IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 Appeal No.99/2005

 

 

Date of Hearing	13.10.2005
Date of Decision	21.10.2005

 

In the matter of:

 

 

 

Mahesh Kumar Patel	Appellant – Represented by
	Mr. J. J. Bhatt, Advocate
Versus
Adjudicating Officer, Securities & Exchange Board of India	Respondent – Represented by Mr. Ganpathi Subramanian, Manager, SEBI

 

 

Coram:

         

          C. Bhattacharya, Member

          R. N. Bhardwaj, Member

 

 

Per:    C. Bhattacharya, Member

 

 

 

1.       Appeal is taken up for final disposal with consent of both the parties.

 

2.       In the year 2004, SEBI had launched investigation in the matter of unusual rise in the price of  Sword and Shield Pharma Ltd.(SSPL) within a short period.  In connection with the investigation, summonses/letters  were issued to the appellant on June 25, July 19, August, 9, August, 23 and September 9, 2004 to appear before the Investigating Authority with the required particulars in respect of the appellant’s dealings in the scrip of SSPL.  The appellant did not appear before the Investigating Authority.  In view of the alleged non compliance of the summons issued by SEBI, adjudication proceedings were initiated.

 

3.       A notice dated February 9, 2005 was issued in terms of rule 4 of SEBI (Procedure for Holding Inquiry  and Imposing Penalties by Adjudicating Officer)  Rules, 1995.  The appellant submitted his response on February 26, 2005.  Upon considering the said reply submitted by the appellant, the Adjudicating Officer came to the conclusion that an enquiry be conducted and the appellant was advised to attend the hearing on March 15, 2005.  Since the appellant failed to attend the said hearing, a second opportunity of hearing was granted on April 19  and,  thereafter,  a 3^rd hearing was also granted  on May 19, 2005.  The appellant failed to attend any of the hearings.  The appellant in response to SEBI’s summonses/letters took the stand that Aarushi Consultancy, of which he was the Proprietor and which had also received similar summonses/letters from SEBI in the said matter, had submitted the information required by SEBI, and hence, he did not and was not required to submit the particulars.  In his response dated 26^th February, 2005 to SEBI’s notice under rule 4 of SEBI (Procedure for Holding Inquiry  and Imposing Penalties by Adjudicating Officer)  Rules, 1995 the appellant also raised an issue that since he was not a registered intermediary with SEBI, he did not come “within the ambit, purview, compass and jurisdiction of SEBI”.  Therefore, in his view, no basis in law existed for issue of notice mentioned above and consequential proceedings were without any basis.  The Adjudicating Officer was of the view that the appellant’s stand that since Aarushi Consultancy had submitted the required information, and, therefore, no further action was required on his part, was not acceptable in view of the fact that the veracity of the details submitted by Aarushi Consultancy could not be ascertained by the Investigating Authority as the appellant failed to appear before the Investigating Authority.  In view of the above failures, the   Adjudicating Officer imposed a penalty of Rs.50,000/- on the appellant in terms of section 15A(a) of SEBI Act, after having due regard to section 15J ibid.   Being aggrieved by this order, the appellant has filed this appeal.

 

4.       During the course of hearing, the learned counsel for the appellant maintained that Aarushi Consultancy, of which the appellant was the Proprietor, had submitted all the information and that is why there was no penalty or penal measure on Aarushi Consultancy.  He contended that the information required to be submitted by the appellant and Aarushi Consultancy was one and the same only.  He also reiterated the  argument that since the appellant was not a registered intermediary with SEBI, SEBI had no powers to either issue summons to the appellant or to issue notice to hold enquiry and impose penalties as had been attempted in the impugned order.

 

5.       The representative of the Respondent pointed out that  summonses were issued both to Aarushi Consultancy and also to the appellant because the appellant had his dealings and transactions in the securities market in his personal name  apart from those on the books of Aarushi Consultancy.  The Demat statement of NSDL clearly shows that the account is in the name of the appellant and in that account there were number of transactions in the shares of SSPL.  As such the submission of information by Aarushi Consultancy pertaining to the transactions handled by it does not cover all the transactions that the appellant carried out in the shares of SSPL which were the subject matter of the investigation.  By not responding to the summons and by not appearing before the Investigating Authority, the appellant had created hindrance in the investigation.  It is in the interest of protection of integrity of the securities market that an investigation must be completed swiftly and if any wrong doing is noticed the culprit must be brought to book at the earliest.  By the non co-operation of the appellant and by his non compliance with the summonses etc. this cardinal objective of swift completion of investigation was thwarted.

 

6.       Section 11 ( c) of SEBI Act, 1992 empowers the Board to  appoint an Investigating Authority to investigate  the affairs of any intermediary or any person associated with the securities market.  Section 11( c)(3) of the Act empowers the Investigating Authority to require any intermediary or any person associated with the securities market in any manner, to furnish such information or to produce such books, registers and other documents or record before the Investigating Authority as he may consider necessary.  The appellant’s contention that he was not a registered intermediary with SEBI and hence was legally not obliged to comply with the summons, is not correct.  The appellant is a person associated with the securities market, being the sole proprietor of Aarushi Consultancy and also being  involved in frequent transactions in the share market as is evident from his own Demat account.  Being a person associated with the securities market, it was incumbent on him to furnish all such information to the Investigating Authority, as was required or considered necessary for the purpose of investigation by the Investigating Authority.  He has not been able to establish that the information which was required of him was the same as was required from Aarushi Consultancy.  It was only a presumption on the part of the appellant that whatever Aarushi Consultancy had submitted would be sufficient for the summons issued to him.  By not responding to the summons and by not appearing before the Investigating Authority, he had denied the Investigating Authority the opportunity to get clarifications or seek further information from him which, as proprietor of Aarushi Consultancy, he would have been in a position to provide and which could not have been conveyed through the written submissions of Aarushi Consultancy.  By this failure the appellant has clearly attracted the penalty envisaged under section 15A of the SEBI Act.  The   penalty envisaged by section 15A of the SEBI Act  at the rate of Rs.1 lakh for each day during which such failure continues would have been quite steep and very harsh on the appellant.  We find from the impugned order that the Adjudicating Officer has himself mentioned that “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”.  The Adjudicating Officer, after taking a lenient  view, has imposed a penalty of Rs.50,000/- only on the appellant and we see no reason to interfere with this.

 

          The order is, therefore, upheld fully and the appeal is dismissed.

         

          No order as to costs.

 

 

 

 

Place: Mumbai

Date:  21.10.2005

Smn 14/10