Order Against Payagpour Vinimay Pvt. Ltd

 

1. Vide order dated July 15, 2004, issued by Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), I was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to enquire into and to adjudge under Sec.15-I of Securities and Exchange Board of India Act, 1992, the alleged violation of 11C of Securities and Exchange Board of India Act, 1992 against Payagpour Vinimay Pvt. Ltd. having its address at 4, Adi Bandstala Lane, Kolkata – 700 007. For the sake of convenience, the said  Payagpour Vinimay Pvt. Ltd. will be referred hereinafter in this order as ‘the noticee’. 
   
    
2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the scrip of Globe Stock & Securities Ltd., During the course of the said investigation, the investigating authority of SEBI issued summons dated May 05, 2003 and August 06, 2003 directing the noticee to furnish the information/ documents specified in the annexures to the said summonses.  As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summonses dated May 05, 2003 and August 06, 2003 were delivered through PDC Securities Pvt. Ltd., Member, Calcutta Stock Exchange. The summons dated May 05, 2003 was duly acknowledged by the noticee. Further, vide letter dated August 13, 2003, the said aforesaid Member forwarded the registered post receipt with respect to the summons issued to the noticee. 
   
    
3. It was alleged that there was no compliance of the aforesaid summonses by the noticee.
   
    
4. In view of the above, I issued a notice dated December 15, 2004 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against it and penalty be not imposed under Sec. 15A (a) of Securities and Exchange Board of India Act, 1992. The said notice dated December 15, 2004 was sent to the noticee by registered post acknowledgment due. However, the said notice was returned undelivered with an endorsement ‘left’ by the postal authorities. Therefore, a fresh notice dated January 10, 2005 was issued to the noticee and the Eastern Regional Office of SEBI at Kolkata was requested to serve the notice on the noticee by way of affixture in terms of Rule 7(c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. Vide letter dated February 11, 2005, the Eastern Regional Office of SEBI informed the undersigned that the aforesaid notice dated January 10, 2005 was affixed at the address of the noticee on January 13, 2005 and forwarded me a report to that effect.

 

5. Since there was no reply to the said notice by the noticee within 14 days, the time which was stipulated by me for the noticee to file its reply, I was of the opinion that an inquiry should be held in the matter and accordingly a notice of inquiry dated February 25, 2005 in terms of Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued to the noticee fixing March 17, 2005 as the date of inquiry. It was advised that the authorised representative / lawyer of the noticee may appear for the inquiry at the Eastern Regional Office of SEBI at Kolkata on the above date. The said notice was sent by speed post acknowledgment due.  

 

6. On March 17, 2005, no authorised representative or lawyer of the noticee appeared before me. However, on March 18, 2005, one Shri Sushanto Mukherjee, Chartered Accountant, called on me at the Eastern Regional Office of Kolkata and filed an application that he could not appear on March 17, 2005 because of unavoidable circumstances and requested to grant an adjournment for 15 days. The said Shri Sushanto Mukherjee filed a letter dated March 17, 2005 issued by the noticee requesting to adjourn the hearing for two weeks on the ground that its authorised representative Shri Mahendra Nahata was out of station. I considered the application filed by the noticee and as per the request of the noticee, adjourned the hearing/inquiry to April 4, 2005 at my office at Mumbai. The proceedings that took place on March 18, 2005 were recorded and a copy of the same was furnished to the aforesaid Shri Sushanto Mukherjee. During the said proceedings, Shri Sushanto Mukherjee agreed to inform the noticee and also to its authorised representative Shri Mahendra Nahata about the next date of hearing. On April 4, 2005 no authorised representative of the noticee appeared before me for hearing / inquiry. Since the undersigned was of the opinion that the aforesaid Shri Sushanto Mukherjee would not have informed the noticee or its authorised representative about the adjourned date of hearing, I considered it appropriate to adjourn the hearing / inquiry and a fresh notice of inquiry dated April 13, 2005 was issued to the noticee informing it that April 28, 2005 (at 1230 hrs) was fixed as the date of hearing at my office at Mumbai. The notice of inquiry dated April 13, 2005 was sent to the noticee by registered post acknowledgement due and it is evident from the postal acknowledgement card received by my office that the aforesaid notice of inquiry dated April 13, 2005 was received by the noticee. However, no representative of the noticee appeared before me on April 28, 2005 or on any subsequent date. In these circumstances, I was of the opinion that the noticee intentionally evading the adjudication proceedings and therefore I decided to proceed with the inquiry based on the record available.

 

7. Before deciding the issues which require to be examined by me, the provisions of Securities and Exchange Board of India Act, 1992 with respect to the issuance of summons by the investigating authorities and the consequences of non- compliance are perused by me. Sec. 11C of Securities and Exchange Board of India Act, 1992, interalia provides that 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 persons authorized by it. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty of Rupees one lakh for each day during such failure continues or Rupees one crore, whichever is less by the Adjudicating Officer in case any person, who is required under Securities and Exchange Board of India Act, 1992 or any rules or regulations made thereunder to furnish any document, return or report, fails to furnish the same.

 

8. It was alleged by SEBI that the noticee failed to comply with the summonses dated May 05, 2003 and August 06, 2003 issued by the investigating authority as mentioned above.

 

9. The noticee did not dispute the fact that the investigating authority of SEBI issued the aforesaid summonses. The noticee also did not dispute the receipt of summonses by him. Further, from an unauthenticated photocopy of acknowledgments issued by the noticee which were made available to me by SEBI, I noticed that the said summonses dated May 05, 2003 and August 06, 2003 were received by the noticee. Despite giving several opportunities, the noticee failed to either issue a reply to the show cause notice or to appear for the inquiry / hearing.

 

10. I noticed that sufficient opportunity was given to the noticee by the investigating authority but the noticee failed to furnish the required information / documents to the Investigating Authority. It is also observed that the information sought by the investigating authority was very crucial information for the investigation of the price manipulation in the scrip of Globe Stock & Securities Ltd. By its repeated failure to comply with the summonses, the noticee hampered the process of investigation. In view of the above, I find that non-compliance with the summons issued by the investigating authority of SEBI by the noticee is established.

 

11. Since the failure to appear before the investigating authority of SEBI by the noticee is established, the quantum of penalty has to be decided by me.

 

12. As I mentioned above, Section 15A (a) of Securities and Exchange Board  of India Act, 1992 prescribes a penalty of Rs. one lakh for each day during which the failure to furnish any documents etc. to SEBI continues or Rs. One crore whichever is less.

 

13. To determine the quantum of penalty under Section 15A (a), I considered the following factors as provided in section 15J of Securities and Exchange Board of India Act, 1992 viz.(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 and; (c) the repetitive nature of the default.

 

14. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the noticee. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default. Whereas the repetitive nature of the default is concerned it is observed that the investigating authority issued two summonses and these two summonses were acknowledged by the noticee and the noticee failed to appear / produce the information / documents before the investigating authority. This shows that the default is of repetitive nature.

 

15. I have also considered the decision of the Hon’ble Securities Appellate Tribunal (SAT) in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004). Adjudication in the said matter was initiated by SEBI for the non-compliance of summons issued by the investigating authority of SEBI by Mayfair Paper & Board Pvt. Ltd. SAT further held that provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have considered all the aspects of the said judgment of SAT.

 

16. As per the investigation carried out by SEBI, the noticee entered into the transactions of GSSL in order to book profit/ loss and has an income tax evasion angle. From the records made available to me, it is found that the matter was also referred to the Income Tax Department for necessary action. From the records, I found that the transactions entered into by the noticee did not result in any huge market manipulation. Further, there is nothing on record to prove that by evading to furnish documents/ information, the noticee gained heavily. Therefore, I am of the opinion that imposing huge penalties in the instant case is not appropriate.

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ORDER

1. From the preceding paragraphs of this order, it can be seen that the non- compliance of summons issued by the investigating authority by the noticee is established and by his repeated failure to adhere to the summons, the noticee hampered the process of investigation. I noted that SAT in the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No. 95 of 2004) held that provision for higher penalties does not mean that SEBI should impose sky high penalties. I have taken all the facts and circumstances of the case into consideration and therefore in exercise of the powers conferred under section 15-1(2) read with Sec. 15 A(a) of the Securities and Exchange Board of India Act, 1992 and Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs.30,000/-(Rupees Thirty thousand only) on Payagpour Vinimay Pvt. Ltd. The noticee shall pay the said amount of penalty by way of demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Shri Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, Unit 301, L&T Chambers, 3^rd Floor, 16, Camac Street, Kolkata – 700 017.

 

1. In terms 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 the noticee and also to Securities and Exchange Board of India.

  Date: May 19, 2005                                 A. Chandra Sekhar Rao

 Place: Mumbai                                                           Adjudicating Officer