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TMI Blog2010 (1) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... en initially transferred in off market transactions by the Appellant, Smt. Jagruti Parikh and Jagruti Securities Limited who are the promoters of the company. The entities to whom the shares had been transferred further off-loaded the shares in the market. The Board also found that in some cases the entities on receiving the shares in off market transactions further transferred them to other entities again in off market transactions and the shares were ultimately traded in the market. It may be mentioned that Smt. Jagruti R. Parikh is the wife of the Appellant and she is the Appellant in the connected Appeal No. 45 of 2009. Jagruti Securities Limited which is also one of the promoters of the company is the Appellant in Appeal No. 43 of 2009. It is alleged that the entities to whom the Appellant, his wife and Jagruti Securities Limited had transferred the shares in off market transactions had formed a cartel with a view to facilitate the off-loading of the shares in the market. The list of the entities to whom the shares had been transferred in off market transactions is given in paragraph 4 of the show cause notice that was issued to the Appellant. Among others, Vipul R. Jain, Rame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Regulation 13 (3) of the IT Regulations. However, there was a failure on your part to make the necessary disclosure in this regard. You are, therefore, alleged to have violated the provisions of Regulations 13 (3) of the IT Regulations. Date From To Quantity Shareholding % Shareholding 14.6.04 10299348 Market 31401 11422756 29.29 28.6.04 10264251 10045185 500000 10622756 27.24 08.7.04 10264251 10045185 500000 9622756 21.97 10264251 10113394 350000 8569268 09.7.04 10264251 10078939 1500000 6869268 17.61 8. Further, you being the director of JIK at the relevant time were also required to make disclosures as required under Regulation 13 (4) of the IT Regulations. However, you are alleged to have failed to disclose the same on 19 such occasions as reflected in Annexure 2 in violation of Regulation 13(4) of the IT Regulations. The Board initiated adjudication proceedings against all the Appellants in these appeals and after holding an enquiry and on the basis of the material collected during the course of the investigations and the enquiry, the adjudicating officer concluded that the charges levelled against the Appellants stood established. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Noticee had made disclosures to JIKIL and then it was mandated on JIKIL to in turn inform BSE and NSE within five days of receipt of the same from the Noticee as per Regulation 13 (6) of the Insider Trading Regulations. However, I find that, no disclosures have been made by JIKIL to the exchanges under both SEBI (SAST) Regulations, 1997 and Reg 13 (6) of the Insider Trading Regulations between June 1, 2004 and August 31, 2004 specifically and generally throughout the year 2004. Furthermore, JIKIL has not submitted copy of any disclosures made to it by the two entities including the Noticee in the year 2004 when the investigation took place. Therefore, in my opinion if the Noticee had made the disclosures in the year 2004 in the five instances specified the table on page 15 to JIKIL then JIKIL would have immediately made the disclosures to the stock exchanges where the company is listed i.e., the BSE and NSE as per the mandatory provisions under Insider Trading Regulations, which the company did not make till today as the same has been confirmed from BSE and NSE recently vide letters dated February 10, 2009. Thus, it seems to be only an after thought and evidence has been fabr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to protect the price of the scrip from falling drastically. The adjudicating officer further referred to the price data of the scrip on the Bombay Stock Exchange and also on the National Stock Exchange to conclude that the price had already fallen from ₹ 4 to ₹ 2.80 on NSE and from ₹ 3.95 to ₹ 2.80 on the BSE. The adjudicating officer has gone far beyond the show cause notice and recorded findings on issues which were never raised in the show cause notice. On this ground alone, the impugned orders in so far as they hold the Appellants guilty of violating the FUTP Regulations cannot be sustained. This is not only ground on which we are setting aside the impugned orders. The adjudicating officer, as is clear from the impugned orders, has referred to a plethora of documents to hold that the charge against the Appellants regarding the violation of FUTP Regulations stands established without realizing that none of those documents had been furnished to the Appellants at any stage of the proceedings. This material had not been referred to in the show cause notice either. The adjudicating officer has relied upon the price volume statement which was an annexur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial on the record to show that these persons formed a cartel or that the promoters of the company were in any way linked with the persons to whom the shares had been transferred in off market transactions. He has not referred to any material which could substantiate these findings nor could it be pointed out to us by the learned Counsel appearing for the Board. Merely because the promoters transferred the shares to them in off market transactions is no ground to hold that there was a link between the two. Off market transactions are not per se illegal. In this view of the matter and without saying anything more, we set aside the findings recorded by the adjudicating officer regarding the violation of the FUTP Regulations by the Appellants in this bunch of appeals. 5. This brings us to the charge against the Appellant and his wife regarding violation of Regulation 13 of the IT Regulations. It is clearly alleged in the show cause notice that the Appellant and his wife held more than 5 per cent of the shares of the company and that they sold more than 2 per cent of the shares on various occasions as referred to in Annexure 2 and that they were required to make the necessary disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary 19, 2010 during the course of the hearing and on the request of the learned Counsel for the Appellants, we adjourned the matter to the following day to enable him to seek instructions from his clients and he could not dispute that his clients had addressed these letters to the investigating officer though he sought to offer some explanation for the admission made. As already observed, the letters categorically state that the Appellants had not made the necessary disclosures and, therefore, we uphold the findings recorded by the adjudicating officer that they had violated Regulation 13 of the IT Regulations. 6. The next question that arises is what should be the penalty imposed on the two Appellants who have violated Regulation 13 of the IT Regulations. The adjudicating officer has imposed a monetary penalty of ₹ 15 lacs on each of the two Appellants for violating the FUTP Regulations as well the IT Regulations without bifurcating the amounts for each violation. We have already set aside the findings pertaining to the violation of FUTP Regulations. There is no gainsaying the fact that the violation of FUTP Regulations is, indeed, a very serious violation and definitely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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