Securities Appellate Tribunal
Sanjay Jethalal Soni & Ors. vs Sebi on 14 November, 2019
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 05.11.2019
Date of Decision : 14.11.2019
Appeal No. 102 of 2019
1.Sanjay Jethalal Soni
2. Krupa Sanjay Soni
3. J M Soni Consultancy through its proprietor Sanjay Jethalal Soni 36, Malay Bungalows, Science City Road, Sola, Ahmedabad - 380 001. ..... 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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.
Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.
WITH Appeal No. 122 of 2019 Amul Gagabhai Desai 135, Ranuja Nagar, Opp. Anand School, Ahmedabad - 380 015. ..... Appellant 2 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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.
Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.
WITH Appeal No. 193 of 2019
1. Dhiren Dharamdas Agrawal 13, Shardanagar Housing Society, Lane no. 1, Paldi, Ahmedabad - 380 007.
2. Krunal Gopaldas Rana Z-1072, Khedavalano, Khando, Khambat - Cambay Anand 388620. ..... 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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.
Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.
3
WITH Appeal No. 268 of 2019 Mahesh Somabhai Desai B17, Chaapra, Nr. Chhaya Flat, Somabhai Rabari Vasahat, Ghatlodia, Ahmedabad - 380 061. ..... 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 Mr. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.
Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.
WITH Appeal No. 269 of 2019
1. Jimish Jitendrabhai Soni
2. Vaishali Jimish Soni A-301, Dharti Crystal, IOC Tragad Road, Chandkheda, Ahmedabad - 382424. ..... 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 4 Mr. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.
Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice Tarun Agarwala, Presiding Officer
1. Separate appeals have been filed against a common order and the same are being decided together. For facility, the facts stated in Appeal No. 102 of 2019 is being taken into consideration.
2. The appellants have filed the present appeal against the order dated October 25, 2018 passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India ('SEBI' for short) under 15-I(2) of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) imposing a penalty for violation of Section 12(A)(a),(b) and
(c) of the SEBI Act and Regulations 3(a),(b),(c),(d),4(1), 4(2)(a) and (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 5 2003 ('PFUTP Regulations' for short). The AO found that the appellants had indulged extensively as a group executing match trades and self trades in a manipulative manner which had an element of fraud and unfair practice and therefore imposed a penalty under Section 15HA of the SEBI Act.
3. The facts leading to the filing of the appeals are that SEBI conducted investigation in the group of Shree Global Tradefin Ltd. for the period March 1, 2009 to November 30, 2009 and again investigated for the same scrip for the period April 1, 2010 to January 10, 2011. For the first investigation period a show cause notice dated April 20, 2012 was issued. The AO passed an order dated September 14, 2012 imposing a penalty of Rs. 30 lakh. The said appellants filed an appeal before this Tribunal and the penalty was reduced from Rs. 30 lakh to Rs. 10 lakh each. The Tribunal while reducing the penalty in its order dated January 24, 2014 observed that SEBI has not taken any action against the group which had indulged in the manipulative practice and fraud and that no action was taken against those persons who acted as a group along with the said appellants.
4. After the decision of the Tribunal, a show cause notice dated July 20, 2017 was issued for the investigated period 6 April 1, 2010 to January 10, 2011 for the same violation and for trading in the same scrip by the appellants. The AO after giving an opportunity of hearing passed the impugned order imposing penalty under Section 15HA of the SEBI Act.
5. We have heard Shri Nishant Upadhyay, the learned counsel for the appellants and Shri Karan Bhosale, the learned counsel for the respondent. The learned counsel for the appellants submitted that the impugned order cannot be sustained as the principle of res judicata would squarely apply in the instant case. It was contended that when the first show cause notice dated April 20, 2012 was issued, the investigation of the present appeal for the period April 1, 2010 to January 10, 2011 had already been conducted and all information was with the respondent and therefore the first show cause notice dated April 20, 2012 should have included all the grounds and should not have issued a second show cause notice dated July 20, 2017. It was contended that the grounds for issuing the show cause notice is the same, namely, that the appellants have committed an offence of Regulation 3 and 4 of the PFUTP Regulations for match trades and self trades for the scrips of Shree Global Tradefin Ltd. and consequently the second show cause notice dated 7 July 20, 2017 is barred by the principle of res judicata. It was urged that the principle of Order II Rule 2 of the Code of Civil Procedure would squarely apply in the instant case and consequently the respondents are estopped from initiating any proceeding pursuant to the second show cause notice. In support of his contention the learned counsel placed reliance upon a decision of the Supreme Court in State Bank of India vs Gracure Pharmaceuticals Limited (2014) 3 SCC 595.
6. In addition to the aforesaid, the learned counsel for the appellants further submitted that there is an inordinate delay in initiating the proceedings and therefore on this short ground the proceedings initiated by the respondent should be dismissed on the ground of latches. It was contended that whereas investigation was conducted for the period April 1, 2010 to January 10, 2011 the second show cause notice was issued on July 20, 2017 after seven years. It was urged that there was no justification as to why proceedings could not be initiated earlier. In support of the submission, the learned counsel for the appellants placed reliance upon a decision of this Tribunal in Ashok Shivlal Rupani vs SEBI and other companion appeals in Appeal No. 417 of 2018 decided on August 22, 2019 wherein the order of penalty was set aside 8 on account of an inordinate delay in the initiation of the proceedings.
7. It was further contended that the finding of the AO on the issue of self trades and match trades is patently erroneous and does not lead to a finding that the appellants were indulging in self trades and match trades in a manipulative manner which amounted to fraud and unfair trade practice.
8. On the other hand, the learned counsel for the respondent submitted that the principle of res judicata is not applicable nor the principle of estoppel would apply in the facts of the given case. It was contended that the first show cause notice dated April 20, 2012 was issued to such noticees who were different to the noticees issued in the second show cause notice dated July 20, 2017. It was contended that barring a few noticees which were common there were other noticees which had no role to play in the scrip of the earlier investigated period. It was thus contended that there was separate cause of action and the principle of res judicata was not applicable.
9. The learned counsel for the respondent further contended that there is no inordinate delay in the initiation of 9 the proceedings and as and when it was noticed the matter was investigated and thereafter the proceedings were initiated. It was also contended that this ground was never raised before the AO and has been raised before this Tribunal for the first time.
10. On merits, it was contented that the AO has given a categorical finding that the appellants had indulged in matched trades and self trades in a manipulative and fraudulent manner which amounted to unfair trade practices and had therefore violated Regulation 3 and 4 of the PFUTP Regulations. This finding is based on evidence which does not require any interference.
11. Having heard the learned counsel for the parties at some length we find that the respondent had investigated the scrips of Shree Global Tradefin Ltd. for the period March 1, 2009 to January 10, 2011 in September 2011. Pursuant thereto, a show cause notice dated April 20, 2012 was issued for the violation found during the investigated period March 1, 2009 to November 30, 2009. The respondents thereafter waited for another five years to issue a second show cause notice dated July 20, 2017 for the investigated period April 1, 2010 to 10 January 10, 2011 which had been investigated in September 2011. We find that the respondents were aware of the alleged violation and thus there is no justification for waiting for more than five years to issue the second show cause notice dated July 20 2017. In our view there is an inordinate delay in initiating the proceedings.
12. In Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019 it was held:-
"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held:11
"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."
The Tribunal on account of an inordinate delay in initiating the proceedings had quashed the penalty order. The same view was reiterated by this Tribunal in Ashok Shivlal Rupani & Anr. vs SEBI decided on August 22, 2019.
13. As a result, without going into the question of res judicata or estoppel raised by the appellants we are of the opinion that on account of the inordinate delay in initiating the proceedings, the impugned penalty order cannot be sustained.
14. Even on merits, we find that during the investigation period the observed variations in prices as well as of quantities traded are less than what was the trend during the pre-investigation period. Table at page 3 of the impugned order gives these details. Similarly, we also note that the percentage of matched trades are negligible except in respect of 2-3 appellants. Given these facts the alleged intention to 12 manipulate becomes a weak ground for issuing a second show cause notice after considerable delay.
15. Consequently, the show cause notice and the impugned order passed by the AO are quashed. All the appeals are allowed. No orders on costs.
Sd/-
Justice Tarun Agarwala Presiding Officer Sd/-
Dr. C.K.G. Nair Member Sd/-
Justice M.T. Joshi Judicial Member 14.11.2019 Prepared and compared by:msb