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 FRIENDS PORTFOLIO PRIVATE LIMITED FOR NON COMPLIANCE OF SUMMONS ISSUED BY SEBI.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated October 12, 2004 appointed the undersigned as the Adjudicating Officer to inquire into and adjudge under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the alleged violation of Section 15A of the SEBI Act committed by Friends Portfolio Private Limited, member Delhi Stock Exchange in not complying with the summons issued by SEBI seeking information regarding its trading in the scrip of Media Video Limited (hereinafter referred to as ‘MVL’). It is noted that SEBI issued summons dated August 3, 2004 requiring Friends Portfolio Private Limited ( hereinafter referred to as ‘FPL’) to submit the information sought by the Investigating Authority in connection with the investigations initiated by SEBI in the case of MVL. It is alleged that subsequently summons were issued to FPL on August 13, 2004 and September 16 2004, seeking the required information and also requiring the Directors to appear before the Investigating Authority. It is alleged that FPL did not submit the information sought by SEBI. Further, the Directors of FPL Shri. Manoj Aggarwal and Shri. Bishanchand Aggarwal did not appear before the Investigating Authority of SEBI. In view of the alleged non compliance of summons issued by SEBI, Adjudication Proceedings were initiated against FPL.
NOTICE AND REPLY
2. A notice no. A&E/BS/24202/2004 dated October 25, 2004 was issued to FPL 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 on the alleged violation committed by it.
3. The said notice sent was returned unclaimed. Subsequently the notice was served on FPL through the Delhi Stock Exchange. It is noted that no reply has been submitted by FPL in respect of the notice issued in the Adjudication proceedings. Though FPL failed to reply to the show cause notice, an opportunity of hearing was granted to FPL on February 28, 2005. However it is noted that FPL did not avail the opportunity of hearing granted to it. As FPL failed to reply the notice issued to it, and also failed to avail the opportunity of hearing, inquiry is proceeded on the basis of the material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
4. The allegation against FPL is that it failed to comply with the summons issued by SEBI. It is noted that SEBI issued summons dated August 3, 2004 requiring FPL to submit the information sought by the Investigating Authority in connection with the investigations initiated by SEBI in the scrip of MVL. Further the Directors of FPL was also asked to appear before the Investigating Authority on August 11, 2004. FPL vide its reply dated August 9, 2004 stated that it did not trade in the scrip during the period Sept. 1999 to January 10, 2000. With regard to the details sought in the summons in respect of the payment of Rs 9,40,000 and 3, 00, 000/- made to Shri. Harvinder Bagai, FPL submitted that it does not have the said information. Subsequently, summons were issued to FPL on August 13, 2004 requiring the Directors of FPL to appear before the investigating authority on August 19, 2004. As directors of FPL did not appear before the investigating authority on August 19, 2004, another summons dated September 16 2004, was issued to FPL requiring them to appear before the investigating authority on September 23, 2004 and to furnish the information sought by the Investigating Authority. It is noted that FPL failed to submit the information to the investigating authority of SEBI. Further, FPL failed to appear before the investigating authority.
5. From the records it is noted that FPL failed to submit the information and documents sought by SEBI. Further, it is pertinent to note that FPL did not reply to the show cause notice issued to it in the adjudication proceedings despite being given sufficient time to do so. Further FPL also failed to avail the opportunity of personal hearing granted to it in the adjudication proceedings. In view of the same on the basis of the material evidence available on record, it is found that FPL did not comply with the summons issued by SEBI requiring it to furnish the information sought by SEBI. In this regard, Section 15A(a) of the SEBI Act reads as under.
15A. 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”
6. In view of the fact that FPL failed to furnish the information sought by SEBI, it is liable to the penalty prescribed under Section 15 A(a) of the SEBI Act. 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
7. In this regard, it may be noted that the Investigating Authority repeatedly required FPL to produce all the records and documents relating to its dealings in MVL. FPL was given adequate opportunity and reasonable time to respond to the summons and furnish the information. The said information was required during the course of the investigation conducted by SEBI in respect of the speculative transactions in the scrip of MVL. It was noted during the course of the investigation that FPL made payments to Shri Harvinder Kumar Bagai who appears to have traded through FPL and traded substantially in the scrip of MVL. It is in view of the said finding in the investigation that, SEBI sought the details of the dealings of FPL in the said scrip. Taking into account the sensitivity of the securities market, early conclusion of investigation is a very important objective. Hence it is seen that the information sought from FPL was important in view of the investigation conducted by SEBI. Hence failure to appear before the Investigating Authority of SEBI and to furnish documents and information sought by SEBI necessarily attract the penalty prescribed under Section 15 A(a) of the SEBI Act.
8. Further, no reply has been submitted by FPL in the adjudication proceedings in respect of its failure to comply with the summons issued by SEBI. Failure to submit the required information to SEBI has to be viewed seriously as the same would delay the investigation proceedings and hence might delay the corrective steps to be taken to prevent loss to the investors. As stated earlier, early conclusion of investigation proceedings is an important objective as the same would ensure protection of the interests of the investors. Hence the violation committed by FPL have to be viewed seriously.
9. ORDER
As Friends Portfolio Pvt. Ltd failed to furnish the information and documents sought by SEBI and also failed to comply with the summons issued by SEBI requiring presence of its directors before the Investigating Authority, it is liable to the penalty prescribed under Section 15 A(a) of the SEBI Act, 1992. In view of the same, in terms of the provisions of Section 15A(a) of the SEBI Act and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs.1,00,000/- (Rupees one lakh only) on Friends Portfolio Pvt. Ltd.
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 Shri P.K.Bindlish General Manager, Investigation Department, Securities and Exchange Board of India, Mittal Court B Wing, Mumbai-400 021.
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 Friends Portfolio Pvt. Ltd and to SEBI.
S. Biju
Adjudicating & Enquiry Officer
Date: February 28, 2005
Place: Mumbai