Securities Appellate Tribunal
Sebi vs Shri Mahesh Parikh, Shri Shalin A. Shah, ... on 15 May, 2007
ORDER
V.K. Chopra, Member
1. 1. Background 1.1 Securities and Exchange Board of India (hereinafter referred to as "SEBI") received several complaints from investors against M/s Lesha Steels Ltd (hereinafter referred to as "the company") and the same were forwarded to the company for redressal. As on March 31, 2002, 57 investor grievances were pending redressal with the company. SEBI, vide letter dated April 5, 2002 advised the company to meet officials of SEBI for expeditious redressal of the complaints. The company did not attend the meeting. SEBI vide show cause notice dated May 24, 2002 called upon the company to show cause as to why appropriate action/proceedings should not be taken against them under Section 11B and 27 of the Securities and Exchange Board of India Act, 1992 read with Section 621 of the Companies Act, 1956 for violation of Section 73 and 113 of the Companies Act, 1956. The company had not replied to the said show cause notice nor did it correspond with SEBI in this regards. Vide order dated October 14, 2002, SEBI directed the company and its directors to redress the grievances of the investors within a period of one month from the date of the order, failing which SEBI would be constrained to pass a restraining order on the company and its directors. An opportunity of personal hearing was granted on May 31, 2003. Based on the request of the company, another hearing was granted on July 09, 2003 which was not availed and thus culminating into an order dated October 10, 2003 directing the company and its directors namely Shri. Shalin Ashok Shah, Ms. Shivani Ashok Shah, Shri. Ashok C. Shah, Shri. Jasvant Ray P. Shah, Shri. Ramesh K. Gupta, Shri. J.S. Varshnay and Shri. Mahesh Parikh to dissociate themselves from the securities market for a period of 5 years.
1.2 Subsequent to the Order, Shri. Mahesh Parikh filed Appeal No. 361 of 2004 before the Hon'ble Securities Appellate Tribunal (hereinafter referred to as "SAT") against the said order on the ground that no show cause notice was issued to him by SEBI in his personal capacity as a director and that he was not a director of the company at the relevant time. The Hon'ble SAT vide order dated December 15, 2004 set aside the above order on the ground that the show cause notice had indeed not been issued to him, and remanded the matter back to SEBI to proceed against him by issuing a separate show cause notice. Similarly, the Hon'ble SAT vide order dated October 27, 2005 in Appeal Nos. 152A of 2005 to 152C of 2005 filed by Shri. Ashok C. Shah, Ms. Shivani Ashok Shah and Shri. Shalin Ashok Shah, set aside the SEBI order on the ground that show cause notices were not issued to them individually and remanded the matter to SEBI for fresh action in accordance with law.
2. Show Cause Notices and replies 2.1 Pursuant to the said orders of the Hon'ble SAT, show cause notice dated January 25, 2006 was issued to Shri. Mahesh Parikh and show cause notices dated April 19, 2006 were issued to Shri. Ashok C. Shah, Shri. Shalin Ashok Shah, and Ms. Shivani Ashok Shah advising them to show cause as to why appropriate action/proceedings under Section 11B and Section 27 of Securities and Exchange Board of India Act, 1992 read with Section 621 of the Companies Act, 1956 should not be initiated against them for the violations of Section 73 and 113 of the Companies Act, 1956. The directors viz Shri. Ashok C. Shah, Shri. Shalin Ashok Shah, and Ms. Shivani Ashok Shah, sought inspections of documents annexed in the show cause notice and the same was carried out by Shri. Shalin Ashok Shah on behalf of all the directors on December 19, 2006.
2.2 2.2 Shri. Mahesh Parikh in his reply dated November 22, 2006 amongst other things stated as follows:
2.2.1 2.2.1 He was appointed as an Additional Director (Professional & Non - Executive) of the company on August 31, 1993 and the said appointment was confirmed at the Company's AGM on December 21, 1993.
2.2.2 2.2.2 He resigned as a Director of the Company on March 15, 1993 and the same was also confirmed by the Company in its Annual Report for the year 1995-1996. He has quoted the following from the said Annual Report:
Shri Mahesh B Parikh, Director of the Company has resigned on 15th March 1996 due to pre-occupation.
2.2.3 2.2.3 He also stated that he ceased to be a director of the company from the year 1996 and last 11 years he had not attended a single meeting of the company.
2.2.4 2.2.4 He also disputed the issue of the show cause notice in the matter citing the order dated September 28, 2006 of the SAT in disposing of appeal No. 152 of 2006 relating to the company.
2.3 2.3 Shri. Ashok C. Shah, Shri. Shalin Ashok Shah and Ms. Shivani Ashok Shah replied to the show cause notice vide letters dated January 27, 2007 and contentions of these directors being similar are briefly mentioned as under:
2.3.1 2.3.1 At the outset, the directors disputed the very issue of the show cause notice in the matter drawing attention to the SAT order passed in appeal No. 152 of 2006 wherein the SEBI order with regards to the company was set aside by SAT vide its order dated September 28, 2006.
2.3.2 2.3.2 No investor complaints are pending and also explained that out of 57 investor complaints referred to by SEBI, around 53 pertain to transfers. Some of the complaints related to requests which were being sent by investors for name change or change in address or for the transfer as new purchaser. There was also a complaint of non receipt of dividend by Shri. Kantilal Sharma and the same can not be resolved as the company had not declared any dividend. As far as the complaints regarding non transfer of shares are concerned, the same was resolved long back and this fact was also submitted before Hon'ble SAT. When the company sought to verify the same from the courier, the courier unfortunately had closed down and hence, the requisite documents regarding the dispatch of investor certificates could not be produced before SEBI. In fact, in the books of the company, the name of the purchases had already been substituted and the transfers were effected. When the matter was pending before the Hon'ble SAT, the company had sent letters to the investors requesting them to reply back if the grievances were not resolved. The company did not get a single reply from any investors complaining that the investor grievance was not resolved.
2.3.3 2.3.3 Apart from the orders pertaining to the directors of the company, the Hon'ble SAT vide order dated September 28, 2006, has also set aside the order against the company and permitted the company to access the securities market.
2.3.4 2.3.4 Shri. Shalin Ashok Shah in his reply submitted that he was a part time director of the company and was not in any way involved in day to day affairs of the company. As per Section 5 of Companies Act, he was not an officer in default and as such no proceeding for the alleged violations of the company can be initiated against him.
2.3.5 2.3.5 Ms. Shivani Ashok Shah has also taken a similar stand that she was a part time director of the company and has resigned as a director of the company from December 31, 2005. She stated that the said resignation was the result of the fact that she being an American citizen, it is not possible for her to devote time for the functions of the company.
2.3.6 2.3.6 In the said reply, they have requested for an opportunity of personal hearing in the matter.
3. Hearing
3.1 During the personal hearing granted to the directors on April 17, 2007, Shri. Mahesh Parikh attended the hearing personally and Shri. Shalin Shah attended the hearing representing himself and the other directors. During the course of hearing, they reiterated the submissions that they made in their written submissions. Shri Mahesh Parikh submitted certified copies of Form 32 during the hearing. The other directors also submitted post hearing submissions vide letter dated April 23, 2007.
4. Consideration of issues & Findings 4.1 4.1 I have carefully examined the show cause notices and the replies of the directors, the oral submissions during the hearing and written submission thereof.
4.2 4.2 First and foremost, I would like to dispose of the contentions of the directors that the show cause notice in the matter should not have been issued to them in view of the SAT order in appeal no 152 of 2006 in relation to the company, where in the restraint order was lifted by Hon'ble SAT vide order dated September 28, 2006.
4.3 4.3 I note that the present proceedings were initiated pursuant to the specific SAT orders dated December 15, 2004 and October 27, 2005 disposing of appeal nos. 361 of 2004 and 152 A to 152C of 2005 respectively. In both the cases, Hon'ble SAT remanded back the matter to SEBI for fresh consideration after issuing show cause notices. I observe that these proceedings have been initiated prior to the disposal of Appeal No. 152 of 2006 by SAT.
4.4 4.4 Thus moving further, in the case of Shri Mahesh Parikh, I am convinced with the submissions made by him to the effect that he was not a director of the company at the time SEBI initiated action. I do not find any reason to proceed further against him in the matter.
4.5 4.5 The other issue in this matter is whether other directors viz. Shri. Ashok C. Shah, Shri. Shalin Ashok Shah and Ms. Shivani Ashok Shah, failed to redress the investor complaints.
4.6 4.6 I note that in the written submission dated April 23, 2007 filed by Shri. Ashok C. Shah, Shri. Shalin Shah and Ms. Shivani Ashok Shah submitted that all pending complaints for which SEBI had issued show cause notice to them had been solved by the company at that point of time. They stated that in order to put the matter to rest the company had issued duplicate shares by Registered Post for the complainants who were shareholders of the company and also enclosed the acknowledgement receipts which were received back by the company. They have also enclosed list of duplicate shares issued with all details and copies of proof of delivery (POD) etc. 4.7 4.7 It is observed that in a related matter the company filed an Appeal No. 152 of 2006 against the impugned order dated October 10, 2003. However, Hon'ble SAT, while disposing of the appeal considered the submission made by the counsel for the appellant to the effect that the company is now being revived and that the appellant had issued and dispatched duplicate share certificates on December 13, 2006. The Hon'ble SAT was of the view that the grievances of all the investors stand satisfied. On the basis of the said facts, the Hon'ble SAT set aside the order dated October 10, 2003.
4.8 4.8 Taking into account these changed circumstances in the matter, as also since all the investor complaints were resolved and even duplicate share certificates were issued and despatched to the investors, I do not find any reason to proceed against the directors viz: Shri Ashok C. Shah, Shri Shalin A. Shah, Ms. Shivani A. Shah of the company.
5. 5. ORDER 5.1 Taking into consideration the totality of the facts and circumstances of the case and in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Section 11B of Securities and Exchange Board of India Act, 1992, I hereby drop the instant proceedings against Shri. Mahesh Parikh, Shri. Ashok C. Shah, Shri. Shalin Ashok Shah and Ms. Shivani Ashok Shah.