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 JAITRA ESTATE DEVELOPERS 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 Jaitra Estate Developers 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 was instrumental in manipulation of 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 its dealings in the scrip. It is alleged that the noticee failed to comply with the 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/38081/2005 dated April 8, 2005 was issued to the noticee in terms of Rule 4 of the 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 January 5, 2006 in terms of the provisions of Rule 7 of the Rules.
5. The noticee did not reply to the show cause notice. However considering the facts of the case and 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 also 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 16.01.2004, 30.01.2004, 20.02.2004, 21.06.2004, 16.07.2004, 25.10.2004 and 31.11.2004 issued by the investigating authority requiring its presence before the investigating authority and submission of information sought by the investigating authority and on account of failure if any, whether it 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 also 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 the Investigating Authority issued letter dated January 16, 2004 to the noticee requiring it to submit details such as details pertaining to its status and information in respect of its trading in the scrip of SIL. The said information was required to be submitted by January 27, 2004. It is noted in this regard that the said letter has been returned undelivered to the investigating authority.
9. Subsequently, the investigating authority issued letter dated January 30, 2004 requiring the noticee to furnish the information by February 7, 2004. It is noted that this letter also returned undelivered.
10. It is further noted that the investigating authority issued another letter dated February 20, 2004 seeking the said information from the noticee. In this regard the stock broker, M/s Rajkumar C. Basantani (Basantani) was advised to serve the notice. Though there is proof of service of the letter on Basantani, there is no proof of service of the same on the noticee.
11. Later the investigating authority issued summons dated June 21, 2004 requiring the noticee to provide the said information. This summons also returned undelivered.
12. It is further noted that the investigating authority vide its letter dated July 16, 2004 advised the Stock Broker Shri Basantani to serve the summons dated June 21, 2004 on the noticee. It is noted that Shri Basantani vide letter dated August 26, 2004 informed the investigating authority that the summons sent to the noticee through courier has been returned undelivered.
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 this summons was received by the noticee and the same has been acknowledged. However the noticee failed to comply with the summons issued by the investigating authority.
14. The investigating authority vide letter dated November 30, 2004 again advised the noticee for personal appearance on December 8, 2004. This letter was addressed to the Stock Broker Shri Rajkumar C Basantani advising the broker to serve the same on the noticee. However no proof is available on record indicating that the notice was delivered to the noticee.
15. In view of the same, on the basis of the material available on record it is noted that only the summons dated October 25, 2004 requiring the noticee to appear before the investigating authority on November 25, 2004 has been served on the noticee. However, it is noted that the noticee failed to comply with the same. With regard to the other notices and summons issued by the investigating authority, proof of service of same on the noticee is not available on record. In view of the above facts it is concluded that the noticee failed to comply with the summons dated October 25, 2005 issued by the investigating authority of SEBI. In this regard it is pertinent to note that trading in the scrip by the noticee contributed to around 22% of the volume at NSE during the period under investigation. Further, the noticee was a direct client of broker Rajkumar Chainrai Basantani who is also stated to be the chairman of SIL and price of the scrip of SIL was manipulated. Hence the failure on the part of the noticee to comply with the summons is to be viewed in the context of the said facts. On account of the failure of the noticee to comply with the summons issued by the investigating authority as stated above, the noticee 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 though many notices were issued to the noticee, only one summons was acknowledged as received by the notice. Therefore failure on the part of the noticee can not be termed as repetitive in nature. As stated before, 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 contributed to around 22% of the volume on NSE. Further, the noticee was a direct client of the Stock broker Rajkumar Chainrai Basantani who is also stated to be the chairman of SIL.
18. It is pertinent to mention that the noticee did not reply to the show cause notice and did not attend the inquiry in the adjudication proceedings. Failure on the part of the noticee to reply to the show cause notice and also 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 Jaitra Estate Developers Pvt. Ltd. failed to furnish information to SEBI and on account of such failure, I, impose a penalty of Rupees One Lakh (Rs.100,000) on Jaitra Estate Developers 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 Jaitra Estate Developers 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 Jaitra Estate Developers Pvt. Ltd. and to the Securities and Exchange Board of India.
| Place: Mumbai |
S. Biju
|
| June 27, 2006 |
Adjudicating Officer |