Atul Maganlal Hemani & Ors. vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 19.12.2022 Appeal No. 1015 of 2022 1. Atul Maganlal Hemani 401/402, Giriraj Neelkanth Valley, Rajawadi Road 7, Ghatkopar (E), Mumbai - 400079. 2. Amisha Hemani 401/402, Giriraj Neelkanth Valley, Rajawadi Road 7, Ghatkopar (E), Mumbai - 400079. 3. Vidhi Hemani 401/402, Giriraj Neelkanth Valley, Rajawadi Road 7, Ghatkopar (E), Mumbai - 400079. 4. Avinash Pitale HUF 503/H, Kukreja Complex, LBS Marg, Bhandup (W), Mumbai - 400 078. 5. Shubhangi Pitale 503/H, Kukreja Complex, LBS Marg, Bhandup (W), Mumbai - 400 078. 6. Shital Pitale 503/H, Kukreja Complex, LBS Marg, Bhandup (W), Mumbai - 400 078. 7. Nitish Pitale 503/H, Kukreja Complex, LBS Marg, Bhandup (W), Mumbai - 400 078. ......Appellants 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. Rajesh Khandelwal, Advocate with Mr. Anil Shah, Advocate i/b Juris Matrix Partners LLP, Advocates & Solicitors for the Appellants. Mr. Sumit Rai, Advocate with Ms. Samreen Fatima, Mr. Sumit Yadav, Advocates i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Per : Justice Tarun Agarwala, Presiding Officer (Oral) 1. Seven appellants have filed the present appeal questioning the order of the Adjudicating Officer (hereinafter referred to as 'AO') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') dated October 17, 2022 imposing a penalty of Rs. 4 lacs each for violation of Regulations 13(4), 13(4A) read with Regulation 13(5) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as 'PIT Regulations') and Regulations 31(1) and 31(2) read with Regulation 31(3) of the Securities and Exchange Board of India (Substantial 3 Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'SAST Regulations'). 2. The facts leading to the filing of the present appeal is, that on receiving a complaint regarding manipulation in the scrip of Omnitech Infosolutions Ltd. by its promoters and associates, an investigation was conducted by SEBI, based on which certain violations of the PIT Regulations and the SAST Regulations were found.

3. Accordingly, a show cause notice dated November 16, 2021 was issued to show cause as to why an inquiry should not be initiated and penalty should not be imposed. The broad allegations in the show cause notice were as follows :- 4. The appellants filed the replies justifying their stand and contending that no penalty is liable to be paid in the facts and circumstances of the case. 5. The AO after considering the material evidence on record came to the conclusion that the appellants were promoters and persons acting in concert had not disclosed various instances regarding creation of pledge to the company and stock exchanges in terms of Regulations 31(1) and 31(2) read with Regulation 31(3) of the SAST Regulations within seven days from the creation or invocation or release of encumbrance. The AO found that noticee no. 1 had not disclosed the release of pledge on 28 instances and did not disclose the invocation of pledge on 34 instances to the company and stock exchange. Similarly, noticee no. 2 did not disclose the creation of the pledge on 12 instances to the company as well as to the stock 5 exchanges.

Similar non-disclosure was made by the other noticees and consequently, did not make a requisite disclosure under Regulations 31(1) and 31(2) read with Regulation 31(3) of the SAST Regulations. 6. The AO also found that requisite disclosure was also not made in terms of Regulations 13(4), 13(4A) and 13(5) of the PIT Regulations. 7. We have heard Mr. Rajesh Khandelwal, the learned counsel with Mr. Anil Shah, the learned counsel for the appellants and Mr. Sumit Rai, the learned counsel with Ms. Samreen Fatima, Mr. Sumit Yadav, the learned counsel for the respondent. 8. The non-disclosure under the PIT Regulations and SAST Regulations are admitted by the learned counsel for the appellants. The only contention raised is, that there has been an undue delay in the issuance of the show cause notice and, on that ground itself, the entire proceedings should be quashed and penalty may be set aside. In the alternative, it was suggested that the penalty is harsh and disproportionate in the facts and circumstances of the present case and should be reduced appropriately. 9. On the issue of delay, it was urged that the transaction in question is of the year 2012-14 whereas the show cause notice was issued in the year 2021. It was urged that the company had disclosed the transactions to the stock exchange and consequently, the transactions were in the public domain.

The violation, if any, was known and appropriate proceedings should have been initiated within a reasonable period which has not been done. In this regard, we find that the appellants had disclosed the violation, the creation / release of the pledge, etc. for the first time vide email dated March 4, 2019. Nothing has been brought on record to show that the company had intimated the stock exchange earlier. In the absence of any evidence, we are of the opinion that when the disclosures were made by the appellants in the year 2019, the show cause notice which was issued in the year 2021 is not belated and consequently, the contention that there has been an undue delay in the issuance of the show cause notice is patently erroneous. 10. Learned counsel for the appellants submitted that the penalty imposed is harsh and disproportionate and should be reduced appropriately. Considering the number of violations committed by the appellants which have not been disputed, the penalty under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 is a minimum of Rs. 1 lac which may extend to Rs. 1 lacs per 7 day during which such failure continues subject to a maximum of Rs. 1 crore.

Considering the fact that there has been violation of non- disclosure of the pledge on a number of instances as depicted in the impugned order, the penalty of Rs. 4 lacs each is neither arbitrary nor disproportionate. 11. In the light of the aforesaid, we do not find any merit in the appeal and is dismissed with no order as to costs. 12. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges. Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup RAJALA Digitally signed by Technical Member KSHMI RAJALAKSHMI 19.12.2022 HARISH NAIR HARISH Date: