ORDER OF THE ADJUDICATING OFFICER UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST ORBIT SECURITIES PVT. LTD., IN THE MATTER OF MONALISA INFOTECH LTD.
ADJ.ORDER No: ACR/86 OF 2005
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 for the alleged violation of Sec. 11C of Securities and Exchange Board of India Act, 1992 against Orbit Securities Pvt. Ltd. having its address at 1, Sheel Complex, Mayur Vihar, Navrangpura, Ahmedabad. For the sake of convenience, the said Orbit Securities Pvt. Ltd. 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 Monalisa Infotech Ltd. During the course of the said investigation, the investigating authority Shri P.K. Kuriachen required the noticee to furnish information with regard to the trading in the scrip of Monalisa Infotech Ltd by the noticee. The details of the said requisitions made by the investigating authority are summarized in the following paragraph No. 3.
3. The investigating authority of SEBI issued summons dated January 24, 2003, directing the noticee to appear in person on February 06, 2003 before the investigating authority at the Stock Exchange, Ahemedabad and to furnish the documents as per the annexure to the said summons. As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summons dated January 24, 2003 was sent by speed post - acknowledgement due and the same was received by the noticee. The noticee vide his letter dated February 06, 2003 requested the investigating authority to grant a further time of 7 days for compliance of summons as the director of the noticee was suffering from ill health. The investigating authority issued fresh summons on February 05, 2003 to the noticee, directing the noticee to appear in person on February 14, 2003 before the investigating authority at his office at Mumbai and to furnish the documents/ information as per the annexure to the said summons. The noticee vide its letter dated February 12, 2003 submitted that its director was advised to take bed rest by his doctor for 15 days and therefore, it was not possible for him to attend before the investigating authority and requested to give a fresh date after 20 days. In view of the said letter, the investigating authority issued a fresh summons on March 3, 2003 to the noticee, directing the noticee to appear in person on March 10, 2003 before the investigating authority and to furnish the documents/ information as per the annexure to the said summons. From an unauthenticated photocopy of the speed post acknowledgement card made available to me by SEBI, it is noticed that the said summons dated March 3, 2004 was received by the noticee. However, it is alleged that there was no compliance of the said summons by the noticee.
4. 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 it 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. From the postal acknowledgement received by my office, it was noticed that the aforesaid notice dated February 03, 2005 was received by the noticee. Since there was no reply to the said notice 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 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. Vide the said notice, it was advised that the noticee or his authorised representative / lawyer might 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 returned undelivered by the postal authorities with an endorsement “Left”. I therefore, vide my letter dated April 6, 2005 requested the Executive Director of the Ahmedabad Stock Exchange to serve the aforesaid notice of inquiry. The Executive Director of the Ahmedabad Stock Exchange, vide letter dated April 8, 2005 informed me that the messenger of the stock exchange went to the address mentioned in the notice of inquiry and found that the noticee shifted from the said address and the said messenger could not ascertain the new address of the noticee and therefore returned the notice of inquiry issued by me. In these circumstances, I issued a fresh notice of inquiry on July 11, 2005 and requested SEBI to ensure the service of notice on the noticee. SEBI in turn requested the Ahmedabad Stock Exchange to serve the notice of inquiry, on the noticee. Vide letter dated July 15, 2005, the Ahmedabad Stock Exchange informed SEBI that the notice of inquiry was served on the noticee and forwarded the acknowledgement obtained from the noticee. As per the notice of inquiry, the noticee was to appear for the inquiry on July 27, 2005 before me at my office at Mumbai.
5. However, July 27, 2005 was declared as a holiday by the Government of Maharashtra due to deluge in Mumbai. On July 29, 2005, Shri Deepak Shah, a company secretary in whole time practice appeared before me as the authorised representative of the noticee and requested me to take up the inquiry on the same day instead of issuing fresh notice of inquiry. I considered the request of the authorised representative of the noticee and decided to hold the inquiry on the same day.
6. The aforesaid authorised representative submitted on behalf of the noticee that (a) the management of the noticee was not aware of the seriousness of the case and therefore ignored the summons issued by the investigating authority; (b) the failure of the noticee was neither intentional nor in defiance of any law but only due to ignorance; (c) no undue advantage was gained by the noticee by not attending before the investigating authority; and (d) the noticee was wiling to extend all required cooperation to SEBI and is willing to produce required documents whichever are in its possession as and when required.
7. 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 requisition by the investigating authorities for the production of documents 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.
8. It was alleged by SEBI that the noticee failed to comply with the summons dated January 24, 2003, February 5, 2003 and March 03, 2003 issued by the investigating authority as mentioned above.
9. The noticee did not dispute the fact that the investigating authority of SEBI issued the summonses dated January 24, 2003, February 5, 2003 and March 03, 2003. Vide the aforesaid summonses the Investigating Authority directed the noticee to furnish the following information/ documents: (a) details of purchases and sales made by the noticee in the scrip of Monalisa Infotech Ltd., during the period from December 1, 1999 to December 31, 2000, such as transaction date, settlement number, exchange name, broker names, purchase/ sale quantity, price etc., (b) whether the noticee made any off market trades in the scrip of Monalisa Infotech Ltd., during the period from December 1, 1999 till December 31, 2000 and if so, details such as date of transaction, name of the person to whom the shares were sold/ purchased, quantity of shares and rate (c) copy of statement of account of beneficiary account (depositary account) evidencing receipt and delivery of shares of Monalisa Infotech Ltd., for the period from December 1, 1999 till December 31, 2000 and (d) copy of statement of account of bank evidencing payments made or received for the above transactions in the scrip of Monalisa Infotech Ltd., for the period from December 1, 1999 to December 31, 2000. However, the noticee never furnished the aforesaid information / documents to the Investigating Authority of SEBI. The reasons assigned by the authorised representative on behalf of the noticee at the time of the inquiry were considered by me and I find them untenable as the main claim of the noticee was ignorance of law.
10. I also noted that sufficient opportunity was given by the investigating authority to the noticee by issuing three summonses from time to time but the noticee failed to appear before the investigating authority. It is observed that the information sought by the investigating authority was very crucial information for the investigation of the price manipulation in the scrip of Monalisa Infotech Ltd. By its repeated failure to adhere to the summonses, the noticee hampered the process of investigation. In view of the above, I find that non-compliance with the summons issued by the investigating authority of SEBI by the noticee is established.
11. Since the failure to furnish the documents/ information before the investigating authority of SEBI by the noticee, in violation of Sec. 11C of Securities and Exchange Board of India Act, 1992 is established, the quantum of penalty has to be decided by me.
12. 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.
13. 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.
14. 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. Whereas the repetitive nature of the default is concerned, it is observed that the investigating authority issued three summonses and the noticee failed to comply with the same before the investigating authority in all three occasions. This shows that the default is of repetitive nature.
15. 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). 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.
16. Further, in my view the undertaking of the noticee to cooperate with SEBI in future should be seen from a positive angle and it is a relevant factor in deciding the quantum of penalty.
ORDER
20. 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.30000/- (Rupees Thirty Thousand only) on Orbit Securities Pvt. Ltd. In my view the said amount is proportionate to the default of the noticee. 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 P. K. Nagpal, Chief General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai-400021.
21. 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.
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Place: Mumbai
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A. Chandra Sekhar Rao
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Date: August 30, 2005
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Adjudicating Officer
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