Parsoli Corporation Ltd. vs Sebi

Date of Decision : 09.12.2019

Appeal No. 134 of 2018

Parsoli Corporation Ltd. Oracle Point, Ground Floor, 3, Guru Nanak Road, Bandra (West), Mumbai - 400 050. ... 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. B. M. Chatterji, Senior Advocate i/b Mr. Ranit Basu, Advocate for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Anubhav Ghosh, 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 present appeal has been filed against the order of the

Adjudicating Officer (hereinafter referred to as, 'AO') of Securities

and Exchange Board of India (hereinafter referred to as, 'SEBI')

imposing a penalty of Rs. 15 lacs for violation of the provisions of

Regulations 3 and 4 of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations, 2003 (hereinafter referred to as,

'PFUTP Regulations') and Clauses A(1) to A(5) of the Code of

Conduct specified in Schedule II read with Regulation 9 of the

Securities and Exchange Board of India (Stock Brokers and Sub-

brokers) Regulations.

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

appellant is a stockbroker and had registered a client, namely, Nilesh

Prajapati who traded in the scrip of Dalal Street Investments Ltd.

(DSIL) which were highly illiquid shares on September 10, 2008 and

again on September 26, 2008 by selling a total 150 shares on account

of which the share price of the stock rose alarmingly creating an

artificial volume and market price in the said scrip. It was found that

when the scrip was sold by the appellant's client on September 10,

2008, he did not possess the requisite shares and, accordingly, the 3

appellant's client failed to deliver the shares. In spite of this default

in the delivery of shares, the appellant allowed his client again to sell

30 shares of the same scrip on September 26, 2008. The appellant

was thus, charged for not carrying out proper due diligence in the

registration of his client in as much as it was the appellant's

responsibility as a stockbroker to satisfactorily identify his client and

further, continuously satisfy itself about the genuineness and

financial soundness of the client which the appellant miserably failed

to do so. Further, the genuineness of the client also became doubtful

as during the investigation, the client could not be traced.

3. We have heard the learned counsel for the parties.

4. We find that the appellant is not entitled for any relief

whatsoever. During the investigation, the appellant did not furnish

the requisite information to the investigation team. Further, no reply

was filed by the appellant pursuant to the show cause notice. Inspite

of service of the summons, the appellant failed to appear nor filed

any reply to defend himself even though ample opportunity of

personal hearing was given.

4

5. Thus, we are of the opinion that the charge levelled against the

appellant remained unreburted. Further, we find that the AO

considered the material evidence on record and came to a conclusion

that the price payable to the stock exchange pursuant to the default

committed by the appellant's client in the delivery of shares was not

recovered by the appellant from its client leads to an irresistible

inference that the appellant was itself dealing in the illiquid scrip in

order to create artificial volume and market price for vested gain. It

has come on record that during the period when the appellant's

alleged client sold 120 shares the price rose from Rs. 4,351/- per

share to Rs. 4,438/- per share. The AO was thus, of the opinion that

creating artificial volumes and increase in the price scrip was

violative of Regulations 3 and 4 of the PFUTP Regulations. The AO

also found that due diligence was not carried out by the appellant in

the registration of the client and that the appellant had failed to

satisfy itself about the genuineness and financial soundness of its

client.

6. Before us, the learned counsel for the appellant tried to satisfy

the Tribunal that due diligence had been carried out and that the PAN

Card, KYC, etc. was all obtained from the client. We are of the

opinion that the documents filed before this Tribunal were not 5

produced by the appellant either before the investigation team or

before the AO. Such documents cannot be considered by this

Tribunal unless leave of the Tribunal is taken by filing an application

for production of additional evidence in consonance with the

principles of Order 41 Rule 27 of the Code of Civil Procedure. Such

documents cannot be entertained nor can it be considered by the

Tribunal.

7. It was urged that the penalty imposed was excessive and not

inconformity with the misconduct. It was also urged that the factors

available under Section 15J of the Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as, 'SEBI Act') has not been

taken into consideration. In this regard, we find that the AO has

considered the factors under Section 15J of the SEBI Act and has

held that the material available on record is insufficient to quantify

the amount of disproportionate gain or unfair advantage made by the

appellant or the loss suffered by the investors as a result of the acts

done by the appellant can be ascertained. Considering this aspect,

we find that since the quantification could not be done, the AO on the

basis of approximation has levied a penalty of Rs. 15 lacs which in

our opinion is just and appropriate. In the given facts and

circumstances of the case, we find that a maximum penalty under 6 Section 15HA and 15HB is Rs. 25 crores which could be imposed.

Considering the gravity of the offence, the AO has only imposed a

penalty of Rs. 15 lacs instead of imposing a maximum penalty.

8. For the reasons stated aforesaid, we do not find any merit in

the appeal. Dismissed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 09.12.2019 Prepared & Compared by PTM