhar Rao

Place: Mumbai                                              Adjudicating Officer