ADJUDICATION 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 SHRI. RAHUL KALRA.
1. Vide order dated September 30, 2004 issued by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) I was appointed as the Adjudicating Officer to inquire into and adjudge under Section 15I and Section 15 A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation of Section 11 C of the SEBI Act alleged to have been committed by Shri Rahul Kalra (hereinafter referred to as the noticee) by not complying with the summons issued by SEBI seeking information regarding his dealings in the scrip of Sun Infoways Ltd. (hereinafter referred to as SIL).
2. It is alleged that SEBI issued the following summons / letters dated December 20, 2001, July 30, 2002 and December 20, 2002 requiring the noticee to submit certain information in respect of his dealings in the scrip of SIL 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 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, adjudication proceedings were initiated against the noticee.
NOTICE AND REPLY
3. A notice no. A&E/BS/40024/2005 dated May 6, 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 for the violation alleged to have been committed by him.
4. The noticee vide his reply dated May 17, 2005 submitted the following
· The alleged failure on my part to appear before SEBI was not deliberate and I communicated my inability through my father. I could not appear before the investigating authority due to my sudden illness wherein I was suspected to have blood clot in the brain. Even my father produced all the documents to the concerned SEBI officer at SEBI guest house in Delhi.
· The last letter 20.12.2002 stated in the notice is not in my knowledge. As per my information and knowledge, I have not received any further notice to appear before SEBI.
5. Considering the above reply, it was felt that an inquiry may be conducted in the matter and the noticee was advised to attend the inquiry scheduled on June 15, 2005. The noticee attended the inquiry on June 15, 2005 and submitted that his father had personally met SEBI Officials at SEBI Guest House after receiving the summons from SEBI. He could not be present that time as he had some health problems pertaining to brain and was under medical treatment. As his father personally met SEBI investigating officials in the month of August / September 2002 at SEBI office, he presumed that his personal appearance was not necessary. As he was not well and had severe pain from head to neck, he was not in a position to travel anywhere.
CONSIDERATION OF EVIDENCE AND FINDINGS
6. The allegation against the noticee is that he failed to comply with the summons issued by SEBI. It is noted that SEBI issued summons / letter dated December 20, 2001 requiring the noticee to appear in person before the Investigating Officer on January 7, 2002.
7. It is alleged that subsequently, SEBI issued summons / letter dated July 30, 2002 requiring the noticee to appear in person before the Investigating Authority on August 10, 2002. In this regard it is noted from the submissions of the noticee that as he had some health problems, he was not in a position to travel and hence could not appear before the investigating authority. It is further submitted by the noticee that his father appeared before the investigating authority on August 10, 2002.
8. It is further noted that SEBI issued summons / letter dated December 20, 2002 requiring the noticee to appear in person before the Investigating Officer . However it is noted from the submissions of the noticee that he did not receive the notice. Further it is also noted that no material is available on record indicating that the noticee had received the same.
9. It is noted that at the relevant period of time the noticee was acting as a sub- broker of M.C.Jain. During the course of the investigation, prima facie it appeared to the investigating authority that Shri Rahul Kalra who was acting as a sub-broker in the name of M/s.Smart Growth Securities affiliated to M/s.N.C. Jain, Member BSE, assisted the client Shri Ashok Chaudhary to offload his shares in the market in an irregular manner. It is in connection with the above alleged dealings that, the investigating authority sought the presence of the noticee before it. In this regard it is pertinent to note that the noticee failed to appear before the investigating authority on January 7, 2002 in response to the summons dated December 20, 2001.
10. The noticee had stated that he could not appear before the Investigating Authority due to certain health problems. Certain documents evidencing the medical treatment undergone by the noticee has been submitted and it is also submitted by the noticee that his father had met SEBI officials at Delhi. Further it is noted that Shri Narinder kalra father of Shri Rahul Kalra had appeared before the Investigating Authority on the date and stated that his son Shri. Rahul Kalra is hospitalized in Jaipur and he will be informed about the subject matter of the summonses on his return and further the documents and details pertaining to Sun Infoways will be sent to SEBI Head Office, Mumbai. However it is noted from the evidence available on record that no such documents were forwarded to the investigating authority. Subsequently, though it is alleged that another summons dated December 20, 2002 was issued to Shri Rahul Kalra, as no proof of acknowledgement is provided and also in view of the fact that the noticee has disputed receipt of the same, it cannot be concluded that the said notice was received by the noticee.
11. As stated before, the noticee failed to appear before the investigating authority on two occasions. Though it is noted that Shri Narinder Kalra, father of Shri Rahul Kalra had appeared before the investigating authority in response to the second summons, no explanation has been provided for not appearing before the investigating authority on January 7, 2002 in response to the first summons dated December 20, 2001 issued by SEBI. Further it is also noted that the medical records produced by the noticee in support of his contention of being under medical treatment pertain to the period August 2002. In view of the same, it is concluded that the noticee failed to appeared before the investigating authority on January 7, 2002 in response to summons issued to him on December 20, 2001.
12. Timely submission of information in the investigation proceedings is very important for completing the proceedings on time that may be critical for investor confidence in the securities markets. In this regard Section 11C(3) empowers the investigating authority to require any person associated with securities market to furnish such information or produce such records as may be required by the authority. Further the investigating authority may examine on oath any such person and for that purpose may require any such person to appear before it personally. It is noted that by not appearing before the investigating authority the noticee violated the provisions mentioned above.
13. 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, (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 continues or one crore rupees, whichever is less”
14. It is pertinent to note that the above penalty was prescribed vide amendment to the provisions of Section 15 A(a) of the SEBI Act which came into effect on 29. 10. 2002. Prior to the said date, the penalty prescribed was one lakh and fifty thousand rupees for each such failure. As the failure on the part of the noticee occurred prior to the amendment on 29. 10. 2002, the penalty applicable in respect of the violation committed by the noticee is rupees one lakh and fifty thousand for each failure.
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 eight months and the noticee failed to appear before the investigating authority in response to the said summons issued to him. However with regard to the second summons issued by SEBI, noticee’s father appeared before the investigating authority stating that as the noticee is undergoing medical treatment he is not in a position to appear before the investigating authority. Considering the said fact, it cannot be concluded that the failure on the part of the noticee to appear before the investigating authority is repetitive in nature. Timely submission of information is very important in conducting investigation proceedings and non co-operation by an entity can be detrimental to the interest of investors and the securities market. 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 Shri. Rahul Kalra.
ORDER
17. Considering the facts and circumstances of the case though it is established that Shri Rahul Kalra failed to appear before the investigating authority of SEBI in response to the summons issued by it, considering the submissions of Shri Kalra that the same was due to health problems, a lenient view is taken with regard to the penalty. For the failure on the part of Shri Rahul Kalra 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 Shri. Rahul Kalra.
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 (ID.5), 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 Shri. Rahul Kalra and to SEBI.
PLACE: MUMBAI BIJU. S
AUGUST 16, 2005 ADJUDICATING OFFICER