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TMI Blog2022 (9) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... sed of by this common judgment. 3. The appellant in Civil Appeal No. 1742 of 2009 is a Private Limited Company which was incorporated under the Companies Act, 1956 on 15.04.1997. The appellant in Civil Appeal No. 5833 of 2009 was incorporated under the Companies Act, 1956 on 02.06.1997. 4. An investigation was carried out by Securities and Exchange Board of India ('SEBI', for short) in the matter of purchase and sale of scrip and manipulation of share prices of M/s Shonkh Technology International Ltd. ('STIL' for the sake of convenience), a Company in which both the appellants had previously held shares. On noticing unusual price movement in the shares of STIL, SEBI conducted an investigation into the buying, selling and dealings in the shares of the Companies under the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as 'Regulations'). Investigations revealed that one M/s Shreejee Yatayat India Limited (for short, 'SYIL'), a listed company had acquired the entire Undertaking of STIL and in turn SYIL had allotted its shares to the shareholders of STIL. The appellant in Civil Appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally wrecked the integrity of the securities market with a view to make unfair gains. Re: Civil Appeal No. 1742/2009 8. A letter dated 02.07.2001 was issued by the respondent - SEBI whereby this appellant (DKG Buildcon Pvt. Ltd.) was asked to furnish certain details and documents to SEBI. The details are as mentioned below: "Annexure a) The names of the directors and shareholders of your company since 1998. b) Whether you were the original allottee of shares of Shonkh Technologies Ltd. If yes, please give complete details in this regard, such as name and percentage of shares allotted etc. c) No. and percentage of shares of Shonkh Technologies Ltd. Held by you alongwith the manner, price(s) and date(s) of acquisition(s) of such shares prior to the allotment to you of shares of Shreejee Yatayat India Ltd. In July, 2000. d) Whether the shares acquired by you of Shreejee Yatayat India Ltd. on a preferential allotment basis were held beneficially for someone else. If yes, give details of the person concerned. e) Whether the shares of Shonkh Technologies Ltd. were purchased from you own funds or after obtaining loan/ICDs from someone. If yes, give details of the person conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or pledged (sic) with entity. The details shall contain: * The name and address of the party to whom shares are given at fiduciary capacity or with whom shares were pledged. * The quantity of the shares given in fiduciary capacity or pledged." However, according to this appellant the same was never received by it. 10. The following are the communications exchanged between appellant and respondent in Civil Appeal No. 1742 of 2009. Several summons were also issued to this appellant, the details of which are as under: (i) "Appellant vide letter dated 06.09.2001 provided detailed information as requested in the letter of date 02.07.2001. (ii) Another letter dated 10.06.2002 was issued by SEBI to the appellant along with a copy of the summons, whereby the appellant was again asked to furnish certain information and documents by 19.06.2002. (iii) On 18.06.2002 summons was issued by SEBI directing the appellant to produce the details and documents as mentioned therein on 21.06.2002 at SEBI's office, Delhi. (iv) Another summons dated 19.06.2002 was issued by the Investigating Officer to the appellant whereby the appellant was directed to produce the said documents on 19.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling investigations launched in the larger public interest which calls for a deterrent penalty. 12. This appellant preferred an Appeal No. 106 of 2006 on 06.11.2004 before the SAT against the aforesaid Order of the AO along with an application for condonation of delay. SAT on 01.09.2006 dismissed the application for condonation of delay as well as the appeal preferred on the ground that the appeal was time barred and no satisfactory explanation for the delay was given. 13. Pursuant to this dismissal of the appeal by SAT, this appellant preferred Civil Appeal No. 4975 of 2006 before this Court whereby vide an Order dated 04.08.2008 this Court gave a direction that the delay in filing the appeal before SAT is condoned subject to the appellant depositing a sum of Rs.1,25,000/- as cost to SEBI within a period of six weeks from the date of supply of a copy of the said Order to SAT. On depositing the cost of Rs.1,25,000/-, SAT heard the Appeal No. 106 of 2006 and vide the impugned Order upheld SEBI - respondent's Order dated 28.11.2003 and dismissed the appeal. Re: Civil Appeal No. 5833 of 2009 14. On 26.07.2001, the respondent herein issued the first summons giving details of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e counterparty. * Quantity, rate and value of the transaction." 17. Due to the failure of this appellant to comply with the abovementioned summons, SEBI initiated adjudication proceedings against this appellant. The Adjudicating Officer (AO) issued a Show Cause Notice dated 15.09.2003 wherein this appellant was informed that it had become liable for the imposition of penalty under Section 15A(a) of the 1992 Act. The Show Cause Notice also made a mention of some of the information sought earlier through the summons, and this appellant filed its reply dated 18.12.2003 wherein the appellant furnished the information on the points referred to in the Show Cause Notice. 18. Thereafter, the AO, after considering the material on record, passed an order on 31.12.2003 wherein it was found that this appellant also did not comply with the summons. The AO imposed a penalty of rupees one crore on this appellant under Section 15A(a) of the 1992 Act. 19. This appellant also preferred an Appeal No. 133 of 2006 on 05.10.2004 before the SAT against the Order dated 31.12.2003 along with an application for condonation of delay. The SAT on 10.11.2006 dismissed the application for condonation of del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted two separate wrongs, the penalty leviable would have been under the unamended provisions. (iv) That SEBI not having proceeded against the appellant in Civil Appeal No. 1742 of 2009 for those non-compliances and having chosen to issue fresh summons in April 2003, implied that it condoned the earlier lapses and gave the appellants a fresh opportunity to furnish the information and appear in person to make a statement. Had the appellants complied with the summons, it would not have been open to SEBI to proceed against them for the earlier non-compliances. (v) Non-compliance of the summons issued on 01.04.2003 was a fresh offence committed by the appellant in Civil Appeal No. 1742 of 2009 for which SEBI proceeded, which proceedings culminated in the passing of the impugned order. Since this wrong was committed in April 2003 by which time the amended provisions were in place, penalty had to be levied in accordance with those provisions. SAT observed that no fault can, thus, be found with the action of the AO in levying the penalty under the amended provisions. For the same reason as stated above, the action of the AO in levying the penalty against the appellant in Civ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all, as per the unamended Section 15A(a) of the 1992 Act as it stood on the date when the summons were issued. As regards the issue of summons dated 01.04.2003 in Civil Appeal No. 1742 of 2009 and summons dated 09.04.2003 in Civil Appeal No. 5833 of 2009 is concerned, it was submitted that it is in continuation of the earlier summons issued and cannot be treated in a separate and disjunct manner. That both the appellants herein had already replied to summons and were thus, under a bona fide belief that the requirements of summons had been complied with. (ii) That the record in Civil Appeal No. 1742 of 2009 clearly shows that the summons dated 10.06.2002 and 18.06.2002 had been complied with inasmuch as all the documents and information requested to be furnished therein had been supplied vide letter dated 30.07.2002 which was received by SEBI on 31.07.2002. Similarly, in Civil Appeal No. 5833 of 2009, the first response and detailed reply dated 29.07.2001 of the appellant therein to the first summons dated 26.07.2001 almost satisfied the queries raised by the Investigating Officer of SEBI. However, the same remained unnoticed by the AO while passing the Order dated 31.12.2003. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11 or Section 11B, the Board or the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default." Thus, the provisions of Section 15J make it mandatory for the AO to consider the factors stated in the relevant Section and reproduced hereinabove while computing the quantum of penalty, as is provided for by the use of the word 'shall' in the said Section. The Order dated 28.11.2003 of the AO in Civil Appeal No. 1742 of 2009 and Order dated 31.12.2003 in Civil Appeal No. 5833 of 2009 fails to attribute a motive to the appellants or any gains accruing to the appellants vis-à-vis the loss, if any, incurred by unsuspecting common investors in quantified terms on account of alleged violations by the appellants. Thus, it is clear that the AO has failed to take into consideration the said factors while deciding the quantum of penalty, particularly so, when the appellants had already furnished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of the 1992 Act. 24. The submissions of learned counsel for the respondent in both the appeals are summarised as under: (i) It has been clearly established that there has been no compliance whatsoever by the appellants of the summons dated 27.08.2001, 10.06.2002, 18.06.2002 and 01.04.2003 in Civil Appeal No. 1742 of 2009 and the summons dated 10.06.2002, 18.06.2002 and 09.04.2003 in Civil Appeal No. 5833 of 2009 issued by the respondent for production of certain documents and submission of information to the Investigating Authority with reference to its dealings in the scrip of STIL. (ii) The appellants did not co-operate with the Investigating Officer and did not comply with the summons issued in a matter involving a larger public interest as the information sought in terms of the summons was necessary in order to effectively investigate the price manipulation in the scrip of STIL and the role of the appellants against the backdrop of its acquisition of 10,00,000 shares of STIL at Rs.10/- per share, when others were allotted at Rs.150/- per share; the circumstances leading to the delivery of 3,00,000 shares of STIL on 03.11.2000, details regarding the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icious purchase and sale of scrip and manipulation of share prices of STIL. For immediate reference Section 15A(a) of the 1992 Act at the relevant point of time is extracted as under: "15A. Penalty for failure to furnish information, return, etc. - If any person, who is required under this Act or any rules or regulations made thereunder,- (a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less." 26. Before this Court deals with the issues at hand, it is pertinent to mention that SEBI had, in due course of its investigation, concluded that the appellants herein, along with several other entities, had facilitated Ketan Parekh and his companies in manipulating the securities market and had thereby violated Regulation 4 of the Regulations. SEBI had observed in the relevant order that "the case history establishes all the ingredients of how a series of unauthorized activities starting from the allotment of shares of STIL to various people including Ketan Parekh entities till the culmination of alluring and entrappi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasoned common Order dated 07.01.2009 upholding the Orders of the AO dated 28.11.2003 and 31.12.2003 respectively, and dismissing the appeals. Challenging the aforesaid decision of the SAT dated 07.01.2009, the appellants have filed the present Civil Appeals. 31. The primary contention of the appellants is that the non-compliance of summons is not a continuing wrong and that the summons dated 01.04.2003 and summons dated 09.04.2003 respectively were issued in continuation of the earlier summons, and cannot be treated in a separate and disjunctive manner. Further, the appellants have contended that the penalty of rupees one crore levied by the AO for non-compliance of summons is excessive, unsustainable and untenable, and is in complete disregard of the principle of proportionality and of the confines of law. The appellants have argued that a maximum penalty of Rs. 1,50,000/- may be imposed, if at all, as per the unamended Section 15A(a) of the 1992 Act as it stood on the date when the summons were first issued. The appellants have submitted that the maximum amount of penalty under Section 15A(a) was amplified from Rupees One Lakh Fifty Thousand to rupees one crore with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively. Since, the duration of the default of non-compliance committed by both the appellants was over a period of 100 days from the date of issue of the summons in each case, the AO had rightly applied Section 15A(a) of the 1992 Act, more specifically in regard to the maximum limit of penalty that could be imposed under the provision, i.e. rupees one crore. 35. Further, learned counsel for the appellants has placed reliance on certain judgments of this Court, in Commissioner of Income Tax, Ahmedabad vs. Gold Coin Health Food Pvt. Ltd. (2008) 9 SCC 622; CJ Paul & Ors. vs. District Collector & Ors. (2009) 14 SCC 564; Ritesh Agarwal & Ors. vs. Securities and Exchange Board of India & Ors. (2008) 8 SCC 205; and Commissioner of Income Tax, Lucknow vs. M/s Onkar Saran and Son (1992) 2 SCC 514 and decisions of the SAT namely, Mr. Sandeep Kumar Gupta vs. SEBI (Appeal No. 102 of 2013); and Iris Infrastructural Pvt. Ltd. vs. SEBI (Appeal No. 2 of 2006) to submit that the penalty levied under the amended Section 15A(a) cannot apply to the said case since the offence had been committed prior to coming of effect of the amended provision, and thus, the penalty of Rs. 1,50,000/- as provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies by manipulating the market, and this finding of guilt remains unchallenged by the appellants and is thus admitted. 39. As has been rightly observed by the SAT in its Order dated 07.01.2009, non-furnishing of information by the appellants in compliance of summons cannot be viewed lightly, particularly, when the appellants were involved in offences of such a grave nature being detrimental to the interest of genuine investors and to the smooth and secure functioning of the securities market. While the appellants have submitted that they had responded to the summons dated 02.07.2001 and 26.07.2001 respectively and had furnished the information and documents as required therein, it has already been held that the summons dated 01.04.2003 and 09.04.2003 respectively were issued as separate fresh directions to the appellants. By not responding to the said 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Explanation to Section 15-J of the SEBI Act added by Act 7 of 2017, quoted above, has clarified and vested in the adjudicating officer a discretion under Section 15-J on the quantum of penalty to be imposed while adjudicating defaults under Sections 15-A to 15-HA... 9. ... the circumstances enumerated in clauses (a), (b) and (c) of Section 15-J of the SEBI Act may have no relevance and may never arise in case of contraventions contemplated by certain provisions of the SEBI Act, for instance Sections 15-A, 15-B or 15-C of the SEBI Act. Failure to furnish information, return, etc.; failure to enter into agreement with clients; and failure to redress investors' grievances cannot give rise to the circumstances set out in clauses (a), (b) and (c) of Section 15-J. 10. ... We, therefore, hold and take the view that conditions stipulated in clauses (a), (b) and (c) of Section 15-J are not exhaustive and in the given facts of a case, there can be circumstances beyond those enumerated by clauses (a), (b) and (c) of Section 15-J which can be taken note of by the adjudicating officer while determining the quantum of penalty. 11. At this stage, we must also deal with and reject the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty is subject to interference under Section 15Z of the SEBI Act only where the quantum is found to be wholly arbitrary and harsh or distinctly disproportionate to the nature of the violation. 13. In the present case, the WTM, while imposing an order of debarment, has specifically applied her mind to the issue as regards the impact of such a manipulation. While dealing with this aspect, the WTM has observed that the manipulation of the price of scrips seriously impinges upon other counter parties in the securities market. In other words, the impact of a manipulation which is carried out by a participant in the securities market cannot be assessed only in terms of the gain which has been caused to the participants themselves, but in terms of the wider consequences of the action on the securities market. 15. The securities market deals with the wealth of investors. Any such manipulation is liable to cause serious detriment to investors' wealth. In this backdrop, the order which has been passed by the WTM cannot be regarded as disproportionate so as to result in the interference of this Court in the exercise of its jurisdiction under Section 15Z of the SEBI Act." Thus, base ..... X X X X Extracts X X X X X X X X Extracts X X X X
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