ORDER UNDER RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST BORN FREE FINANCE PVT LTD
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated March 3, 2005 appointed the undersigned as the Adjudicating Officer to inquire into and adjudge under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation alleged to have been committed by Born Free Finance Pvt. Ltd. (hereinafter referred to as the noticee) on account of its failure to furnish to SEBI, information regarding its dealings in the scrip of Soundcraft Industries Limited (hereinafter referred to as SIL).
FACTS OF THE CASE
2. SEBI conducted investigation into the trading in the scrip of SIL during the period July 2001 and January 2002. During the course of the investigation prima facie it appeared to the investigating authority that the noticee had executed substantial number of trades in the scrip and manipulated the price of the scrip. In view of the same, the investigating authority of SEBI issued summons to the noticee for personal appearance before it and also to furnish information regarding dealings of the noticee in the scrip. It is alleged that the noticee failed to comply with the said summons issued by the investigating authority and also failed to furnish necessary information sought by the investigating authority. On account of the alleged failure on the part of the noticee to furnish necessary information to the investigating authority, adjudication proceedings were initiated against it under the provisions of Section 15I and Section 15 A (a) of the SEBI Act.
3. A show cause notice A&E/BS/38082/2005 dated April 8, 2005 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) seeking reply of the noticee as to why an inquiry should not be held in respect of the violations alleged to have been committed by it.
4. It is noted that the said notice sent by registered post has been returned undelivered. Due to the above facts, substituted service of the show cause notice was effected on December 9, 2005 in terms of the provisions of Rule 7 of the Rules.
5. The noticee did not reply to the show cause notice. However in the interest of justice, it was decided to conduct an inquiry in the matter. In view of the same, the noticee was advised to attend the inquiry on March 2, 2006. It is noted that the noticee failed to attend the inquiry on the said date.
6. As the noticee failed to reply to the show cause notice and failed to attend the inquiry, the inquiry is proceeded on the basis of the facts and material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
7. The issue for consideration in the matter is whether the noticee failed to comply with the summons / letters dated 16.1.2004, 30.1.2004, 20.2.2004, 21.6.2004, 24.8.2004, 25.10.2004 and 31.11.2004 issued by investigating authority requiring the noticee to furnish the information to it and whether the noticee is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992. Section 11C (3) of the SEBI Act empowers the investigating authority of SEBI to require any person associated with securities market to furnish such information or produce such records as may be required by the investigating authority and Section 11 C (5) empowers the investigating authority to examine such persons. Timely submission of information is very important in concluding investigation proceedings and non cooperation by an entity can be detrimental to the interest of investors and securities market on account of any delay in the investigation.
8. It is noted that Investigating Authority issued letter dated 16.1.2004 to the noticee requiring it to furnish details like personal details and trading details in the scrip of SIL etc. It is pertinent to note that the letter was duly received by the noticee on 19.1.2004 as seen from the acknowledgement received from it. The said information was required to be submitted by 27.1.2004.
9. As the noticee failed to reply to the same, the investigating authority issued letter dated January 30, 2004 requiring the noticee to submit the said details. However, there is no proof available on record indicating that the letter was delivered to the noticee.
10. The investigating authority again issued letter dated February 20, 2004 to the noticee to furnish the said details. It is noted that Kolar Sharex Pvt Ltd (kolar), broker of the noticee was advised to deliver the letter to the noticee. It is pertinent to note that the letter is duly received by Kolar. However there is no proof of service of the same on the noticee.
11. Subsequently, the investigating authority issued summons dated June 21, 2004 to the noticee requiring the noticee to furnish the details sought earlier. It is noted that this summons was duly received by the noticee. It is noted that the noticee vide its letter dated June 30, 2004 requested for time till 20.7.2004 to provide the details sought from it.
12. As the noticee failed to furnish the information, the investigating authority vide letter dated August 24, 2004 advised the Stock Broker to inform noticee to comply with the summons dated June 21, 2004. It is pertinent to note that the letter is duly received by the broker Kolar, however there is no proof of service of same on the noticee.
13. It is further noted that investigating authority issued summons dated October 25, 2004 requiring the noticee to appear in person before the investigating authority on November 25, 2004. It is noted that the summons was duly received and acknowledged by the noticee.
14. The investigating authority vide letter dated November 30, 2004 again required the noticee to appear before it on December 9, 2004. This letter was addressed to the Stock Broker Shri Rajkumar C. Basantani advising the broker to deliver the same on the noticee. However, no proof is available on record indicating that the notice was served on the noticee.
15. In view of the same, on the basis of the material available on record it is noted that the summons dated 16.1.2004, 21.6.2004 and 25.10.2004 were served on the noticee. It is further noted that with regard to the summons dated 21.6.2004, the noticee vide its letter dated 30.6.2004 requested for time till 20.7.2004 to submit the required information. Hence, the noticee was aware of the fact that the investigating authority wanted the information / details regarding its trading in the scrip of SIL. As it is noted that the noticee failed to submit the same to the investigating authority, it is concluded that the noticee failed to furnish information sought by the investigating authority of SEBI and on account of such failure, is liable to the penalty prescribed under Section 15A(a) of the SEBI Act which provides the following:
Penalty for failure to furnish information, return, etc.: “If any person, who is required under this Act or any rules or regulations made thereunder, to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less”.
16. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely;
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
c. the repetitive nature of the default
17. It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default. Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of available facts and data. With regard to the repetitive nature of the default, it is noted that the investigating authority had issued many summons / letters to the noticee and the noticee failed to appear before the investigating authority in response to the said summons. The said failure on the part of the noticee is repetitive in nature. The failure on the part of the noticee to furnish information to SEBI should be viewed seriously in view of the fact that its trading in the scrip contributed to around 30% of the volume at BSE during the said period. In view of the same, the failure on the part of the noticee to furnish the information to the investigating authority is a deliberate and wilful default.
18. It is pertinent to mention that the noticee did not reply to the show cause notice and also failed to attend the inquiry in the adjudication proceedings. Failure on the part of the noticee to reply to the show cause notice and also failure to attend the personal hearing granted in the adjudication proceedings clearly indicate that the noticee has been deliberately avoiding any inquiry in the matter. Hence the violation committed by the noticee has to be taken seriously in view of the facts and circumstances of the case.
ORDER
19. Considering the facts and circumstances of the case, it is established that Born Free Finance Pvt. Ltd. failed to furnish information to SEBI and on account of such failure, I, impose a penalty of Rupees Five Lakhs (Rs.500,000) on Born Free Finance Pvt. Ltd. in terms of the provisions of Section 15 A(a) of the SEBI Act. In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violation committed by Born Free Finance Pvt. Ltd.
20. The penalty shall be paid by way of demand draft drawn 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 shall be forwarded to the General Manager, Investigation Department (ID3), Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, First Floor, 224, Nariman Point, Mumbai -400 021.
21. In terms of the provisions 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 Born Free Finance Pvt. Ltd. and to the Securities and Exchange Board of India.
| Place: Mumbai |
S. Biju
|
| June 27, 2006 |
Adjudicating Officer
|