IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 101/2004
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Date of Hearing
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02/11/2004
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Date of Decision
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17/11/2004
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In the matter of
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Appellant – Represented by:
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Mukesh Malhotra
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Ms. Malik Choudhary, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. V.N. Shingnapurkar, Advocate
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CORAM
Justice Kumar Rajaratnam, Presiding Officer
N.L. Lakhanpal, Member
Per: N.L. Lakhanpal, Member
1. The appeal was taken up for final disposal with the consent of both parties.
2. The Chairman, Securities an Exchange Board of India (SEBI) had ordered investigations into the case of buying, selling or dealing in the shares of M/s. Shonkh Technologies International Limited (STIL). As part of these investigations summons dated 01/04/2003 were issued to the appellant, Mr. Mukesh Malhotra to appear before the Investigating Officer on April 7, 2003 along with certain specific information relating to his holding in the shares of STIL and the way he had traded in the shares of STIL during the period August 1, 2000 to June 30, 2001. When the appellant failed to respond to these summons the matter was referred for adjudication and the impugned order dated 24th December, 2003 was passed by the Adjudicating and Enquiry Officer imposing penalty of Rs. 1 crore on the appellant under Section 15A(a) of SEBI Act, 1992. The impugned order states that the appellant did not appear before the Adjudicating and Enquiry Officer despite repeated notice. The adjudication proceedings were therefore held ex-parte and the impugned order was passed based on the information available on record. Being aggrieved the appellant has filed the present appeal.
3. In the memorandum of appeal the appellant has challenged the impugned order as being ultra vires, illegal and null and void mainly on the ground that Section 11C of the SEBI Act relating to investigations is a wholesome provision conferring adequate powers of investigation on the investigating authority including obtaining of information and securing attendance of witnesses as well as spelling out the consequences of non-cooperation by any person with the investigating authority under Section 11C(6). The appellant has therefore argued that once this specific power is available it is not open to SEBI to fall back on the general power of imposition of penalty under Section 15A(a). According to Section 15A:
“If any person, who is required under this Act or any rules or regulations made thereunder,--
“(a) 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;”
The appellant has argued that he is an ordinary investor who has made a few transactions in the shares STIL in the secondary market and cannot be treated as any person required under the Act or the rules and regulations to furnish any document, return or report to the Board. He has therefore argued that if at all he is considered to have extended less than full co-operation during investigations the only course of action available to SEBI against him could be Section 11C(6) involving imprisonment and/or fine after due process of law.
4. However, at the time of hearing, the appellant argued, without prejudice to his contentions in the memorandum of appeal, that he was an ordinary investor whose total holding in the shares of STIL never exceeded 1000 shares at any point of time and that he had indulged in only about 20 trades as per Exhibit ‘C’ for small lots over a period of about 6 months. He therefore pleaded that he was interested in bringing this litigation to a close and he was not in a position to afford the costs of prolonging the litigation even though he had a good case to defend. On merits the learned counsel for the appellant invited our attention to the summons at Exhibit ‘B’ to point out that even if SEBI’s entire case was to be accepted at its face value, it was clear that vide its summons dated 1st April, 2003 issued from Mumbai it wanted the appellant who was a resident of Ghaziabad to appear in Mumbai on 7th April, 2003 along with information pertaining to the year, 2000. While denying having received any summons at all, the learned counsel for the appellant pointed out that the Adjudicating and Enquiry Officer should have noted from the record itself that it was not possible for the appellant to have complied with this summons because of the short time available after providing for the normal time taken for service of summons, collecting all documents pertaining to the year 2000 and traveling to Mumbai for appearing before the Investigating Officer. Similarly the learned Counsel invited our attention to the following sentence from the impugned order: “Notice of hearing was sent vide SEBI Letter No. A&E/SVK/514/03 dated 03.11.2003 to attend personal hearing on 07.11.2003.” From this the learned Counsel argued that SEBI gave extremely short notice to the appellant for responding to the summons and on the appellant’s failure to respond, sent the matter straightaway for adjudication without giving any second chance. Similarly the Adjudicating Officer also gave a notice of only 4 days and even this letter dated 03/11/2003 was immediately received back with the remarks “consignee out of station”. The learned Counsel for the appellant further argued that as per the impugned order the only reason for the maximum penalty of Rs. 1 crore for not responding to the summons, seems to be that the appellant was “stated to be the brother of Shri Mahesh Malhotra, Director of M/s. Ankur Cultivators Pvt. Ltd., and M/s. Advance Hovercrafts & Composites India Ltd., which dealt in the scrip of STIL. Shri Mahesh Malhotra is also the authorized signatory of the bank account of the STIL and M/s. Padmini Technologies Ltd.”. The appellant has therefore argued that apart from fundamental defects in the adjudication proceedings, he should not be saddled with the extreme penalty of Rs.1 crore simply because he is the brother of one Shri Mahesh Malhotra who is living and is carrying on his life totally independently of the appellant. The appellant has further argued that the penalties under Section 15 are subject to the discipline of 15J which lists out the mandatory factors to be kept in mind by the Adjudicating Officer for determining the quantum of penalty. The appellant has argued that the impugned order does not even mention Section 15J and in any case none of the factors outlined in Section 15J are attracted in the present case. Finally the learned Counsel for the appellant prayed that final orders in the matter be passed by this Tribunal with a view to bringing these proceedings to a final closure.
5. The learned Counsel for the respondent argued that looking at the sensitivity of the securities market early conclusion of investigation was a desirable objective and that any non cooperation in the investigations must be met with deterrent penalties.
6. We have carefully gone into the pleadings on both sides. We find that even though the appellant has made out an arguable case in the memorandum of appeal on the legal issues we would refrain from expressing our views on the same out of our deference to the appellant’s desire for an early end to this litigation on the facts of this particular case. Besides, we have not heard the learned counsel for the respondent on the legal submissions made out in the memorandum of appeal and it would therefore not fair for us to pass a judgment on the same. On the facts of this case we find that the time given to the appellant to respond to the summons was indeed extremely short. The same is true about the notice of only 4 days given to him by the Adjudicating Officer and the order is liable to be set aside on this ground alone. Besides we also find the argument about the appellant being a brother of somebody as a justification for imposition of an extreme penalty of Rs. 1 crore as totally unacceptable. While passing the interlocutory orders we had directed the appellant to furnish all the information required by SEBI forthwith and also deposit an amount of Rs. 25,000/- pending disposal of the appeal. The appellant has complied with both these directions which further shows that he has no intentions of obstructing the course of investigations. It is common ground that the appellant has already responded to the summons and has fully cooperated with the respondent during the pendency of the appeal and the appellant also undertakes to cooperate with the respondent in the investigation. It is made clear that any failure to cooperate with the respondent would in itself be a separate cause of action. Out of deference to the appellant’s desire for early conclusion of the matter, therefore, we have not gone into the question of whether he did receive the earlier summons from the investigating officer or the notice from the adjudicating officer or not. However, we find that even if he did receive the same, the penalty of Rs. 25,000/- already deposited by him in compliance with our interlocutory orders should be more than adequate penalty for this alleged default.
7. In the circumstances we modify the impugned order accordingly reducing the penalty from Rs. 1 crore to Rs. 25,000/- which has already been paid. No order as to costs.
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(N.L. Lakhanpal)
Member
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(Justice Kumar Rajaratnam)
Presiding Officer
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Place: Mumbai
Date: 17/11/2004
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