ADJUDICATION ORDER UNDER RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST AARUSHI CONSULTANCY FOR FAILURE TO FURNISH INFORMATION AND TO COMPLY WITH THE SUMMONS ISSUED BY SEBI.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated October 14, 2004, appointed the undersigned as the Adjudicating Officer to inquire into and adjudge under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation of Section 11C of the SEBI Act alleged to have been committed by Aarushi Consultancy (hereinafter referred to as the noticee) by not complying with the summons issued by SEBI seeking information regarding its dealings in the scrip of Sword & Shield Pharma Ltd. (hereinafter referred to as SSPL). It is noted that SEBI issued summons / letters number IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004, IVD/ID3/PKB/AA/SSPL/15687/2004 dated July 19, 2004, and IVD/ID3/PKB/AA/SSPL/18558/2004 dated August 23, 2004 requiring the noticee to submit certain information in respect of its dealings in the scrip of SSPL and also to personally appear before the investigating authority of SEBI. It is alleged that the noticee did not submit the information sought by SEBI. Further, the noticee did not appear before the Investigating Authority as required by SEBI vide the summonses. In view of the alleged non compliance of summons issued by SEBI, Adjudication Proceedings were initiated against the noticee.
NOTICE AND REPLY
2. A notice no. A&E/BS/33254/2005 dated February 9, 2005 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) seeking reply as to why an inquiry should not be held against it in respect of the violation alleged to have been committed by it.
3. In response to the said notice, the noticee vide its letter dated February 26, 2005 made the following submissions :
a) As Aarushi consultancy is not a registered intermediary with SEBI, we do not come within the ambit, purview, compass and jurisdiction of SEBI. No defined legal relationship exist between Aarushi Consultancy and SEBI. It is because of some misconception of law, the notice dated 9.2.2005 is issued to us. Hence the notice is misconceived and misdirected against us.
b) In response to summons IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004 , letters dated July 17, 2004, August 4, 2004 and August 17, 2004 were sent to SEBI requesting for time to submit the reply. Subsequently, SEBI’s letter IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004 was replied vide letter dated August 24, 2004. This letter was hand delivered on 24th August itself and due acknowledgement taken from SEBI’s office.
c) With regard to summons IVD/ID3/PKB/AA/SSPL/15687/2004 dated July 19, 2004, IVD/ID3/PKB/AA/SSPL/17483/2004 dated August 9, 2004, IVD/ID3/PKB/AA/SSPL/18558/2004 dated August 23, 2004 and IVD/ID3/PKB/AA/SSPL/20292/2004 dated September 9, 2004, it was presumed that as we are an outstation party and not a registered entity with SEBI we were under the bonafide impression that no further action is required as the first summons IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004 is replied.
d) In view of the decisions of the Securities Appellate Tribunal in Contact Consultancy Services Pvt. Ltd Vs SEBI ( SAT Appeal No 138/2004) and Reliance Industries Vs SEBI ( Appeal No: 39 of 2002) no penalty need to be imposed in the matter in view of the mitigating factors.
4. Upon considering the said reply submitted by the noticee, it was felt that an inquiry may be conducted and the noticee was advised to attend the hearing scheduled on March 15, 2005. However as the noticee failed to attend the said hearing, opportunity of hearing was granted to it on April 19, 2005 and May 19, 2005. However, it is noted that the noticee failed to attend the hearings on the above occasions.
CONSIDERATION OF EVIDENCE AND FINDINGS
5. The allegation against the noticee is that it failed to comply with the summons issued by SEBI. It is noted that SEBI issued summons / letters IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004, IVD/ID3/PKB/AA/SSPL/15687/2004 dated July 19, 2004, and IVD/ID3/PKB/AA/SSPL/18558/2004 dated August 23, 2004 requiring the noticee to submit the information sought by the Investigating Authority in connection with the investigations initiated by SEBI in the scrip of SSPL.
6. Initially SEBI issued a summons Ref No: IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004 calling upon the noticee to appear before the investigating authority on July 17, 2004. and also seeking details regarding the dealings of the entity in the scrip of Sword and Shield Pharma Limited. However it is noted that the noticee failed to appear before the investigating authority on the said date. Further the entity failed to provide the information to the investigating authority. In response to the summons, the noticee vide its letter dated 17.7. 2004 stated that it is in the process of gathering information and details sought by the investigating authority and in view of the same, the noticee requested the investigating authority to grant more time. Subsequently, SEBI issued another summons IVD/ID3/PKB/AA/SSPL/15687/2004 dated July 19, 2004 requiring the presence of the noticee before the investigating authority on August 4, 2004. The noticee vide its letters dated 4.8.2004 and 7.8.2004 requested for time till 17.8.2004 to submit the details sought by SEBI. Subsequently SEBI vide letter dated IVD/ID3/PKB/AA/SSPL/18558/2004 dated August 23, 2004 sought the details regarding the trading done by the noticee trading in the scrip of SSPL.
7. The noticee vide its reply dated August 24, 2004 submitted the following
a) Aarushi Consultancy wrote three letters dated 17.07.2004, 04.08.2004 and 17.08.2004 (copies enclosed) seeking time to appear before SEBI and furnish information as may be required in the matter of Sword and Shield Pharma Limited. Till date, we have not received any fresh date on which I have to appear before SEBI. In the circumstances, I am filing this reply to comply with the requirement of summons dated 25th June 2004.
b) Aarushi Consultancy is a proprietary entity of Shri Maheshkumar Haribhai Patel inter alia engaged in share transaction of different scrips and service provider for different activities – pre-trade, trade, post-trade – to family members / friends / associates.
c) Aarushi Consultancy facilitated execution of trades of its known parties through Lalkar Securities Pvt. Ltd. (main broker of BSE), Ruchiraj shares and stock (broker of BSE) and Nokia Finance International (Member of Ahmedabad Stock Exchange).
d) As per instructions of the various parties, Aarushi Consultancy arranged their orders for buying and/or selling of Sword and Shield Pharma Limited scrip in the price and order matching mechanism of the BSE's BOLT system, which is an anonymous, online, realtime, computerized system.
e) An annexure containing the details of sales and purchases for the period 1st May 2001 to 31st July, 2001 in Sword and Shield Pharma Limited scrip of the various parties arranged by Aarushi Consultancy (as per their instructions) is enclosed for information, which information may be verified directly with the parties, if so required. Mrs. Jyotikaben M. Patel is the wife of Proprietor of Aarushi Consultancy and the Proprietor assisted in a large way in handling her dealings in the said scrip.
f) Aarushi Consultancy considers this reply as a compliance of the aforesaid summons dated 25th June 2004 issued to it.
g) Copy of demat statement of Shri Maheshkumar Haribhai Patel, Proprietor of Aarushi Consultancy whose beneficiary account is maintained with SHCIL, DP affiliated to BSE, which contains particulars of demat shares of Sword and Shield Pharma Limited that show inward and outward movement of the relevant period is submitted.
8. From the above submissions and also from the submissions made by the noticee in response to the show cause notice in the adjudication proceedings, it is noted that the noticee is mainly contending that SEBI’s letter IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004 was replied by the noticee vide its letter dated August 24, 2004 and subsequent letters / summons were not replied as it was presumed that no further action is required.
9. In this regard it is pertinent to note that though the noticee is seen to have forwarded some details to the investigating authority vide its letter dated August 24, 2004, it failed to appear before the investigating authority despite being specifically required to do so. In this regard, the noticee has stated that vide its letters dated 4.8.2004 and 7.8.2004 it requested the investigating authority to inform the date of appearance before the investigating authority and it did not receive any clarification in this regard. This submission of the noticee is contrary to its own statement that as SEBI’s summons dated June 25, 2004 was replied by it vide its letter dated August 24, 2004, subsequent letters / summons from SEBI were not replied as it was presumed that no further action is required. In this regard it is pertinent to note that though the noticee failed to appear before the investigating authority, it had submitted some of the information to SEBI vide its letter dated August 24, 2004.
10. It is noted from the facts of the case that various summonses requiring the noticee to appear before the investigating authority was issued to it. However, it failed to appear before the investigating authority. This fact is also not opposed by the noticee in its reply to the show cause notice. It had stated that it had replied to the letter / summons IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004, vide its letter dated August 24, 2004 and therefore it presumed that no further action is required. The said contention is not acceptable. However it is noted that vide letter dated August 23, 2004 SEBI sought some information from the noticee and no personal appearance of the noticee was required by SEBI in the said letter. The notice vide its letter dated August 24, 2004 submitted some of the details to SEBI. It appears that subsequently no further summons has been issued by SEBI. The noticee contends that its letter dated August 24,2005 may be considered as compliance of the summonses issued by SEBI. This conduct of the noticee hampered the effort of the investigating authority to gather information in the investigation process as the noticee failed to appear before the Investigating Authority of SEBI.
11. Section 11C (3) of the SEBI Act empowers the investigating authority to require any person associated with securities market to furnish such information or produce such records as may be required by the authority. Further the investigating authority may examine on oath any such person and for that purpose may require any such person to appear before it personally. It is noted that by not appearing before the investigating authority the noticee violated the provisions mentioned above.
12. In this regard Section 15A(a) of SEBI Act provides the following :
15A. Penalty for failure to furnish information, return, etc. : If any person, who is required under this Act or any rules or regulations made thereunder,
“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, whichever is less”.
13. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, 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
14. It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default. Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of the available facts and data. However, with regard to the repetitive nature of the default it is noted that the investigating authority had issued two summonses to the noticee and the noticee failed to appear before the investigating authority in response to the summonses issued to it. However the noticee vide its letter dated August 24, 2004 replied to the show cause Further as SEBI in its letter dated August 23 2004 and considering the fact that subsequently no further communication has been received from SEBI requiring the noticee to present before the investigating authority it cannot be concluded that Aarushi consultancy deliberately failed to provide information to SEBI .
15. .Timely submission of information is very important in conducting investigation proceedings and non cooperation by an entity can be detrimental to the interest of investors and securities market. Violation committed by Aarushi Consultancy is to be taken seriously in view of the facts and circumstances of the case. The noticee had cited the judgments of the Honorable Securities Appellate Tribunal in the case of Contact Consultancy Private Limited Vs SEBI (Appeal No.138/2004) and Reliance Industries Vs. SEBI (Appeal No.39/2002) contending that in view of the mitigating circumstances no penalty need to be imposed on it. However, in this regard it is noted that the failure on the part of the entity to furnish the information had arisen not on the basis of any genuine mistake of factual situation. However it also noted that vide the last letter dated August 23, 2004 SEBI has not sought the personal appearance of the notice and further the notice replied to the summons vide its letter dated August 24, 2004 it is felt that no penalty needs to be imposed on the noticee for its failure to appear before the investigating authority in response the earlier summonses dated June 25, 2004, and July 19, 2004,
ORDER
16. Considering the facts and circumstances of the case though it is established that Aarushi Consultancy failed to appear before the investigating authority of SEBI in response to the summonses issued by it, considering the fact that Aarushi Consultancy vide its letter dated August 24, 2004 had submitted a reply to SEBI, I am of the view that no penalty needs to be imposed on Aurushi Consultancy in terms of the provisions of Section 15A(a) of the SEBI Act for its failure to comply with the summons issued by SEBI.
17. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are sent to Aarushi Consultancy and to SEBI.
PLACE: MUMBAI BIJU. S
May 31, 2005 ADJUDICATING OFFICER