Securities Appellate Tribunal
Bhargav Ranchhodlal Panchal & Anr. Vs. ... vs Sebi on 5 July, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 23.06.2022
Date of Decision : 05.07.2022
Appeal No. 471 of 2020
1.Bhargav Ranchhodlal Panchal 15, Suryadeep Society, Near Takshashilla Flats, Vastrapur, Ahmedabad- 380 015
2. Hina Bhargav Panchal 15, Suryadeep Society, Near Takshashilla Flats, Vastrapur, Ahmedabad- 380 015 ...Appellants Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent Mr. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Advocate for the Appellants.
Mr. Sumit Rai, Advocate with Mr. Abhiraj Arora and Mr. Shourya Tanay, Advocates i/b ELP for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Justice M. T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member Per: Justice Tarun Agarwala, Presiding Officer 2
1. The present appeal has been filed by the appellants against the order dated April 27, 2020 passed by the Adjudicating Officer ("AO" for convenience) of the Securities and Exchange Board of India ("SEBI" convenience) imposing a penalty of Rs. 45,00,000/- (Rupees Forty Five Lakhs Only) and Rs. 30,00,000/- (Rupees Thirty Lakhs Only) respectively, under Section 15HB of the SEBI Act for their failure to comply with the directions issued to them by the Whole Time Member ("WTM" for convenience) vide its order dated February 25, 2011.
2. The facts leading to the filing of the present appeal is, that noticing certain irregularities in the transactions in shares that were issued through the initial public offerings ("IPOs") during the period 2003-2005, an ex-parte ad interim order dated December 15, 2005, January 12, 2006 and April 27, 2006 was issued restraining the appellants from buying, selling or dealing in the securities market directly or indirectly. Subsequently, a show cause notice dated December 01, 2009 was issued to show cause why appropriate directions should not be issued under Section 11, 11(4) and 11B of the SEBI Act. The WTM after considering the replies passed an order dated February 25, 2011 issuing the following directions:-
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a. Ms. Roopalben N. Panchal (PAN AFVPP3739H), Ms. Devangi Panchal (PAN ABOPP7151Q), Mr. Dipak Jashvantlal Panchal (PAN ABOPP7152D), Ms. Hina Bhargav Panchal (PAN AFUPP7738M), Mr. Bhargav Ranchhodlal Panchal (PAN AADHP0704R), and Mr. Arjav Nareshbhai Panchal (PAN AGZPP2986M) shall not buy, sell or deal in the securities market in any manner whatsoever or access the securities market, directly or indirectly, for three months from the date of this Order;
b. Ms. Roopalben N. Panchal, Ms. Devangi Panchal, Mr. Dipak Jashvantlal Panchal, Ms. Hina Bhargav Panchal, Mr. Bhargav Ranchhodlal Panchal, and Mr. Arjav Nareshbhai Panchal shall disgorge the unlawful gain and shall also pay simple interest at the rate of 10% per annum for 5years (2005-10) on the unlawful gains, as indicated against their names below, within 45 (forty five) days from the date of this Order by way of crossed demand draft drawn in favour of "Securities and Exchange Board of India", payable at Mumbai:
Sl. Noticee Unlawful gain Interest on Amount to be No unlawful gain disgorged .
1. Ms. Roopalben N. 7,72,94,442 3,86,47,221 11,59,41,663 Panchal
2. Ms. Devangi 9,01,05,278 4,50,52,639 13,51,57,917 Panchal
3. Mr. Dipak 7,16,64,774 3,58,32,387 10,74,97,161 Jashvantlal Panchal
4. Ms. Hina Bhargav 6,61,030 3,30,515 9,91,545 Panchal
5. Mr. Bhargav 8,97,024 4,48,512 13,45,536 Ranchhodlal Panchal
6. Mr. Arjav 2,480 1,240 3,720 Nareshbhai Panchal Total 24,06,25,028 12,03,12,514 36,09,37,542 4 c. In case the aforesaid amounts are not received by SEBI within the specified time, they shall be restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market directly or indirectly for a further period of nine years, without prejudice to SEBI's right to enforce disgorgement. Until the said amounts are realized by SEBI, the securities in the demat accounts of the noticees shall remain frozen."
3. The appellants were restrained from accessing the securities market for a period of three months from the date of the order and were also directed to disgorge a sum of Rs. 9,91,545/- and Rs. 13,45,536/- towards unlawful gains and interest. The appellants were further directed that in the event the aforesaid amounts are not paid within the specified time the appellants would be further restrained from buying, selling or dealing in the securities market directly or indirectly for a further period of nine years, without prejudice to SEBI's right to enforce the disgorgement and till the realizing of the amount the appellants demat accounts would remain frozen.
4. It is alleged that the order of disgorgement was not complied by the appellants and, accordingly, a show cause notice dated May 21, 2018 was issued to show cause why penalty should not be imposed for not complying with the directions of the WTM dated February 25, 2011. Inspite of 5 service of the show cause notice the appellants failed to file a reply nor appeared on the date fixed for hearing and, accordingly, an ex-parte order was passed imposing the penalty as stated aforesaid.
5. We have heard Shri Vinay Chauhan, the learned counsel for the appellants and Mr. Sumit Rai, the learned counsel for the respondent.
6. Admittedly, an order under Section 11B was passed by the WTM on February 25, 2011. The question that arises for consideration is, that if the order of the WTM passed under Section 11B is not complied by the appellants, is it open to SEBI to initiate proceedings for imposition of penalty under Section 15HB of the SEBI Act. For facility, the provisions of 11B and 15HB are extracted hereunder:-
"Power to issue directions 11-B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,-
(i) in the interest of investors, or orderly development of securities market; or
(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental 6 to the interests of investors or securities market; or
(iii) to secure the proper management of any such intermediary or person, it may issue such directions,-
(a) to any person or class of persons referred to in section 12, or associated with the securities market; or
(b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.
Explanation.-For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention.
Penalty for contravention where no separate penalty has been provided.
15-HB. Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees."
7. According to the respondent, the directions issued under Section 11B are not penalty and, therefore, for non-compliance 7 of the directions of the WTM, a penalty under Section 15HB could be issued. It was urged, that under Section 15HB whoever fails to comply with the directions issued by the Board for which no separate penalty has been provided, shall be liable to pay a penalty. It was urged, that at the time when the order was passed by the WTM in 2011 there was no power given to the WTM to issue a penalty and only directions could be issued and, consequently, for non-compliance of the directions of the WTM, penalty under Section 15HB could be imposed especially, when there was no provision at that relevant moment of time for enforcement of a direction/ order. It was urged that in the past several orders have been passed by AO imposing penalty under Section 15HB for non-compliance of a direction given by the WTM and such orders have been upheld in Dhaval Mehta vs. SEBI [2013 SCC OnLine SAT 86, Rajesh Ranka vs. SEBI [2019 SCC OnLine SAT 379] and in Top Telemedia Ltd. vs. SEBI [2018 SCC OnLine SAT 36].
8. In our opinion, the contention raised by the respondent nor the impugned order can be sustained.
9. Directions issued under Section 11B are under Chapter-II of the SEBI Act, which gives powers to the Board to issue such 8 directions as are necessary to protect the interest of the investors in securities and to promote the development of, and to regulate the securities market by such measures as it thinks fit. Such directions issued under 11B are in the nature of orders which are passed after due enquiry.
10. Black's Law Dictionary Seventh Edition defines 'direction' to mean an order. The word 'order' has also been defined in the same Black's Law Dictionary Seventh Edition as a command, direction or instruction, a written direction or command delivered by a court or judge. Thus, direction and order are synonymous terms and are interchangeable.
11. In Rajinder Nath vs. Commissioner Of Income Tax (1979) 4 SCC 282, the Supreme Court held that a direction is an order issued by the authority or Court which is empowered to give while deciding the case before it.
12. Section 15HB is under Chapter-VIA of the SEBI Act, which provides for penalties and adjudication. A perusal of Chapter-VIA would indicate that penalties have been provided for specific violations, for example, under Section 15A, a penalty is provided for failure to furnish information, return, etc. Under Section 15B penalty is provided for failure by any person 9 to enter into agreement with clients. Penalty is provided under Section 15C for failure to redress investors' grievances and so forth. Section 15HB is a residuary clause meaning thereby that where specific penalties have not been provided elsewhere under Chapter-VI, then a penalty could be awarded under Section 15HB for failure to comply with any provisions of the Act, Rules, Regulations or directions issued by the Board.
13. The word 'directions' issued by the Board under Section 15HB is different and distinct from the directions issued under Section 11B after due enquiry and adjudication. There are many directions issued under the Regulations and the Circulars requiring a person to do an act in a certain manner. For example, a person is required to comply with a certain provision within a stipulated period. Failure to comply with such directions issued by the Board under the Act, Regulations, Rules or Circulars if not complied with may invite penalty. If penalty is not specified under Chapter-VIA from Section 15-A to Section 15-HAA for failure to comply with such type of directions then penalty can be imposed after adjudication under the residuary clause Section 15HB.
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14. In our opinion, Section 15HB cannot be invoked for non- compliance of any directions issued under Section 11B after enquiry and adjudication.
15. The order of the WTM was one of disgorgement and if the amount of disgorgement was not paid by the appellants the same could be enforced under Section 28A. For facility, Section 28A(1) is extracted hereunder:-
"Recovery of amounts.
28-A. (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund of monies or fails to comply with a direction of disgorgement order issued under section 11B or fails to pay any fees due to the Board, the Recovery Officer may draw up under his signature a statement in the specified form specifying the amount due from the person (such statement being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the amount specified in the certificate by one or more of the following modes, namely:--
(a) attachment and sale of the person's movable property;
(b) attachment of the person's bank accounts;
(c) attachment and sale of the person's immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person's movable and immovable properties,......"11
16. The aforesaid provision was inserted by Act No. 27 of 2014 w.e.f. 18.07.2013 for the protection of the interest of investors and to enhance the powers of the Board and specifically to enforce compliance of an order of disgorgement. The said provision directs that if a person fails to comply with the directions of disgorgement order issued under Section 11B the said amount could be recovered under Section 28A through the Recovery Officer. The order of the WTM dated February 25, 2011 gave a right to SEBI to enforce the order of disgorgement. Thus, Section 28A could be enforced by SEBI if the order of WTM was not being complied with. In our opinion, Section 28A is procedural in nature and will apply for enforcement of an order passed by the WTM dated February 25, 2011. The Parliament, while inserting Section 28A in the SEBI Act specifically provided a mechanism to enable the Board for recovery to be made from any person who fails to comply with a direction of disgorgement under Section 11B.
17. In the instant case, the show cause notice was issued on May 21, 2018, whereas the provision of Section 28A was inserted in 2014. The said provision should have been utilized for recovery of the disgorgement amount. 12
18. The preamble of the SEBI Act, the Statement of Objects and Reasons of the Act, the scope of Section 11B and the Statement of Objects and Reasons of the amending Act, 27 of 2014, all emphasise on protecting the interest of investors.
19. Black's Law Dictionary Seventh Edition defines penalty as involving an idea of punishment, corporal or pecuniary; a penalty is a sum of money which the law exacts payment of by way of punishment for doing some act which is prohibited or for not doing some act, which is required to be done. Supreme Court Words and Phrases, Third Edition 2014 defines penalty as a liability imposed as a punishment on the party committing the breach. The very use of the term penal is suggestive of punishment. Thus, the very definition of penalty and the import of Section 15HB is to punish by way of pecuniary liability as a punishment for not complying with the directions issued by the Board. The act of punishment is not in the interest of the investors rather it is towards strictly regulating the securities market, its participants and development of the Board which is secondary to the protection of the interest of the investors. The object of investor protection is thus not achieved only by punishment or issuing directions as penalty passed in a recurring 13 manner. The mechanism of recovery ensures protecting the interest of investors by getting back the amount to the investors.
20. Looking at it from another aspect, if imposition of penalty is mandated as a punishment, for failure to comply with the directions issued by the Board, then subsequent failures to comply would result in subsequent and recurring punishment directions resulting in a piquant situation of creating an endless loop of penalty directions as punishment for failure to comply. This situation was never intended by the Parliament while enacting Section 15HB enabling the Board for repetitive punishment orders for recovering the disgorged amount.
21. Thus, an adjudicatory order passed under Chapter IV or under Chapter VIA, after enquiry and adjudication can be enforced like a decree under Section 28A. Penalty proceedings cannot be initiated for non-compliance under Section 15HB.
22. The judgments cited by the respondent are distinguishable. In all the cited cases, no doubt an order under Section 15HB of the Act was passed for not complying the order of the WTM. The question whether Section 15HB could be invoked for non- 14 compliance of a direction passed by the WTM was not considered. Thus, the said decisions are not applicable.
23. In view of the aforesaid, we are of the view that the provisions of Section 15HB cannot be utilized for imposition of penalty for non-compliance of an order of the WTM passed under Section 11B of the SEBI Act.
24. Consequently, the impugned order cannot be sustained and is quashed. The appeal is allowed with order as to costs.
25. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member Ms. Meera Swarup Technical Member RAJALAKS Digitally signed by RAJALAKSHMI H 05.07.2022 HMI H NAIR PK NAIR Date: 2022.07.11 16:52:33 +05'30'