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BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal No.89/04��

Date of Hearing	28.7.04
Date of Decision	�� 9.8.04

In the matter of:

Appellant�� :� Veegee Holding and Finance Pvt. Ltd., Mumbai

Respondent�� :� Securities and Exchange Board of India, Mumbai

�� Appellant by�� :� Shri Vishwas Pathak, Advocate

�� Respondent by�� :� Shri Dipan Merchant, Advocate

Coram:

�� Justice Shri Kumar Rajaratnam, Presiding Officer

�� Dr. B. Samal, Member

�� N.L. Lakhanpal, Member

Per:� Justice Kumar Rajaratnam, Presiding Officer

�� The appeal is taken up with the consent of parties.� The appellant in this appeal challenges the order passed by the Adjudicating Officer under SEBI wherein the Adjudicating Officer has imposed a penalty of Rs.75 lakhs on the appellant under section 15A of the SEBI Act for not furnishing necessary information in compliance with the summons issued against the appellant.

2 .�� A show cause notice was issued to the appellant asking as to why it did not comply with the summons dated 23^rd of July 2002.� An opportunity for personal hearing was also given to the appellant.� The appellant did not respond and take advantage of the opportunity for personal hearing.� Notices were sent by registered post but the appellant did not appear.� The appellant, by letter dated 12^th of August 2002, sought for time till 30th of August 2002 providing for information and further extension was sought till 30^th of September 2002 and a further extension was sought for 30 days from 30^th of September 2002.

3.�� What the respondent wanted was names and addresses of the promoters, directors during the last three years and names and addresses of the appellant�s group companies, including Demat details.

4.�� This information was required, according to the respondent, to investigate transactions in the shares of Roofit Industries Ltd.�

5.�� There can be no dispute that the appellant was liable to answer the summons and produce whatever information that was available with the appellant.� Section 15A stipulates the penalty for failure to furnish information.��

6.�� The learned counsel for the appellant vehemently submitted that the appellant had suffered big setbacks in business activity and gone into deep financial trouble.� The appellant had incurred massive financial losses.� Looking at the state of health of the appellant, most of the staff members had left the services of the company.� The appellant, it was submitted, was on the brink of bankruptcy.� All the diversification plans of the appellant had been shattered and creditors were demanding their money back.� It was further submitted that there was no allegation against the appellant that it was involved in any kind of rigging with regard to Roofit Industries Ltd.� It is further submitted by the learned counsel for the appellant that the appellant and the sister companies are operating in tribal and rural areas and the entire business of the company and the sister companies has come to a standstill due to financial crunch.�

7.�� It was also pointed out that the period of investigation with regard to alleged manipulation of price of Roofit Industries Ltd. was from October 1999 to December 1999 but the information that was sought for by the respondent was from 8.11.2000 to 6.2.2001 and 22.1.2001 to 4.5.2001� This, according to the appellant, had no bearing on the alleged price rigging of Roofit Industries Ltd. from October 1999 to December 1999.��

8.�� There can be no dispute that if SEBI is to conduct investigation for violation of the Regulations, it must have the power to summon any person who can furnish information with regard to the allegations.� By an amendment in 2002, SEBI was given powers that are vested in a civil court under the Civil Procedure Code, 1908 u/s 11(3) of the Act for the purpose of summoning witnesses.� In that view of the matter, we have no doubt that the appellant will be liable to answer the summons and co-operate with the investigation conducted by SEBI.�

9.�� It was also submitted by the respondent that under Regulation 9(1) read with 9(3) of SEBI (FUTP) Regulation, 1995, the Investigating Officer has power to examine any person concerned and to record statements.

10.�� Therefore, there can be no dispute that the appellant was bound to respond to the summons and furnish whatever information that is available to him.

11.�� Willful disobedience of the summons will render a person liable for penalty u/s 15A.� The penalty u/s 15A is with reference to any person who is required under the Act or Rules or Regulations to furnish information.� The penalty u/s 15A has been enhanced substantially in the year 2002.� At present it is Rs.1,00,000 per day for each day of failure or Rs.1,00,00,000, whichever is less.

12.�� That does not mean that the respondent should impose sky high penalties.

13.�� Considering the impecuniosity of the appellant as the business of the appellant had come to a standstill, we feel these high penalties will be merely paper orders, which can never be implemented by execution in a court.

14.�� It is not disputed that the company is in doldrums and has incurred heavy losses and is a rural company with tribal background and a perusal of the latest balance sheet indicates there is no liquidity and the company is facing the threat of winding up.�

15.�� The Parliament, in its wisdom, has directed certain factors to be taken into account by the Adjudicating Officer, before imposing a penalty.� Section 15J reads as follows:

�While adjudging the quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely:-

(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;

All these pre-requisites, admittedly, are in the negative and in favour of the appellant for a substantial reduction of the penalty. Although section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in 15J, viz., (a) amount of disproportionate gain, (b) amount of loss caused to the investor and (3)� repetitive nature of the default.�

16.�� The Supreme Court, in pronouncements dealing with compensation under the Criminal Procedure Code, has held that the means of the accused has also to be considered if a workable order is to be passed.�� (See:

(i)�� (1978) 4 SCC 111, Sarwan Singh vs. Punjab

(ii)� (1988) 4 SCC 51, Hari Singh vs. Sukhbir Singh)

Although the judgments relate to trials with respect to criminal offences, it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or the means of

the appellant to pay a penalty in monetary terms, would also apply in principle to the law laid down by the Supreme Court.

17.�� Bearing in mind the capacity of the company to pay the penalty and in order to put an end to this litigation once and for all and in the facts and circumstances of the case and taking into account that it was only a penalty for not answering the summons and also taking into account the explanation given by the appellant, we directed one of the officers of the company to file an affidavit on behalf of the company giving an undertaking to pay the amount without the respondent resorting to a prosecution u/s 24.� One Mr. Suresh Motwani, Director of the company, undertakes in this case to pay Rs.10,000/- even if this money comes out of his pocket and not from the company.�

18.�� We do not think it appropriate that the penalty should be reduced from Rs.75 lakhs to Rs.10,000/-.� We accordingly direct the appellant through Suresh Motwani to pay a sum of Rs15,000/- within six weeks from the date of receipt of this order.�

19.�� We also direct the appellant to immediately respond to the summons and co-operate with the investigation against Roofit Industries Ltd., failing which this may give rise to a further cause of action by the respondent.�

20.�� If there is no provision for implementing the orders of Tribunal as a decree recoverable under the provisions of Revenue Recovery Act, prosecution u/s 24 is the only way out and it is extremely time consuming.�

21.�� That is why we have, in public interest and in the interest of justice, equity and good conscience, arrived at an equitable resolution of the dispute.

22.�� The order of SEBI is modified accordingly.� The time granted for payment of Rs.15,000, as stated earlier, shall be six weeks from the date of receipt of this order.

23.�� No order as to costs.

23A.�� It is submitted by the appellant that it has already answered the summons and submitted its explanation.� If the respondent requires any further information, the appellant assures that it will fully co-operate with the respondent.

24.�� Coming back to the facts of the case, it is submitted by the learned counsel for the appellant that Appeal Nos.88/04 to 95/04 are interconnected.� It has also been brought to our notice that in the appeals a sum of Rs.6,51,600 as court fee has been paid before filing the appeal.� It was submitted that the connected appeals and their respective court fee paid are as follows:

�� Appeal No.�� Fees Paid (Rs.)

�� 88/04�� 1,00,200

�� 89/04�� 75,200

�� 90/04�� 75,200

�� 91/04�� 75,200

�� 92/04�� 1,00,200

�� 93/04�� 75,200

�� 94/04�� 75,200

�� 95/04�� 75,200

�� 6,51,600

It is further submitted that there is no provision to refund the excess court fees as per rule 9 of the Securities Appellate Tribunal (Procedure) Rules, 2000.� This factor will also have to be taken into account while imposing penalty since there is a statutory right of first appeal.

25.�� As per Rule 9 of Securities Appellate Tribunal (Procedure) Rules, 2000, the schedule of fees for filing appeal in SAT is as under:

�� 9. �� (1) Every memorandum of appeal shall be accompanied with a fee provided in sub-rule (2) and such fee may be remitted in the form of crossed demand draft drawn on any nationalized bank in favour of �the Registrar, Securities Appellate Tribunal� payable at the station where the registry is located.

�� (2) (i) The amount of fee payable in respect of appeal against adjudication order made under Chapter VIA of the Act shall be as follows:-

��

TABLE

�� Amount of penalty imposed�� Amount of fees payable

�� 1. Less than rupees ten thousand�� Rs.500

�� 2. Rupees ten thousand or more but�� Rs.1,200

�� less than one lakh

�� 3. Rupees one lakh or more �� R.1,200, plus Rs.1,000 for �� every additional one lakh

�� penalty or fraction thereof.

�� (ii) Amount of fee payable in respect of any other appeal against an order of the Board under the Act shall be rupees five thousand only.�

26.�� There appears to be anomaly with respect to Court fees payable from an order of the Board compared with appeals against adjudication order, which is abnormally high.� This requires the attention of the Central Government, which is empowered to make Rules.

27.�� Before we part with this case, it would not be out of place to mention that for failure to pay penalty, SEBI has only one recourse.� It� can only launch prosecution u/s 24 of the SEBI Act.� Section 24 had also enhanced the power of sentence to 10 years and fine to Rs.25 crores.� That is why the amendment was introduced enabling the Sessions Court to exclusively try the cases on account of the enhanced sentences and penalty with effect from 29.10.2002.� Section 26(2) of the Act stipulates that no court inferior to that of a Court of Session shall try an action punishable under the Act.� This amendment also came into force on 29.10.2002 to keep in line with amendment under section 24.� Before that, the case was tried before the Metropolitan Magistrate or Judicial Magistrate of the First Class.� The object of the amendment in 2002 was to enable the Sessions Court to impose heavier fines and sentences, which were beyond the jurisdiction of the Magistrate.� Resultantly, all cases will have to be committed to the Sessions Court.� This only made it worse and longwinded, although laudatory in its objective.

28.�� We also reliably learn that about 900 cases are pending in the criminal court at various stages.� Our research shows that not even one contested case has been concluded.� SEBI has filed criminal complaints mostly in Mumbai and Delhi u/s 24 and to the best of our knowledge not even one case has been committed to trial court.� That is why we say that SEBI must be given more teeth in the execution of its orders.� One way of resolving this would be to make all orders passed by the Tribunal as a decree of court executable as a debt under the provisions of the Revenue Recovery Act of the State.

Justice Kumar Rajaratnam

�� Presiding Officer��

N.L. Lakhanpal�� Dr. B. Samal

Member�� Member

Place: Mumbai

Date:� 9^th August 2004

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