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Order against Rose Kamal Mercantile Pvt. Ltd. in the Matter of Globe Stock & Securities Limited

Jun 30, 2005
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Orders : Orders of AO

SECURITIES AND EXCHANGE BOARD OF INDIA

A. O. NO: ACR/67/2005

 

ADJUDICATION ORDER AGAINST ROSE KAMAL MERCANTILE PVT. LTD.  IN THE MATTER OF GLOBE STOCK & SECURITIES LIMITED UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

  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 Rose Kamal Mercantile Pvt. Ltd. having its address at 20, N. S. Road, Kolkata – 700 001. For the sake of convenience, the said Rose Kamal Mercantile Pvt. Ltd., 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.

     
  2. 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 May 05, 2003, May 20, 2003 and August 06, 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 May 05, 2003 May 20, 2003 and August 06, 2003 were served on the noticee. The receipt of the summons dated May 05, 2003 and May 20, 2003 was acknowledged by the noticee. From an unauthenticated photocopy of the postal receipt, I noticed that the summons dated August 06, 2003 was sent by PDC Securities Pvt. Ltd., Member, Calcutta Stock Exchange through registered post. Further, the noticee vide its letter dated May 12, 2003 wrote to the investigating authority that its ‘dealing representative’ was out of station and hence requested for grant of extension of time for a  week for submission of the documents/ information demanded by the investigating authority. Further, the noticee, vide its letter dated May 26, 2005 referring to the summons dated May 05, 2005 wrote to the investigating authority that its dealing person was out of station and requested the investigating authority to grant further extension of time till June 6, 2003 for submissions of the documents/ information demanded by the investigating authority.

     
  3. However, it was alleged that there was no compliance of the aforesaid summonses by the notice even though it requested the investigating authority for extension of time on two occasions.

     
  4. 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, till January 17, 2005, my office neither received the postal acknowledgment card with respect to the registered post through which the aforesaid notice dated December 15, 2004 was sent nor the envelope containing the notice was returned undelivered by the postal authorities. In these circumstances, I presumed that the notice was delivered to the noticee and since there was no reply from the noticee, I was of the opinion that an inquiry should be held in the matter and accordingly, a notice of inquiry under Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 was issued to the noticee on January 17, 2005. Subsequent to the dispatch of the said notice dated January 17, 2005, the envelope containing the notice dated December 15, 2004 was returned undelivered by the postal authorities on January 24, 2005 to my office with an endorsement to the effect that the noticee was not found. Subsequently, the notice of inquiry dated January 17, 2005 was also returned undelivered with an endorsement to the effect that the noticee was not found. Therefore, I issued a fresh notice of inquiry on February 7, 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 February 11, 2005, the Eastern Regional Office at Kolkata informed me that the notice dated February 7, 2005 was affixed on the premises of the noticee on February 8, 2005. A report on the said affixture duly signed by two witnesses was forwarded to me by the Eastern Regional Office of SEBI vide the aforesaid letter. 

     
  5.  The noticee vide its letter dated February 17, 2005 referring therein notice of inquiry dated February 07, 2005 expressed its inability to appear before the Adjudicating Officer as it did not receive show cause notice dated December 15, 2004 and requested  for a copy of the said notice dated December 15, 2004. 

     
  6. Vide letter dated February 25, 2005 a copy of the show cause notice dated December 15, 2004 was forwarded to the noticee.  It was advised that reply to the said show cause notice should be submitted within 14 days of receipt of the letter and the said notice was forwarded through speed post with acknowledgement due.

     
  7. 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.

     
  8. 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. 

     
  9. It was alleged by SEBI that the noticee failed to comply with the summonses dated May 05, 2003, May 20, 2003 and August 06, 2003 issued by the investigating authority as mentioned above. 

     
  10.  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 acknowledgments issued by the noticee which were made available to me by SEBI, I noticed that the said summonses dated May 05, 2003, May 20, 2003 and August 06, 2003 were received by the noticee. Despite giving several opportunities, the noticee failed to either issue a reply to the show cause notice or to appear for the inquiry / hearing. 

     
  11.  I noticed that sufficient opportunity was given to the noticee by the investigating authority by issuing three summonses viz., summons dated May 05, 2003, May 20, 2003 and August 06, 2003. By its repeated failure to comply with the summonses, the notice 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.

     
  12.  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. 

     
  13.  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.  

     
  14.  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. 

     
  15.  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 three summonses and all three 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.

     
  16.  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

  17.  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 Rose Kamal Mercantile Pvt. Ltd.  In my view, the above penalty commensurates with the default of the noticee, in the facts and circumstances of the case. 

     
  18.  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, 3rd Floor, 16 Camac Street, Kolkata – 700 017. 

     
  19.  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