MO/54/IVD/11/2006
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
Under Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 against Chandravadan J Dalal, member, Bombay Stock Exchange Ltd. (BSE) (SEBI Registration No. INB010005111)) in the matter of the alleged transactions in the scrip of Padmalaya Telefilms Limited.
1.0 FACTS
1.1 Chandravadan J Dalal (hereinafter referred to as CJ Dalal) member, The Stock Exchange, Mumbai (hereinafter referred to as BSE) was a proprietary concern under the sole proprietorship of Shri Chandravadan J Dalal.
1.2 Securities and Exchange Board of India (hereinafter referred to as SEBI) had conducted investigation into the trading in the scrips of Padmalaya Telefilms Limited (hereinafter referred to as PTL). It was observed during investigation that C J Dalal was one of the entities who had actively traded in the shares of PTL during the relevant period of time and contributed in the unusual spurt in the traded volumes of PTL, thereby facilitating the possible manipulation in the scrip of PTL.
2.0 Appointment of the Enquiry Officer
2.1 Therefore, vide order dated September 10, 2004, an Enquiry Officer was appointed by SEBI under Regulation 5 of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as Enquiry Regulations) to enquire into the affairs of the broker in the matter of alleged manipulation in the shares of PTL and possible violations of the provisions of Securities and Exchange Board of India Act, 1992, SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and the Securities and Exchange Board of India (Stock Brokers and Sub brokers) Regulations, 1992 (hereinafter referred to as FUTP Regulations and Broker Regulations respectively) by the said broker. Accordingly, a notice dated September 30, 2003 was issued to the said broker by the Enquiry Officer. The said broker clarifying his position vis-à-vis the charges levelled against him submitted his reply to the aforesaid notice. The said broker also appeared before the Enquiry Officer on August 25, 2004 and reiterated the submissions made in his earlier reply.
2.2 Subsequently due to administrative reasons, a new Enquiry Officer was appointed vide order dated November 3, 2004. The Enquiry Officer after conducting the Enquiry in terms of the Enquiry Regulations found that the said broker is guilty of having facilitated the manipulation of the scrip of PTL and had created artificial volumes thereof resulting in violation of Regulation 4 (2)(a) & (e) of FUTP Regulations, 2003. The Enquiry Officer also found that the broker has violated the provisions of Regulation 7 of the Broker Regulations, 1992. Having found the broker to have violated the above mentioned regulations, the Enquiry Officer in her report dated June 30, 2005 recommended a minor penalty of suspension of the certificate of registration of the said broker for a period of five working days.
3.0 Show Cause Notice and Reply
3.1 A copy of the said Enquiry Report along with a show cause notice dated July 14, 2005 was issued to the broker under Regulation 13(2) of the Enquiry Regulations informing about the Enquiry Officer’s recommendation and advising it to show cause as to why action as may be considered appropriate should not be taken against it.
3.2 C J Dalal replied to the said show cause notice vide letter dated August 17, 2005 wherein while reiterating most of the submissions already made before the Enquiry Officer, he requested for a personal hearing.
3.3 It is pertinent to mention here that during the enquiry proceedings Shri Deepak C Dalal, S/o Sh. Chandravadan J Dalal submitted that Shri Chandravadan J Dalal, expired on November 29, 2004 and now he being the legal representative, the said certificate of registration was in the process of being transferred to him.
4.0 Consideration of issues and findings
4.1 I have carefully examined the facts and circumstances of the case, investigation reports, the Enquiry Report and other material available on record.
4.2 I note that Shri Deepak C Dalal, S/o Sh. Chandravadan J Dalal is using the membership card of his late father after getting a fresh registration from SEBI.
4.3 In light of the facts on record and the submission made, I am of the view that before proceeding in the matter on its merit, it would be in the fitness of the thing to first decide the preliminary issue as to whether in view of the death of Shri Chandrvardan J Dalal, the present Enquiry Proceedings against Chandravardan J Dalal, a proprietary firm, would continue or abate.
4.3 I note that Hon’ble Securities Appellate Tribunal (SAT) also, in an appeal No. 35/2004 filed by Chandravadan J Dalal, vide its order dated June 15, 2005 has abated the said appeal on account of his death during the pendency of the proceedings.
4.4 I also note from the said order that having examined the nomination documents and other relevant papers, BSE, on September 8, 2004, granted permission to Shri Deepak C Dalal (legal heir) to operate the account of the deceased. Further in the cited order, SAT directed SEBI to consider the case of Deepak C Dalal for registration taking into account the approval granted by BSE without reference to the impugned order passed against Chandravadan J Dalal in the said appeal.
4.5 Pursuant to the same, I note that SEBI granted fresh registration after consideration to Shri Deepak C Dalal on October 7, 2005 without according fee continuity benefit. In fact, this is a fresh registration which was granted to Shri Deepak C Dalal who continued the business with the trade name of Chandravadan J Dalal. The materiality of circumstances as above indicate that there is a change in constitution of the business operations despite continuance of trade name. In view of SAT’s observations in the cited order penalty against C.J.Dalal is personal in nature and would therefore abate on his death. I am therefore of the considered view that since the instant case involves the same issue, the ratio of the above mentioned SAT order would be applicable and no penalty of personal nature can be transferred to the new entity (Legal heir operating under the same trade name with fresh registration number).
4.6 Therefore, I am of the view that since the proceedings were initiated against the personal acts of omission and commission of a person who is no more alive to face the penalty, the proceedings against him are liable to be abated. In Girijanandini Vs Bijendra Narain AIR 1967 SC 2110, the Hon’ble Supreme Court observed that in case of personal actions, i.e. the actions where the relief sought is personal to the deceased, the right to sue will not survive to or against the representatives and in such cases the maxim actio personalis moritur cum persona (personal action dies with the death of the person) would apply. In the light of the above, I am of the opinion that the proceedings against Chandravadan J Dalal are liable to be abated without going into the merit of the case.
4.7 I further note that SEBI vide another order dated April 17, 2006 abated the enquiry proceedings against the said broker in the alleged transaction of shares of Global Telesystems Ltd., Adani Exports Ltd. and Himachal Futuristic Communications Ltd. on account of the death of Shri Chandravadan J. Dalal.
5.0 Order
5.1 Now, therefore in exercise of the powers conferred upon me under Section 19 of SEBI Act, 1992 read with Regulation 13 (4) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002, I hereby abate the instant Enquiry Proceedings initiated against late Shri Chandravadan J Dalal having SEBI Broker Registration No. INB 010005111.
DATE : 02/11/2006
PLACE : MUMBAI
T. C. NAIR
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA