Mr. Ashwin Bhandari vs Sebi

Date of Decision: 21.03.2018

Appeal No. 61 of 2018

Mr. Ashwin Bhandari 26, Morsail Gali, Near Jain Mandir, Indore, Madhya Pradesh 42 002 ...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. Saurabh Bachhawat, Advocate i/b Mr. Manoj Jain, Company Secretary, Sarda Soni Associates for the Appellant.

Mr. Aditya Chitale, Advocate with Mr. Tomu Francis, Advocate 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 short) of Securities and Exchange Board

of India ("SEBI" for short) on December 21, 2017. By the said order

penalty of ` 2 lac is imposed on the appellant under Section 15A(a) of

the Securities and Exchange Board of India Act, 1992 ("SEBI Act" for

short) for violating Section 11C(2) & 11C(3) of SEBI Act. 2

2. Dispute in the present case relates to the investigation carried out

by SEBI in the scrip of Tarang Projects and Consultants Limited

("Company" for convenience). During the course of investigation, SEBI

suspected that various persons including the appellant may be involved in

the violations relating to the scrip of the company. Accordingly,

statement of the appellant was recorded on 27.04.2016 wherein appellant

answered the questions put to him and agreed to furnish certain

additional information by 30.04.2016. However, appellant failed to

furnish that information.

3. Thereupon, summonses under Section 11(2), 11C(3) and 11C(5) of

SEBI Act were issued to the appellant on 27.05.2016, 02.06.2016 and

13.06.2016 respectively. It is not in dispute that the first two summonses

were served on the appellant after the due date for compliance set out in

the summonses. As regards the third summons, appellant contends that

he was not served, whereas, SEBI contends that the appellant refused to

accept the summons. However, it is not in dispute that despite the failure

on part of the appellant to furnish information, the investigation

continued and on completion of investigation, an investigation report was

prepared on 24.07.2017. The investigation report recommended initiation

of prosecution against some of the suspected persons and initiation of

adjudication proceedings against some of the suspected persons. In case

of the appellant initiation of adjudication proceedings were recommended

for non-compliance of the summonses issued to the appellant.

Accordingly, adjudication proceedings were initiated and by the 3

impugned order, penalty of ` 2 lac is imposed on the appellant for non-

compliance of the summonses issued to the appellant.

4. Basic argument advanced on behalf of the appellant is that since

the two summonses were served beyond the period for compliance set

out in the respective summonses and the third summons was not served,

appellant cannot be held guilty of violating Section 11C(2) and 11C(3) of

SEBI Act. It is further contended that since the investigation report has

concluded that the appellant was not involved in the violations relating to

the scrip of the company, the proceedings initiated against the appellant

for non-compliance of the summonses ought to have been dropped.

5. We see no merit in the above contention. Admittedly, the

appellant, during the course of his statement recorded on 27.04.2016 had

specifically agreed to furnish certain information by 30.04.2016, but

failed and neglected to furnish the same. Thereupon, summonses were

issued again and again calling upon the appellant to furnish requisite

information, but the appellant failed and neglected to furnish the

information. In such a case, fact that the summonses were served beyond

the date prescribed in the summonses for furnishing the information

cannot be a ground for the appellant not to furnish the information

especially when the appellant himself had agreed to furnish the

information by 30.04.2016. Similarly, fact that the investigation report

concludes that the appellant was not involved in the violations relating to

the scrip of the company, cannot be a ground to hold that the appellant

has not violated Section 11(C)(2) and 11C(3) of SEBI Act. Thus, in the 4

facts of present case, since the appellant is guilty of not furnishing the

information called for, decision of the AO that the appellant has violated

Section 11C(2) and 11C(3) of SEBI Act cannot be faulted.

6. Question then to be considered is, whether, the AO is justified in

imposing penalty of ` 2 lac, on the appellant. In our opinion, imposition

of ` 2 lac as penalty is unjustified for the following reasons:-

a) Appellant on receiving the summons for recording

statement had in fact appeared and his statement was

recorded.

b) Admittedly, the two summonses seeking information

were served after the date for compliance set out in

those summonses. Thus, even SEBI is guilty of not

serving the summonses before the date for compliance

set out in the summonses.

c) It is apparent that the information sought from the

appellant was not a vital information, because the

investigation continued without the information called

for and it is not the case of SEBI that failure on part of

the appellant to furnish the information has hampered

the investigation.

5

d) On the contrary, the investigation report clearly

records that the appellant was not involved in the

violation relating to the scrip of the company.

e) Appellant is found guilty of not furnishing the

information under the summonses served beyond the

date for compliance set out in the summonses for the

first time and there is nothing on record to suggest

that such violation has been repeated.

In these circumstances, in the facts of present case, in our opinion,

it would be just and proper to issue warning to the appellant

instead of imposing penalty of ` 2 lac.

7. Strong reliance was placed by counsel for SEBI on the Apex Court

decision in case of Vijay Mallya V/s Enforcement Directorate reported in

(2015) 8 SCC 799 in support of his contention that the penalty imposed

on the appellant is justified. That decision is distinguishable on facts,

because, in that case, criminal proceedings were initiated under Section

56 of Foreign Exchange Regulation Act, 1973 ("FERA") for avoiding

summons/ not attending in obedience to summons and in that case Vijay

Mallya (Supra) was seeking quashing of the criminal proceedings on

ground that the AO had dropped the proceedings. In that context, Apex

Court held that the criminal proceedings initiated under Section 56 of

FERA are independent from the penalty proceedings and therefore,

dropping of the penalty proceedings by the AO cannot be a ground for 6

quashing the criminal proceedings. Further, the Apex Court observed

that dropping of the penalty proceedings by the AO in that case had not

attained finality, because, appeal filed against the order of AO was

pending. In the present case, investigation report holds that the appellant

was not involved in the violations relating to the scrip of the company

and further, for non-compliance of the summonses, only adjudication

proceeding was recommended. Moreover, finding recorded in the

investigation report that the appellant was not involved in the violations

relating to the company is accepted by SEBI and it has attained finality.

Thus, the decision of the Apex Court in the case of Vijay Mallya (Supra)

is wholly distinguishable on facts.

8. Similarly, decision of this Tribunal in case of Concord Realty Pvt.

Ltd. V/s SEBI (Appeal No. 22 of 2016 decided on 14.07.2016) relied

upon by counsel for SEBI is distinguishable on facts. In that case, the

appellant therein had not only failed to furnish all information but also

failed to appear inspite of receiving the summons. In the present case,

there is no finding that the appellant failed to appear before the

investigating officer. In fact, pursuant to the summons, appellant

appeared before the investigating officer for recording his statement.

Therefore, decision of this Tribunal in case of Concord Realty Pvt. Ltd. is

also distinguishable of facts.

9. Accordingly we hold that in the facts of present case, it would be

just and proper to issue a warning to the appellant to comply with the

summonses whenever issued.

7

10. Before concluding, we would like to place on record that in the

interest of investors SEBI must concentrate more on persons who have

committed market violations instead of concentrating on persons like the

appellant who is admittedly not involved in the market violations but

only failed to furnish information called for under the summonses which

were served after the date for compliance set out in the summonses for

furnishing the information and which information is ultimately found to

be not relevant for investigation.

11. In the result, while uploading the decision of AO that the appellant

has violated Section 11C(2) and 11C(3) of SEBI Act, we modify the

order passed by the AO by setting aside the penalty of ` 2 lac imposed

on the appellant and issue a warning to the appellant that he would be

penalized if he commits such violation again.

12. Appeal is disposed of in the aforesaid terms with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 21.03.2018 Prepared & Compared By: PK