TMI Blog2019 (3) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 3,00,000/( Rupees three lakhs only) under Section 15HB of the SEBI Act, which has been upheld by the Appellate Tribunal being commensurate with the violation. No infirmity with the concurrent findings or with the quantum of penalty imposed and the same is upheld. Penalty for violation of Section 11C( 3) under Section 15A( a) of the SEBI Act - HELD THAT:- During the course of hearing by SEBI, most details as provided by the appellants were general in nature. In case there was no violation pertaining to mobilization of funds from the public under various schemes/arrangements, this could have been so stated in clear and categoric terms. Moreover, the contention that the offices were sealed which rendered them incapable to furnish information has been rejected for two good reasons. First, this stand is belated and held to be an afterthought when it could have been raised at the first instance when the reply dated 5th December, 2012 was furnished, given that the records were seized by the police on 5th May, 2011. Second, assertion was contradicted by their own conduct when during the proceedings they had submitted a few documents, which were incomplete and not as desired. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retion vested by Section 15J of the SEBI Act to decide on the quantum of penalty, regardless of the manner in which the first question is answered, stands eclipsed by the penalty provisions contained in Section 15A to Section 15HA of the SEBI Act? 3. The SEBI Act, as the object of its enactment would indicate, was enacted to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto. 4. For the purposes of the present reference, we may proceed to consider the provisions contained in Chapter VIA of the SEBI Act. Sections 15A to 15HA are the penalty provisions whereas Section 15I deals with the power of adjudication and Section 15J enumerates the factors to be taken into account by the Adjudicating Officer while adjudging the quantum of penalty. 5. Section 15A, illustratively, as existing prior to its amendment by Act No.59 of 2002, as amended by Act No.59 of 2002 and thereafter as amended by Act No.27 of 2014 and Section 15J are required to be specifically noticed at this stage. Section 15A as existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for each day during which such failure continues subject to a maximum of one crore rupees; (b) to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees; (c) to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees. Section 15 J 15J. Factors to be taken into account by the adjudicating officer. While adjudging the quantum of penalty under section 15I, 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 los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of to the defaults under Section 15A( a) of the SEBI Act. 7. Reference Order in Siddharth Chaturvedi Ors. (supra) on the said aspect has observed that Section 15A( a) could apply even to technical defaults of small amounts and, therefore, prescription of minimum mandatory penalty of ₹ 1 lakh per day subject to maximum of ₹ 1 crore, would make the Section completely disproportionate and arbitrary so as to invade and violate fundamental rights. Insertion of the Explanation would reflect that the legislative intent, in spite of the use of the expression whichever is less in Section 15A( a) as it existed during the period 29th October 2002 till 7th September 2014, was not to curtail the discretion of the Adjudicating Officer by prescribing a minimum mandatory penalty of not less than ₹ 1 lakh per day till compliance was made, notwithstanding the fact that the default was technical, no loss was caused to the investor(s) and no disproportionate gain or unfair advantage was made. The legislative intent is also clear as Section 15A(a) was amended by the Amendment Act No.27 of 2014 to state that the penalty could extend to ₹ 1 lakh for each day during which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure to furnish information, return, etc.; failure to enter into agreement with clients; and failure to redress investors grievances cannot give rise to the circumstances set out in clauses (a), (b) and (c) of Section 15J. 11. Therefore, to understand the conditions stipulated in clauses (a), (b) and (c) of Section 15J to be exhaustive and admitting of no exception or vesting any discretion in the Adjudicating Officer would be virtually to admit/concede that in adjudications involving penalties under Sections 15A, 15B and 15C, Section 15J will have no application. Such a result could not have been intended by the legislature. We, therefore, hold and take the view that conditions stipulated in clauses (a), (b) and (c) of Section 15J are not exhaustive and in the given facts of a case, there can be circumstances beyond those enumerated by clauses (a), (b) and (c) of Section 15J which can be taken note of by the Adjudicating Officer while determining the quantum of penalty. 12. At this stage, we must also deal with and reject the argument raised by some of the private appellants that the conditions stipulated in clauses (a) to (c) of Section 15J are mandatory conditions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be appropriate to finally terminate/decide the appeals under consideration. C.A. No. 9797 of 2014 (Bhavesh Pabari Vs. The Adjudicating Officer, SEBI) C.A. No. 9798 of 2014 (M/s. Shree Radhe Vs. The Adjudicating Officer, SEBI) C.A. No. 9799 of 2014 (Hemant Sheth Vs. The Adjudicating Officer, SEBI) 15. These appeals arise from a common order dated 10th September, 2013 passed by the Securities Appellate Tribunal, Mumbai, ( Appellate Tribunal for short), on appeals preferred by Mr. Bhavesh Pabari, M/s Shree Radhe, and Mr. Hemant Sheth impugning three separate orders all dated 30th December, 2011 passed by the Adjudicating Officer under Section 15I of the SEBI Act. 16. Impugned order passed by the Appellate Tribunal confirms penalty of ₹ 20,00,000 (Rupees twenty lakhs only) each as imposed on the appellants by the Adjudicating Officer under Section 15HA of the Act for violation of Regulation Nos.4(2)(a), (b) and (g) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations for short). 17. Factual findings, as observed by the Adjudicating Officer and accepted by the Appellate Tribunal as uncont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 shares during the period 18th April, 2006 to 25th August, 2006 which was 66% of the total traded quantity. (xi) Bhavesh Pabari had entered into 96 buy trades in 1,22,324 shares which were found to be synchronized by price and time and 69 buy trades in 1,43,170 shares synchronized by price, time and quantity with his sole proprietorship M/s. Shree Radhe in the period 18th April, 2006 to 25th August, 2006. (xii) Bhavesh Pabari had entered into 282 sell trades in 2,16,578 shares which were synchronized by price and time, and 32 sell trades for 43,626 shares which was found to be synchronized by price, time and quantity with M/s Shree Radhe during the period 18th April, 2006 to 25th August, 2006. (xiii) Bhavesh Pabari had entered into 28 buy trades for 55,915 shares synchronized by price and time and 21 buy trades for 39,350 shares synchronized by price, time and quantity with Hemant Sheth in the period 18th April, 2006 to 25th August, 2006. (xiv) Bhavesh Pabari had entered into 22 sell trades for 41,500 shares which were found to be synchronized by price and time and 16 sell trades for 40,422 shares which were synchronized by price, time and quantity with Hem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty upon each appellant for violating Section 11C (3) and 11C (5) of SEBI Act. Grievance of appellants is that failure to furnish requisite information was due to circumstances beyond control viz. grandmother of Bhavesh Pabari (Appellant in Appeal No. 71 of 2012) who is proprietor of M/s. Shree Radhe (Appellant in Appeal No. 72 of 2012) had expired during the relevant period and, therefore, he was in disturbed mind at the material time. Though, explanation given does not inspire confidence in the facts of present case, where penalty of ₹ 20 lac has already been upheld, in our opinion, it would be just and proper to delete penalty of ₹ 10 lac imposed upon both appellants . 23. Submission of the SEBI that the impugned order did not record any reason for deleting the said penalty, in spite of observing that the explanation given by Bhavesh Pabari did not inspire confidence, would be a just and fair criticism and a good challenge. We clearly have reservations on the ground stated or rather lack of reasoning given by the Appellate Tribunal, especially in the light of the language of Sections 15A( a) and Section 15J of the Act. However, during the hearing, the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d failed to make necessary disclosures to the stock exchange as stipulated and statutorily mandated by Regulations 13(4) and 13(4A) read with Regulation 13(5) of the Securities and Exchange Board of India (Probation of Insider Trading) Regulations, 1992 ( PIT Regulations for short). 28. For the said violations, penalty of ₹ 5,00,000/( Rupees five lakhs only) in the case of Ankur Chaturvedi and Sidharth Chaturvedi and ₹ 11,00,000/( Rupees eleven lakhs only) in the case of Jay Kishore Chaturvedi were imposed under Section 15A( b) of the SEBI Act. Ankur Chaturvedi had also suffered penalty of ₹ 2,00,000/( Rupees two lakhs only) under Section 15HB of the SEBI Act as he had sold 45,032 shares after acquiring 45,000 shares on 29th January, 2013, which was in violation of Clause 4.2 of the Model Code of Conduct for Prevention of Insider Trading for Listed Companies as set out in Schedule I, Part A of the PIT Regulations. 29. The aforesaid penalties were affirmed in the impugned order passed by the Appellate Tribunal, rejecting the contention that the penalty so imposed was harsh and deserved substantial reduction as there was no intention on the part of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions were raised before the Appellate Tribunal with the submission that the target company had incurred huge losses and that it was a sick company. Furthermore, there was an absence of disproportionate gain or unfair advantage to the appellants or otherwise a loss to the investors. Contentions were rejected on the ground that the penalty imposed was reasonable and not harsh. To justify the quantum, reference was made to Sections 15A( a) and (b) of the SEBI Act, which stipulate that the penalty could be ₹ 1,00,000 (Rupees one lakh only) for each day during which the violation continued and could be as high as ₹ 1,00,00,000/( Rupees one crore only) for each violation. 35. This court, in the exercise of its jurisdiction under Section 15Z of the SEBI Act, cannot go into the proportionality and quantum of the penalty imposed, unless the same is distinctly disproportionate to the nature of the violation which makes it offensive, tyrannous or intolerable. Penalty by the very nature of the provision is penal. We can interfere only where the quantum is wholly arbitrary and harsh which no reasonable man would award. In the instant case, the factual findings are not denie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be made within two days of the receipt of intimation of allotment of shares, as per Regulations 7(1A) and 7(2) of the SAST Regulations. The intimation/letter from the Target Company about the said acquisition was received by the Bombay Stock Exchange only on 11th July, 2011. 39. Maximum penalty imposable on Badri Vishal Tandon was upto ₹ 1,00,00,000/( Rupees one crore only). In this backdrop, we do not find any reason to interfere with the quantum of penalty of ₹ 1,50,000/( Rupees one lakh and fifty thousand only) as imposed in exercise of jurisdiction under Section 15Z of the SEBI Act. C.A. No.1009/2017 (Magnum Equity Broking Ltd. Vs. Securities and Exchange Board of India). 40. The appellant has assailed the order of the Adjudicating Officer dated 18th July, 2014, which was affirmed by the Appellate Tribunal vide order dated 28th November, 2016, whereby penalty of ₹ 3,00,000/( Rupees three lakhs only) was imposed on the appellant for violation of Clause A(2) of the Code of Conduct for Stock Brokers. The said penalty was imposed pursuant to investigation into trading in scrips of M/s Aarey Drugs and Pharmaceuticals Ltd. ( ADPL in short) and M/s Win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a result of any illicit scheme. However, Appellate Tribunal had rejected the contentions as the transactions/trades made by the appellants were between family members restricted to two scrips of WTIL and ADPL spread over a period of 6 days and had referred to the factual matrix of the case. 43. Reference to the Securities and Exchange Board of India vs. Rakhi Trading (P) Ltd . (2018) 13 SCC 753 (paragraph 40) which refers to an earlier decision in the Securities and Exchange Board of India vs. Kishore R. Ajmera (2016) 6 SCC 368 is misconceived, for the said decisions do not hold that a broker cannot be proceeded against for violation of Regulation 7 of the SEBI (Stock Brokers and SubBrokers) Regulations, 1992 ( Stock Broker Regulations for short) for violation of Clause A(2) of the Code of Conduct for Stock Brokers. The decisions hold that a broker would not be liable merely because he had facilitated the transactions, in the absence of any material to suggest negligence and connivance on the part of the broker. Thus, the matter would be different as observed in the concurring judgment of Banumathi, J. in Rakhi Trading Pvt. Ltd. (Supra), where there was evidence to show invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty of ₹ 15,00,000/( Rupees fifteen lakhs only) was imposed under Section 15HB of the SEBI Act for the violation of the provisions of the Code of Conduct for Stock Brokers. 46. The appellant did not dispute the factual findings of having indulged in synchronized trade, circular trade and reversal trade in the scrips of M/s. Gangotri Textiles Ltd. They pleaded leniency claiming that they had no mala fide intention and their annual turnover for several years was around ₹ 5,00,000/( Rupees five lakhs only). Lastly, their contribution towards Last Traded Price (LTP) variation was nominal. The contentions have to be rejected as the appellant was a part of the larger game plan along with other entities who had indulged in synchronized, circular and reversal trading leading to a total cumulative positive and negative LTP contribution of ₹ 999.25 and ₹ 1007.25 respectively. It is to be further noted that the penalty imposable under 15HA of the SEBI Act could be upto ₹ 25,00,00,000/( Rupees twentyfive crores only) or three times the amount of profit made out of such practices whichever was higher. Thus, the penalty of ₹ 60,00,000/( Rupees sixty l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the notice through Speed Post AD, which was returned undelivered in case of Durga Prasad. Thus, several opportunities were given to ensure compliance by the appellants. Afterwards, on 15th December, 2015 Subodh Kumar Gupta, authorized representative of the appellants and others had appeared and sought adjournment for 22nd December, 2015, on which date a reply was filed. Subsequently, an additional reply dated 30th December, 2015 was furnished. Appellants in the aforesaid replies had stated that their offices were sealed and, therefore, the required details and information could not be furnished. Further, SEBI had not provided them necessary documents including the copy of complaint, affidavit, evidence against them and the investigation report. 49. We would now refer to the background of the case and why notices/summons were issued. The aforesaid notices and summons were issued pursuant to orders passed by the High Court of Madhya Pradesh in the year 2010 in Public Interest Litigation against various companies including M/s Skylark Land Developer and Infrastructure India Pvt. Ltd. for cheating thousands of investors in fraudulent schemes by promising high returns. Pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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