2019 (6) TMI 640 - AT - SEBI

Failure to make disclosures under Regulations 13(3), 13(4A) read with 13(5) of SEBI 'PIT Regulations' and SAST Regulations - appellant sold 6,00,000 shares without requisite disclosures - as contented the physical share certificates had been lost or misplaced and were not traceable - penalty imposed - HELD THAT - We find that the consistent stand of the appellant was that he had never sold the shares and that the physical shares were misplaced or lost and were not traceable. In order to verify this aspect the Registrar Transfer Agent was called who produced the share transfer forms as well as the original certificates which showed the signatures of the appellant. The signatures of the appellant matched with the specimen signatures kept with the Company. The contention of the appellant that the expert opinion provided by the appellant with regard to his signatures was not taken into consideration is patently misconceived. AO considered the expert opinion and found that it was not necessary as there were ample evidence to show that the signatures on the share transfer forms were that of the appellant. We are further of the opinion that no attempt was made by the appellant to get the signatures appended in the share transfer form compared with the specimen signatures kept with Company. Verifying and comparing the signatures of the appellant on the share transfer forms with the signatures of the appellant on other documents like PAN Card, Passport, Bank signatures are immaterial when specimen signatures of the appellant are kept with the Company. The primary evidence for comparing the signatures is the specimen signatures kept with the Company. Allegation that no opportunity was given to the appellant to cross-examine the Registrar and Transfer Agent is patently erroneous and an afterthought. No such stand was taken by the appellant before the AO in this regard nor any such application was made to this effect. The fact that the transfers were made at various places in Gujarat is immaterial. What is material is the signature of the appellant on the shares transfer certificates. The contention that the signatures of the witness are different in the share transfer forms cannot be accepted at this stage. Such stand was not taken before the AO nor any ground has been taken before us in this appeal. Such arguments cannot be made without there being a ground in the appeal. The contention that the physical shares of ₹ 10/- each could not have been transferred unless the split share certificates were given is patently erroneous. The Companies Act did not at any stage prohibit the transfer of pre-split shares to the transferee. The contention raised does not have any merit. Thus, the contention of the appellant that he had never sold the shares cannot be believed in as much as the signatures of the appellant on the share transfer form was duly verified from the specimen signatures kept with the Company. The contention that the signatures on the share transfer forms were forged was rightly disbelieved. Imposition of penalty is grossly disproportionate to the violation committed by the appellant. Further, the factors contemplated under Section 15J have not been considered. We affirm that part of the order of the AO holding that the appellant had violated the provisions of Regulations 13(3), 13(4A), and 13(5) of the PIT Regulations and Regulations 29(2), 29(3), 30(2) and 30(3) of the SAST Regulations and to that extent the order of the AO is affirmed. We, however, do not agree with the order of the AO imposing a penalty of ₹ 4 crores and to that extent the order of the AO cannot be sustained and is set aside. The appeal is consequently, partly allowed. The matter is remitted to the AO to re-decide only the quantum of penalty, in the light of the observations made above after giving an opportunity of hearing to the appellant.

Issues:
1. Penalty imposed for failure to make disclosures under Securities and Exchange Board of India regulations.
2. Allegation of unauthorized sale of shares and failure to disclose.
3. Dispute over authenticity of signatures on share transfer forms.
4. Appellant's contentions regarding loss of physical shares and forged signatures.
5. Discrepancies in witness signatures on share transfer forms.
6. Applicability of Regulations 13(3), 13(4A), 29(2), and 29(3) of SEBI Regulations.
7. Imposition of a penalty and consideration of mitigating factors.

Issue 1: Penalty Imposed for Failure to Make Disclosures
The appeal was filed against a penalty imposed by the Adjudicating Officer (AO) of SEBI for not making required disclosures under various SEBI regulations. The appellant sold a significant number of shares without making necessary disclosures, leading to the penalty.

Issue 2: Allegation of Unauthorized Share Sale and Failure to Disclose
The appellant contested the show cause notice, claiming not to have sold the shares and alleging loss of physical share certificates. However, the AO found evidence that the shares were indeed sold by the appellant without the required disclosures, leading to the penalty imposition.

Issue 3: Dispute Over Authenticity of Signatures
The appellant raised concerns about the authenticity of signatures on share transfer forms, alleging forgery. However, the AO, after examining evidence including expert opinion, concluded that the signatures matched the appellant's, dismissing the forgery claim.

Issue 4: Appellant's Contentions
The appellant argued that the shares were lost, and the signatures were forged. However, the Tribunal found no substantial evidence to support these claims, emphasizing the importance of verifying signatures against those maintained by the Company.

Issue 5: Witness Signature Discrepancies
The appellant raised concerns about discrepancies in witness signatures on share transfer forms. However, the Tribunal dismissed this argument, noting that such claims were not raised earlier and lacked substantial grounds.

Issue 6: Applicability of SEBI Regulations
The Tribunal analyzed the violations under Regulations 13(3), 13(4A), 29(2), and 29(3) of SEBI Regulations, highlighting the appellant's failure to disclose share transactions exceeding prescribed limits, leading to regulatory breaches.

Issue 7: Imposition of Penalty and Mitigating Factors
While affirming the violations, the Tribunal found the imposed penalty of ?4 crores excessive and disproportionate, citing a precedent where a lower penalty was imposed for a similar violation. The Tribunal set aside the penalty amount and remitted the matter to the AO for reevaluation.

In conclusion, the Tribunal upheld the violations of SEBI Regulations by the appellant but deemed the penalty amount disproportionate, leading to a partial allowance of the appeal and a remittance for reevaluation of the penalty.

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