BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. AP/AO-15/2005-06]
In the matter of Investigations in
T. SPIRITUAL WORLD LTD
AND
In respect of
MR. CHANDER SINGH
01. Securities and Exchange Board of India (SEBI) conducted investigation into suspected unfair trade practices in the scrip of T. Spiritual World Ltd. (hereinafter referred to as 'TSW'). Pursuant to the aforesaid investigation, SEBI appointed the undersigned as the Adjudicating Officer under Section 15 I of SEBI Act, 1992, vide order dated July 05, 2005, to inquire into and adjudge the alleged failure of Mr. Chander Singh to comply with the summons issued by the Investigating Officer, SEBI. It was alleged that Mr. Chander Singh violated the provisions of Section 11(3) and 11C (5) of the SEBI Act, for which penalty can be imposed under Sec. 15HB of SEBI Act, 1992. The aforesaid appointment was communicated vide proceedings of the Whole Time Member, SEBI, dated August 05, 2005.
02. The undersigned issued a show cause notice (SCN) dated August 26, 2005 under Rule 4(1) of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 (hereinafter referred as 'Adjudication Rules') to Mr. Singh, communicating the allegations levelled against him and calling up on him as to why an inquiry in terms of the said Rules should not be conducted against him.
03. The SCN dated September 26, 2005 was dispatched through Registered post with Acknowledgement due. The postal department is yet to provide acknowledgement of delivery, nor is there any reply received from Mr. Singh either. The status of delivery of SCN is, therefore, uncertain.
04. Under the aforesaid circumstances, the undersigned thought it fit to hold an inquiry in the matter. Accordingly, a notice of inquiry dated September 20, 2005 was issued to Mr. Singh, fixing October 05, 2005 as the date for inquiry. Copy of the SCN and its annexures were also enclosed in this notice of inquiry, which was returned undelivered by the postal department with the comment, “refused” (dated September, 24, 2005). Another copy of the said notice was also sent through official courier of SEBI, which incidentally got delivered on the same address. In the opinion of the undersigned, Mr. Singh deliberately refused to accept the notice of inquiry and also did not appear in response to the notice sent and delivered through courier. I now proceed ahead with the inquiry ex-parte.
05. From the material on record it is seen that SEBI launched investigation into the scrip of TSW as there were unfair trade practices. The period of investigation was between January 01, 2003 and July 11, 2003 and the total volume of shares bought and sold during the period by the top 5 members of BSE were 425,064 and 420,717 respectively Investigation further revealed that there were artificial volumes, synchronized trades, concentration of trading volumes among three members, reversal trades and interconnection between clients of these members etc. Ramaben Samani Finance Ltd. (RSF) was one among the three brokers short listed for further investigation. The volume of shares bought and sold by the top 5 members were 425,064. The volume of shares bought and sold by RSF was 24,010 and 23,708 respectively, out of which the volume bought and sold for Mr. Singh was 23,930 and 23,628 respectively.
06. Under the circumstances, the Investigating Officer issued summons dated April 06, 2005 to Mr. Singh for his personal appearance on April 18, 2005 to answer queries pertaining to his trades in TSW scrip during the period of investigation. He was also required to bring all relevant documents along. As per the material on record, this summons was not served on him, as can be seen from the comment “not reachable” on the copy for acknowledgement. It is also seen that another copy of the summons was despatched through the broker RSF. RSF vide its letter April 19, 2005 informed the IO that the summons was despatched by registered post to its client, Mr. Singh on April 08, 2005. Further, RSF also enclosed copy of postal acknowledgement. It may be noted that the date for personal appearance was fixed on April 08, 2005 and the summons was dated April 06, 2005 and was despatched through RSF. In other words, only on the day when Mr. Singh was required to be present, RSF sent the summons to him by RPAD. Though, RSF and Mr. Singh are based within the city of Mumbai, the time gap between the issuance of summons and the date for personal appearance is so narrow that it cannot be expected of Mr. Singh to comply with the said summons. In other words it can also be said that there was no valid notice of the said summons upon Mr. Singh.
07. The second summons, dated April 11, 2005 required Mr. Singh to be present on the very next day, i.e. April 12, 2005, at 11:00 am. From the material available on records, the mode of despatch and the status of delivery of this summons are not clear. Nor is there any evidence to suggest that the said summon was served upon Mr. Singh. Irrespective of whether the second summon was served or not, the extremely short notice of even less than a day, cannot be said to be a sufficient notice for a person to respond. .
08. Section 11 (3) (ii) of SEBI Act, 1992 empowers SEBI to enforce attendance of persons and examining them under oath. However, by no stretch of imagination could this power be exercised by issuing summons in a manner that, by the time it reaches the party, the date for personal appearance is already over. Principles of natural justice require that a reasonable opportunity needs to be given for the party to explain the facts and circumstances appearing against him. In the instant case the way summons were alleged to be served on Mr. Singh is as good as summons are not served.
09. In this regard, the verdict of SAT vide its order dated October 15, 2004 in the appeal no. 166 of 2003 in the matter of Keyoor M. Bakshi vs SEBI may be relevant. The appellant was barred from securities market for a period of one year for fraudulent and unfair trade practices in the scrip of JRAL. SAT set aside this order of SEBI, pertaining to Mr. Bakshi, as no show cause notice was served on him. The relevant portion is reproduced below:
"Various contentions were raised before the Tribunal. However, it is not necessary to go into each of the contentions raised by the appellant as we wish to dispose of this matter on the ground of violation of principles of natural justice.
It is submitted that the appellant was never served with any show cause notice nor was any opportunity given to the appellant before the impugned order was passed. It was further submitted that the appellant is a nominal director and was not involved in the day today affairs of the company.
It appears to us from the records placed before us that the appellant was not served with any show cause notice. In that view of the matter, we have no alternative except to set aside the impugned order in so far as the appellant is concerned and direct the respondent to dispose of the matter afresh in accordance with law. All contentions are left open in the event the respondent wishes to issue a fresh show cause notice.
It is also brought to our notice that the period of ban imposed in the impugned order has already spent itself out. Be that as it may, since the appellant has raised the important question of principles of natural justice the impugned order, as stated earlier, is set aside only in so far as the appellant is concerned. The respondent is at liberty to issue fresh show cause notice to the appellant, if they so desire.
Accordingly the impugned order is set aside. No order as to costs."
10. In the light of the above judgment it will not be appropriate to hold Mr. Singh guilty of non-compliance of summons especially when the said summons prima-faciely appeared to be unserved due to the extreme short notice and other reasons as discussed in the foregoing paragraphs.
11. In view of the discussions and findings arrived at above, I do not find it to be a fit case for imposition of adjudication penalty under Section 15I read with Section 15HB of SEBI Act, 1992 for non-compliance of summons.
12. This order of adjudication is made and passed on 25th day of October 2005 at Mumbai.
AMIT PRADHAN
ADJUDICATING OFFICER