Securities Appellate Tribunal
Mr. Sunil Mansinghani And Anr. vs Sebi on 29 December, 2016
Author: J.P. Devadhar
Bench: J.P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 16.12.2016
Date of Decision : 29.12.2016
Appeal No.248 of 2014
1.Mr. Sunil Mansinghani
2. Ms. Kanchan Mansinghani 18/4, Navjivan Society, Mori Road, Mahim, Mumbai - 400 016. ...Appellants Versus
1. The Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051.
2. National Stock Exchange of India Ltd.
Exchange Plaza, Plot No.C/1, G Block, Bandra Kurla Complex, Bandra(E), Mumbai - 400051. ...Respondents Mr. Sharan Jagtiani, Advocate with Ms. Dhwani Mehta and Ms. Neha Kumtha, Advocates i/b DM Law Chambers for Appellants. Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate i/b. Vigil Juris for the Respondent No.1.
Mr. Rahul Jain, Advocate i/b Manilal Kher Ambalal & Co. for Respondent no.2.
WITH Appeal No.250 of 2014 Ashok Daswani Devdarshan, A Wing, 1st Floor, Mughal Lane, Mahim (West), Mumbai - 400016. ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent 2 Ms. Dhwani Mehta, Advocate with Ms. Neha Kumtha, Advocate i/b DM Law Chambers for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate i/b. Vigil Juris for the Respondent.
CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member Per : Dr. C.K.G. Nair
1. The appellants in both these appeals are aggrieved by the impugned order passed by the Whole Time Member of the Securities and Exchange Board of India ('SEBI' for short) dated April 23, 2014. By the said order Sunchan Securities Limited ('Sunchan' for short) and the appellants who were Directors of Sunchan were restrained from the securities markets and ordered to refund the investors and replenish the Investor Protection Fund of the NSE and BSE from where some funds had been given to the investors.
2. Aggrieved by this order three directors of the company filed appeals. Mr. Sunil Mansinghani and Ms. Kanchan Mansinghani have filed Appeal no.248 of 2014 and Mr. Ashok Daswani has filed Appeal no.250 of 2014. Since both these appeals arise from the same impugned order dated April 23, 2014 passed by SEBI these appeals are heard together and disposed of by this common order.
3. Facts relevant to the case are as follows:
(a) Sunchan was a stock broker registered with NSE and BSE.
Based on various complaints received by SEBI during December 2008-January 2009 regarding non-receipt of funds / securities and other investor grievances, NSE and BSE were advised by SEBI to 3 carry out a special purpose inspection of Sunchan and submit factual reports to SEBI. The inspection reports thus forwarded by NSE and BSE contained findings relating to misuse of client funds and securities, failure to deliver securities and funds to clients, non-maintenance of records, failure to redress grievances, disproportionate exposure to clients etc.
(b) Based on the findings in the inspection report and after due consideration SEBI issued an ad-interim ex-parte order dated January 30, 2009 inter alia directing Sunchan, its Directors and Compliance Officer not to deal in securities market in any manner whatsoever, pending enquiry. The interim directions contained in the order dated January 30, 2009 was confirmed vide SEBI's order dated October 26, 2009 after providing opportunity of personal hearing to Sunchan, its Directors and Compliance Officer. By this confirmatory order certain corrections were also made regarding the record on the Directors of Sunchan which had erroneously crept into the ex-parte interim order.
(c) In parallel SEBI had initiated an enquiry proceeding against Sunchan in terms of SEBI Intermediaries Regulations, 2008(referred to hereinafter as 'Intermediaries Regulations') and passed an order dated December 8, 2010. By this order the certificate of registration of Sunchan was cancelled. It is on record that Sunchan did not appeal against this order and instead took steps to liquidate the company.
(d) Following the finding in the special inspection report and the enquiry proceedings in Sunchan as stated in para (c) above, show cause notices were issued to Sunchan, its four Directors (Mr. Sunil Mansinghani, Ms. Kanchan Mansinghani, Mr. Ashok 4 Daswani and Mr. Suresh Gama Yadav) and Compliance Officer (Mr. Riyaz Ismail Shaikh).
(e) After giving opportunities of personal hearing, which some of the appellants availed, and written submissions SEBI passed the impugned order on April 23, 2014, under Section 19 read with 11B and 11(4) of SEBI Act, 1992 which directed as follows:-
(i) Sunchan, the 4 directors and the Compliance Officer were restrained from buying, selling or dealing in securities and in accessing the securities market directly or indirectly for a period of 7 years.
(ii) The 4 Directors and the Compliance Officer were barred from holding any position of Director or Compliance Officer in any listed Company or being associated with any SEBI regulated entity for 7 years.
(iii) Sunchan and the Directors to replenish the Investor Protection Fund ('IPF' for short) of Bombay Stock Exchange and National Stock Exchange of India Ltd. to the extent of Rs.1,86,93,149/- and Rs.2,58,32,823.72/-
respectively.
(iv) Sunchan and its directors to compensate investors to the extent their claims which were not fully met out of the IPF.
(v) In case the appellants fail to deposit the funds as at (iii) and (iv) above Sunchan and its Directors shall be restrained for a further period of 10 years from the securities market.
4. Before SEBI and in the two appeals before this Tribunal the appellants had contended that it was the mistakes made by the Clearing 5 Member, namely SMC Global Securities Ltd. ('SMC' for short) in not fully honouring the conditions in the agreement entered into by Sunchan with them which resulted in many of the infirmities. It was also contended by the Appellants that the NSE was responsible in not taking action against SMC in the matter. Accordingly, the appellants in Appeal No. 248 of 2014 impleaded SMC as Respondent No. 2 and NSE as No. 3 in addition to SEBI which is Respondent no.1.
5. Shri Sharan Jagtiani, learned counsel for the appellants argued the matter in detail relating to Appeal no.248 of 2014. However, during the course of the hearing the appellants filed an application for deleting the name of Respondent no.2 following an arbitration agreement between the appellants and Respondent no.2. As such many of the contentions made in the appeal became infrucutous and the learned counsel made submissions mainly on the need for mitigating the extremely harsh punishment given to the appellants. It was argued that the charge against the appellants were that of negligence in dealing with the clients, not that of fraud. And for such negligence retraining the appellant for a period of 17 years (7 years as a primary punishment and 10 years in case of not honouring the repayment of the amounts ordered in the impugned order) is too harsh. There is no serious finding in the impugned order to support such a harsh punishment to provide an extra 10 years of debarment from the securities market. The appellants have already undergone 7 years of debarment from the date of the ad-interim ex-parte order dated January 30, 2009.
6. It was further argued that while the quantum of money due to the investors or as quantified for replacement in the IPF is not disputed the appellants are not in a position to pay the balance. Sincere efforts were 6 made by the appellants and hence it should come to their help in the form of mitigating factor. Consequences of not paying the investors have not been set out in the show cause notice. Without disclosing such consequences in the show cause notice, such harsh punishment of additional 10 years debarment ought not to have been imposed. Such a serious punishment in the form of a punitive order against the Directors for the mistakes of Sunchan is not justifiable under Section 27 of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short). For all the above reasons, the learned counsel for the appellants prayed that the additional period of 10 years of restraint imposed on the appellants be quashed treating the basic restraint of 7 years already undergone by the Appellants as sufficient punishment in the instant matter.
7. Mr. Kumar Desai, learned counsel for SEBI argued that under Section 27 of the SEBI Act Directors of the company can also be proceeded against for the offences committed by the company. Section 27(1) states as follows: "Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly". It was further argued by the counsel for SEBI that Sunchan has not appealed against the impugned order as it is wound up. Moreover, Sunchan did not appeal even against the order dated 08.12.2010 whereby its certificate of registration was cancelled; instead it preferred to wind itself up. Therefore, the appellants cannot take the stand that the Directors are not responsible when they did not prefer an appeal against the order and decided to wind up the Company in offence. Further it was 7 argued that neither the fourth Director Mr. Surendra Gama Yadav nor the Compliance Officer Mr. Riaz Ismail Shaikh have appealed against the impugned order.
8. We do not find any merit in the arguments put forth by the learned counsel for the appellant. It is not in dispute that payments were due to the investors and they were not fully paid. The quantification of payment made from the investor fund to the investors is not in dispute. Cancellation of the certificate of registration of Sunchan as a broker by SEBI's order dated 8.12.2010 was not appealed against and Sunchan has been wound up. We also do not agree with the contention that under Section 27 of the SEBI Act the Directors of the company responsible for the actions of the company cannot be proceeded against. It is also on record that out of more than Rs. 9.52 crore payment due to various investors Rs. 4.45 crore have been made from the IPF of BSE and NSE and only a small amount of Rs. 1.39 crore has been paid from the assets of Sunchan. Moreover, there is an unpaid amount of more than 5 crore to be paid to the investors. So the argument that the appellants have made sincere efforts in paying of the dues to the investors cannot be sustained. Being a major brokerage it was the responsibility of Sunchan and its Directors to ensure that the funds and assets of its clients were properly managed under the relevant regulations following due care and diligence. Rather than discharging these basic duties the company decided to wind up and left a large number of clients in the lurch. Therefore, asking the appellants and other Directors of the company to make good what is due from them to the investors cannot be faulted. Their unwillingness/incapability for paying is not a ground for mitigation. It is also noted that the argument of the learned counsel for the appellant was not for reducing the additional restraint of 10 years but for completely quashing 8 the same. Since the Company and its Directors have not paid the dues to the investors or replenished the IPF from where some funds has been taken to partly pay up the aggrieved investors the additional restraint of 10 years imposed on the appellants by the impugned order cannot be faulted.
9. For all the aforesaid reasons both the appeals are dismissed with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Jog Singh Member Sd/-
Dr. C.K.G.Nair Member 29.12.2016 Prepared and compared by:
RHN/msb