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Order in the matter of Robinson Worldwide against Shri Sujal Shah

Oct 11, 2007
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Orders : Orders of AO

ADJUDICATION ORDER NO. - BS/AO- 27/2007

ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 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 PRATIK SHAH.

  1. Pursuant to the investigation conducted by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) into the dealings in the scrip of Robinson Worldwide Trade Limited (hereinafter referred to as ‘RWTL’) , I was appointed the Adjudicating Officer to inquire into and adjudge under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation alleged to have been committed by Shri Pratik Shah (hereinafter referred to as the ‘noticee’) ( PAN No. AAJPS1909F) on account of his failure to furnish to SEBI, information regarding his dealings in the scrip of RWTL.
     
  2. It is alleged that the investigating authority of SEBI issued summons / letters dated December 27, 2004 and January 23, 2006 to the noticee requiring the noticee to furnish the details regarding his dealings in the shares of RWTL. It is alleged that the noticee failed to comply with the said summons and failed to submit the information to the investigating authority.

    NOTICE AND REPLY
  3. A show cause notice in terms of the provisions of Rule 4(1) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued to the noticee on September 19, 2006 seeking reply of the noticee as to why an inquiry should not be held against him in respect of the violations alleged to have been committed by him.

     
  4. It is noted that the said notice sent by registered post was received by the noticee. The noticee did not reply to the show cause notice. However, considering the facts of the case, it was decided to conduct an inquiry in the matter and the noticee was advised to attend the inquiry on November 23, 2006. 

     
  5. Shri Rajkumar Masalia, authorized representative of the noticee attended the hearing on November 23, 2006 and submitted the following:
    1. The person taking care of all the activities had left the office, so the information could not be submitted immediately.
    2. The said information was submitted vide letter dated February 3, 2005.
    3. Any further information in the matter shall be submitted as and when the same is called for.

      CONSIDERATION OF EVIDENCE AND FINDINGS
  6. The allegation against the noticee is that he failed to comply with the letters dated December 27, 2004 and January 23, 2006 issued by investigating authority and in view of the same, he is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992. In this regard it is pertinent to note that Section 11 C (3) of the SEBI Act empowers the investigating authority of SEBI to require any person associated with the securities market to furnish such information or to produce such records as may be required by the investigating authority. Further, Section 11 C (5) empowers the investigating authority to examine such persons. Timely submission of information is very important for concluding investigation proceedings and non co-operation by an entity can be detrimental to the interests of investors and securities market on account of any delay in the investigation.

     
  7. In this regard, the provisions of Section 15A(a) of SEBI Act provides the following:

    “Penalty for failure to furnish information, return, etc.: If any person, who is required under this Act or any rules or regulations made thereunder, to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.” 
  8. It is noted that investigating authority issued letter dated December 27, 2004  to the noticee seeking the following information:
    1. Name of the brokers through whom the noticee traded.
    2. The client codes used by different brokers while trading for him.
    3. The reasons for buying the shares of a company which has continuously shown a dismal performance over a period of time, at a high price which ranged from Rs.84 to Rs.100.
    4. The overall gains or loss incurred in these transactions.
    5. Whether the noticee is still holding the shares of this company? If yes, details thereof.
    6. Details of entering into any off market transactions in the scrip. When, with whom and for how many shares?
    7. The demat account statement for the period from 1st January 2004 to 30th September, 2004.

       
  9. The noticee was required to furnish the said details by January 3, 2005. It is noted that vide its letter dated January 6, 2005, the noticee requested for time to submit the required details.

     
  10. Subsequently, vide his letter dated February 3, 2005, the noticee submitted the following:
    1. I am trading through following brokers / sub-brokers:  

              i.            M/s DPS Shares & Securities Pvt. Ltd.  
               ii.            Navkar Investments"
    2. My trading account with            

      i.            M/s DPS Shares & Securities Pvt. Ltd. – P127             
      ii.            Navkar Investments – P040
  11.  
    1. Since I have only purchased the shares, question of profit and loss do not arise.
    2. The shares received from and on behalf of DPS Shares & Securities Pvt. Ltd. are transferred back to them / clients specified by them. Since I am also director of DPS, balance shares I have transferred to my friend’s account as he wanted the shares as loan.
    3. There are no off market transactions done by me or on my behalf.
    4. For your confirmation, I herewith enclose demat statement for period from 1st January 2004 to 30th September 2004.

       
  12. It is noted that investigating authority issued summons to the noticee on January 23, 2006 which required the noticee to submit the details as mentioned in the annexure. The noticee was advised submit the information by January 30, 2006. It is noted on perusal of the annexure that it referred to the above mentioned reply of the noticee and required further clarifications as follows:
    1. Give reasons for buying huge quantity of shares of a company at a very high price, which had continuously shown a dismal performance over a period of time.
    2. It is observed that the major selling clients had purchased the shares from DPS Shares & Securities Pvt. Ltd. in the year 2003 in physical form through off-market deals at a very nominal price. During the investigation period, the same were sold at very high prices to the noticee and other clients who traded through DPS and were related to the firm. Please furnish reasons for buying the scrip and offer comments regarding the pattern of trading. Also give details of noticee’s current holding in the scrip.
    3. In your reply, it has been mentioned therein that you have transferred the balance shares to your friend’s account as he wanted the shares as loan. You are advised to provide full details along with the documentary evidence of all the transfers from your account to different accounts and the loans as mentioned above.

       
  13. The noticee was also informed that his personal appearance was not required at that stage of inquiry and providing information would be considered as compliance of letter. It is noted from the facts available on record that the said letter was duly received and acknowledged. 

     
  14. It is noted from the above mentioned facts that the noticee replied to the letter dated December 27, 2004, vide its letter dated February 3, 2005. There was a delay in furnishing the information; however it can not be held that the noticee failed to comply with the letter dated December 27, 2004, as it is noted from the facts of the case that the said reply was considered by the investigating authority. However it is pertinent to note that the noticee has not given reasons for buying huge quantity of shares at high prices when the company has continuously shown a dismal performance over a period of time.

     
  15. Subsequently the investigating authority issued another summons dated January 23, 2006 seeking further clarification into the matter. It is noted that the said letter was delivered to the entity and the same has been acknowledged. It is seen from the records that the noticee failed to reply to the said letter. Further, no explanation has been provided by the noticee in respect of his failure to furnish information. Hence, it is concluded that the noticee failed to comply with the summons dated January 23, 2006. It is noted from the details stated in the preceding paragraphs that the Investigating authority was only seeking preliminary details on all the transfers of RWTL shares from noticee’s account to different accounts on account of loan transactions and the reasons for buying huge quantity of shares at high prices when the company has continuously shown dismal performance over a period of time. In this regard, it is pertinent to note that the noticee in its letter dated February 3, 2005 had submitted that he had given shares to his friends as loan. 

     
  16. The noticee could have provided the above details as the query was based on submissions made by him vide his letter dated February 3, 2005 and it pertained to transactions done by him. It is pertinent to note that the noticee neither submitted the details to the investigating authority nor submitted any clarification in the inquiry proceedings. The said actions of the noticee become more serious in view of the fact that he is stated to have purchased 60900 shares and sold 3000 shares during the period March 2004 and July 2004. Thus, it can be seen that he was executing substantial trades in this scrip. It is further stated that the noticee bought such a large number of shares of a company which has continuously shown a dismal performance over a period of time. No explanation has been provided for trading in large quantities.

     
  17. It was further noted from the findings of the investigation that the major selling clients had purchased the shares from one M/s DPS Shares & Securities Pvt. Ltd. in the year 2003 in physical form through off-market deals at a very nominal price. Subsequently, the same were sold at very high prices to the noticee and other clients who traded through DPS and were related to the firm. It is also pertinent to note that the noticee is stated to be a director of M/s DPS Shares & Securities Pvt. Limited. In view of the above circumstances, the investigating authority of SEBI sought details of the trades by the noticee and the reasons for executing such trades. Facts of the case indicate that the noticee deliberately did not submit any reply in response to the letter dated January 23, 2006. In this regard it is also pertinent to note that though the noticee forwarded some information vide its earlier letter dated February 3, 2005, crucial information such as reasons for trading in the scrip has not been provided by the noticee. In view of the same failure on the part of the noticee to furnish the information sought by the investigating authority vide subsequent letter dated January 23, 2006 appears to be deliberate in order to avoid further queries from SEBI in the matter. Failure on the part of the noticee to give the said information should be viewed in the context of the large quantities of shares bought by the noticee. The failure on the part of the noticee to comply with the summons/notices attract penalty under Section 15A (a) of the SEBI Act.

     
  18. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely;
    1. the amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of the default
    2. the amount of loss caused to an investor or group of investors as a result of the default
    3.  the repetitive nature of the default

       
  19. It is noted from the details available on record that the noticee had executed substantial trades in the scrip. Further, he is stated to have bought large number of shares of a company which has continuously shown a dismal performance over a period of time. It is not possible to quantify the gains made by the noticee or the loss caused to investors on account of the violation committed by the noticee. Further, as it is seen from the facts available on records, that as the noticee failed to comply with the summons dated January 23, 2006, the failure on the part of the noticee can not be termed as repetitive in nature. However facts of the case indicate that the failure on the part of the noticee in furnishing the details sought vide summons dated January 23, 2006 was deliberate. Hence the violation committed by the noticee has to be viewed seriously and attract penalty prescribed under Section 15A (a) of the SEBI Act. 

     
  20. The noticee by his letter dated 23rd August, 2007, stated that he wishes to avail the consent process initiated vide SEBI circular No. EFD/ED/Cir-1/2007 dated 20th April, 2007. In this regard, the noticee submitted that the application for consent orders will be submitted by him within 10 days. However it is noted that no request for consent orders has been received from the noticee till date. Hence, it appears that noticee has not submitted any application for consent orders.

    ORDER
  21. Considering the facts and circumstances of the case it is established that Shri Pratik Shah failed to provide necessary information to the investigating authority of SEBI in response to the letter dated January 23, 2006, issued by it. Considering the facts and circumstances of the case and considering the fact that the violation was committed only once, a lenient view is taken with regard to the penalty attracted in respect of the violation. Considering the facts and circumstances of the case, I impose a penalty of Rupees Fifty Thousand (Rs. 50,000) on Shri Pratik Shah in terms of the provisions of Section 15 A (a) of the SEBI Act, 1992 for failure to provide necessary information to SEBI. In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violation committed by Shri Pratik Shah.

     
  22. The penalty shall be paid by way of demand draft 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 draft shall be forwarded to Investigation Department (ID1), Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

     
  23. 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 Pratik Shah and also to Securities and Exchange Board of India.

 

 

PLACE: Mumbai  Biju. S

DATE: October 11, 2007 Adjudicating Officer