Mr. Sunil Mansinghani And Anr. vs Sebi

Order Reserved on: 16.12.2016 Date of Decision : 29.12.2016

Appeal No.248 of 2014

1.

Mr. Sunil Mansinghani

2. Ms. Kanchan Mansinghani 18/4, Navjivan Society, Mori Road, Mahim, Mumbai - 400 016. ...Appellants

Versus

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

2. National Stock Exchange of India Ltd.

Exchange Plaza, Plot No.C/1, G Block, Bandra Kurla Complex, Bandra(E), Mumbai - 400051. ...Respondents

Mr. Sharan Jagtiani, Advocate with Ms. Dhwani Mehta and Ms. Neha Kumtha, Advocates i/b DM Law Chambers for Appellants.

Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate i/b. Vigil Juris for the Respondent No.1.

Mr. Rahul Jain, Advocate i/b Manilal Kher Ambalal & Co. for Respondent no.2.

WITH Appeal No.250 of 2014

Ashok Daswani Devdarshan, A Wing, 1st Floor, Mughal Lane, Mahim (West), Mumbai - 400016. ...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 2

Ms. Dhwani Mehta, Advocate with Ms. Neha Kumtha, Advocate i/b DM Law Chambers for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate i/b. Vigil Juris for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair

1. The appellants in both these appeals are aggrieved by the impugned

order passed by the Whole Time Member of the Securities and Exchange

Board of India ('SEBI' for short) dated April 23, 2014. By the said order

Sunchan Securities Limited ('Sunchan' for short) and the appellants who

were Directors of Sunchan were restrained from the securities markets and

ordered to refund the investors and replenish the Investor Protection Fund of

the NSE and BSE from where some funds had been given to the investors.

2. Aggrieved by this order three directors of the company filed appeals.

Mr. Sunil Mansinghani and Ms. Kanchan Mansinghani have filed Appeal

no.248 of 2014 and Mr. Ashok Daswani has filed Appeal no.250 of 2014.

Since both these appeals arise from the same impugned order dated April

23, 2014 passed by SEBI these appeals are heard together and disposed of

by this common order.

3. Facts relevant to the case are as follows:

(a) Sunchan was a stock broker registered with NSE and BSE.

Based on various complaints received by SEBI during December

2008-January 2009 regarding non-receipt of funds / securities and

other investor grievances, NSE and BSE were advised by SEBI to 3

carry out a special purpose inspection of Sunchan and submit

factual reports to SEBI. The inspection reports thus forwarded by

NSE and BSE contained findings relating to misuse of client

funds and securities, failure to deliver securities and funds to

clients, non-maintenance of records, failure to redress grievances,

disproportionate exposure to clients etc.

(b) Based on the findings in the inspection report and after due

consideration SEBI issued an ad-interim ex-parte order dated

January 30, 2009 inter alia directing Sunchan, its Directors and

Compliance Officer not to deal in securities market in any manner

whatsoever, pending enquiry. The interim directions contained in

the order dated January 30, 2009 was confirmed vide SEBI's

order dated October 26, 2009 after providing opportunity of

personal hearing to Sunchan, its Directors and Compliance

Officer. By this confirmatory order certain corrections were also

made regarding the record on the Directors of Sunchan which had

erroneously crept into the ex-parte interim order.

(c) In parallel SEBI had initiated an enquiry proceeding against

Sunchan in terms of SEBI Intermediaries Regulations,

2008(referred to hereinafter as 'Intermediaries Regulations') and

passed an order dated December 8, 2010. By this order the

certificate of registration of Sunchan was cancelled. It is on

record that Sunchan did not appeal against this order and instead

took steps to liquidate the company.

(d) Following the finding in the special inspection report and the

enquiry proceedings in Sunchan as stated in para (c) above, show

cause notices were issued to Sunchan, its four Directors (Mr.

Sunil Mansinghani, Ms. Kanchan Mansinghani, Mr. Ashok 4

Daswani and Mr. Suresh Gama Yadav) and Compliance Officer

(Mr. Riyaz Ismail Shaikh).

(e) After giving opportunities of personal hearing, which some of the

appellants availed, and written submissions SEBI passed the

impugned order on April 23, 2014, under Section 19 read with

11B and 11(4) of SEBI Act, 1992 which directed as follows:-

(i) Sunchan, the 4 directors and the Compliance Officer were

restrained from buying, selling or dealing in securities and

in accessing the securities market directly or indirectly for

a period of 7 years.

(ii) The 4 Directors and the Compliance Officer were barred

from holding any position of Director or Compliance

Officer in any listed Company or being associated with any

SEBI regulated entity for 7 years.

(iii) Sunchan and the Directors to replenish the Investor

Protection Fund ('IPF' for short) of Bombay Stock

Exchange and National Stock Exchange of India Ltd. to

the extent of Rs.1,86,93,149/- and Rs.2,58,32,823.72/-

respectively.

(iv) Sunchan and its directors to compensate investors to the

extent their claims which were not fully met out of the IPF.

(v) In case the appellants fail to deposit the funds as at (iii)

and (iv) above Sunchan and its Directors shall be

restrained for a further period of 10 years from the

securities market.

4. Before SEBI and in the two appeals before this Tribunal the

appellants had contended that it was the mistakes made by the Clearing 5

Member, namely SMC Global Securities Ltd. ('SMC' for short) in not fully

honouring the conditions in the agreement entered into by Sunchan with

them which resulted in many of the infirmities. It was also contended by the

Appellants that the NSE was responsible in not taking action against SMC

in the matter. Accordingly, the appellants in Appeal No. 248 of 2014

impleaded SMC as Respondent No. 2 and NSE as No. 3 in addition to SEBI

which is Respondent no.1.

5. Shri Sharan Jagtiani, learned counsel for the appellants argued the

matter in detail relating to Appeal no.248 of 2014. However, during the

course of the hearing the appellants filed an application for deleting the

name of Respondent no.2 following an arbitration agreement between the

appellants and Respondent no.2. As such many of the contentions made in

the appeal became infrucutous and the learned counsel made submissions

mainly on the need for mitigating the extremely harsh punishment given to

the appellants. It was argued that the charge against the appellants were that

of negligence in dealing with the clients, not that of fraud. And for such

negligence retraining the appellant for a period of 17 years (7 years as a

primary punishment and 10 years in case of not honouring the repayment of

the amounts ordered in the impugned order) is too harsh. There is no

serious finding in the impugned order to support such a harsh punishment to

provide an extra 10 years of debarment from the securities market. The

appellants have already undergone 7 years of debarment from the date of the

ad-interim ex-parte order dated January 30, 2009.

6. It was further argued that while the quantum of money due to the

investors or as quantified for replacement in the IPF is not disputed the

appellants are not in a position to pay the balance. Sincere efforts were 6

made by the appellants and hence it should come to their help in the form of

mitigating factor. Consequences of not paying the investors have not been

set out in the show cause notice. Without disclosing such consequences in

the show cause notice, such harsh punishment of additional 10 years

debarment ought not to have been imposed. Such a serious punishment in

the form of a punitive order against the Directors for the mistakes of

Sunchan is not justifiable under Section 27 of the Securities and Exchange

Board of India Act, 1992 ('SEBI Act' for short). For all the above reasons,

the learned counsel for the appellants prayed that the additional period of 10

years of restraint imposed on the appellants be quashed treating the basic

restraint of 7 years already undergone by the Appellants as sufficient

punishment in the instant matter.

7. Mr. Kumar Desai, learned counsel for SEBI argued that under

Section 27 of the SEBI Act Directors of the company can also be proceeded

against for the offences committed by the company. Section 27(1) states as

follows: "Where an offence under this Act has been committed by a

company, every person who at the time the offence was committed was in

charge of, and was responsible to, the company for the conduct of the

business of the company, as well as the company, shall be deemed to be

guilty of the offence and shall be liable to be proceeded against and

punished accordingly". It was further argued by the counsel for SEBI that

Sunchan has not appealed against the impugned order as it is wound up.

Moreover, Sunchan did not appeal even against the order dated 08.12.2010

whereby its certificate of registration was cancelled; instead it preferred to

wind itself up. Therefore, the appellants cannot take the stand that the

Directors are not responsible when they did not prefer an appeal against the

order and decided to wind up the Company in offence. Further it was 7

argued that neither the fourth Director Mr. Surendra Gama Yadav nor the

Compliance Officer Mr. Riaz Ismail Shaikh have appealed against the

impugned order.

8. We do not find any merit in the arguments put forth by the learned

counsel for the appellant. It is not in dispute that payments were due to the

investors and they were not fully paid. The quantification of payment made

from the investor fund to the investors is not in dispute. Cancellation of the

certificate of registration of Sunchan as a broker by SEBI's order dated

8.12.2010 was not appealed against and Sunchan has been wound up. We

also do not agree with the contention that under Section 27 of the SEBI Act

the Directors of the company responsible for the actions of the company

cannot be proceeded against. It is also on record that out of more than Rs.

9.52 crore payment due to various investors Rs. 4.45 crore have been made

from the IPF of BSE and NSE and only a small amount of Rs. 1.39 crore has

been paid from the assets of Sunchan. Moreover, there is an unpaid amount

of more than 5 crore to be paid to the investors. So the argument that the

appellants have made sincere efforts in paying of the dues to the investors

cannot be sustained. Being a major brokerage it was the responsibility of

Sunchan and its Directors to ensure that the funds and assets of its clients

were properly managed under the relevant regulations following due care

and diligence. Rather than discharging these basic duties the company

decided to wind up and left a large number of clients in the lurch.

Therefore, asking the appellants and other Directors of the company to make

good what is due from them to the investors cannot be faulted. Their

unwillingness/incapability for paying is not a ground for mitigation. It is

also noted that the argument of the learned counsel for the appellant was not

for reducing the additional restraint of 10 years but for completely quashing 8

the same. Since the Company and its Directors have not paid the dues to the

investors or replenished the IPF from where some funds has been taken to

partly pay up the aggrieved investors the additional restraint of 10 years

imposed on the appellants by the impugned order cannot be faulted.

9. For all the aforesaid reasons both the appeals are dismissed with no

order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G.Nair Member

29.12.2016 Prepared and compared by:

RHN/msb