IN THE SECURITIES APPELLATE TRIBUNAL
Appeal No: 2 of 2006
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Date of Decision
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14/03/2006
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Iris Infrastructurals Pvt. Ltd.
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…..Appellant
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Versus
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Securities & Exchange Board of India
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….Respondent
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Mr. Navneet Gupta, Director of the appellant
Mr. Subhash Jha, Advocate with Mr. Jimesh Shah, Advocate for the Respondent.
CORAM
Justice N.K. Sodhi, Presiding Officer
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: R.N. Bhardwaj, Member
The appeal was taken up for admission. As there was a considerable delay in submitting the appeal, the representative of the appellant submitted that the delay in filing the appeal against the impugned order may be condoned because the person who was handling the matter in Iris Infrastructurals Pvt. Ltd., (for short “the company”) suddenly left the services of the company and before leaving he did not handover the charge including the impugned order and other documents. The appellant further mentioned that the adjudication officer’s order dated 28/11/2003 was received by the appellant only on 10/07/2004. It is further mentioned in the application that this delay was not intentional and was beyond the control of the appellant. He requested for the condonation of the delay which was not opposed by the counsel of the respondent.
2. The delay was condoned and the appeal was admitted.
3. The appeal has been filed against the order of the adjudicating and enquiry officer dated 28/11/2003 imposing a penalty of Rs. 1 crore under Section 15A(a) of Securities and Exchange Board of India Act, 1992 (for short “the Act”). The appellant is a company incorporated on 08/07/1997 under the Companies Act, 1956. The Securities and Exchange Board of India (for short “SEBI”) had received a complaint about the price manipulations in the scrip of Shonkh Technologies Limited (hereinafter referred to as “STIL”). An investigation had been ordered by SEBI into the scrip of STIL and in that connection SEBI had issued summons on three occasions i.e., 23/07/2001, 10/06/2002 and 18/06/2002 to the company for providing information and documents in connection with the dealing in shares of STIL. Vide summons dated 23/07/2001 the information / documents sought from the company related to:
(i) the names of the directors and shareholders of the company since 1998;
(ii) whether the company was the original allottee of shares of STIL;
(iii) number and percentage of shares of STIL held by the company along with the manner, prices and dates of acquisition of such shares prior to the allotment to the company;
(iv) whether the shares of STIL were purchased from the company’s own funds or after obtaining loan / ICDs from someone and if yes the details thereof;
4. The appellant was asked to submit the aforesaid information latest by 30/07/2001. Vide summons dated 10/06/2002 the investigating officer wanted information about names and addresses of promoters of the company, details of shareholding pattern of the company, copies of memorandum and articles of association, copies of audited balance sheet and profit and loss account of the company for the last three years, the relationship of the company with Classic Credit Limited, Saral Website and Sai Mangal Investrade and details of transactions involving purchase of 25 lakh shares of STIL from Padmini Technologies on 27/12/2000 for Rs. 35,62,50,000/- at an average price of Rs. 142.50 as against the prevailing market price of Rs. 234/- and the details of agreement in this regard. Again vide summons dated 18/06/2002 the company was asked to furnish the aforesaid information which it did not comply with. As the summons issued by the investigating officer were not replied by the appellant SEBI vide order dated 26/6/2003 appointed an adjudicating officer to enquire into the alleged contravention of Section 15A(a) of the Act by M/s. Iris Infrastructure Pvt. Ltd. The adjudicating officer issued a show cause notice dated 12/09/2003 detailing all the three summons issued by the investigating officer to the appellant. There was neither any response to the show cause notice nor any representative from the company attended the personal hearing on 07/11/2003 despite notice and forewarning that adjudication proceedings would be held ex-parte if nobody attended the meeting. Based on the material on record the adjudicating officer imposed a penalty of Rs. 1 crore on the appellant under Section 15A(a) of the Act for failing to furnish necessary information in compliance with the summons issued with regard to the transactions in the scrip of STIL.
5. The representative of the appellant who appeared on behalf of the company submitted that the operation of the company has since been closed and it was not functioning at all. He submitted that the delay had occurred because there was no one to attend to the affairs of the company. He submitted that the company was not in a position to pay the penalty of Rs. 1 crore. He also stated that the company was not in a position to engage even a counsel and it had not been possible for the company to make payment to the advocate who had prepared the appeal papers which were submitted to the Tribunal. He, therefore, prayed for reduction of the penalty.
6. Learned counsel appearing for the respondent submitted that it was a clear cut case of violation of Section 15A of the Act because the appellant did not respond to the three summons issued by SEBI. He argued that SEBI as a regulator is required to protect the interest of the investors in the securities market. It is in the nature of its duties to investigate and examine the unusual price rise or manipulation in the transactions. SEBI wanted information in connection with the transactions in the shares of STIL by the company and summons had been issued for getting certain documents and information connected with the transactions of STIL. He further submitted that in terms of Regulation 9(3) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 the investigating officer shall have the power to examine and record the statement of persons. As per Regulation 9(1) any person who is under investigation, he will have to present himself before the investigating officer and also produce such books of accounts, documents and information as is required for the purpose of investigation. It is admittedly the case that the appellant had received the summons and yet did not respond to them. The learned counsel for the respondent, however, fairly submitted that penalties under Section 15A before the date of amendment on 29/10/2002 were “a penalty not exceeding one lakh fifty thousand rupees for each such failure”.
7. In the instant case all the three summons i.e., 23rd July, 2001, 10th June, 2002 and 18th June, 2002 were issued before the amendment of Section 15A of the Act. We, therefore, hold that the provisions of the Act as stood prior to the amendment on 29/10/2002 would be applicable in this case. Even though submission has been made that the company has since then become non functional, we cannot ignore the fact that there is a clear cut violation of Section 15A of the Act because the summons were not replied by the appellant. However, in view of the applicability of the provisions of Section 15A at the time of occurrence of the event we modify the order that the penalty would get reduced to Rs. 1 lac on M/s. Iris Infrastructurals Pvt. Ltd. in stead of Rs. 1 crore.
8. No order as to costs.
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Justice N.K. Sodhi
Presiding Officer
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C.Bhattacharya
Member
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R.N.Bhardwaj
Member
14/03/2006