IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 60/2005
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Date of Hearing
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5.5.2005
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Date of Decision
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25.5.2005
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In the matter of:
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Maganbhai M. Patel
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Appellant – Represented by
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Mr. Keyoor M. Bakshi & Shri Hitesh D. Buch
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Versus
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Securities & Exchange Board
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Respondent –Represented by
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of India
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
Per: Justice Kumar Rajaratnam, Presiding Officer
1. Appeal is taken up with consent of parties for final disposal.
2. This appeal is against the order dated 8.10.2004 of adjudicating and enquiry officer appointed by SEBI vide its order dated 4.7.2003 to enquire into and adjudge under Section 15(a) of SEBI Act 1992 the alleged non compliance of summons issued by SEBI for appearing in person and production of documents and information pertaining to investigation in the public issue of M/s. Growmore Solvents Ltd. (GSL) by the appellant who is the director of GSL. The operative portion of the order is extracted below:
“Having regard to the gravity of the charges established, the factors contained in Section 15J of SEBI Act, 1992 I hereby impose a penalty of Rs.1 crore on Shri Maganbhai M Patel under Section 15A(a) of SEBI Act, 1992 for non compliance with summons issued repeatedly by SEBI as discussed above in a matter involving larger public interest in view of serious irregularities in the public issue of Growmore Solvents Ltd. The penalty amount shall be paid through a crossed demand draft drawn in favour of SEBI - Penalties Remittable to Government of India and payable at Mumbai may be sent immediately to Shri P K.Nagpal, Chief General Manager, Securities and Exchange Board of India, Mittal Court B ‘Wing, 224 Nariman Point, Mumbai- 400 021.”
3. Aggrieved by the above order, the appellant has filed this appeal before this Tribunal requesting to quash and set aside the impugned order dated 8.10.2004.
4. The brief facts of the case are that the appellant was a director of GSL. The GSL came out with a public issue of Rs. 84,50,000 equity shares of Rs. 10/- each for cash at par aggregating Rs. 8,45,00,000 during March 7, 1994 to March 11, 1994. The SEBI had launched investigations purportedly under Section 11C of the SEBI Act, 1992 for alleged irregularities in the public issue of GSL. It was alleged that there was a large scale misuse of stock invests and the promoters had adopted other mal-practice to ensure that the allegedly undersubscribed issue attains the requisite minimum subscription. It was also alleged that a large number of stock invests were issued from account of Amrapali Spinning Mills Ltd. and the appellant had signed such stock invests. Serious doubts were raised by SEBI about receipt of minimum subscription in the public issue of GSL. There was allegation that the equity shares of GSL were listed on the stock exchanges without receiving minimum subscription due to the alleged manipulations by the appellant along with the other directors of GSL.
5. During the course of the said investigation, SEBI had allegedly sent summons on 7 occasions to the appellant. Since the appellant has settled in Uganda (Africa) since 1997 none of the summons were received by him.
6. It was also alleged that the appellant i.e. Maganbhai Patel and Abdulmonim Andani and their family members and Shobhag Shah had submitted applications to the extent of 30% using the stock invests which are borrowed and cancelled subsequently. Hence there were serious doubts about the public issue reaching the statutory minimum of 90% as required in terms of SEBI (Disclosure and Investor Protection) Guidelines. When a public issue does not attain the minimum statutory level of subscription the application money to the investors is required to be refunded. It is alleged that the shares were listed without the minimum statutory subscription because of the aforesaid manipulation.
7. Against this background of serious irregularities in the public issue of the company wherein the company had raised such a big sum of Rs. 845 lakhs from the general public. SEBI issued 7 summons one after the other to the appellant, who was the promoter director of the company, to appear personally in different dates.
8. The information which was advised by SEBI to the appellant to furnish through the summons was under:
1. List of top 50 allottees in the public issue of 84.5 lakh equity shares of Rs. 10/- each for cash aggregating to Rs.845 lakhs in 1994
2. Copies of all the applications with following numbers:
4504952, 4504832, 4504887, 4504898, 4504896, 4504897,
4504888, 4177739, 4177740, 4177738, 7177737, 7504898,
7504899, 7504897, 7504896, 5226183, 5226191, 8226130 &
8226183.
3. Proof of dispatch of share certificates to the allottees of above applications.
9. Regulation 9 of SEBI (FUTP) Regulation 1995 stipulates that it is the duty of every person to produce to the investigating officer such books of accounts and other documents and furnish such information as the investigating officer may require for the purpose of the investigation. As such the details sought by SEBI vide its various summons are vital for SEBI to carry out its objective of investor protection and Regulation of capital market. According to the respondent, non-cooperation of such nature by MM Patel hampered the progress of investigations.
10. The respondent submitted that this type of non-compliance with the summons issued which stonewalls the investigations into the irregularities in the larger public interest calls for deterrent penalty that sends a signal that all those connected with the securities market with such callous and indifferent attitude will not be viewed leniently.
In case of SEBI v/s Cabot International Capital Corporation in Appeal no 7 of 2001 in SEBI Appeal No 24 of 2000, the High Court of Bombay, the [2004] 51 SCL 307 (BOM) following was observed …
“The penalty imposable under the SEBI Act and the Regulations under Section 151 and 15J, is deterrent in nature to see that the parties or person concerned complies with the Regulations strictly. This imposition of the penalty under SEBI Act and Regulations is civil in nature and cannot be equated with penal in character as referred and submitted by the respondents and/or observed by the Appellate Authority. It is also clear that the word “penalty” has different colour and shades and facets and that has to be interpreted and imposed on the basis of particular act and policies or scheme. It is also clear that there can be two distinct liabilities under the same act i.e. civil and/or criminal. The authorities or Regulatory Authority have ample power to initiate both proceedings, if case is made out within the framework of the SEBI Act or the Regulations.
The SEBI Act and the Regulations are intended to regulate the security market and the related aspects, the imposition or penalty, in the given facts and circumstances of the case, cannot be tested on the ground of ‘no mens rea, no penalty”. For breaches of provisions of SEBI Act and Regulations according to us, which are civil in nature, mens rea is not essential.”
Section 15A(a) of the SEBI Act, 1992 reads as under:
Penalty for failure to furnish information
If any person who is required under this Act or any rules or regulations made thereunder:
(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 continues or one crore rupees, which ever is less for each such failure.”
11. The appellant’s submission is that the respondent made an ex-parte order on 8.10.2004 imposing a penalty of Rs. 1 crore on the appellant under Section 15A(a) of the SEBI Act, 1992 for alleged non-compliance of the summons allegedly issued by SEBI. The submissions of the appellant was that he was not residing in India and has settled in Uganda. After the notice was returned undelivered, according to the appellant, the respondent never made any attempt to serve notice under rule 7(c) by affixing the same on the outer door of the appellant in India.
12. The appellant further submitted that his house situated at 501, Sarthak Tower, Nr. Ramdevnagar, Off Satellite Road, Ahmedabad – 380 015 was rented out for some time and remained vacant for sometime. It is therefore possible that the notice having been sent by registered post by the respondent in the name of appellant and have been refused by the tenant or was returned undelivered by the postal authorities.
13. The appellant reiterates that Section 15A(a) of the SEBI Act, 1992 was not applicable in the present case. Even if it is presumed that the said section 15A(a) was applicable, the adjudicating and enquiry officer ought to have considered that provisions of Section 15J of the SEBI Act, 1992, which is reproduced hereunder:-
15-J Factors to be taken into account by the adjudicating officer
While adjudging the quantum of penalty under Section 15-I, the adjudicating officer shall have due regard to the following factors namely:-
1. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
2. the amount of loss caused to an investor or group of investors as a result of the default;
3. the repetitive nature of the default”
The appellant further submits that there was no disproportionate gain or unfair advantage to him as a result of non-receipt of information from him by SEBI during the course of investigation. Further, no loss was caused to any investor or group of investors due to such non-receipt of information from him by SEBI.
14. I have carefully considered the submissions of the learned counsel for the appellant and the learned counsel for the respondent.
15. Taking all these facts and circumstances into account and the submissions made by counsel for both parties, I am of the view that the impugned order is to be sustained as the investors have lost their money. However, in similar circumstances the respondent has imposed a penalty of Rs. 30,000/- in the case of Motwani Enterprises (P) Ltd, vide order dated 20/11/2004, making reference to an earlier order of the Tribunal in the case of Alkan Projects Pvt. Ltd. The irregularities were committed in the year 1994 and the fact that the appellant has already shifted to Uganda in 1997 for which he had not attended to the summons. Taking all these factors into account, especially looking at Section 15J carefully, I feel it appropriate to reduce the penalty from Rs. 1 crore imposed by the respondent to Rs. 50,000/-, which should be paid by the appellant within 6 weeks of receipt of this order.
16. The impugned order stands modified to the extent above mentioned. No order as to costs.
(Justice Kumar Rajaratnam)
Presiding Officer
Place: Mumbai
Date: 25.5.2005
//SR50524