Order against M/S. Poonam Commercial

 

1. Vide order dated July 8, 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, the alleged violation of 11C of Securities and Exchange Board of India Act, 1992 against M/s. Poonam Commercial having its address at 54, Bhairav Dutta Lane, Salkia, Howrah – 711 106. For the sake of convenience, the said M/s. Poonam Commercial will be referred hereinafter in this order as ‘the noticee’. The aforesaid appointment as Adjudicating Officer was communicated to me vide proceedings dated July 15, 2004.

 

1. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the scrip of Globe Stock & Securities Ltd.  During the course of the said investigation, the investigating authority of SEBI issued summons dated October 16, 2002 and February 20, 2003 directing the noticee to furnish the information / documents specified in the annexures to the said summonses. As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summonses dated October 16, 2002 were served on the noticee. The receipt of the summons dated October 16, 2002 was duly acknowledged by the noticee. From an unauthenticated photocopy of the letter dated October 16, 2002, the summons dated October 16, 2002 was sent to Balladas Daga, Member, Calcutta Stock Exchange for the purpose of serving the same on the noticee.  Vide letter dated September 17, 2003, an unauthenticated photocopy of which is made available to me by SEBI, the aforesaid member confirmed that the summonses with respect to the noticee were served on the noticee. However, it was alleged that there was no compliance of the aforesaid summonses by the noticee.  

 

1. I issued a notice dated December 15, 2004 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against it and penalty be not imposed under Sec. 15A(a) of the Securities and Exchange Board of India Act, 1992. The said notice dated December 15, 2004 was sent to the noticee by registered post acknowledgment due. However, the said notice was returned undelivered by the postal authorities with endorsements ‘not found’ and ‘not known’. Therefore, I issued a fresh notice under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 on February 15, 2005 and requested the Eastern Regional Office of SEBI at Kolkata to serve the notice by way of affixture as provided under Rule 7 ( c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995. Vide letter dated March 3, 2005, the Eastern Regional Office at Kolkata informed me that the said notice dated February 15, 2005 was affixed on the premises of the noticee on February 25, 2005. A report dated March 3, 2005 with respect to the said affixture duly signed by two witnesses was forwarded to me by the Eastern Regional Office of SEBI vide the aforesaid letter.

 

4.     Since there was no reply to the said notice by the noticee within 14 days, the time which was stipulated for the noticee to file its reply, I issued a notice of inquiry dated May 20, 2005 in terms of Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and  June 09, 2005 was fixed as the date of inquiry. The Eastern Regional Office of SEBI at Kolkata was requested to serve the notice on the noticee by way of affixture in terms of Rule 7(c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The Eastern Regional Office of SEBI vide its letter dated June 1, 2005 forwarded affixture report with respect to the said notice. However, no representative of the noticee appeared before me on June 09, 2005 or on any subsequent date. In these circumstances, I was of the opinion that the noticee was intentionally evading the adjudication proceedings and therefore I decided to proceed with the inquiry based on the record available.

 

5.     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 it. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty of one lakh rupees for each day during such failure continues or one crore rupees, whichever is less by the Adjudicating Officer in case 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.

 

6.     It was alleged by SEBI that the noticee failed to comply with the summonses dated October 16, 2002 and February 20, 2003 issued by the investigating authority as mentioned above.

 

7.      The noticee did not dispute the fact that the investigating authority of SEBI issued the aforesaid summonses. The noticee also did not dispute the receipt of summonses by him. Further, from an unauthenticated photocopy of acknowledgment issued by the noticee which was made available to me by SEBI, I noticed that the summons dated October 16, 2002 was received by the noticee. From an unauthenticated photocopy of letter dated September 17, 2003 received from M/s. Ballabh Das Daga, Member, Calcutta Stock Exchange addressed to the Investigating Authority, I noticed that the summons dated February 20, 2003 was served to the noticee by the said member.  Despite affording all opportunities, the noticee failed to either issue a reply to the show cause notice or to appear for the inquiry / hearing.

 

8.      I noticed that sufficient opportunity was given to the noticee by the investigating authority by issuing two summonses viz., summons dated October 16, 2002 and February 20, 2003. By its repeated failure to comply with the summonses, the noticee caused hindrance to the process of investigation. In view of the above, I find that non-compliance with the summons issued by the investigating authority of SEBI by the noticee is established.

 

9.     Since the failure to furnish the information / documents to the investigating authority of SEBI by the noticee is established, the quantum of penalty has to be determined by me.

 

10. 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.

 

11. 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.

 

12. 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. Whereas the repetitive nature of the default is concerned it is observed that the investigating authority issued two summonses and both the summonses were received by the noticee and the noticee failed to produce the information / documents before the investigating authority. This shows that the default was repetitive in nature.

 

13. 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

 

14.  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 M/s. Poonam Commercial  In my view, the above penalty commensurates with the default of the noticee, in the facts and circumstances of the case.

 

15.  The noticee shall pay the amount of penalty imposed with respect to each of them by way of demand drafts in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand drafts should be forwarded to Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, L&T Chambers, 3^rd Floor, 16 Camac Street, Kolkata – 700 017.

 

16.  In terms of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order is sent to the noticee and also to Securities and Exchange Board of India.

 

 

Date: June 30, 2005                                A.Chandra Sekhar Rao

Place: Mumbai                                                                     Adjudicating Officer