Rushabh Jitendra Shah vs Sebi

Date of Decision : 10.01.2020

Misc. Application No. 597 of 2019 And Appeal No. 554 of 2019

Rushabh Jitendra Shah Flat No. 7/8, Lalkrupa Hingwala Lane, Ghatkopar (East), Mumbai - 400 077. ..... 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. Aseem Naphade, Advocate i/b Mr. Deepak Jamsandekar, Advocate for the Appellant. Mr. Abhiraj Arora, Advocate i/b ELP for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member (Oral)

Misc. Application No. 597 of 2019:-

1.

There is a delay of 109 days in filing the appeal. For the

reasons stated in the Misc. Application, the delay in filing the

appeal is condoned. The Misc. Application is allowed. 2

Appeal No. 554 of 2019:-

1. This appeal has been filed to challenge the order dated

April 30, 2019 passed by the Adjudicating Officer ('AO' for

short) of Securities and Exchange Board of India ('SEBI' for

short). By the said order penalty of Rs. 20 lakh has been

imposed under Section 15A(b) of SEBI Act for violation of

Regulations 13(4), 13(4A) read with 13(5) of SEBI

(Prohibition of Insider Trading) Regulations, 1992 ('PIT

Regulation' for short) and Rs. 5 lakh under the provisions of

Section 15HB of the SEBI Act for violation of the Model

Code of Conduct prescribed by Regulation 12(1) (Schedule 1

Part A, para 4.2 of PIT Regulations).

2. The appellant is the Managing Director of M/s. Aadi

Industries ('Company'). A number of transfers between the

appellant and one Minesh D. Shah (another noticee in the

same matter) in the shares of the Company between January

2013 to June 2014 having not being disclosed to the Stock

Exchange resulted in the violation of the stated provisions of

the PIT Regulations and Model Code of Conduct prescribed

by Regulation 12(1) of the PIT Regulations and Regulation

29(2) read with 29(3) of the SEBI (Substantial Acquisition of

Shares and Takeover) Regulation, 2011 ('SAST Regulations' 3

for short). Accordingly, a show cause notice was issued on

June 4, 2018 directing the appellant (and other noticee) to

show cause as to why penalty under Section 15A(b) and

Section 15HB of the SEBI Act should not be imposed.

3. The appellant's contention was that a loan was taken

from Minesh D. Shah on account of the losses of the

Company and consequently, the said shares were transferred.

It was also stated that after the issuance of the impugned

order, a settlement application was also filed before SEBI

which was retuned on account of deficiencies.

4. The learned counsel Shri. Aseem Naphade appearing on

behalf of the appellant submitted that the alleged violation

was unintentional; since it is multiple share transactions

between the same two parties and that too in small quantities

on different dates it should be treated as one offence and not a

repetitive offence; an e-mail was sent to Bombay Stock

Exchange on July 27, 2018 making the required disclosure

though the said e-mail was not submitted to SEBI and in any

case since the impugned order specifically states that the

losses caused on account of the alleged non-disclosure cannot

be quantified nor the gain accrued to the appellant also cannot

be quantified and the default is not repetitive in nature and is 4

at best only a continuing offence the penalty of Rs. 25 lakh

imposed on the appellant is too harsh and disproportionate.

5. The learned counsel for the appellant also relied on a

decision of the Supreme Court in Adjudicating Officer, SEBI

vs Bhavesh Pabari, (2019) 5 SCC 90 to support the

contention that the offence is not a repetitive one and factors

under Section 15J by SEBI Act are not exhaustive. Further,

the learned counsel for the appellant also relied on Narmada

Chematur Petrochemicals Ltd. vs. Adjudicating & Enquiry

Officer, SEBI 2005 SCC OnLine SAT 74 wherein for a

similar offence of a first time nature penalty was reduced

from Rs. 75,000/- to Rs. 10,000/- etc.

6. The learned counsel Shri Abhiraj Arora, appearing on

behalf of the respondent SEBI on the other hand contended

that the violation by the appellant is repetitive as every

transaction under question had to be disclosed. There were 28

transactions to be disclosed under PIT Regulations, 17 under

SAST Regulations and 11 under the Code of Conduct and

therefore collectively there are 66 violations. Moreover, the

penalty imposable for each violation ranges from Rs. 1 lakh to

Rs. 1 crore and therefore the total penalty of Rs. 25 lakh 5

imposed on the appellant is far from being disproportionate or

harsh.

7. Having heard the learned counsel for the parties and

having perused the documents we find no merit in the appeal.

Records clearly indicate that there are number of non-

disclosures from the side of the appellant. Appellant was the

Managing Director of the Company whose shares had been

transferred. The submission that the appellant had committed

only a single violation cannot be accepted as on each occasion

when the shares were transferred as detailed in the show

cause notice as well as in the impugned order the appellant

was liable to make the disclosures which are admittedly not

done. Given the number of times the violations have been

committed we find no error in the impugned order for finding

the violation repetitive in nature. Further, the submission that

an e-mail was sent on July 27, 2018 after 4 years of the

transactions disclosing the transactions is also an afterthought

and admittedly not produced before the AO of SEBI.

8. Given these factors we do not find any justifiable reason

to interfere with the impugned order. The penalty of Rs. 25

lakh imposed is not too harsh and disproportionate in the

given circumstances and the provisions governing imposition 6

of penalties for the stated violations. The judgments relied on

by the appellant is distinguishable on facts.

9. In the result, the appeal is dismissed with no order on

costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

10.01.2020 Prepared and compared by:msb