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Order against Shri Rajni M. Patel

Jun 30, 2005
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Orders : Orders of AO

SECURITIES AND EXCHANGE BOARD OF INDIA

A. O. NO: ACR/ 73/2005

 

ADJUDICATION ORDER AGAINST SHRI RAJNI M. PATEL 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 December 28, 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 for the alleged violation of Sec. 11C of Securities and Exchange Board of India Act, 1992 against Shri Rajni M. Patel, having his address at 313-Dhan Rajni Complex, 20 New Jagnath, Dr. Yagnik Road, Rajkot – 360 001. For the sake of convenience, the said Shri Rajni M. Patel will be referred hereinafter in this order as ‘the noticee’.

     
  2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the shares of Avinash Information Technologies Ltd. During the course of the said investigation, summons dated August 29, 2003, was issued by Shri P. K. Nagpal, Investigating Authority of SEBI in the matter, directing the noticee to furnish the information and produce certain documents mentioned in the Annexure to the said summons by September 10, 2003. As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summons dated August 29, 2003 was sent by registered post- acknowledgement due and the same was received at the address of the noticee. It was alleged that there was no compliance of the said summons by the noticee. 

     
  3. In view of the above, I issued a notice dated March 10, 2005 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against him and penalty be not imposed under Sec. 15 A(a) of Securities and Exchange Board of India Act, 1992. The noticee vide his letter dated nil received by my office on March 24, 2005 submitted his reply to the show cause notice. The noticee in his reply to the show cause notice contended that all the documents as directed to be produced by the investigating authority were submitted by him vide letter dated June 29, 2004. The noticee further submitted to the effect that since he was suffering from acute appendicitis and was advised bed rest, he could not reply to the summons. The noticee submitted that since he already complied with the summons, no penalty should be imposed on him. Since, the information made available to me by SEBI was silent about the subsequent furnishing of information by the noticee, I issued a notice under Rule 4(6) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 to the aforesaid Investigating Authority requesting to inform me as to whether the required information was received by him as claimed by the noticee. 

     
  4.  In reply, the Investigating Authority, vide note No. 689 dated May 20, 2005 informed me as the following: “With reference to letter ref. EAD/ ACR/40398/2005 dated May 12, 2005 regarding the captioned subject, we bring forth the following facts: 1) Investigation in the captioned scrip for the period from February 26, 2001 to May 18, 2001 was undertaken due to sharp decrease in the price of the scrip from Rs.118 on Feb 26, 2001 to Rs.54.15 on April 20, 2001 and subsequent rise from Rs.58.45 on 23rd April, 2001 to Rs. 134.65 on May 17, 2001, accompanied by variations in trading volumes. Since the company, Avinash Information Technologies Limited had been a loss incurring company, the price rise and its quoting at more than Rs. 100 was not genuine and not justified by the fundamentals of the company. 2) During the course of investigation, it was found that the three entities – Paragon Investment (P) Ltd., Shri Rajni M Patel and Ms. Heena Rajnibhai Patel had traded for 20000 shares among themselves through reversal of trades during the four days when they traded. These transactions were fictitious in nature as they were not intended to effect transfer of beneficial ownership, the buyer and seller being the group entities. 3) Summons for production of documents were issued to all the three entities on 29th August, 2003. The receipt of the same was acknowledged by all but no reply was received from any of the three entities. Accordingly, as the trading pattern indicated circular trading, action under Section 11 of SEBI Act debarring from access to the securities market and adjudication proceedings against the above entities for imposition of monetary penalty for not responding to summons was approved by WTM on 1st April, 2004. 4) Subsequently, all the three entities were issued show cause notices on May 24, 2004 under Regulation 11 of SEBI (PFUTP) Regulations, 2003. Instead of replying to the SCNs, these entities, through their letters dated 24th June, 2004, furnished the information which had been called for earlier through issue of summons and did not offer any comment on circular trading. Shri Rajni M Patel has explained to the Adjudicating Officer that the delay in furnishing information had been due to medical reasons in support of which he furnished a medical certificate dated 10th September, 2003. It needs to be mentioned here that a very long period had elapsed between the issue of summons and providing of information and the same could have been provided in subsequent months-Oct, Nov, etc. 5) This act on part of the entities being investigated upon is not justifiable as analysis of information and data helps in further detailed investigation and taking the matter to the logical conclusion. The delay or failure to provide the information delays the investigation process and compels us to exceed the benchmark limits or rely on insufficient data which we have at our disposal. Also, if the information is provided after the submission of investigation report, analysis of the same would require investigation to be carried out afresh. This would lead the investigation to an unending process. Moreover, furnishing the requisite information within the time specified is an obligation to be fulfilled by the entities and failure to do so constitutes an offence. Based on the above facts, the Adjudicating Officer may take a view on the above matter. “

     
  5. After perusal of the reply of the noticee and the comments thereon furnished by the investigating authority, a notice of inquiry dated May 12, 2005 in terms of 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. Vide the said notice, it was informed that June 9, 2005 was fixed as the date of inquiry. It was advised that the noticee or his authorized representative/ lawyer might appear for the inquiry at my office at Mumbai on the above date. 

     
  6. On June 9, 2004, the noticee appeared before me. The following is the summary of details of the proceedings and the submissions made by the noticee at the time of inquiry/ personal hearing: At the commencement of the proceedings I explained to the noticee the offence, i.e. non compliance with the summons dated August 29, 2003. The noticee was also explained of the penalty prescribed under Sec. 15A (a) of Securities and Exchange Board of India Act, 1992. A copy of the comments of the investigating authority with respect to the reply of the noticee to the show cause notice was also shown to the noticee. The noticee reiterated his reply dated nil received by this office on March 24, 2005 to the show cause notice dated March 10, 2005 issued by me. The noticee also submitted that there was no malafide intention on the part of the noticee to avoid the compliance of the summons but the same happened due to ignorance and lack of understanding of SEBI related laws. The noticee also submitted that there was a lapse on his part, which was rectified by him by providing the information to the investigating authority subsequently. The noticee also requested for imposition of minimum penalty on him. 

     
  7.  Before deciding the issues which require 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 him. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty by the Adjudicating Officer in case of 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, he shall be liable to a penalty of Rupees One lakh for each day during such failure continues or Rupees one crore, whichever is less. 

     
  8.  It was alleged by SEBI that the noticee failed to comply with the summons dated August 29, 2003 issued by the Investigating Authority as mentioned above. 

     
  9.  The noticee did not dispute the fact that the investigating authority of SEBI issued the summons. However, the noticee submitted that the reply to the summons dated August 29, 2003 was submitted by the noticee on June 29, 2004 since the noticee was suffering from acute appendicitis at the relevant point of time. It is also noted from the information furnished by the investigating authority in reply to the notice issued by me under Rule 4(6) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995  that the information / documents which was submitted by the noticee only after receipt of the show cause notice issued under Regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices in Securities Market) Regulations, 2003. It is also noted that the noticee submitted the reply to the summons almost after ten months from the date of summons that is after receipt of show cause notice under Regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices in Securities Market) Regulations, 2003. I am in general agreement with the views of the Investigating Authority that delay or failure to provide the information hampers the investigation process. I also agree that the noticee could have submitted the information as early as possible, if not, within the time prescribed in the summons.   On perusal of the unauthenticated photocopies of summons issued by the Investigating Authority to the noticee, it was seen that the noticee was summoned to furnish the information and produce documents mentioned in the annexure to the summons within the time specified therein. However, there was a huge delay in furnishing the documents/ information by the noticee. Therefore, I conclude that the failure of the noticee in furnishing the documents/ information as directed by the Investigating Authority is established. 

     
  10.  Since the failure of producing the documents before the Investigating Authority of SEBI by the noticee is established, the quantum of penalty has to be decided by me.  

     
  11.  Section 15A (a) of Securities and Exchange Board of India Act, 1992 prescribes a penalty of Rs. one lakh for each day during which the failure to furnish any documents etc. to SEBI continues or Rs. one crore whichever is less.  

     
  12.  To determine the quantum of penalty under Section 15A (a), I shall consider 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.

     
  13.  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. Further, the default of the noticee was not repetitive in nature as it failed to furnish the required information to the Investigating Authority of SEBI only once. 

     
  14.  In my view, the fact that the noticee furnished the required information to the Investigating Authority, albeit with a huge delay even before the adjudication proceedings were initiated is a mitigating factor in determining the quantum of penalty.  

     
  15.   I also considered the decision of the Hon’ble Securities Appellate Tribunal (SAT) in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004). In the said matter, the penalty of Rupees Seventy five lakhs imposed by the Adjudicating Officer was reduced to Rupees fifteen thousand by SAT. Adjudication in the said matter was initiated by SEBI for non-compliance of summons issued by the investigating authority of SEBI. SAT further held that provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have considered all the aspects of the said judgment of SAT.

    ORDER

  16. From the preceding paragraphs of this order, it can be seen that though the non- compliance of summons issued by the investigating authority by the noticee is established, none of the factors prescribed under Sec. 15J acted against the noticee. Further, I have noted that SAT in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004) held that provision for higher penalties does not mean that SEBI should impose sky high penalties. Though there was delay on the part of the noticee, I noted that the noticee furnished the information / document to the investigating authority. Therefore in exercise of the powers conferred under section 15-1(2) read with 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.15,000/- (Rupees fifteen thousand only) on Shri Rajni M. Patel.  In my view, the said penalty commensurates with the default committed by the noticee. 

     
  17.  The said Shri Rajni M. Patel shall pay the said amount of penalty by way of a demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Shri P. K. Nagpal, Chief General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai- 400021.  

     
  18.  In terms of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order are 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