M/S. Sincere Packers Ltd. vs Sebi

DATE : 30.03.2015

Appeal No. 426 of 2014

M/s. Sincere Packers Ltd. 43, Babar Road, Bengali Market, New Delhi 110 001. ..... Appellant

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. Sunil Humbre, Advocate with Mr. Abhishek Bhadang, Advocate for the Appellant. Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

With Appeal No. 427 of 2014

Novel Trade Links Ltd. 43, Babar Road, Bengali Market, New Delhi 110 001. ..... Appellant

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. Sunil Humbre, Advocate with Mr. Abhishek Bhadang, Advocate for the Appellant. Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

With Appeal No. 428 of 2014

M. D. Overseas Ltd. 43, Babar Road, Bengali Market, New Delhi 110 001. ..... Appellant 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. Sunil A. Humbre, Advocate with Mr. Abhishek Bhadang, Advocate for the Appellants. Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

CORAM : Justice J. P. Devadhar, Presiding Officer

Per : Justice J. P. Devadhar (Oral)

1.

Counsel on both sides state that since the issues raised in these

appeals are covered by the decisions of this Tribunal, all these appeals may

be heard and disposed of by a common decision. Counsel on both sides

further state that the facts in these three cases being almost identical,

decision in any one Appeal would apply to the remaining two Appeals.

2. Appellants in these appeals are aggrieved by the respective orders

passed by the Adjudicating Officer of SEBI ('AO' for short) whereby

penalty of ` 7 lac is imposed on each appellant under Section 15A(b) of the

Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short),

for violating Regulation 8(3) of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers) Regulations, 1997

('SAST Regulations, 1997' for short) during the years 1998 to 2011.

3. Counsel for the appellants fairly states that each of the appellants

had failed to make disclosures under regulation 8(3) of SAST Regulations,

1997 for the year 1998 to 2011. However, in view of the decision of this

Tribunal in case of M/s. Gulab Impex Enterprises Ltd. vs. SEBI (Appeal

No. 330 of 2014 decided on November 3, 2014), counsel for appellants 3

submit that the penalty of ` 7 lac imposed upon each of the appellant is

excessive and unreasonable and hence cannot be sustained for the following

reasons :-

a. During the relevant period, the U. P. and Delhi Stock

Exchanges on which the shares of the respective appellant

companies were listed, were non functional and, therefore,

failure to make disclosure under regulation 8(3) being

inconsequential, the AO was not justified in imposing penalty

of ` 7 lac on the appellants.

b. Suo moto consent applications were filed by each appellant

before SEBI seeking settlement of the penalty imposable on

account of non disclosure under Regulation 8(3) of SAST

Regulations, 1997. Eventhough the said consent applications

were rejected by SEBI the month of March 2012, in view of

suo moto proposal put up by appellants, the AO is not justified

in imposing exorbitant penalty of ` 7 lac on each appellant.

c. Having recorded specific finding in the impugned order that it

is impossible to ascertain the exact monetary loss caused to the

investors on account of non disclosure under Regulation 8(3)

of SAST Regulations, 1997, the AO is not justified in

imposing penalty of ` 7 lac on each appellant.

Accordingly, it is submitted that the exorbitant penalty imposed on each

appellant is unsustainable.

4. Counsel for SEBI on the other hand submitted that the impugned

order passed by the AO in the respective appeals is based on Larger Bench

decisions of this Tribunal in case of Mrs. Komal Nahata vs. SEBI (Appeal

No. 5 of 2014 decided on January 27, 2014), Hybrid Financial Services Ltd. 4

vs. SEBI (Appeal No. 119 of 2014 decided on June 12, 2014) and Gaylord

Commercial Company Ltd. vs. SEBI (Appeal No. 62 of 2014 decided on

April 10, 2014) and hence there is no merit in these appeals and the same

are liable to be dismissed.

5. First contention of the appellants is that the Delhi / U. P. Stock

Exchanges on which the shares of the appellant companies were listed,

were non functional during the relevant period and, therefore, making

annual disclosure under Regulation 8(3) during the relevant period being

inconsequential, the AO is not justified in imposing penalty of ` 7 lac on

each appellant. In case of Comfort Fincap Ltd. vs. SEBI (Appeal No. 160

of 2014 decided on June 25, 2014) it was contended that during the relevant

period there were no trading in the shares on the stock exchange and hence

imposition of penalty for not making disclosure under Regulation 8(3) is

unjustified. Rejecting that contention it was held that making disclosure

under Regulation 8(3) is mandatory and that obligation is not dependant on

the actual trading on the stock exchange. In view of the aforesaid Larger

Bench decision of this Tribunal in case of Comfort Fincap Ltd. (Supra),

first contention of the appellants that the AO was not justified in imposing

penalty for not making disclosure under Regulation 8(3) inspite of there

being no trading on account of the Stock Exchanges being non functional,

cannot be accepted. Moreover, the AO has recorded specific finding in all

three cases, that the appellants had contended that there were no trading in

shares at Delhi Stock Exchange from July 2003. It is not the case of the

appellants, that the said finding is erroneous. In any event, whether the

trading had taken place or not once it is accepted that there is violation of

Regulation of 8(3), then the appellants cannot escape penal liability. 5

6. Reliance placed by counsel for appellants on the decision of this

Tribunal in case of Gulab Impex Enterprises Ltd. (supra) is also misplaced,

because, in para 6 of that decision it is specifically recorded that the

appellant therein had made disclosures in the past, whereas in these three

cases, it is admitted that no disclosures were made. Hence decision of this

Tribunal in case of Gulab Impex Enterprises Ltd. (supra) is distinguishable

on facts and has no relevance to the facts of present case.

7. Second contention of the appellants is that they had filed suo moto

consent applications before SEBI. Filing of suo moto consent applications

do not enhance their case, because, what was required under Regulation

8(3) of SAST Regulations, 1997 is to make yearly disclosures suo moto

within 30 days from the financial year ending March 31, and not filing suo

moto consent applications after a decade. Having failed to make yearly

disclosures year after year from 1998, appellants cannot escape penal

liability merely because in the year 2011 they had filed suo moto consent

applications seeking consent order. Admittedly, the said consent

applications have been rejected by SEBI.

8. Third contention of the appellants is that no loss has occurred to any

investor due to non disclosure under Regulation 8(3). Very same argument

was raised in case of Mrs. Komal Nahata (supra) and the said argument was

rejected by recording a finding that the mandatory disclosures under the

respective regulations framed by the SEBI have to be complied with,

irrespective of the fact that the investors have actually suffered on account

of non disclosures or not. In view of the aforesaid decision of this Tribunal,

above argument of the appellants cannot be sustained.

9. Argument of the appellants that penalty of Rs. 7 lac on each

appellant is excessive and unreasonable is also without any merit. As noted 6

earlier, the appellants have failed to make yearly disclosures under

Regulation 8(3) from 1998 to 2011. Penalty under Section 15A(b) for non

compliance of the regulation framed by SEBI is ` 1 lac for each day during

which such failure continues or ` 1 crore whichever is less. Admittedly,

till date the appellants have not made yearly disclosures under Regulation

8(3) for the year 1998 to 2011. Calculated at the rate of ` 1 lac per day for

each year subject to a maximum of ` 1 crore per year, penalty for each year

from 1998 till 2011 shall be ` 1 crore per year. However, after taking into

consideration all mitigating factors, the AO has imposed composite penalty

of ` 7 lac on each appellant which cannot be said to be unreasonable or

excessive.

10. For all the aforesaid reasons, decision of AO in imposing penalty by

following various decisions of this Tribunal cannot be faulted.

Accordingly, all the three appeals are liable to be dismissed.

11. At this stage, counsel for the appellants orally requests that two

months time be granted to the appellants to pay the amount of penalty of

` 7 lac imposed against each of the appellants. The request made by the

counsel for the appellants is reasonable and, accordingly, time to pay the

penalty by the three appellants is extended for a period of two months from

today.

12. All appeals are disposed of in the above terms with no order as to

costs.

Sd/-

Justice J. P. Devadhar Presiding Officer 30.03.2015 Prepared & Compared by PTM