Securities Appellate Tribunal
Jitendra J. Shah vs Securities And Exchange Board Of India on 26 April, 2005
Equivalent citations: (2005)6COMPLJ52(SAT), [2005]64SCL524(SAT)
JUDGMENT
Kumar Rajaratnam, J. (Presiding Officer)
1. The appeal is taken up for final disposal with the consent of both parties.
2. The appellant challenges the order dated 29/06/2004 passed by the Adjudicating Officer, SEBI, the operative portion of which reads as under:
"7.3 I hereby, impose a penalty of Rs. 5,00,000/- (Rupees Five Lakhs) only on Shri Jitendra J. Shah for violation of Section 11C(2) of the said Act, under Clause (a) of Section 15A of the said Act. Shri Jitendra Shah shall pay this amount of penalty by way of demand draft in favour of SEBI - Penalty Remittable to Government of India payable at Mumbai within 45 days of receipt of this order. The said Demand draft shall be forwarded to Shri R. Ravichandran, Investigations Department, SEBI, Mittal Court A - Wing, Ground Floor, Nariman Point, Mumbai - 400 021."
3. The appellant prayed for an interim order staying the operation of the order which was to come into force within 45 days of the receipt of this order dated 29/06/2004. The appellant's prayer for interim order was heard by the Tribunal and after hearing both the parties this Tribunal vide its order dated 09/09/2004 directed the respondent not to take coercive steps against the appellant pending appeal on the condition that the appellant deposits a sum of Rs. 25,000/- with the respondent within 2 weeks. Subsequently the order of the Tribunal was extended till the disposal of the case finally.
4. The appellant Mr. Jitendra J. Shah, an employee of M/s. Trans Financial Resources Limited is serving as an Administrative Officer looking up organizational matters such as banking, legal, administrative, etc. since last 15 years. According to the appellant he had been paid a salary of Rs. 10,000/- till 2001 which was raised to Rs. 15,000/- from January, 2002. The appellant had advanced a sum of Rs. 1 lakh out of his personal savings on 15/10/1993 to Mr. Lorence Anjoe, a friend of the appellant for his urgent needs in good faith which would be returned when he would be in a position to do so. However, Mr. Anjoe could not repay the said loan amount to the appellant till 1998. The appellant asked Mr. Anjoe to give some shares of equivalent amount which he possessed, if Mr. Anjoe was not in a position to pay back the amount. This arrangement was agreed to by the appellant and Mr. Anjoe.
5. The appellant was provided by his friend Mr. Anjoe 43000 equity shares of M/s. Moh Ltd., which was a company listed in the Stock Exchange of Bombay. According to the appellant the agreement to give effect to the same arrangement was executed between the appellant and Mr. Anjoe in lieu of repayment of the principal amount on 15/10/1998. The appellant stated that at that time he came to know from reliable sources that M/s. Moh Limited was a good company engaged in IT activities and its share prices was picking up at new heights. The appellant further stated that he surrendered the shares to the depository participants, i.e., IDBI Bank for dematerialization. The said shares were dematerialized on 03/08/2000.
6. The appellant further stated that he was told by some unscrupulous persons that he should give these shares to those persons to get better price.
7. The appellant submitted that he fell victim to the so called attractive proposal of those persons. He therefore gave a small portion of shares to different parties with the condition that they would fetch better returns than the market price within a month's time. However, the appellant had submitted that he could not get a single rupee till date from those persons although according to the appellant they have sold out 2,56,010/- shares.
8. The appellant was thinking of liquidating his remaining holdings of 1,73,990 shares of Rs. 1/- each. However, he could not do so as the trading in the scrip was suspended by the Mumbai Stock Exchange, the reason of which was unknown to him.
9. The appellant submitted that he could not take any action against those persons who had sold the shares in the market as he did not have any contract note issued to him. In the meanwhile the appellant came to know that an enquiry had been initiated by SEBI in the speculation in the scrip of M/s. Moh Limited.
10. Subsequently the appellant received a notice in April 2002 seeking his personal appearance on 15/04/2002 at the Stock Exchange Ahmedabad by the then CGM of SEBI Mr. R.K.Kakkar seeking some clarification on transactions in the scrip of M/s. Moh Limited, Bombay.
11. The appellant appeared for the hearing on 15/04/2002 and represented his case. He also provided the required documents to the respondent during the course of investigation in December, 2002. The appellant also appeared for personal hearing at Mumbai on 07/01/2002.
12. Subsequently the appellant received a show cause notice from the respondent vide its letter dated 13/08/2003 issued to him along with certain other entities alleged to be involved in the speculative transaction of the scrips of M/s. Moh Limited. According to the appellant he replied to the respondent satisfactorily. Thereafter the appellant got another show cause notice on 29/10/2003 under Section 11C(2) of the Securities & Exchange Board of India Act, 1992 which was also replied by the appellant.
13. The appellant further stated that he received a summons from the Metropolitan Magistrate, Esplanate intimating that SEBI has initiated a criminal action against the appellant and sought his appearance on 19/01/2004. The appellant stated that the respondent had sought from time to time certain details from him which was submitted by him on time except one document which the appellant could not submit immediately. However, he submitted that desired document was also submitted by him by his letter dated 2/2/2004. However, SEBI vide its letter dated 29/06/2004 had forwarded an order imposing upon the appellant a penalty of Rs. 5 lakhs for violation of Section 11C(2) of the SEBI Act, 1992.
14. The respondent had appointed the Adjudicating Officer in terms of an order dated July 24, 2003 to enquire into and adjudge under Section 15A of the SEBI Act, 1992 (hereinafter referred to 'the said Act) the alleged contravention of Section 11C(2) of the said Act by the appellant of alleged price manipulation in the scrip of Moh Limited. The appellant was issued a notice dated October 29, 2003 calling upon the appellant to show cause within 21 days as to why an enquiry should not be conducted and levy a penalty in accordance with the said Act. The appellant was given an opportunity to appear for a personal hearing in terms of provisions of sub-rule (3) of Rule 4 of the Rules on January 23, 2004 vide letter dated December 30, 2003 which was subsequently posted to January 30, 2004.
15. On January 30, 2004 the appellant appeared for personal hearing before the Adjudicating Officer and submitted that certain information which was not submitted by him earlier to the investigating authority would be submitted soon and requested for additional time. Subsequently the appellant vide letter dated February 2, 2004 had submitted the documents.
16. According to the Adjudicating Officer's findings the appellant had not submitted the documents to the Investigating authority within the stipulated time and therefore the investigating team was handicapped in the progress of the investigation in the alleged price manipulation of Moh Limited.
17. The adjudicating officer in his order dated June 29,2004 has stated that as per clause (i) of sub-section (2) of Section 11 of the said Act the appellant is under obligation to submit the required information as called for by the investigating authority which had not been submitted. In view of this the adjudicating officer had found that the appellant has violated the provisions of Section 11C(2) of the said Act and therefore liable for penalty under Section 15A of the said Act.
18. It appears, as submitted by the appellant, that he was a victim of circumstances and the appellant was exploited by his employer. It is vehemently argued by the counsel for the appellant that the appellant was not aware that the employer was exploiting him and the appellant has not received any consideration for the shares held by him even though the shares held by him could not have been traded since the scrip was suspended by the BSE and that the appellant had not gained anything by the transactions in the scrip of Moh Limited. The appellant was a salaried employee and has been undoubtedly exploited by the employer. No material has been placed before the Court as to what action has been taken against the employer.
19. I have carefully considered the plea and submissions made by the counsel for both parties.
20. There is no denying the fact that there has been delay in submission of required document to the respondent by the appellant. It is in order for SEBI to impose penalty wherever any violations are noticed. Taking all the relevant documents and facts into account and admission of the appellant that there has been delay in submission of one document which he had submitted finally, I uphold the impugned order.
21. Section 15J was introduced by parliament to take into account the factors which are enumerated in Section 15J with respect to the quantum of penalty. The three factors were: (i) what was the disproportionate gain; (ii) the amount of loss caused to the investor; and (iii) repetitive nature of the default. However, looking into Section 15J of the said Act I am inclined to reduce the penalty from Rs. 5 lakhs to Rs. 1 lakh which should be paid within a period of 6 weeks from the receipt of this order.
22. The impugned order is therefore modified to the above extent and the appeal is disposed of accordingly.
23. No order as to costs.