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2014 (2) TMI 1406 - AT - SEBIViolation of SEBI Act - violations committed by promoters of BoR under SEBI Act - Dilution of shareholding - Deceptive mechanism adopted by Promoter group in collusion with persons acting in concert ('PAC' for short) with various group entities - Penalty imposed under Section 15HA and under Section 15A(a) of SEBI Act - HELD THAT:- Where violations committed by any person fall within the domain of two authorities constituted under two statutes, then both authorities would be justified in initiating action against that person. In such a case, if one authority for any reason does not initiate proceedings, then, inaction by one authority would not vitiate proceedings initiated by another authority. In the present case, RBI noticed that Promoter group of BoR together with connected entities had violated RBI Guidelines (within the domain of RBI), and referred it to SEBI to consider as to whether promoters of BoR had violated SEBI Act and Regulations framed thereunder. SEBI conducted further investigation and on receipt of investigation report initiated adjudication proceedings and imposed penalty on all entities including appellant herein. While arguing the matter on demurrer that is, assuming that the appellant is guilty of making representation which is not true, appellant would not be justified in contending that no penalty should be imposed under SEBI Act on ground that RBI has not initiated any action against appellant, because liability to pay penalty for violating SEBI Act and regulations made thereunder is not dependent on RBI initiating proceedings and imposing penalty for alleged violations of RBI guidelines. SEBI as capital market regulator and RBI as banking sector regulator operate in different fields and therefore, fact that RBI has not initiated proceedings against appellant for the alleged violations of RBI guidelines would not absolve appellant from his liability to pay penalty when appellant is found to have violated SEBI Act and regulations made thereunder. Argument that AO has failed to consider findings of WTM in his order dated March 26, 2012 that violations committed by promoters are not grave is without any merit, because, firstly, observations made by WTM in his order dated March 26, 2012 are only prima-facie observations made in the context of continuing ex-parte ad-interim order after completion of investigation. Secondly, WTM himself has categorically recorded in his order that AO shall pass final order without being influenced by observations made by WTM in his order dated March 26, 2012. Therefore, argument that in view of prima facie observations of WTM no penalty could be imposed upon appellant is without any merit and hence liable to be rejected. Fact that RBI has permitted merger of BoR with ICICI Bank cannot be a ground for appellant to escape penal liability for violating SEBI Act and regulations made thereunder, because permission granted by RBI for merger of BoR with ICICI Bank was not in lieu of offences committed by appellant under SEBI Act and regulations made thereunder. In other words, having violated SEBI Act and regulations made thereunder, appellant cannot avoid penal liability merely because, subsequent to such violations RBI has permitted merger of BoR with ICICI Bank. There is nothing on record to suggest that camouflaging real level of shareholding by promoters of BoR including appellant has led genuine investors to trade in shares of BoR, cannot be a ground for appellant to escape penalty even after violating SEBI Act and regulations made thereunder, because SEBI Act does not contemplate imposition of penalty on a person violating SEBI Act only if investors suffer on account of such violations. That may be a factor to be taken into account by AO while determining the quantum of penalty. Therefore, fact that there is no evidence to show that any investor has suffered cannot be a ground to escape penalty even after violating SEBI Act and regulations made thereunder. Penalty of ₹ 4 crore has been imposed under Section 15HA of SEBI Act without considering provisions contained in Section 15J of SEBI Act is also without any merit because, Section 15HA provides that a person indulging in fraudulent and unfair trade practices relating to securities shall be liable to a penalty of ₹ 25 crore or three times the amount of profits made out of such practices, whichever is higher. Assuming that actual profits made by promoters including appellant on account of violation of PFUTP Regulations, 2003 are unascertainable, AO, after considering all mitigating factors has imposed penalty of ₹ 4 crore as against penalty of ₹ 25 crore imposable under Section 15HA of SEBI Act which cannot be said to be arbitrary or unreasonable. Parliament by inserting Section 15HA to SEBI Act with effect from 29.10.2002, has prescribed penalty not less than ₹ 25 crore upon a person indulging in fraudulent and unfair trade practices relating to securities. In the present case, it is not in dispute that Promoter group controlled by Tayal family including appellant have represented to the investors that they have reduced their shareholding in BoR during the investigation period from 44.18% to 28.61%. However, it is found that contrary to the representation made, shareholding of promoters along with PAC's has gone up to 63.15% during the investigation period. In such a case, representation made to investors constitutes fraud for which penalty imposable is not less than ₹ 25 crore. However, taking into consideration, all mitigating factors, AO has imposed penalty of ₹ 4 crore on appellant. In these circumstances, discretion exercised by AO in imposing penalty of ₹ 4 crore as against penalty of ₹ 25 crore imposable under Section 15HA of SEBI Act cannot be said to be unjustified or unreasonable. Appellant is also saddled with penalty of ₹ 1 crore under Section 15A(a) of SEBI Act for non-compliance of summons issued to appellant. Summons in this case was issued on May 26, 2011 calling upon appellant to appear before investigating officer on May 31, 2011 with documents specified therein. By letter dated May 30, 2011 appellant informed the investigating officer that above summons has been received on May 28, 2011 and it would not be possible to appear with documents on May 31, 2011 and requested for another date for appearance and production of documents. Without considering merits of above request and without giving any opportunity for production of documents or appearance, show cause notice was issued and by impugned order penalty of ₹ 1 crore has been imposed upon appellant by AO under Section 15A(a) of SEBI Act for non-compliance of summons issued to appellant. Since dispute in this case related to 2007-2009 period and since summons was issued in May 2011, it would have been just and proper for the investigating officer to consider reasonable request of appellant and fix another date for appearance/production of documents, especially when appellant had agreed to appear and produce documents on the next date fixed by investigating officer. Since reasonable opportunity for production of documents was not given to appellant, we deem it proper to set aside penalty of ₹ 1 crore imposed upon appellant under Section 15A(a) of SEBI Act. Accordingly, we uphold penalty of ₹ 4 crore imposed under Section 15HA and set aside penalty of ₹ 1 crore imposed under Section 15A(a) of SEBI Act.
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