ORDER UNDER RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST KOLAR SHAREX PVT LTD.

1.      Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated March 3, 2005 appointed the undersigned as the Adjudicating Officer to inquire into and adjudge under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation alleged to have been committed by Kolar Sharex Pvt. Ltd. (hereinafter referred to as the noticee) on account of its failure to furnish to SEBI, information regarding its dealings in the scrip of Soundcraft Industries Limited (hereinafter referred to as SIL).

FACTS OF THE CASE

2.      SEBI conducted investigation into the trading in the scrip of SIL during the period July 2001 and January 2002. During the course of the investigation prima facie it appeared to the investigating authority that the noticee had executed substantial number of trades in the scrip and manipulated the price of the scrip. In view of the same, the investigating authority of SEBI issued summons to the noticee for personal appearance before it and also to furnish information regarding dealings of the noticee in the scrip. It is alleged that the noticee failed to comply with the said summons issued by the investigating authority and also failed to furnish necessary information sought by the investigating authority. On account of the alleged failure on the part of the noticee to furnish necessary information to the investigating authority, adjudication proceedings were initiated against it under the provisions of Section 15I and Section 15A(a) of the SEBI Act.

3.      A show cause notice A&E/BS/38074/2005 dated April 8, 2005 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as “the Rules”) seeking reply of the noticee as to why an inquiry should not be held in respect of the violations alleged to have been committed by it.

4.      It is noted that the said notice sent by registered post has been returned undelivered. It is pertinent to note that noticee is a member of the Stock Exchange, Mumbai (BSE) and BSE was advised to serve the notice on the member. In this regard, BSE vide letter dated June 23, 2005 informed that as the notice could not be served on the member, the same was affixed on the office door of the member. Hence substituted service of the show cause notice was effected in terms of the provisions of Rule 7(c) of the Rules.

5.      The noticee did not reply to the show cause notice. However in the interest of justice, it was decided to conduct an inquiry in the matter. In view of the same, the noticee was advised to attend the inquiry on March 3, 2006. It is noted that the noticee failed to attend the inquiry on the said date.

6.      As the noticee failed to reply to the show cause notice and failed to attend the inquiry, the inquiry is proceeded on the basis of the facts and material available on record.

CONSIDERATION OF EVIDENCE AND FINDINGS

7.      The issue for consideration in the matter is whether the noticee failed to comply with the summons dated November 30, 2004 issued by investigating authority requiring its presence before the authority and whether it is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992. Section 11C (3) of the SEBI Act empowers the investigating authority of SEBI to require any person associated with securities market to furnish such information or produce such records as may be required by the investigating authority and Section 11 C (5) empowers the investigating authority to examine such persons. Timely submission of information is very important in concluding investigation proceedings and non cooperation by an entity can be detrimental to the interest of investors and securities market on account of any delay in the investigation.

8.      It is noted that investigating authority issued summons dated November 30, 2004 to the noticee. In this regard, it is pertinent to mention that earlier SEBI vide summons dated October 25, 2004 sought certain information from the company Soundcraft Industries Ltd. The chairman of Soundcraft Industries Ltd. Shri Rajkumar C Basantani is also stated to be director of the noticee. The said summons was also forwarded to Shri Rajkumar Basantani and the noticee.

9.      It is noted from the records that in response to the said summons, one Ms. Kiran Agrawal, who is stated to be the personal assistant of Shri Rajkumar Basantani, director of the noticee informed vide letter dated November 25, 2004 that Shri Basantani was presently out of country and in view of the same, requested for 30 days time to submit reply to the information sought by the investigating authority. In this regard, the investigating authority issued the summons dated November 30, 2004 requiring the presence of Shri Rajkumar C. Basantani, Soundcraft Industries Ltd. and the noticee to appear before the investigating authority on December 9, 2004. It is noted from the records that the noticee failed to appear before the investigating authority and also failed to submit the required information sought by the investigating authority.

11. In this regard it is pertinent to note that the show cause notice issued in the present adjudication proceedings returned undelivered with the remarks that the addressee shifted from the above address.

12. The noticee is also stated to be a member of BSE. In this regard it is pertinent to mention that even BSE was unable to deliver the notice as it appears that the noticee had shifted from its office address.

13. Viewed in the context of the said facts, it appears that the noticee shifted from the address at which the summons was served, just to avoid further queries from the regulatory authorities in respect of its alleged involvement in the manipulation in the scrip. Further, as stated before, no reply has been received from the noticee in response to the information sought by the investigating authority. Considering the fact that Shri Rajkumar Basantani was the director of the noticee as well as the company Soundcraft Industries Ltd., it is found that the noticee was deliberately avoiding further queries from SEBI.

14. In view of the same, on the basis of the material available on record it is concluded that the noticee failed to furnish information sought by the investigating authority of SEBI and on account of such failure, is liable to the penalty prescribed under Section 15A(a) of the SEBI Act which provides the following:

… Penalty for failure to furnish information, return, etc. : If any person, who is required under this Act or any rules or regulations made thereunder, to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

15. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, 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

c.      the repetitive nature of the default

16. It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default. Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of available facts and data. With regard to the repetitive nature of the default, it is noted that the investigating authority had issued one summons to the noticee and the noticee failed to appear before the investigating authority in response to the said summons. The said failure on the part of the noticee can not be regarded as repetitive in nature. However, as stated earlier, it appears from the material available on record that the noticee shifted from the address soon after receipt of the summons from the investigating authority just to avoid further queries from the regulatory authorities in respect of its involvement in the manipulation in the price of the scrip. The failure on the part of the noticee to furnish information to SEBI should be viewed seriously in view of the fact that Shri Basantani, director of the noticee was also the Chairman of SIL when the price of SIL shares was manipulated.

17. It is pertinent to mention that the noticee did not reply to the show cause notice and did not attend the inquiry in the adjudication proceedings. Failure on the part of the noticee to reply to the show cause notice and also to attend the personal hearing granted in the adjudication proceedings clearly indicate that the noticee has been deliberately avoiding any inquiry in the matter. Hence the violation committed by the noticee has to be taken seriously in view of the facts and circumstances of the case.

 ORDER

18. Considering the facts and circumstances of the case, it is established that Kolar Sharex Pvt. Ltd. failed to furnish information to SEBI and on account of such failure, I, impose a penalty of Rupees Five Lakhs (Rs.500,000) on Kolar Sharex Pvt. Ltd. in terms of the provisions of Section 15 A(a) of the SEBI Act. In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violation committed by Kolar Sharex Pvt. Ltd.

19. The penalty shall be paid by way of demand draft drawn in favour of “SEBI - Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order. The said demand draft shall be forwarded to the General Manager, Investigation Department (ID3), Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, First Floor, 224, Nariman Point, Mumbai -400 021.

20. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are sent to Kolar Sharex Pvt. Ltd. and to the Securities and Exchange Board of India.

 

Place: Mumbai

S. Biju

May 16, 2006

 Adjudicating Officer