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
HARPAL ASSOCIATES PVT.LTD.
BACKGROUND:
1. An investigation was initiated by the Securities and Exchange Board of India (for brevity’s sake, hereinafter referred to as ‘SEBI’) into the alleged market manipulation and irregularities in the trading of the shares of Shonkh Technologies International Ltd. (for brevity’s sake, hereinafter referred to as ‘STIL’) listed on the Stock Exchange, Mumbai and the Delhi Stock Exchange (BSE and DSE respectively) at the time of the investigation. As per the findings of the investigation, Harpal Associates Pvt. Ltd. (for brevity’s sake, hereinafter referred to as ‘HAPL’) was found to be one of the entities, alleged to have traded in the scrip of STIL at the relevant point of time.
2. Hence the Investigating Authority issued summons under Section 11C (3) of the SEBI Act, 1992 (for brevity’s sake hereinafter referred to as the Act) upon HAPL on March 24, 2003 advising them to appear in person before the Investigating Authority on April 3, 2003 along with the documents that HAPL intended to rely upon in its defense or any other documents relevant to the proceedings initiated by SEBI. It was further made clear to HAPL 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.
3. Although the summons was acknowledged by HAPL on April 03, 2003, they failed to appear before the investigating authority and also failed to submit the required information.
SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:
4. In view thereof, adjudication proceedings were initiated in the first instance by the issuance of a show cause notice dated September 15, 2003 by the previously appointed adjudicating officer to HAPL under Section 15I of the Act read with Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, (hereinafter referred to as Rules) where under HAPL was advised 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. HAPL 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.
5. The notice sent by registered post was returned undelivered by the postal authorities with the remark “party not found”.
6. 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 November 24, 2005 in terms of Rule 5(1) of the Rules was sent to the Northern Regional Office (NRO) of SEBI at New Delhi with a request to forward the same along with the copy of the show cause notice to HAPL. In the absence of any reply forthcoming from HAPL, another notice of hearing dated March 17, 2005 (along with the copy of the show cause notice) was served upon HAPL through NRO advising them to appear before me on April 8, 2005. However, nobody appear on the said date.
7. In order to grant another opportunity to HAPL to make their submissions, another notice of hearing (along with the copy of the show cause notice) dated May 13, 2005 was sent through SEBI, NRO to HAPL at the latest address available on record. Vide the said notice, HAPL were advised to appear before me on May 31, 2005 and also submit the documentary proof, if any in support of their contentions. It was once again made clear to HAPL that in case they failed to appear for the said proceedings, the matter would be decided solely on the basis of the material available on record. The said notice of hearing was acknowledged by one Mr. Rajiv on May 28, 2005, stated to be working as an Accountant with Harpal Associates who gave his contact no. as 011-25919371. The authenticity of the above information was confirmed in a telecon that the undersigned had with Mr Rajiv on May 30, 2005 at 4:45 p.m. at the provided telephone number. However, once again nobody appear on behalf of HAPL on the said date and HAPL also failed to submit the required information.
CONSIDERATION OF EVIDENCE AND FINDINGS
8. As there has been adequate service of notice on HAPL and in the absence of HAPL appearing for the said proceedings, the matter is proceeded with based on the material available on record and according to the relevant regulatory provisions as also the rationale behind the said provisions.
9. The allegation against HAPL is that they failed to appear before the investigating officer of SEBI on April 3, 2003 in response to the summons dated March 24, 2003 served upon them under Section 11C(3) of the Act, which 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 him 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”.
10. From the manner in which HAPL failed to appear before SEBI or participate in the adjudication proceedings and in the absence of any explanation on record from them for their non appearance before the investigating authority or in the adjudicating proceedings, it can be reasonably concluded that they were consistently tried to evade the summons process and that the default on their part in co-operating with the investigation proceedings, is willful.
11. 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.
12. The said principle 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 him 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.
13. 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.”
14. In the present case, there is no dispute regarding the failure on the part of HAPL in complying with the provisions of Section 11C (3) of the Act which thwarted the attempts of SEBI to effectively gather vital evidence for the timely conclusion of the investigation proceedings.
15. In view of the fact that HAPL did not comply with the summons issued by the investigating authority of SEBI or furnish the documents and information mentioned in the summons, HAPL have clearly disregarded the summons of the regulator and consequently, they would be liable for such penalty as I think fit to impose, in accordance with the provisions of Section 15A (a) of the Act which makes them liable to a penalty of one lakh rupees for each day during which such failure.
16. 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.
17. 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.
18. Any 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 a breach of such provisions and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.
19. From the facts on record, it is not clear as to whether HAPL enjoyed any gain or unfair advantage as a result of the default. However it cannot be denied that the said default would have certainly caused a certain amount of disadvantage to the shareholders of STIL and the investor class as a whole considering that any delay in obtaining information relevant to the investigating proceedings especially in cases of manipulation as in the present case would have thwarted the efforts of the investigating team to arrive at an early conclusion of investigation which in such cases is a very important objective.
20. I have, however, noted that HAPL was not given a second opportunity to provide the information called for in the summons dated March 24, 2003 and that subsequently no further summons was issued to HAPL to appear before the investigating authority. However, he failed to participate in the present proceedings despite being given sufficient opportunity.
21. Thus, bearing in mind these facts and circumstances of this case, and also the factors enumerated in Section 15J of the Act and on analyzing the material available on record, 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 a token penalty, is very much necessitated.
ORDER:
22. 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 is appropriate to levy a penalty of Rs.15,000/- (Rupees Fifteen Thousand only) on Harpal Associates Pvt. Ltd.
23. 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: May 31, 2005 ADJUDICATING OFFICER