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 SHRI MAHESH KUMAR PATEL 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 Shri Mahesh Kumar Patel (hereinafter referred to as the noticee) by not complying with the summons issued by SEBI seeking information regarding his 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/17483/2004 dated August 9, 2004 and IVD/ID3/PKB/AA/SSPL/20292/2004 dated September 9, 2004 requiring the noticee to submit certain information in respect of his dealings in the scrip of SSPL. It is alleged that the noticee did not submit the information sought by SEBI. Further, it is also alleged that the noticee did not appear before the Investigating Authority as required by required by the Investigating Authority of SEBI vide the summons. 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/33260/2005 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 the reply of the noticee as to why an inquiry should not be held against him for the violation alleged to have been committed by him.
3. In response to the said notice, the noticee vide its letter dated February 26, 2005 made the following submissions :
a) As he is not a registered intermediary with SEBI, he does not come within the ambit, purview, compass and jurisdiction of SEBI. No defined legal relationship exist between him 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 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 hearing 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/17483/2004 dated August 9, 2004 and IVD/ID3/PKB/AA/SSPL/20292/2004 dated September 9, 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 / letter IVD/ID3/PKB/AA/SSPL/17483/2004 dated August 9, 2004 to the noticee advising him to appear in person on 16th August, 2004 at 11:00 am before the investigating officer and submit the details as per the annexure enclosed to the said letter. As the noticee failed to appear on the said date, SEBI issued summons / letter IVD/ID3/PKB/AA/SSPL/20292/2004 dated September 9, 2004 advising the noticee to appear in person alongwith all the related documents on September 16, 2004 at 2:00 pm before the investigating authority.
7. In this regard, it is noted that the noticee is the proprietor of Aarushi Consultancy, which was also issued summons / letter by SEBI in the said matter. In this regard, it is pertinent to note that SEBI issued summons / letter 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 to Aarushi Consultancy.
8. In this regard, it is contended by the noticee that information required to be submitted by him or Aarushi Consultancy were the one and the same only. In this regard, Aarushi consultancy had submitted the information required by SEBI vide their letter dated August 24, 2004.
9. It is noted that Aarushi Consultancy, 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.
10. 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.
11. In this regard it is pertinent to note that though Aarushi Consultancy the proprietary firm of the noticee is seen to have forwarded some details to the investigating authority vide its letter dated August 24, 2004, the noticee failed to appear before the investigating authority despite being granted 2 opportunities to do so on September 9 and September 16, 2004. In this regard it is also pertinent to note that the noticee did not appear for the personal hearing in the adjudication proceedings despite being provided the opportunity for hearing on March 15, 2005, April 19, 2005 and May 19, 2005.
12. It is noted from the facts of the case that two summonses requiring the noticee to appear before the investigating authority was issued to him. However, the noticee failed to appear before the investigating authority. This fact is also not disputed by the noticee in his reply to the show cause notice. Its statement that it has replied to the letter / summons IVD/ID3/PKB/AA/SSPL/13615/2004 dated June 25, 2004, issued to the firm Aarushi Consultancy vide its letter dated August 24, 2004 and therefore presumed that no further action is required is not acceptable especially in view of the fact that the veracity of the details submitted by the noticee could not be ascertained by the Investigating Authority as the noticee failed to appear before the investigating authority.
13. This conduct of the noticee hampered the effort of the investigating authority to gather information in the investigation process. In this regard Section 11C (3) of the SEBI Act 1992 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. The contention of the noticee that it is not a SEBI registered intermediary and hence is not bound to comply with the summons is devoid of merit as it is clear from the above legal provisions that SEBI may require any person associated with securities market to furnish such information and may if necessary examine such person on oath. It is noted that by not appearing before the investigating authority the noticee violated the provisions mentioned above.
14. In view of the above it can be concluded that the failure on the part of the noticee to appear before the investigating authority of SEBI and submit the required information is established.
15. 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”.
16. 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
17. 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 summons issued to it. The failure on the part of the noticee to appear before the investigating authority despite being granted two opportunities to do so indicate that the default is of repetitive nature.
18. Further, the non appearance of the entity in the personal hearing granted in the adjudication proceedings on three occasions i.e. on March 15, 2005, April 19, 2005 and May 19, 2005, shows that the noticee has been adopting a non co-operative attitude. 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. Hence the violation committed by the noticee has to be taken seriously in view of the facts and circumstances of the case.
ORDER
19. Considering the facts and circumstances of the case though it is established that Shri. Mahesh Kumar Patel failed to appear before the investigating authority of SEBI in response to the summons issued by it, considering the fact that Aarushi Consultancy the proprietary concern of Shri. Mahesh Kumar Patel vide its letter dated August 24, 2004 had submitted some of the information to SEBI, I am inclined to take a lenient view in the matter. For the failure on the part of Shri. Mahesh Kumar Patel to appear before the investigating authority of SEBI and furnish necessary information to SEBI, in terms of the provisions of Section 15 A(a) of the SEBI Act, I , hereby impose a penalty of Rs.50,000/- on Shri. Mahesh Kumar Patel .
20. The penalty shall be paid by way of demand draft drawn 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 shall be forwarded to General Manager, Investigation Department (ID3), Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, First Floor, 224, Nariman Point, Mumbai -400 021.
21. 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 Shri Mahesh Kumar Patel and to SEBI.
PLACE: MUMBAI BIJU. S
May 31, 2005 ADJUDICATING OFFICER