DKG Buildcon Private Ltd. Vs. The Adjudicating & Enquiry Officer, S.E.B.I.

DKG Buildcon Private Ltd. Vs. The Adjudicating & Enquiry Officer, S.E.B.I.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1742 OF 2009
DKG Buildcon Private Ltd. … APPELLANT(S)
Vs.
The Adjudicating & Enquiry Officer,
S.E.B.I. ... RESPONDENT(S)
WITH
CIVIL APPEAL NO.5833 OF 2009
R.C. Gupta & Co. Pvt. Ltd. … APPELLANT(S)
Vs.
Securities & Exchange Board of India
 ... RESPONDENT(S)
J U D G M E N T
NAGARATHNA, J.
1. These Civil Appeals arise out of common impugned Order dated
07.01.2009 passed by the Securities Appellate Tribunal, Mumbai (for
short, “SAT”).
2
2. Since the questions of law and issues which arise to be dealt with
in both the above captioned Civil Appeals are similar, and the matters
are distinct only in their respective facts and events, these appeals are
being disposed 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
3
Civil Appeal No. 1742 of 2009 was allotted 10,00,000 shares of SYIL
while the appellant in Civil Appeal No. 5833 of 2009 was allotted
1,43,000 shares. Having taken over the business activities of STIL,
SYIL changed its name to STIL with effect from 27.07.2000.
5. Investigations further revealed that the appellants had
transferred the shares of STIL to a Company under the name and style
of Sai Mangal Investrade Pvt. Ltd. (for short, ‘SMIPL’). Similarly,
entities like Classic Credit Limited, Goldfish Computers Ltd. and
Luminant Investment Private Ltd. had also received shares of STIL from
various entities which had been allotted shares by SYIL. SMIPL and the
other entities referred to above were all controlled and managed by a
person named, Ketan Parekh, who had rigged the securities market in
the years 2000 and 2001.
6. By an Order dated 12.12.2003 passed by SEBI, Ketan Parekh and
the companies controlled by him had been prohibited from buying,
selling or dealing in securities in any manner directly or indirectly for
a period of fourteen years. That Order was upheld by SAT on
14.07.2006 and the appeal filed before this Court was also dismissed.
7. In view of the aforesaid investigations, SEBI initiated proceedings
against several entities including the appellants herein. By a separate
Order dated 16.10.2007, SEBI found that large quantities of shares of
4
STIL were made available to entities associated with Ketan Parekh
during the period between October, 2000 and April, 2001 and that
facilitated them to create artificial volumes in the said scrip in the
securities market. SEBI also found that the entities associated with
Ketan Parekh had sold a large number of shares of STIL in the
securities market in a synchronized manner with a view to create an
artificial market in the said shares. SEBI came to the conclusion that
the appellants and other entities had facilitated Ketan Parekh and his
companies in manipulating the securities market and had thereby
violated Regulation 4 of the Regulations. SEBI restrained them from
accessing the securities market for a period of five years and also
prohibited them from buying, selling or dealing in securities either
directly or indirectly for the same period. SEBI found that a series of
unauthorized activities starting from the allotment of shares of STIL to
various people including Ketan Parekh entities through a web of
transfers virtually 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
5
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 concerned,
amount borrowed, interest paid, terms and
conditions of repayment.
f) Whether you are still holding share of
Shonkh Technologies International Ltd. or
they have been disposed off. If the shares
have been transferred, by way of pledge, sale,
gift, exchange etc., please furnish the details
thereof. These details should include amount
borrowed/consideration received, cheque
number/draft number, name of the
pledge/buyer/donee, etc.
6
g) Any other purchase/acquisition of Shonkh
Technology International Ltd. shares by the
company/its subsidiaries/directors. If yes,
give details of the shares of Shonkh
Technologies International Ltd. acquired
alongwith the details of consideration paid,
date of transaction, cheque number/draft
number, mode of acquisition, etc.”
9. SEBI issued summons on 27.08.2001 requiring the following
detailed information and documents to be submitted by this appellant:
“Annexure
(i) The list of the directorships of other
companies held by the directors of M/s DKG
Buildcon Private Limited.
(ii) The details of holdings in the scrip of M/s
Shreejee Yatayat Limited as on March 31,
2000.
(iii) The details of the acquisition of the shares of
M/s Shonkh Technologies Limited. The details
shall contain.
• The date of the acquisition.
• The quantity and rate of the acquisition.
• The name and address of the trading
member through whom the acquisition
was made.
• In case the acquisition was made offmarket, the name and address of the
transferors.
(iv) The details of the acquisition of the shares of
M/s Shonkh Technologies International
Limited. The details shall contain.
• The date of the acquisition.
• The quantity and rate of the acquisition.
7
• The name and address of the trading
member through whom the acquisition
was made.
• In case the acquisition was made offmarket, the name and address of the
transferors.
(v) The details of the trading in the scrip of M/s
Shonkh Technologies International Limited
during the period from August 1, 2000 to
June 30, 2001. The details shall include.
a. The date of the transaction.
b. The name and address of the trading
member through whom the acquisition
is entered into.
c. In case of off-market transaction, please
provide the name and address of the
counter party.
d. The quantity, rate and value of the
transaction.
(vi) The details of the shares given in fiduciary
capacity 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
8
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 19.06.2002 at the
Mumbai office of SEBI.
(v) Another Investigating Officer of SEBI issued
summons dated 04.03.2003 requiring the
appellant’s personal appearance on 20.03.2003
at SEBI’s office, New Delhi. It was stated therein
that the person who was to appear on behalf of
the appellant should be able to answer all
questions relating to the investigation. The
appellant was also directed to produce
documents.
(vi) Appellant vide letter dated 20.03.2003 in reply
to the above summons asked for postponement
of the attendance as the concerned Director, Mr.
Navneet Kumar was out of station and would
return only by 30.03.2003 where after he would
be available to appear.
(vii) The Investigating Officer issued another
summons on 24.03.2003 to the appellant
9
requiring attendance on 01.04.2003 at SEBI’s
office, Mumbai.
(viii) This was followed by another summons issued
on 01.04.2003 requiring appellant’s attendance
on 08.04.2003. It was mentioned that in default
of appearance, SEBI will initiate adjudication
proceedings against the appellant, under which
the appellant could be levied a penalty of One
Lakh rupees for each day during which such
failure occurs or continues or one crore rupees,
whichever is less.”
Subsequently, a Show Cause Notice dated 11.09.2003 was
issued under Rule 4 of SEBI (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (for short,
‘1995 Rules’) by the respondent to this appellant informing it that
SEBI, vide its Order dated 26.06.2003 had appointed the respondent
as the Adjudicating Officer (for short, ‘AO’) to inquire into and
adjudicate alleged violation by this appellant under Section 15A(a) of
the Securities and Exchange Board of India Act, 1992 (for short, ‘1992
Act’) for non-compliance of summons issued by SEBI. This appellant
was asked to show cause as to why an inquiry should not be held
against it in terms of Rule 4 of the 1995 Rules, and why penalty should
not be imposed under Section 15A(a) of the 1992 Act.
11. An ex-parte Order dated 28.11.2003 was passed by the
respondent whereby this appellant was held to have not complied with
the requirements of SEBI’s summons dated 27.08.2001, 10.06.2002,
10
18.06.2002 and 01.04.2003. Consequently, the AO imposed a penalty
of rupees one crore on this appellant under Section 15A(a) of the 1992
Act on the ground that it had adopted dilatory tactics of stonewalling
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.
11
Re: Civil Appeal No. 5833 of 2009
14. On 26.07.2001, the respondent herein issued the first summons
giving details of the information sought from this appellant (R. C. Gupta
& Co. Pvt. Ltd.). The appellant furnished the required information on
29.07.2001.
15. Another summons was issued on 10.06.2002 and then on
18.06.2002 by the respondent, directing this appellant to supply the
required information and documents which was attached to the
summons by 21.06.2002. Some of the information sought were similar
to that sought in the summons dated 26.07.2001. However, additional
information was also sought but this appellant failed to respond to any
of the above summons.
16. SEBI chose to issue another summons on 09.04.2003 giving the
appellant another opportunity to comply with the directions mentioned
herein below and to appear on 12.04.2003, making it clear that the
person who had to appear on its behalf should be such who could
answer all the questions in relation to the investigations. The
information and documents sought from the appellant were crucial to
the conduct of the investigation by SEBI. Despite the repeated
directions issued through the aforesaid summons, this appellant failed
to respond. The information sought from this appellant was as follows:
12
“Annexure
1. The details of holdings in the scrip of M/s Shreejee
Yatayat Limited as on March 31, 2000.
2. The details of the acquisition of the shares of M/s
Shonkh Technologies Limited. The details shall
contain:
• The date of the acquisition.
• The quantity and rate of the acquisition.
• The name and address of the trading member
through whom the acquisition was made.
• In case the acquisition was made off-market,
the name and address of the transferors.
3. The details of the acquisition of the shares of M/s
Shonkh Technologies International Limited. The
details shall contain:
• The date of the acquisition.
• The quantity and rate of the acquisition.
• The name and address of the trading member
through whom the acquisition was made.
• In case the acquisition was made off-market,
the name and address of the transferors.
4. The details of the trading in the scrip of M/s
Shonkh Technologies International Limited during
the period from August 1, 2000 to June 30, 2001.
The details shall include:
• The date of the transaction.
• The name and address of the trading member
through whom the transaction is entered into.
13
• In the case of off-market transaction, please
provide the name and address of the
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
14
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.
20. Pursuant to this dismissal of the appeal by SAT, the appellant
preferred Civil Appeal No. 2289 of 2007 before this Court whereby 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. On depositing the cost of Rs.1,25,000/-, the SAT heard
Appeal No. 133 of 2006 and by the impugned Order dated 07.01.2009
upheld the respondent’s Order dated 31.12.2003 and dismissed the
appeal.
21. The pertinent observations and decision of the SAT are
encapsulated as under:
(i) That while the investigations were going on, the appellants and
other entities involved in the manipulation tried to block the
investigation by not responding to the summons issued to them.
(ii) It is evident that apart from the fact that the statement of the
representative of the appellants could not be recorded, it also
failed to furnish the information as per the annexure of
documents. That the appellants were bent upon not appearing
before the Investigating Officer and was also determined not to
15
furnish the information and produce the documents sought
from it. SEBI initiated Adjudication Proceedings for not
complying with the summons. The AO found that the appellants
had willfully failed to respond to the summons and imposed a
monetary penalty of rupees one crore on each of them under
Section l5A(a) of the Act.
(iii) SAT did not agree with the contention that the penalty could not
exceed Rs. 1,50,000/-. Section 15A(a) of the Act, as it originally
stood, provided for "a penalty not exceeding Rs.1,50,000/- for
each such failure." This provision was however amended by the
amending Act of 2002 which was meant to make the penalty
more deterrent and provided for a “penalty of rupees one lakh
for each day during which, such failure continues or rupees one
crore, whichever is less."
The appellant in Civil Appeal No. 1742 of 2009 violated
the summons for the first time in August, 2001 and it was open
to SEBI to proceed against it for that non-compliance. The
appellant again violated the summons in June, 2002. SEBI
could have proceeded against it for that non-compliance as well.
Had the SEBI proceeded against the appellant for those noncompliances which constituted two separate wrongs, the penalty
leviable would have been under the unamended provisions.
16
(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 Civil Appeal No.
5833 of 2009 was held to be justified and no fault could be
found.
17
(vi) Section 11C of the Act was introduced with effect from
29.10.2002 and sub-Section (3) provides that the Investigating
authority may require any person associated with the securities
market "to furnish such information, or produce such books, or
registers, or other documents, or record before him…". The
power to direct a person to furnish any information or record or
documents includes the power to direct such person to make a
statement and give clarifications with regard to the information
and documents produced by him. In the absence of such a
power, the purpose of the legislature in introducing Section 11C
would be frustrated and SEBI will not be able to investigate
properly the market irregularities and offences. Therefore,
Section 11C (3) gives the power to the Investigating Authority to
call upon any person to make a statement while furnishing any
information, document or record.
(vii) That the Orders of AO dated 28.11.2003 and 31.12.2003 did not
record findings which were beyond the show cause notice.
(viii) That the penalty imposed was not excessive and that the same
need not be reduced. That penalty cannot be reduced on the
ground that it could be levied only under the unamended
provisions of Section l5A(a) of the 1992 Act as the most vital part
18
of the information that was being sought from the appellants
was withheld knowingly.
(ix) That the appellants were aiding and abetting Ketan Parekh and
his companies in manipulating the price of the scrip of STIL and
it is for this reason that they were trying to obstruct and delay
the investigations.
22. We have heard Ms. Deeksha Mishra, learned counsel for the
appellants and Sri. C.U. Singh, learned senior counsel for the
respondents duly assisted by their instructing counsel and perused the
material on record.
23. The submissions of learned counsel for the appellants herein are
summarised as follows:
(i) That the penalty of rupees one crore has been imposed for
alleged non-compliance of summons dated 27.08.2001,
10.06.2002, 18.06.2002 and 01.04.2003 by the appellant in
Civil Appeal No. 1742 of 2009 and for the alleged noncompliance of summons dated 10.06.2002, 18.06.2002 and
09.04.2003 by the appellant in Civil Appeal No. 5833 of 2009.
The maximum penalty of Rs. 1,50,000/- ought to have been
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 issued.
19
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. Since the AO had proceeded on a wrong
assumption, presuming that the appellant never complied with
any summon and never furnished any information to the
Investigating Officer, he reached a wrong conclusion.
20
(iii) That there was no violation of Section 15A(a) of the 1992 Act
since Section 15A(a) applies only with respect to documents
statutorily required to be furnished to SEBI, and does not apply
to documents required to be furnished to an Investigating
Authority, pursuant to summons issued by it. The term "Board",
as defined in the 1992 Act, is the Securities and Exchange Board
of India established under Section 3 of the 1992 Act while the
term "Investigating Authority" is defined under Section 11C of
the 1992 Act as an officer directed by the SEBI to conduct an
investigation and report to it. It cannot be said that the powers
and functions of the Investigating Authority are co-extensive
with that of the SEBI.
(iv) That the penalty imposed by the AO under Section l5A(a) of the
1992 Act is excessive, abusive and untenable, and in complete
disregard of the principle of proportionality. Section l5A(a) of the
1992 Act merely provides that if any person who is required
under the Act or any rules or regulations made thereunder fails
to furnish any document, return or report to the SEBI, he shall
be liable to a penalty of rupees one lakh for each day during
which such failure continues or rupees one crore, whichever is
less. The maximum penalty was augmented from rupees one
lakh fifty thousand to rupees one crore with effect from
21
29.10.2002. Prior to 29.10.2002, the penalty leviable under this
Section was restricted only to a sum not exceeding one lakh and
fifty thousand rupees. Assuming, that the appellants had
violated the provisions of Section l5A(a) of the 1992 Act, the
maximum penalty that could have been levied must be
calculated as per the unamended provisions, as was in force at
the time when the offence was alleged to have been committed
and summons were issued, and not the enhanced penalty as
provided by a subsequent amendment which came into effect
only from 29.10.2002.
(v) Furthermore, the AO has, in imposing the aforesaid penalty,
disregarded the provisions of Section 15J of the 1992 Act which
reads as follows:
"15J. Factors to be taken into account
while adjudging quantum of penalty. —
While adjudging the quantum of penalty
under 15-I or Section 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."
22
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 information called for by the Investigating Officer.
(vi) That the summons issued by the respondent to the appellants
under Section 11(3) of the 1992 Act are non-est in law as this
Section does not empower SEBI to summon and compel the
appearance of companies such as the appellants. Hence, no
consequence can follow from the non-compliance of such
summons. SEBI's powers, prior to the amendment in 2002, was
limited to jurisdiction over stock exchanges, mutual funds,
other persons associated with the securities market,
23
intermediaries and self-regulatory organizations. After the 2002
amendment, SEBI's jurisdiction extended to listed companies or
companies which propose to get their securities listed. However,
in no event does Section 11(3) empower SEBI to compel the
appearance or production of documents by companies such as
the appellants herein since the appellants are not registered
with SEBI as a regulated intermediary. Furthermore, even under
Section 11(3) of the 1992 Act, the power of SEBI to compel
appearance and production of documents is limited to the
powers vested in a Civil Court under the Code of Civil Procedure,
1908, (CPC) more specifically contained in Section 32 CPC
which provides that the Court may compel the attendance of any
person to whom summons has been issued under Section 30
CPC and for that purpose, may issue a warrant for his arrest,
attach and sell his property, impose a fine upon him not
exceeding five hundred rupees, or order him to furnish security
for his appearance and in default, commit him to the civil prison.
(vii) That the Orders dated 28.11.2003 and 31.12.2003 have been
passed in violation of and in grave breach of the principles of
natural justice and statutory procedure and a conscious
disregard of the duties cast on the AO under the provisions of
the 1992 Act. This is evidenced by the fact that the AO, in the
24
absence of a report by an Investigating Officer, took upon
himself the task of fact finding, investigating, conducting,
hearing, researching, preparing a report and then adjudicating
thereon by himself. Thus, the investigating and adjudicating
roles have been played by the same person.
(viii) The respective Orders are bad in law and have been passed in
violation of and in grave breach of the principles of natural
justice, statutory procedure and conscious disregard of the
duties cast upon the respondent 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
25
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 sale of 2,00,000 shares to Goldfish Computers at
Rs.160/- per shares, debit in the DEMAT Account on 2,00,000
shares in favour of Goldfish Computers on 02.11.2000 etc. have
not been furnished in the response to the said summons.
(iii) In view of the finding that the appellants were aiding and
abetting Ketan Parekh and his companies in manipulating the
price of the scrip of STIL and that the appellants herein were
trying to stonewall the investigations initiated by the
respondent, the quantum of penalty levied on the appellants are
in conformity with the offence and warrants no interference with
by this Court.
(iv) The provisions of Section 11C (3) of the 1992 Act empowers the
respondent to call upon any person to make a statement while
furnishing any information, document and record.
26
(v) Section 15A(a) of the 1992 Act finds mention in Chapter VI A of
the 1992 Act, introduced in January, 1995. This provision was
amended by the amending Act of 2002, which was intended to
make the penalty more deterrent. This provision, amended with
effect from 29.12.2002, provides for a penalty of Rs.1,00,000/-
for each day during which such failure continues or rupees one
crore, whichever is less. The penalty of rupees one crore has
rightly been imposed on the appellants herein.
(vi) The summons which were not complied with by the appellants
had been issued in 01.04.2003 and 09.04.2003 respectively.
Hence, the penalty levied in the Orders dated 28.11.2003 and
31.12.2003 respectively were in accordance with the amended
provisions of Section 15A(a) of the 1992 Act at the enhanced
rate.
(vii) That no question of law as contemplated by Section 15Z of the
1992 Act arises for the consideration by this Court.
25. Having heard the learned counsel for the respective parties, it is
noted that the appellants herein are challenging the Orders dated
07.01.2009 of the SAT, Mumbai in Appeal No. 106 of 2006 and Appeal
No. 133 of 2006 respectively upholding the Orders dated 28.11.2003
and 31.12.2003 passed by the AO respectively in each case, imposing
a monetary penalty of rupees one crore on each appellant under
27
Section 15A(a) of the 1992 Act 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. 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
entrapping of the genuine investors by the entities through a web of
28
transfers could virtually wreck the integrity of the securities market,
undermine the system and provide for a fertile ground to wangle unfair
gains.”
27. While it has been noted that the appellants herein did not file any
appeal against the aforesaid Order of SEBI which has now become final
qua the appellants, it must be borne in mind that the present dispute
arises in the background of the aforesaid investigation, wherein the
Investigating Authority of SEBI had, in exercise of its powers under
Section 11C (3) of the 1992 Act, called upon the appellants to furnish
such information and produce such documents and records as were
considered necessary for the purposes of the aforesaid investigation.
28. The Investigating Authority had issued summons to the
appellants herein on various dates as has been discussed hereinabove
requiring the appellants to appear and produce certain documents and
furnish information specifically listed in the Annexure to the summons.
The appellants failed to respond to any of the summons issued, and
failed to appear before the Investigating Authority with the required
documents and information sought from it. Owing to the said noncompliance, SEBI initiated separate adjudication proceedings against
the appellants. The AO passed Orders dated 28.11.2003 and
31.12.2003 with the finding that the appellants herein had
29
intentionally failed to respond to the summons, and thus imposed a
penalty of rupees one crore on each appellant under Section 15A(a) of
the 1992 Act.
29. Challenging the said Orders, the appellants filed Appeal No. 106
of 2006 and Appeal No. 133 of 2006 with respective applications for
condonation of delay before the SAT. Initially, SAT dismissed the
aforesaid applications and the appeals on the ground that the appeals
were belated and time-barred and the appellants had failed to provide
a satisfactory explanation to justify the delay in filing the appeals.
Thereafter, this Court passed Orders dated 04.08.2008 in Civil Appeal
No. 4975 of 2006 and Civil Appeal No. 2289 of 2007 directing SAT to
condone the delay in filing the appeals, subject to the appellants herein
depositing a sum of Rs. 1,25,000/- as cost to SEBI within a period of
six weeks.
30. Thus, Appeal No. 106 of 2006 and Appeal No. 133 of 2006 were
heard by the SAT which, hearing the matter, passed 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.
30
31. The primary contention of the appellants is that the noncompliance 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 from 29.10.2002 vide an amendment to the 1992 Act
and assuming that the appellants have violated the provisions of
Section l5A(a), the maximum penalty that could be levied must be
calculated as per the unamended provision and not the enhanced
penalty.
32. On a perusal of the facts and circumstances of the case, it is
evident that the appellants had first violated the summons in August,
2001 and in June, 2002 respectively. Thereafter, SEBI issued
31
numerous summons, giving the appellants opportunities to appear and
produce the documents and furnish the information as required. But,
the appellants failed to respond to any of the summons issued during
the period of 2001-2002, during the course of the investigation.
Thereafter, SEBI issued fresh summons on 1.04.2003 in respect of the
appellant in Civil Appeal No. 1742 of 2009 and on 09.04.2003 in
respect to the appellant in Civil Appeal No. 5833 of 2009 for the
appellants to cooperate with the investigation. The non-compliance of
the fresh summons dated 01.04.2003 and 09.04.2003 respectively, in
our view, constituted a fresh offence committed by the appellants.
Thus, the amended provisions of Section 15A(a) of the 1992 Act as
amended w.e.f. 29.10.2002 would apply when levying the penalty on
the appellants in respect of the summons issued subsequent to the
aforesaid amendment.
33. Section l5A(a) of the 1992 Act provides that if any person who is
required under the Act or any Rules or Regulations made thereunder
fails to furnish any document, return or report to the SEBI, he shall be
liable to a penalty of rupees one lakh for each day of failure, and, if
such failure continues it would be rupees one lakh per day of failure or
rupees one crore, whichever is less. Thus, rupees one crore is the
maximum penalty that can be levied if the failure as contemplated
32
under the aforesaid provision crosses one hundred days; otherwise, it
is as per the number of days of failure upto one hundred days.
34. Thus, the penalty of rupees one crore as levied by the AO and
upheld by the SAT is justified and within the precincts of the relevant
provision. Applying the said provision to the facts for the present cases,
it is clear that the appellants had failed to comply with the summons
dated 01.04.2003 and 09.04.2003 respectively. Thereafter, the AO had
passed its order levying penalty on the appellants on 28.11.2003 and
on 31.12.2003 respectively. Since, the duration of the default of noncompliance 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
33
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 provided in the
unamended provision must be imposed. In other words, the amended
provision cannot be given a retrospective effect.
36. The said contention of the appellant has already been rejected on
the ground that the non-compliance of summons dated 01.04.2003
issued by the Investigating Authority constituted a fresh offence and
would attract the provisions of the amended Section 15A(a) of the 1992
Act. In light of the facts of this case, no question of retrospective
application of a statute/provision of law arises and thus, the
proposition and legal principles raised in the aforesaid judgements
would not apply to the present case.
37. Next, learned counsel for the appellants placed reliance on
several orders of the SAT wherein SAT reduced the penalty levied under
Section 15A(a) of the 1992 Act on the ground that the AO had failed to
consider the specific factors as provided in Section 15J of the 1992 Act
in determining the quantum of punishment levied under the Act. These
34
cases are Rose Valley Real Estates and Construction Ltd. vs.
Securities and Exchange Board of India (Appeal No. 106/2013);
Padmini Technologies Ltd. vs. SEBI (Appeal No. 36 of 2004); Vivek
Nagpal vs. SEBI (Appeal No. 37 of 2004); Mukesh Malhotra vs.
SEBI (Appeal No. 101/2004); Advance Hovercrafts & Composites
India Ltd., Delhi vs. The Adjudicating and Enquiry Officer, SEBI
(Appeal No. 61/05); Spectrum.com Pvt. Ltd. vs. SEBI (Appeal No.
119 of 2006); and Zodiac.com Solutions Pvt. Ltd. vs. The
Adjudicating and Enquiry Officer, SEBI (Appeal No. 105 of 2006).
38. It has been noted hereinabove that the investigation by SEBI
which had concluded that the appellants and other entities were
involved in aiding and abetting Ketan Parekh and his companies in
rigging the securities market in the years 2000 and 2001 had not been
challenged, at any point, by the appellants. Thus, the relevant order of
SEBI had attained finality. The said investigation had found that the
appellants were involved in certain unauthorized transfer of shares
starting from the allotment of shares of STIL to various people
including Ketan Parekh’s entities through a web of transfers which
could virtually wreck the integrity of the securities market, undermine
the system and provide for a fertile ground to wangle unfair gains. The
investigation had also concluded that the appellants had played a role
in facilitating such activities by manipulating the market, and this
35
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, 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
36
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-totime. In failing to do so, the appellants clearly obstructed and hindered
the investigation.
40. Taking into consideration the severity of offences found to have
been committed by the appellants and other entities, and the noncooperative 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.
41. In this context, the Explanation to Section 15J of the 1992 Act
must also be referred to in order to reject the contention of the
appellants regarding the consideration of factors under Section 15J of
the 1992 Act in adjudging the quantum of penalty under Section 15A(a)
of the 1992 Act. The Explanation to Section 15J of the 1992 Act reads
as under:
“For the removal of doubts, it is clarified that the
power to adjudge the quantum of penalty under
Sections 15A to 15E, clauses (b) and (c) of Section
15F, 15G, 15H and 15HA shall be and shall
always be deemed to have been exercised under
the provisions of this Section.”
37
42. A bare reading of the Explanation in the context of the present
case creates a presumption in favor of the AO that he has passed the
Orders dated 28.11.2003 and 31.12.2003 against the appellants herein
after due consideration of the factors mentioned in Section 15J of the
1992 Act.
43. In the case of Adjudicating Officer, Securities and Exchange
Board of India vs. Bhavesh Pabari (2019) 5 SCC 90, a three Judge
Bench of this Court held that –
“5. …Sections 15A (a) to 15-HA have to be
read along with Section 15-J in a manner to
avoid any inconsistency or repugnancy. We
must avoid conflict and head-on-clash and
construe the said provisions harmoniously.
Provision of one Section cannot be used to
nullify and obtrude another unless it is
impossible to reconcile the two provisions.
The 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
38
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 argument raised by some of the
private appellants that the conditions
stipulated in clauses (a) to (c) of Section 15-
J are mandatory conditions which must be
read into Sections 15-A to 15-HA in the sense
that unless the conditions specified in
clauses (a) to (c) are satisfied, penalty cannot
be imposed by the adjudicating officer under
the substantive provisions of Sections 15-A
to 15-HA of the SEBI Act. The argument is
too far-fetched to be accepted. Section 15-J
of the SEBI Act enumerates by way of
illustration(s) the factors which the
adjudicating officer should take into
consideration for determining the quantum
of penalty imposable. The imposition of
penalty depends upon satisfaction of the
substantive provisions as contained in
Section 15-A to Section 15-HA of the SEBI
Act.”
44. The learned counsel for the respondent has also rightly placed
reliance on the decision of this Court in MBL and Company Limited
vs. Securities and Exchange Board of India (2022) SCC OnLine SC
754 to submit that the quantum of penalty of rupees one crore levied
by the AO under Section 15A(a) of the 1992 Act was justified,
39
proportionate and in conformity with the omissions on the part of the
appellants inasmuch as the appellants had repeatedly adopted
escapist tactics to effectively frustrate the investigations of SEBI, and
thus requires no interference by this Court in exercise of its powers
under Section 15Z of the 1992 Act.
In the MBL and Company Limited case (supra), a Bench of this
Court held that:
“11. In a judgment of a three-Judge Bench of this
Court in Adjudicating Officer, Securities and
Exchange Board of India vs. Bhavesh Pabar,
it has been observed that:
34. This Court, in the exercise of its
jurisdiction under Section 15-Z of the
SEBI Act, cannot go into the
proportionality and quantum of the
penalty imposed, unless the same is
distinctly disproportionate to the
nature of the violation which makes it
offensive, tyrannous or intolerable.
Penalty by the very nature of the
provision is penal. We can interfere
only where the quantum is wholly
arbitrary and harsh which no
reasonable man would award. In the
instant case, the factual findings are
not denied and, thus, we are not
inclined to intermeddle with the
quantum of penalty. The penalty
imposed is just, fair and reasonable
and, thus, upheld.
12. The above observations make it clear that the
imposition of a penalty is subject to interference
under Section 15Z of the SEBI Act only where the
quantum is found to be wholly arbitrary and
40
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, based on the aforesaid judgements relied on by the learned
counsel for the respondent, it is clear that the quantum of penalty
imposed by the AO is proportionate and within the confines of the
provisions of Section 15A(a) read with Section 15J of the 1992 Act, and
requires no interference by this Court.

45. Furthermore, 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
41
“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.
46. It is 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 under
Section 11C (3) of the 1992 Act and failed to produce the required
documents and information, the Investigating Authority, being a
42
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.
47. Parties to bear their respective costs.
..………….……………J.
(AJAY RASTOGI)
..………….……………J.
(B.V. NAGARATHNA)
NEW DELHI;
14th SEPTEMBER, 2022.

Comments

Popular posts from this blog

100 Questions on Indian Constitution for UPSC 2020 Pre Exam

संविधान की प्रमुख विशेषताओं का उल्लेख | Characteristics of the Constitution of India

भारतीय संविधान से संबंधित 100 महत्वपूर्ण प्रश्न उतर