2006 (8) TMI 672 - AT - SEBI

Summary

Issues: Alleged violations in the allotment of shares, failure to respond to investigation summons, imposition of penalties.

Analysis:

1. Alleged Violations in Share Allotment:
The case involved investigations into violations during the allotment of shares of a company. The Securities and Exchange Board of India (SEBI) initiated an investigation into the allotment of shares of Design Auto Systems Ltd. (DASL) on a preferential swap basis. The appellant was alleged to have been allotted 10 crore shares of DASL at par value, which was considered to lack prudent commercial sense. Subsequently, part of these unlisted shares were offloaded in the market, leading to allegations of providing false information to regulatory authorities. Despite receiving summons and notices, the appellant failed to cooperate with the investigating authority, leading to adjudication proceedings.

2. Failure to Respond to Summons:
The appellant failed to respond to repeated notices and summons for investigations. The adjudicating officer found that the appellant did not fully cooperate and provided incorrect information during the investigation process. The appellant's non-compliance with the summons and failure to appear before the investigating authority led to the imposition of penalties under Section 15A of the Securities and Exchange Board of India Act, 1992. The penalty of Rs. 1 crore was considered justified given the disproportionate gains made by the appellant through trading unlisted shares in the market.

3. Imposition of Penalties:
The appellant challenged the penalties imposed for non-compliance with investigation summons. In one appeal, the penalty of Rs. 1 crore was upheld, considering the appellant's failure to cooperate despite a High Court directive to do so. In another appeal, the penalty of Rs. 5 lakhs for failure to respond to summons was also upheld. The appellant's argument regarding the change of office location and communication of the new address was not accepted, as the summons was deemed to have been received by the appellant at the old address. The tribunal upheld the penalties imposed by the adjudicating officer in both cases, emphasizing the importance of compliance with regulatory requirements.

In conclusion, the tribunal dismissed both appeals, upholding the penalties imposed on the appellant for violations related to share allotment and failure to respond to investigation summons. The judgment highlights the significance of cooperation with regulatory authorities and the consequences of non-compliance in securities market transactions.