ORDER UNDER SECTION 15-I 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 ADJUDICATING OFFICER) RULES, 1995
AGAINST M/S. COVERAGE AND CONSULTANTS LIMITED
IN THE MATTER OF INVESTIGATIONS INTO THE DEALING IN THE SHARES OF M/s TOP TELE MEDIA LTD. M/S. TOP MEDIA ENTERTAINMENT LIMITED.
1.0 Background
1.1 The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) initiated investigations into the dealings in the shares of M/s. Top Telemedia Ltd. (TTL) and M/s. Top Media Entertainment Ltd. (TML) and appointed the Investigating Officer to investigate into the possible violations, inter alia, of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating the Securities Market) Regulations, 1995 and the SEBI (Stock brokers and Sub-brokers) Regulations, 1992.
1.2 M/s. Coverage and Consultants Ltd. (hereinafter referred to as ‘the CCL’), is a company having its registered office at 203, Apollo Tower, 2- M.G. Road, Indore – 452 001. During investigations, it was observed that CCL had traded substantially in the shares of TTL and TML during the reference period of the investigations. It was noted that the CCL was substantially dealing in the shares of the said company through different brokers.
2.0 Summons issued by the Investigating Officer
2.1 The investigating officer issued the summons to the CCL on December 06, 2002 requiring it to appear before him on 18.12.2002 with a direction inter alia to produce all the documents / details as mentioned in the said summons. Vide letter dated 18.12.2002, the CCL requested for extension of time.
2.2 The Investigating Officer, on 24.12.2002, again issued summons to CCL requiring it to appear before him on 13.01.2003 with a direction inter alia to produce all the documents and to furnish the information as mentioned in the said summons. Similar summons were issued on 05.12.2002 and 24.12.2002 to its director Shri Bhavar Joshi.
2.3 Shri Bhavar Joshi, had appeared before the investigating officer on January 13, 2003. He had submitted certain details vide letter dated January 13, 2003 before the Investigating Officer. However, all the details required by the summons were not brought in by him. Therefore, he had undertaken before the investigating officer that the appearance on behalf of CCL shall be made before the Investigating Officer on 23.01.2003 at 2:00 p.m. alongwith all the details required by the Investigating Officer. However, no appearance was made by and on behalf of CCL before the Investigating Officer on the said date and time.
2.4 Vide letter dated 21.01.2003, received by SEBI on 27.01.2003, CCL furnished certain additional details such as the trading details in the shares of TTL and TML from 26.06.2000 to 20.11.2000 and from 13.11.2000 to 29.12.2000, respectively, copy of the ledger account, bank account, etc. to the investigating officer.
2.5 It was felt by the Investigating Officer that the personal attendance in the matter was required on behalf of CCL. Therefore, one more summons dated February 06, 2003, was issued to CCL by the Investigating Officer advising it to appear before him on 20.02.2003 at 10:30 a.m. with a direction to produce the documents / details upon which the CCL desires to rely or which may be material for the purpose of the investigation. However, the CCL failed to appear before the investigating officer on the said date.
2.6 The investigating officer had made clear to CCL that failure to comply with the said summons would inter alia attract the penalty under section 15A of the SEBI Act.
3.0 Show Cause Notice, Reply and Hearing
3.1 It was decided to inquire and adjudge the alleged contraventions by CCL under section 15A of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and vide order dated August 08, 2003, Shri J. Ranganayakulu, Joint Legal Adviser, SEBI (hereinafter referred to as ‘the erstwhile Adjudicating Officer’) was appointed as the Adjudicating Officer under section 15I of the SEBI Act, 1992 read with Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Adjudication Rules’) to inquire into and to adjudge the alleged contraventions under section 15A(a) of the SEBI Act.
3.2 The erstwhile Adjudicating Officer had issued a Show Cause Notice dated 29.04.2004 under Rule 4 of Adjudication Rules to CCL. By the show cause notice it was advised to CCL that it had failed to appear before the investigating officer and failure to appear before the investigating officer and failure to submit the information / details required by investigating officer through summons issued by him may attract monetary penalty under section 15A of the SEBI Act. CCL was called upon to show cause, within 15 days of the date of the receipt of the notice, as to why an inquiry should not be held against it and penalty as specified under section 15A of the SEBI Act should not be imposed upon it.
3.3 However, no reply was received from CCL by the erstwhile Adjudicating Officer. Further, CCL had not appeared before him on the dates fixed for hearing.
3.4 The adjudication case against CCL pending before the erstwhile Adjudicating Officer was transferred to me, vide order dated 27.01.2005. In terms of the said order, except the change of the Adjudicating Officer, the other terms and conditions of the original order dated August 08, 2003 remain unchanged and are in full force and in effect and the undersigned is required to proceed to deal with the said pending case from the stage which was reached before such transfer or from any earlier stage as may be deemed fit and complete the adjudication in accordance with the terms of reference made in the original order read with the order dated 27.01.2005.
3.5 Having considered the allegations in the show cause notice and relevant material as available on record, the undersigned was of the view that the proceedings in the matter should proceed from the stage which was reached before the transfer of this case as mentioned hereinabove. Therefore, the undersigned issued a notice dated 26.03.2006 to CCL in terms of Rule 4 of the Adjudicating Rules, fixing another date of personal appearance on 18.04.2006. By the said notice the opportunity to file written submissions / reply was also granted to CCL. The said notice was also served upon CCL through the Madhya Pradesh stock exchange (MPSE). Vide their letter dated 15.04.2006; the MPSE confirmed service of the notice upon CCL alongwith the proof of service. It is also noted the said notice of hearing was acknowledged for CCL by its director on the letter dated April 05, 2006 of MPSE. Despite having sufficient time for appearing on the fixed date in the matter, CCL failed to appear on the said date.
3.6 Vide letter dated April 29, 2006, received on May 19, 2006, CCL submitted that it had already replied to SEBI summons dated 24.12.2002 and furnished the details required at relevant time. It has also submitted that its director had once appeared before the Investigating Authority as recorded in show cause notice dated 29.04.2004. Alongwith the said letter the CCL also submitted certain information purported to be the details of sales and purchases of shares of TML for the period 13.11.2000 to 29.12.2000 alongwith ‘movement of demat shares in demat account no. 30157663 with DP Stockholding Corporation of India Ltd’. It has requested for discharge from further proceedings in the matter.
3.7 From the above reply of CCL it was noted that -
a). It had not replied to all the charges mentioned in the show cause notice dated 29.04.2004.
b). It had not submitted any evidence that it had furnished the information and details as required by the investigating officer.
c). It had not submitted any reply to the charge that it had failed to appear before the investigating team after seeking postponement of personal appearance to 23.01.2003 as requested by its Director Shri Bhavar Joshi.
d). It had also not submitted any reply in respect of the charge of non compliance with the summons dated February 06, 2003, issued to it for personal appearance on 20.02.2003.
3.8 It was also noted that any details furnished at this stage will not amount to compliance with the summons and will be of no help in the context of the present proceedings.
4.0 Further Notice and Direction
4.1 In view of the above, in terms of the provisions of section 15I (2) of the SEBI Act read with Rule 4 of the Adjudication Rules, vide letter dated July 19, 2006, I directed CCL to appear before the undersigned through its authorized director / representative acquainted with the facts and circumstance of the case or through its lawyer to make submissions and give evidence in the matter or to produce any document which may be useful in the case. The CCL was advised to appear before the undersigned on August 01, 2006. CCL was also advised to note that no further extension would be offered to them and that in case it failed to appear for the hearing and comply with the directions, the matter would be proceeded on the basis of the material available on record.
4.2 The letter dated July 19, 2006, was served upon CCL through MPSE by substituted service. The MPSE vide its letter dated August 03, 2006, confirmed that the said notice had been served by pasting the same at the address of CCL on July 20, 2006.
4.3 Despite service of notice and direction dated July 19, 2006, the CCL did not appear for personal attendance on the date and time given in the notice.
5.0 CONSIDERATION OF EVIDENCE AND FINDINGS
5.1 Since there has been adequate service of notice on CCL and despite that it has failed to appear and furnish evidence in the present proceedings, the case is proceeded with on the basis of the material available on record as also the relevant provisions of the Act and the Adjudication Rules.
5.2 As is apparent from the facts mentioned herein above, repeated summons were issued to CCL by the investigating officer, on two occasions to furnish detailed information and subsequently to appear personally before the investigation officer on February 20, 2003.
5.3 It is noted that by the summons dated December 06, 2002 and December 24, 2002 CCL was more particularly required to furnish the following information in the context of investigations in the shares of TML for the period November 13, 2000 to December 29, 2000 –
a. The details of the trades executed in the scrip of M/s. TML in the following format –
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Settlement
No.
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Gross Purchase
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Rate
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Gross
Sales
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Rate
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Net deliverable Quantity
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b. In case of Net Purchases (settlement – wise), details of shares received from the broker i.e. distinctive numbers, date of delivery etc.
c. In case of Net Sales (settlement – wise), details of shares delivered to the broker i.e. distinctive numbers, date of delivery etc.
d. A copy of the “Demat Statement” of all the “ Beneficiary a/c” in the name of CCL for the time period June 26, 2000 to November 10, 2000 highlighting the movement of shares of TML received from the brokers ( in case of purchases) and delivered to the brokers ( in case of sales ).
e. For the above mentioned period, the following information alongwith a copy of the bank statement highlighting the amount received / paid to the trading member(s) through whom CCL had transacted in the shares of TML for the above mentioned time period –
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Name and address of
the Bank / Branch
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Bank A/c. Number form which payments have been made to / received from brokers.
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Similar information / details were sought by the summons dated December 05, 2002 and December 24, 2002, issued to Shri Bhavar Joshi, Director of CCL in the context of investigations in the shares of TTL for the period June 26, 2000 to November 10, 2000.
5.4 It appears that CCL had furnished some of the information sought
for vide its letters dated January 13, 2003 and January 21, 2003, in response to the second summons issued to it. I find that the information submitted by CCL required a re look and further examination of the information submitted by it. The personal appearance of the authorized representative of the CCL to gather relevant information and to examine the veracity of the information already submitted to the investigating officer was also necessary. It is also noted that the demat account details submitted by CCL were printed material on its letter head and on a plain paper rather than being the true certified copies of the demat account maintained with the depository participants. This information required corroboration by the authorized representative of the CCL during the personal appearance.
5.5 I note that neither CCL nor its authorized representative appeared on their behalf before the investigating officer in compliance with the summons dated February 06, 2003. Every person who has been required by the investigating officer to furnish information and appear before him is under obligation to cooperate with the investigating officer and furnish the required information. Any failure to furnish the information accurately and failure to appear and submit information before the investigating officer would thwart the attempts of SEBI to effectively gather vital evidence by conducting investigation. In this case the CCL has clearly failed to comply furnish the information before the investigating officer including by making personal appearance before him as required by the summons dated 24.12.2002 and 06.02.2003.
5.6 I observe that CCL had kept evading the notices issued in the present proceedings to the extent that while the notices sent directly to it were returned undelivered, however, a copy of the same when sent through the MPSE, was received by them and responded by them vide their letter dated April 29, 2006. Further, when the direction dated July 19, 2006 had been sent through MPSE, the same had not been acknowledged and the service has been effect by pasting the said direction at the premises of the registered office of the CCL. This clearly suggests that the CCL had been deliberately avoiding the notice in the present proceedings also and had been recklessly disregarding the notices and directions issued in the present proceedings.
5.7 As CCL have failed to appear before the investigating officer to furnish the correct information as sought for and in the absence of any adequate explanation on their part as regards their non appearance before the investigating authority on the scheduled dates, it can be reasonably concluded that it has failed to comply with a regulatory directive to appear in person or produce the documents when called for by the investigating officer. Such an act on the part of CCL suggests deliberate or reckless disregard of regulatory requirements on the part of CCL. Such blatant and deliberate non-compliance and non-cooperation warrants action in terms of the SEBI Act.
5.8 I find that, CCL has not complied with summons issued under the SEBI Act and has failed to furnish the accurate information and to appear in person before the investigating officer on the date sought by the representative of CCL and the date fixed by the investigating officer vide summons dated February 06, 2003. Therefore, CCL is liable for a penalty under Section 15A of the SEBI Act, 1992.
6.0 ADJUDICATION OF THE QUANTUM OF PENALTY
6.1 Section 15 A of the SEBI Act, 1992 inter alia provides that in case of failure to furnish any information to the Board, the same would invite a monetary penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
6.2 While adjudging the quantum of penalty in this case, I have considered the factors provided under Section 15J read with rule 5(2) of the Adjudication Rules. As observed by Hon’ble SAT and also upheld the Hon’ble Bombay High Court in SEBI Vs. Cabot International Capital Corporation (2004) 2 Comp LJ363 (Bom), while imposing penalty under section 15I of the SEBI Act, the Adjudicating Officer is bound to consider the factors provided under section 15J. Section 15J mandates the Adjudicating Officer to “have due regard to” the factors mentioned therein. Thus, the regard must be had also to the factors enumerated in section 15J together with all the factors relevant for the exercise of the power under section 15I of the SEBI Act.
6.3 There is nothing on record to suggest that as a result of the violations committed by CCL as found herein above; it has made any pecuniary gain or unfair advantage. As mentioned hereinabove, the CCL had been repeatedly committing defaults in compliance with the regulating directives such as the summons issued by the investigating officer. Further, it must also be kept in mind that any evasion of the mandatory provisions of the SEBI Act is bound to affect the interests of investors and the securities market as also the sound and smooth functioning of the securities market. If no liability is fixed upon the violator, the entire purpose of incorporating the provisions in the SEBI Act would become redundant.
7.0 ORDER
7.1 Having considered the facts and circumstances of this case, I find that a penalty of fifty lakh rupees would be commensurate with the violation after taking into account the factors under section 15J and other relevant factors as mentioned above. Accordingly, in exercise of the powers conferred upon me in terms of section 15I read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of fifty lakh rupees on M/s Coverage and Consultants Ltd.
7.2 The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India” and payable at Mumbai which shall be sent to Shri Sanjiv Dutt, Chief General Manager, Securities and Exchange Board of India, Mittal Court, B wing 1st Floor, Nariman Point Mumbai. As required under rule 6 of the said Rules a copy of this order is being sent to M/s Coverage and Consultants Ltd. and also to SEBI.
| Dated: September 14, 2006 |
SANTOSH SHUKLA
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| Mumbai |
ADJUDICATING OFFICER
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