ORDER OF THE ADJUDICATING OFFICER UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER BONANZA BIOTECH LTD
ADJ.ORDER No: ACR/ 94 OF 2005
1. Vide order dated December 28, 2004, issued by Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), I was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to enquire into and to adjudge under Sec.15-I of Securities and Exchange Board of India Act, 1992, the alleged violation of 11C of Securities and Exchange Board of India Act, 1992 against Bonanza Biotech Ltd. having its address at 206, Sameer Complex, R.N.T. Marg, Indore (Madhya Pradesh). As per the information made available to me by SEBI, the said Bonanza Biotech Ltd. was previously known as Reliable Plastics Ltd. For the sake of convenience, the said Bonanza Biotech Ltd. will be referred hereinafter in this order as ‘the noticee’. Initially, vide order dated July 6, 2004, Shri K.R.C.V. Seshachalam, Deputy Legal Adviser was appointed as the Adjudicating Officer in the instant matter and vide the aforesaid order dated December 28, 2004, SEBI appointed me as the Adjudicating Officer in place of the said Shri K.R.C.V. Seshachalam.
2. As per the information provided to me by SEBI, SEBI conducted an investigation in to the alleged price manipulation in the scrip of Ojas Technochem Products Ltd. During the course of the said investigation, the investigating authority of SEBI issued summons on June 23, 2003 directing the noticee, interalia to furnish the following information by July 2, 2003: (a) name and address and contact no. of the client; (b) quantity bought by the client; (c) quantity sold by the client during the period of November 1999 to March 2000; and (d) introducer’s details including address and contact number apart from details of payments made or received to or from the clients in respect of trading in the scrip of Ojas Technochem Products Ltd. The investigating authority also required the noticee to furnish the details of instrument no., amount of transaction, bank details etc. and in case any of the clients of the noticee acted as a sub broker, a copy of the certificate of registration granted etc. However, as per SEBI, there was no compliance with the said summons by the noticee.
3. Subsequently, on January 19, 2004, the investigating authority of SEBI issued fresh summons to the noticee directing the noticee, to furnish the information required in the covering letter to the said summons by January 31, 2004, apart from advising to appear in person, to provide all the documents relating to its transactions in the scrip of Ojas Technochem Products Ltd. by February 3, 2004. The said summons dated January 19, 2004 was sent by registered post acknowledgement due and from an unauthenticated photocopy of the postal acknowledgement card made available to me by SEBI, I found that the noticee received the summons on January 21, 2004.
4. From the unauthenticated photocopies of documents made available to me by SEBI, on January 19, 2004, i.e., the same date on which the summons was issued by the investigating authority, Shri Jainendra Shandilya of Investigations Department of SEBI issued a letter bearing no. IVD/ID3/PKB/JS/OTPL/1349/04 to the noticee advising it to bring the following documents for the period November 1, 1999 to February 28, 2000 “while coming to the office of Securities and Exchange Board of India”, viz., (a) quantity of shares bought or sold by the noticee and the rate at which the transactions took place; (b) the distinctive numbers of shares dealt in by the noticee; (c) name of the broker/ sub broker and details of the introducer with address and contact numbers etc. ; (d) bank statement of the noticee for the period of August 1999 to March 2000; and (e) number of shares of Ojas Technochem Products Ltd. held by the noticee as on April 1, 1999, April 1, 2000 and April 1, 2001. Though, there is no reference to the summons issued by the investigating authority on January 19, 2004 in the aforesaid letter dated January 31, 2004, from the tone of the said letter, I presume that the said letter was the covering letter that was referred by the investigating authority in his summons.
5. However, as per the investigating authority, there was no compliance of the aforesaid summonses by the noticee. Therefore, I issued a notice dated June 21, 2005 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 calling upon the noticee to show cause as to why an inquiry should not be held against it and penalty be not imposed under Sec. 15A (a) of Securities and Exchange Board of India Act, 1992. The said notice dated June 21, 2005 was sent to the noticee by registered post acknowledgment due. However, the said notice was returned undelivered by the postal authorities with an endorsement ‘left’. I, therefore, requested the Investigations Department of SEBI to ensure the service of notice on the noticee. Accordingly, SEBI got the notice served on the noticee through Madhya Pradesh Stock Exchange and the said Stock Exchange furnished me the documentary evidence from which it was seen that the notice was served on the noticee on August 10, 2005 and one Shri B.L. Joshi issued acknowledgement on behalf of the noticee.
6. Since there was no reply to the said notice by the noticee within 14 days, the time which was stipulated by me for the noticee to file its reply, I was of the opinion that an inquiry should be held in the matter and accordingly a notice of inquiry in terms of Rule 4(3) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, dated September 15, 2005 was issued by me fixing September 28, 2005 as the date of inquiry. The authorized representative or lawyer of the noticee was advised to appear before me on September 28, 2005 for inquiry. My office requested the Madhya Pradesh Stock Exchange to serve the said notice of inquiry on the noticee. Accordingly, the Madhya Pradesh Stock Exchange served the notice of inquiry on the noticee on September 26, 2005 and furnished me documentary evidence to this effect.
7. However, no representative of the noticee appeared before me on September 28, 2005 or on any subsequent date. I did not receive any communication from the noticee requesting for adjournment of inquiry. In these circumstances, I was of the opinion that the noticee was intentionally evading the adjudication proceedings and therefore I decided to proceed with the inquiry ex parte based on the records made available to me by SEBI.
8. Before examining the various aspects of the case, the provisions of Securities and Exchange Board of India Act, 1992 with respect to the issuance of requisitions by the investigating authorities of SEBI for production of documents/ information and the consequences of non- compliance are perused by me. Sec. 11C of Securities and Exchange Board of India Act, 1992, interalia provides that the Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to or produce such books, or registers, or other documents, or record before him or any persons authorized by it. Sec. 15A (a) of Securities and Exchange Board of India Act, 1992 provides for imposition of monetary penalty of one lakh rupees for each day during such failure continues or one crore rupees, whichever is less by the Adjudicating Officer in case any person, who is required under Securities and Exchange Board of India Act, 1992 or any rules or regulations made thereunder to furnish any document, return or report, fails to furnish the same.
9. It was alleged by SEBI that the noticee failed to comply with the summonses/requisitions dated June 23, 2003 and January 19, 2004 issued by the investigating authority as mentioned above. Apparently, the noticee buys and sells securities as an investor and also a listed company; therefore, there is no doubt that it is a person associated with securities market.
10. From unauthenticated photocopies of documents made available to me by SEBI, I noticed that the summons of the investigating authority dated January 19, 2004 was received by the noticee well before the due date of compliance. However, no documentary evidence is available on record to prove that the summons and requisition dated June 23, 2003 was received by the noticee.
11. The summons issued by the investigating authority on June 23, 2003 required the noticee to appear on July 2, 2003 at 11 a.m. before the investigating authority. It also directed the noticee to produce on July 2, 2003 all the documents upon which the noticee intends to rely in support of its defence or which may be material for the purpose of investigation. In this connection, it has to be noted that the purpose of any investigation is to find the facts and to collect the evidence in order to establish the violations against the wrongdoer. Therefore, the question of the noticee producing any documents in its defence at the stage of investigation does not arise. During the process of investigation, neither any charges were leveled against the noticee nor any proceedings were launched against it and therefore it is not appropriate to require the noticee to produce documents in support of its defence. Similarly, it is for the investigating authority to decide the materiality of documents for the purpose of investigation and it cannot be kept open for the noticee to decide the materiality or immateriality of documents for the purpose of investigation. However, the covering letter dated June 23, 2003 issued by the investigating authority gives the details of the information/ documents required to be produced by the noticee. It advises the noticee to bring the trading details in the scrip of Ojas Technochem Products Ltd., for the period of November 1999 to March 2000 as per the following format:
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Name, address and contact no. of the client.
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Quantity bought by the client during the above mentioned period with distinctive no. of shares taken as delivery
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Quantity sold by the client during the above mentioned period with a distinctive no. shares that were sold.
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Introducer’s detail including address and contact no.
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12. Apart from the above, the noticee was also advised to bring the details of payments made/ received from/to the clients in respect of trading in the scrip of Ojas Technochem Prodcuts Ltd. The noticee was also advised to inform the details of registration in case any of his clients acted as sub broker.
13. I have carefully perused the above summons dated June 23, 2003 and its covering letter of the same date. Though the investigating authority advised the noticee to furnish the aforesaid details like name, address and contact number of the client, quantity bought by the client etc., vide the covering letter to the aforesaid summons dated June 23, 2003, it appears that the said information cannot be furnished by the noticee as such information had to be obtained from a broker or sub broker and not from the noticee which is not an intermediary in the securities market. In my view, summons that was intended to be issued to a broker/ sub broker was inadvertently issued to the noticee by the investigating authority. The said inadvertence, it appears, was noticed by the investigating authority and therefore, in the subsequent summons the information sought and documents required to be produced were entirely different.
14. Therefore, in view of the ambiguity in the summons dated June 23, 2003 requiring the production of documents by the noticee, I am not inclined to find that the noticee failed to comply with the same.
15. Subsequent summons dated January 19, 2004, issued by the investigating authority directed the noticee to furnish the information required in the covering letter to the said summons by January 31, 2004 and to produce all the documents relating to its transactions in Ojas Technochem Products Ltd. Covering letter to the said summons dated January 19, 2004 advised the noticee ‘to bring the following documents’ along with it ‘while coming to the office of Securities and Exchange Board of India’. The ‘documents’ which were advised to be brought by the noticee were (a) quantity of shares bought/ sold by the noticee and the rate at which the transactions took place (b) the distinctive number of the shares dealt in by the noticee (c) name of the broker/ sub broker and details of the introducer with address and contact numbers, if the noticee had acted as a sub broker (d) the noticee’s bank statement for the period August 1999 to March 2000 (e) number of shares of the Ojas Technochem Products Ltd., held by the noticee as on 1st April 1999, 1st April 2000 and on 1st April 2001.
16. From a copy of the postal acknowledgement made available to me, I found that the aforesaid summons was delivered at the address of the noticee.
17. I have carefully perused the above summons dated January 19, 2004 and its covering letter of the same date. The operative portion of the said summons reads as follows: “you are hereby summoned to furnish the information required in the covering letter to the summon by 31st January 2004 and to appear in person on 3rd February 2004 at 1:30 PM before the Investigating Authority. You are also further directed to produce on that date all the documents relating to your transactions in Ojas Technochem Products Ltd. You are summoned to remain present with the documents at the following address:” The covering letter to the summons dated January 19, 2004 was issued by Shri Jainendra Shandilya, an officer posted to the Investigations Department of SEBI and advised the noticee to bring the following documents ‘while coming to the office of Securities and Exchange Board of India’. From the above, it is clear that there was an ambiguity as far as the date stipulated for complying with the summons for furnishing of documents issued by the investigating authority. As per the summons signed by the investigating authority, the information specified in the covering letter was to be furnished by January 31, 2004 whereas the aforesaid covering letter requires the noticee to ‘bring’ the information/ documents ‘while coming to the office of Securities and Exchange Board of India’. As per the summons, the noticee was required to attend the office of Securities and Exchange Board of India on February 3, 2004. However, I am not of the view that the above said ambiguity or discrepancy caused any hindrance for the noticee to furnish the documents at least by a later date. Therefore, I find that the failure of the noticee to comply with the requisition made by the investigating authority for production of documents vide summons dated January 19, 2004 is established.
18. Since the failure of producing the documents before the Investigating Authority of SEBI by the noticee is established, the quantum of penalty has to be decided by me.
19. Section 15A (a) of Securities and Exchange Board of India Act, 1992 prescribes a penalty of one lakh rupees for each day during which the failure to furnish any documents etc. to SEBI continues or Rs. one crore whichever is less.
20. To determine the quantum of penalty under Section 15A (a), I considered the following factors as provided in the section 15J of Securities and Exchange Board of India 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.
21. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the noticee. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default.
22. The violation committed by the noticee was not repetitive in nature as it failed to furnish the required information to the investigating authority of SEBI, only on one occasion i.e., in response to the summons dated January 19, 2004. Further, there is no information on record which proves that the noticee committed similar violations in the past.
23. While determining the quantum of penalty, I have also taken into consideration various recent decisions of the Hon’ble Securities Appellate Tribunal. In the matter of Mayfair Paper & Board Pvt. Ltd. v. SEBI (Appeal No.95 of 2004) the Hon’ble Securities Appellate Tribunal observed that the provision for enhanced penalties in the year 2002 does not mean that SEBI should impose sky high penalties. I have also referred to various recent decisions of the Hon’ble Securities Appellate Tribunal with respect to the penalties imposed by adjudicating officers in cases similar to the instant one. However, I am sure that the spirit of the rulings of the Hon’ble Securities Appellate Tribunal was not that lenient views should be taken by the Adjudicating Officers in cases where the failure of the noticees was deliberate and their sole intention was to cause hindrances to the process of investigation by the regulator. In the instant case, the noticee was given sufficient opportunity by the investigating authority to produce information and documents and despite receipt of the statutory requisitions made by the investigating authority, the noticee failed to comply with the same. In the absence of any representation before me during the adjudication proceedings, despite receiving notices, I am of the view that there are no sufficient reasons for the noticee which prevented it from complying with the requisitions made by the investigating authority. By not complying with the directions of the investigating authority, the noticee has demonstrated his absolute disrespect to the process of law and any lenient view taken by the adjudicating authorities in such cases will set a bad precedent and sends wrong signals to the potential defaulters. Further, the information required by the investigating authority was of such nature that it was available only with the noticee and there was no scope for the investigating authority to gather the said information from any other source. Further, the negligence of the noticee being a listed company in complying with the requisitions of the regulator deserves a serious view.
ORDER
24. Therefore in exercise of the powers conferred under section 15-1(2) read with Sec. 11C, Sec. 15 A(a) of the Securities and Exchange Board of India Act, 1992 and Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs. 500000 (Rupees five lakhs only) on Bonanza Biotech Ltd. In my view, the above penalty is proportionate to the default of the noticee, in the facts and circumstances of the case.
25. The noticee shall pay the amount of penalty imposed with respect to each of them 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 P. K. Bindlish, General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 1st Floor, 224, Nariman Point, Mumbai – 400 021.
26. In terms 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 the noticee and also to Securities and Exchange Board of India.
Date: October 21, 2005 A. Chandra Sekhar Rao
Place: Mumbai Adjudicating Officer