IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal
No: 114 of 2005
CORAM ��������� C.
Bhattacharya, Member ��������� R.N.
Bhardwaj, Member Per:��� R.N. Bhardwaj, Member 1.
The
appeal was taken up for final disposal with the consent of both the parties. 2.
The
appeal has been filed against the order of the Adjudicating Officer dated �15.���� Therefore,
in exercise of the powers conferred under section 15-I(2) of the SEBI Act,
1992, read with Rule 5 of SEBI Adjudication Rules, I hereby impose a penalty of
Rs. 18,00,000/- (Eighteen Lacs Only) on Nokia Finance International Pvt. Ltd.
for the reasons discussed above. This penalty is justified and appropriate as
it would disgorge the unjust enrichment and disproportionate gain accrued to
the entity.� 3.
The
appellant is a corporate member of Ahmedabad Stock Exchange of India and having
its office at Ahmedabad.� 4.
Securities
and Exchange Board of India (SEBI), the respondent, conducted an investigation
into the dematerialization of shares of Accurate Exports Limited (hereinafter
referred to as �AEL�) listed in the Stock Exchange, Mumbai (BSE). SEBI
conducted investigations about the alleged dematerialization of shares higher than
its paid up capital and the subsequent trading in its scrip in the secondary
market. The investigation department of SEBI issued three summonses to Nokia
Finance International Pvt. Ltd., (�NFI� for short), the appellant but they did
not appear in response to any of the three summonses.� 5.
SEBI
vide their letter dated 16/07/2004 appointed the Adjudicating Officer under
Rule 3 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 read with Section 15-I of SEBI Act, 1992 to
enquire into and adjudge the failure of NFI to comply with the summonses of
SEBI in violation of Section 11C(6) for which a
penalty may be imposed under Section 15A of SEBI Act, 1992. The Adjudicating
Officer issued a show cause notice dated �a.������� name and address of directors of NFI as
on specified periods and details of other directorships held by them; �b.������� Complete details of transactions in the
shares of AEL by NFI in the specified period; �c.������� Complete details of transactions in the
shares of AEL by NFI in the specified period. �d.������� Details of off market trades done by NFI
in AEL scrip in the aforesaid period. �e.������� Copy of demat statement �f.������� Copy of bank account statement
indicating the funding for the aforesaid transactions.� 6.
The
Adjudicating Officer held in his order that NFI has not furnished replies to
the queries (a), (b), (d) and (f) in the annexure� to the summonses, mentioned above. He also
said that NFI had 3.89 crores shares of AEL in its
demat account as on 7.
The
Adjudicating Officer came to the conclusion that NFI made undue gain by trading
in shares of AEL, the price of AEL shares during the period of investigation
ranged from Rs. 2.00 to Rs. 0.10 per share. He concluded that assuming the
excess shares were traded at Rs. 0.10 per share, NFI made an undue profit of
Rs. 18 lakhs. The Adjudicating Officer, in exercise of powers conferred under
Section 15I(2) of the SEBI Act, 1992 read with Rule 5 of the SEBI Adjudication
Rules, imposed a penalty of Rs. 18 lakhs on NFI.� He has also held in the impugned order that
the quantum of penalty under Section 15A has been imposed considering the
following factors: (a)
the
amount of disproportionate gain or unfair advantage wherever quantifiable, made
as a result of 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. 8.
The
learned counsel for the appellant argued that it was incorrect to hold that the
appellant did not provide the necessary information to SEBI for conducting the
investigation. He submitted that appellant provided most of the required
information and documents pertaining to the summonses issued by the respondent.
A letter from Coverage and Consultants dated 9.
He
further argued that in any case the penalty imposed on the appellant was
disproportionately high with reference to the offences. He also cited the cases
of D.A.Gadgil Vs. SEBI (2004) SAT 819
and KSL & Industries Ltd. Vs. SEBI (2004)
sat 797. The learned counsel argued that there was no complaint against the appellant
from the public about the dealing of shares of AEL. He submitted that the
nature of punishment meted out to the appellant was harsh and
disproportionately high in relation to the alleged offence. He submitted that
appellant had returned the shares to Coverage and Consultants and handled only
34 lakhs shares and if any penalty was to be levied, it should be only for 34
lakhs shares and not for 1.79 crores shares. He,
therefore, requested to set aside the impugned order. 10.
The
learned counsel for the respondent argued that the non-submission of
information pursuant to summonses hampered the investigations. The information
sought by SEBI was basic and important for conducting investigation. It was
essential for knowing the origin or source of the fake shares. He submitted
that even now the required information has not been submitted by the
appellant.� He also said that name and
addresses of Directors of NFI as on specified period and details of other
Directorship held by them was not difficult to submit if the appellant wanted
to cooperate with the regulator.�
Similarly the details of bank account statement indicating the funding
for the aforesaid transactions were very crucial to the said investigation
which could have been complied with. He further submitted that the appellant
had made a bland statement that NFI had been closed for the last 2-3 years and
therefore was not in a position to respond to the summons, but nowhere had it been
mentioned that the appellant had surrendered the broker licence. It is also a
fact that appellant had received all the three summonses and yet did not
respond. More over as a broker, the appellant is required to maintain the
record for five years.�� He further
argued that this was a very serious matter where the shares in excess of authorized
capital had been issued and NFI was involved in the trading of such
shares.� Therefore, NFI should have fully
cooperated with the regulator for finding out the real culprits who had issued
excess dematerilised shares of AEL in the market.� The fact that NFI received three summonses
and chose not to supply the information amounts to committing the same offence
repeatedly.� The penalty imposed by the
Adjudicating Officer, therefore, is justified and legitimate in this particular
case and therefore the appeal should be dismissed and the impugned order should
be upheld. There is no question of violation of natural justice in this case as
the appellant was given repeated chances to submit the required information. He
was also given a personal hearing on 11.
We
have carefully considered the documents submitted by the appellant and
respondent, and also heard the learned counsel on both sides. We are of the
opinion that the appellant did not supply necessary information and documents
as sought by the respondent in response to the three summonses issued to him.
He also did not supply the necessary information in his personal hearing before
the Enquiry and Adjudicating Officer. We do feel that this information is
crucial and central to the investigation.�
The copies of bank statements would certainly indicate the funding
pattern of these transactions. Similarly, the name and address of Directors of
NFI would also indicate whether there was any relationship with the AEL or with
any other entity directly or indirectly involved in these transactions. The
reply given by the appellant at the time of personal hearing which is recorded
as minutes of personal hearing on 12.
The
appellant had been given more than one opportunity (three summonses) and a
personal hearing to submit the required information which was submitted only
partially.� It is a serious case of
excess dematerialized shares than the authorized capital being traded in the
market. The appellant could have availed of the opportunity of submitting all
the required information and come clean, but he failed to do so.� We, therefore, feel that there is no
violation of natural justice in this particular case and the penalty has been imposed
as per the regulations. The impugned order indicates that the various factors
to be reckoned under Section 15(J) of SEBI Act, 1992 were duly considered
before deciding on the quantum of penalty imposed. In view of the fact that
appellant has failed to give the necessary information to the respondent for
conducting investigation into a very serious irregularity in the market, we are
inclined to uphold the impugned order and dismiss the appeal. 13.
No
order as to costs.
Place: Mumbai Date:�� */as |
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