ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15A (a) OF THE SEBI ACT, 1992
AGAINST
M/S SHONKH TECHNOLOGIES INTERNATIONAL LTD
BACKGROUND:
1. The Securities and Exchange Board of India (for brevity’s sake, hereinafter referred to as ‘SEBI’) had initiated an investigation into the alleged market manipulation and irregularities in the trading of the shares of Shonkh Technologies International Ltd. (for brevity’s sake, hereinafter referred to as ‘STIL’) which was listed on the Stock Exchange, Mumbai and the Delhi Stock Exchange (BSE and DSE respectively) at the time of the investigation. As per the findings of the investigation, STIL was found to be one of the entities connected with the buying, selling or dealing in the scrip at the relevant point of time.
2. In view of the same, the Investigating Authority issued summons under Section 11C (3) of the SEBI Act, 1992 (for brevity’s sake, referred to as the Act) to STIL on specified dates discussed later in the latter part of the order with an advise to appear in person before the competent authority on the scheduled dates and/or produce documents as mentioned in the summons that STIL intended to rely upon in their defense or any other documents relevant to the proceedings initiated by SEBI in this regard.
It was further made clear to STIL that in case if they failed to appear on the scheduled dates before the investigating authority; necessary action would be initiated against them under the relevant provisions of the Act.
NOTICE/ REPLY/ PERSONAL HEARING:
3. As STIL failed to appear/produce the relevant documents, adjudication proceedings were initiated against STIL and in this context, a notice dated September 10, 2003 was issued to them by the previously appointed adjudicating officer under Section 15-I of the Act read with Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, ( hereinafter referred to as Rules) where under STIL was asked to show cause as to why adjudication proceedings should not be held against them and why penalty should not be imposed upon them under Section 15A(a) of the Act. STIL was advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice.
4. STIL forwarded their reply vide letter dated September 22, 2003. Subsequently, I was appointed as the Adjudicating Officer vide the order of the Chairman, SEBI dated September 30, 2004, and hence issued a notice of hearing dated October 11, 2004 in terms of Rule 5(1) of the Rules to STIL at their Mumbai address i.e. STIL, Nirmal, 6th Floor, Nariman Point, Mumbai – 400 021 by registered post (ack due). Since no reply was forthcoming from them, a second notice of hearing was forwarded through the Northern Regional Office of SEBI at New Delhi under cover of letter dated December 2, 2004 with a request that the same be forwarded to STIL at their Delhi address. Upon receipt of the said notice, STIL vide letter dated December 14, 2004, requested that the hearing be adjourned to the first the week of January. In view of the same, on the third occasion, a notice of hearing was sent to STIL on December 15, 2004 to appear before me on January 6, 2005. Vide letter dated January 5, 2005, STIL informed that they had authorized, nominated and appointed M/s Corporate Law Chambers India to appear, act, and plead on their behalf, in the matter under reference. However vide their letter dated January 5, 2005 as Corporate Law Chambers India sought for an adjournment, the matter was finally posted for hearing on January 12, 2005 with an advise that in case STIL remained unrepresented on the scheduled date, the matter would be proceeded with based on the material available on record.
5. On the scheduled date, STIL was represented by their Counsel, who submitted that STIL had responded to allthe summons / letters received from SEBI and that there had been no undue delay or lack of cooperation from STIL. Written submissions to that effect dated January 12, 2005 were also filed, with a request that the same be taken into consideration while adjudicating the case.
CONSIDERATION OF ISSUES
6. I have carefully perused the documents available on record while taking into account the issues highlighted in the investigation report and the submissions made in response to the same. The allegation against STIL is their failure to appear in person/produce documents before the investigating officer of SEBI on specified dates, in response to the various summons served upon them under Section 11C(3) of the Act, in the context of them allegedly buying, selling or dealing in the scrip of STIL.
Section 11C (3) of the Act in this regard may be referred to which reads as under:
“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 authorised by it 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”.
7. STIL on their part have contended that there has been adequate compliance of all the summons sent to them. In order to verify the veracity of the said submission, I consider it necessary, first and foremost to take into account the details of all the summons and the replies if any, submitted by STIL in response to the same. The dates of the summons and the replies received from STIL are summarized below;
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Date of summons
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Details sought for
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Date of appearance/production of documents
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Replies made by the Company
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Letters along with complete annexures received by SEBI on
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29.05.2001
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a) No and % of shares held by promoters etc. in STIL
b) Details of imp. corporate developments
c) Distribution schedule filed by the company with the stock exchange etc.
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01.06.2001
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06.06.2001
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06.06.2001
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28.07.2001
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a) Details about private placements/increase in capital of the company
b) Certified copy of the board resolution etc.
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03.08.2001
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14.09.2001
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18.09.2001
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10.08.2001
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Same as above
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14.08.2001
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14.09.2001
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18.09.2001
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19.09.2001
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Same as above
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26.09.2001
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14.09.2001
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18.09.2001
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25.09.2001
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a) Details of the increase in capital
b) Dates when the allotees were allotted shares
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04.10.2001
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12.11.2001
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13.11.2001
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07.02.2002
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a) Public issue contemplated by STIL and the relevant details
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08.08.2002
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08.02.2002
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08.02.2002
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18.06.2002
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a) Copies of Bank Statements
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22.06.2002
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No reply received
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28.03.2003
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a) Names and addresses of the Directors
b) Names and Addresses of the shareholders
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05.04.2003
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04.04.2003
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05.04.2001
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8. STIL further stated that certain details as sought vide summons dated March 18, 2003 pertained to Shonkh Technologies Ltd. and hence the details of the same were beyond their control. It was further stated that certain details of the shareholders of STIL as on August 9, 2000 were also not available with them.
9. In the following paragraphs, I will discuss and analyze point wise the responses submitted by STIL, vide their replies to the various summons issued by SEBI.
A) Summon No. 1 dated 29.05.01
Vide the said summons, STIL was asked to submit the following information/ documents by June 1, 2001. From the annexure enclosed with this summons it appears that the said information/documents was also sought vide SEBI letter dated May 17, 2001 to be provided by May 24, 2001 which was replied to vide their reply dated June 6, 2001.
Information sought vide the said summons
- No. & % of shares held by each of the promoters of the company, their relatives, group companies, the directors, body corporates belonging to the promoters
- Details such as names, No. & % of shares of the company held by each of 100 body corporate, banks, Financial Institutions, Mutual Funds, Mutual Funds, Foreign Institutional Investors.
- A copy of the distribution schedule filed by the company with stock exchanges.
- Details of important corporate developments that took place in the three financial years commencing April 1, 1998 till date; such as increase in equity, debt, issue of debentures – fully convertible, partly convertible, non-convertible, issue of preference shares etc. Also a copy of the relevant resolution in this regard passed by the Board of Directors/Members of the company.
- Details of intimation received under Regulation 7 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulation 1997.
Reply of STIL to the said summons
STIL vide their letter dated 4.06.2001 interalia requested for extension of time till June 07, 2001 for furnishing the information as the Company Secretary of STIL was on leave. Subsequently, vide their letter dated 06.06.2001, they submitted the following information:
A. Relevant to Promoter Group holdings contained in Annexure – I (A), Annexure – I (B), Annexure – I (C) of the letter dated 06.06.2001
B. Relevant to the top 100 holders contained in Annexure – II A, Annexure – II (B), Annexure – II (C) of the letter dated 06.06.2001
C. Copies of Distribution Schedule contained in Annexure – III (A) to III (c) of the letter dated 06.06.2001.
D. Details of Important events – contained in the letter itself on page number 2 and 3 of the letter dated 06.06.2001.
On the said basis, STIL contended that they had complied with the summons and there has been no violation of the same as alleged. For ready reference, they forwarded the copy of said summon along with their letter dated 06.06.2001 for perusal.
Analysis:
As regards the details sought under Clauses 1,2,3 and 4 of the said summons, the same were furnished by STIL. However, regarding the details under Clause 5 i.e. pertaining to the details of intimation under Regulation 7 of the Takeover Regulations, I record my observations as under:
STIL filed enclosed Annexures V(A) to V(D) to the letter dated June 6, 2001 in reply to the same. I have perused the said documents which pertain to the authorization granted by Ankur Cultivators Pvt. Ltd., Advance Hovercrafts and Composites India Ltd. and Padmini Technologies Ltd., to Shreejee Yatayat India ltd. to file a report under Regulation 3(4) of the Takeover Regulations. The letter dated March 12, 2001 from STIL to BSE, DSE and CSE conveys the information regarding acquisition of 5.71% of the paid up capital of STIL by Coral Reef Investments Co. Ltd. However, since there was no requirement of reporting to the stock exchanges in terms of Regulation 7 at the relevant point of time, the letter dated March 12, 2001 from STIL to BSE, DSE and CSE cannot be taken in to account in the facts of the present case. Although it appears that Coral Reef had acquired 5.71% of the paid up capital of STIL no evidence has been provided by STIL to SEBI evidencing adequate compliance of Regulation 7 of Takeover Regulations as it existed on the date of the said acquisition.
From the foregoing, I am disinclined to accept the argument that the information sought for under the “details of intimation received under Regulation 7 of Takeover Regulations” was provided.
B. Summons dated July 28, 2001, August 10, 2001 and September 19, 2001. The following information was sought vide the three aforesaid summons:
- Complete details about private placements/increase in capital of the company prior to its acquisition in July 2000, including the name, address, no. and % of shares given to each allottee, price of each shares, date of the allotment of shares, whether payment was in part or in full with details thereof.
A) Certified copy of all the Board resolutions passed by the erstwhile Shonk Technologies Ltd. or increase in capital of the company and
B) Copy of application received along with payment details in respect of each of above increase in capital
C) Copy of the application received along with the payment details for the preferential allotment made by Shreejee Yatayat Ltd. (now called Shonkh Technologies International Ltd) for the following persons :
1. Saral Website EXIM P Ltd.
2. Zodiac Com P. Ltd.
3. Spectrum Com P Ltd.
4. Rajadot Web P Ltd.
5. Noted Infotech P Ltd.
6. Shubhkam Monitary Services P Ltd.
7. A Jain and Company P Ltd.
8. Cama Enterprises Ltd.
9. Padmini Technologies Ltd.
10.Ankur Cultivators P Ltd.
11.Advance Hovercraft & Composites India Ltd.
Reply of STIL
STIL contended that they had complied with the said summons vide their letter dated 14.09.2001 by furnishing the requisite information and further contended that as the information sought from STIL was voluminous, the summons dated 28.07.01 and 10.08.01 were complied by them with a slight delay.
As regards compliance with the summon dated 19.09.01, it was contended that the same was not required at all as the relevant information was already called for in the earlier summons dated 28.07.01 and 10.08.01 which were already complied with vide their letter dated 14.09.2001, and informed to SEBI vide letter dated 20.09.01. The following information/documents were forwarded in reply to the paid summons:
A) Information with respect to Names of the shareholders of Shreejee Yatyat India Limited who were allotted shares of Shonkh Technologies Ltd. Annexure – A
B) Certified Copy of Extracts of Minutes of Extraordinary General Meeting of the Company held on 14th July 2000. Annexure – E
C) Copy of Letter dated 26th July 2000 of Shreejee Yatyat India Ltd. addressed to SEBI informing details of preferential allotment. Annexure – B
D) A certified Copy of meeting of Board of Directors held on 18th July 2000. Annexure D
E) Copy of letter No. FITTC/TO/NB/16528/2000 dated 13th October 2000 issued by SEBI acknowledging the company’s submission.
On the said basis, it was contended that they had complied with the summons and there has been no violation of summons. For ready reference, copy of said summon along with their letter dated 06.06.2001 was also forwarded for perusal.
Analysis:
Vide the said summons, certain information/ documents were sought from STIL to be furnished latest by August 3, 2001. However as the same was not furnished by STIL, a reminder summons were sent on August 10, 2001 to furnish the said information latest by August 14, 2001. Although STIL once again failed to submit the reply to the said summons, their belated reply dated September 14, 2001 in response to the letter / summons dated August 10, 2001 was received by SEBI on September 18, 2001. However, since the reply by STIL was furnished before the issuance of the third summons, I am taking into account; the submissions so made in response to all the three summons.
Upon analyzing the same, I have noted that STIL failed to furnish complete details about all private placement/increase in capital of the company prior to its acquisition in July 2000 including the name, address, no. and % of shares given to each allottee, price of each shares, dates of the allotment of shares, whether payment was in part or in full with details thereof.
Further, the certified copy of the board resolution passed by the erstwhile Shonkh Technologies Ltd. was not furnished. However, the copies of the application forms alongwith the payment details of only 12 out of 55 allotees were furnished.
The details regarding the copies of the application alongwith the payment details for the preferential allotment made by Shreejee Yatayat Ltd. for all the following 11 entities were not furnished.
1. Saral Website EXIM P Ltd.
2. Zodiac Com P. Ltd.
3. Spectrum Com P Ltd.
4. Rajadot Web P Ltd.
5. Noted Infotech P Ltd.
6. Shubhkam Monitary Services P Ltd.
7. A Jain and Company P Ltd.
8. Cama Enterprises Ltd.
9. Padmini Technologies Ltd.
10.Ankur Cultivators P Ltd.
11.Advance Hovercraft & Composites India Ltd.
In effect it is evident that STIL furnished only part of the information that was called for, in all the three summons as aforestated.
C. Summons dated September 25, 2001
Ø The paid up share capital of the erstwhile unlisted company – Shonkh Technologies Ltd. increased from 1,20,30,533 shares as on December 31, 1999 to 1,22,16,093 shares as on March 31, 2000 and to 1,52,73,093 as on July 15, 2000. In this regard, vide the said summons, STIL was asked to furnish the following information/ documents by October 4, 2001 :
1. Complete details of the above mentioned increase in capital of the erstwhile unlisted company – Shonkh Technologies Ltd. For each such increase in capital, details such as the manner of increase in capital (indicate whether rights/preferential/conversion) the name, address, number and percentage of shares given to each allottee, price of each share, date of application of shares, date of the allotment of shares, copy of the application forms received, whether the payment was in part or in full with details thereof (such as date when the amount was actually received etc.) were sought.
2. Certified copy of each of the Board resolutions, minutes of the general meetings of the company; the erstwhile Shonkh Technologies Ltd. for each increase in capital of the company.
3. The various date(s) when each of allottees who were allotted shares pursuant to Business Purchase Agreement in July 2000 became shareholders of erstwhile unlisted company – Shonkh Technologies Ltd. along with complete details thereof.
4. Copies of statements received by Shonkh Technologies International Limited in respect of Regulation 6,7 & 8 of the SEBI Takeover Regulations and copies of statements filed by Shonkh Technologies International Limited with the stock exchanges in respect of Regulationa 6,7 & 8 of the SEBI Takeover regulations.
Reply of STIL
It was stated that the information called for in the aforesaid summon was a part of the information submitted by them in compliance of summons dated 10.08.01, which had been already complied by them vide their letter dated 14.09.01, wherein the following information was furnished.
A) Information with respect to the names of the shareholders of Shreejee Yatyat India Limited who were allotted shares of Shonk Technologies Ltd. Annexure – A
B) Certified Copy of Extracts of Minutes of Extraordinay General Meeting of the Company held on 14th July 2000. Annexure – E
C) Copy of Letter dated 26th July 2000 of Shreejee Yatyat India Ltd. addressed to SEBI informing details of preferential allotment. Annexure – B
D) A certified Copy of meeting of Board of Directors held on 18th July 2000. Annexure D
E) Copy of letter No. FITTC/TO/NB/16528/2000 dated 13th October 2000 issued by SEBI acknowledging the company’s submission.
Copy of said summon along with their letter dated 06.06.2001 was submitted for perusal.
Analysis:
It is undisputed that STIL had replied to the said summons quite belatedly vide their letter dated November 12, 2001.
The details as to the date of the share application received by Shonkh Technologies Ltd. (STL), the unlisted company was not furnished as well as the details regarding the date as to when the amount was received by them.
STIL stated that all the increase in capital was by way of preferential allotment. As observed from the extracts of the meetings of the Board of Directors of Shonkh Technologies International Limited dated February 7, 2000, July 7, 2000 and July 14, 2000, the shares were preferentially allotted to a number of entities listed in the said resolution. However, copy of the share application forms of the 5 entities as listed in the extracts of the minutes of the meeting dated July 7, 2000 were not forwarded.
As observed from the records of the minutes of the meetings of BoD, out of 18 allottees, the share application forms for only 4 allottees were forwarded.
In response to the requirement sought vide Clause 3 of the said summons, STIL had forwarded the statement showing various dates on which, the various persons to whom the shares were allotted in STIL pursuant to the business purchase agreement, became the shareholders of the unlisted company, STL. The details contained the number of shares each shareholder was holding and the dates when each of these persons became the shareholders of STL. Although I have noted that the said summons further called for ‘complete details thereof’. However, SEBI has failed to elaborate upon the information/details further required viz. folio nos, addresses of the shareholders etc. Without enlarging on the said requirement, it would not be fair to hold STIL guilty or penalize them for their failure to provide these details. It is apparent from the details provided by STIL that they have provided the details as sought for and hence no action needs to be taken against them in this regard.
The submissions made in response to Clause 4 of the said summons regarding the details sought in terms of the Takeover Regulations and my observations on the same are as under:
As regards the details of the acquisition of shares of more than 5% (as it existed at the relevant time), it appears that STIL had not received any such intimation under Regulation 7 of SEBI (SAST) Regulations except from Coral Reef Investments Co. Ltd. dated March 9, 2001(this letter from Deutsche Bank was not enclosed with their letter dated June 6, 2001 in reply to summons dated May 29, 2001). The information under the Takeover Regulations was also sought vide summons dated May 29, 2001 and the same has also been discussed by me in the foregoing paragraphs. The said Regulations by Coral Reef were not fully proved. As it did not reveal the date of acquisition of shares and the same was not in the prescribed format as required under Takeover Regulations. In view of the foregoing, the argument that STIL had forwarded the details of intimation received under Regulation 7 of Takeover Regulations cannot fully be accepted. The details regarding the disclosures in terms of Regulations 6 and 8 of Takeover Regulations were also not forwarded.
Since information as sought vide the said summons was not fully furnished, there has been only a partial compliance of the summons dated September 25, 2001.
D) Summons dated February 7, 2002
Vide the said summons information was sought as to whether any public issue was contemplated by STL (an unlisted company) and if so, the details of steps taken in this regard such as the appointment of Merchant bankers, due diligence of the company, appraisal by Financial Institutions/ banks, estimated premium if any, further STIL were also advised to state whether there was any firm arrangement for investment from mutual funds / FIs/FIIs/OCBs/NRIs etc.
Reply of STIL
STIL submitted that although the Investigating officer had asked STIL to submit their reply by 08.02.2002 i.e. within one day they had duly complied with the summon on 08.02.2002, which again showed their bonafides and submitted the following information:
A) Information regarding list of alottees along with the price at which shares were allotted to them. – Annexure I
B) A copy of the relevant extract of their appraisal report. – Annexure II
C) Copy of letter showing interest of institutions in firm allotment in shares of Shonkh Technologies Ltd. – Annexure III.
D) A copy of Letter dated 29.07.2000 addressed to BSE – Annexure IV.
Analysis:
Upon analyzing the reply furnished to the said summons, along with the documents submitted therewith, I am in agreement with the contentions of STIL that there has been adequate compliance with the said summons.
(E) Summons dated June 18, 2002
Vide the said summons , STIL was requested to forward the copies of the bank statements of STL alongwith the narration for the year 1998-99 to 2000-01 in the soft and hard copy.
Reply of STIL
It was stated that the bank statements called from them pertained to another company i.e. Shonkh Technologies Ltd., over which they had no control and hence they were not in a position to submit the same. It was stated that they had only purchased one of the business undertakings of Shonkh Technologies Ltd. in July 2000 and not the entire company as such and that the said company still existed even as on date.
Analysis:
Upon analysis of the reply furnished to the said summons, I have noted that notwithstanding the contentions advanced herewith, no reply was received to this summons.
However, I have referred to their earlier reply dated February 8, 2002 wherein STIL had inter alia stated as follows:
“Since the market did not stabilize / firm up in the subsequent period, STL decided to get its shares listed through reverse merger / acquisition with a listed company namely Shreejee Yatayat India Ltd. which was renamed as STIL”. STIL further stated that they had represented to BSE right at the time of listing, vide their letter dated July 29, 2000 that STIL had acquired business undertaking of STL, which was having unique technology, and sufficient orders in hand for running the business profitably.
STIL had in fact, on being advised by SEBI, furnished various details as regards the shareholders of STL, details regarding the preferential allotment made by STL, copies of the Board Resolution of STL etc, Hence, if they were able to furnish such important details of records nothing prevented them from furnishing the bank statements of STL which would have effectively revealed the outflow/ inflow of funds to and from the parties and made investigations into the price manipulation of STIL more effective and smoothened the lengthy process. However, non furnishing of the same adversely affected the investigation process. Hence non compliance with the said summons regarding furnishing of the copies of the bank statements and narration thereof containing warrants a penalty.
F. Summons dated March 28, 2003
Vide summons dated March 28, 2003, STIL was asked to furnish the following information by April 5, 2003.
1. The names and addresses of the directors of the company
2. The names and addresses of the shareholders of the company as on August 09, 2000 along with the following details
Ø The date of acquisition of shares by /allotment of shares to each of the shareholders
Ø The number of shares held by each of the shareholders
Ø The distinctive numbers of the shares held by each of the shareholders
Reply of STIL
STIL contended that they had complied with the same and that there had been no violation as alleged and further submitted that they had been complying with the requirements of all the summons on time, except for two occasions for the reasons cited earlier. It was stated that due to non-submission of the details of the Bank Statement and details of a few shareholders, no harm was caused to any investor and that in any case, the said details were not exclusively available with them and hence the same cannot be said to have caused any loss to anybody or hampered the investigation process. A reference was made to the findings in the order dated 2/11/2004 passed by Adjudicating officer SEBI in the matter of Raptakos Brett & Co. Ltd.
It was stated that by not complying with the above said summons, STIL had not derived any disproportionate gain or any kind of unfair advantage nor caused any loss to the investor or group of investors and hence the imposition of any penalty would be unwarranted, since the slight delay in submission of the information called for was de hors any malafide intention to suppress the information.
Analysis:
A letter dated April 4, 2003 was received by SEBI on April 5, 2003 in reply to the said summons which however did not provide the details of the shareholders of STIL as on August 9, 2000 alongwith the details of the date of acquisition of shares by / allotment of shares to each shareholder, the number of shares held by each of them and the distinctive numbers of the shares held by each shareholder. Non furnishing of the said information has led to partial non compliance of the summons. Although SEBI had sought for personal appearances of STIL vide the said summons, nobody appeared or represented STIL on the said date. However, an adjournment for the same was sought vide their letter dated April 4, 2003.
On a cumulative analysis of the responses made as regards the compliance aspects of all the summons issued to STIL discussed herein above, it is apparent that not all the said summons were duly complied with. The same is apparent from the table given below:
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Summons
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Remarks on compliance
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29.05.2001
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Partial compliance
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28.07.2001
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Reply to the same was furnished only on September 14, 2001. However, even if the belated reply is considered only partial compliance was observed
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10.08.2001
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Reply to the same was furnished only on September 14, 2001. However, even if the belated reply is considered only partial compliance was observed
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19.09.2001
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Reply to the same was furnished only on September 14, 2001. However, even if the belated reply is considered only partial compliance was observed
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25.09.2001
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Partial compliance
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07.02.2002
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Complied
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18.06.2002
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Not complied
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28.03.2003
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Partial compliance, no personal appearance before the investigating authority
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10. Thus, as STIL failed to appear before SEBI or furnish the documents in full, on a few occasions, and in the absence of any adequate explanation on record by STIL for their non appearance before the investigating authority on the said dates, it can be reasonably concluded that there has been (to a certain extent) an absence of compliance on their part, to a regulatory directive, to appear in person or produce the documents when called for, there by leading to a default on their part in co-operating with the investigation proceedings.
11. Every entity connected with an investigation process is under an obligation to provide the information as sought for by the Investigating Authority. The decision to call for such information and the judgment as to its relevancy is completely the discretion of the investigating authority and is in furtherance of the discharge of its official duties. It is not for the notice to question the relevance of the information sought for. The noticee under the summons is only obliged legally or morally, to cooperate with the Investigating Authority and furnish the required information.
12. This said principle also finds mention in the provisions of Regulation 9 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as FUTP Regulations); the relevant portion of which has been reproduced hereunder:
1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 8 to produce to the Investigating Officer such books, accounts and other documents in its custody or control and furnish him with such statements and information as the said officer may reasonably require for the purposes of the investigation.
2) Without prejudice to the generality of the provisions of sub-regulation (1), such person shall -
(a) ………;
(b) ………;
(c) ……..
(3) …….
(3) It shall be the duty of every person concerned, to give to the Investigating Officer, all such assistance and otherwise extend all such co- operation as may reasonably be required in connection with the investigation and to furnish information relevant to such investigation as may be reasonably sought by such officer.
13. It would also be relevant in this connection, to refer to the judgment of the Hon'ble High Court of Bombay in Writ Petition No.1972 of 1994 filed by ANZ Grindlays and others which inter alia held as under:
“No person can maintain the dignity or cherish prestige by avoiding due process of law. Law being a guardian, it maintains and protects the dignity and honour of every person. Dignified and honorable persons have to stand the test and trial articulated by Law. And in obedience, he or she has to submit to the process. Cherishing majesty of law and its process is an inner core of the dignity of individual in a Democratic World, which runs on the wheel of Rule of Law.”
14. In the present case, there is no dispute regarding the failure on the part of STIL in complying in totality with the provisions of Section 11C (3) of the Act. The same thwarted the attempts of SEBI to effectively gather vital evidence for the timely conclusion of the investigation proceedings. Taking into account the sensitivity of the securities market, an early conclusion of investigation is a very important objective.
15. Moreover an evasion of the regulatory provisions of the regulator issued in the interests of the investors or non adherence to the same for any reason whatsoever is bound to affect the interests of such investors as also the sound and smooth functioning of the capital market. If no cognizance were to be taken of any such a STIL each of such provisions and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.
16. In view of the fact that STIL had only partially complied with the summons issued by the investigating authority of SEBI or furnish the documents and information mentioned in the summons, STIL would be liable for such penalty as I think fit to impose, in accordance with the provisions of Section 15A (a) of the Act makes a persons who fails to furnish information, return, etc., liable to pay a penalty of one lakh rupees for each day during which such failure.
17. However, while adjudging the quantum of penalty to be levied, it would also be necessary to consider the following factors as provided in Section 15J of the Act, which also find mention in Rule 5(2) of the Rules, i.e., the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.
18. Upon perusal of the provisions enumerated above, it is clear that the adjudicating officer is required to have due regard to the factors stated in the section. The same is a direction and not an option, which is however to be exercised with due regard to its discretion. This discretion is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing all the relevant material available on record especially in the case of failure to perform statutory obligations.
19. Considering the factors as enumerated in Section 15J of SEBI Act, 1992, it is not clear as to whether STIL enjoyed any gain or unfair advantage as a result of the default. However it cannot be denied that the said default would have certainly caused a certain amount of disadvantage to their shareholders and the investor class as a whole.
20. Thus, bearing in mind these facts and circumstances of this case, and also the factors enumerated in Section 15J of the Act and on analyzing the material available on record, on a judicious exercise of the discretion conferred upon me, I am inclined to hold that although the penalty need not be imposed in terms of the quantum prescribed in the provisions of Section 15 A(a) of the Act, the imposition of a token penalty, is very much necessitated.
PENALTY:
21. In view of the foregoing, 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, and in the interest of justice, equity and good conscience, I think it appropriate to levy a penalty of Rs 50,000/- (Rupees Fifty Thousand only) on Shonkh Technologies International Ltd.
22. 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 Shri R. Mohan, General Manager, Securities and Exchange Board of India, Mittal Court , B Wing, 224 Nariman Point, Mumbai – 400021.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: JUNE 10, 2005 ADJUDICATING OFFICER