Adjudication order in respect of Datapro Electronics Ltd., under Section 15 I of the SEBI Act read with Rule 5 of SEBI (Procedure for Holding Inquiry by Adjudicating Officer) Rules, 1995.
The instant proceeding is directed against the non-furnishing of information in compliance of summon issued by the Investigating Authority appointed U/S 11C(1) of the Securities and Exchange Board of India Act 1992 (herein after called the “Act”). Pursuant to complaint received by SEBI forwarded by the DCA in September 1999 wherein the complainant Sh Anand Mody having holding of 700 shares in the Datapro Information Technology Limited (herein after referred as “DITL”) alleging irregularities by the Datapro and its share transfer agent SRG Infotech that they by planting stories of tie-up with firm and change in the shareholding patter of the company DITL manipulating the prices of the shares of DITL artificially. Consequently, an investigation had been conducted by the Securities and Exchange Board of India (herein after called as “Board”) to find out the alleged irregularities and possible violation of provisions of the Act and various rules and regulations framed there under. During the said investigation by the Board, the Datapro Electronics Ltd, Company (herein after called as Company or DEL) was summoned to provide certain information relating to transaction of the company during the period of October 1998 to January 2000.
Based on the finding of the investigation report, prima facie it appeared to the Board that the company had failed to provide information in response to summon issued by the Investigating Authority and there by non compliance with the summon issued by the Investigating Authority, the company has made itself liable for initiation of action U/S 15A(a) of the Act. Consequently, the undersigned has been appointed as an Adjudicating Officer vide order dt July 21,2004 under rule 3 of SEBI (procedure for holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995 (herein after called as “Rules” ) to enquire into the alleged violation of non compliance of summon issued by the Investigating Officer.
NOTICE :-
Pursuant to the aforesaid appointment the show cause notice under Rule 4 (1) of the said rules show cause notice was issued to the company on September 21, 2004.
REPLY :-
The Company vide its reply dt October 12, 2004, December 01,2004 & further letter dt January 21, 2005 (from Rajeev Arora) mentioned that there is an ongoing dispute between the Directors of the Company involving matters related to ownership and control of the company and the matter is pending before the Company Law Board. Company asked for postponement of hearings till their dispute is resolved.
In this regard, it is pertinent to mention that information sought from DEL was regarding its transactions in the shares of DITL during October 1998 to January 2000 period. In addition, information regarding fund transfers in its bank statements was also sought along with name and address of branch/ entity involved in the transactions. Information was asked to be provided by 27/6/2003.
In response, vide letter dated 26/6/2003, Datapro Electronics Ltd (DEL) informed that they have shifted the data to their godown (stated to be in a distant place) and requested for another 3 weeks time. Thereafter vide another letter dated 10/7/2003, Datapro Electronics now indicated that the records of the company have been seized by the Income Tax department in August 2001 and hence it is not possible for them to provide the information and the same shall be provided when they have access to the records. Thereafter, there was no communication from the company.
PERSONAL HEARING:-
The personal hearing in the matter was fixed on December 14, 2004. The company did not attend the personal hearing. However, a letter dated January 21, 2005 was received from the Chairman & Managing Director, Shri Rajeev Arora stating his inability to respond on the grounds of disputes between the directors.
In view of the above, I now deal with the written submissions made by the company before me for the purpose of this adjudication proceedings.
BACKGROUND:-
It is seen that the price has been steadily increasing from August 1999 from Rs. 20 levels to Rs. 90 levels in January 2000. Prior to this period the shares were quoting in single digits. The shares were trading at levels of Rs. 7 in the beginning of the year and rose to Rs. 17 levels in March 1999. Thereafter, the price decreased to levels of Rs. 7- 9 in June /July 1999 and started increasing from August 1999 till January 2000. Similar movement was observed on the DSE as well.
In view of the unusual price movement and complaint received, the Whole Time Member, SEBI, in exercise of powers conferred upon him under Section 19 of the SEBI Act, appointed Shri R. Ravichandran, General Manager of SEBI, to investigate into the affairs relating to dealing in the shares of M/s Datapro Information Technology Ltd. and to submit a report to the Board.
Information was sought regarding company’s transactions in the shares of DITL during the period of October 1998 to January 2000. In addition, information regarding fund transfers in its bank statements was also sought. Information was asked to be provided by 27/6/2003.
REPLY TO THE SHOW CAUSE NOTICE DT 21.09.2004:-
In reply to the show cause notice issued by the undersigned dt 21.09.04 , the Company submitted that they are unable to furnish the information as the documents are in possession of the Income Tax Authority. It is also submitted that an ongoing dispute between the Directors and the matter is pending before the Company Law Board. It is further stated that many records pertaining to Bank account and other accounts are in possession of Mr Rajeev Arora,, who is not helping in providing the information.
Moreover, the respondent company pledged to submit the same whenever the same would be in their possession and requested to withdraw the proceeding under section 15A(a) of the SEBI Act 1992.
FINDINGS:-
It has been observed that SEBI was carrying on investigations into the affairs of the company relating to buying, selling and otherwise dealings in the shares of M/s Datapro Information Technology Ltd. During the course of investigation SEBI issued various letters and summons to the company and its promoter / directors asking to provide certain information regarding DEL transactions in the share of DITL during the period of October 1998 to January 2000.
Vide summon dt 18.06.2003, company was asked to furnish details of its major shareholders, directors, press announcements, Board meetings etc., but no such details were ever provided to SEBI. I observe that these information were vital in nature and was necessary and required for the purpose of investigation. The company has in their reply before me tried to demonstrate that they have responded to SEBI summons by seeking time extension and by furnishing information. It is also informed that management dispute is going on before CLB and with other courts and pending the same, adjudication proceedings be postponed. Suddenly and surprisingly a letter dated 21.1.05 was also received from the CMD Mr. Rajeev Arora of the company showing his unawareness to the summons / letters / notices issued to the company on the ground of management dispute in the company. It is alleged by him that he has been prevented from accessing company premises.
In response to summon dt 18.06.2003 the Company vide letter dated 26/6/2003 had informed that they have shifted the data to their godown (stated to be in a distant place) and requested for another 3 weeks time. Thereafter vide another letter dated 10/7/2003, Company informed that the records of the company have been seized by the Income Tax department in August 2001 and hence it is not possible for them to provide the information and the same shall be provided when they have access to the records. Thereafter, there was no communication from the company
In this connection, it is observed that Datapro Electronics had earlier stated that documents are in their godown. But the place was not mentioned. It was merely stated that it was in a distant place and they would require 3 weeks to obtain the data. Thereafter, it took a stand that records have been seized by the Income Tax department. However, it is significant to note that records have been stated to have been seized as far back as August 2001. The company should have been aware that for the past 2 years the documents have been seized by I T Dept when it first gave reply. However, this was not pointed out earlier. In addition, only preliminary transactions data and bank statement were sought by SEBI. I found that it would not be difficult to retrieve data, or obtain bank transactions statement again from the bank especially when summons have been issued by SEBI. The company has also not stated if it has made any efforts to get in touch with the Income Tax authorities to access the records. From the foregoing, it appears that the company is deliberately trying to hamper and delay investigation proceedings.
As the adjudicating proceeding is confined only to find out whether there was any violation of provision 15A(a) of the Act by the Company by non supplying the requisite information sought under the summon issued by the Investigating Authority vide summon dt 18.06.2003 and such non supplying amounts to non compliance of the summon. If the answer is positive, whether the Company is liable for any punishment U/S 15A(a) of the Act.
Reading Section 11C(6) of the Act clearly points out that a duty has been imposed upon the person, company, intermediary to provide the requisite information sought by the Board. The duty become imperative upon them particularly, interpreting the said provision in terms of the objective with which the SEBI Act has been enacted. A close and plain reading of the section reveals that only exception provided under the section 11C (6) is, where the entity is prevented with reasonable cause in providing the information.
The term “reasonable cause” has found interpretation in catena of judgments of various High Courts and the Hon’ble Apex Court where they have commonly held that the cause must be beyond the reach of an human agency. The reason should not be extraneous ,intentional, deliberate and willful.
Herein, the Company was summoned vide dt 18.06.03 by the Investigating Authority to provide certain information. The Company vide its reply dt 26.06.03 sought 3 weeks time stating that the data have been shifted to a godown at a distant place. However, surprisingly the letter also contains certain things, which are beyond comprehension, e.g. information is quite expensive.
Subsequently, the Company vide its letter dt 10.07.03 expressed its inability in providing the requisite information on the ground that documents/ information sought had been seized by the Income Tax Authority way back in August 2001.This facts also find corroboration to their reply dt 12.10.2004. The Company while submitting before me also brought new facts stating that the CMD Sh Rajeev Arora had taken possession of information/ documents and not allowing the same to be furnished before the Board. The above submission are found false, frivolous, wayward and contradictory, particularly while confronting the same with contents of letter dt 25.01.05, where Mr CMD has expressed his inability from entering the premises of the company.
Moreover, scanning the contents of letter dt 12.10.04 of the Company reveals that providing the documents/ information was not beyond their control rather, the Company under the guise of shifting burden attempted to devoid the Board from having access to the information desired. The very contents of the letter dt 12.10.04 suggest that recreation of the data/ information was possible. The evidence on record further suggests that the Company deliberately and willfully kept the Board / Investigating Authority away from the scrutiny of the information/ documents. It is also to be noted that at no stage the Company has filed any seizure report from the IT Dept in support of their contention that documents have been seized.
The intentional and willful design is further found strength from the contents of the submission made by DITL and the Company herein. Though, the two are two different entity having an independent existence, still reply to show cause notice dt 21.09.04 found the origin from the same computer/ printer. The wordings of the two letters are also same and are of same date. This further display their ill design and confront the submission that there was any dispute in the Management and the Directors of the Company prohibiting one another from having access to the data/ information/ documents sought by the Board during the Investigation.
In view of the above it is observed that the company has violated provisions of section 15 A (a) of SEBI Act requiring the company to furnish information and documents. The violations in this regard attracts the penalty as prescribed under section 15 A (a) of the SEBI Act and in order to adjudge the quantum of penalty, I have to consider the following factors :
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.
As regards the disproportionate gain or unfair advantage there are no quantifiable figures available with respect to the default observed on the part of the company and its directors. There are also no figures or data to quantify the amount of loss caused to an investor or group of investors as a result of the default. However, since there has been deliberate non – compliance of the statutory summons issued u/sec 11 C (2) r.w. 11(3) of SEBI Act, by the company, thereby causing interference in the statutory investigation process, I consider that the monetary penalty needs to be imposed as a corrective measure. I find the said violation as repetitive in nature since number of times Company without reasonable cause failed to furnish information on one pretext or the other.
ORDER:-
The submissions of the company have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 A (a) of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose penalty of Rs. One Lakh (Rs.1,00,000/-) on the company.
The aforesaid penalty shall be paid 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 General Manager of SEBI, Investigation Department, ID-6 at SEBI, Mittal Court, B- Wing, 1st Floor, 224 Nariman Point, Mumbai 400 0021.
Date : February 28, 2005.
Place : Mumbai
AMIT PRADHAN
ADJUDICATING OFFICER