ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 FOR ALLEGED VIOLATION OF SECTION 15A OF THE SEBI ACT, 1992 BY M/s ESQUIRE MONEY GUARANTEE LIMITED.
1.0 BACKGROUND:
1.1 M/s Esquire Money Guarantee Limited (hereinafter referred to as EMGL) was incorporated as public limited company on July 24, 1985 in the state of Maharashtra in the name of Stallion Trade and Finance Limited. The name of the company was changed to EMGL on July 6, 1994 with the core business of dealing in shares and securities. In year 2000 the company allotted 980000 equity shares @ Rs.10/- each at a premium of Rs.40/- per share on a preferential basis to bodies corporate on March 28, 2000 vide resolution passed at the EGOM on March 13, 2000. Due to non-submission of some related documents and information the said issue was not listed and is still pending with the exchange.
1.2 Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigation into the alleged manipulation in the shares of EMGL and into the possible violation of the provisions SEBI Act, 1992. The case was initiated on the basis of investigation report submitted by The Stock Exchange Mumbai Ltd.(BSE). It was observed that the scrip of EMGL was scarcely traded scrip as the total volume during the period under investigation (January 9, 2003 to February 19, 2003) was only 2900 shares. The scrip also witnessed a sharp decline in the price from Rs.28.05 to Rs.6.05. BSE in its investigation report observed certain instances of circular transaction between the trading members M/s Jitendra Harjivandas Securities Pvt. Ltd and M/s Harkishan Hiralal and imposed a fine of Rs.25000/- each on these two members. Accordingly, vide office order dated November 11, 2003 the case of EMGL was taken up for formal investigation by SEBI.
1.3 During the investigation, vide letter dated August 8, 2003 EMGL was asked to submit details. It is alleged that after a long correspondence with the company the required details were submitted by EMGL vide its letter dated November 5, 2003. To resolve some of the queries, summons dated December 17, 2003
was issued to EMGL to appear in person along with certain document detailed in Annexure-A to the said summons, before the investigating authority on December 23, 2003 but the same was returned undelivered. Fresh summons was issued at the World Trade Centre Address of EMGL which were acknowledged by the representative of EMGL on December 20, 2003 but no one appeared before the investigating authority. This non compliance was prima facie found to be in violation of Sec. 15A(a) of the SEBI Act.
1.4 Therefore, SEBI vide its order dated February 10, 2004, issued under Rule 3 of SEBI (Procedure for Holding Enquiry and Imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Adjudicating Rules’), appointed Shri J. Ranganayakulu (hereinafter referred to as “The erstwhile Adjudicating Officer”) to enquire into and adjudicate upon the alleged violation of Section 15(A)(a) of SEBI Act by EMGL.
2.0 SHOW CAUSE NOTICE AND REPLY:
2.1 The erstwhile Adjudicating Officer issued a show cause notice dated May 07, 2004 to EMGL mentioning in detail, the charges levied against EMGL and advising EMGL to show cause under Rule 4 of Adjudicating Rules as to why an enquiry should not be held against it and penalty prescribed under Section 15A(a) should not be imposed against it. EMGL replied to the said show cause notice vide its letter dated May 28, 2004 wherein it was stated that the directors of the company normally go out of station during the months of May and June and were expected in June end. In the circumstances EMGL requested the erstwhile Adjudicating Officer to adjourn the case for sometime during the first or second week of July, 2004 to enable the company to produce all the details called for and also explain the matter in person.
2.2 In the meanwhile, due to administrative reasons, vide order dated November 25, 2004 the case was transferred to the undersigned and the undersigned was appointed Adjudicating Officer. It was clarified in the said order that except the change of Adjudicating Officer, the other terms and conditions of the original order, appointing Shri J.Ranganayakulu as the Adjudicating Officer, shall remain unchanged. As per the order, the undersigned was to proceed and deal with the case from the stage which was reached before such transfer or from any earlier stage as may deemed fit by the undersigned to complete the Adjudication in accordance with the terms of reference made in the original order read with present order.
2.3 Having considered the charges levied and the reply submitted by EMGL available on the records, the undersigned was of the view that the enquiry should be held in the matter. Therefore, while adopting the charges levied in show cause notice May 07, 2004 issued by erstwhile Adjudicating Officer and treating said show cause notice as part and parcel of the present proceedings, the undersigned issued a notice dated September 30, 2005 to EMGL in terms of Rule 4 of the Adjudicating Rules, fixing a date of personal appearance of EMGL on October 27, 2005. EMGL was given the liberty to appear either in person or through duly authorised advocate or other representative. It was also given the liberty, if it so chose, to make additional submissions relevant to the case. The said notice was duly served upon EMGL and was acknowledged by their Office bearer Shri. Haresh A Patel.
2.4 On the date fixed however, neither anybody appeared nor was any adjournment sought by EMGL. In light of the aforesaid facts and circumstances, in adherence to the principles of natural justice, vide another notice dated October 28, 2005 EMGL was given another opportunity of personal hearing before the undersigned on November 22, 2005.
2.5 EMGL vide its letter dated November 21, 2005 interalia submitted that the directors of the company were away from Mumbai. It also stated that the records of the company relate back to March, 2000 and therefore, the various details dating back to five and half years would have to be traced. On aforesaid grounds EMGL requested to fix the hearing during the last week of December, 2005 or first week of January, 2006 to enable it to make effective representation.
2.6 Accordingly, vide letter dated December 2, 2005 EMGL was informed that the date of personal hearing was rescheduled for the third time to December 27, 2005. EMGL however again vide its letter dated December 26, 2005 stated that during the period commencing from December 23, 2005 till January 14, 2006 the directors and others had gone out of station and therefore, none was available. So, it requested to re-fix and reschedule the hearing on or after January 16, 2006.
2.7 Accordingly, for the fourth time, vide letter dated December 30, 2005 EMGL was informed that the personal hearing has been fixed on January 17, 2006. It was also informed to EMGL that this was the last and final opportunity and in case they do not appear on the said date, the matter shall be proceeded with ex-parte. However, EMGL vide its letter dated January 16, 2006 submitted that in the absence of the report of the investigation and the prima- facie findings, they were unable to appear before the undersigned to effectively deal with the matter. In these circumstances, having left with no other option, I decided to proceed in the matter ex-parte on the basis of the available records.
3.0 CONSIDERATION OF ISSUES AND FINDINGS:
3.1 I have carefully considered the investigation report, the summons issued by the investigating officer, show cause notices, the replies and the submissions forwarded by the company.
3.2 I note that having avoided appearance before the Investigating Officer as well as in the Adjudicating Proceedings for about 2 years, EMGL vide its reply dated November 21, 2005 took up the stand that on November 5, 2003 all the information required by the General Manager, Investigation Department, SEBI were forwarded and filed with him including the information in the matter of allotment of 9.8 lakh shares of Rs. 10/- each at premium of Rs. 40/- per share on a preferential basis on March 28, 2000.
3.3 In this regard, I am of the view that it is a question of subjective satisfaction of the Investigating Officer and it appears from the records that having received the details submitted by EMGL vide letter dated November 05, 2004, the Investigating Officer desired to get some clarifications as well as information and that is why the noticee was called upon to appear in person. As the information needed to be submitted to the Investigating Officer to his satisfaction, I am not very much concerned as to what information and/or documents were required to be submitted. What I am required to find out is as to whether the noticee complied with the summons or not. Considering the matter from this angle, on the principles of “res ipsa loquitur”, I have no hesitation in holding that EMGL has miserably failed to abide by legal requirements and thus violated Section 15A(a) of SEBI Act.
3.4 Without prejudice to the aforesaid, I note that it was observed in the Investigation Report that there were instances of circular trading and sharp decline in the prices of EMGL scrip from Rs.28.05 to Rs.6.05. This development led SEBI to conduct the investigation and find out the violations of the statutory requirements including the manipulation, if any, by the concerned entities including the company and persons related with it. From the above stated facts it is clear that EMGL was not co-operating with the investigations and always adopted dilatory tactics in responding to the queries raised by SEBI. Though the details asked vide letter dated August 08, 2003 were submitted, but the same were submitted only in November 2003, after much follow up from SEBI. Further, the Investigating authority issued summons to EMGL on December 17, 2003 requiring it to appear on December 23, 2003 with a direction interalia to produce all the desired documents / details. However, the company failed to appear and submit the required documents before the Investigating Authority on the said date, even after receiving the summons.
3.5 During Adjudicating proceedings also the conduct of the company was far from satisfactory and it is evident from the various correspondence entered into during the proceedings that the company was never interested in cooperating with the proceedings and used all possible excuses and tried every bit to avoid its representation/appearance.
3.6 The callous attitude of the company can be witnessed from the fact that pursuant to the show cause notice dated May 07, 2004 issued by erstwhile Adjudicating Officer, the company vide its letter dated May 28, 2004 submitted that its directors were away and out of station and requested to adjourn the case till some times during the first or second week of July, 2004.
3.7 During the proceedings before me also, neither the company appeared on October 27, 2005, the first date fixed for the said purpose, nor requested for any adjournment. When second opportunity was given on November 22, 2005 and the same was communicated to company vide letter dated October 28, 2005 (received by the company on October 31, 2005), the company again avoided appearance by submitting a letter on November 21, 2005, just a day prior to the scheduled hearing, again informing that the directors of the company were away from Mumbai and requested to fix the hearing during the last week of December, 2005 or first week of January, 2006 in order to accord them, to quote from their letter, not illusory, ritual or idle opportunity but real, reasonable, fair, proper, adequate, sufficient, complete and effective opportunity.
3.8 This request was also acceded to and vide letter dated December 02, 2005, received by the company on December 05, 2005, the hearing was fixed for the Third time on December 27, 2005. Here again, the company waited till December 26, 2005 and just one day prior to the date of the scheduled hearing again requested for the adjournment on the ground that the directors and others (?) have again gone out of station from December 23, 2005 till January 14, 2006 due to Christmas and New Year. It was again stated that in view of the principles of substantial/natural justice and also the due process of law, the company hopes that the hearing would be re-fixed and rescheduled on or after January 16, 2006.
3.9 Accordingly, as requested by the company, vide another letter dated December 30, 2005, received by the company on January 03, 2006, Fourth hearing was fixed on January 17, 2006. This time the company came out with new excuse and again just one day prior to the date scheduled for hearing, vide its letter dated January 16, 2006 submitted that in the absence of the report of the investigation and the prima- facie findings, they were unable to appear before the undersigned to effectively deal with the matter.
3.10 Vide this letter dated January 16, 2006, for the first time, the company came out with novel excuse and tried to create doubt on the very basis of the present Adjudicating Proceedings by submitting that summons dated December 17, 2003 was not received by them and stated that it had thoroughly checked its record and it did not receive any summons dated December 17, 2003. It further stated that had it been served, the company would have certainly complied with the summons either appearing in person or submitting the details called for or asking for adjournment.
3.11 The fallacy of this submission will be quite apparent if one sees the events as they have unfolded so far. Had the company been so innocent, naive and law abiding, immediately after receipt of show cause notice in the present proceedings for the first time on May 07, 2004, the company should have promptly approached SEBI and would have sought to clear the doubts, if any, in the mind of SEBI, by submitting that the summons which are the basis of these proceedings, were never received by it. I however note that as the summons were duly received, company did not take this plea and while seeking adjournment before the erstwhile Adjudicating Officer and admitting its default vide its letter dated May 28, 2004 and submitted that “Circumstances beyond our control results in unavoidable delay in complying with the letters and summons”. If the summons were not served, EMGL should have genuinely raised this objection at the very first available occasion in May 2004 itself.
3.12 In this regard it would be pertinent to mention that both, the summons dated December 17, 2003 issued by the investigating officer as well as the show cause notice dated May 07, 2004 issued by the erstwhile Adjudicating Officer, were duly received and acknowledged by the same representative of the company (Ms. Manisha). The delivery sheet of the courier company, available on records, clearly shows that the summons dated December 17, 2003 was acknowledged by Ms. Manisha on December 20, 2002 and show cause notice dated May 07, 2004 was acknowledged by Ms. Manisha on May 10, 2004. This show cause notice dated May 07, 2004 was replied also by EGML vide its letter dated May 28, 2004. If the same representative of the company acknowledges both the letters, it would not be open to the company to say that it received the one and not the other. Undoubtedly, the plea of non-receipt of summons dated December 17, 2003 was taken up for the first time in January 16, 2006 for no other purpose but to frustrate the proceedings.
3.13 It is apparent from the records that EMGL tried all its bits to install and avoid any progress in the matter, including the present proceedings, before SEBI. The idea of the company appeared to be was that it, with its dilatory tactics, would frustrate the proceedings and would force SEBI to pass ex-parte orders. It perhaps thought that once ex-party order is passed, it would make hue and cry on the violation of ‘principles of natural justice’, which, if various replies filed by them in the present proceedings and are quoted herein, are any indication, they have mastered, and would get the order so passed, set aside by the appellate forums. This scheme got frustrated as I allowed all the adjournments sought by them which exposed them and forced the company to show its true color in its last reply dated January 16, 2006 wherein having left with no other option, it refused to appear in the Adjudicating Proceedings on the excuse of not supply of the investigation report and prima- facie findings. Here again, they fumbled in achieving their goal of frustrating the proceedings as it is very clear that the present proceedings are not based on any findings pursuant to any Investigation but are based on their non-cooperation and non compliance of summons which stalled the investigation to be carried out by SEBI. In fact there is no other material to be relied upon by SEBI except the copies of summons issued to the company, as SEBI could not complete the sensitive investigation on possible market manipulation of the scrip of the company due to non-cooperation and non-compliance of summons by the company.
3.14 In this regard I wish to rely upon the judgment of the Hon’ble Securities Appellate Tribunal (SAT) in Appeal no.114/2005-Nokia Finance International Finance Pvt. Ltd. Vs. SEBI (date of decision-20/09/05)) wherein while upholding the imposition of penalty of Rs. 18 lacs on the similar violation, SAT inter alia observed :
“ 11. We have carefully considered the documents submitted by the appellant and respondent, and also heard the learned counsels on both sides. We are of the opinion that the appellant did not supply necessary information and documents as sought by the respondent in response to the three summons issued to him. He also did not supply the necessary information in his personal hearing before the Enquiry and Adjudicating Officer………..”
“12. ………The appellant could have availed the opportunity of submitting the required information and come clean, but he failed to do so. We, therefore, feel that there is no violation of natural justice in this particular case and the penalty has been imposed as per the regulations. The impugned order indicated that various factors to be reckoned under Section 15 J of the SEBI Act, 1992 were duly considered before deciding on the quantum of penalty imposed. In view of the fact that appellant has failed to give necessary information to the respondent for conducting investigation into a very serious irregularity in the market, we are inclined to uphold the impugned order and dismiss the appeal.”
3.15 In my view the above mentioned judgment of SAT is squarely applicable in the present case. The only difference being the number of summons issued by SEBI. This however would be not of much relevance as long as it is proved that the summons dated December 17, 2003 was served upon the company and company dragged the matter till 2006 and never appeared or submitted the information to SEBI, to enable it to complete the investigation. I therefore, have no hesitation in holding that the non-cooperative attitude of EMGL had hampered the investigation of SEBI. By not complying with the summons EMGL has shown non-seriousness towards the investigation done by the market regulator. I am of the view that such conduct, if not handled firmly with strict penalty, would give wrong signals to the market and set a bad precedent of encouraging indiscipline and non-compliance of the instructions /requirements/summons of the market regulator. It may not be out of place to refer to the findings of investigation report (Para 1.1 supra) that the EMGL did not submit the required information and documents to BSE also and that is why its shares allotted in the Preferential issue could not get listed. This shows that EMGL was habitually ignoring and avoiding the submission of necessary information to all authorities giving rise to suspicion of large scale violations of statutory requirements.
3.16 I also note that Section 15A (a) provided that if any person fails 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, which ever is less. In the present case, the information was required to be submitted by December 23, 2003. Though no information was ever submitted by EMGL pursuant to the said summons, taking a very conservative and restrictive view which may not be followed in other cases, I would take February 10, 2004 as cut off date for non compliance of the summons, on which date the Board initiated Adjudicating Proceedings by appointing the Adjudicating Officer in the matter. This comes out to be 48 days, which makes EMGL liable to a penalty of Rs. 48 Lacs.
3.17 I am of the view that the purpose of the penalty is not only to punish the present defaulter, but also to give clear message to the other potential defaulters so that the penalty imposed may act as deterrent on others and they may take market regulator seriously and with due respect. In an advanced and well regulated securities market, it should be the endeavor of all participants to act diligently, sincerely, honestly for the overall development of the securities market and the national economy. This will happen only if an atmosphere is created by all concerned, where a small investor may feel at home and have confidence that while law abiders would be encouraged, the avoiders would be taken to task firmly. At the same time, the difference in a habitual offender/violator and the one who is not so habitual, has to be maintained and whereas no leniency should be extended to the first category by imposing the maximum punishment/penalty, some lenient view may be taken for the persons falling in the second category.
3.18 I note that the Parliament while enacting/amending SEBI Act in 2002 has intentionally provided higher penalties as it was conscious of the fact that SEBI Act being Special enactment needs special treatment against its violators. While providing the higher penalties, the Parliament has enacted Section 15J in the Act to guide the Adjudicating Officers, as for as possible and practicable, to determine quantum of penalty.
3.19 Considering the factors to be taken into account, as given under Section 15J, I note that there is no material available on record which may be used to calculate the amount of disproportionate gain or unfair advantage, made as a result of default. Similarly, the loss caused to investors can also not be quantified, as SEBI could not arrive at any finding against EMGL because of its non-cooperative attitude. So far as repetitive nature of the default, I note that not only the summons dated December 17, 2003 was not complied with by the company, it delayed, avoided and refused to appear during the Adjudicating Proceedings also inspite of 5 opportunities given to it. EGML could have availed the opportunities of personal hearing, defend itself and come clean, but it deliberately, refused to do so.
3.20 Therefore on the overall facts and circumstances of the present case, I am of the considerate view that one fourth of the maximum penalty which could be levied in the present matter for 48 days delay, would serve the ends of justice as also would give a chance to the noticee to mend its ways and reform itself in future.
4.0 ORDER:
4.1 Therefore, in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, I hereby impose a penalty of Rs. 12,00,000 (Rupees Twelve Lacs only) on M/s Esquire Money Guarantees Ltd., for the reasons discussed above.
4.2The company 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 the Shri P.K.Nagpal, Chief General Manager, Investigation Department, SEBI Bhavan, Plot No. C4-A, “G” Block, Bandra-Kurla Complex,Bandra (E), Mumbai- 400 051.
Date : December 28, 2006 PRAVEEN TRIVEDI
Place : Mumbai ADJUDICATING OFFICER
1.4 Therefore, SEBI vide its order dated February 10, 2004, issued under Rule 3 of SEBI (Procedure for Holding Enquiry and Imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Adjudicating Rules’), appointed Shri J. Ranganayakulu (hereinafter referred to as “The erstwhile Adjudicating Officer”) to enquire into and adjudicate upon the alleged violation of Section 15(A)(a) of SEBI Act by EMGL.
2.0 SHOW CAUSE NOTICE AND REPLY:
2.1 The erstwhile Adjudicating Officer issued a show cause notice dated May 07, 2004 to EMGL mentioning in detail, the charges levied against EMGL and advising EMGL to show cause under Rule 4 of Adjudicating Rules as to why an enquiry should not be held against it and penalty prescribed under Section 15A(a) should not be imposed against it. EMGL replied to the said show cause notice vide its letter dated May 28, 2004 wherein it was stated that the directors of the company normally go out of station during the months of May and June and were expected in June end. In the circumstances EMGL requested the erstwhile Adjudicating Officer to adjourn the case for sometime during the first or second week of July, 2004 to enable the company to produce all the details called for and also explain the matter in person.
2.2 In the meanwhile, due to administrative reasons, vide order dated November 25, 2004 the case was transferred to the undersigned and the undersigned was appointed Adjudicating Officer. It was clarified in the said order that except the change of Adjudicating Officer, the other terms and conditions of the original order, appointing Shri J.Ranganayakulu as the Adjudicating Officer, shall remain unchanged. As per the order, the undersigned was to proceed and deal with the case from the stage which was reached before such transfer or from any earlier stage as may deemed fit by the undersigned to complete the Adjudication in accordance with the terms of reference made in the original order read with present order.
2.3 Having considered the charges levied and the reply submitted by EMGL available on the records, the undersigned was of the view that the enquiry should be held in the matter. Therefore, while adopting the charges levied in show cause notice May 07, 2004 issued by erstwhile Adjudicating Officer and treating said show cause notice as part and parcel of the present proceedings, the undersigned issued a notice dated September 30, 2005 to EMGL in terms of Rule 4 of the Adjudicating Rules, fixing a date of personal appearance of EMGL on October 27, 2005. EMGL was given the liberty to appear either in person or through duly authorised advocate or other representative. It was also given the liberty, if it so chose, to make additional submissions relevant to the case. The said notice was duly served upon EMGL and was acknowledged by their Office bearer Shri. Haresh A Patel.
2.4 On the date fixed however, neither anybody appeared nor was any adjournment sought by EMGL. In light of the aforesaid facts and circumstances, in adherence to the principles of natural justice, vide another notice dated October 28, 2005 EMGL was given another opportunity of personal hearing before the undersigned on November 22, 2005.
2.5 EMGL vide its letter dated November 21, 2005 interalia submitted that the directors of the company were away from Mumbai. It also stated that the records of the company relate back to March, 2000 and therefore, the various details dating back to five and half years would have to be traced. On aforesaid grounds EMGL requested to fix the hearing during the last week of December, 2005 or first week of January, 2006 to enable it to make effective representation.
2.6 Accordingly, vide letter dated December 2, 2005 EMGL was informed that the date of personal hearing was rescheduled for the third time to December 27, 2005. EMGL however again vide its letter dated December 26, 2005 stated that during the period commencing from December 23, 2005 till January 14, 2006 the directors and others had gone out of station and therefore, none was available. So, it requested to re-fix and reschedule the hearing on or after January 16, 2006.
2.7 Accordingly, for the fourth time, vide letter dated December 30, 2005 EMGL was informed that the personal hearing has been fixed on January 17, 2006. It was also informed to EMGL that this was the last and final opportunity and in case they do not appear on the said date, the matter shall be proceeded with ex-parte. However, EMGL vide its letter dated January 16, 2006 submitted that in the absence of the report of the investigation and the prima- facie findings, they were unable to appear before the undersigned to effectively deal with the matter. In these circumstances, having left with no other option, I decided to proceed in the matter ex-parte on the basis of the available records.
3.0 CONSIDERATION OF ISSUES AND FINDINGS:
3.1 I have carefully considered the investigation report, the summons issued by the investigating officer, show cause notices, the replies and the submissions forwarded by the company.
3.2 I note that having avoided appearance before the Investigating Officer as well as in the Adjudicating Proceedings for about 2 years, EMGL vide its reply dated November 21, 2005 took up the stand that on November 5, 2003 all the information required by the General Manager, Investigation Department, SEBI were forwarded and filed with him including the information in the matter of allotment of 9.8 lakh shares of Rs. 10/- each at premium of Rs. 40/- per share on a preferential basis on March 28, 2000.
3.3 In this regard, I am of the view that it is a question of subjective satisfaction of the Investigating Officer and it appears from the records that having received the details submitted by EMGL vide letter dated November 05, 2004, the Investigating Officer desired to get some clarifications as well as information and that is why the noticee was called upon to appear in person. As the information needed to be submitted to the Investigating Officer to his satisfaction, I am not very much concerned as to what information and/or documents were required to be submitted. What I am required to find out is as to whether the noticee complied with the summons or not. Considering the matter from this angle, on the principles of “res ipsa loquitur”, I have no hesitation in holding that EMGL has miserably failed to abide by legal requirements and thus violated Section 15A(a) of SEBI Act.
3.4 Without prejudice to the aforesaid, I note that it was observed in the Investigation Report that there were instances of circular trading and sharp decline in the prices of EMGL scrip from Rs.28.05 to Rs.6.05. This development led SEBI to conduct the investigation and find out the violations of the statutory requirements including the manipulation, if any, by the concerned entities including the company and persons related with it. From the above stated facts it is clear that EMGL was not co-operating with the investigations and always adopted dilatory tactics in responding to the queries raised by SEBI. Though the details asked vide letter dated August 08, 2003 were submitted, but the same were submitted only in November 2003, after much follow up from SEBI. Further, the Investigating authority issued summons to EMGL on December 17, 2003 requiring it to appear on December 23, 2003 with a direction interalia to produce all the desired documents / details. However, the company failed to appear and submit the required documents before the Investigating Authority on the said date, even after receiving the summons.
3.5 During Adjudicating proceedings also the conduct of the company was far from satisfactory and it is evident from the various correspondence entered into during the proceedings that the company was never interested in cooperating with the proceedings and used all possible excuses and tried every bit to avoid its representation/appearance.
3.6 The callous attitude of the company can be witnessed from the fact that pursuant to the show cause notice dated May 07, 2004 issued by erstwhile Adjudicating Officer, the company vide its letter dated May 28, 2004 submitted that its directors were away and out of station and requested to adjourn the case till some times during the first or second week of July, 2004.
3.7 During the proceedings before me also, neither the company appeared on October 27, 2005, the first date fixed for the said purpose, nor requested for any adjournment. When second opportunity was given on November 22, 2005 and the same was communicated to company vide letter dated October 28, 2005 (received by the company on October 31, 2005), the company again avoided appearance by submitting a letter on November 21, 2005, just a day prior to the scheduled hearing, again informing that the directors of the company were away from Mumbai and requested to fix the hearing during the last week of December, 2005 or first week of January, 2006 in order to accord them, to quote from their letter, not illusory, ritual or idle opportunity but real, reasonable, fair, proper, adequate, sufficient, complete and effective opportunity.
3.8 This request was also acceded to and vide letter dated December 02, 2005, received by the company on December 05, 2005, the hearing was fixed for the Third time on December 27, 2005. Here again, the company waited till December 26, 2005 and just one day prior to the date of the scheduled hearing again requested for the adjournment on the ground that the directors and others (?) have again gone out of station from December 23, 2005 till January 14, 2006 due to Christmas and New Year. It was again stated that in view of the principles of substantial/natural justice and also the due process of law, the company hopes that the hearing would be re-fixed and rescheduled on or after January 16, 2006.
3.9 Accordingly, as requested by the company, vide another letter dated December 30, 2005, received by the company on January 03, 2006, Fourth hearing was fixed on January 17, 2006. This time the company came out with new excuse and again just one day prior to the date scheduled for hearing, vide its letter dated January 16, 2006 submitted that in the absence of the report of the investigation and the prima- facie findings, they were unable to appear before the undersigned to effectively deal with the matter.
3.10 Vide this letter dated January 16, 2006, for the first time, the company came out with novel excuse and tried to create doubt on the very basis of the present Adjudicating Proceedings by submitting that summons dated December 17, 2003 was not received by them and stated that it had thoroughly checked its record and it did not receive any summons dated December 17, 2003. It further stated that had it been served, the company would have certainly complied with the summons either appearing in person or submitting the details called for or asking for adjournment.
3.11 The fallacy of this submission will be quite apparent if one sees the events as they have unfolded so far. Had the company been so innocent, naive and law abiding, immediately after receipt of show cause notice in the present proceedings for the first time on May 07, 2004, the company should have promptly approached SEBI and would have sought to clear the doubts, if any, in the mind of SEBI, by submitting that the summons which are the basis of these proceedings, were never received by it. I however note that as the summons were duly received, company did not take this plea and while seeking adjournment before the erstwhile Adjudicating Officer and admitting its default vide its letter dated May 28, 2004 and submitted that “Circumstances beyond our control results in unavoidable delay in complying with the letters and summons”. If the summons were not served, EMGL should have genuinely raised this objection at the very first available occasion in May 2004 itself.
3.12 In this regard it would be pertinent to mention that both, the summons dated December 17, 2003 issued by the investigating officer as well as the show cause notice dated May 07, 2004 issued by the erstwhile Adjudicating Officer, were duly received and acknowledged by the same representative of the company (Ms. Manisha). The delivery sheet of the courier company, available on records, clearly shows that the summons dated December 17, 2003 was acknowledged by Ms. Manisha on December 20, 2002 and show cause notice dated May 07, 2004 was acknowledged by Ms. Manisha on May 10, 2004. This show cause notice dated May 07, 2004 was replied also by EGML vide its letter dated May 28, 2004. If the same representative of the company acknowledges both the letters, it would not be open to the company to say that it received the one and not the other. Undoubtedly, the plea of non-receipt of summons dated December 17, 2003 was taken up for the first time in January 16, 2006 for no other purpose but to frustrate the proceedings.
3.13 It is apparent from the records that EMGL tried all its bits to install and avoid any progress in the matter, including the present proceedings, before SEBI. The idea of the company appeared to be was that it, with its dilatory tactics, would frustrate the proceedings and would force SEBI to pass ex-parte orders. It perhaps thought that once ex-party order is passed, it would make hue and cry on the violation of ‘principles of natural justice’, which, if various replies filed by them in the present proceedings and are quoted herein, are any indication, they have mastered, and would get the order so passed, set aside by the appellate forums. This scheme got frustrated as I allowed all the adjournments sought by them which exposed them and forced the company to show its true color in its last reply dated January 16, 2006 wherein having left with no other option, it refused to appear in the Adjudicating Proceedings on the excuse of not supply of the investigation report and prima- facie findings. Here again, they fumbled in achieving their goal of frustrating the proceedings as it is very clear that the present proceedings are not based on any findings pursuant to any Investigation but are based on their non-cooperation and non compliance of summons which stalled the investigation to be carried out by SEBI. In fact there is no other material to be relied upon by SEBI except the copies of summons issued to the company, as SEBI could not complete the sensitive investigation on possible market manipulation of the scrip of the company due to non-cooperation and non-compliance of summons by the company.
3.14 In this regard I wish to rely upon the judgment of the Hon’ble Securities Appellate Tribunal (SAT) in Appeal no.114/2005-Nokia Finance International Finance Pvt. Ltd. Vs. SEBI (date of decision-20/09/05)) wherein while upholding the imposition of penalty of Rs. 18 lacs on the similar violation, SAT inter alia observed :
“ 11. We have carefully considered the documents submitted by the appellant and respondent, and also heard the learned counsels on both sides. We are of the opinion that the appellant did not supply necessary information and documents as sought by the respondent in response to the three summons issued to him. He also did not supply the necessary information in his personal hearing before the Enquiry and Adjudicating Officer………..”
“12. ………The appellant could have availed the opportunity of submitting the required information and come clean, but he failed to do so. We, therefore, feel that there is no violation of natural justice in this particular case and the penalty has been imposed as per the regulations. The impugned order indicated that various factors to be reckoned under Section 15 J of the SEBI Act, 1992 were duly considered before deciding on the quantum of penalty imposed. In view of the fact that appellant has failed to give necessary information to the respondent for conducting investigation into a very serious irregularity in the market, we are inclined to uphold the impugned order and dismiss the appeal.”
3.15 In my view the above mentioned judgment of SAT is squarely applicable in the present case. The only difference being the number of summons issued by SEBI. This however would be not of much relevance as long as it is proved that the summons dated December 17, 2003 was served upon the company and company dragged the matter till 2006 and never appeared or submitted the information to SEBI, to enable it to complete the investigation. I therefore, have no hesitation in holding that the non-cooperative attitude of EMGL had hampered the investigation of SEBI. By not complying with the summons EMGL has shown non-seriousness towards the investigation done by the market regulator. I am of the view that such conduct, if not handled firmly with strict penalty, would give wrong signals to the market and set a bad precedent of encouraging indiscipline and non-compliance of the instructions /requirements/summons of the market regulator. It may not be out of place to refer to the findings of investigation report (Para 1.1 supra) that the EMGL did not submit the required information and documents to BSE also and that is why its shares allotted in the Preferential issue could not get listed. This shows that EMGL was habitually ignoring and avoiding the submission of necessary information to all authorities giving rise to suspicion of large scale violations of statutory requirements.
3.16 I also note that Section 15A (a) provided that if any person fails 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, which ever is less. In the present case, the information was required to be submitted by December 23, 2003. Though no information was ever submitted by EMGL pursuant to the said summons, taking a very conservative and restrictive view which may not be followed in other cases, I would take February 10, 2004 as cut off date for non compliance of the summons, on which date the Board initiated Adjudicating Proceedings by appointing the Adjudicating Officer in the matter. This comes out to be 48 days, which makes EMGL liable to a penalty of Rs. 48 Lacs.
3.17 I am of the view that the purpose of the penalty is not only to punish the present defaulter, but also to give clear message to the other potential defaulters so that the penalty imposed may act as deterrent on others and they may take market regulator seriously and with due respect. In an advanced and well regulated securities market, it should be the endeavor of all participants to act diligently, sincerely, honestly for the overall development of the securities market and the national economy. This will happen only if an atmosphere is created by all concerned, where a small investor may feel at home and have confidence that while law abiders would be encouraged, the avoiders would be taken to task firmly. At the same time, the difference in a habitual offender/violator and the one who is not so habitual, has to be maintained and whereas no leniency should be extended to the first category by imposing the maximum punishment/penalty, some lenient view may be taken for the persons falling in the second category.
3.18 I note that the Parliament while enacting/amending SEBI Act in 2002 has intentionally provided higher penalties as it was conscious of the fact that SEBI Act being Special enactment needs special treatment against its violators. While providing the higher penalties, the Parliament has enacted Section 15J in the Act to guide the Adjudicating Officers, as for as possible and practicable, to determine quantum of penalty.
3.19 Considering the factors to be taken into account, as given under Section 15J, I note that there is no material available on record which may be used to calculate the amount of disproportionate gain or unfair advantage, made as a result of default. Similarly, the loss caused to investors can also not be quantified, as SEBI could not arrive at any finding against EMGL because of its non-cooperative attitude. So far as repetitive nature of the default, I note that not only the summons dated December 17, 2003 was not complied with by the company, it delayed, avoided and refused to appear during the Adjudicating Proceedings also inspite of 5 opportunities given to it. EGML could have availed the opportunities of personal hearing, defend itself and come clean, but it deliberately, refused to do so.
3.20 Therefore on the overall facts and circumstances of the present case, I am of the considerate view that one fourth of the maximum penalty which could be levied in the present matter for 48 days delay, would serve the ends of justice as also would give a chance to the noticee to mend its ways and reform itself in future.
4.0 ORDER:
4.1 Therefore, in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, I hereby impose a penalty of Rs. 12,00,000 (Rupees Twelve Lacs only) on M/s Esquire Money Guarantees Ltd., for the reasons discussed above.
4.2The company 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 the Shri P.K.Nagpal, Chief General Manager, Investigation Department, SEBI Bhavan, Plot No. C4-A, “G” Block, Bandra-Kurla Complex,Bandra (E), Mumbai- 400 051.
Date : December 28, 2006 PRAVEEN TRIVEDI
Place : Mumbai ADJUDICATING OFFICER