ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT READ WITH RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY THE ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST SHRI. DILIP NABERA, SMT. SADHNA NABERA AND ADHUNIK FINANCE PVT. LTD.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) has initiated adjudication proceedings against Shri. Dilip Nabera, Smt. Sadhna Nabera and Adhunik Finance Pvt. Ltd. (hereinafter referred to as the ‘noticees’) for the alleged violation of the provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as the ‘Insider Trading Regulations’) in respect of their dealings in the shares of Sun Infoways Ltd. (hereinafter referred as ‘SIL’). It is alleged that on account of the violation of Section 3 of the Insider Trading Regulations committed by them, the noticees are liable to the penalty prescribed under Section 15G of the SEBI Act. It is also alleged that Smt Sadhna Nabera failed to comply with the summons dated January 17, 2003 issued by SEBI and on account of such failure, Smt Nabera is liable to the penalty prescribed under Section 15A(a) of the SEBI Act. Initially Shri. S.V. Krishnamohan was appointed as the Adjudicating Officer to conduct the Adjudication Proceedings. Subsequently, I was appointed as the Adjudicating Officer in the matter.
SHOW CAUSE NOTICE
2. Show cause notices under Rule 4(1) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 were issued to the noticees alleging that the noticees had violated the provisions of Insider Trading Regulations. It is alleged that the noticees dealt in the shares of SIL on the basis of unpublished price sensitive information relating to the merger of the company Zap Infotech Ltd with SIL. It is alleged that the said unpublished price sensitive information was available to Shri Dilip Nabera who at the relevant point of time was the Auditor of SIL. Further, Smt. Sadhna Nabera is stated to be the wife of Shri. Dilip Nabera and Smt. Sadhna Nabera was also the director of Adhunik Finance Pvt. Ltd. and Adhunik Finance is also alleged to have dealt in the shares of SIL on the basis of the unpublished price sensitive information.
3. The unpublished price sensitive information was pertaining to the merger of SIL with Zap Infotech Ltd (hereinafter referred to as ZAP) in 2000. It is alleged that Shri. Dilip Nabera was the Auditor of SIL at the relevant time. It is alleged that Shri. Nabera was aware of the said impending merger. It is further alleged that the noticees executed transactions on the basis of the said unpublished price sensitive information. On account of the above dealings, the noticees are alleged to have violated the provisions of Regulation 3 of the Insider Trading Regulations.
REPLY
4. The noticees vide its letter dated March 22, 2005 inter alia informed that Shri Dilip Nabera (as an individual) never dealt in the scrip of SIL. The noticees also denied having dealt in the shares of SIL on the basis of any unpublished price sensitive information. Considering the said submissions, it was decided to grant the noticees an opportunity of hearing and the noticees were advised to attend the hearing in the matter on July 19, 2005. Shri. Balvir S. Choudhary, authorized representative of the noticees attended the hearing on July 19, 2005 and denied having dealt in the shares of the company on the basis of unpublished price sensitive information in respect of the merger of Zap with SIL. The noticees also sought copies of their statements recorded earlier by the investigating authority and also earlier letters submitted by them. Considering the request made by the noticees, SEBI vide its letter dated August 19, 2005 forwarded a copy of the letter submitted by the noticees during the investigation proceedings. Subsequently, vide their letters dated September 5, 2005, Shri. Dilip Nabera and Smt. Sadhna Nabera made the following additional submissions in the matter:
a. The noticees had started purchasing the shares of SIL when the IT sector was doing quite well and the company was turning around. We expected that a turnaround company in the IT sector would perform better compared to other companies and hence made an investment in the company based on the publicly available information.
b. During the month of June 2000, the company representatives approached Shri Nabera for becoming the auditor of the company because there was a casual vacancy of the auditor due to the resignation of Mr. S.V. Gogate. They also gave Shri Nabera balance sheets of the company for the year ended March 31, 1998 and 1999 and a brief note on the company’s business for acceptance of audit work for the year ended March 2000. Thereafter, Shri Nabera had given a consent letter for acceptance and also informed the company that Shri Nabera was then holding 5300 and 10700 shares of the company in the names of Ms.Sadhna Nabera and Mr. Dilip Nabera, HUF, respectively which was nearly 0.31% of the Equity Share Capital of the Company.
c. Shri Nabera resigned from the post of the auditor of the company on October 10, 2000 because of pre occupation and the same was accepted on October 22, 2000 in the board meeting of the company.
d. Shri Nabera was inducted in the company as an auditor on July 10, 2000 in the Extra Ordinary General Meeting. In respect of the merger proposal of the company with ZAP Infotech, the valuation report of ZAP was prepared by S.S. Kothari Chartered Accountants, Delhi and was available to the directors of the company only at the time of the board meeting held in the first week of August 2000.
e. Shri Nabera had already incurred a huge loss of Rs.1,18,687.10 (includes speculation loss of Rs.2,319.61) on sale of 8800 shares out of the total 15900 shares. Shri Nabera is still holding 7100 shares of SIL which do not have any market value as on date, resulting in further loss (even if it is notional). Further, Smt. Sadhna Nabera had already incurred a loss of Rs.2,76,770.40 on sale of 11,500 shares out of total of 13,500 shares. Smt Nabera is still holding 2000 shares of SIL which do not have any market value resulting in further loss.
5. Considering the submissions made by the noticees and also considering the fact that the documents sought by them were supplied to them by SEBI, the noticees were granted another opportunity of hearing on November 29, 2005. Shri Balveer S. Choudhary, authorized representative of the noticees attended the hearing on November 29, 2005 and reiterated the submissions made by their letter dated September 5, 2005.
6. Adhunik Finance Pvt. Ltd. vide its letter dated November 29, 2005 submitted the details of its dealings through JCL Securities Ltd. and Shilpa Stock Brokers Pvt. Ltd. Further, vide the said letter, details of clients and details of loans taken by it were also submitted by Adhunik Finance Ltd.
CONSIDERATION OF EVIDENCE AND FINDINGS
7. It is alleged that Smt Sadhna Nabera Nabera failed to comply with the summons dated January 17, 2003 issued by SEBI and on account of such failure, Smt Nabera is liable to the penalty prescribed under Section 15A(a) of the SEBI Act. As the said allegation is specific to Smt Nabera, it is taken as the first issue for consideration in the present adjudication proceedings. With regard to the said alleged violation, it is noted that receipt of the said summons has not been disputed by Smt.Sadhna Nabera. However, it is pertinent to note from the submissions made by Smt. Sadhna Nabera that she had received the said summons requiring her to be present before the Investigating Authority on January 24, 2003. In response to same, vide her letter dated January 24. 2003, she had expressed her inability to be present before the investigating authority on the said date.
8. On perusal of the records it is noted that the said letter sent by Smt. Sadhna Nabera was received by SEBI on January 24, 2003. It is also noted that in the said letter Smt. Sadhna Nabera had requested the Investigating Authority to give her any date after February 12, 2003. In this regard, on perusal of the records it is seen that no further summons / communication requiring the presence of Smt. Sadhna Nabera has been issued by the Investigating Authority. In view of the same, Smt. Sadhna Nabera had sought another opportunity to be present before the Investigating Authority, it cannot be concluded that Smt. Sadhna Nabera failed to comply with the summons so as to be liable to the penalty under Section 15A(a) of the SEBI Act.
9. The second issue for consideration in the matter is whether Shri Dilip Nabera and other noticees namely Smt. Sadhna Nabera and Adhunik Finance Pvt. Ltd. dealt in the shares of SIL on the basis of the unpublished price sensitive information provided to them by Shri Dilip Nabera and on account of their said actions, whether the noticees contravened the provisions of the Insider Trading Regulations so as to be liable to the penalty under Section 15 G of the SEBI Act.
10. It is noted that Shri. Dilip Nabera was the auditor of the company during the period July to October 2000. It is noted from the submissions of Shri. Dilip Nabera that the company representatives approached him during June 2000 for becoming Auditor of the company. Thereafter he gave his consent vide letter dated July 12, 2000 wherein he also informed the company that as on the said date his family members were holding the following shares:
· Dilip Nabera HUF : 10,700
· Sadhna Nabera : 5300
It is also noted from the submissions of Shri. Nabera that he joined the company on July 12, 2000.
11. The provisions of Regulation 2(e) of the Insider Trading Regulations at the relevant point of time defined the term ‘insider’ in the following manner :
“2. In these regulations, unless the context otherwise requires :—
(e) “insider” means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access by virtue of such connection to unpublished price sensitive information in respect of securities of the company, or who has received or has had access to such unpublished price sensitive information;”
Further, Regulation 2(c) reads as under :
Connected person means “any person who
i) is a director , as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act;
or
ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company and who may reasonably be expected to have access to unpublished price sensitive information in relation to that company.
In view of his connection with the company as its auditor, Shri. Dilip Nabera can be regarded as an insider within the meaning of regulation 2(e) of the Insider Trading Regulations.
12. Regulation 3 of the Insider Trading Regulations as existing on the date of the impugned transactions provided the following :
“No insider shall-
(i) either on his own or on behalf of any other person, deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information ; or
(ii) communicate, counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities:
13. As stated before, Smt. Sadhna Nabera is the wife of Shri. Dilip Nabera and Smt. Sadhna Nabera is stated to be a director of Adhunik Finance Pvt. Ltd. In this regard, it has to be determined whether they were in receipt of any unpublished price sensitive information and dealt in the shares of the company on basis of the said unpublished price sensitive information. As per the above definition of insider, any person who had received the information or had access to unpublished price sensitive information is also regarded as an insider.
14. Unpublished price sensitive information is defined in Regulation 2(k) which was substituted by the SEBI (Insider Trading) (Amendment) Regulations, 2002, w.e.f. 20-2-2002. Prior to its substitution, clause (k) read as under :
‘(k) “unpublished price sensitive information” means any information which relates to the following matters or is of concern, directly or indirectly, to a company, and is not generally known or published by such company for general information, but which if published or known, is likely to materially affect the price of securities of that company in the market—
(i) financial results (both half-yearly and annual) of the company;
(ii) intended declaration of dividends (both interim/final);
(iii) issue of shares by way of public rights, bonus, etc.;
(iv) any major expansion plans or execution of new projects;
(v) amalgamation, mergers and takeovers;
(vi) disposal of the whole or substantially the whole of the undertaking;
(vii) the information as may affect the earnings of the company;
(viii) Changes in policies, plans or operations of the company
15. As can be seen from the above definition, any information pertaining to merger of companies is regarded as price sensitive information. As per the findings of the investigation conducted by SEBI, the merger of Zap with SIL was proposed on the basis of the valuation of Zap Infotech by SS Kothari & Co. It is alleged that SS Kothari & Co. had valued Zap to the extent of Rs.359 Crores as on 31.3.2000. It is further observed in the investigation report that subsequent to the above valuations, Sun Infoways and Zap Infotech agreed to merge and in consideration of which, Sun Infoways Limited was to issue 55,88,200 shares of Rs.10/- each at a premium of Rs.840/- per share to the promoters of Zap Infotech. Any such unpublished information which is of concern directly or indirectly to a company which, if published, is likely to materially affect the price of the securities.
16. As held by the Honourable Securities Appellate Tribunal in Appeal No. : 50/2003 DSQ Holdings Limited Vs. SEBI, the persons who receive unpublished price sensitive information is clearly in an advantageous position ahead of other investors. Thus in the above factual situation, it has to be determined whether the said unpublished price sensitive information was available to Shri. Nabera. In this regard, it is pertinent to note from the submissions of Shri. Nabera that in respect of the merger proposal of the company with Zap Infotech, the valuation report prepared by S.S. Kothari, Chartered Accountants was available to the Directors of the company, at the time of the Board meeting held in the first week of August 2000.
17. In this regard, while analyzing the question as to when the said information pertaining to the merger was made public, it is noted that BSE’s Bulletin dated 4.8.2000 had mentioned that a board meeting of the company is proposed to be convened on 16.8.2000 for finalizing the acquisition of the entity viz ZAP Infotech. Subsequently BSE bulletin dated 17.8.2000 stated that on 16.8.2000 the MOU with ZAP was approved for Rs.475 Crores by allotting shares to promoters of ZAP at Rs.850 per shares as per preferential basis.
18. In this regard, it is noted that the said information provided by BSE bulletin was on the basis of the letter of SIL dated 16.8.2000 apprising BSE of the merger. Hence it can be seen that the information regarding the merger was in public domain on 17.8.2000.
19. Evidence indicating the exact date on which the said information was available to Shri. Nabera is not seen from the records. As noted from the submissions of Shri. Nabera, the valuation report was prepared by the chartered accountants S.S. Kothari. Though no documentary evidence is seen indicating that the said report was made available to Shri. Nabera in his official capacity as the Auditor, it is pertinent to analyse the facts and circumstances of the case to see whether dealings of noticees in the scrip of the company indicate that such information was available to Shri. Nabera and whether the said information was communicated to other noticees.
20. While analyzing the circumstantial evidence of the case, it is pertinent to look at the trades executed by Shri Dilip Nabera and his associates during the period in the scrip of SIL. It is seen from the contents of the submissions of Shri Nabera that Dilip Nabera HUF of which he is the Karta had dealt in the shares of SIL prior to the period he took charge as the auditor of the company. However, it is pertinent to analyse the trades executed after Shri Nabera assumed charge as the Auditor of the company.
21. The details of the trades executed by Dilip Nabera HUF submitted by Shri. Nabera vide his letter dated September 5, 2005 are the following
Table 1
|
Purchase
|
Sale
|
|
Date
|
Broker’s Name
|
Quantity
|
Amount(Rs.)
|
Date
|
Quantity
|
Amount(Rs.)
|
|
24.4.2000
|
Hindustan Securities
|
200
|
12636.00
|
30.5.2000
|
200
|
33750.00
|
|
24.4.2000
|
Shreepati Holding & Finance Pvt. Ltd.
|
7900
|
532336.00
|
27.6.2000
|
200
|
68824.00
|
|
2.6.2000
|
Shreepati Holding & Finance Pvt. Ltd
|
2000
|
385220.00
|
14.8.2000
|
800
|
358044.00
|
|
21.6.2000
|
Shreepati Holding & Finance Pvt. Ltd
|
1000
|
307025.00
|
21.8.2000
|
500
|
285560.00
|
|
26.8.2000
|
Adhunik Finance P Ltd.
|
300
|
135865.04
|
23.9.2000
|
2600
|
1634906.80
|
|
2.12.2000
|
Adhunik Finance P Ltd.
|
4500
|
1831425.27
|
21.3.2001
|
4500
|
707055.02
|
|
|
|
15900
|
3204507.31
|
|
8800
|
3088139.82
|
| |
|
|
|
|
|
|
|
Closing Stock: 7100
Loss: Rs.116367.49
Shares purchased in no delivery period
Table 2
|
Purchase
|
Sale
|
|
Date
|
Broker’s Name
|
Quantity
|
Amount(Rs.)
|
Date
|
Quantity
|
Amount(Rs.)
|
|
9.4.2000
|
Adhunik Finance Pvt. Ltd.
|
2800
|
1741598.98
|
9.9.2000
|
2800
|
1746549.07
|
|
16.9.2000
|
Adhunik Finance Pvt. Ltd.
|
2600
|
1635401.70
|
16.9.2000
|
2600
|
1628132.00
|
|
|
|
5400
|
3377000.68
|
|
5400
|
3374681.07
|
Loss: Rs.23119.61
22. It is submitted by Shri. Nabera that the trades mentioned in table no. 2 were squared off in the same period. On analysis of the data provided in the above tables it is noted that in total, 21300 shares were purchased by him and 14200 shares were sold by him in the HUF account. Though it is contended by Shri. Nabera that he had incurred total loss of Rs.1,18,867.10, the same can not be regarded as loss as he had sold only 14200 shares out of 21300 shares purchased. Hence, the HUF still appears to be holding 7100 shares. Though it is contended by Shri Nabera that the said shares do not have any market value, the said contention cannot be accepted as the same is not supported with any evidence.
23. With regard to the dealings of Smt Sadhna as per the details submitted by Smt Nabera vide latter dated September 5, 2005 the following transactions executed by her are noted.
Table 3
|
Purchase
|
Sale
|
|
Date
|
Broker’s Name
|
Quantity
|
Amount(Rs.)
|
Date
|
Broker’s Name
|
Quantity
|
Amount(Rs.)
|
|
4.4.2000
|
ISJ Securities P Ltd.
|
5000
|
125880.00
|
26.5.2000
|
ISJ Securities P. Ltd.,
|
1300
|
197185.66
|
|
16.6.2000
|
Shreepati Holding & Finance Pvt. Ltd.
|
2800
|
797356.00
|
9.6.2000
|
ISJ Securities P. Ltd.,
|
500
|
285830.00
|
|
30.12.2000
|
Rasila S. Jain
|
5700
|
1425000.00
|
19.6.2000
|
ISJ Securities P. Ltd.,
|
700
|
205684.36
|
|
|
|
|
|
21.8.2000
|
ISJ Securities P. Ltd.,
|
500
|
116205.39
|
|
|
|
|
|
21.3.2001
|
Adhunik Finance Pvt. Ltd.,
|
8500
|
1266561.83
|
|
|
|
13500
|
2348236
|
|
|
11500
|
2071467.24
|
Closing Stock:2000
Loss: Rs.276,770.40
24. On analysis of the said trades it is noted that Smt Sadhna Nabera is holding 2000 shares and in this regard Smt. Nabera contended that she had suffered notional loss as the said shares do not have any value in the market. With regard to the notional loss suffered by Shri. Nabera and Smt. Sadhana Nabera, their contentions cannot be accepted as such contentions are not supported by any evidence.
25. With regard to the dealings of Adhunik Finance Pvt. Ltd. in the scrip of SIL, it is noted from the submissions of Adhunik that it did not deal in the scrip on its own account. Further, it denied having any information in respect of the unpublished price sensitive information pertaining to the merger of ZAP with SIL. Adhunik had forwarded the details of the clients for whom it had executed the trades. It is noted from the submissions of Adhunik that it had executed the trades for the said clients through two brokers namely Shilpa Stock Broking Pvt. Limited and JCL Securities Limited. The fact that Adhunik was executing trades through the terminals of two brokers indicate that it was acting as an unregistered sub-broker. Investigation report suggest that large number of transactions were executed by many entities who appear to be connected and on the basis of which, it is alleged that the purpose of such transactions are for creation of artificial interest in the scrip. In view of the same, alleged violations of the provisions of SEBI (Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations 1995 were also noticed. However it is pertinent to note that the present adjudication proceedings have been instituted for the alleged violation of the provisions of Insider Trading Regulations.
26. On perusal of the list of the clients for whom the trades were executed by Adhunik, it is noted that the list includes the name of Dilip Nabera HUF. In this regard, it is pertinent to note that Table 1, 2 and 3 show the name of Adhunik Finance Pvt. Ltd., as the broker through whom certain transactions were executed. However, as stated before, at the relevant point of time, Adhunik Finance appears to be not registered as a sub-broker. In this regard how the said trades were executed through the said entity raises a question as to whether the said entity was acting for the clients or on its own. In this regard, Adhunik Finance had denied executing any trades on its own account.
27. On perusal of the details submitted by Adhunik Finance vide its letter dated November 29, 2005 it is noted that a list containing details of transactions done for and on behalf of the clients in the scrip during the period January 2000 to December 2000 was submitted. It is pertinent to note from the submissions of Adhunik that the said transactions were done “for and on behalf of the clients”. The said transactions were executed by Adhunik through the Stock Broker JCL Securities Limited. Adhunik was not registered as a sub-broker of JCL Securities. In this regard it is noted that Adhunik was registered as a sub-broker only on Janaury 3, 2001 affiliated to Shilpa Stock Brokers Ltd., member BSE. This gives the impression that Adhunik was trading as a client. Further it is also pertinent to note that Adhunik started executing the trades from settlement no 17 onwards. Settlement No: 17 was pertaining to the period July 17 to July 21, 2000. This period is soon after Shri. Nabera took charge as the Auditor of the company ie on July 12 2000. As it was noticed that Adhunik was trading in substantial quantities of shares during the said period , it was advised to provide proof in respect of the source of funds for the trades executed by it. In response to the said query, Adhunik submitted a list containing the details of the loans taken by it. The details of the said list are the following.
|
Date
|
Name
|
Amount
|
PAN No.
|
|
13.07.2000
|
Lalit Sharma HUF
|
500000
|
Applied for
|
|
13.07.2000
|
Jugalkishore Sharma
|
400000
|
AADPF 0577 P
|
|
13.07.2000
|
Danarasilal Sharma HUF
|
400000
|
AAAHP 0258 F
|
|
13.07.2000
|
Prabodh Sharma HUF
|
700000
|
AAAHP0385 F
|
|
25.07.2000
|
Sunil Jagetia
|
400000
|
Applied for
|
|
31.07.2000
|
Ratan Impex
|
1000000
|
ACYPJ 7434 R
|
|
07.08.2000
|
Vijay Gems
|
600000
|
AABPO 6554 A
|
|
14.08.2000
|
Swyam B. Jain
|
2500000
|
AAGPJ 5354 A
|
28. On perusal of the said details submitted by Adhunik, it is noted that a total amount of Rs.85,00,000/- (Rupees Eighty Five Lakhs) were received as loan from various entities. It is further noted that the loans were taken during the period 13.7.2000 to 14.8.2000.
29. Further, the trades have been executed by Adhunik during the period 13.07.2000 to 14.08.2000. This period also more or less corresponds to the date on which Shri. Nabera was acting as the auditor of the company i.e. July 12, 2000 to the date on which the information regarding the merger was made public i.e. 17.08.2000. Hence it appears that during the period Shri. Nabera took charge as the Auditor of the company and the date on which the unpublished price sensitive information with regard to the merger was made public through BSE bulletin on 17.08.2000, Adhunik Finance was actively dealing in the scrip of the company. It is pertinent to note from the details submitted by Adhunik that it had taken large amount of loans from various entities to execute trades in the scrip during the period. In this regard, it is also pertinent to mention that subsequent to the information became public through BSE bulletin, trades were executed by the HUF account of Shri. Nabera on 26.8.2000. From the above details of trades executed by Adhunik Finance, it is clear that the large quantity of shares traded by it during the period i.e. Shri Nabera took charge as the auditor of the company and till the date on which the unpublished price sensitive information was made public. It is seen that the trade details mention Adhunik as the client. Hence it appears that execution of trades through Adhunik was a ploy to conceal the involvement of Shri. Nabera. This also indicates that Shri Nabera was aware of the impending merger. During the said period there has been sharp increase in the price of SIL as the same rose from Rs.310 on 13.7.2000 to Rs.496.55 on 16.8.2000.
30. While analysing the trades executed by Adhunik it is noted that in settlement no. 17 (period 17.7.2000 to 21.7.2000) Adhunik purchased 3000 shares and sold 2700 shares. In settlement no. 18 (period 24.7.2000 to 28.7.2000) Adhunik purchased 12200 shares and sold 5700 shares. In settlement no. 19 (period 31.7.2000 to 4.8.2000) Adhunik purchased 4000 shares and in settlement no. 21 (period 14.8.2000 to 18.8.2000) Adhunik purchased 4700 shares and sold 3600 shares. In total during the said period Adhunik purchased 23900 shares and sold 12000 shares through the stock broker JCL Securities Ltd. Hence it appears that the strategy was to accumulate the shares prior to the news of merger became public in anticipation that the price of the scrip will increase when the news of merger is made public.
31. It is pertinent to note that soon after the information was made public on 17.8.2000, the price increased to Rs. 516.4 on 17.8.2000 and reached a high of Rs.600 on 22.8.2000. Hence the purpose of such trades were to reap the benefit of the high price in the wake of the interest created in the scrip on account of the merger. This is also evident from the fact that in settlement no.19, which was prior to the announcement of the merger Adhunik had purchased 4,000 shares. Hence the plan appears to be to accumulate the shares just before the BSE Bulletin published the news of the merger.
32. Shri. Dilip Nabera had denied his association with Adhunik Finance stating that he was not a director of the said entity. However, Smt.Sadhna Nabera, wife of Shri. Dilip Nabera is stated to be the Director of Adhunik Finance. In this regard, it is also pertinent to note that as per the earlier letter dated July 12, 2000 submitted by Shri. Dilip Nabera at the relevant point of time, the address of the auditor firm of which he was a proprietor was stated to be the following i.e. GR 1/B, May Building, 299, Princess Street, Mumbai – 400 002. It is noted that Adhunik Finance Pvt. Limited was also stated to be operating from the same address. Further it is also pertinent to note that the phone numbers of the auditor firm and that of Audhunik Finance were the same i.e. 22010488 / 22010523.
33. The above facts clearly indicate that Adhunik Finance Pvt. Limited was controlled by Shri. Dilip Nabera through his wife Smt.Sadhna Nabera who was the Director of the company. Further Adhunik Finance was also operating from his office address only. In this regard, the Hon’ble Securities Appellate Tribunal had occasion to consider similar situation in appeal number 2/2004 Ketan Parikh Vs SEBI. The Hon’ble Tribunal on analyzing factual similarities such as the entities operating from the same address, common directors etc held that the said entities are controlled by Shri Ketan Parikh. The facts of the present case also represent a similar factual situation. The fact that the trades were executed by Adhunik Finance soon after Shri Nabera took charge as auditor of the company and also other corroborating evidence and attendant circumstances such as common address, association/ connection through directors etc. indicate that during the relevant period Shri Dilip Nabera was acting behind the corporate veil of Adhunik Finance. The corporate entity Adhunik Finance was used by Shri Dilip Nabera to execute the trades during the period.
34. In view of the same, the evidence available on record indicate that Shri Nabera was aware of the impending merger and used the said information to his advantage through Smt. Sadana Nabera and Adhunik Finance. In view of the same, it is concluded that Shri. Dilip Nabera, Smt.Sadhna Nabera and Adhunik Finance Limited violated the provisions of Regulation 3 of SEBI (Insider Trading) Regulations which provides that no insider shall either on his own behalf or on behalf of any other person deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information or communicate, counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities . The above violations attract the penalty under Section 15G of the SEBI Act.
35. In this regard, It is pertinent to refer to the order of the Hon’ble Securities Appellate Tribunal in Appeal No.151/2004 in the matter of Rameshchandra Mansukhani NRI vs SEBI, wherein the Honourable Tribunal held that the penalty existing on the date of commission of the violation should be imposed and not enhanced penalty which came into being by way of subsequent amendment. The order passed by the Honourable Tribunal is relied upon in this case.
36. In this regard, Section 15G of the SEBI Act as it stood at the time of commission of the violations by the noticees provided the following :
“If any insider who (i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information; or (ii) communicates any unpublished price- sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or (iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information, shall be liable to a penalty not exceeding Rs. Five Lakh.
Hence the violations committed by the noticees attracts the above penalty.
37. The provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely:
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- The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
- The amount of loss caused to an investor or group of investors as a result of the default
- The repetitive nature of default
38. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that no quantifiable figures are available to ascertain the exact loss to the investors or gain to the noticees. However executing trades in the manner as stated above is detrimental to the interests of the investors and poses a serious threat to the integrity of the securities market. Hence taking into account the mandate of Section 15G of the SEBI Act as it stood at the time the violation was committed by the noticees, and considering the facts and circumstances of the case, I am of the view that the violation committed by the noticees have to be viewed seriously and attract the maximum penalty prescribed by the statute.
ORDER
39. In view of the violation of Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 committed by Shri Dilip Nabera, Smt Sadhna Nabera and Adhunik Finance Pvt. Ltd. as stated above, in exercise of the powers conferred under Section15 I and Section 15 G of the SEBI Act, 1992, read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 I, impose a penalty of Rs.5,00,000/- (Rupees Five Lakhs) each on Shri Dilip Nabera, Smt Sadhna Nabera and Adhunik Finance Pvt. Ltd.
40. The penalties shall be paid by way of demand drafts 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 drafts shall be forwarded to Deputy General Manager, Investigation Department – ID8, Securities and Exchange Board of India, Plot No.C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.
41. 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 Dilip Nabera, Smt Sadhna Nabera, Adhunik Finance Pvt. Ltd. and to Securities and Exchange Board of India.
| PLACE: Mumbai |
Biju. S |
| DATE: November 06, 2006 |
Adjudicating Officer |