Naishadh Desai vs Sebi

Date of Decision: 27.11.2019

Appeal No.404 of 2019 Naishadh Desai 3, Serenity, Nariman Road, Vile Parle (East), Mumbai - 400 057. ... Appellant

Versus

Securities & Exchange Board of India SEBI Bhavan, Bandra Kurla Complex, Mumbai - 400 051. ...Respondent

Mr. Naishadh P. Desai, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Advocate and Mr. Shehaab Roshan, Advocate i/b. K. Ashar & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per : Justice M.T. Joshi (Oral)

1.

Aggrieved by the imposition of penalty of Rs.12 lakhs

for the violation of the provisions of clause 3.3.1 of Model

Code of Conduct for Prevention of Insider Trading for listed

companies specified under Schedule I of Part A (hereinafter

referred to as "Model Code of Conduct) read with Regulation

12(1) of the Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulations, 1992

(hereinafter referred to as 'PIT Regulations, 1992') and 2

Regulation 12 of Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulations, 2015

(hereinafter referred to as 'PIT Regulations, 2015') the

present appeal is preferred.

2. Admitted facts of the case are that while the appellant

was working as Senior Vice President and Company

Secretary of Financial Technologies (India) Limited

(hereinafter called as the Company) he has in the month of

June, 2012 and July, 2012 traded beyond threshold limit of

5000 shares of the Company without obtaining pre-clearance

of the transactions as mandated by clause 9(b)(i) of the Code

of Conduct. Those transactions are as under:-

Date Buy Buy Value Sell Sell Value Quantity Quantity 22.06.2012 1,000 6,84,000 1,000 6,87,000 25.06.2012 1,000 7,11,000 1,000 7,12,747 26.06.2012 1,000 7,20,000 1,000 7,31,342 28.06.2012 1,000 7,20,000 1,000 7,26,000 29.06.2012 1,000 7,32,997 1,000 7,36,987 Total (June) 5,000 35,67,997 5,000 35,94,076 02.07.2012 1,000 7,45,000 1,000 7,55,020 03.07.2012 2,000 15,29,994 2,000 15,35,673 05.07.2012 1,000 7,56,000 1,000 7,48,650 06.07.2012 1,000 7,51,596 1,000 7,43,900 09.07.2012 1,000 7,52,941 1,000 7,45,900 11.07.2012 1,000 7,77,000 1,000 7,74,776 Total (July) 7,000 53,12,531 7,000 53,03,919 Grand Total 12,000 88,80,528 12,000 88,97,995 (June + July) 3

3. The appellant submitted that in his career of 28 years

for the first time inadvertently due to the communication gap

between himself and his broker trading in the shares of the

Company had occurred. He had already undergone multiple

angioplasties in the recent past which had affected his

earnings significantly. Therefore, he was not able to work

full time and, therefore, the lapse may be condoned.

4. The Adjudicating Officer took into consideration the

provisions of Section 15HB of the Securities and Exchange

Board of India Act, 1992 (hereinafter referred to as 'SEBI

Act') which provides for maximum penalty of Rs.1 Crore

where no separate penalty is provided. He also took into

consideration the provisions of Section 15J of the SEBI Act

which provides for taking into consideration three factors

while adjudging the quantum of penalty.

a) the amount of disproportionate gain or unfair

advantage, wherever quantifiable, made as a result of

the default;

b) the amount of loss caused to an investor or group

of investors as a result of the default;

c) the repetitive nature of default 4

5. The Adjudicating Officer after adverting to these

provisions underlined that the violation was repetitive in

nature for two months. It was further observed that the

amount of disproportionate gain or unfair advantage to the

noticee or loss caused to the investor as a result of default

cannot be quantified from the available material on record.

In the circumstances, the penalty of Rs.12 lakhs as detailed

supra came to be imposed. Hence the present appeal.

6. Mr. Somasekhar, learned counsel for the appellant

submits that the appellant does not deny that the violation of

the provision has been committed. He however submitted

that in the circumstances penalty imposed is too harsh. He

pointed towards the fact that the total gain made by the

appellant by alleged violation is Rs.88,97,995 - Rs.88,80,528

= Rs.17,467/-. He therefore submitted that under the

provision of Section 15HA of the SEBI Act a penalty three

times the amount of the profit i.e. Rs.55,000/- could be just

and reasonable.

7. On the other hand, Mr. Kumar Desai, learned counsel

for the respondent submitted that taking into consideration

the repetitive nature of the violation the penalty imposed by

the Adjudicating Officer is just and proper. 5

8. Upon hearing both the sides, in our view, the penalty

imposed by the Adjudicating Officer is disproportionate to

the violation in the circumstances, as detailed by the

appellant. The appellant had a long career of 28 years prior

to the violation. He had undergone multiple angioplasties.

He explained that due to a communication gap between him

and the broker the violation had occurred which resulted into

a meager profit of Rs.17,467/-. Taking into consideration

these factors in our opinion a penalty of Rs. 2 lakhs instead of

Rs.12 lakhs as imposed by the Adjudicating Officer would be

just and sufficient.

9. For the reasons stated aforesaid, the appeal is partly

allowed. The impugned order is affirmed except the penalty

which is reduced from Rs.12 lakh to Rs.2 lakh which shall be

paid within four weeks from today by the appellant to

respondent SEBI.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member

27.11.2019 Prepared and compared by RHN