Mr. Annand Sarnaaik And Anr. vs Sebi

Date of Decision : 23.07.2019

Misc. Application No. 36 of 2018 And Appeal No. 36 of 2018

1.

Mr. Annand Sarnaaik

2. Ms. Divvyani Sarnaaik

402, Jairaj CHS Ltd. Opp. Income Tax, Bandra Kurla Complex, Bandra East, Mumbai - 51. ..... Appellants

Versus

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

Mr. Neville Lashkari, Advocate with Mr. Kunal Mehta, Advocate i/b Crawford Bayley & Co. for the Appellants. Mr. Anubhav Ghosh, Advocate with Ms. Rashi Dalmia, Advocate i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member Justice M. T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral) 2

1. The appellants have challenged the order dated November 30,

2017 whereby a penalty of Rs. 40 lacs has been imposed upon them

for violation of Regulations 13(3), 13(4), 13(4A) and 13(5) of the

Securities and Exchange Board of India (Prohibition of Insider

Trading) Regulations, 1992 (hereinafter referred to as 'PIT

Regulations') read with Regulations 29 and 31 of the Securities and

Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011 (hereinafter referred to as 'SAST

Regulations').

2. The facts leading to the filing of the appeal is that the appellants

are husband and wife and were the erstwhile promoter of Glodyne

Technoserve Ltd. (hereinafter referred to as, 'Glodyne'). The

appellants took loans from banks and financial institutions to fund

their business. The said loan was secured by pledging their

shareholdings in Glodyne. The appellants also gave a power of

attorney to the lenders. According to the appellants, the lenders

invoked the pledge and sold their shares without intimation and when

the appellants became aware they made the disclosures under the PIT

and SAST Regulations though belatedly.

3. After five years, a show cause notice dated February 7, 2017 was

issued by the Adjudicating Officer (hereinafter referred to as, 'AO')

alleging that from January 2, 2012 to April 20, 2013 the appellants 3

failed to make the disclosures within the stipulated period provided

under the PIT and SAST Regulations and, therefore, issued a show

cause notice as to why a penalty should not be imposed under

Section 15A(b) of the Securities and Exchange Board of India Act,

1992 (hereinafter referred to as, 'SEBI Act'). The appellants replied

that much water has flown and, in the meantime, on account of

continuous loss, the company Glodyne has been wound up with

effect from April 16, 2015. Further, the non-disclosure was not

deliberate and that the appellants made the necessary disclosures no

sooner they realised that the lenders had sold the shares pledged to

them. The AO after granting an opportunity of hearing passed the

impugned order imposing a penalty of Rs. 40 lacs upon the

appellants to be paid jointly and severally.

4. We have heard Shri Neville Lashkari with Shri Kunal Mehta,

the learned counsel for the Appellants and Shri Anubhav Ghosh with

Ms. Rashi Dalmia, the learned counsel for the respondent.

5. Before this Tribunal, an attempt was made to justify the

disclosures made belatedly on the strength that the appellants were

unaware of the sale of its shares made by the lenders and that the

delay if any, was thus, liable to be condoned. It was also alleged that

the violation, if any, was merely technical in nature and no fraud or

mischief or loss was caused to any investors. It was, thus, urged that 4

the penalty of Rs. 40 lacs was harsh and did not commensurate with

the alleged violations.

6. Having heard the learned counsel for the parties and having

pondered over the matter, we find that on the facts narrated aforesaid

the appellants were duty bound to make the necessary disclosures

within the stipulated period under the PIT and SAST regulations.

Non-disclosures within the stipulated period violated the provisions

of the aforesaid regulations and, consequently, the penalty became

leviable. Thus, to that extent, the order of the AO holding the

appellants guilty of violating the provisions of the PIT and SAST

Regulations cannot be faulted and is upheld.

7. However, considering the factors enumerated under Section 15J

of the SEBI Act, we find that there was no disproportionate gain or

unfair advantage gained by the appellants as a result of the default

nor anything has come on record to indicate that the delayed

disclosures resulted in a loss caused to an investor. However,

considering the repetitive nature of the default and the fact that the

company has now been wound up and taking into consideration all

the facts and circumstances of the case, we think that in the larger

interest of justice, the quantum of penalty should be reduced from

Rs. 40 lacs to Rs. 30 lacs would meet the ends of justice. 5

8. For the reasons stated aforesaid, the appeal is partly allowed.

The penalty of Rs. 40 lacs is reduced to Rs. 30 lacs which shall be

paid by the appellants within four weeks from today.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member

23.07.2019 Prepared & Compared by PTM