Adjudicating Officer, Securities and Exchange Board of India vs Bhavesh Pabari

CIVIL APPEAL NO(S).11311 OF 2013

ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD OF INDIA APPELLANT(S)

VERSUS

BHAVESH PABARI RESPONDENT(S)

WITH C.A. NO. 1824/2014, C.A. NO. 9798/2014, C.A. NO. 9797/2014, C.A. NO. 9799/2014, C.A. NO. 14728/2015, C.A. NO. 14730/2015, C.A. NO.14729/2015, C.A. NO. 33/2017, C.A. NO. 1009/2017, C.A. NO. 2641/2017, C.A. NO. 6160/2018, C.A. NO. 9563/2018

JUDGMENT

SANJIV KHANNA, J.

1. Delay condoned.

2. Two primary questions, in a way interconnected,

Signature Not Verified have been referred by the Referral judgment and order Digitally signed by DEEPAK GUGLANI Date: 2019.02.28 16:54:27 IST Reason: dated 14th March, 2016 passed in Siddharth Chaturvedi 2

Vs. Securities and Exchange Board of India1. The

correctness of the view expressed on the said two

questions by a numerical smaller bench of this Court in

Securities and Exchange Board of India through its

Chairman vs. Roofit Industries Limited2 would

coincidentally arise. The questions referred can be

enumerated and summarized as follows:

(i) Whether the conditions stipulated in clauses (a), (b)

and (c) of Section 15­J of the Securities and Exchange

Board of India Act, 1992 (hereinafter referred to as

“SEBI Act”) are exhaustive to govern the discretion in

the Adjudicating Officer to decide on the quantum of

penalty or the said conditions are merely illustrative?

(ii) Whether the power and discretion vested by Section

15­J of the SEBI Act to decide on the quantum of

penalty, regardless of the manner in which the first

question is answered, stands eclipsed by the penalty

provisions contained in Section 15­A to Section 15­HA

of the SEBI Act?

1 (2016) 12 SCC 119 2 (2016) 12 SCC 125 3

3. The SEBI Act, as the object of its enactment would

indicate, was enacted “to provide for the establishment

of a Board to protect the interests of investors in

securities and to promote the development of, and to

regulate, the securities market and for matters

connected therewith or incidental thereto.”

4. For the purposes of the present reference, we may

proceed to consider the provisions contained in Chapter

VI­A of the SEBI Act. Sections 15­A to 15­HA are the

penalty provisions whereas Section 15­I deals with the

power of adjudication and Section 15­J enumerates the

“factors to be taken into account by the Adjudicating

Officer” while adjudging the quantum of penalty.

5. Section 15­A, illustratively, as existing prior to its

amendment by Act No.59 of 2002, as amended by Act

No.59 of 2002 and thereafter as amended by Act No.27 of

2014 and Section 15­J are required to be specifically

noticed at this stage.

Section 15A as existing prior to Amendment Act No.59 of 2002 4

“15A. Penalty for failure to furnish information, return, etc. ­ If any person, who is required under this Act or any rules or regulations made thereunder, ­

(a) to furnish any document, 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 account 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.”

Section 15A as amended by Act No.59 of 2002

“15A. Penalty for failure to furnish information, return, etc. ­ If any person, who is required under this Act or any rules or regulations made thereunder, ­

(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less;

5

(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 of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less;

(c) to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.”

Section 15A as amended by Amendment Act No.27 of 2014

“15­A. Penalty for failure to furnish information, return, etc. ­ If any person, who is required under this Act or any rules or regulations made thereunder,­

(a) to furnish any document, return or report to the Board fails to furnish the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees;

(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 which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during 6

which such failure continues subject to a maximum of one crore rupees;

(c) to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

Section 15 J

“15­J. Factors to be taken into account by the adjudicating officer.­ While adjudging the quantum of penalty under section 15­I, 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;

(c) the repetitive nature of the default.

Explanation ­ for the removal of doubts, it is clarified that the power of an adjudicating officer to adjudge the quantum of penalty under sections 15­A to 15­E, clauses (b) and (c) of section 15­F, 15­G, 15­H and 15­HA shall be and shall always be deemed to have been exercised under the provisions of this section.” [Explanation added by Act No. 7 of 2017] 7

6. Insofar as the second question is concerned, if the

penalty provisions are to be understood as not admitting of

any exception or discretion and the penalty as prescribed in

Section 15­A to Section 15­HA of the SEBI Act is to be

mandatorily imposed in case of default/failure, Section 15­J

of the SEBI Act would stand obliterated and eclipsed.

Hence, the question referred. Sections 15­A(a) to 15­HA

have to be read along with Section 15­J in a manner to avoid

any inconsistency or repugnancy. We must avoid conflict

and head­on­clash and construe the said provisions

harmoniously. Provision of one section cannot be used to

nullify and obtrude another unless it is impossible to

reconcile the two provisions. The explanation to Section 15­

J of the SEBI Act added by Act No.7 of 2017, quoted above,

has clarified and vested in the Adjudicating Officer a

discretion under Section 15­J on the quantum of penalty to

be imposed while adjudicating defaults under Sections 15­A

to 15­HA. Explanation to Section 15­J was

introduced/added in 2017 for the removal of doubts created

as a result of pronouncement in M/s. Roofit Industries 8

Ltd. case (supra). We are in agreement with the reasoning

given in reference order dated 14th March, 2016 that M/s

Roofit Industries Ltd. had erroneously and wrongly held

that Section 15­J would not be applicable after Section 15­

A(a) was amended with effect from 29 th October, 2002 till 7th

September, 2014 when Section 15­A(a) of the SEBI Act was

again amended. It is beyond any doubt that the second

referred question stands fully answered by clarification

through the medium of enacting the Explanation to Section

15­J vide Act No.7 to 2017, which also states that the

Adjudicating Officer shall always have deemed to have

exercised and applied the provision. We, therefore, deem it

appropriate to hold that the provisions of Section 15­J were

never eclipsed and had continued to apply in terms thereof

to the defaults under Section 15­A(a) of the SEBI Act.

7. Reference Order in Siddharth Chaturvedi & Ors.

(supra) on the said aspect has observed that Section 15­A(a)

could apply even to technical defaults of small amounts and,

therefore, prescription of minimum mandatory penalty of

Rs.1 lakh per day subject to maximum of Rs.1 crore, would 9

make the Section completely disproportionate and arbitrary

so as to invade and violate fundamental rights. Insertion of

the Explanation would reflect that the legislative intent, in

spite of the use of the expression “whichever is less” in

Section 15­A(a) as it existed during the period 29 th October

2002 till 7th September 2014, was not to curtail the

discretion of the Adjudicating Officer by prescribing a

minimum mandatory penalty of not less than Rs. 1 lakh per

day till compliance was made, notwithstanding the fact that

the default was technical, no loss was caused to the

investor(s) and no disproportionate gain or unfair advantage

was made. The legislative intent is also clear as Section

15A(a) was amended by the Amendment Act No.27 of 2014

to state that the penalty could extend to Rs. 1 lakh for each

day during which the failure continues subject to a

maximum penalty of Rs. 1 crore. This amendment in 2014

was not retrospective and therefore, clarificatory and

removal of doubt Explanation to Section 15­J was added by

the Act No. 7 of 2017. Normally the expression “whichever is

less” would connote absence of discretion by prescribing the

minimum mandatory penalty, but in the context of Section 10 15A(a) as it was between 29 th October,2002 till 7th

September, 2014, read along with Explanation to Section

15­J added by Act No.7 of 2017, we would hold the

legislative intent was not to prescribe minimum mandatory

penalty of Rs.1 lakh per day during which the default and

failure had continued. We would prefer read and interpret

Section 15­A(a) as it was between 25th October, 2002 and 7th

September, 2014 in line with the Amendment Act 27 of 2014

as giving discretion to the Adjudicating Officer to impose

minimum penalty of Rs.1 lakh subject to maximum penalty

of Rs.1 crore, keeping in view the period of default as well as

aggravating and mitigating circumstances including those

specified in Section 15­J of the SEBI Act.

8. This will require us to consider the first question

referred. Having dealt with the submissions advanced by

the rival parties, (both parties have actually canvassed for a

wider and more expansive interpretation of Section 15­J), we

are inclined to take the view that the provisions of clauses

(a), (b) and (c) of Section 15­J are illustrative in nature and

have to be taken into account whenever such circumstances

exist. But this is not to say that there can be no other 11

circumstance(s) beyond those enumerated in clauses (a), (b)

and (c) of Section 15­J that the Adjudicating Officer is

precluded in law from considering while deciding on the

quantum of penalty to be imposed.

9. A narrow view would be in direct conflict with the

provisions of Section 15­I(2) of the SEBI Act which vests

jurisdiction in the Adjudicating Officer, who is empowered

on completion of the inquiry to impose “such penalty as he

thinks fit in accordance with the provisions of any of

those sections.”

10. The above apart, the circumstances enumerated in

clauses (a), (b) and (c) of Section 15­J of the SEBI Act may

have no relevance and may never arise in case of

contraventions contemplated by certain provisions of the

SEBI Act, for instance Section 15­A, 15­B or 15­C of the

SEBI Act. Failure to furnish information, return, etc.;

failure to enter into agreement with clients; and failure to

redress investors’ grievances cannot give rise to the

circumstances set out in clauses (a), (b) and (c) of Section

15­J. 12

11. Therefore, to understand the conditions stipulated in

clauses (a), (b) and (c) of Section 15­J to be exhaustive and

admitting of no exception or vesting any discretion in the

Adjudicating Officer would be virtually to admit/concede

that in adjudications involving penalties under Sections 15­

A, 15­B and 15­C, Section 15­J will have no application.

Such a result could not have been intended by the

legislature. We, therefore, hold and take the view that

conditions stipulated in clauses (a), (b) and (c) of Section 15­

J are not exhaustive and in the given facts of a case, there

can be circumstances beyond those enumerated by clauses

(a), (b) and (c) of Section 15­J which can be taken note of by

the Adjudicating Officer while determining the quantum of

penalty.

12. At this stage, we must also deal with and reject the

argument raised by some of the private appellants that the

conditions stipulated in clauses (a) to (c) of Section 15­J are

mandatory conditions which must be read into Sections 15­

A to 15­HA in the sense that unless the conditions specified

in clauses (a) to (c) are satisfied, penalty cannot be imposed 13

by the Adjudicating Officer under the substantive provisions

of Sections 15­A to 15­HA of the SEBI Act. The argument is

too far­fetched to be accepted. Section 15­J of the SEBI Act

enumerates by way of illustration(s) the factors which the

Adjudicating Officer should take into consideration for

determining the quantum of penalty imposable. The

imposition of penalty depends upon satisfaction of the

substantive provisions as contained in Sections 15­A to

Section 15­HA of the SEBI Act.

13. There is a distinction between a continuing offence

and a repeat offence. The continuing offence is a one which

is of a continuous nature as distinguished from one which is

committed once and for all. The term “continuing offence”

was explained and elucidated by giving several illustrations

in State of Bihar vs. Deokaran Nenshi & Ors.3. In case of

continuing offence, the liability continues until the rule or

its requirement is obeyed or complied with. On every

occasion when disobedience or non­compliance occurs and

reoccurs, there is an offence committed. Continuing offence

constitutes a fresh offence every time or occasion it occurs. 3 (1972) 2 SCC 890 14

In Union of India & Anr. Vs. Tarsem Singh4, continuing

offence or default in service law was explained as a single

wrongful act which causes a continuing injury. A recurring

or successive wrong, on the other hand, are those which

occur periodically with each wrong giving rise to a distinct

and separate cause of action. We have made reference to

this legal position in view of clause (c) of Section 15­J of the

SEBI Act which refers to repetitive nature of default and not

a continuing default. The word “repetitive” as used therein

would refer to a recurring or successive default. This factum

has to be taken into consideration while deciding upon the

quantum of penalty. This dictum, however, does not mean

that factum of continuing default is not a relevant factor, as

we have held that clauses (a) to (c) in Section 15­J of the

SEBI Act are merely illustrative and are not the only

grounds/factors which can be taken into consideration while

determining the quantum of penalty.

14. We now proceed to consider each of the case as, in

our considered view, such exercise would be appropriate to

finally terminate/decide the appeals under consideration. 4 (2008) 8 SCC 648 15

C.A. No. 9797 of 2014 (Bhavesh Pabari Vs. The Adjudicating Officer, SEBI) C.A. No. 9798 of 2014 (M/s. Shree Radhe Vs. The Adjudicating Officer, SEBI) C.A. No. 9799 of 2014 (Hemant Sheth Vs. The Adjudicating Officer, SEBI)

15. These appeals arise from a common order dated 10 th

September, 2013 passed by the Securities Appellate

Tribunal, Mumbai, (“Appellate Tribunal” for short), on

appeals preferred by Mr. Bhavesh Pabari, M/s Shree Radhe,

and Mr. Hemant Sheth impugning three separate orders all

dated 30th December, 2011 passed by the Adjudicating

Officer under Section 15­I of the SEBI Act.

16. Impugned order passed by the Appellate Tribunal

confirms penalty of Rs.20,00,000 (Rupees twenty lakhs only)

each as imposed on the appellants by the Adjudicating

Officer under Section 15­HA of the Act for violation of

Regulation Nos.4(2)(a), (b) and (g) of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities

Market) Regulations, 2003 (“PFUTP Regulations” for short). 16

17. Factual findings, as observed by the Adjudicating

Officer and accepted by the Appellate Tribunal as un­

controvertible, are mentioned below:

(i) Bhavesh Pabari in his name and as sole proprietor of

M/s. Shree Radhe, Hemant Sheth and one Neeraj

Sanghvi had indulged in synchronized/structured and

reversed trade in the scrips of M/s. Gulshan Polyols

Ltd. (erstwhile Gulshan Sugar and Chemicals Ltd.)

(“GPL” for short) from 10th April, 2006 to 8th

September, 2006.

(ii) Connection/complicity between Bhavesh Pabari/M/s.

Shree Radhe, Hemant Sheth and one Neeraj Sanghvi

was established and was not disputed. Hemant Sheth

and Bhavesh Pabari/M/s. Shree Radhe had a

common introducer in the “Know Your Customer”

documentation.

(iii) Scrips of GPL opened at Rs.44.75 on 12 th January,

2006, touched a peak high of Rs.103.40 on 30 th

August, 2006 and closed at Rs. 31.70 on 29 th 17

December, 2006. The share price of the scrips during

the period 1st December, 2005 to 11 January, 2006

was in the range of Rs.31.50 to Rs. 49.90 with an

average daily volume of 8,255 shares.

(iv) The three appellants along with Neeraj Sanghvi,

during the period 10th April, 2006 to 8th September,

2006 had traded with each other in 18,48,081 shares

of the GPL which had accounted for around 16.29% of

the total traded volume in this period.

(v) About 45% of the total shares, i.e., 8,34,453 shares

were executed via structured orders, i.e., buy and sell

orders which were placed within a gap of one minute.

Out of this, trade in 5,97,835 shares (32% of the total

shares traded) were through synchronized orders as

the rate and quantity of the buy and sell order were

identical.

(vi) On 64 trading dates between 10th April, 2006 to 8th

September, 2006, a reverse trading pattern was espied

in 15,18,204 shares, which had accounted for 13.38% 18

of the total market value and was more than 20% of

the market volume in the aforesaid period.

(vii) On 24 days between the period from 10 April, 2006 to

8th September, 2006, the quantity traded in the GPL

scrips between the connected persons was more than

50% of the market volume.

(viii) On 1st August, 2006, the connected transactions were

83.79% of the market volume.

(ix) Bhavesh Pabari had indulged in self trade in 60,203

GPL shares (5.1% of the total traded quantity from

18th April, 2006 to 25th August, 2006).

(x) Bhavesh Pabari had executed reversal trades with

M/s. Shree Radhe and Hemant Sheth for 7,73,810

shares during the period 18th April, 2006 to 25th

August, 2006 which was 66% of the total traded

quantity.

(xi) Bhavesh Pabari had entered into 96 buy trades in

1,22,324 shares which were found to be synchronized

by price and time and 69 buy trades in 1,43,170 19

shares synchronized by price, time and quantity with

his sole proprietorship M/s. Shree Radhe in the period

18th April, 2006 to 25th August, 2006.

(xii) Bhavesh Pabari had entered into 282 sell trades in

2,16,578 shares which were synchronized by price

and time, and 32 sell trades for 43,626 shares which

was found to be synchronized by price, time and

quantity with M/s Shree Radhe during the period 18 th

April, 2006 to 25th August, 2006.

(xiii) Bhavesh Pabari had entered into 28 buy trades for

55,915 shares synchronized by price and time and 21

buy trades for 39,350 shares synchronized by price,

time and quantity with Hemant Sheth in the period

18th April, 2006 to 25th August, 2006.

(xiv) Bhavesh Pabari had entered into 22 sell trades for

41,500 shares which were found to be synchronized

by price and time and 16 sell trades for 40,422 shares

which were synchronized by price, time and quantity 20

with Hemant Sheth in the period 18 th April, 2006 to

25th August, 2006.

(xv) Similarly, there were 13 buy and sell trades with

Neeraj Sanghvi.

18. The sole contention of the learned counsels appearing

on behalf of Bhavesh Pabari and M/s Shree Radhe is that

penalties of Rs.20,00,000 (Rupees twenty lakhs only) each

should not have been separately imposed on Bhavesh Pabari

and M/s Shree Radhe, of which he was the sole proprietor.

19. This contention superficially seems attractive, but on

an in­depth reflection should be rejected as Bhavesh Pabari

had indulged in trading in its personal name and as also the

sole proprietor of M/s. Shree Radhe. This is clear from inter

se transactions and transactions with connected persons.

Thus, Bhavesh Pabari had transacted in two different

capacities, i.e., in his personal name and as sole proprietor

of M/s. Shree Radhe. It is in this background that total

penalty of Rs.40 lakhs (Rupees forty lakhs only) under

Section 15­HA of the SEBI Act had been imposed for

violation of Regulations 4(2)(a), (b) and (g) of the PFUTP 21

Regulations as the transactions were in two different names,

though belonging to the same individual.

20. Accordingly, C.A. No.9798/2014 preferred by M/s

Shree Radhe and C.A. No.9797/2014 preferred by Bhavesh

Pabari hold no merit and are dismissed affirming the order

passed by the Appellate Tribunal and confirming the penalty

of Rs.20,00,000/­ (Rupees twenty lakhs only) each imposed

under Section 15­HA of the Act. C.A. No. 9799/2014 by

Hemant Sheth must also fail. In the given facts, we are not

inclined to show indulgence and leniency to the three

appellants, as the facts found are highly ignominious and

scandalous.

C.A. No. 11311 of 2013 (A.O., Securities and Exchange Board of India vs. Bhavesh Pabari) C.A. No. 1824 of 2014 (Securities & Exchange Board of India Vs. M/s. Shree Radhe)

21. SEBI has filed cross appeals aggrieved by the order of

Appellate Tribunal dated 10th September, 2013 deleting the

penalty of Rs.10,00,000 (Rupees ten lakhs only) each

imposed on Bhavesh Pabari and M/s Shree Radhe under 22 Section 15­A(a) of the SEBI Act for violating Section 11­C(3)

and 11­C(5) of SEBI Act.

22. The relevant portion of the impugned order passed by

the Appellate Tribunal reads:

“Additional challenge in Appeal No. 71 of 2012 and 72 of 2012, relates to imposition of Rs.10 lac penalty upon each appellant for violating Section 11C (3) and 11C (5) of SEBI Act. Grievance of appellants is that failure to furnish requisite information was due to circumstances beyond control viz. grandmother of Bhavesh Pabari (Appellant in Appeal No. 71 of 2012) who is proprietor of M/s. Shree Radhe (Appellant in Appeal No. 72 of 2012) had expired during the relevant period and, therefore, he was in disturbed mind at the material time. Though, explanation given does not inspire confidence in the facts of present case, where penalty of Rs. 20 lac has already been upheld, in our opinion, it would be just and proper to delete penalty of Rs. 10 lac imposed upon both appellants”.

23. Submission of the SEBI that the impugned order did

not record any reason for deleting the said penalty, in spite

of observing that the explanation given by Bhavesh Pabari

did not inspire confidence, would be a just and fair criticism

and a good challenge. We clearly have reservations on the

ground stated or rather lack of reasoning given by the

Appellate Tribunal, especially in the light of the language of 23 Sections 15­A(a) and Section 15­J of the Act. However,

during the hearing, the learned counsel appearing for

Bhavesh Pabari had drawn our attention to his reply dated

28th September, 2009 stating that Bhavesh Pabari’s

grandmother had expired and, therefore, he had requested

for time to make an appearance. It was stated at the Bar

that grandmother of Bhavesh Pabari had expired on 19 th

September, 2009, and this aspect was highlighted and made

known to the authorities. Furthermore, Bhavesh Pabari/

M/s. Shree Radhe had submitted part information vide letter

dated 2nd November, 2009. These aspects and explanations

have not been considered by the Appellate Tribunal.

24. Adjudicating Officer, while imposing penalty had

referred to the letter dated 6 th May, 2009 by which Bhavesh

Pabari and M/s. Shree Radhe were required to furnish

information of details regarding trading in the GPL scrips,

connection/relation with the GPL, its promoters/directors,

connection/relation between Hemant Sheth, etc. but the

said notice was not complied with. Thereafter, reminders

dated 21st July, 2009 and 14th August, 2009 were issued, 24

but again of no avail. This was followed by summons dated

4th September, 2009, 23rd September 2009, 20th October,

2009 and 5th November, 2009.

25. Given the aforesaid facts, we should have remitted the

matter to the Appellate Tribunal for a fresh adjudication and

examination but would refrain from doing so in view of the

time gap, the quantum of fine imposed, and, as we have

upheld the total penalty of Rs.40,00,000/­ (Rupees forty

lakhs only) imposed on the appellant under Section 15­HA of

the SEBI Act. We would rather close the proceedings.

Accordingly, appeals preferred by SEBI, i.e., C.A. No.11311

of 2013 and C.A. No.1824 of 2014 are also disposed of.

C.A. No.14728/2015 (Ankur Chaturvedi vs. Securities and Exchange Board of India);

C.A. No.14729/2019 (Jay Kishore Chaturvedi vs. Securities and Exchange Board of India); and C.A. No.14730/2015 (Siddharth Chaturvedi vs. Securities and Exchange Board of India); and

26. The above­captioned appellants are Promotors­cum­

Directors of M/s. Brij Laxmi Leasing and Finance Co. Ltd., a

company whose shares were listed on the Bombay Stock

Exchange.

25

27. It is accepted and admitted that the appellants Ankur

Chaturvedi, Sidharth Chaturvedi and Jay Kishore

Chaturvedi having purchased shares of M/s. Brij Laxmi

Leasing and Finance Co. Ltd. on 2, 3 and 6 occasions

respectively, were required but had failed to make necessary

disclosures to the stock exchange as stipulated and

statutorily mandated by Regulations 13(4) and 13(4A) read

with Regulation 13(5) of the Securities and Exchange Board

of India (Probation of Insider Trading) Regulations, 1992

(“PIT Regulations” for short).

28. For the said violations, penalty of Rs.5,00,000/­

(Rupees five lakhs only) in the case of Ankur Chaturvedi and

Sidharth Chaturvedi and Rs.11,00,000/­ (Rupees eleven

lakhs only) in the case of Jay Kishore Chaturvedi were

imposed under Section 15­A(b) of the SEBI Act. Ankur

Chaturvedi had also suffered penalty of Rs.2,00,000/­

(Rupees two lakhs only) under Section 15­HB of the SEBI

Act as he had sold 45,032 shares after acquiring 45,000

shares on 29th January, 2013, which was in violation of

Clause 4.2 of the Model Code of Conduct for Prevention of 26

Insider Trading for Listed Companies as set out in Schedule

I, Part A of the PIT Regulations.

29. The aforesaid penalties were affirmed in the impugned

order passed by the Appellate Tribunal, rejecting the

contention that the penalty so imposed was harsh and

deserved substantial reduction as there was no intention on

the part of the appellants to suppress purchase or sale or

that non­disclosure had not caused profits to appellants or

otherwise a loss to the investors and that the failure to make

disclosure was an inadvertent error without mala fide

intention.

30. The Appellate Tribunal, considering the factual

matrix, has held that the maximum penalty stipulated in the

PIT Regulations was Rs.1,00,000/­ (Rupees one lakh only)

for each day during which the failure continued or

Rs.1,00,00,000/­ (Rupees one crore only), whichever was

less. The penalty imposed by the Adjudicating Authority took

into consideration the mitigating factors and cannot be said

to be excessively harsh or unreasonable. 27

31. In view of the factual background and the reasoning

given by the Appellate Tribunal, we do not find any good

ground and reason to interfere with the quantum of penalty

confirmed by the impugned order passed by the Appellate

Tribunal.

C.A. No.33/2017 (Akshat Tandon and Others vs. Securities and Exchange Board of India); and C.A. No.9563/2018, (Badri Vishal Tandon vs. Securities and Exchange Board of India).

32. We have jointly dealt with these two appeals as they

both relate to shares of M/s Bhawani Paper Mills Ltd. (“the

Target Company” in short).

33. In the first appeal, Akshat Tandon and 14 others are

aggrieved by the order dated 5th October, 2016 passed by the

Appellate Tribunal wherein their appeal against order dated

31st July, 2014 passed by the Adjudicating Officer imposing

penalty between Rs.3,00,000/­ (Rupees three lakhs only) to

Rs.6,00,000/­ (Rupees six lakhs only) for each of the 15

violations of Regulation Nos. 3(3) and 3(4) of the Securities

and Exchange Board of India (Substantial Acquisition of 28

Shares and Takeover) Regulations, 1997 (“SAST

Regulations” for short) was upheld.

34. The appellants were promotors of the target company

and together were holding 54% of the paid­up shares of the

target company, which were acquired on various dates. The

acquisition was in excess of the limits prescribed under

Regulations 3(3) and 3(4) of SAST Regulations. Failure to

notify/submit report to the concerned authorities within the

stipulated time in terms of Regulations 3(3) and 3(4) is

accepted. The case of the appellants is predicated on the

principle of proportionality, for it is asserted that the

quantum of penalty imposed is excessive and unreasonably

harsh. Similar contentions were raised before the Appellate

Tribunal with the submission that the target company had

incurred huge losses and that it was a sick company.

Furthermore, there was an absence of disproportionate gain

or unfair advantage to the appellants or otherwise a loss to

the investors. Contentions were rejected on the ground that

the penalty imposed was reasonable and not harsh. To

justify the quantum, reference was made to Sections 15­A(a) 29

and (b) of the SEBI Act, which stipulate that the penalty

could be Rs.1,00,000 (Rupees one lakh only) for each day

during which the violation continued and could be as high

as Rs.1,00,00,000/­ (Rupees one crore only) for each

violation.

35. This court, in the exercise of its jurisdiction under

Section 15­Z of the SEBI Act, cannot go into the

proportionality and quantum of the penalty imposed, unless

the same is distinctly disproportionate to the nature of the

violation which makes it offensive, tyrannous or intolerable.

Penalty by the very nature of the provision is penal. We can

interfere only where the quantum is wholly arbitrary and

harsh which no reasonable man would award. In the instant

case, the factual findings are not denied and, thus, we are

not inclined to intermeddle with the quantum of penalty.

The penalty imposed is just, fair and reasonable and, thus,

upheld.

36. The appellants have also contended that in the

absence of any prescribed limitation period, SEBI should

have issued show cause notice within a reasonable time and 30

there being a delay of about 8 years in issuance of show

cause notice in 2014, the proceedings should have been

dropped. This contention was not raised before the

Adjudicating Officer in the written submissions or the reply

furnished. It is not clear whether this contention was argued

before the Appellate Tribunal. 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 third­party

rights had been created etc. The show cause notice in the

present case had specifically referred to the respective dates

of default and the date of compliance, which was made

between 30th August, 2011 to 29th November, 2011 (delay

was between 927 days to 1897 days). Only upon compliance

being made that the defaults had come to notice. In the

aforesaid background, and so noticing the quantum of

fine/penalty imposed, we do not find good ground and

reason to interfere.

31

37. Now coming to the second appeal, Badri Vishal

Tandon has impugned the order dated 20th June, 2018

passed by the Appellate Tribunal affirming the order dated

29th December, 2017 passed by the Adjudicating Officer,

whereby he has been saddled with penalty of Rs. 1,50,000/­

(Rupees one lakh fifty thousand only) for violation of

Regulation 7(1A) read with Regulation 7(2) of the SAST

Regulations. The appellant as Karta of Ram Mohandas

Tandon (HUF) was allotted 22,50,000 shares of the target

company by way of preferential allotment, which constituted

6.46% of its total share capital. The shares were allotted

pursuant to the approval given by the Board of Directors

vide letter dated 25th June, 2011. The letter of allotment was

received by him on 27th June, 2011, and 22,50,000 shares of

the Target Company were transferred to his demat account

on 12th August, 2011.

38. The Appellate Tribunal has affirmed the factual

findings that there was a delay in disclosure, which was

required to be made within two days of the receipt of

intimation of allotment of shares, as per Regulations 7(1A) 32

and 7(2) of the SAST Regulations. The intimation/letter from

the Target Company about the said acquisition was received

by the Bombay Stock Exchange only on 11 th July, 2011.

39. Maximum penalty imposable on Badri Vishal Tandon

was upto Rs.1,00,00,000/­ (Rupees one crore only). In this

backdrop, we do not find any reason to interfere with the

quantum of penalty of Rs.1,50,000/­ (Rupees one lakh and

fifty thousand only) as imposed in exercise of jurisdiction

under Section 15­Z of the SEBI Act.

C.A. No.1009/2017 (Magnum Equity Broking Ltd. Vs. Securities and Exchange Board of India).

40. The appellant has assailed the order of the

Adjudicating Officer dated 18th July, 2014, which was

affirmed by the Appellate Tribunal vide order dated 28 th

November, 2016, whereby penalty of Rs.3,00,000/­ (Rupees

three lakhs only) was imposed on the appellant for violation

of Clause A(2) of the Code of Conduct for Stock Brokers. The

said penalty was imposed pursuant to investigation into

trading in scrips of M/s Aarey Drugs and Pharmaceuticals

Ltd. (“ADPL” in short) and M/s Winsome Textile Industries 33

Ltd. (“WTIL” in short) during the period 1 st January, 2009 to

31st August, 2009.

41. The brief facts are that the appellant was a stock

broker and member of the Bombay Stock Exchange Limited.

The appellant had executed synchronized trades in the

aforesaid scrips on behalf of its clients ­ Mr. Ronak Choski,

Mr. Shailesh Patel, Ms. Nitaben Patel and Ms. Kapilaben

Patel, acting both as a stock broker as well as party stock

broker. Total volume of symphonized trade in the scrip of

WTIL was 68,02,131 shares, which were executed on one

day. Total volume of 88,89,052 shares in the case of scrip of

ADPL were transacted over a period of five days. The

appellate order succinctly refers to the figures and details of

such transactions, for example, on 19 th February, 2009, the

appellant’s clients had executed 18 trades in the scrip of

WTIL, which constituted 68% of the total number of shares

traded on that date and 38% of the trades executed on that

date. For 7 out of 18 synchronized trades, the buy and sell

orders were perfectly matching in price and quantity.

Similarly, on 20th March, 2009, there were 73 synchronized 34

trades in the scrip of ADPL amounting to 43.8% of the

shares traded and 63.4% of the trades executed. The

appellate order observes that such synchronized trades

create an artificial volume, leading to ratcheting up in the

trading of the scrip and cause price fluctuations, thereby

misleading the potential investors. Such transactions create

a deceptive appearance as to the quantum of trading in the

scrip which could be understood as a viable investment

opportunity when it is not. This hurts and damages sanctity

of the securities market. Reference was specifically made to

the factum that the synchronized trade on different dates

was amounting to 3.4%, 7.17%, 20.4% and 15.12% of the

total market volume on 25th March, 2009, 23rd March, 2009,

26th March, 2009 and 27th March, 2009 respectively.

42. The appellant does not controvert the

transactions/trades. The case of the appellant is that the

trades were executed within a normal price range and did

not lead to an artificial price movement. Reliance was

placed on SEBI’s circular dated 14 th September, 1999 that

cross deals executed between two clients of the same broker 35

can be conducted through the screen mechanism of the

stock exchange. Submission was that the synchronized

trade was not a result of any illicit scheme. However,

Appellate Tribunal had rejected the contentions as the

transactions/trades made by the appellants were between

family members restricted to two scrips of WTIL and ADPL

spread over a period of 6 days and had referred to the

factual matrix of the case.

43. Reference to the Securities and Exchange Board of

India vs. Rakhi Trading (P) Ltd.5 which refers to an earlier

decision in the Securities and Exchange Board of India

vs. Kishore R. Ajmera6 is misconceived, for the said

decisions do not hold that a broker cannot be proceeded

against for violation of Regulation 7 of the SEBI (Stock

Brokers and Sub­Brokers) Regulations, 1992 (“Stock Broker

Regulations” for short) for violation of Clause A(2) of the

Code of Conduct for Stock Brokers. The decisions hold that

a broker would not be liable merely because he had

facilitated the transactions, in the absence of any material to

5 (2018) 13 SCC 753 (paragraph 40) 6 (2016) 6 SCC 368 36

suggest negligence and connivance on the part of the broker. Thus, the matter would be different as observed in the

concurring judgment of Banumathi, J. in Rakhi Trading

Pvt. Ltd. (Supra), where there was evidence to show

involvement and meeting of minds of the share broker with

the client to indulge in egregious and foul transactions, in

which circumstances the stock broker would be held liable.

While proximity of time in an isolated case may not be

conclusive, but huge volume of trading between same

set/group of brokers can in a given case reasonably point to

some kind of a fraudulent and manipulative exercise with

prior meeting of minds. Further, there is a difference

between synchronized trading involving bulk quantities and

negotiated trades as a result of consensual bargaining

involving synchronization of buy and sell orders resulting in

matching thereof as per permissible parameters which are

programmed accordingly. Test of preponderance of

probability applies for the adjudication and determination of

civil liability for violation of the SEBI Act or the provisions of

the Regulations framed thereunder (see para 65 to 69 in 37

Rakhi Trading Pvt. Ltd.). Keeping the aforesaid parameters

in mind, the adjudicating authority had imposed penalty of

Rs.3,00,000/­ (Rupees three lakhs only) under Section 15­

HB of the SEBI Act, which has been upheld by the Appellate

Tribunal being commensurate with the violation.

44. For the aforesaid reasons, we do not find any infirmity

with the concurrent findings or with the quantum of penalty

imposed and the same is upheld.

C.A. No.2641/2017 (M/s Quantum Global Securities & Leasing Company Ltd. vs. Securities and Exchange Board of India).

45. In the present appeal, the appellant is the registered

stock broker and had indulged, as per the findings recorded

in the adjudication order dated 22nd July, 2014 and upheld

by the Appellate Tribunal vide order dated 18 th January,

2017, in synchronized trades, circular trades and reversal

trades in the scrips of M/s Gangotri Textiles Ltd. during the

period 7th April, 2006 to 31st May, 2006. Accordingly, the

appellant had violated Sections 12A (a), (b), (c) of the SEBI

Act and Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a), (e) and (g) 38

of the PFUTP Regulations and Regulation 7 read with

Clauses A(1), (2), (3), (4) and (5) of the Code of Conduct for

Stock Brokers specified under Schedule II of the Stock

Broker Regulations. Consequently, penalty of

Rs.60,00,000/­ (Rupees sixty Lakhs only) was imposed

under Section 15­HA for violation of the provisions of the

SEBI Act and the PFUTP Regulations and the penalty of

Rs.15,00,000/­ (Rupees fifteen lakhs only) was imposed

under Section 15­HB of the SEBI Act for the violation of the

provisions of the Code of Conduct for Stock Brokers.

46. The appellant did not dispute the factual findings of

having indulged in synchronized trade, circular trade and

reversal trade in the scrips of M/s. Gangotri Textiles Ltd.

They pleaded leniency claiming that they had no mala fide

intention and their annual turnover for several years was

around Rs.5,00,000/­ (Rupees five lakhs only). Lastly, their

contribution towards Last Traded Price (LTP) variation was

nominal. The contentions have to be rejected as the

appellant was a part of the larger game plan along with

other entities who had indulged in synchronized, circular 39

and reversal trading leading to a total cumulative positive

and negative LTP contribution of Rs.999.25 and Rs.1007.25

respectively. It is to be further noted that the penalty

imposable under 15­HA of the SEBI Act could be upto

Rs.25,00,00,000/­ (Rupees twenty­five crores only) or three

times the amount of profit made out of such practices

whichever was higher. Thus, the penalty of Rs.60,00,000/­

(Rupees sixty lakhs only) was not unreasonable and

excessive. Similarly, penalty of Rs.15,00,000/­ (Rupees

fifteen lakhs only) for failing to adhere to the standards

required to be maintained by the stock brokers which could

be as high as Rs.1,00,00,000/­ (Rupees one crore only) was

not excessive, unreasonable or harsh. Penalty was also

imposed on others who had participated in the nefarious

plan. Findings are correct and unchallengeable. We do not

find any good ground and reason to interfere with the

quantum of penalty.

C.A. No.6160/2018 (Durga Prasad Yadav & Anr. vs. Securities and Exchange Board of India).

47. Durga Prasad Yadav and Jai Hind Kumar have filed

the present appeal having suffered penalty of 40

Rs.1,00,00,000/­ (Rupees one crore only) under Section 15­

A(a) of the SEBI Act for violation of Section 11­C(3) of the

SEBI Act vide adjudication order dated 20 th January, 2016

which stands affirmed by the Appellate Tribunal in its order

dated 15th January, 2018.

48. The appellants were required to furnish particulars

about the plans/schemes offered to the public, funds

mobilized, Memorandum of Association, details of Directors,

etc. in order to examine the matter under Section 11­AA of

the SEBI Act and the SEBI (Collective Investment Schemes),

Regulations, 1999 (“CIS Regulations” for short). For this

purpose, various letters dated 22nd November, 2012, 11th

January, 2013, 7th November, 2013 and 20th February, 2014

were written by SEBI to the two appellant Directors, two

other Directors and M/s Skylark Land Developers &

Infrastructure India Pvt. Ltd. for furnishing of

information /documents/reports. Since there was an

inordinate delay, default and failure in furnishing

information and responding to these letters, fresh summons

were issued on 30th July, 2014 under Section 11­C(3) of the 41 SEBI Act requiring them to furnish the details to which

again there was no response. Consequently, second

summons dated 12th September, 2014 were issued for

furnishing information by 22nd September, 2014, to which

yet again there was no response. Thereafter, show cause

notice on 30th June, 2015 was issued to which a part reply

was given by the appellants on 23 rd September, 2015. An

email dated 30th November, 2015 was also sent by SEBI

asking them to reply before 10 th December, 2015, with an

opportunity to appear on 15th December, 2015. This was

also communicated by forwarding the notice through Speed

Post AD, which was returned undelivered in case of Durga

Prasad. Thus, several opportunities were given to ensure

compliance by the appellants. Afterwards, on 15th December,

2015 Subodh Kumar Gupta, authorized representative of the

appellants and others had appeared and sought

adjournment for 22nd December, 2015, on which date a reply

was filed. Subsequently, an additional reply dated 30 th

December, 2015 was furnished. Appellants in the aforesaid

replies had stated that their offices were sealed and,

therefore, the required details and information could not be 42

furnished. Further, SEBI had not provided them necessary

documents including the copy of complaint, affidavit,

evidence against them and the investigation report.

49. We would now refer to the background of the case and

why notices/summons were issued. The aforesaid notices

and summons were issued pursuant to orders passed by the

High Court of Madhya Pradesh in the year 2010 in Public

Interest Litigation against various companies including M/s

Skylark Land Developer and Infrastructure India Pvt. Ltd.

for cheating thousands of investors in fraudulent schemes

by promising high returns. Pursuant to orders passed by

the High Court, different authorities including SEBI were

given liberty to take appropriate action in accordance with

law. Central Bureau of Investigation was also directed to

conduct investigation. Therefore, SEBI had issued notice to

the aforesaid company, the two appellants and two other

Directors to provide information of documents for alleged

violation of Section 11­C of the SEBI Act.

50. During the course of hearing by SEBI, most details as

provided by the appellants were general in nature. We would 43

observe that in case there was no violation pertaining to

mobilization of funds from the public under various

schemes/arrangements, this could have been so stated in

clear and categoric terms. Moreover, the contention that the

offices were sealed which rendered them incapable to

furnish information has been rejected for two good reasons.

First, this stand is belated and held to be an afterthought

when it could have been raised at the first instance when

the reply dated 5th December, 2012 was furnished, given

that the records were seized by the police on 5 th May, 2011.

Second, assertion was contradicted by their own conduct

when during the proceedings they had submitted a few

documents, which were incomplete and not as desired. They

did not make any distinction as to the documents within

their possession and as to those with the police. Appellate

Tribunal had in these circumstances affirmed the finding

that there was a lack of good faith and failure in complying

with the aforesaid notices/letters/summons/emails.

Adjudicating Officer had, therefore, rightly recorded that

non­compliance of summons had hampered the further

course of investigation. The failure was without any 44

justification. Agreeing with the said findings, the Appellate

Tribunal has observed that details were withheld with a view

to delay the investigation being conducted by SEBI to the

detriment of investors from whom funds were collected by

the appellants in contravention of CIS Regulations.

51. We do not find any fault with the reasoning given. We

are of the opinion that the fault squarely lied with the

appellants and, thus, penalty of Rs.1,00,00,000/­ (Rupees

one crore only) for violation of Section 11­C(3) under Section

15­A(a) of the SEBI Act does not call for any interference.

52. The reference made vide order dated 14 th March, 2016

and the above captioned Civil Appeals are, accordingly,

disposed of. In the facts and circumstances of the cases,

there shall be no order as to costs.

…………………………….,CJI [RANJAN GOGOI]

……………………………….,J.

[DEEPAK GUPTA]

……………………………….,J.

[SANJIV KHANNA] New Delhi;

February 28, 2019.