Order against Shri Sanjiv Pravinchandra Shah

 

1. Vide order dated December 28, 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 Shri Sanjiv Pravinchandra Shah having his address at 1 Ruby Flats, Sindhi High School, Char Rasta, Ushmanpura, Ahmedabad – 380 013. For the sake of convenience, the said Shri Sanjiv Pravinchandra Shah 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 shares of Monalisa Infotech Ltd. During the course of the said investigation, the investigating authority of SEBI issued summons dated January 24, 2003, directing the noticee to appear before the investigating authority on February 06, 2003 at the Stock Exchange, Ahemedabad alongwith documents as per the annexure to the said summons. As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summons dated January 24,, 2003 was sent by speed post - acknowledgement due and the same was received by the noticee. The noticee vide his letter dated February 12, 2003 confirmed the receipt of the summons and requested the investigating authority to grant a time in the first week of March 2003.  The investigating authority issued one more summons to the noticee on March 03, 2003, directing the noticee to appear on March 10, 2003 before the investigating authority at the office of the investigating authority at Mumbai along with the documents specified in the annexure to the said summons. As per the unauthenticated photocopies of documents made available to me by SEBI, the aforesaid summons dated March 03, 2003 was sent by speed post - acknowledgement due and the same was received by the noticee. However, it was alleged that there was no compliance of the said summons by the noticee.

 

3. In view of the above, I issued a notice dated February 3, 2005 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 him and penalty be not imposed under Sec. 15A(a) of Securities and Exchange Board of India Act, 1992. The said notice dated February 3, 2005 was sent to the noticee by registered post with acknowledgment due. From the postal acknowledgement received by my office, it was noticed that the aforesaid notice dated February 03, 2005 was received by the noticee. 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 March 24, 2005 in terms of Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 was issued to the noticee fixing April 15, 2005 as the date of inquiry. It was advised that the noticee or his authorised representative / lawyer may appear for the inquiry at my office at Mumbai on the above date. The said notice was sent by speed post acknowledgment due. 

1. On April 15, 2005, no authorised representative or lawyer of the noticee appeared before me. Therefore, I decided to proceed with the inquiry in the absence of the noticee in terms of Reg. 4 (7) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 as I was of the opinion that the noticee failed to appear without any sufficient cause.

 

1. 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.

 

1. It was alleged by SEBI that the noticee failed to comply with the summons dated January 24, 2003 and March 03, 2003 issued by the investigating authority as mentioned above.

 

1. The noticee did not dispute the fact that the investigating authority of SEBI issued the summonses dated January 24, 2003 and March 03, 2003. The noticee also did not dispute the receipt of summons by him. Further, from a photocopy of postal acknowledgment made available to me by SEBI and subsequent reply of the noticee to the summons dated January 24, 2003, I noticed that the said summonses were received by the noticee. Therefore, I find that non- compliance with the summons issued by the investigating authority of SEBI by the noticee is established.

 

1. I also noticed that sufficient opportunity was given by the investigating authority to the noticee by issuing two summonses from time to time. I also observe that the first summons i.e January 24, 2003 issued by SEBI directing the noticee to appear before the investigating authority at the Stock Exchange, Ahemedabad, which is a place convenient to the noticee as the office / residential address of the noticee is Ahemedabad itself. However, noticee vide his reply dated February 12, 2003 requested for grant of time in the first week of March 2003. As per the request of the noticee that he would be available in the first week of March 03, 2003, the investigating authority issued one more summons dated March 03, 2003 directing the noticee to appear on March 10, 2003. The said summons was sent by Speed Post with acknowledgement due, which was duly acknowledged by the noticee. There was no reply by the noticee to the said summons.

 

1. I noticed that sufficient opportunity was given to the noticee by the investigating authority but every time the noticee failed to appear before the investigating authority. I also noted that there is an allegation that the noticee executed various circular transactions at ASE and BSE and created artificial volume in the scrip of Monalisa Infotech Ltd., for which action under Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Sections 11 & 11B of the SEBI Act, 1992 including direction to prohibit from dealing in securities for a particular duration was initiated against the noticee. 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 Monalisa Infotech Ltd. By his repeated failure to adhere to 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.

 

1. 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.

 

1.  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.

 

1.  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.

 

1. 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 the noticee failed to appear before the investigating authority. This shows that the default is of repetitive nature.

 

14. 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.

15. In the show cause notice dated February 3, 2005, it was inadvertently mentioned that on February 5, 2003 a summons was issued by the Investigating Authority. However, on verification of records, it is found that no such summons was issued by the Investigating Authority and therefore, the same is not taken into consideration while passing this order.

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. In the instant matter, the information sought by the investigating authority from the noticee was with regard to the details of purchases and sales made by the noticee in the scrip of Monalisa Infotech Ltd., off market trades and statement of account of bank evidencing payments made and received in the matter. I note that the information sought by the investigating authority is privy only to the noticee and there was no scope to the investigating authority to collect the information from any other sources. The noticee failed to meet any mitigating factors on record which may lead me to take a lenient view in the matter. On perusal of the investigating report, I found that it was alleged that the noticee took an active part in executing various circular trades and created artificial volume in the scrip of Monalisa.   Further, I have 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. 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.200000/-(Rupees Two lakhs only) on Shri Sanjiv Pravinchandra Shah. 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 P. K. Nagpal, Chief General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai-400021.
2.  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 17, 2005                                                        A. Chandra Sekhar Rao

 Place: Mumbai                                                               Adjudicating Officer