Mr. Ankur Chaturvedi vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 4.8.2015

Appeal No. 434 of 2014

Mr. Ankur Chaturvedi 24, Suvernapuri Society, Alkapuri, Vadodara - 390 007. ...... Appellant

Versus

Securities and Exchange Board of India SEBI Bhawan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Beni M. Chatterji, Senior Advocate i/b Juris Matrix for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per: Justice J.P. Devadhar

1.

Appellant is aggrieved by the adjudication order passed by the

Adjudicating Officer of Securities and Exchange Board of India (SEBI for

short) on 28th August, 2014. By the said order, penalty of Rs.5 lac is imposed

on the appellant under section 15A(b) of the Securities and Exchange Board

of India Act, 1992 (SEBI Act for short) for violating the provisions of

Regulation 13(4) and 13(4A) read with Regulation 13(5) of Securities and

Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(PIT Regulations for short) and penalty of Rs.2 lac under section 15HB of

SEBI Act is imposed for violating clause 4.2 of the Model Code of Conduct 2

for Prevention of Insider Trading for Listed Companies set out in part A,

Schedule I of PIT Regulations ('Model Code of Conduct' for short).

2. Appellant is a promoter of Brijlaxmi Leasing and Finance Company

Ltd (company for short) whose shares are listed on the Bombay Stock

Exchange.

3. During the course of investigations it was noticed by SEBI that the

appellant had purchased 46,437 shares of the company on 9th January, 2013.

It was also noticed that on 29th January, 2013 appellant had purchased 45,000

shares of the company and on the same day i.e. on 29th January, 2013

appellant had sold 45,032 shares of the company. Under Regulations 13(4)

and 13(4A) read with Regulation 13(5) of the PIT Regulations it was

obligatory on part of the appellant to make disclosure to the company and to

the stock exchange in respect of the purchases made on 9th January, 2013 and

29th January, 2013 within two working days from the date of purchase. As the

appellant failed to make above disclosures to the stock exchange in which the

shares of the company were listed, there was violation of Regulation 13(4)

and 13(4A) of the PIT Regulations. Similarly, having purchased shares of the

company in January, 2014 entering into opposite transaction i.e. to sell the

shares of the company in January 2014 was in violation of clause 4.2 of the

Model Code of Conduct. Accordingly, proceedings were initiated and by the

impugned order penalty is imposed under section 15A(b) and section 15HB of

the SEBI Act.

4. Mr. Chatterji, learned senior counsel appearing on behalf of the

appellant while admitting that there was failure on the part of the appellant to

make disclosures within the time stipulated under Regulation 13(4) and

13(4A) of the PIT Regulations submitted that the penalty imposed under 3 section 15A(b) is excessively harsh and deserves to be set aside and in any

event deserves to be reduced substantially for the following reasons:

a) there is nothing in the impugned order to suggest that there was any

intention on part of the appellant to suppress purchase and sale of

shares of the company in which the appellant was promoter/director.

b) Making disclosure to the company but failing to make disclosures

to the stock exchange was an inadvertent error and there was no

malafide intention on part of the appellant.

c) failure to make disclosure has not resulted in any profit to the

appellant.

(d) failure to make disclosure has not caused any loss to the investors.

(e) violation of PIT Regulations committed by the appellant is not

repetitive in nature.

(f) In the absence of any finding recorded in the impugned order to

the effect that there is any disproportionate gain or unfair advantage to

the appellant as a result of the default and since loss caused to the

investors due to the default could not be ascertained, the adjudicating

officer is not justified in imposing the penalty of Rs.5 lac under section

15A(b) of SEBI Act.

5. As regards the penalty of Rs.2 lac imposed under section 15HB of

SEBI Act for violating clause 4.2 of the Model Code of Conduct,

Mr. Chaterji submitted that the opposite transaction, namely, sale of shares of

the company were carried out by the broker of the appellant inadvertently and

therefore the adjudicating officer was not justified in imposing penalty of Rs.2

lac under section 15HB of the SEBI Act.

6. Relying upon the decisions of this Tribunal in case of National

Securities Depositories Ltd. vs. SEBI (Appeal no.147 of 2006 decided on 4

22.11.2007) and decision of this Tribunal in the case of DSE Financial

Services Ltd. vs. SEBI (Appeal no.153 of 2012 decided on 11.9.2012) Mr.

Chatterji submitted that in the facts of the present case imposing penalty under

section 15A(b) and section 15HB of the SEBI Act is unjustified and hence

deserves to be set aside and in the alternative deserves to be reduced

substantially.

7. We see no merit in the above contentions.

8. It is not in dispute that the appellant has violated Regulations 13(4) and

13(4A) of the PIT Regulations which are mandatory in nature. Failure to

make disclosures within time stipulated under Regulation 13 of the PIT

Regulations renders the promoter/director liable for penalty under section

15A(b) of the SEBI Act. As per section 15A(b) of the SEBI Act (as it then

stood) penalty imposable for failure to make disclosures within the stipulated

under the PIT Regulations was 1 lac rupees for each day during which such

failure continued or Rs.1 crore whichever is less. In the present case, since

disclosures have not at all been made, penalty imposable on the appellant

would be Rs.1 crore. However, after taking into consideration all mitigating

factors as contemplated under section 15J of the SEBI Act, the adjudicating

officer has imposed penalty of Rs.5 lac as against the imposable penalty of

Rs.1 crore, which cannot be said to be excessively harsh or unreasonable.

Various mitigating factors canvassed before us were in fact canvassed before

the Adjudicating Officer and it is only after recording those mitigating factors

penalty of Rs.5 lac is imposed as against the penalty of Rs. 1 crore imposable

under section 15A(b) of the SEBI Act. The discretion exercised by the

adjudicating officer being reasonable we see no reason to interfere with the

order passed by the adjudicating officer.

5

9. Argument advanced by the counsel for the appellant that the opposite

transactions i.e. sale transactions were inadvertently carried out by the broker

of the appellant cannot be a ground to escape penalty for violating the

provisions contained in the Model Code of Conduct. Penalty imposable for

such violations under section 15HB of the SEBI Act is up to Rs.1 crore.

However, after considering all mitigating factors pointed out by the appellant,

the adjudicating officer has imposed penalty of Rs.2 lac as against the penalty

of Rs. 1crore imposable under section 15HB of the SEBI Act which cannot be

said to be unreasonable or excessively harsh.

10. Reliance placed by counsel for the appellant on the decision of this

Tribunal in case of NSDL (supra) has no relevance to the facts of the present

case. The dispute in that case related to disgorgement whereas in the present

case we are concerned with the penalty imposed under section 15A(b)/15HB

of the SEBI Act for violating the PIT Regulations and the Model Code of

Conduct. Similarly decision of this Tribunal in the case of DSE Financial

Services Ltd. (supra) is also distinguishable on facts. In that case the dispute

related to certain irregularities in maintaining the records noticed during the

course of inspection, whereas, in the present case, appellant is guilty of not

complying with the mandatory requirement of making disclosures under

Regulation 13 of PIT Regulations and is held guilty of entering into opposite

transactions in violation of the Model Code of Conduct. Thus both decisions

relied upon by the counsel for the appellant are wholly distinguishable and

have no relevance to the facts of the present case.

11. Mr. Chatterji learned senior counsel appearing on behalf of the

appellant sought to tender a compilation of documents to show that the

company has been making losses year after year and in support of that

contentions he wanted to tender various documents in respect thereof. We 6

have not permitted Mr. Chatterji to tender those documents because penalty

under section 15A(b) of the SEBI Act for violating the PIT Regulations is

imposable irrespective of the fact that the company/promoter-director have

been incurring losses or not. Similarly fact that there is no investor losses on

account of the violations committed by the appellant and that the violations

are not repetitive in nature cannot be a ground to escape penalty imposable

section 15A(b)/15HB of the SEBI Act.

12. As rightly pointed out by the adjudicating officer the entire securities

market stands on disclosure based regime and accurate and timely disclosures

are fundamental in maintaining the integrity of the securities market.

Therefore omission on the part of the appellant in failing to make disclosures

was detrimental to the interest of the investors in the securities market and

hence no fault can be found with the decision of SEBI in imposing penalty of

Rs. 5 lac and Rs. 2 lac under section 15A(b)/15HB of the SEBI Act for

violating the provisions of PIT Regulations and Model Code of Conduct

respectively.

13. As the adjudicating officer has taken into consideration all mitigation

factors and has imposed nominal penalty of Rs.5 lac under section 15A(b) and

penalty of Rs.2 lac under section 15HB of the SEBI Act we see no reason to

entertain the present appeal.

14. For the aforesaid reasons the appeal is dismissed with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member 4.8.2015 Prepared and compared by RHN