2013 (11) TMI 1425 - AT - Companies Law

Penalty imposed for offence u/s 15HA - Investigation report not submitted to appellants - whether, it was mandatory for the respondent to furnish entire copy of the investigation report to the appellants - whether failure to furnish entire copy of the investigation report constitutes violation of principles of natural justice - Held that - It is equally well established that non supply of copy of documents having no bearing on charges framed in the show cause notice or non supply of documents tendered during inquiry but not relied upon by Inquiry Officer in support of charges, does not amount to violation of principles of natural justice - although appellants have repeatedly demanded complete copy of the investigation report, they have not demonstrated as to how failure to furnish complete copy of the investigation report has caused prejudice to them. unless there are compelling reasons, it would be just and proper that in every case the respondent furnishes entire copy of the investigation report to the charged person. In the present case, instead of furnishing entire copy of the investigation report, documents relied upon in the show cause notices have been furnished to the appellants. It is not the case of appellants that selective findings recorded in the investigation report are only furnished and findings which are in favour of the appellants have not been furnished and thereby prejudice is caused to the appellants. Similarly, contention that incomplete trade/order logs have been furnished to the appellants after granting personal hearing does not enhance the case of the appellants, because admittedly, appellants were called upon to furnish comments in respect thereof and appellants while offering their comments have neither demanded entire copy of the trade/order logs nor sought personal hearing in respect thereof - in the absence of any prejudice caused to the appellants by non supply of full investigation report or trade/order logs, it cannot be said principles of natural justice have been violated. Appellants are neither disputing the relationship between the parties set out in the impugned order, nor they are disputing the contents of the KYC documents. Their only grievance is KYC documents have not been furnished to them. It is relevant to note that no such request for furnishing copies of the KYC documents were made by appellants in their affidavit-in-reply to the show cause notices. No such request was made even during personal hearing. Therefore, in the absence of denial, findings regarding relationship of appellants with RCFL recorded in the impugned orders cannot be faulted - facts revealed during the course of investigation clearly show that appellants as a group have contributed to a new price high/LTP variation and hence action taken against appellants in the impugned order cannot be faulted - in all the transactions there was a time difference of few seconds and the price at which the buy orders and sell orders were placed, were matching in almost all cases with same counterparties. In these circumstances conclusion regarding circular/reversal trades carried out by appellants cannot be faulted - Decided against appellants.

Issues Involved:
1. Whether failure to furnish the entire investigation report to the appellants constitutes a violation of the principles of natural justice.
2. Whether the appellants were connected with each other and with RCFL.
3. Whether the appellants contributed to new price highs and LTP variations.
4. Whether the appellants engaged in circular/reversal trades.
5. Whether the quantum of penalty imposed on the appellants is justified.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellants argued that the failure to furnish the entire investigation report violated the principles of natural justice. However, the tribunal found no merit in this argument, stating that the relevant portions of the investigation report had been provided, and the appellants did not demonstrate how the absence of the full report prejudiced their case. The tribunal cited precedents, including *State of Uttar Pradesh v. Harendra Arora* and *Chandrama Tiwari v. Union of India*, to support its stance that non-supply of documents not relied upon does not constitute a violation of natural justice.

2. Connection Between Appellants and RCFL:
The tribunal examined the relationship between the appellants and RCFL. It was established that Mr. Shashwat Agarwal, Chairman of RCFL, was connected to the appellants through directorships and familial ties. The tribunal found that the appellants were closely connected with RCFL based on KYC documents and other evidence, which the appellants did not dispute.

3. Contribution to New Price Highs and LTP Variations:
The tribunal rejected the appellants' argument that their contribution to new price highs was negligible. It was found that the appellants collectively contributed significantly to the price rise and LTP variations. The tribunal noted that the appellants executed trades at higher prices in numerous instances, contributing to a substantial cumulative price rise, which justified the action taken against them.

4. Engagement in Circular/Reversal Trades:
The tribunal upheld the findings that the appellants engaged in circular and reversal trades, which constituted a significant portion of the trading volume in RCFL shares during the investigation period. The appellants' argument that these trades were part of ordinary jobbing activities was dismissed, as the trades showed patterns indicative of manipulation, such as minimal time differences and matching prices with the same counterparties.

5. Quantum of Penalty:
The tribunal noted that the appellants did not contest the quantum of penalties imposed. Given the findings of significant involvement in manipulative activities, the penalties of Rs. 7 lac, Rs. 7 lac, and Rs. 8 lac were deemed appropriate and justified.

Conclusion:
The tribunal dismissed the appeals, affirming the penalties imposed by the Adjudicating Officer of SEBI. The judgment emphasized that the appellants were closely connected with RCFL, contributed to price manipulation, and engaged in circular/reversal trades, thereby justifying the penalties under section 15HA of the SEBI Act and PFUTP Regulations. The principles of natural justice were not violated as the relevant portions of the investigation report were provided, and no prejudice was demonstrated by the appellants.

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