ORDER UNDER RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST DOSHI STOCK BROKING PVT. LTD.
1. I was appointed as the Adjudicating Officer vide order dated December 29, 2004 issued by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) to inquire into and adjudge under Section 15 I read with Section 15 A and Section 15 HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violations alleged to have been committed by Doshi Stock Broking Pvt. Ltd. (hereinafter referred to as the noticee), by not complying with the summons issued by SEBI seeking information regarding its dealings in the scrip of Ransi Software Ltd. (hereinafter referred to as RSL), and the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred as FUTP Regulations).
2. SEBI conducted investigation into the trading in the scrip of RSL as it was noted that promoters of RSL issued preferential shares on consideration other than cash to some entities, allegedly overvaluing these entities. Subsequent to the preferential allotment, Bombay Stock Exchange (hereinafter referred as BSE) refused listing permission to the said shares on account of the overvaluation of the same. Investigation indicated that such shares were dematerialized and traded on the stock exchange. Substantial volume was traded in the scrip as a result of the trading by a group of individuals and entities. In this regard it prima facie, appeared to the Investigating Authority that the noticee traded substantially in the scrip and therefore the Investigating Authority of SEBI issued the following summons / letters dated August 23, 2004 and September 17, 2004 requiring the noticee to submit certain information in respect of its dealings in the scrip of RSL and also to personally appear before the Investigating Authority of SEBI. It is alleged that the noticee did not submit the information sought by SEBI. Further it is alleged that the noticee did not appear before the Investigating Authority as required by SEBI. In view of the alleged non-compliance of summons issued by SEBI and the alleged violation of provisions of Regulations 3 and 6(a) of FUTP Regulations, adjudication proceedings were initiated against the noticee
NOTICE AND REPLY
3. A notice no. A&E/BS/42358/2005 dated June 10, 2005 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) seeking reply as to why an inquiry should not be held against it for the violation alleged to have been committed by the noticee.
4. The noticee did not reply to the show cause notice, however considering the facts and circumstances of the case and in the interest of justice, it was decided to conduct an inquiry in the matter. Hence the noticee was advised to attend the inquiry on August 18, 2005. Shri Bhupendra Amrutlal Shah, authorized representative of the noticee attended the hearing on August 18, 2005 and made the following submissions:
a) We have received the summons. However we could not appear before the Investigating Authority as my father who is the brother of Shri Sevantilal H. Shah, Director of M/s.Doshi Stock Broking Pvt Limited was hospitalized and we had sent a letter dated 29.8.2004 to SEBI in this regard.
b) We have traded on behalf of our client Shri Jitendra R. Shah and the details of the trading was submitted vide letter dated 21.6.2005. 1400 shares were bought and 1300 shares were sold.
c) Shri Jitendra R.Shah is in no way connected with the company RSL or its promoters.
d) We were the sub-brokers of Parklight Investment Pvt. Ltd. With regard to the trades executed by us in Ransi Software Limited, as submitted earlier, we have traded on behalf of our client Shri Jitendra R.Shah only. The details had been submitted earlier. However I will check our records once again and we will inform you if any other transactions were done by us.
CONSIDERATION OF EVIDENCE AND FINDINGS
5. The allegation against the noticee is that it failed to comply with the summons issued by SEBI. It is noted that SEBI issued summons / letters dated August 23, 2004 requiring the noticee to appear in person before the Investigating Authority on August 31,2004.
6. It is noted that vide its letter dated 29-08-2004, the noticee submitted to SEBI that his brother Shri Amrutlal Doshi had been hospitalized for the treatment of severe kidney disease and therefore he is unable to appear before the Investigating Authority and requested to grant one month time in the matter.
7. It is further noted that the Investigating Authority gave the noticee another opportunity vide summons dated September 17, 2004 but the noticee again failed to appear before the Investigating Authority on September 28, 2004 as required vide the said summons. However no explanation has been provided by the noticee with regard to its failure to appear before the Investigating Authority.
8. Further with regard to the earlier summons dated August 23, 2004, the noticee had stated that he could not appear before the Investigating Authority due to illness of his brother. Certain documents evidencing the medical treatment undergone by the noticee’s family member has been submitted and it is also submitted by the noticee that vide its letter dated August 29, 2004, the noticee requested for one month time to be personally present before the Investigating Authority in the matter.
9. Though it is noted that the noticee had requested for extension of time in response of summons dated August 23, 2004, no explanation has been provided for not appearing before the Investigating Authority on September 28, 2004 in response to summons dated September 17, 2004 issued by SEBI. Further the noticee had admitted receipt of the summons. In view of the same, the failure on the part of the noticee to appear before the Investigating Authority on September 28, 2004 has to be viewed seriously. In view of the same, it is concluded that the noticee failed to appear before the Investigating Authority on September 28, 2004 in response to summons issued to him on September 17, 2004.
10. Timely submission of information in the investigation proceedings is very important for concluding the proceedings in time that may be critical for investor confidence in the securities market. In this regard Section 11C(3) empowers the Investigating Authority to require any person associated with the securities market to furnish such information or produce such records as may be required by the authority. Further Section 11 C (5) of the SEBI Act empowers the Investigating Authority to examine on oath any such person and for that purpose may require any such person to appear before it personally. As the noticee failed to appear before the Investigating Authority the noticee violated the provisions mentioned above. In this regard the Honorable Securities Appellate Tribunal in Appeal No.95/04 in Mayfair Paper & Board Pvt. Ltd., Vs SEBI held that failure to furnish information to the Investigating Authority of SEBI shall attract the penalty prescribed under Section 15A of the SEBI Act.
11. In this regard Section 15A(a) of the SEBI Act reads as under: Penalty for failure to furnish information, return, etc.: If any person, who is required under this Act or any rules or regulations made thereunder 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 continues or one crore rupees, whichever is less. In view of the above provisions it is concluded that the noticee is liable to the penalty prescribed under Section 15 A (a) of SEBI Act.
12. As regards the allegation of aiding and abetting the promoters of RSL to offload the unlisted shares in the market and thereby violating provisions of Regulations 3 and 6(a) of FUTP Regulations, it is submitted by the noticee that it traded on behalf of its client Shri Jitendra R Shah and the details of the trading were submitted vide letter dated 21.6.2005, wherein it is submitted that 1400 shares were bought and 1300 shares were sold for the client. Though it is noted in the investigation report that the noticee had net deliverable position of 5800 shares through broker Parklight Investment Pvt. Ltd. and the shares were delivered from the demat account belonging to third parties namely Pradish Bhai, Sarabhai Shah and Anil Kantilal Shah, the noticee had confirmed vide his letter dated August 24, 2005 that there are no transactions on behalf of these entities and also the noticee does not know these entities. The noticee entered into the transactions of RSL on behalf of Dr. Jitendra R. Shah only. The noticee has submitted the following in this regard
a) As the shares were in demat mode, we were absolutely unaware that the shares were unlisted
b) Selling of 1200 shares and purchase of 1500 shares can not be construed as aiding and abetting to offload the shares
c) The client Jitendra R Shah is no way connected to RSL or its directors
13. It is contended by the noticee that its client is no way connected with RSL or its promoters. The trading details and the submissions made by the noticee indicate that the trades were executed as per the instructions of the client. Further it is not discernible from the facts of the case as to whether the noticee was aware of illegal practices such as trading in the scrip of unlisted shares by a group of entities. Further on perusal of the facts of the case and the evidence available on record, it is noted that no adverse inference can be drawn with regard to the manipulative role alleged to have been played by the noticee. In view of the same, it can not be concluded that the noticee has violated the provisions of Regulations 3 and 6(a) of FUTP Regulations, 1995. In this regard the Hon’ble Securities Appellate Tribunal in appeal number 282 / 2004 in the matter of Shrikant G. Mantri Vs SEBI, held that in an allegation of market manipulation involving client and the broker the nexus between the broker and the client has to be established. In the absence of any evidence indicating the collusion between the broker Doshi Stock Broking Pvt Ltd and the client, it is not possible to conclude on the basis of the available evidence that the broker had violated the provisions of Regulations 3 and 6(a) of FUTP Regulations.
14. As stated before, the failure on the part of the noticee to furnish necessary information to SEBI is established. In view of the same, the noticee is liable to a penalty prescribed under Section 15 A (a) of the SEBI Act.
15. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely;
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
c) the repetitive nature of the default
16. It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default. Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of the available facts and data. With regard to the repetitive nature of the default, it is noted that the noticee failed to appear before the Investigating Authority in response to the summons issued by the Investigating Authority on two occasions. The Investigating Authority had issued the summons to the noticee over a span of one month and the noticee failed to appear before the Investigating Authority in response to the said summons issued to him. However with regard to the first summons issued by SEBI, noticee requested for one month time stating that the noticee’s relative is undergoing medical treatment and therefore it is not in a position to appear before the Investigating Authority. Considering the said submissions, the Investigating Authority of SEBI issued another summons dated September 17 2004 requiring the noticee to appear before it on September 28, 2004. The noticee failed to appear before the Investigating Authority on the said date. However it is contended by the noticee that the said default also occurred due to illness of a close relative. Though it is noted that the default is repetitive in nature, however considering the particular facts and circumstances of the case, a lenient view is taken with regard to the penalty attracted in respect of the violation committed by Doshi Stock Broking Pvt. Ltd.
ORDER
17. Considering the facts and circumstances of the case though it is established that Doshi Stock Broking Pvt. Ltd. failed to appear before the Investigating Authority of SEBI in response to the summons issued by it, considering the submissions of Doshi Stock Broking Pvt. Ltd. that the same was due to illness of a close relative, a lenient view is taken with regard to the penalty. For the failure on the part of Doshi Stock Broking Pvt. Ltd. to appear before the Investigating Authority of SEBI and furnish necessary information to SEBI, in terms of the provisions of Section 15 A(a) of the SEBI Act, I , hereby impose a penalty of Rs.10,000/ (Ten Thousand) on Doshi Stock Broking Pvt. Ltd.
18. The penalty shall be paid by way of demand draft drawn 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 shall be forwarded to General Manager, Investigation Department (ID6), Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, First Floor, 224, Nariman Point, Mumbai -400 021.
19. In terms of the provisions 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 Doshi Stock Broking Pvt. Ltd. and to SEBI.
PLACE: MUMBAI BIJU. S
AUGUST 31, 2005 ADJUDICATING OFFICER