BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. AP/AO- 17/2005-06]
In the matter of Investigations in
T. SPIRITUAL WORLD LTD
AND
In respect of
SPS SHARE BROKERS PVT. LTD
_
01. Securities and Exchange Board of India (SEBI) conducted investigation into suspected unfair trade practices in the scrip of T. Spiritual World Ltd. (hereinafter, 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 SPS Share Brokers Pvt. Ltd. (hereinafter, SPS) to comply with the summons issued by the Investigating Officer, SEBI. It was alleged that SPS violated the provisions of Section 11(3) and 11C (5) of the SEBI Act, 1992 for which penalty can be imposed under Section 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, Adjudication Rules) to SPS, communicating the allegations levelled against it and calling upon it as to why an inquiry in terms of the said Rules should not be conducted against it. SPS responded vide letter September 14, 2005, denying the allegations; details in this regard are discussed in the relevant portion in the findings.
03. 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 SPS, fixing October 05, 2005 as the date for inquiry. Mr. Manish Dave, Director of SPS, appeared on behalf of SPS. He reiterated the submission made vide letter September 14, 2005 and pleaded for dropping of the proceedings and also made further submission vide letter dated October 13, 2005which are discussed in the relevant portion in the findings.
04. Having carefully perused the material on record I proceed to record my findings as follows:
SEBI launched investigation into the dealings in the scrip of TSW for the period of January 01, 2003 to July 11, 2003, as there were unfair trade practices. The total volume of shares bought and sold during the said period by the top 5 members of BSE were 425,064 and 420,719 respectively. Investigation 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. SPS, who is not one of the three members, identified as perpetuators of unfair trade practices, bought and sold 150,000 shares of TSW each, for its client HFCL Invest Trade Ltd. In this background SPS was summoned under section 11 (3) and 11 (C) of SEBI Act, 1992 by the Investigating Officer (IO) vide summons dated April 27, 2005 for its authorized representative to appear in person on April 29, 2005 and also furnish relevant information/documents, including those pertaining to their trades on behalf of its client(s) in the shares of TSW during period January 1, 2003 to July 11, 2003.
05. It is undisputed that SPS received the summons but neither did its authorized representative appear before the (IO) nor was any information furnished in response to the summons. The circumstances under which this summons went un-responded was explained by SPS in its reply to the SCN, dated September 14, 2005; it was submitted that SPS received the summons only at 4:45 p.m. on April 28, 2005 and hence found it difficult to respond to the summons the next day. It is undisputed that SPS, vide its letter to the IO, dated April 28, 2005, sought extension of the date of hearing, as Mr. Sandeep Shah was preoccupied with some other appointment.
06. Second summon was issued to SPS u/s 11 (3) and 11 (C) of SEBI Act, 1992 by the IO vide summons dated April 29, 2005 to appear in person on May 18, 2005 and also furnish details pertaining to its trades in the shares of TSW on behalf of its client (s) during period January 1, 2003 to July 11, 2003.
07. It is undisputed that SPS received the summons but neither did its authorized representative appear before the (IO) nor was any information furnished, in response to summons. Instead, SPS vide its letter dated May 18, 2005 informed the IO about Mr. Sandeep Shah’s inability to appear, as he had to appear before Court of Law at 2:30 pm on the same day, and thus sought postponement of personal appearance. In response to my query, in the inquiry on October 05, 2005, as to why the letter seeking postponement was sent only on the day for personal appearance (May 18, 2005), when summons for the same was issued much earlier (April, 29, 2005), SPS in its letter dated October 13, 2005 stated it received intimation from its advocate on May 17, 2005 about requirement to be present in court on May 18, 2005, hence SPS could inform SEBI only on May 18, 2005 i.e. the day of personal appearance. In this regard, SPS filed a certificate from Advocate, stating that Mr. Sandeep Shah was with the advocate on May 18, 2005 to file a suit in the Small Cause Court (City Mumbai). This may have well been true. However, from the material placed before me, there is nothing to suggest that it was mandatory for Mr. Shah, Director of SPS to file suit in the cited court on May 18, 2005. It could have been done on any other date or could have been handled by someone else from SPS. Further, it is not the case of SPS that it was summoned to be present before the City Court on the said date, because of which it skipped the summons issued by SEBI. As SPS is not a proprietary firm, it is wrong on its part to project a picture that Mr. Sandeep Shah is the only person who has to attend to all the aspects of SPS. Other directors or any other authorized personal could have appeared in person in response to the summons. SPS has not done so. The reply of SPS does not explain as to why SPS could not arrange some other person to appear before IO on May 18, 2005. Nor does it explain why SPS did not furnish to the IO, information pertaining to its clients’ trades in TSW scrip, in response to the summons.
08. Moreover, I also find that SPS sent (faxed) one more letter dated May 18, 2005 to the IO, purportedly in response to SEBI’s oral directive, fixing the next date for personal appearance on May 19, 2005. Mr. Sandeep Shah, Director of SPS, in this cited letter expressed his inability to appear before IO on May 19, 2005 as their new Office is being inaugurated and once again sought postponement.
09. SPS in its reply to the SCN, dated September 14, 2005 further stated that in all the three instances, it could not respond to the summons because of reasons beyond its control. It also added that all the information sought by SEBI was promptly furnished by it and a copy of the same was enclosed for my records. I wish to reiterate that no annexures were enclosed to SPS’ letter dated September 14, 2005. This issue was raised in the inquiry held on October 05, 2005 and Manish Dave, Director, SPS, agreed to clarify the same after checking their records. Accordingly, vide letter dated October 13, 2005, SPS accepted its mistake; it had wrongly mentioned in its reply to the SCN that copies of material it furnished to IO were also enclosed in its letter dated September 14, 2005. Further, letter dated October 13, 2005 also mentions that information submitted by SPS was to BSE and not to SEBI, and this time, thankfully, copies of the information furnished to BSE were enclosed. The Surveillance department of BSE vide letters dated March 31, 2003 & July 17, 2003 sought complete client details pertaining to SPS’ trades in the scrip of TSW during the period of investigation. In response, SPS vide letters dated 15 April 2003 and July 18, 2003 furnished the information sought to BSE. I am disinclined to go into contents of these replies as replying to the surveillance department of the exchange cannot be equated with responding to Summons issued by the IO of SEBI. The powers to issue summons flows from section 11 (3) and 11 (C) of SEBI Act, 1992 and are therefore mandatory in nature. Firstly, the conduct of SPS (authorized representative) in not appearing before the IO in response to the summons is in utter disregard of its responsibility as a registered intermediary and also in violation of Clause A (5) of the Code of Conduct as specified in Schedule II read with Regulation 7 of SEBI (Stock Brokers & Sub Brokers) Regulations 1992. The reasons cited by SPS in this regard lacks credibility. Secondly, by falsely claiming in its reply dated September 14, 2005 that it has furnished information sought by IO, when it actually did not do so and also the claim to have enclosed a copy of the same to the AO, when it actually did not do so, clearly reflects SPS’ intention and futile attempt to mislead the AO and also cover up its own actions in a contumacious manner.
10. I, therefore, derive two conclusions from the above discussion. First, SPS did not respond to Summons issued by IO and therefore contravened section 11 (3) and 11 (C) of SEBI Act, 1992 and second, the aforesaid contravention is deliberate in nature. For the aforesaid violation, for which no separate penalty has been provided, penalty can be imposed under section 15HB of SEBI Act, 1992 which reads as under:
"Penalty for contravention where no separate penalty has been provided.
15HB Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.]"
The information sought vide summonses appeared to be very relevant to the investigations as SPS had dealt in good quantity for its clients.
11. The violation thus being established, the undersigned considered the following factors as provided in the section 15J of SEBI Act to determine the quantum of penalty that can be imposed under Section 15HB of SEBI Act, 1992 viz. (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 and; (c) the repetitive nature of the default.
12. Nothing can be gathered from the investigation report about any unfair advantage that has accrued to SPS on account of non-appearance before the IO. Further, there is no information also pertaining to loss caused to any investors on account of SPS’ non -appearance. However, SPS’s non- appearance in response to the second summons and the fact that no information pertaining to TSW was furnished by SPS to IO may be treated as repetitive and serious in nature. I am therefore inclined to impose penalty on SPS for the repetitive nature of the default. In arriving at the penalty, the status of SPS as an intermediary registered with the Board is also kept in mind. Being a registered and regulated entity SPS should have been compliant to SEBI directives.
13. Therefore, in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of SEBI Adjudication Rules, I hereby impose a penalty of Rs. 1,00,000 (One lakh only) on SPS Share Brokers Pvt. Ltd. under section 15HB of SEBI Act, 1992 for non-compliance of summons.
14. SPS Share Brokers Pvt. Ltd shall pay the said amount of penalty by way of demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Shri M S Ray, Chief General Manager, Investigation, ID-5, Mittal Court, 1st floor, B- Wing, 224, Nariman Point, Mumbai 400 021.
15. In terms of Regulation 6 of SEBI Adjudication Rules copies of this order are sent to SPS Share Brokers Pvt. Ltd. and also to SEBI.
16. This order of adjudication is made and passed on 25th day of October 2005 at Mumbai.
(AMIT PRADHAN)
ADJUDICATING OFFICER