2. The appellant challenges the impugned order dated August 18, 2004 of the Adjudicating Officer appointed by SEBI which inter alia reads as follows: 7.1 Taking into consideration the above facts and circumstances and the factors as contained in section 15J and SAT order dated 18.5.2004 in appeal No.112/02 in the matter of Diamond Projects Pvt.
Ltd., vs SEBI, I, in exercise of powers u/s. 15I of SEBI Act hereby impose a penalty of Rs.2 lakhs on the noticee, Shri Sanjay K. Gupta.
The noticee should pay the above amount within 45 days on receipt of this order by way of demand draft to SEBI and the same should be forwarded to General Manager, Shri Amarjeet Singh, SEBI, NRO." 3. The impugned order has been issued by the Respondent pursuant to an enquiry held under Rule 3 of SEBI (Procedure for holding enquiry and imposing penalties by Adjudicating Officer) Rules, 1995 in the matter violation of section 15A of SEBI Act for failure to company with the notices/summons etc.
4.1 The appellant is a practicing Chartered Accountant and carrying on business in Delhi.
4.2 The appellant received from the Investigating Officer, SEBI a summon dated 9th April, 2003 requiring personal attendance of the appellant at SEBI's office at New Delhi on 12/4/2003 in connection with an investigation instituted by SEBI in the case of Padmini Technologies Ltd., Since the appellant was not keeping well he could not comply with the requirements of the said summon and intimated accordingly to the Investigating Officer.
4.3 Subsequently the Investigating Officer, SEBI issued another summons dated 17/10/2003 requiring the personal attendance of the appellant at SEBI's New Delhi Office on 23rd October, 2003 in connection with the investigation instituted by SEBI in the case of buying, selling and dealing in shares of Padmini Technologies Ltd., This summons was issued under section 4(3) of the SEBI Act. Since the appellant was traveling, a letter dated 23rd October, 2003 was sent on his behalf to SEBI requesting adjournment till the return of the appellant from tour. In response to the said letter dated 23/110/2003 the Investigating Officer SEBI sent a letter dated 30th October, 2003 informing that the appellant was given a final opportunity to appear before Investigating Officer on 5th November, 2003 at 11 a.m. It was mentioned therein that non appearance will draw penal action under section 11( c), 15A and 24 of the SEBI Act.
4.4 The appellant stated that even though through letter dated 23/10/2003 it was clearly mentioned that the appellant would return by mid of November 2003 the Investigating Officer chose to fix 5th November, 2003. Since the appellant was still on tour when the letter dated 30/10/2003 was received at the appellant's address, the appellant could not appear before the Investigating Officer on 5th November, 2003.
4.5 Subsequently the appellant received a show cause notice dated 3rd February, 2004 issued by the Respondent wherein it was mentioned that the respondent has appointed an Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 vide order dated 12/12/2003 to adjudge violation of section 15A of SEBI Act for failure to furnish information and/or comply with the notices/summons.
4.6 The appellant by his letter dated 24/2/2004 sent a reply to the show cause notice. The appellant mentioned in the reply the reasons for his inability to attend on 5th November, 2003.
5. An opportunity was given for personal hearing on 12th March, 2004 at 3.30 p.m. in respect of the matter covered in the show cause notice.
Since the communication fixing the personal hearing was received late and since the appellant was pre-occupied with his professional assignments he requested the Respondent by his letter dated 11th March, 2004 to postpone the hearing to a future date.
6. The appellant finally attended the personal hearing on 31/3/2004. At the time of personal hearing, the appellant handed over his letter dated 31/3/2004 addressed to the respondent in which he reiterated that he had not been furnished the copies of documents and requested the respondent to provide the copies.
(i) The summons have been issued without statutory authority and as such non compliance, if any, of the same cannot warrant penal consequences.
(ii) Even if its assumed that section 15A has been violated, the quantum of penalty imposed by the Adjudicating Officer is disproportionate to the gravity of the offence and not justified.
(1) The summons issued under section 11(3) is without authority in as much as the power to issue summons thereunder is available to the authority only while exercising the powers under clause (i) or clause (ia) of section 11(2). Section 11(2)(i) is on calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchange and mutual funds, other persons associated with the securities market intermediaries and self regulatory organizations on the securities market. This power is not available to be exercised in an investigation. The summons issued by the "Investigating Officer" clearly states that it is "in connection with the investigation instituted by SEBI." Section 11(2)(ia) is on calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transactions in securities, which is under investigation or inquiry by the Board. Power under 11(2)(ia) is also not available to issue summons to the Appellant as the Appellant is not one of the entities specified therein. It is further submitted that since the scope and reach of section 11(3) was not adequate to meet the requirements in an investigation, new section 11C captioned "Investigation" was included in the Act, through the amendment brought into force with effect from 29.10.2002. Summons referred to in the impugned order is under section 11(3). For failure to comply with the requirements of section 11C penalty has been provided in the said section itself and the offence cannot be adjudicated by the Adjudicating Officer under section 15 I. (2) The summons dated April 9, 2003 and October 17, 2003 under Sec 11(3) of SEBI Act 1992 and letter dated October 30, 2003 are vague in nature as the same simply requires that the "attendance is required in connection with the investigations instituted by SEBI in the case of M/s Padmini Technologies Ltd." and "attendance is required in connection with the investigations instituted by SEBI in the case of buying, selling or dealing in the shares of Padmini Technologies Ltd." According to the appellant the summons are vague and impossible of being effectively complied with as it does not specify any thing in particular to be complied with. The summons directs the Appellant to be present before the Investigating Officer mentioned therein at the appointed time and date. It further states "you may bring such other documents upon which you intend to rely in support of your defence or which may be material for purpose of the said investigation. You are summoned to remain present with the documents......." No charge was leveled against the Appellant to defend at that point of time. No documents have been listed to be produced. The Appellant does not know what material is required for the purpose of investigation. Therefore effective compliance of the summons in any case was not possible and the failure cannot be of any consequence to the investigation.
(3) It was not the intention of the Appellant to defy the summons.
The Appellant only sought a change of date for responding to the summons, which the Investigating Officer without justification denied. Despite the fact that the Appellant had sent fax dated October 23, 2003 inter alia stating that Appellant would be back from traveling only in mid of November 2003 and that the Investigating Officer had confirmed the receiving of the said fax dated October 23, 2003, vide his letter dated October 30, 2003 , the Investigating officer still fixed the date for personal attendance of the Appellant on November 5, 2003. Investigating Officer despite knowing fully well that the Appellant would be back only in mid of November 2003, directed him to appear on date on which he was not available. The act of the Investigating Officer lacked fairness and is in gross violation of principles of natural justice. The Investigating Officer did not give another opportunity to the Appellant to present himself before the Investigating Officer and straight away adjudication for the purpose of imposition of monetary penalty was ordered.
4) SEBI instead of accommodating the request of the Appellant decided to penalize the Appellant and in a mighty hurry ordered adjudication and appointed an Adjudicating Officer on 12.12.2003, who issued Show Cause Notice dated February 3, 2004.
5) It is submitted that the Appellant has always complied with the directions of SEBI and has always cooperated with SEBI. It is submitted that the same is evident from the fact that the Appellant had appeared before the Investigating Officer on 4.2.02 and had given statement, with regard to investigation in the case of M/s.
Padmini Technologies Ltd. The same was also intimated to the Adjudicating Officer by the Appellant in his reply dated 24.2.02 It is submitted that the Appellant could not comply with the summons earlier issued due to unavoidable reasons de hors of any intention of not complying with the summons or not cooperating with the Investigating Officer. There was no intentional failure on the Appellant's side to hold him guilty and impose any penalty.
6) It is submitted by the appellant that in the similar case, with regard to investigation instituted by SEBI in the case of M/s Padmini Technologies Ltd Hon'ble Tribunal has reduced the penalty in and for non compliance of summons issued by the Investigating Officer to Rs.20,000 and Rs.30,000 respectively. It is submitted that in the instant case the penalty of Rs.2,00,000/= imposed by the Adjudicating Officer is totally unjustified, harsh and disproportionate to the gravity of the charge.
7 ) The appellant further submitted that the findings of Adjudicating Officer at para 5.5 of the impugned order wherein it has been stated "I find that an Investigating authority is a statutory authority appointed under section 11(C) of SEBI Act ......." are contrary to the facts of the case as the summons in the instant case are issued under sec 11(3) and not under sec 11(C). The same reveals complete non-application of mind on the part of Adjudicating Officer. If the Adjudicating Officer's version is accepted that the investigation was under section 11(C), then consequences for failure to comply with the requirements of section 11(C) are provided in section 11C(6) and an adjudication under section 15A is not available. The order is therefore liable to be set aside for want of authority.
8) The findings of Adjudicating Officer at Para 5.6 of the impugned order are also totally extraneous to the facts of the instant case.
For instance: (a) "The failure to appear before the investigating authority hampers timely completion of investigation by way of erasing of footprints of evidence, or connecting the loose ends. Further the delay in investigation or failure to receive timely information also leads to consequent delay in taking remedial or preventive or penal action. This sends wrong message in the securities market and also sends wrong signals in respect of administration of justice. Further challenging the authority of investigation officer also causes erosion of faith in rule of law and such disobedience may also lead to anarchy" - It is submitted that the Appellant has appeared before Investigating Officer on 24.2.02 and has given statement. As far as alleged summons dated 9.4.03 & 17.10.03 are concerned the Appellant could not comply with the requirement due to unavoidable reasons.
Further, in the instant case there is no question of "erasing the footprints of evidence", since the matter pertains to 1999, Show Cause Notice has been issued only in December, 2003 and as on date the matter is still pending.
(b) "I find that in this case investigation has also been initiated against the company and its director for violation of preferential allotment guidelines or takeover regulation etc." -It is submitted by the appellant that same is totally extraneous, there is nothing mentioned to the said effect in the Show Cause Notice dated February 3, 2003 issued by the Adjudicating Officer. The observation of the Adjudicating Officer is indication of his bias against the Appellant, which seems to have guided him to impose such a harsh penalty, disproportionate to the gravity of the alleged offence.
(c) "Failure to obtain timely information by investigating officer may hamper the right of the investors and delays the payment of consideration, if pursuant to such investigation any remedial order is passed such as mandating acquirers to make the pubic offer etc.
Therefore failure to appear before the investigating officer and hampering timely completion of investigation is also detrimental to the interest of investors and the security market. The shareholder/investors also may suffer loss, if due to want of information/evidence the remedial order such as public offer etc., could not be directed or there is delay in making the public offer etc."- These observations more or less are in the nature of sermons and not material to the issue under consideration by him. Further, it is submitted, there is no question of remedial order to be passed in the instant case, since for the matter involved relates to year 1999 and no order has been passed till date by SEBI i.e. after a gap of 5 years. The same fact highlights that there was no urgency to deny postponement of the date by few days for compliance of summons.
9) In the impugned order, Adjudicating Officer has not dealt with the factors required to be considered by him in terms of section 15J, which are mandatorily to be taken into consideration by the Adjudicating Officer before imposing any penalty. The Adjudicating Officer has casually stated that he has taken "into consideration the above facts and circumstances and the factors as contained in Sec 15J and SAT order dated 18.5.04 in appeal No.112/02 in the matter of Diamond Projects Pvt. Ltd. vs SEBI.....". He has not stated the reason for imposing such a harsh penalty. Further reference to order passed by Hon'ble Tribunal in the matter of Diamond Projects Pvt. Ltd. vs SEBI for imposition of penalty on the Appellant is also misplaced and erroneous. Since the facts of the said case are entirely different and not comparable with present case. It is submitted that the Appellant has not made any gains or derived any unfair advantage as a result of alleged non compliance of summons or any loss has been caused to any investor or group of investors as a result of alleged non compliance of summons.
10) In the facts and circumstances of the instant case, it is submitted that there is no justification for imposition of any penalty and in any case such huge penalty of two lakh rupees. The appellant submitted that if the Hon'ble Tribunal for any reason considers that there was a technical violation by not presenting himself before the Investigating Officer on the appointed day and that monetary penalty is leviable, the quantum may be reduced to a reasonable level as was done in the Appeal No.36/2004 and Appeal No.37/2004. Further it is submitted that the Appellant has pursuant to Hon'ble Tribunal's interim order dated November 24, 2004 already deposited a sum of Rs. 50,000/- with SEBI. SEBI may be directed to refund the said amount to the Appellant.
11) According to the Respondent the appellant has not denied the service of summons and the notice issued to him. Summons dated 9.4.2003 was issued to the appellant to remain present with documents before the Investigating Officer on 12.4.2003 in respect of M/s. Padmini Technologies Limited. The appellant contended that due to ill health he could not appear on 12.4.2003. The Investigating Officer on 17.10.2003 issued another summons for his appearance on 23.10.2003 and that day also he did not appear on the contention that he was out of station and his staff informed about his availability in the middle of Nov. 2003. Thereupon the Investigating Officer issued another notice dated 30.10.2003 for his appearance on 5.11.2003. This time also the appellant took the plea that he was out of station. During the course of hearing the appellant was asked to produce documentary evidence to prove that he was out of station on the above dates which he failed to produce.
12) In view of the above it is evident that the appellant has not complied with the summons/notices for personal appearance and thereby violated the provisi0ns of section 15A of the SEBI Act.
"15A. If any person, who is required under this Act, or any rules or regulations made thereunder (a) to furnish any documents, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh and fifty thousand rupees for each such failure b) to file any return or furnish any information, books or other documents, within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues." c) to maintain books of accounts or records, fails to maintain the same, he shall be liable to a penalty not exceeding ten thousand rupees for every day during which the failure continues.
9. It is the contention of the Respondent that failure to appear before the investigating authority hampers timely completion of investigation by way of erasing of footprints of evidence, or connecting the loose ends. Further the delay in investigation or failure to receive timely information also leads to consequent delay in taking remedial or preventive or penal action. This sends wrong message in the securities market and also sends wrong signals in respect of administration of justice. Further challenging the authority of investigation officer also causes erosion of faith in rule of law and such disobedience may also lead to anarchy. The Respondent has further observed that investigation appears to have been initiated against the company and its director for violation of preferential allotment guidelines or takeover regulations. Failure to obtain timely information by the investigating officer may hamper the right of investors and delay the payment of consideration, if pursuant to such investigation any remedial order is passed such as mandating the acquirers to make public offer etc.
10. Heard both parties. Non co-operation of the appellant has delayed the investigation proceedings as alleged by the Respondent. Taking all the facts and circumstances into account we agree with the Respondent that he was right in imposing penalty in such a situation.
11. We have perused section 15 J of the SEBI Act 1992 which reads as under: "15 J. While judging quantum of penalty under Section 15J, the adjudicating officer shall have due regard to the following factors namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default, (b) the amount of loss caused to an investor or group of investors as a result of the default.
12. This Tribunal in Cabbot International Corpn. Vs. SEBI held that where the violation is of technical nature and due to a bonafide error, the Tribunal should not consider imposing heavy penalty and should help in pointing out the defect to the appellant so that it does not recur again and the Tribunal declined to impose any penalty in that case as there was substantial compliance. This order of this Tribunal was confirmed by the Bombay High Court.
13. Taking into consideration the totality of the facts and circumstances of the case we uphold the impugned order of the respondent as the appellant appears to have not co-operated with the Respondent. However, it has been brought to our notice that the appellant has now co-operated with the Respondent by attending the personal hearing and was willing to produce any documents that were in his possession. In view of this we feel it appropriate that a steep penalty was not called for since the appellant has now co-operated in the investigation.
14. However, taking into account all the factors under section 15J of the Act, and also the case of Cabbot International Ltd., Vs. SEBI, we reduce the quantum of penalty to Rs.25,000/-from Rs.2 lacs. The excess amount if any remitted by the appellant may be refunded by the Respondent as expeditiously as possible.