Order against Shri Pankaj C. Patel

1. Vide order dated December 07, 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 Sec. 11C of Securities and Exchange Board of India Act, 1992 against Shri Pankaj C. Patel, having his place of residence at F/10, Gunjan Apartments, Vasna, Opp. Umasut Flats, Ahmedabad- 380 007. For the sake of convenience, the said Shri Pankaj C. Patel will be referred hereinafter in this order as ‘the noticee’.
    
2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the shares of Shalibhadra Infosec Ltd. During the course of the said investigation, summonses dated May 2, 2003, May 8, 2003, May 13, 2003, May 20, 2003 and January 14, 2004 were issued by Shri S. Ravindran, Investigating Authority of SEBI in the matter, directing the noticee to furnish the information and produce certain documents mentioned in the annexures to the said summonses within the time stipulated in the said summonses. As per the unattested photocopies of documents made available to me by SEBI, the aforesaid summons were sent by speed post acknowledgement due and by courier. As per the information provided to me by SEBI, summonses dated May 2, 2003 and May 8, 2003 which were sent by speed post acknowledgement due were returned undelivered with a postal endorsement “refused to accept”.  Subsequently, reminders dated May 13, 2003 and May 20, 2003 were also sent to the noticee. Vide letter dated January 14, 2004, the noticee was demanded, interalia to furnish the information contained in the annexure to the aforesaid summonses on February 5, 2004. The said summons was served though the depository participant of the noticee Standard Chartered Bank on 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 3, 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 him and penalty be not imposed under Sec. 15A(a) of Securities and Exchange Board of India Act, 1992. The said notice dated February 3, 2005 was sent to the noticee by Registered Post with Acknowledgment Due was returned undelivered by postal authorities with an undecipherable endorsement. A copy of the aforesaid notice dated February 3, 2005 was also sent by my office to the address of the noticee at village Gamdi, Taluk Daskroi, Ahmedabad District of Gujarat. However, my office neither received any postal acknowledgement nor any reply from the noticee. In the absence of any reason to believe that the notice was not received by the noticee and due the reason that there was no reply to the notice issued by the noticee within 14 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 14, 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 4, 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. 
   
    
4. On April 5, 2005, neither the noticee nor his authorised representative appeared before me. However, on April 29, 2005, Shri Deepak Shah, a Company Secretary in whole time practice attended my office and filed a written reply dated April 25, 2005. Shri Shah also filed an undated letter, vide which the noticee authorized Shri Deepak Shah (hereinafter referred to as ‘the authorized representative) to appear before me in the instant proceedings. The authorized representative requested me hold the inquiry on the same day, i.e., April 29, 2005. I agreed to the request of the authorized representative. The authorized representative during the hearing reiterated the submissions of the noticee made in the aforesaid letter dated April 25, 2005 and requested me to drop the proceedings in view of the said submissions. 
   
    
5. The following were the submissions made by the noticee vide the aforesaid written reply dated April 25, 2005: The noticee never received the summons dated May 2, 2003, May 8, 2003, May 13, 2003 and May 20, 2003. As per the noticee, the said summons were returned undelivered as he shifted to a new residence and person at his old residence refused to accept the same and therefore, he could be held guilty. The noticee further submitted that the summons dated January 14, 2004 (served through Standard Chartered Bank) was received by ‘some unknown person’ at his old residence and therefore it cannot be treated as a service on him. The noticee also submitted that he was ready to produce all the records and documents required by the investigating authority. 
   
    
6. 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.
   
    
7. It was alleged by SEBI that the noticee failed to comply with various summons issued by the investigating authority as mentioned above.
   
    
8. The noticee did not dispute the fact that the investigating authority of SEBI issued the summons. As per the noticee, he shifted his residence and the summons were sent to his old address and the same were returned undelivered as persons residing at the said address refused to accept them. However, the noticee did not adduce any documentary evidence in support of his claim that he shifted his residence and presently residing at another premises. The letter dated April 25, 2005 vide which the noticee filed his written submissions does not bear the address of the noticee. However, the letter of authority issued in favour of the authorised representative bears the address of F/10, Gunjan Apartments, Opp. Umasut Flats, Ahmedabad – 380 007, from which it appears that the noticee is still residing at the same address to which the summons were sent by the investigating authority. The claim of the noticee that the summons dated January 14, 2004 was received by “some unknown person” is difficult to be believed as the said summons was served through the depository participant of the noticee, Standard Chartered Bank. It is highly improbable that the noticee did not notify his depositary participant, the change of address if any. In the facts and circumstances of the case, I am of the opinion that the claims of change in address and refusal to accept the summons by the persons residing therein etc., are just afterthought only to avoid penalty in the instant proceedings. Further, the failure of furnishing his present address by the noticee gives rise to a suspicion that he may not furnish the required information to the investigating authority even if it is demanded in future. Therefore, I conclude that there was a deliberate failure on part of the noticee to comply with the summons issued by the investigating authority. In the absence of any documentary evidence to prove that there was a change in the address of the noticee, I am not inclined to give any credence to the said claim of the noticee. 
   
    
9.  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.
   
    
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. However, the default of the noticee was repetitive in nature as it failed to furnish the required information to the investigating authority of SEBI several times as refusal to accept the summons should be considered as a valid service. 
    
     
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 the non-compliance of summons issued by the investigating authority by the noticee is established. It is further established that there was a repetition in non compliance by the noticee. 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.50,000/- (Rupees Fifty thousand only) on Shri Pankaj C. Patel 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 R. Mohan, General Manager, 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. In the facts and circumstances of the case, I am of the opinion that a copy of the notice shall be sent to Shri Deepak Shah, the authorised representative of the noticee with a request to forward the same to his client.

Date: April 30, 2005                        A. Chandra Sekhar Rao

Place: Mumbai                                Adjudicating Officer