ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
READ WITH SECTION 15A (a) OF THE SEBI ACT, 1992
AGAINST
SHRI BALDEV RAJ
BACKGROUND:
1. The Securities and Exchange Board of India (for brevity’s sake, hereinafter referred to as ‘SEBI’) had initiated an investigation into the alleged market manipulation and irregularities in the trading of the shares of Shonkh Technologies International Ltd. (for brevity’s sake, hereinafter referred to as ‘STIL’) which was listed on the Stock Exchange, Mumbai and the Delhi Stock Exchange (BSE and DSE respectively) at the time of the investigation. As per the findings of the investigation, Shri Baldev Raj (for brevity’s sake, hereinafter referred to as ‘BR’) was found to be one of the entities, who was alleged to have traded in the scrip of STIL at the relevant point of time.
2. In view of the same, the Investigating Authority issued summons under Section 11C (3) of the SEBI Act, 1992 (for brevity’s sake referred to as the Act) to BR on March 24, 2003 where under BR was advised to appear in person before the said authority on April 3, 2003 along with all the documents that BR intended to rely upon in his defense or any other documents relevant to the proceedings initiated by SEBI in this regard. It was further made clear to BR that in case he failed to appear before the investigating authority; necessary action would be initiated against him under the relevant provisions of the Act.
3. However, BR failed to appear before the investigating authority and also failed to submit the required information.
SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:
4. In view thereof, adjudication proceedings were initiated in the first instance by the issuance of a show cause notice dated September 15, 2003 by the previously appointed adjudicating officer to BR under Section 15-I of the Act read with Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, ( hereinafter referred to as Rules) where under BR was asked to show cause as to why adjudication proceedings should not be held against him and why penalty should not be imposed upon him under Section 15A(a) of the Act. BR was advised to make his submissions, if any, along with supporting documents that he wished to rely upon, within 14 days from the date of the receipt of the notice.
5. The notice sent by registered post was retuned undelivered by the postal authorities with the remarks in hindi “is naam ka koi nahin hai” (no person with the said name available/ found).
6. Subsequently, I was appointed as the Adjudicating Officer vide the order of the Chairman, SEBI dated September 30, 2004. Keeping in mind the principles of natural justice, a notice of hearing dated November 24, 2005 in terms of Rule 5(1) of the Rules was sent to the Northern Regional Office (NRO) of SEBI at New Delhi vide letter dated November 24, 2004 with a request to forward the same alongwith the copy of the show cause notice to BR. In the absence of any reply forthcoming from BR, another notice of hearing dated March 17, 2005 (alongwith the copy of the show cause notice) was served upon BR through NRO to appear on April 8, 2005. However, NRO vide their letter dated April 7, 2005 informed that although the notice of hearing was affixed at the main door of the address provided therein, in the presence of two witnesses namely :Shri Ram Awadh and Shri Shiv Prasad on March 19, 2005 in terms of the Rule 7(c ) of the Rules, BR was not residing at that address (i.e. R-1/32, Vijay Vihar, Uttam Nagar, New Delhi.) which is the last known address of BR.
CONSIDERATION OF EVIDENCE AND FINDINGS
7. As there has been adequate service of notice on BR and in the absence of BR appearing for the said proceedings, the matter is proceeded with based on the material available on record and according to the relevant regulatory provisions as also the rationale behind the said provisions.
8. The allegation against BR is that he failed to appear before the investigating officer of SEBI on April 3, 2003 in response to the summons dated March 24, 2003 served upon him under Section 11C(3) of the Act, which reads as under:
“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 person authorised by it 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”.
9. BR was clearly advised to appear before the investigating authority in connection with the investigations initiated by SEBI in the scrip of STIL and also produce the documents pertaining to his buying, selling or dealings in the scrip of STIL. The said summons sent through registered post was duly acknowledged by him. Hence although BR is aware of the summons served upon him, he has neither appeared before the investigating authority nor submitted the required information/ documents.
10. From the manner in which BR failed to appear before SEBI or participate in the adjudication proceedings and in the absence of any explanation on record by BR for his non appearance before the investigating authority/ adjudicating proceedings, it can be reasonably concluded that he has consistently tried to evade the summons process and that the default on his part in co-operating with the investigation proceedings, is willful.
11. Every entity connected with an investigation process is under an obligation to provide the information as sought for by the Investigating Authority. The decision to call for such information and the judgment as to its relevancy is completely the discretion of the investigating authority and is in furtherance of the discharge of its official duties. The noticee under the summons is in turn, under a legal and moral obligation to cooperate with the Investigating Authority and furnish the required information.
12. The said principle also finds mention in the provisions of Regulation 9 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as FUTP Regulations); the relevant portion of which has been reproduced hereunder:
1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 8 to produce to the Investigating Officer such books, accounts and other documents in its custody or control and furnish him with such statements and information as the said officer may reasonably require for the purposes of the investigation.
2) Without prejudice to the generality of the provisions of sub-regulation (1), such person shall -
(a) ………;
(b) ………;
(c) ……..
(3) …….
(4) It shall be the duty of every person concerned, to give to the Investigating Officer, all such assistance and otherwise extend all such co- operation as may reasonably be required in connection with the investigation and to furnish information relevant to such investigation as may be reasonably sought by such officer.
13. It would also be relevant in this connection, to refer to the judgment of the Hon'ble High Court of Bombay in Writ Petition No.1972 of 1994 filed by ANZ Grindlays and others which inter alia held as under:
“No person can maintain the dignity or cherish prestige by avoiding due process of law. Law being a guardian, it maintains and protects the dignity and honour of every person. Dignified and honorable persons have to stand the test and trial articulated by Law. And in obedience, he or she has to submit to the process. Cherishing majesty of law and its process is an inner core of the dignity of individual in a Democratic World, which runs on the wheel of Rule of Law.”
14. In the present case, there is no dispute regarding the failure on the part of BR in complying with the provisions of Section 11C (3) of the Act which thwarted the attempts of SEBI to effectively gather vital evidence for the timely conclusion of the investigation proceedings.
15. In view of the fact that BR did not comply with the summons issued by the investigating authority of SEBI or furnish the documents and information mentioned in the summons, BR has clearly disregarded the summons of the regulator and consequently, BR would be liable for such penalty as I think fit to impose, in accordance with the provisions of Section 15A (a) of the Act which is quoted below:
Section 15A(a)-Penalty for failure to furnish information, return, etc
If any person, who is required under this Act or any rules or regulations made there under
(a) “to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure.
16. However, while adjudging the quantum of penalty to be levied, it would also be necessary to consider the following factors as provided in Section 15J of the Act, which also find mention in Rule 5(2) of the Rules, i.e., the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.
17. Upon perusal of the provisions enumerated above, it is clear that the adjudicating officer is required to have due regard to the factors stated in the section. The same is a direction and not an option, which is however to be exercised with due regard to its discretion. This discretion is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing all the relevant material available on record especially in the case of failure to perform statutory obligations.
18. Moreover an evasion of the regulatory provisions of the regulator issued in the interests of the investors or non adherence to the same for any reason whatsoever is bound to affect the interests of such investors as also the sound and smooth functioning of the capital market. If no cognizance were to be taken of any such a breach of such provisions and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.
19. From the facts on record, it is not clear as to whether BR enjoyed any gain or unfair advantage as a result of the default. However it cannot be denied that the said default would have certainly caused a certain amount of disadvantage to the shareholders of STIL and the investor class as a whole considering that any delay in obtaining information relevant to the investigating proceedings especially in cases of manipulation as in the present case would have thwarted the efforts of the investigating team. An early conclusion of investigation in such cases is a very important objective. Moreover, the default is continuing till date.
20. I have, however, noted that BR was not given a second opportunity to provide the information called for in the summons dated March 24, 2003 and that subsequently no further summons was issued to BR to appear before the investigating authority.
21. Thus, bearing in mind these facts and circumstances of this case, and also the factors enumerated in Section 15J of the Act and on analyzing the material available on record, on a judicious exercise of the discretion conferred upon me, I am inclined to hold that although the penalty need not be imposed in terms of the quantum prescribed in the provisions of Section 15 A(a) of the Act, the imposition of a token penalty, is very much necessitated.
ORDER:
22. In view of the foregoing, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, and in the interest of justice, equity and good conscience I think it appropriate to levy a penalty of Rs 15,000/- (Fifteen Thousand only) on Shri Baldev Raj.
23. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India and payable at Mumbai which may be sent to Shri R. Mohan, General Manager, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman Point, Mumbai – 400021.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: April 29, 2005 ADJUDICATING OFFICER