IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 43/2005
|
Date of Hearing
|
6.6.2005
|
|
Date of Decision
|
20.6.2005
|
In the matter of:
|
Abhilashaa Securities Pvt. Ltd.
|
Appellant – Represented by
|
|
|
Ms. Prarthana Awasthi, Advocate
|
|
Versus
|
|
|
Securities & Exchange Board
|
Respondent –Represented by
|
|
of India
|
Mr. Ravi Hegde, Advocate
|
Coram:
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
Per: Justice Kumar Rajaratnam, Presiding Officer
1. Appeal is taken up with consent of parties.
2. The appellant being aggrieved by the order of the adjudicating officer of SEBI imposing a penalty of Rs. 1,50,000/- has preferred this appeal. It is alleged by the respondent that the appellant failed to furnish any information that was sought for during the investigation of scrip known as MOH Granites Ltd.(MOH for short).
3. At the outset it is common ground that at the time of adjudication proceedings, in reply to the show cause notice, the appellant had made full and correct disclosure of information that was required by SEBI. The crunch lies in the fact that a person by name Yezdi Master being a Chartered Accountant by profession, appeared before SEBI in response to the summons dated 21.10.2002. The statement was recorded on oath on 22.10.2002. The statement was not to the satisfaction of the respondent.
4. Ultimately, a show cause notice was issued and in reply to the show cause notice, the appellant appeared to have made all the disclosures within his knowledge with respect to investigation of MOH. It is not clear why Mr. Master appeared on behalf of the appellant. In his affidavit, Master appears to have said the he was a director of the appellant company and produced a visiting card wherein Master was designated as a director of the company. It also appears that the summons was sent to the designated address of the appellant company. The designated address was 203, Elphinstone House, Marzban Road, Fort, Mumbai – 1. It is also not known how Mr. Master received the summons addressed to the company.
5. Ms. Prarthana Awasthi, the learned counsel for the appellant submitted that the summons was sent to the old address at Marzban Road, and by that time the appellant had shifted to 9, Pushpam, 2nd Floor, 30-E, Cawasji Patel Street, Fort, Mumbai – 1, with effect from 7.10.2002. On 21.10.2002 when the summons was sent it was sent to the old address. It was vehemently submitted by the learned counsel for the appellant that Mr. Master was neither a director of the company nor authorised to make any submission on behalf of the appellant.
6. Copies of documents including those documents filed with the Registrar of Companies (ROC) were submitted with the adjudicating officer by Ms. Kannan Desai, the director of the appellant company to establish that Master was never a director at any point of time.
7. The Court was keen to know as to why no letter of authority was taken from Mr. Master with regard to his identity and his right to represent the company. This could easily have been taken in the form of a letter of authority or a copy of the resolution of the Board of Directors authorising him or even in the form of a vakalatnama if represented by a Counsel.
8. An affidavit was filed on this aspect of the matter by the manager of SEBI stating that at that relevant time there was no practice to get a letter of authority from the person who makes the statement.
9. The system has now been put in place where every person who answers summons is directed to bring a letter of authority from the company or to prove his identity.
10. The affidavit at paragraph 6 and 7 reads as follows:
“6. When the matter was taken up for hearing by the Hon’ble Tribunal it was rightly observed by the learned Presiding Officer that a reasonable doubt was cast over the entire transaction as it was not otherwise possible that complete stranger would attend a hearing before SEBI representing the appellant and making statements on oath on behalf of the appellant without due authority granted on to such a person like in the present case. The Learned Presiding Officer was pleased to direct SEBI to file an affidavit stating out as to what steps were taken by SEBI before taking the oral statements of the Master on 22nd October 2002 as to what procedure was followed by the investigating officer for determining as to whether or not the person making statement on oath was in fact authorised to do so.
7. It is submitted that currently a practice is followed by Investigating Officers of SEBI to generally check and confirm the authority of the person making any statement on behalf of any entity under investigation and/or to ask for authority letters or other documents. In the present case pursuant to SEBI’s summons on 22/10/2002 Mr. Master appeared before SEBI and in his statement given on oath identified himself as a Director of ASPL and produced his visiting card. On 24th October SEBI received a letter dated 23/10/02 in their letter head from ASPL in which it is stated that “… accordingly our Director, Mr. Yezdi J. Master appeared in person before the investigating officer…” (copy attached) as also giving further information about the identity of the person as per the reply dated 7/11/03 (Exhibit ‘D’) to the show cause notice issued by SEBI, ASPL had inter alia stated that “…and directors namely Ms. Kanan Desai and Mr. Yezdi Master…” from the above, SEBI ensured to obtain the identity of Mr. Master as a director of the ASPL at the same time in the view of the above there were no reason to doubt the genuinety of Mr. Master, a director of ASPL during the investigation.”
(Emphasis by Court)
11. A lot of the Tribunal’s time would have been saved if the investigating officer had insisted on a letter of authority from the company and after that recorded the statement of Master.
12. On the facts of this case, it may not be very relevant but an occasion may arise when any person can misrepresent the company and make a statement, to be ultimately disowned by the company. That is why we state that before a statement is recorded in answer to a summons it is necessary to have on record some letter of authority to show that the person who is making the statement is really a representative of the company. Nothing has been produced by the respondent before the Court on this aspect of the matter.
13. There is also considerable doubt whether Master was ever a director of the company. The adjudicating officer proceeds on the footing that Master was a director of the appellant company till 7.10.2002 and that the summons was received by Master on 21.10.2002.
14. The respondent was not able to satisfy the Court that Master was a director of the company at any point of time. On the contrary, the ROC records produced by the appellant indicates that Master was never a director of the company, although he represented himself as a director of the company and designated himself as such in his visiting card.
15. The adjudicating officer also concludes that there must have been a collusion between the appellant and Master in deceiving the investigating officer. There is no material on record to show that there was any deceit by the appellant. On the contrary, when the show cause notice was issued at the old address, the appellant being a sub-broker, the broker passed on the show cause notice to the appellant and the appellant responded to the show cause notice and has completely cooperated with the adjudicating officer and has produced all the relevant materials and documents with respect to MOH, which is the subject matter of investigation.
16. The only instance where blame can be apportioned to the appellant is when the appellant did not inform SEBI about the change of address from Marzban Road to Cawasji Patel Street. This change of address took place on 7.10.2002. Although no Regulation has been pointed out where there is a mandate to inform SEBI about the change of address, it appears to us of mere common sense that, when an address of a sub-broker is changed, there is an obligation for the appellant to inform SEBI about it. This not having been done, the appellant is partly to be blamed for this mess.
17. However, there is no material on record to show that there was any collusion between Master and the appellant.
18. We make it clear that in future summons issued to any person/entity, there is an obligation on the part of SEBI to take a letter of authority from the persons before recording a statement, so that the statement will be binding on the person who receives the summons. This not having been done, SEBI is also partly to be blamed for this mess.
19. Taking into account the facts and circumstances of the case, and also taking into account the fact that in reply to the show cause notice Ms. Kannan Desai has fully cooperated with the adjudicating officer, we feel that there can be no blame on the part of the appellant except in not informing SEBI about the change of address. Only to that extent we hold the appellant responsible.
20. Accordingly, in view of the full disclosure made by the appellant in response to the show cause notice, we modify the penalty to Rs. 20,000/-.
21. We also make it clear that there can be no prosecution of the appellant under Section 24 in view of the fact that there is specific power to prosecute a person under Section 11C (6) if a person fails without reasonable cause to produce documents and records which is required by the investigating authority.
22. The Supreme Court in Maqbool Hussain v. The State of Bombay reported in AIR 1953 SC 325 has recognised the principle of double jeopardy. It said that the fundamental right which is guaranteed in Article 20(2) enunciates the principle of autrefois convict or ‘double jeopardy’. The roots of that principle are to be found in the well established rule of the common law of England that where a person has been convicted of an offence by a court of competent jurisdiction the conviction is a bar to all further criminal proceedings for the same offence (at Para 7). To the same effect is the ancient maxim Nemo bis debet punire pro uno delicto, that is to say that no one ought to be twice punished for one offence or as it is sometimes written pro eadem causa, that is, for the same cause.
23. In C.B.I. v. Duncans Agro Industries Ltd., Calcutta, reported in (1996) 5 SCC 591 a bank had filed a suit for recovery of dues from the respondent company. This suit was compromised. Subsequently, the CBI lodged FIR’s for offences of criminal breach of trust, cheating, etc. The Court based its decision on the logic that the original dispute was of a civil nature and therefore, there was no justification in proceeding further. The civil suit for the recovery of dues having been compromised, the quashing of the FIR was justified.
24. Likewise, when SEBI imposes a penalty, it is a statutory penalty which is of a civil nature and which also gives rise to criminal prosecution under Section 24. Once the penalty is paid, it can be safely said that the matter stands settled and therefore, any prosecution launched by SEBI would not be in the interest of the securities market as such prosecution may ultimately be held to be violative of the spirit of Article 20(2) of Constitution of India. There appears to be no incentive for a person to pay the penalty if he is to be prosecuted even after complying with the order of SEBI or as modified by the Tribunal or the Supreme Court. Section 24(1) read as follows:
“24. Offences – (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.”
Whether Section 24(1) is violative of Article 20(2) of the Constitution will be settled as and when such matters arise for consideration at a later date. We, however, have no difficulty in understanding Section 24(2) which reads as follows:
“24(2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years or with fine, which may extend to twenty-five crore rupees or with both.”
Section 24(2) can be invoked if a person failed to pay the penalty imposed upon him or fails to comply with any of the directions of SEBI. Thus there can be no violation of the principles of Article 20(2) of the Constitution by any stretch of imagination.
25. We commend to SEBI that action should invariably be taken under Section 24(2) rather than under Section 24(1) as a there is lot of difference between a person defying the orders of SEBI and a person who complies with such orders.
26. In the facts and circumstances of this case, if the penalty is paid, we make it clear that there will be no prosecution against the appellant under Section 24(1) since the appellant has fully cooperated with the investigating authority. The time granted for payment of penalty is four weeks from the receipt of the order.
27. Appeal is disposed of accordingly. No order as to costs.
C. Bhattacharya
Member
|
Justice Kumar Rajaratnam
Presiding Officer
|
Place: Mumbai
Date: 20.6.2005
//SR60518