2013 (2) TMI 833 - Board - Companies Law

Summary

Issues Involved:
1. Violation of provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992 by SFPL.
2. Liability for monetary penalty under Section 15A(a) of the SEBI Act, 1992.
3. Quantum of monetary penalty considering factors in Section 15J of the SEBI Act, 1992.

Summary:

Issue 1: Violation of Provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992 by SFPL
The Securities and Exchange Board of India (SEBI) initiated an investigation based on findings from the Income Tax Department (ITD) regarding manipulation in the share price of Murli Industries Limited (MIL). SEBI issued multiple summonses to Sagar Fintrade Pvt. Ltd. (SFPL) for information related to its investments and connections with dummy companies allegedly involved in the manipulation. Despite repeated summonses dated September 06, 2011, September 22, 2011, October 12, 2011, November 01, 2011, and December 22, 2011, SFPL failed to provide complete and timely information, thus violating Section 11C(2) and 11C(3) of the SEBI Act, 1992. The investigation revealed that SFPL had invested in dummy companies Krishnum and Ramji, but did not furnish detailed bank statements, shareholder information, and rationale for investments as required. The non-cooperation hindered SEBI's investigation process.

Issue 2: Liability for Monetary Penalty under Section 15A(a) of the SEBI Act, 1992
SFPL's failure to comply with SEBI's summonses attracted liability under Section 15A(a) of the SEBI Act, 1992. The Hon'ble Supreme Court in SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216 (SC) held that penalty is attracted as soon as the contravention of the statutory obligation is established, making the intention of the parties irrelevant. Consequently, SFPL was found liable for monetary penalty for its non-compliance.

Issue 3: Quantum of Monetary Penalty Considering Factors in Section 15J of the SEBI Act, 1992
In determining the quantum of penalty, the adjudicating officer considered factors under Section 15J of the SEBI Act, 1992, including the amount of disproportionate gain or unfair advantage, loss caused to investors, and the repetitive nature of the default. Although specific gains or losses were not quantifiable, SFPL's non-cooperation was deemed deliberate and detrimental to the regulatory framework and investor interests. The default was repetitive, as SFPL failed to comply with multiple summonses.

Order:
A penalty of Rs. 5,00,000/- (Rupees Five Lakhs only) was imposed on Lucky Holdings Private Limited (LHPL), which had merged with SFPL, for the violations committed by SFPL. The penalty was to be paid by demand draft within 45 days of the order, directed to SEBI's Investigation Department.

Conclusion:
SFPL, now merged into LHPL, was found to have violated Sections 11C(2) and 11C(3) of the SEBI Act, 1992 by failing to provide necessary information during SEBI's investigation, resulting in a penalty of Rs. 5,00,000/-.