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2018 (2) TMI 1330 - AT - Companies LawViolation of provisions contained in the SEBI Regulations, 2003 - Penalty imposed - failure to comply with the disclosure obligations - Held that:- AO has set out the obligation of the appellant to make disclosures under the aforesaid regulations when the shareholding of the appellant in EIIL stood reduced from 53.01 to 9.91% and thereafter increased from 9.91% to 43.01% on 31.03.2005. Assuming that on 31.03.2005 appellant came to know about the transfer of shares belonging to the appellant, after 31.03.2005 appellant ought to have made disclosures which the appellant failed to do. Similarly, when shares of EIIL in the name of third parties were transferred to the name of the appellant disclosures ought to have been made, but the appellant failed to make disclosures. Thus, in the facts of present case, decision of the AO that the appellant has violated the disclosure obligations contained in the Takeover Regulations and PIT Regulations cannot be faulted. Penalty imposable under Section 15A (b) of SEBI Act for failing to comply with the disclosure obligations under the aforesaid regulations is up to ₹ 1 crore. However, the AO after considering all mitigating factors has imposed penalty of ₹ 5 lac which cannot be said to be excessive or unreasonable. Strong reliance on the statement contained in the SEBI investigation report to the effect that there were no debit and credit entries in the demat statement of the Agrawal family during the investigation period is not acceptable because, admittedly appellant had handed over shares of EIIL in physical form to Shambhu Agrawal. In such a case question of making any debit or credit entry in the demat account does not arise at all. Once it is established that the appellant had adopted a modus operandi for trading in the shares of EIIL belonging to the appellant in violation of the regulations framed by SEBI, then irrespective of the fact that the appellant had received any consideration or not, the appellant is bound and liable to face the consequences for violating SEBI Act and the regulations framed thereunder. Fact that lesser penalty has been imposed on the Agrawal group cannot be a ground to take lenient view towards the appellant, because, the appellant was the chief architect of manipulating a device for committing fraud on the investors in the securities market. Thus appellant who was instrumental in manipulating a device to defraud the investors in the securities market could have been made liable to pay aggregate penalty up to ₹ 51 crores [(up to ₹ 25 crore under Section 15HA, up to ₹ 25 crore under Section 15H(ii) and up to ₹ 1 crore under Section 15A(b)] under the SEBI Act. However, after considering all mitigating factors the AO has imposed aggregate penalty of only ₹ 1 crore on the appellant promoter-director of the company who was the chief architect in manipulating a device which is prohibited under the securities laws. Hence, in the facts of present case, aggregate penalty or ₹ 1 crore imposed on the appellant cannot be said to be exorbitant or unreasonable.
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