ORDER
UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING
ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
AGAINST
AJIT SURYAVANSHI (PAN NO. AVOPS4111P)
1. The present proceedings examine the liability incurred by Shri Ajit Suryavanshi (for brevity’s sake, hereinafter referred to as AS) who is alleged to have committed a default in complying with the direction issued by the securities market regulator.
2. The direction in question arises from the order dated October 24, 2005 passed by a Whole Time Member of the Securities and Exchange Board of India (SEBI) who inter alia restrained M/s Ritedeal Trading Co. Pvt. Ltd. (for brevity’s sake, hereinafter referred to as Ritedeal) and its directors; AS and Shri Santosh Rhidas Jagtap (SRJ) among several other clients and promoters and directors of M/s Mega Corporation Ltd who had dealt in the said scrip, from buying, selling or dealing in the securities of the said scrip, directly or indirectly, till further directions. A copy of this order was duly forwarded to the concerned parties for necessary compliance. The order was effective from October 24, 2005.
3. Despite receipt of the said order, AS, also a party to the said order and director of Ritedeal, was alleged to have failed to ensure due compliance with the directive of the Board since Ritedeal sold 14,000 shares of Mega Corporation Ltd on November 16, 2005 through M/s Galaxy Broking Private Limited (Galaxy) who, also in the knowledge of the said order, executed the said sale transaction on their behalf.
4. In view thereof, adjudication proceedings were ordered against AS by SEBI on January 19, 2006 and in that context I was appointed as the Adjudication officer to enquire and adjudge under Section 15HB of the SEBI Act, 1992 their alleged contravention of a directive issued by the Board.
5. As per the Rules, AS was show caused vide notice dated March 17, 2006, which returned undelivered with the remark “left”. A copy of the said notice was once again sent to his broker; M/s Fortis Securities Limited, name then changed to M/s. Religare Securities Ltd, under cover of a letter dated March 31, 2006, with an advice to forward the notice to their client; AS. The notice was duly forwarded by M/s. Religare Securities Ltd to AS through speed post and under certificate of posting under cover of their letter dated April 10, 2006. Thereafter in their letter dated June 15, 2006 addressed to SEBI, the broker enclosed the copy of the proof of dispatch of the said notice to their client, through speed post and under certificate of posting. They however informed that the said letter had not been received back from their client, as undelivered.
6. In the absence of receipt of any reply from AS, further notices to show cause dated June 22, 2006 and July 06, 2006 were sent, this time to him, this time at two different addresses provided by the department. Both letters returned undelivered with the endorsement “not known’. A notice of hearing dated February 28, 2007 advising AS to appear for the personal hearing scheduled on March 12, 2007 was received and acknowledged. However neither AS nor his authorized representative appeared on the date of hearing. Another notice of hearing dated April 9, 2007 advising AS to appear for the hearing scheduled on April 20, 2007 was also acknowledged on his behalf. In the said notice, AS was advised to note that no further extension of time would be granted to him and that in case he failed to appear for the proceedings on the scheduled date, the matter would be proceeded with based on the material available on record. However neither AS nor his representative appeared on the scheduled date of hearing nor did he send any letter giving reasons for his failure to appear for the hearing.
7. It is well settled by a series of pronouncements of the Supreme Court that a notice refused to be accepted by the addressee can be presumed to have been served on him. In the present case, notices have been returned as unknown and not as refused. Will there be any significant difference between the two in so far as the presumption of service is concerned?
8. In this connection a reference to Section 27 of the General Clauses Act would be useful. The Section reads thus:
Meaning of service by post.--Where any central Act or Regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression "serve" or either of the expressions "give" or "send" or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting by registered post, a letter containing the document, and unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post."
9. The principle incorporated in Section 27 (quoted above) can profitably be imported in this case where all notices have been dispatched by post with the correct address written on it. At least this was the address at which the entity resided and had earlier received the notices issued by SEBI. This was also the address provided by their broker. It can thus be deemed to have been served on him unless he proves that it was not really served and that he was not responsible for such non-service. This is because any other interpretation can lead to a very tenuous position as the entity against whom the proceedings have been initiated would resort to the strategy of subterfuge by successfully avoiding the notice.
10. This principle has also been upheld by the Supreme Court in their order dated 29.09.1999 in the case of K. Bhaskaran Vs. Sankaran Vaidhyan Balan and Another, in Crl.A. No: 1015 of 1999.
11. Accordingly, I am inclined to proceed in the case based on the material available on record.
APPRECIATON OF FACTS
12. Coming to the facts of the case, the undisputed facts related to this case are as follows:-
· Several promoters and directors of M/s Mega Corporation Limited and several clients which include Ritedeal and its directors; AS and SRJ were found to be dealing in the said scrip in a manner meant to create artificial volumes and a rise in the price of the said scrip.
· As an interim measure, SEBI had passed an order dated October 24, 2005 which inter alia directed several entities not to buy, sell or deal in the securities of Mega Corporation Ltd, directly or indirectly, till further directions. A perusal of the operative part of the order of the Whole Time Member, SEBI clearly indicates that AS, SRJ, Ritedeal and a few others were parties to the said proceedings.
· The order in question was posted on the website of SEBI on October 24, 2005 and was also communicated to the media through a press release on the same day.
· The passing of the said order was also communicated vide notice dated October 25, 2005 by the BSE to its broker members for compliance of the order of SEBI.
· SEBI sent a letter dated October 24, 2005 to M/s Fortis Securities Limited; the broker of AS, advising them to deliver the copy of the order, duly enclosed, to AS and three other entities mentioned in the letter and to send the acknowledgement/proof of the delivery at the earliest.
· Fortis vide their letter dated December 8, 2005 forwarded to SEBI the copy of the Speed Post/POD as acknowledgement of the letter received from SEBI. Apparently the letter sent by speed post was acknowledged at the residence of AS on October 29, 2005.
· SEBI also sent a letter dated October 24, 2005 to Galaxy; the broker of Ritedeal, advising them to deliver the copy of the order, duly enclosed, to Ritedeal and the other entities and to send the acknowledgement/proof of the delivery at the earliest.
· SEBI addressed another letter dated October 24, 2005 to Ritedeal which was duly acknowledged by Shri S R Jagtap, the director / authorized signatory of Ritedeal for necessary compliance.
· Galaxy vide their letter dated December 20, 2005 forwarded the acknowledged copy of the letter earlier sent to them by SEBI.
13. A series of correspondence was also exchanged between various parties, copies of which are on file and are listed below:-
· A letter dated November 25, 2005 sent by Galaxy to the BSE stating that the transactions in the scrip of Mega Corporation on November 16, 2005 were done unknowingly as their BOLT operator was stated to be unaware of the fact that AS was the director of Ritedeal.
· Letter dated November 29, 2005 sent by Galaxy to the BSE confirming that their client Ritedeal had purchased 15,000 shares of Mega Corporation on September 29, 2005 and that 14,000 of those shares, lying with them in their demat account were sold by the client on November 16, 2006.
· Email sent on December 05, 2005 by an officer of BSE to another officer of BSE confirming that during their scrutiny in the case of Mega Corporation, they had noted that the member Galaxy had dealt on behalf of the debarred client Ritedeal, whose director is AS.
14. These documents establish the finding that the restraint order was suitably conveyed to all the parties and that all concerned entities including Galaxy were fully aware of the restraint order of SEBI and that there was no scope for misinterpretation of the order.
15. Despite the same, Ritedeal entered into these transactions, as executed by Galaxy who have admitted to the said act, but attributed the same to a mistake committed by their dealing operator. AS on his part has not admitted to the act nor offered any explanation for the same. In any case, it is not even open for him to plead any ambiguity or indefiniteness in the order. Right or wrong, the order had to be obeyed.
16. It would also be relevant to note a few other facts at this juncture.
17. The order of SEBI under discussion brings out the fact that some entities including several clients were dealing in the shares of Mega Corporation Ltd in a manipulative manner.
18. Most of these entities were stated to be connected to each other in terms of common address, common contact number or association through client companies of which individuals are directors. One of the client’s; Ritedeal, was said to share the same phone number as that of another client; Ganesh Raut while another client; AS dealing in the said scrip was the director of Ritedeal. This is just a sample of the inter relationship existing amongst the various entities dealing in the said scrip.
19. The inevitable conclusion of the entities executing transactions that were restrained can thus be attributed to the close nexus existing between the parties which probably compelled them to close or complete some pre-arranged deals.
20. Mens rea is thus writ large.
21. Besides being a party to the said order, AS, as the director of Ritedeal, ought to have ensured complete compliance with the said order. Instead he aided and abetted Ritedeal in the said action, by failing to prevent this brazen defiance of the orders of the regulator and thus also did a disservice to the company of which he is a director. Disobedience of an order strikes at the very root of the rule of law which is the foundation of a democratic society.
22. His conduct constitutes contempt by way of wilful disobedience of directions issued by the regulator, and the manner in which he has conducted himself earlier and before this forum clearly tends to lower the authority of the respective authorities and obstructs the administration of justice.
23. A levy of a high amount in this case would thus meet the ends of justice.
24. Under section 15 HB of the SEBI Act, a penalty can be imposed against a person for not complying with the orders issued by the Board. This is a power conferred by the statute under which the regulator is appointed.
25. More specifically the provisions of Section 15 HB of the SEBI Act, 1992 prescribes a penalty upto Rs.1 crore to be levied in such cases. However before fixing the quantum of penalty that is commensurate with the charge established against AS, it would be necessary to also refer to certain factors as enumerated under Section 15J of the SEBI Act, 1992 which also find mention in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 i.e. the amount of disproportionate gain or unfair advantage made as a result of the said default, the amount of loss caused to the investors and the repetitive nature of default.
26. I cannot lose sight of the fact that SEBI was exercising jurisdiction conferred upon it by the statute under Sections 11B and 11(4)(b) of the SEBI Act, 1992 to inter alia regulate the securities market and protect the interests of the investors operating in the market. Hence sufficient regard has to be given to the mandate issued by SEBI from time to time especially when the same concern the rights and interests of investors as also the sound and smooth functioning of the capital market. If no cognizance was to be taken of such disregard and no liability fixed there upon, the entire purpose of enactment of the statute would become redundant.
27. In view thereof, although I am inclined to hold that the penalty need not be imposed in terms of the quantum specified in Section 15HB of the Act, exemplary action is called for in such cases. This will set an example for those who have a propensity for disregarding orders issued by the regulator.
PENALTY
28. On a judicious exercise of the discretion conferred upon me and taking into consideration the facts and circumstances of the case, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, in the interest of justice, equity and good conscience, I think it is appropriate to levy a penalty of Rs. 10,00,000/- (Rupees ten lakh only) on Ajit Suryavanshi whose PAN No. is AVOPS4111P.
29. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India and payable at Mumbai which may be sent to Smt Barnali Mukherjee, Deputy General Manager, Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block, B Wing, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: JULY 30, 2007 ADJUDICATING OFFICER