ORDER
UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING
ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
AGAINST
M/S. RITEDEAL TRADING CO. PVT. LTD
1. The present proceedings examine the liability incurred by M/s Ritedeal Trading Co. Pvt. Ltd. (for brevity’s sake, hereinafter referred to as Ritedeal) 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 Ritedeal and its directors; Mr Ajit Suryavanshi (AS) and Mr 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, 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 Ritedeal 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, Ritedeal 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 them through Galaxy under cover of a letter dated March 31, 2006, with an advice to forward the notice to Ritedeal. Although the notice did not return as undelivered, no response was received from Ritedeal. In the absence of receipt of any reply from Ritedeal, notices of hearing dated March 02, 2007 and April 09, 2007, in terms of Regulation 7 (c) of the SEBI (Procedure for holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995, were affixed on the door of the premises and witnessed by two persons. A report of this affixture is on record. The address mentioned on the notice was provided by the department as the place where Ritedeal carried out its business activities. The first notice advised Ritedeal to appear for the personal hearing scheduled on March 13, 2007 and as Ritedeal failed to appear on the scheduled date, the second notice of hearing dated April 9, 2007 was issued to Ritedeal with an advice to appear for the hearing scheduled on April 20, 2007. In the second notice, Ritedeal were also advised to note that no further extension of time would be granted to them and that in case they 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 Ritedeal nor their representative appeared on the scheduled date of hearing nor did they send any letter giving reasons for their failure to appear for the hearing.
6. From the above, it is clear that Ritedeal were granted sufficient opportunities to appear before me and present their case. Despite the same, they failed to avail the said opportunities. In view thereof, the case is proceeded with based on the material available on record.
APPRECIATON OF FACTS
7. 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 SRJ, AS, 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 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 SRJ; the director / authorized signatory of Ritedeal.
· Galaxy vide their letter dated December 20, 2005 forwarded the acknowledged copy of the letter earlier sent to them by SEBI.
8. 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.
9. These documents establish the finding that the restraint order was suitably conveyed to all the parties and that all concerned entities including Ritedeal were fully aware of the restraint order of SEBI and that there was no scope for misinterpretation of the order.
10. Despite the same, Ritedeal entered into these transactions, as executed by Galaxy who admitted to the said act, but attributed the same to a mistake committed by their dealing operator. Ritedeal on their part have not admitted to the act nor offered any explanation for the same.
11. In any case, it is not even open for them to plead any ambiguity or indefiniteness in the order. Right or wrong, the order had to be obeyed.
12. It would also be relevant to note a few other facts at this juncture.
13. 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.
14. 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. Ritedeal, being one of the entities dealing in the said scrip as a client was said to share the same phone number as that of another client; Ganesh Raut while the directors of Ritedeal i.e SRJ and AS were also dealing as clients in the said scrip.. This is just a sample of the inter relationship existing amongst the various entities dealing in the said scrip.
15. 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.
16. Mens rea is thus writ large in all their actions.
17. Being a party to the said order, Ritedeal ought to have ensured complete compliance with the said order. Instead they acted in brazen defiance of the orders of the regulator. Disobedience of an order strikes at the very root of the rule of law which is the foundation of a democratic society.
18. Their conduct thus constitutes contempt by way of willful disobedience of the directions issued by the regulator. The manner in which they have conducted themselves earlier and before this forum clearly tends to lower the authority of the respective authorities and obstructs the administration of justice.
19. A levy of a high amount in this case would thus meet the ends of justice.
20. 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. 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.
21. However before fixing the quantum of penalty that is commensurate with the charge established against Ritedeal, 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.
22. The consequences arising out of the act of Ritedeal cannot be exactly measured vis-à-vis the factors mentioned in Section 15J of the SEBI Act, 1992. I however cannot lose sight of the fact that at the time of passing the order in question, 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. It is clear that if such orders are violated, the interest of the investors is jeopardized. Hence sufficient cognizance has to be taken of such disregard and suitable liability should be fixed there upon or else, the entire purpose of enactment of the statute would become redundant.
23. In view thereof, although I am inclined to hold that the penalty need not be imposed in terms of the exact 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
24. On a judicious exercise of the discretion conferred upon me and taking into consideration the factors enumerated in Section 15J of the Act, 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 lakhs only) on M/s Ritedeal Trading Co. Pvt. Ltd.
25. 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