2022 (9) TMI 753 - SC - SEBI

Offence under SEBI - Unusual price movement in the shares - penalty imposed under Section 15A(a) of the 1992 Act - non-compliance of summons - Non-cooperative attitude of the appellants during the course of the investigation - monetary penalty of rupees one crore on each appellant under Section 15A(a) for failing to comply with the summons issued to the appellants for the production of documents and furnishing of information during the course of certain investigations being carried out by SEBI during the period of 2000-2007 in relation to suspicious purchase and sale of scrip and manipulation of share prices of STIL - HELD THAT - By not responding to the fresh summons and by not appearing before the Investigating Authority when directed to appear, the appellants statements could not be recorded and this has hampered with the investigation. The appellants had failed to produce the documents and information as required vide summons dated 01.04.2003 and 09.04.2003 respectively and had, thus, affected the conduct of the investigation. The appellants compliance, if any, to one summons dated 02.07.2001 and 26.07.2001 respectively, in no way, absolves the appellants of their responsibility to comply with the summons issued thereafter on multiple dates. The appellants were bound to fully co-operate with the Investigating Authority and promptly produce all documents, records, and information as were required for the investigation from time-to-time. In failing to do so, the appellants clearly obstructed and hindered the investigation. Taking into consideration the severity of offences found to have been committed by the appellants and other entities, and the non-cooperative attitude of the appellants during the course of the investigation in attempting to obstruct the same, the quantum of penalty imposed under Section 15A(a) of the 1992 Act is justified and with effective consideration of the factors listed in Section 15J of the 1992 Act. A bare reading of Section 11C (3) of the 1992 Act makes it clear that an Investigating Authority appointed by SEBI to investigate the affairs of any persons may require such person associated with the securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by it, in this behalf as it may consider necessary, if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation . In the present case, the appellants were under investigation by SEBI for its alleged involvement in aiding and abetting Ketan Parekh and his companies in manipulating the securities market. In view of the same, the appellants would squarely fall under the scope of persons associated with the securities market in any manner under Section 11C(3) of the 1992 Act. The authority of the Investigating Authority to direct such persons to appear before him and furnish information or produce documents as is required for an investigation is provided in Section 11C (3) of the 1992 Act. As also pertinent to mention that Section 19 of the 1992 Act provides that the SEBI may delegate to any member, officer of the SEBI or any other person, such of its powers and functions under this Act (except the powers under Section 29) as it may deem necessary. Thus, when the appellants failed to comply with the directions issued u/s 11C (3) of the 1992 Act and failed to produce the required documents and information, the Investigating Authority, being a delegated Authority of SEBI, was empowered to levy the penalty as provided in Section 15A(a) of the 1992 Act. Hence, we find no merit in these appeals. The appeals are dismissed.

Issues Involved:
1. Non-compliance with SEBI summons.
2. Imposition of penalties under Section 15A(a) of the SEBI Act.
3. Applicability of amended provisions of Section 15A(a).
4. Consideration of Section 15J factors in determining penalties.
5. Authority of SEBI's Investigating Officer under Section 11C(3).
6. Allegations of aiding and abetting market manipulation.

Detailed Analysis:

1. Non-Compliance with SEBI Summons:
The appellants failed to respond to multiple summons issued by SEBI's Investigating Authority, requiring them to produce documents and furnish information during an investigation into suspicious trading activities and share price manipulation of STIL. The appellants' non-compliance was seen as an attempt to obstruct the investigation.

2. Imposition of Penalties under Section 15A(a):
The Adjudicating Officer (AO) imposed a penalty of rupees one crore on each appellant for failing to comply with SEBI's summons. The penalty was based on the amended Section 15A(a) of the SEBI Act, which provides for a penalty of rupees one lakh for each day of failure or rupees one crore, whichever is less.

3. Applicability of Amended Provisions of Section 15A(a):
The appellants argued that the maximum penalty should be limited to Rs. 1,50,000 as per the unamended Section 15A(a). However, the court held that the non-compliance with the fresh summons issued in April 2003 constituted a fresh offence, thus attracting the amended provisions of Section 15A(a).

4. Consideration of Section 15J Factors in Determining Penalties:
The appellants contended that the AO failed to consider the factors under Section 15J while determining the quantum of penalty. The court noted that the severity of the offences and the non-cooperative attitude of the appellants justified the penalty. The Explanation to Section 15J creates a presumption that the AO considered the relevant factors.

5. Authority of SEBI's Investigating Officer under Section 11C(3):
The court upheld the authority of SEBI's Investigating Officer to summon and require the production of documents and information under Section 11C(3). The appellants, being associated with the securities market, were obligated to comply with the summons.

6. Allegations of Aiding and Abetting Market Manipulation:
SEBI's investigation concluded that the appellants facilitated Ketan Parekh and his companies in manipulating the securities market, thereby violating Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. The appellants did not challenge this finding, which had attained finality.

Conclusion:
The court dismissed the appeals, affirming the penalties imposed by the AO and upheld by the SAT. The penalties were deemed proportionate and justified given the appellants' role in obstructing the investigation and their involvement in market manipulation. The court emphasized the importance of compliance with SEBI's investigative processes to maintain the integrity of the securities market.

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