Atul Kumar Agarwal & Ors. vs Sebi

Date of Decision: 08.03.2018

Appeal No. 247 of 2017

1.

Atul Kumar Agarwal D-6, Arya Nagar Society, 91, I.P. Extension, Patparganj, Delhi- 110 092

2. Surya Medi Tech Ltd.

205, 2nd Floor, Building No. 949, Gali No. 3, Naiwala, Karol Bagh, New Delhi- 110 005

3. Novalty Enterprises Pvt. Ltd.

Flat No. 10/A, Janyug Apartment, Sector- 14, Extension Rohini, Delhi- 110 085 ...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. Vedant Singh, Advocate with Mr. Vinay Dubey and Mr. Swanand Tarde, Advocates i/b Vis Legis Law Practice for Appellants.

Mr. Sumit Rai, Advocate with Mr. Pranav Jain and Mr. Chirag Bhavsar, Advocates i/b MDP & Partners for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

1. This appeal is filed to challenge the order passed by the

Adjudicating Officer ("AO" for convenience) of Securities and Exchange

Board of India ("SEBI" for convenience) on June 30, 2017. By the said 2

order penalty of ` 4 lac, ` 4 lac and ` 6 lac is imposed on appellant no. 1,

appellant no. 2 and appellant no. 3 respectively for violating the

provisions contained in the SEBI (Prohibition of Insider Trading),

Regulations, 1992 ("PIT Regulations" for convenience) and SEBI

(Substantial Acquisition of Shares and Takeover) Regulations, 2011

("Takeover Regulations" for convenience).

2. On January 11, 2016 SEBI had issued three independent show

cause notices to the appellants thereby calling upon them to show cause

as to why penalty should not be imposed on them under Section 15A(b)

of SEBI Act, 1992 for failing to make disclosures in relation to purchase/

sale of the shares of Ashutosh Paper Mills Limited ("Company" for

convenience) in violation of regulation 13(4A) read with regulation 13(5)

of the PIT Regulations and in violation of regulation 29(2) read with

regulation 29(3) of the Takeover Regulations.

3. In the reply filed on January 21, 2016 appellant no. 1 contended

that as a promoter he had gifted 25,000 shares of the company on July 13,

2012 to Mr. Ankush Gupta without any consideration. However, by a

letter dated July 14, 2012 Mr. Ankush Gupta declined to accept the gift

and accordingly the shares were transferred back on February 08, 2013.

In these circumstances, appellant no. 1 submitted that disclosure

obligations contained in the PIT Regulations cannot be said to have been

violated. Respondent no. 2 in its reply filed on March 01, 2016

submitted that requisite disclosures in relation to purchase/ sale of the

shares of the company were made and therefore taking any further action

does not arise at all. Appellant no. 3 did not file any reply to the show 3

cause notice. Personal hearing offered by SEBI to all the appellants,

however the same was availed only by appellant nos. 1 & 3. On

conclusion of personal hearing, the AO passed the impugned order

imposing penalty on the appellants which is challenged in this appeal.

4. Argument advanced by the Counsel that appellant no. 1 had gifted

25000 shares but the same were not accepted is without any merit,

because, authentic documents (such as delivery instruction slip sent to

'Depository or the Gift Deed') were not produced before the AO inspite

of the specific request made by the AO. In any event, even if the shares

were transferred by way of gift disclosure obligations had to be complied

with under the PIT Regulations.

5. Argument advanced by Counsel for appellant no.1 that regulation

13(4A) is not applicable to the case of the appellant no. 1 is without any

merit, because, in the show cause notice issued to the appellant no. 1 it

was specifically stated that the value of 25,000 shares of the company on

the date of transfer on July 13, 2012 and on the date of receiving back on

February 08, 2013 were more than ` 5 lac and therefore the disclosure

obligation contained in regulation 13(4A) of the PIT Regulations got

triggered. Neither in the reply to the show cause notice, nor before the

AO, the appellant no. 1 could demonstrate that the value of 25000 shares

were less than ` 5 lac on the respective dates. Since the change in the

shareholding on both the days exceeded ` 5 lac, it is evident that

disclosure obligation contained in regulation 13(4A) read with regulation

13(5) of the PIT Regulations were clearly attracted. Penalty imposable 4

under Section 15A(b) of SEBI Act for such violations is up to ` 1 crore.

However, the AO after taking into consideration all mitigating factors has

imposed penalty of ` 4 lac on appellant no. 1 which cannot be said to

be unreasonable or excessive.

6. The plea of the appellant no. 2 that requisite disclosures were made

to the stock exchange relating to purchase/ sale of the shares of the

company is disbelieved by the AO in the absence of any

acknowledgement from the stock exchange to that effect. Even before us

the appellant no. 2 has not produced any documentary evidence to show

that the disclosures were actually made to the stock exchange. In these

circumstances, the decision of the AO that the appellant no. 2 had

violated regulation 13(3) read with regulation 13(5) of the PIT

Regulations and regulation 29(2) read with 29(3) of the Takeover

Regulations cannot be faulted. Penalty imposable for such violations

under Section 15A(b) of SEBI act is up to ` 1 crore. However, the AO

after considering all mitigating factors has imposed penalty of ` 4 lac

which cannot be said to be unreasonable or excessive.

7. Appellant no. 3 had purchased 4,25,000 shares (6.51% of total

shareholding of the company) and 5,56,000 shares (8.53% of total

shareholding of the company) on October 15, 2012 and December 18,

2012 respectively. Similarly, the appellant no. 3 had sold 3,70,200 shares

(5.6732% of total shareholding of the company) during the period from

November 07, 2012 to December 26, 2012. In the absence of any

documentary evidence furnished by the appellant no. 3 to demonstrate

that the disclosure obligations have been discharged, the AO was 5

justified in holding that the appellant no. 3 is guilty of violating

regulation 13(1), 13(3) read with regulation 13(5) of the PIT Regulations

and regulation 29 (1), 29(2) read with regulation 29(3) of the Takeover

Regulations. Penalty imposable for such violations under Section 15A(b)

of SEBI Act is up to ` 1 crore. However, after taking into consideration

all mitigating factors, the AO in the facts of present case has imposed

penalty of ` 6 lac which cannot be said to be unreasonable or excessive.

8. In the result, we see no merit in the appeal and the same is hereby

dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 08.03.2018 Prepared & Compared By: PK