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 OF M/S. SAVITRI SUPPLY SYNDICATE.
ADJ.ORDER No: ACR/ 89 OF 2005
1. Vide order dated July 8, 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 M/s. Savitri Supply Syndicate, a business concern having its address at 19, Amherst Street, Kolkata- 700009. For the sake of convenience, the said M/s. Savitri Supply Syndicate will be referred hereinafter in this order as ‘the noticee’. The aforesaid appointment as Adjudicating Officer was communicated to me vide proceedings dated July 15, 2004.
2. As per the information provided to me by SEBI, SEBI conducted investigation in to the alleged price manipulation in the scrip of Globe Stock & Securities Ltd. During the course of the said investigation, the investigating authority of SEBI issued summons dated September 30, 2002, October 22, 2002 and February 20, 2003 directing the noticee to furnish the information / documents specified in the annexures to the said summonses. I perused the unauthenticated photocopies of documents made available to me by SEBI, and found that there was no information as to whether the summons dated September 30, 2002 was received by the noticee though the information provided by SEBI reveals that the said summons was sent by courier. Neither any way bill was produced before me nor any proof of delivery made available to me to prove that the said summons was sent to the noticee. From an unauthenticated photocopy of summons dated October 22, 2002, I found that the said summons was duly acknowledged by the noticee. From an unauthenticated photocopy of the letter dated February 21, 2003, I noticed that the summons dated February 20, 2003 was sent to M/s. N.M. Lohia & Co., Member, Calcutta Stock Exchange with a request to serve on the noticee. However, it is not clear whether the aforesaid member of the Calcutta Stock Exchange served the summons dated February 21, 2003 on the noticee and if so when it was served and who received it on behalf of the noticee.
3. It was alleged that there was no compliance of the aforesaid summonses by the noticee.
4. I issued a notice dated December 14, 2004 to the noticee under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty 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 the Securities and Exchange Board of India Act, 1992. The said notice dated December 14, 2004 was sent to the noticee by registered post acknowledgment due. However, the said notice was returned undelivered by the postal authorities with illegible endorsements. Therefore, I issued a fresh notice under Rule 4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 on January 13, 2005 and requested the Eastern Regional Office of SEBI at Kolkata to serve the notice by way of affixture as provided under Rule 7 (c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 or by way of hand delivery. Vide letter dated February 11, 2005, the Eastern Regional Office at Kolkata informed me that the aforesaid notice dated January 13, 2005 could not be served nor affixed on the premises of the noticee as the address of the noticee was not traceable and therefore the show cause notice issued by me was forwarded to M/s. N.M. Lohia & Co., member, Calcutta Stock Exchange with the request to serve the show cause notice on the noticee. Along with the said letter dated February 11, 200 an unauthenticated photocopy of letter dated February 7, 2005 addressed to the aforesaid member of the Calcutta Stock Exchange was enclosed. Vide letter dated May 20, 2005, my office sent a reminder to the Eastern Regional Office at Kolkata to send the acknowledged copies of the aforesaid show cause notice dated January 13 2005. In reply, the Eastern Regional Office of SEBI vide letter dated May 25, 2005 informed me that it received a letter dated May 24, 2005 from the aforesaid member of the Calcutta Stock Exchange that it could not serve the notice on the noticee as it was no longer associated with the said member and therefore the notice was affixed on May 25, 2005 at the address of the noticee mentioned in the notice dated January 13, 2005. A report on the said affixture duly signed by two witnesses was forwarded to me by the Eastern Regional Office of SEBI vide the aforesaid letter.
4. Since there was no reply to the said notice by the noticee within 14 days, the time which was stipulated for the noticee to file its reply, I issued a notice of inquiry dated June 14, 2005 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 and June 27, 2005 was fixed as the date of inquiry. The Eastern Regional Office of SEBI at Kolkata was requested to serve the said notice on the noticee by way of affixture in terms of Rule 7(c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The Eastern Regional Office of SEBI vide its letter dated June 27, 2005 forwarded affixture report, duly witnessed by two witnesses with respect to the said notice. As per the said report, the notice of inquiry dated June 14, 2005 was affixed on the premises of the noticee on June 27, 2005. As the date of inquiry and the date of affixture were same, a fresh notice was issued to the noticee on July 4, 2005 fixing July 19, 2005 as the date of inquiry. The Eastern Regional Office of SEBI at Kolkata was requested to serve the said notice on the noticee by way of affixture in terms of Rule 7(c) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. Vide the said letter it was also requested to affix / serve the notice on the noticee at least ten days in advance from the date of inquiry. The Eastern Regional Office of SEBI vide its letter dated July 6, 2005 forwarded affixture report, duly witnessed by two witnesses with respect to the said notice. As per the said report, the aforesaid notice of inquiry was affixed on the premises of the noticee on July 6, 2005 in the presence of two witnesses. However, no representative of the noticee appeared before me on July 19, 2005 or on any subsequent date. 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 based on the record available.
5. Before deciding the issues which required to be examined by me, the provisions of Securities and Exchange Board of India Act, 1992 with respect to the issuance of summons by the investigating authorities 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.
6. It was alleged by SEBI that the noticee failed to comply with the summonses dated September 30, 2002, October 22, 2002 and February 20, 2003 issued by the investigating authority as mentioned above.
7. There was no representation from the side of the noticee to answer the charges leveled against him. From an unauthenticated photocopy of acknowledgment issued by the noticee which was made available to me by SEBI, I noticed that the summons dated October 22, 2002 was received by the noticee. However, there is no sufficient evidence available on record to prove that the summonses dated September 30, 2002 and February 20, 2003 were served on the noticee. Despite affording all opportunities, the noticee failed to either issue a reply to the show cause notice or to appear for the inquiry / hearing.
8. In view of the above, I find that non-compliance with the summons dated October 22, 2002 issued by the investigating authority of SEBI by the noticee is established. Since there is no record available to prove that the noticee was in receipt of the summonses dated September 30, 2002 and February 20, 2003, I am inclined to give a benefit of doubt in favour of the noticee as to the allegation that it failed to comply with the said summons.
9. Since the failure to furnish the information / documents to the investigating authority of SEBI by the noticee is established, the quantum of penalty has to be determined by me.
10. As I mentioned above, 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 one crore rupees whichever is less.
11. To determine the quantum of penalty under Section 15A (a), I considered the following factors as provided in 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.
12. 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.
13. Though it was alleged that summonses were issued to the noticee on three occasions, documentary evidence is available only with respect to the service of only one summons i.e., dated October 22, 2002. Therefore, I conclude that repetitive nature of the default is not established.
14. 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 penalty of Rs.75,00,000 imposed by the Adjudicating Officer in a case facts of which are similar to the instant case was reduced to Rs.15,000 by the Hon’ble Securities Appellate Tribunal. In the said matter, the Hon’ble Securities Appellate Tribunal also 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.
ORDER
15. 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. 20,000/- (Rupees twenty thousand only) on M/s. Savitri Supply Syndicate. In my view, the above penalty is proportionate with the default of the noticee, in the facts and circumstances of the case.
16. 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 drafts should be forwarded to Shri Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, L&T Chambers, 3rd Floor, 16, Camac Street, Kolkata – 700 017.
17. In terms of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order is sent to the noticee and also to Securities and Exchange Board of India.
Date: September 8, 2005 A. Chandra Sekhar Rao
Place: Mumbai Adjudicating Officer