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2015 (7) TMI 58 - AT - Companies LawPenalty under Section 15HA and 15HB of SEBI Act, 1992 - Wide fluctuations in price of script on and around listing day - Notice served for violation of Section 12(A)(a), (b) and (c) of SEBI Act read with Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a), (d) and (e) of PFUTP Regulations - Held that - Tribunal cannot consider the submissions of Appellant nor look at the documents produced before this Tribunal, since these were not made available or produced before Ld. A.O., despite being provided ample opportunities and since fresh submissions and documents cannot be accepted in Appeal as these were not made or produced before Ld. A.O. Tribunal accepts the conclusions drawn by Ld.A.O., since these are based on material, evidence before him which has been considered logically and conclusions drawn, in which no infirmity is evident. Accordingly, this Tribunal upholds the decision of Ld. A.O. that IPO money was routed by RDB, through a web of inter-connected entities to make the transactions look complex and hide the actual sources of money, in order to enable Appellant to make payment to its stock-broker, as per T 2 settlement mechanism. - Decided against the appellants.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Investigation and findings by SEBI regarding IPO of RDB Rasayan Ltd. 3. Allegations against the Appellant and issuance of Show Cause Notice (SCN). 4. Appellant's non-response to SCN and ex-parte proceedings. 5. Appellant's submissions and defenses. 6. Respondent's submissions and evidence. 7. Tribunal's decision on the credibility of Appellant's submissions and documents. 8. Tribunal's acceptance of SEBI's conclusions. 9. Penalty imposed on the Appellant and its justification. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing Appeals: Miscellaneous Applications for condonation of delay of 5 days in filing the appeals were filed. The Tribunal condoned the delay for the reasons stated in the applications, and the applications were disposed of accordingly. 2. Investigation and Findings by SEBI Regarding IPO of RDB Rasayan Ltd.: SEBI conducted an investigation into the initial public offering (IPO) of RDB Rasayan Ltd. and its subsequent trading on the listing day due to significant price fluctuations in the Bombay Stock Exchange (BSE). The IPO involved 45,00,000 equity shares at an issue price of Rs. 79 each. SEBI's investigation revealed that on the listing day, 204,524 trades involving 3,50,09,187 shares occurred, which was 1.98 times the paid-up capital of RDB. A large number of allottees sold their shares on the listing day, causing the price to fall significantly. 3. Allegations Against the Appellant and Issuance of Show Cause Notice (SCN): A Show Cause Notice (SCN) was issued to the Appellant on 29/7/2013, alleging that the Appellant received part of the IPO proceeds routed in a circuitous manner by RDB to enable timely payment to his stockbroker. The Appellant was asked why an inquiry should not be held against him and why a penalty should not be imposed under Sections 15HA and 15HB of the SEBI Act, 1992, for violating Section 12(A)(a), (b), and (c) of the SEBI Act and Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a), (d), and (e) of PFUTP Regulations. 4. Appellant's Non-response to SCN and Ex-parte Proceedings: The Appellant did not reply to the SCN despite ample opportunities and did not appear for a personal hearing before the Adjudicating Officer (A.O.). Consequently, the proceedings were conducted ex-parte based on the available material. The investigation revealed that the Appellant was one of the major buyers of RDB shares on the listing day and suffered a significant loss. The funds were transferred through a web of interconnected entities to the Appellant, enabling him to meet his pay-in obligations. 5. Appellant's Submissions and Defenses: The Appellant submitted that he was an individual investor and a trader in the securities market for the past 3-4 years. He regularly borrowed funds from Sardhav Investment and Finance Pvt. Ltd. and repaid them with interest. The Appellant claimed that the funds borrowed were used to pay his brokers and provided various documents, including Income Tax Returns and ledger accounts, to support his claims. He argued that he did not violate SEBI (PFUTP) Regulations and that the alleged flow of funds from RDB to his account was factually incorrect. 6. Respondent's Submissions and Evidence: The Respondent argued that the Appellant did not have sufficient funds to meet his pay-out obligations for trading in RDB shares on the listing day. The Respondent provided evidence of the web of fund transfers and the interconnection between the parties involved. The Respondent also highlighted that the Appellant did not file a reply to the SCN or appear for a personal hearing, which prevented the examination of documents submitted for the first time during the appeal. 7. Tribunal's Decision on the Credibility of Appellant's Submissions and Documents: The Tribunal decided not to consider the Appellant's submissions and documents as they were not presented before the A.O. despite ample opportunities. The Tribunal emphasized that fresh submissions and documents could not be accepted at the appeal stage if they were not produced before the A.O. The Tribunal decided the matter based on the material and evidence available to the A.O. 8. Tribunal's Acceptance of SEBI's Conclusions: The Tribunal upheld the conclusions drawn by the A.O. that IPO money was routed by RDB through interconnected entities to enable the Appellant to make payments to his stockbroker as per the T+2 settlement mechanism. The Tribunal found no infirmity in the A.O.'s conclusions, which were based on logical consideration of the material and evidence. 9. Penalty Imposed on the Appellant and Its Justification: The Appellant argued that the penalty of Rs. 2 crore was exorbitant given that he traded only on the listing day and suffered a loss. The Appellant cited a previous case where a penalty was reduced due to the lack of profit and repetitive nature of the default. However, the Tribunal found that the Appellant acted in his own capacity and not as a willing tool of others. Consequently, the Tribunal dismissed all four appeals and upheld the impugned orders, including the penalty imposed on the Appellant.
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