IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal
No: 337, 337A & 337B of 2004
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Date
of Hearing
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7 & 08/12/2005
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Date
of Decision
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14/12/2005
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Murli
Lekhraj
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Appellants � Represented by:
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Sanwa Finance P. Ltd.
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Mr. Rohit Kapadia, Sr. Advocate, Mr. Bhavin Shah,
Advocate
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Jayem Exports P. Ltd.
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Versus
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Securities & Exchange
Board of India
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Respondent- Represented by
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Mr. Dipan Merchant with Mr. Ravi Hegde, Advocate
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CORAM
��������� Justice
Kumar Rajaratnam, Presiding Officer
��������� C.
Bhattacharya, Member
��������� R.N.
Bhardwaj, Member
���������
Per:��� Justice Kumar Rajaratnam, Presiding Officer
1.
Appeals
taken up for disposal with the consent of both the parties.
2.
The
appellants challenges the order passed by the Whole Time Member of SEBI dated 31st
August, 2004
in this appeal.� SEBI by exercising
powers under Sections 11A and 11B of the SEBI Act, 1992 read with Regulation 11
of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 2003 has debarred the appellant from accessing
the securities market for a period of two years. The facts very briefly are -
certain investigation was conducted by SEBI with respect to the affairs of
United Western Bank Limited.� The
investigation revealed that the scrip of the company rose from Rs. 33/- per share
in 25th October, 2000 to Rs. 60.90 as on 14th
November, 2000 at BSE and from Rs. 31/- to Rs. 65.5 at NSE. During that period it was
also found that the UBWL Employees Equity Trust was buying shares of the bank
from the market as well as from the individual investors and there was a sudden
spurt in the movement of the shares. The Trust was the major buyer during that
period. The appellant was a broker and the proprietor of Sanwa Securities Pvt.
Ltd. Proprietary trades were also done. The total volume of trade in the share
of the bank by the appellant and the cross deals are set out in the chart
below:
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Settl
No.
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Client Name
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Buy
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Sell
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Net qty.
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Gross qty.
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Mkt. Gross Qty. for the settlement
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% of client gross to Mkt. gross
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2000044
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Sanwa
Finance Ltd.
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15900
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0
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15900
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15900
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70374
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22.59
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2000045
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Sanwa
Finance Ltd.
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0
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413530
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-413530
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413530
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1358668
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30.4
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2000045
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Sanwa
Dev. P. Ltd.
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419696
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0
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419696
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419696
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1358668
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30.89
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2000046
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Sanwa
Dev. P Ltd.
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8000
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2260
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5740
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10260
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2067592
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0.50
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2000046
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Sanwa
Finance Ltd.
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120721
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62000
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58721
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182721
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2067592
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8.84
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2000046
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Janak Vaswani
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10000
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10000
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0
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20000
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2067592
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0.97
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2000047
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Sanwa
Finance Ltd.
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20974
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20974
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0
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41948
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964368
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4.35
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2000048
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Sanwa
Finance Ltd.
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12799
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1313
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11486
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14112
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422356
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3.34
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2000049
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Sanwa
Finance Ltd.
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11690
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1600
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10090
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13290
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205902
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6.45
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3.
After
examining the whole matter the cross deals executed by the appellant and his
company showed :
�
Highest
price variation with respect to previous traded price was of 5.94% on the
positive side and 0.73% on the negative side.�
�
The
price of the scrip increased steadily from Rs.34.8 (as on 25.10.00) to Rs.63.25
(as on 14.11.00), an increase of 81.75%.�
This increase was in two settlements, viz., settlement
nos. 2000045 to 2000046.�
�
Similarly,
the traded quantity which was 4700 shares (as on 25.10.00) increased to 581149
shares (as on 13.11.00).
�
This
increase in price and volume from settlement nos.2000045 and 2000046 was
attributed to the cross deals executed by SSPL with the intention of creating
an artificial market and rigging up the price of the scrip.
4.
In
the light of these allegations show cause notice was issued and the appellant
made a valiant defense of the transactions.�
It was submitted by Mr. Kapadia, learned senior counsel for the
appellant that all the deals were screen based deals and the cross deals were
done only for setting off losses.�
5.
We
have carefully considered the submissions of the learned counsel for the
appellant. We are not persuaded by the submissions of Mr. Kapadia that these
cross deals did not influence the market.��
The appellant has also filed an affidavit which reads as follows:
�I, RAJESH
AJITLAL� DALAL, on behalf of Sava
Securities Pvt. Ltd., Mr. Murli Lekhraj, Sava Securities P. Ltd., Sanwa Finance P. Ltd., Sanwa Developments P. Ltd. Jayem
Exports P. Ltd., having office at, Sanwa
House, 97/99, Bombay Samachar Marg, Apollo Street, Fort, Mumbai 400 001,� do hereby solemnly affirm as follows:
�I. ����� THE
SAVA� GROUP
�1.1���� The Sava Group comprises of Mr. Murli
Lekhraj, Sava Securities P. Ltd. (�Sava Securities�), Sanwa Finance P. Ltd. (�SFPL�), Sanwa Developments P. Ltd. (�SDPL�), Sino Securities Pvt. Ltd. (�Sino�) and Jayem Exports P. Ltd. (�JEPL�). For the sake of convenience, all these entities are
hereinafter collectively referred to as �the
SAVA GROUP�.
�1.2���� Sava
Securities Pvt. Ltd. holds a membership of the National Stock Exchange (�NSE�)
since the inception of the NSE, i.e., 1994.��
Sino holds a membership of the Stock Exchange, Mumbai.�
�1.3���� In
respect of the Cross deals carried out in the shares of United Western Bank
Ltd. entered into by the Sava Group through Sava Securities Pvt. Ltd. on NSE in
the shares of United Western Bank, the Whole Time Member, SEBI has passed an
Order dated 31.08.2004 against Mr. Murli Lekhraj, Sanwa Finance P. Ltd., Sanwa Developments P. Ltd. and Jayem Exports P. Ltd. imposing a ban of two years from accessing the
securities market and from buying, selling or dealing in securities for the
alleged violation of Regulations 3, 4(a), 4(b) and 4(e) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 1995 in respect of transactions
�An Appeal has been preferred before the Hon�ble
Securities Appellate Tribunal against the aforesaid Order (Appeal No. 337/2004).
�1.4���� In connection with the said Order, SEBI has issued a Show Cause
Notice dated 11.06.2004 to Sava Securities under Regulation 6(1) of the SEBI
(Procedure for Holding Enquiry by Enquiry Officer� and Imposing Penalty)Regulations, 2002.� Sava Securities replied to the said Show
Cause Notice by its letter dated 18.10.2004. Subsequent to the same, SEBI, vide
its letter dated 20.12.04 (Ref. no. IVD/ID1/PKN/JJ/28700/04), asked Sava
Securities to show cause as to why the Certificate of Registration of the
Member should not be suspended for a period of one year in terms of the SEBI
(Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty)
Regulations, 2002 in respect of the transactions carried out in the shares of
United Western Bank Ltd. by the Sava Group. In response to that the Member has
filed its reply to SEBI.
�SEBI vide its letter dated 12.05.2005, asked Sava
Securities to submit its reply to the Notice, as to why action should not be
taken against it by SEBI in terms of the SEBI (Procedure for Holding Enquiry by
the Enquiry Officer and Imposing Penalty) Regulations, 2002.� In response to that the Member has filed its
reply vide its letter dated� 23.6.2005.
�The appellants are advised to confine themselves to
the ban already suffered by them from 31st August, 2004 till date.
�1.5���� I say
that the very same transactions are in question in the Show Cause Notice dated
20.12.04 (Ref. no. IVD/ID1/PKN/JJ/28700/04) as are the subject-matter of the
appeal referred to above being Appeal No. 337/2004. I submit that the aforesaid
Show Cause Notice against Sava Securities has the effect of visiting the Sava
Group with double jeopardy. I submit that the said Show Cause Notice be set
aside by this Hon�ble Tribunal. I pray that a direction be given by this
Hon�ble Tribunal to SEBI to drop all pending actions/proceedings initiated
against the Sava Group in respect of the transactions referred to in Appeal No.
337/2204 and that no further actions/proceedings be taken against the Sava
Group in that respect. I submit that it would be in the interest of justice
that the impugned order be set aside in view of the ban imposed by the order
appealed against being effective already for a period in excess of 15 months.
�I solemnly declare, affirm and confirm that this
Declaration of mine is true and full to my knowledge and I believe the same to
be true and no portion thereof is false and I have concealed nothing material
or relevant to the subject-matter herein mentioned.� I further solemnly declare, affirm and
confirm that I am aware that if the above declaration made by me or any part
thereof, is untrue or false for any reason, then I shall be liable for the same
under the laws of Country.�
(emphasise
given)
6.
The
learned senior counsel for the appellants submitted that on the very same
transactions another show cause notice dated 20/12/2004 issued as to why action should not
be taken against the appellant as a broker. He submitted that the show cause
notice is nothing but a double jeopardy.�
It is fairly submitted by the learned senior counsel for the respondent
that the allegations are the same but the show cause notice is being issued in
the capacity of the appellant being a broker.�
The learned senior counsel for the appellant relied on Article 20(2) of
the Constitution and submitted that by virtue of Section 24(1) of the SEBI Act,
1992 prosecution can be launched by the respondent twice.� Section 24(1) reads as follows:
�24.��� (1) Without prejudice to any award of
penalty by the adjudicating officer under this Act, if any person contravenes
or attempts to contravene or abets the contravention of the provisions of this
Act or of any rules or regulations made thereunder, he shall be punishable with
imprisonment for a term which may extend to ten years, or with fine, which may
extend to twenty-five crore rupees or with both�.
7.
We
do not agree with the submissions of the learned senior counsel for the
appellant that double jeopardy is involved in this case.� The Supreme Court in Maqbool Hussain Vs. State of Bombay AIR 1953 SC 325 has held:
�These were the materials which formed the background
of the guarantee of fundamental right given in article 20(2). It incorporated
within its scope the plea of �autrefois convict� as known to the British
jurisprudence or the plea of double jeopardy as known to the American
Constitution but circumscribed it by providing that there should be not only a
prosecution but also a punishment in the first instance in order to operate as
a bar to a second prosecution and punishment for the same offence.�
8.
In
Hira Lal Hari Lal Bhagwati Vs. CBI, New Delhi AIR 2003 SC 2545
the Supreme Court took the view that if a criminal liability is compounded with
respect to a settlement on civil issues registration of FIR was unwarranted.� The Supreme Court held:
�In
our view, in the present case, the alleged criminal liability stands compounded
on a settlement with respect to the civil issues and, therefore, the First
Information Report was erroneously issued and was totally unwarranted. From the
aforesaid judgment, the proposition that follows in the instant case is that
the Kar Vivad Samadhan Scheme, 1998 issued by the Government of India was a
voluntary Scheme whereby if the disputed demand is settled by the Authority and
pending proceedings are withdrawn by an importer, the balance demand against an
importer shall be dropped and the importer shall be immuned from penal
proceedings under any law in force. We are, therefore, of the opinion that this
judgment squarely comes in the face of any argument sought to be propounded by
the respondent that the Kar Vivad Samadhan Scheme, 1998 does not absolves the
appellants from criminal liability under the Indian Penal Code. The learned
single Judge of the High Court of Delhi, in our opinion, has not appreciated the fact
that the continuance of the proceedings in the instant case would only
tantamount to driving the present appellants to double jeopardy when they had
been honourably exonerated by the Collector of Customs by their
adjudication and further the GCS of which one of the appellants is the General
Secretary in which capacity he is accused in the present case was granted
amnesty under the Kar Vivad Samadhan Scheme, 1998. In our opinion, the present
case does not warrant subjecting a citizen especially senior citizens of the
age of 92 and 70 years to fresh investigation and prosecution on an incident or
fact situation giving rise to offence under both the Customs Act and the Indian
Penal Code when the matter has already been settled. Likewise, the respondent
herein has initiated criminal proceedings against Accused No. 2 and Accused No.
1, inter alia, on the ground alleging that the appellants in conspiracy with
the co-accused named therein with each other have cheated the Government of
India in terms of evasion of Customs Duty and by concealment of facts obtained
CDEC in respect of MRI and Lithotripsy machines and by violating the provisions
of 'actual user' condition as per Import Export Policy and Customs Notification
No. 279/83, dated 30-9-1983 and Customs Notification No. 64/88, dated 1-3-1988
during the year 1987-90, despite acknowledging the fact that Customs Duty has
been paid by the appellants to the Customs Department and settled and that
commission of offences under S. 120-B read with S. 420 of the Indian Penal Code
are made out.
�In
our view, under the penal law, there is no concept of vicarious liability
unless the said statute covers the same within its ambit. In the instant case,
the said law which prevails in the field i.e. the Customs Act, 1962 the
appellants have been therein under wholly discharged and the GCS granted
immunity from prosecution. It is well established principle of law that
the matter which has been adjudicated and settled need not to be dragged into
the Criminal Courts unless and until the act of the appellants could have been
described as culpable. The true fact and import of the Kar Vivad
Samadhan Scheme, 1998, in our view, is that once the said Scheme is availed of
and all the formalities complied with including the payment of the duty, the
immunity granted under the provisions of the Customs Act, 1962 also extends to
such offences that may prima facie be made out on identical allegations i.e. of
evasion of customs duty and violation of any Notification issued under the said
Act.
�In
our view, there is no prima facie case made out in respect of the alleged
offence under S. 120-B read with S. 420 of the Indian Penal Code and,
therefore, the charge-sheet and the process issued thereunder has to be
quashed.�
(emphasise
given)
9.
The
learned counsel for the respondent has rightly submitted that there can be no
question of double jeopardy if a person is proceeded against as an investor and
later show cause notice is issued in his capacity as a broker.� The enquiries are different in nature and a
broker is subject to SEBI (Brokers and Sub-brokers) Regulations, 1992 while an
investor is debarred under Section 11(4) and 11B of the SEBI Act, 1992 under
SEBI� (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market) Regulations, 2003.
However nothing precluded SEBI from issuing show cause notice to the appellant
as a broker at a time that the alleged misconduct took place.� The show cause notice in the present case
is dated 27/10/2003 and the show cause notice with respect to the appellant as
a broker is dated 20/12/2004 one year and two months later. No reason for the
delay is before us.��������������������������������������������������������
( Italics by Court )
10.
Taking
into account the appellant has suffered debarment for one year and 4 months and
taking into account the peculiar facts and circumstances of the case it would
be appropriate that the period of debarment undergone by the appellant till
date shall be treated as the period of penalty under Section 11 and 11B of the
SEBI Act, 1992.� We also feel in the
extraordinary facts and circumstances the show cause notice dated 20/12/2004
shall stand withdrawn taking all these factors into account and the fact that
the appellant has already endured the debarment both as a broker and as an
individual by the order dated 31/08/2004 without this order being a precedent
for the reasons stated above. With these directions the appeal is disposed of.
11.
No
order as to costs.
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(Justice Kumar
Rajaratnam)
Presiding
Officer
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(R.N.Bhardwaj)
Member
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(C. Bhattacharya)
Member
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Place: Mumbai
Date:�� 14/12/2005
*/as