Adjudication order in respect of Datapro Information Technologies 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- 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 Company or “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 pattern 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.
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 was issued to the Company on September 21, 2004.
REPLY:-
The Company vide its reply dt October 12,2004, December 01,2004, December 10,2004 and January 21,2005 to the show cause notice dt 21.09.2004 have 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 and asked for postponement of hearing till their dispute is resolved.
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 the Company and to submit a report to the Board.
While investigating the alleged violation and manipulation in the process of the scrip, data regarding its major shareholder, directors, press announcements, Board of Directors meetings, etc crucial to the investigation to arrive at a logical conclusion were asked from the DITL vide various summons and the reply to the summons are summarized in the tabular form.
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Date
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Name /Address
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Mode of dispatch
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Description
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Remarks
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13/5/2003
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DITL
101, Datapro House, off Turner Road, Bandra, Mumbai
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Hand delivery
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Summons seeking information
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No information, more time sought to reply
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28/5/2003
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DITL
EL-21, Electronic Zone, MIDC, Pune
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Courier
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Summons seeking information
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No information, more time sought to reply
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18/6/2003
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DITL
EL-21, Electronic Zone, MIDC, Pune
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Courier
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Summons seeking information
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Reply received on 30/6/2003 seeking time of another 15 days.
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1/7/2003
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DITL
EL-21, Electronic Zone, MIDC, Pune
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Courier
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Summons for appearance with information
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Attended
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16/9/2003
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DITL
EL-21, Electronic Zone, MIDC, Pune
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Regd AD
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Summons seeking information
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Part reply received
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In response to first summons dated 13/5/2003, it was stated by DITL vide letter received on 26/5/2003 that the person handling secretarial matters is on leave for 20 days and DITL requested time of 1 month to reply. This letter is seen to be sent almost at the due date (26/5/2003) for the receipt of information as per our summons while it was received on 13/5/2003 itself. Thereafter reminder was send vide summons /letter dated 28/5/2003 seeking information by 9/6/2003. Still no information was received. Vide letter dated 9/6/2003 (again on due date of summons), DITL informed that person handling secretarial matters has still not joined and requested another 15 days. Another reminder was sent vide letter /summons dated 18/6/2003 seeking information by 30/6/2003. Then vide letter dated 30/6/2003 (again on due date of summons), DITL now informed that person handling matter is on leave and no one else is aware of details. DITL also incorrectly informed that it has complied with some details and sought time till July 15,2003 to reply. Summons was then issued to DITL for personal appearance on 11/7/2003, with the information sought. On 11/7/2003, DITL sent an authorised person – Shri Rajnish Pandey. He provided some very preliminary information. But when queried about crucial details such as meetings of Board of directors, shareholders’ meetings, press releases, statements filed with Stock Exchange, it was stated that they were seized by Income Tax authorities in August 2001.
REPLY TO SHOW CAUSE NOTICE DT 21.09.2004:
In reply to the show cause notice dt 21.09.2004 issued by the under signed the company refuted the charges and submitted that they had been replying to each and every summon of the Investigating Officer and also provided the information sought under the summon by the Investigating Officer. It is further replied by the Company that in reply to the summons of the Investigating Officer dt 13.05.2003 & 18.06.2003 , the Respondent Company vide its reply dt 10.07.2003 & 12.07.2003 provided the information and replied all the queries raised by the Investigating Officer. Copy of the said letter dt 10.07.2003 & 12.07.2003 also provided before me.
It is also submitted that on 29th September 2003 they replied to and submitted the details asked by the Investigating Officer vide summon dt 16.09.2003. The Company further expressed its inability in submitting certain information owing to the seizure of the documents by the Income-tax Authority way back in August 2001.
The following table briefly depicts the letter / summons received by the Company and response made by them in that respect :
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Date of your letter
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Description
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Date of our letter in response
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Description of our reply
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Remarks
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13/5/2003
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Summons seeking information
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24/5/2003
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Unable to provide information since concerned person was on leave
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It was a genuine reason because of which we were unable to provide information required; date was extended by your subsequent letter.
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28/5/2003
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Letter for extension of date
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09/6/2003
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Unable to provide information since concerned person had not yet joined the office.
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Since most of the information desired was in control of the concerned person, we requested for some more time till he joins back. All the desired information was submitted later.
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18/6/2003
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Letter asking for further details
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10/07/2003
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Information desired by you in your summons dated 13/5/2003 and 18/6/2003 was provided.
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All the information available to us was provided in our reply dated 10/7/2003 and 12/7/2003.
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2/7/2003
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Summons for personal appearance
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11/7/2003
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Personal appearance attended by authorized representative
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All the information asked was provided; certain information in possession of Income Tax Authorities was unavailable.
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16/9/2003
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Summons seeking information
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29/9/2003
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Information provided to your office
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Information asked was duly sent to your office.
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The Company in view of the above submission and information provided vide letter dt 10.07.03 & 12.07.03 assailed the initiation of action under section 15A(a) of the Act for alleged violation of section 11C (6) of the Act. The Company further submitted that they have replied to each and every summon of the Board and provided information except those pertains to the seizure by the Income Tax Authorities , and ask for the dropping of action U/S 15 A(a) of the Act.
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 above promoter / directors.
The instant proceeding U/S 15 A(a) of the Act is against the non submission of information in compliance with the summon issued by the Investigating Officer carrying investigation U/S 11C of the Act.
Now the issued for consideration is:- Whether there was non submission of information in compliance of summon by the Company ?
In this regard, it is pertinent to go through and analyze the reply submitted by the Company to the notices/ summon of the Investigating Authority and also to the notices issued under the present proceeding.
Perusal of the records available and submission made by the Company, it is evident that the Company in response to the notices/ summons, instead of providing information, sought adjournment on grounds which are foreign to the corporate personality. The adjournment sought on the ground that person handling the matter was on leave further manifest the intention of the Company knowing very well that the documents/ information sought had already been seized by the Income Tax Authority way back in August 2001. however, at no stage the Company filed any seizure report from the Income Tax Authority in support of their contention that documents have been seized.
Moreover, the CMD of the Company Sh Rajeev Arora vide its letter dt 25.01.05 submitted that he has been prevented from entering the premises and also expressed his ignorance about any reply already filed, whereas the records available contradicts this submission as the same CMD vide its letter dt 18.09.2003,partially replied the information sought by the Investigating Authority.
The Company submitted that vide reply dt 10.07.03 and 12.07.03, queries raised by the Investigating Authority had been replied with properly (Copy of the same also placed before me). Though, no where in the finding of the Investigation report, reference to these letter are found. The present proceeding is not authorized to adjudicate upon the matter regarding the reply and contents of the letters dt 10.07.03 & 12.07.03, still glancing through the letter and contents provided therein, it could not be held that every information sought had been properly furnished.
The Company further expressed its in-ability in providing information regarding the documents seized by the Income Tax Authority in the raid conducted in Augusta 2001. I observe that the data desired under the summon issued by the Investigating Authority could be retrieved from the Company’s data base, the bank transactions statements could also be easily be made available. Moreover, there is no evidence except the blatant submission made that the documents have been seized by the Investigating Authority. There is also no evidence to suggest that any attempt has ever been made by the Company to recreate the date or obtain the certified copies from the concern Income Tax Authority to enable the Board to examine the same.
Therefore, without commenting as to the sufficiency of the information provided under the letter dt 10.07.03 & 12.07.03, which did not find any reference in the Investigating Authority report, it is evident that the Company had not made any efforts to furnish information amongst many interalia qua the query no 7&8 of the annexure enclosed with the summon dt 13.05.2003. Further, there is no evidence to suggest that any efforts had ever been made by the Company to get the documents from the Income Tax Authority, if at all seized by them, and in the absence of efforts and evidence to make the same available with the Board, it would not be exaggerating that the Company had not complied with the statutory mandate desired under the summon issued by the Investigating Authority. Therefore, the answer to the above issue will be in affirmation, particularly while interpreting the wording of section 15A(a) of the Act in the light of the objective enshrined with the Act. The summon were issued U/S 11C (3) and under the said provision duty has been cast upon the delinquent to make the information / documents available to the Investigating Authority and the only exception provided under the section is the “Reasonable Cause”. However, in the instant case in the absence of any subtle evidence to suggest any prohibition from making the documents/ information available to the Board, it would not be wrong to hold that there is no compliance by the Company to the information sought under the summon by the Investigating Authority, particularly qua queries no 7 & 8.
The section 11C(6) of the Act provides only exception where the delinquent fails with reasonable reason in providing the necessary information sought. Scanning the reason with the objective of the Act- will it be right that mere stating/ expressing inability to provide certain information amounting to compliance and not refusal? Or the inability must be corroborated by some evidence which testify that reason was beyond control in furnishing the desired information?
It is not in dispute that there was reply to every summon/ letter but, the moot question is - mere replying to the summon/ letter or appearing physically without furnishing the requisite information or furnishing incomplete, partial or insufficient information amounts to compliance so as to get absolved from the purview of the section 11C(6) of the Act
Scanning the ingredients of section 11C(6) in the light of the objective of the Act with which it has been enacted and keeping the view of the facts and circumstances and gravity of efforts committed by the Respondent Company, I am of the view that imputations put forward by the Respondent Company have not been corroborated by any substantial piece of evidence to lead us to believe that providing information was beyond the control and the same was not deliberate and willful. Mere bald statement without any credible piece of evidence will not absolve the Company from the purview of non compliance as defined U/S 11C (6) of the Act.
Vide aforesaid summons company was repeatedly asked to furnish details of its major shareholders, directors, press announcements, Board meetings etc., but no such details were ever provided to SEBI, which 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 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. I observe from the investigation findings that in response to first summons dated 13/5/2003, it was stated by DITL vide letter received on 26/5/2003 that the person handling secretarial matters is on leave for 20 days and DITL requested time of 1 month to reply. Still no information was received. Vide letter dated 9/6/2003 (again on due date of summons), DITL informed that person handling secretarial matters has still not joined and requested another 15 days. Another reminder was sent vide letter /summons dated 18/6/2003 seeking information by 30/6/2003. Then vide letter dated 30/6/2003 (again on due date of summons), DITL now informed that person handling matter is on leave and no one else is aware of details. DITL also incorrectly informed that it has complied with some details and sought time till July 15,2003 to reply. Summons was then issued to DITL for personal appearance on 11/7/2003, with the information sought. On 11/7/2003, DITL sent an authorised person – Shri Rajnish Pandey. He provided some very preliminary information. But when queried about crucial details such as meetings of Board of directors, shareholders’ meetings, press releases, statements filed with Stock Exchange, it was stated that they were seized by Income Tax authorities in August 2001. The conduct of the company has thus been non – co -operative and against the provisions of law. This is further evident from my experience in this adjudication proceedings as well. During the adjudication proceedings notices were sent for personal hearing several times to the company on request of the company the hearing was once adjourned from 3.12.04 to 14.12.04 but nobody appeared. The said non compliance of the summons by not furnishing the documents/ information is in violation of Section 11 C(2) of SEBI Act, 1992 and the company is liable for adjudication under Section 15 A (a) of SEBI Act, 1992.
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 Section 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 summons were issued to company which were not complied by it in real sense.
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. Fifty Thousand only (Rs.50,000/-) 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