In the matter of Coverage and Consultants Limited

Oct 15, 2004

Orders : Orders of SAT

IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No: 164/2004

Date of Hearing		29/09/2004
Date of Decision		15/10/2004

In the matter of

	*Appellant – Represented by:*
Coverage and Consultants Ltd.	Mr. J.J. Bhatt, Advocate
*Versus*
Securities & Exchange Board of India		*Respondent- Represented by*
	Mr. V.N.Shingnapurkar, Advocate

CORAM

Dr. B. Samal, Member

N.L. Lakhanpal, Member

Per: Dr. B. Samal, Member

The appeal is taken up with the consent of both the parties.

The appellant in this appeal challenges the order dated 19/07/2004 passed by the Adjudicating Officer, SEBI, wherein the Adjudicating Officer has imposed a penalty of Rs. 5 lakhs on the appellant under Section 15A of the SEBI Act, 1992 for not furnishing necessary information in compliance with the summons issued against the appellant by the respondent.

A show cause notice dated 06/01/2003 was issued along with the copies of the summons sent on 29/05/2003, 19/09/2003 and 11/11/2003 for furnishing of documents of information, etc. The appellant was required to show cause within 21 days from receipt of notice. It was stated that if the appellant desired for hearing, same may also be indicated in their reply. No response was received by the respondent from the appellant. Vide letter of 10/02/2004 a notice was issued fixing the date of hearing on 20/02/2004. Further notice was sent by registered post fixing hearing on 02/04/2004. No response. Then third notice was sent on 23/04/2004 by registered post fixing hearing on 04/05/2004. The respondent also took steps to serve the notice on the appellant through M.P. Stock Exchange (MPSE). The M.P. Stock Exchange confirmed vide their letter dated 21/05/2004 that they have delivered show cause notice to the appellant. Another notice dated 13/05/2004 by registered post was sent fixing hearing on 24/05/2004. The appellant vide their letter dated 08/06/2004 stated that the show cause notice was received by them through MPSE on 27/05/2004. Therefore the respondent issued another notice dated 14/06/2004 fixing hearing on 28/06/2004. The appellant vide their letter dated 08/06/2004 made following submissions:
1. the office has not been functioning for the last 1½ years;
2. the company has incurred heavy losses and it does not have any permanent employee to look after corporate and other matters;
3. summons, if received by someone, did not reach the Directors;
4. as the matter is old and due to non availability of any staff compilation of information and tracing the required records was extremely difficult;

The list of documents as required by the respondents are as under:
1. Name and addresses of Directors of the Noticee 2000-2002
2. Details of other entities where directors of noticee were interested or in management;
3. Details of Design Auto Systems Limited (DASL) shares (demat) which were held during November 2001—January, 2002
4. Details in respect of DASL shares through stock exchange mechanism during November 2001-January 2002.
5. Details of off market deals in the scrip of DASL during November 2001-January 2002.
6. The details of payment received in respect of dealing in the scrip of DASL during November 2001-January, 2002.
The above information was required by the respondent to investigate transactions in the shares of DASL. There can be no dispute that the appellant was liable to answer the summons and produce whatever information that was available with the appellant. Section 15A stipulates the penalty for failure to furnish information.

The learned Counsel Shri J.J. Bhatt for the appellant submitted that the company has accumulated losses to the tune of above Rs. 5 crores as per the Balance Sheet as on 31^st March, 2001; there were no formal employee to lookafter the day to day routine work of the company and the company is in deep financial trouble and has virtually become defunct. The company has no means to pay the aforesaid penalty. He therefore requested that as the company has no funds to pay any sum of money, as a special case and without setting any precedent, a lenient view may be taken while imposing penalty.

There is no dispute that the appellant has been given adequate opportunity and reasonable time to respond to the summons and furnish whatever information that is available to him. Willful disobedience of summons will render a person liable for penalty under Section 15A of the Act. The penalty under Section 15A is with reference to any person who is required under the Act or Rules or Regulations to furnish the information. The penalty under Section 15A has been enhanced substantially in the year 2002.

The learned Counsel Shri V.N. Shingnapurkar for the respondent submitted that the appellant has dealt in DASL scrip during November 2001 – July, 2002. The information sought for was available with the appellant but he has failed to obey the summons issued by SEBI and hence attract penal proceedings as per provisions of Section 11C(6) of SEBI Act.

Considering the financial position of the appellant as the business of the appellant has almost come to standstill we feel penalty of Rs. 5 lakhs is on a high side. The Parliament in its wisdom has directed certain factors to be taken into account by the Adjudicating Officer before imposing a penalty under Section 15J which reads as follows:

"While adjudging quantum of penalty under section 15-I, 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."

All the pre-requisite admittedly are in the negative and in favour of the appellant for a substantial reduction as of penalty. Although Section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in Section 15J, viz., (a) amount of disproportionate gain; (b) amount of loss caused to the investor; and (c) repetitive nature of the default.

The Supreme Court, in pronouncements dealing with compensation under the Criminal Procedure Code, has held that the means of the accused has also to be considered if a workable order is to be passed. [See: (i) (1978) 4 SCC 111, Sarwan Singh Vs. Punjab; (ii) (1988) 4 SC 51, Hari Singh Vs. Sukhbir Singh] . Although the judgments relate to trials with respect to criminal offences, it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or means of the appellant to pay a penalty in monetary terms, would also apply on principle to the law laid down by the Supreme Court.

Bearing in mind the capacity of the company to pay the penalty and in order to put an end to this litigation once and for all, and in the facts and circumstances of the case, and taking into account that it was only penalty for not answering the summons and also taking into account the explanation given by the appellant, we are inclined to reduce the penalty to Rs. 20,000/- from Rs. 5 lakhs as indicated in the impugned order. The penalty should be paid to the respondent within a period of six weeks of this order. The appellant is also directed to submit the desired information if not done so far to the respondent within a week of this order. If not done, it is open to the respondent to take action as per law. The impugned order stands modified to this extent.

No order as to cost.

(N.L. Lakhanpal)

Member

(Dr. B. Samal)

Member

Place: Mumbai

Date: 15/10/2004

*/as