ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15A(a) OF THE SEBI ACT, 1992
AGAINST
M/s A. NITIN CAPITAL SERVICES LIMITED
BACKGROUND:
1. M/s A. Nitin Capital Services Limited. (for brevity’s sake, hereinafter referred to as ‘ANCSL’) is a broker registered with the Securities and Exchange Board of India (for brevity’s sake, hereinafter referred to as the SEBI) with registration No. as INB050720634 and is a member of Delhi Stock Exchange (for brevity’s sake, hereinafter referred to as DSE) .
2. SEBI had initiated investigations as regards the alleged market manipulation and irregularities in the trading of the shares Shonkh Technologies International Ltd. (for brevity’s sak, hereinafter referred to as ‘STIL’) which were listed on the Stock Exchange, Mumbai and DSE, at the time of investigation. As per the investigation report, ANCSL was one of the major entities, who had traded in the scrip of STIL at DSE.
3. In view of the same, the Investigating Authority issued summons under Section 11C(3) of the SEBI Act, 1992 (for brevity’s sake referred to as the Act) upon ANCSL on March 24, 2003, whereunder ANCSL was advised to appear in person before the Investigating Authority on 1st April, 2003 along with all the documents that ANCSL intended to rely upon in its defense or any other documents relevant to the proceedings initiated by SEBI in this regard. It was further made clear to ANCSL that in case they failed to appear before the investigating authority; necessary action would be initiated against them under the relevant provisions of the Act.
4. Upon their failure to appear before the investigating authority, summons were once again issued to ANCSL on 1st April, 2003 seeking their attendance before the investigating authority on 8th April, 2003 along with the documents detailing their transactions in the scrip of STIL during the period of investigation. However, ANCSL failed to appear before the investigating authority and also failed to submit the required information.
5. Thus, ANCSL was found to have failed to comply with the summons issued by SEBI resulting in the violation of provisions of the Act.
SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:
6. Accordingly, adjudicating proceedings were initiated in the first instance by the issuance of a notice dated September 15, 2003 by the previously appointed adjudicating officer to ANCSL under Section 15-I of the SEBI Act, 1992 read with Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, ( Rules) where under ANCSL was asked to show cause as to why adjudication proceedings should not be held against them and why penalty should not be imposed upon them under Section 15A(a) of the Act. ANCSL was advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice.
7. Since the acknowledgement to the said show cause notice was not received, a copy of the same was once again served again by registered post with acknowledgement due. This time the notice was
acknowledged by ANCSL. Another copy of the said notice was also sent to ANCSL through the DSE vide letter dated October 16, 2003 where under ANCSL were advised to make their written submissions to the same by 31st October, 2003 and also appear for a personal hearing on 7th November, 2003 at the Northern Regional Office (NRO) of SEBI. Although the said notice was duly delivered to ANCSL, they failed to appear for the hearing.
8. Subsequently I was appointed as the Adjudicating Officer vide the order of the Chairman, SEBI dated September 30, 2004. Keeping in mind the principles of natural justice, a notice of hearing dated October 11, 2004 was sent to ANCSL in terms of Rule 5(1) of the Rules advising them to attend the personal hearing scheduled on November 24, 2004. The said notice of hearing was duly acknowledged by ANCSL on October, 19, 2004 as informed by DSE vide their letter dated October 20, 2004. It was also made very clear to ANCSL that if they failed to appear for the said personal hearing, the matter would be proceeded further on the basis of the material on record.
9. As observed above, ANCSL was given sufficient opportunities to appear before SEBI as well as before the adjudicating officer and present their case. Despite the same, ANCSL failed to avail the said opportunities. Therefore, the matter is proceeded with based on the material on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
10. I have taken into consideration the facts and circumstance of the case, the material available on record, the relevant regulatory provisions as also the rationale behind the said provisions.
11. The allegation against ANCSL is that they failed to appear before SEBI in response to the summons served upon. From the records it is noted
that even though SEBI sent the summons on two occasions to ANCSL advising them to appear before the investigating authority in connection with the investigations initiated by SEBI in the scrip of STIL and also produce the documents pertaining to their dealings in the scrip of STIL along with the details as mentioned in the annexure to the summons, ANCSL neither appeared before the investigating authority nor submitted the required information and documents.
12. I have noted that vide summons dated March, 24, 2003, ANCSL was advised to appear in person on April, 01, 2003 and vide summons dated April, 01, 2003, ANCSL was advised to appear in person on April, 08, 2003. The details as sought from the summons were:
a) the details of the clients who had traded in the scrip of STIL through ANCS during the period from 01.08.2000 to 30.04.2001 i.e. the name and addresses of the clients,
b) the quantity of the shares bought or sold by the clients,
c) the details of the deliveries given to or received from the client including the distinctive numbers of the shares so given or received
d) the details of the payments made to or received from the clients alongwith the amount and the mode of payment thereof.
13. From the manner in which ANCSL failed to appear before SEBI or participate in the adjudication proceedings, it is apparent that they have consistently tried to evade the summons process. In the absence of any explanation on record by ANCSL for non appearance before the investigating authority and non submission of the said information or even their failure to participate in the adjudicating proceedings, it can be reasonably concluded that there is a willful default on the part of ANCSL not to co-operate in the investigation proceedings.
14. Every entity connected with an investigation process is under an obligation to provide the information as sought for by the Investigating Authority. The decision to call for such information and the judgment as to its relevancy is completely the discretion of the investigating authority and is in furtherance of the discharge of its official duties. The noticee under the summons is in turn, under a legal and moral obligation to cooperate with the Investigating Authority and furnish the required information.
15. The same also finds mention in the provisions of Regulation 9 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as FUTP Regulations) the relevant portion of which has been reproduced hereunder:
1) It shall be the duty of every person in respect of whom an investigation has been ordered under regulation 8 to produce to the Investigating Officer such books, accounts and other documents in its custody or control and furnish them with such statements and information as the said officer may reasonably require for the purposes of the investigation.
2) Without prejudice to the generality of the provisions of sub-regulation (1), such person shall -
(a) ………;
(b) ………;
(c) ……..
(3) …….
(4) It shall be the duty of every person concerned, to give to the Investigating Officer, all such assistance and otherwise extend all such co- operation as may reasonably be required in connection with the investigation and to furnish information relevant to such investigation as may be reasonably sought by such officer.
16. Section 11C (3) of SEBI Act, 1992 reads as under:
“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 them or any person authorised by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers or other documents, or record is relevant or necessary for the purposes of its investigation”.
17. It would also be relevant in this connection, to refer to the judgment of the Hon'ble High Court of Bombay in Writ Petition No.1972 of 1994 filed by ANZ Grindlays and others which inter alia held as under:
“No person can maintain the dignity or cherish prestige by avoiding due process of law. Law being a guardian, it maintains and protects the dignity and honour of every person. Dignified and honorable persons have to stand the test and trial articulated by Law. And in obedience, he or she has to submit to the process. Cherishing majesty of law and its process is an inner core of the dignity of individual in a Democratic World, which runs on the wheel of Rule of Law.”
18. In view of the fact that ANCSL did not comply with the summons issued by investigating authority of SEBI or furnish the documents and information mentioned in the summons, it is established that
ANCSL has violated the above mentioned provisions of the law and would therefore be liable for such penalty as I think fit to impose in accordance with the provisions of Section 15A(a) of the Act as quoted below :
Penalty for failure to furnish information, return, etc.
If any person, who is required under this Act or any rules or regulations made there under
(a) “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
19. However, while adjudging the quantum of penalty to be levied, it would also be necessary to consider the following factors as provided in Section 15J of the Act, which also find mention in Rule 5(2) of the Rules, i.e., the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.
20. Upon perusal of the provisions enumerated above, it is clear that the adjudicating officer is required to have due regard to the factors stated in the section. The same is a direction and not an option, which is however to be exercised with due regard to its discretion. This discretion is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing all the relevant material available on record especially in the case of failure to perform statutory obligations.
21. In the present case, there is no dispute regarding the fact that the investigating authority repeatedly called upon ANCSL to appear before them and produce all the documents relating to their transactions in the scrip of STIL along with the details given in the annexure. On every occasion, ANCSL were given adequate opportunity and reasonable time to respond to the summons and furnish the information available with them. The said information was required for the purpose of the investigation being conducted by SEBI in respect to the manipulative transactions in the scrip of STIL and verify their possible involvement in the said transactions. The information was sought from ANCSL in terms of Section 11C (3) of the Act. However by failing to appear before the investigating authority and furnish the documents and information sought by SEBI, ANCSL not only thwarted the attempts of SEBI to effectively gather vital evidence for the timely conclusion of the investigation proceedings, but also acted in violation of the provisions of Section 11C(3) of the Act. Taking into account the sensitivity of the securities market, an early conclusion of investigation is a very important objective. Moreover an evasion of the regulatory provisions of the regulator issued in the interests of the investors or non adherence to the same for any reason whatsoever is bound to affect the interests of such investors as also the sound and smooth functioning of the capital market. If no cognizance were to be taken of any such repeated breach of such provisions and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.
22. Thus, bearing in mind the facts and circumstances of this case, especially the consistent refusal on the part of ANCSL to cooperate in the present proceedings and also the factors enumerated in Section 15J of the Act, on a judicious exercise of the discretion conferred upon me, I am inclined to hold that although the penalty need not be
imposed in terms of the quantum prescribed in the provisions of Section 15 A(a) of the Act, the imposition of penalty is very much necessitated.
ORDER:
23. In view of the foregoing, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, and in the interest of justice, equity and good conscience I think it appropriate to levy a penalty of Rs 50,000 (Fifty Thousand only) on M/s A Nitin Capital Services Ltd.
24. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India and payable at Mumbai which may be sent to Shri R. Mohan, General Manager, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman Point, Mumbai – 400021.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: MARCH 11, 2005 ADJUDICATING OFFICER