SECURITIES AND EXCHANGE BOARD OF INDIA
A. O. NO: ACR/77/2005
ADJUDICATION ORDER AGAINST SHRI ALAP SHUKLA UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
- Vide order dated December 28, 2004, issued by Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), I was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to enquire into and to adjudge under Sec.15-I of Securities and Exchange Board of India Act, 1992 for the alleged violation of Sec. 11C of Securities and Exchange Board of India Act, 1992 against Shri Alap Shukla having his address at 53/2, Arunoday Society, Alkapuri, Vadodara. For the sake of convenience, the said Shri Alap Shukla will be referred hereinafter in this order as ‘the noticee’.
2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the shares of Ojas Technochem Products Ltd., the scrip of which is listed on the stock exchanges. During the course of the said investigation the investigating authority issued a summons on January 19, 2004 directing the noticee to furnish the information and produce certain documents specified in the covering letter to the said summons by January 31, 2004. Apart from this, the noticee was required that all the documents relating to his transactions in the scrip of Ojas Technochem Products Ltd. The said summons dated January 19, 2004 was sent by registered post acknowledgement due and the same was duly delivered.
3. Vide letter dated Nil received by the office of the investigating authority on February 3, 2004, the noticee informed the investigating authority “In the above reference we hereby regret to inform you that we are unable to attend hearing at your office on 3RD Feb.2004 Due to Serious Illness of Hansaben Shukla, Mr.Vinod Shukla is out of state and Mr.Milap Shukla is out of India. Hence We are not able to reach your office So, We Kindly request your honor to give us a fresh date after a month for the hearing”.
4. Subsequently, Shri Jainendra Shandilya of Investigations Department of SEBI vide letter No. IVD/ID3/PKB/JS/OTPL/2319/04 dated February 4, 2004 advised the noticee to appear in person on February 17, 2004 at the address mentioned in the summons and to produce all the documents directed to be produced vide the aforesaid summons dated January 19, 2004.
5. I issued a notice dated June 21, 2005 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against him and penalty be not imposed under Sec. 15A(a) of Securities and Exchange Board of India Act, 1992 for his failure to produce the documents and furnish the information as required by the investigating authority vide the aforesaid summons. The said notice was sent by registered post acknowledgement due and was delivered at the address of the noticee as is evident from the postal acknowledgement card received by my office. Vide the aforesaid notice, it was advised that the noticee might file his reply within a period of fourteen days from the date of receipt of the said notice. It was clearly indicated in the notice that in case the noticee fails to give reply to the notice as aforesaid, it would be presumed that the noticee had no reply to submit and the matter would be proceeded with. Along with the aforesaid show cause notice dated June 21, 2005, copies of all necessary documents were forwarded to the noticee. However, my office was not in receipt of any reply from the noticee.
6. In the above circumstances, I was of the opinion that an inquiry should be held in the matter against the noticee and accordingly a notice of inquiry under Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued on July 12, 2005 by me. The said notice was sent by registered post acknowledgment due and was duly received by the noticee as is evident from the postal acknowledgement card received by my office. As per the said notice of inquiry, the noticee was advised to appear either himself or through his authorized representative/ lawyer on July 21, 2005 at 1200 hrs before me. However, on the said date or on any subsequent day till date neither the noticee nor his authorized representative/ lawyer appeared before me. Further, my office did not receive any communication from the noticee requesting for adjournment of personal hearing etc.,
7. Before deciding the issues which required to be examined by me, the provisions of Securities and Exchange Board of India Act, 1992 with respect to the issuance of summons by the investigating authorities and the consequences of non- compliance are perused by me. Sec. 11C of Securities and Exchange Board of India Act, 1992, interalia provides that the investigating authority may require any intermediary or any person associated with securities market in any manner to furnish such information to or produce such books, or registers, or other documents, or record before him or any persons authorized by him. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty by the Adjudicating Officer in case of any person, who is required under Securities and Exchange Board of India Act, 1992 or any rules or regulations made thereunder to furnish any document, return or report, fails to furnish the same, he shall be liable to a penalty of Rupees One lakh for each day during such failure continues or Rupees one crore, whichever is less.
8. It was alleged by SEBI that the noticee failed to comply with the summonses dated January 19, 2003 issued by the investigating authority as mentioned above. The noticee also failed to respond to the letter dated February 4, 2004 issued by the office of the investigating authority.
9. I have carefully perused the above summons dated January 19, 2004 and its covering letter of the same date. The operative portion of the said summons reads as follows: “you are hereby summoned to furnish the information required in the covering letter to the summon by 31st January 2004 and to appear in person on 3rd February 2004 at 04:00 PM before the Investigating Authority. You are also further directed to produce on that date all the documents relating to your transactions in Ojas Technochem Products Ltd. You are summoned to remain present with the documents at the following address:” The covering letter to the summons dated January 19, 2004 was signed by Shri Jainendra Shandilya, an officer posted to the Investigations Department of SEBI required the noticee to bring the following documents ‘while coming to the office of Securities and Exchange Board of India’. From the above, it is clear that there was an ambiguity as far as the date stipulated for complying with the summons for furnishing of documents issued by the investigating authority. As per the summons signed by the investigating authority, the information specified in the covering letter was to be furnished by January 31, 2004 whereas the said covering letter requires the noticee to ‘bring’ the information/ documents ‘while coming to the office of Securities and Exchange Board of India’. As per the summons, the noticee was required to attend the office of Securities and Exchange Board of India on February 3, 2004. However, I am not of the view that the above said ambiguity or discrepancy caused any hindrance for the noticee to submit the documents at least by a later date.
10. Further, as aforesaid, vide letter dated Nil received by the office of the investigating authority on February 3, 2004, the noticee requested for grant of a fresh date after a month citing a variety of reasons like ill health of Smt. Hansaben Shukla, non availability of Shri Milap Shukla and Vinod Shukla. However, the noticee did not cite any reason as to why he himself could not attend in response to the summons issued to him. If the noticee was serious about complying with the summons, he could have at least sent the required documents/ information to the investigating authority by post.
11. From the copies of unauthenticated photocopies of documents made available to me, I found that vide letter dated February 4, 2004 Shri Jainendra Shandilya of Investigations Department of SEBI wrote to the noticee as the following: “please refer to the summons dated 19th January 2004 issued to you. You are advised to appear in person on 17th February at 12:00 PM(noon) at the address mentioned in the summons and this will be treated as compliance of summons issued earlier. You are also advised to bring all the documents asked in the letter”.
12. The letter dated February 4, 2004, in my opinion cannot be taken into consideration by me as it was not a requisition issued under Sec.11 C of Securities and Exchange Board of India Act, 1992. Sec.11C (3) provides that the investigating authority may require any intermediary or any person associated with the securities market in any manner to furnish such information to, or produce such books, or registers or other documents, or record before him or any person authorized by him in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers or other documents, or record is relevant or necessary for the purposes of its investigation. From the above, it is clear that it is only the investigating authority that is empowered to require an intermediary or any person associated with the securities market to furnish information or produce books, registers, documents etc., before himself or any person authorized by him. In the instant case, no such requisition/ summons was issued on February 4, 2004 but only a letter was issued by Shri Jainendra Shandilya, an officer subordinate to the investigating authority. Therefore, the said letter cannot be treated as a requisition/summons under Sec.11C (3) and non compliance of the same does not attract the provisions of Sec.15A(a) for imposition of penalty.
13. From the preceding paragraphs, it may be seen that the noticee was required to produce certain information/ documents in response to the summons dated January 19, 2004. The noticee requested the investigating authority for grant of a further time of one month for attending before the investigating authority without citing any reasons with respect to himself. Subsequent letter dated February 4, 2004 was issued by an official of SEBI who is not an investigating authority.
14. In this connection, it is pertinent to note that in his reply dated nil which was received by the office of the investigating authority on February 3, 2004, the noticee requested the investigating authority only to adjourn the date of personal appearance but did not make any submission with respect to the furnishing of information/ documents. In case the noticee had difficulty in proceeding to Mumbai he could have sent the required documents/ information to the investigating authority by post.
15. Since the failure of producing the documents before the Investigating Authority of SEBI by the noticee in response to the summons dated January 19, 2004 is established, the quantum of penalty has to be determined by me.
16. As I mentioned above, Section 15A (a) of Securities and Exchange Board of India Act, 1992 prescribes a penalty of one lakh rupees for each day during which the failure to furnish any documents etc. to SEBI continues or one crore rupees whichever is less.
17. To determine the quantum of penalty under Section 15A (a), I considered the following factors as provided in section 15J of Securities and Exchange Board of India Act, 1992 viz.(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.
18. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the noticee. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default. Since, the requisition in terms of Sec. 11C(3) of Securities and Exchange Board of India Act, 1992 was made to the noticee only at one instance, I conclude that repetitive nature of the default is not established. Further, there is no information on record as to whether the noticee committed similar offences in the past.
19. While determining the quantum of penalty, I have also taken into consideration various recent decisions of the Hon’ble Securities Appellate Tribunal. In the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No.95 of 2004) the penalty of Rs.75,00,000 imposed by the Adjudicating Officer in a case facts of which are similar to the instant case was reduced to Rs.15,000 by the Hon’ble Securities Appellate Tribunal. In the said matter, the Hon’ble Securities Appellate Tribunal also observed that the provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have also referred to various recent decisions of the Hon’ble Securities Appellate Tribunal with respect to the penalties imposed by adjudicating officers in cases similar to the instant one.
ORDER
20. Therefore in exercise of the powers conferred under section 15-1(2) read with Sec. 11C, Sec. 15 A(a) of the Securities and Exchange Board of India Act, 1992 and Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs.30,000/- (Rupees thirty thousand only) on Shri Alap Shukla. In my view, the above penalty is commensurate with the default of the noticee, in the facts and circumstances of the case.
21. The noticee shall pay the amount of penalty imposed with respect to each of them 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 Shri P. Bindlish, General Manager, Securities and Exchange Board of India, 224, Nariman Point, Mittal Court, ‘B’ Wing, Nariman Point, Mumbai- 400021.
22. In terms 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 the noticee and also to Securities and Exchange Board of India.
Date: July 29, 2005 A. Chandra Sekhar Rao
Place: Mumbai Adjudicating Officer