BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.72/2002
Date of Hearing:13th April, 2004
Date of decision: 18th May, 2004
In the matter of
- Shri Maganlal M. Doshi
- Smt. Ushaben M. Doshi
- Smt. Hemal P. Udani
- Smt. Nehal M. Doshi Appellants – Represented by
Shri V. G. Venkataraman, Advocate
Versus
Securities and Exchange Board
of India Respondent – Represented by
S
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Shri N. L. Lakhanpal, Member
Per : Dr. B. Samal, Member
This appeal is against SEBI’s order which was passed after conducting an enquiry by an Adjudicating Officer appointed by the Respondent. The order was passed on 14th august, 2002 against the Appellants imposing a penalty of Rs.1,50,000/-
The Appellants viz. Maganlal M. Doshi ,Smt. Ushaben M. Doshi, Smt. Hemal P. Udani, Smt. Nehal M. Doshi were the shareholders in Harijay Industries Limited, a company registered under the Companies Act, 1956 in No.23931 of 1981 having their registered office at 243-A, N. M.Joshi Marg, Opp. Bawla Mosque, Mumbai – 400 013. The shares of the said company are listed in the Bombay Stock Exchange. The total number of shares issued and listed by the said company with the Bombay Stock Exchange amounted to 50,000 equity shares of Rs.10/- each. The appellants were among the top ten shareholders of the company and they together held 70.45% of the paid up capital of the company. The shares of the company were listed in or around 1981 with the Bombay Stock Exchange and the company’s shares have not been traded for the last five years.
In the beginning of 2002, the aforesaid appellants received an offer for disposal of their shareholding in the company and the acquirer of the aforesaid shares made a public offer in terms of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and complied with all the requirements in the said regulations and the management and control of the company was taken over by one Shri Devang Master. In the offer document filed by the Merchant Banker on behalf of Devang Master it was disclosed that there had been delay in complying with Regulation 6(3) and Regulation 8(1)(2) under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
It is submitted that the company has been regular in filing of the shareholding documents with ROC and the Stock Exchange. Since there has not been trading in the shares for over 5 years it did not seriously consider to file the returns with the stock exchange in terms of the SEBI directions. The appellants have also submitted before the Adjudicating Officer that it would be unjust and unfair to penalise the investors on such unintended technical inadvertence which according to them was purely clerical and non affecting any institution or the public interest. This levy of Rs.1,50,000 is too heavy a penalty.
The learned Counsel for the Respondent submitted that timely disclosure as envisaged in Regulations 6(3) and 8(1)(2) is very important in achieving the object of the Act. The Respondent cited a seven Judge Bench of the Hon’ble supreme Court in R. S. Joshi, STO Vs. Ajit Mills Ltd., AIR 1977 SC 2279 which held that it is not necessary that penalty should be confined only to willful acts of omission and commission in contravention of the provisions of the enactment. For proper enforcement of provisions of law, it is common knowledge that absolute liability is imposed and the acts without mens rea are made punishable.
In para 19 of the Judgement, the Apex Court observed as under:
“The notion that a penalty or a punishment cannot be cast in the form of an absolute or no fault liability but must be preceded by mens rea must be rejected. The classical view that “no mens rea, no crime” has long ago been eroded especially regarding economic crimes.”
Regulation 5(2) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read as follows:
“While adjudging the quantum of penalty under Section 15-I, 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.”
None of the above factors have been considered while imposing the penalty. At any rate it does not find a place in the order.
The Appellant has admitted the mistake. We are of the view that since the delay in disclosure on the part of the appellants has not affected any institution or public interest and shares have not been traded for the last 5 years, and further since the appellants have not gained much it would be appropriate to take a lenient view with regard to penalty. However, the penalty of Rs.1,50,000 imposed by SEBI appears to be on higher side and the purpose will be served by imposing a penalty of Rs.30,000/- .
Accordingly SEBI’s order stands modified to that extent.
No order as to costs.
(Pronounced in Court)
Sd/-
Justice Kumar Rajaratnam
Presiding officer
Sd/- Sd/-
Dr. B. Samal, N. L. Lakhanpal,
Member Member
Place: Mumbai
Date: 18th May, 2004.