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 SPARKLING SECURITIES
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 Sparkling Securities (hereinafter referred to as the noticee), a Sub-broker affiliated to Churiwala Securities Pvt. Ltd., member BSE 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 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 its dealings 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.
NOTICE AND REPLY
3. A show cause notice A&E/BS/38076/2005 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 returned has been returned undelivered. The Stock Exchange, Mumbai (hereinafter referred to as BSE) was advised to serve the notice and BSE vide its letter dated June 16, 2002 informed that the Stock Broker, Churiwala Securities Pvt. Ltd. was advised to serve the notice, however no proof of service of notice has been received. In view of the same, substituted service of the show cause notice was effected on December 9, 2005 in terms of the provisions of Rule 7 of the Rules by affixing the notice at the address of the noticee at Shop No. 3, Jagdish Cottage, Near Syndicate Bank, 4th Road, Khar, Mumbai – 400052.
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 3, 2006. 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 despite being given sufficient time and opportunity, 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 dated February 20, 2004, June 21, 2004, July 16, 2004 and October 25, 2004 issued by investigating authority requiring the noticee to furnish the information to it and whether on account of default if any, the noticee is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992.
8. 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) further empowers the investigating authority to examine such persons. Timely submission of information is very important for concluding investigation proceedings and non cooperation by an entity can be detrimental to the interests of the investors and the securities market on account of any delay in the investigation.
9. It is noted that investigating authority vide letter dated February 20, 2004 required the noticee to furnish details such as details pertaining to its status and details in respect of the trading in the scrip of SIL etc. The said information was required to be submitted by March 1, 2004. Churiwala Securities Pvt. Ltd. , with whom the noticee was affiliated was advised to deliver the said letter to the noticee. Churiwala Securities vide its letter dated February 23, 2004 forwarded this letter to the noticee. In this regard it is noted that no proof is available on record indicating that the letter was served on the noticee.
10. As it was noted that the notice did not comply with the same, the investigating authority issued summons dated June 21, 2004 to the noticee requiring it to submit the details specified therein by June 30, 2004. It is noted that the said summons could not be delivered to the noticee.
11. Vide letter dated July 16, 2004, Churiwala Securities was forwarded a copy of the summons dated June 21, 2004 advising it to serve the summons on the noticee. It is noted that Churiwala Securities vide its letter dated July 23, 2004 informed the investigating authority that in spite of diligent search of the address of the noticee and its proprietor Shri Manohar K Milwani, the noticee could not be located.
12. The noticee was issued another summons dated October 25, 2004 requiring it to appear before investigating authority on November 22, 2004. It is pertinent to note that this summons was received and acknowledged by the noticee. Proof of receipt is available on record. It is noted that the noticee failed to comply with the summons issued by the investigating authority.
13. In view of the same, on the basis of the material available on record it is noted that the summons dated October 25, 2004 was served on the noticee. As it is noted that the noticee failed to comply with said summons, it is concluded that the noticee failed to furnish information to the investigating authority of SEBI. It is further noted that the noticee is a SEBI registered sub broker and trades by the noticee constituted 7.42% of the trades in the scrip. On account of such failure of the noticee to comply with the summons dated October 25, 2004 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.
15. 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
16. 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 proof of service of the notice / summons on the noticee is available only in respect of one summons and in view of the same, the failure on the part of the noticee can not be termed as repetitive in nature. However, the failure on the part of the noticee to furnish information to SEBI should be viewed seriously in view of the fact that the noticee is a SEBI registered sub-broker and trades executed by the noticee constituted 7.42% of the trades in the scrip of SIL at BSE during the relevant period.
17. 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
18. Considering the facts and circumstances of the case, it is established that Sparkling Securities failed to furnish information to SEBI and on account of such failure, I, impose a penalty of Rupees One Lakh (Rs.1,00,000) on Sparkling Securities 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 Sparkling Securities.
19. 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.
20. 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 Sparkling Securities and to the Securities and Exchange Board of India.
| Place: Mumbai |
S. Biju
|
| June 30, 2006 |
Adjudicating Officer
|