Sanjay Jethalal Soni & Ors. vs Sebi

Order Reserved on: 05.11.2019

Date of Decision : 14.11.2019

Appeal No. 102 of 2019

1.

Sanjay Jethalal Soni

2. Krupa Sanjay Soni

3. J M Soni Consultancy through its proprietor Sanjay Jethalal Soni 36, Malay Bungalows, Science City Road, Sola, Ahmedabad - 380 001. ..... Appellants

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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.

Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 122 of 2019

Amul Gagabhai Desai 135, Ranuja Nagar, Opp. Anand School, Ahmedabad - 380 015. ..... Appellant 2

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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.

Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 193 of 2019

1. Dhiren Dharamdas Agrawal 13, Shardanagar Housing Society, Lane no. 1, Paldi, Ahmedabad - 380 007.

2. Krunal Gopaldas Rana Z-1072, Khedavalano, Khando, Khambat - Cambay Anand 388620. ..... Appellants

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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.

Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

3

WITH Appeal No. 268 of 2019

Mahesh Somabhai Desai B17, Chaapra, Nr. Chhaya Flat, Somabhai Rabari Vasahat, Ghatlodia, Ahmedabad - 380 061. ..... 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. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.

Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners for the Respondent.

WITH Appeal No. 269 of 2019

1. Jimish Jitendrabhai Soni

2. Vaishali Jimish Soni

A-301, Dharti Crystal, IOC Tragad Road, Chandkheda, Ahmedabad - 382424. ..... Appellants

Versus

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

Mr. Nishant K. Upadhyay, Advocate with Mr. Vijay Pandey, and Mr. Akhil Sarathy, Advocates i/b Jyoti Pandey for Appellants.

Mr. Karan Bhosale, Advocate with Mr. Chirag Bhavsar and Ms. Eram Quraishi, Advocates i/b MDP & Partners 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

1. Separate appeals have been filed against a common

order and the same are being decided together. For facility,

the facts stated in Appeal No. 102 of 2019 is being taken into

consideration.

2. The appellants have filed the present appeal against the

order dated October 25, 2018 passed by the Adjudicating

Officer ('AO' for short) of the Securities and Exchange Board

of India ('SEBI' for short) under 15-I(2) of the Securities and

Exchange Board of India Act, 1992 ('SEBI Act' for short)

imposing a penalty for violation of Section 12(A)(a),(b) and

(c) of the SEBI Act and Regulations 3(a),(b),(c),(d),4(1),

4(2)(a) and (g) of SEBI (Prohibition of Fraudulent and Unfair

Trade Practices relating to Securities Market) Regulations, 5

2003 ('PFUTP Regulations' for short). The AO found that the

appellants had indulged extensively as a group executing

match trades and self trades in a manipulative manner which

had an element of fraud and unfair practice and therefore

imposed a penalty under Section 15HA of the SEBI Act.

3. The facts leading to the filing of the appeals are that

SEBI conducted investigation in the group of Shree Global

Tradefin Ltd. for the period March 1, 2009 to November 30,

2009 and again investigated for the same scrip for the period

April 1, 2010 to January 10, 2011. For the first investigation

period a show cause notice dated April 20, 2012 was issued.

The AO passed an order dated September 14, 2012 imposing

a penalty of Rs. 30 lakh. The said appellants filed an appeal

before this Tribunal and the penalty was reduced from Rs. 30

lakh to Rs. 10 lakh each. The Tribunal while reducing the

penalty in its order dated January 24, 2014 observed that

SEBI has not taken any action against the group which had

indulged in the manipulative practice and fraud and that no

action was taken against those persons who acted as a group

along with the said appellants.

4. After the decision of the Tribunal, a show cause notice

dated July 20, 2017 was issued for the investigated period 6

April 1, 2010 to January 10, 2011 for the same violation and

for trading in the same scrip by the appellants. The AO after

giving an opportunity of hearing passed the impugned order

imposing penalty under Section 15HA of the SEBI Act.

5. We have heard Shri Nishant Upadhyay, the learned

counsel for the appellants and Shri Karan Bhosale, the learned

counsel for the respondent. The learned counsel for the

appellants submitted that the impugned order cannot be

sustained as the principle of res judicata would squarely

apply in the instant case. It was contended that when the first

show cause notice dated April 20, 2012 was issued, the

investigation of the present appeal for the period April 1,

2010 to January 10, 2011 had already been conducted and all

information was with the respondent and therefore the first

show cause notice dated April 20, 2012 should have included

all the grounds and should not have issued a second show

cause notice dated July 20, 2017. It was contended that the

grounds for issuing the show cause notice is the same,

namely, that the appellants have committed an offence of

Regulation 3 and 4 of the PFUTP Regulations for match

trades and self trades for the scrips of Shree Global Tradefin

Ltd. and consequently the second show cause notice dated 7

July 20, 2017 is barred by the principle of res judicata. It was

urged that the principle of Order II Rule 2 of the Code of

Civil Procedure would squarely apply in the instant case and

consequently the respondents are estopped from initiating any

proceeding pursuant to the second show cause notice. In

support of his contention the learned counsel placed reliance

upon a decision of the Supreme Court in State Bank of India

vs Gracure Pharmaceuticals Limited (2014) 3 SCC 595.

6. In addition to the aforesaid, the learned counsel for the

appellants further submitted that there is an inordinate delay

in initiating the proceedings and therefore on this short

ground the proceedings initiated by the respondent should be

dismissed on the ground of latches. It was contended that

whereas investigation was conducted for the period April 1,

2010 to January 10, 2011 the second show cause notice was

issued on July 20, 2017 after seven years. It was urged that

there was no justification as to why proceedings could not be

initiated earlier. In support of the submission, the learned

counsel for the appellants placed reliance upon a decision of

this Tribunal in Ashok Shivlal Rupani vs SEBI and other

companion appeals in Appeal No. 417 of 2018 decided on

August 22, 2019 wherein the order of penalty was set aside 8

on account of an inordinate delay in the initiation of the

proceedings.

7. It was further contended that the finding of the AO on

the issue of self trades and match trades is patently erroneous

and does not lead to a finding that the appellants were

indulging in self trades and match trades in a manipulative

manner which amounted to fraud and unfair trade practice.

8. On the other hand, the learned counsel for the

respondent submitted that the principle of res judicata is not

applicable nor the principle of estoppel would apply in the

facts of the given case. It was contended that the first show

cause notice dated April 20, 2012 was issued to such noticees

who were different to the noticees issued in the second show

cause notice dated July 20, 2017. It was contended that

barring a few noticees which were common there were other

noticees which had no role to play in the scrip of the earlier

investigated period. It was thus contended that there was

separate cause of action and the principle of res judicata was

not applicable.

9. The learned counsel for the respondent further

contended that there is no inordinate delay in the initiation of 9

the proceedings and as and when it was noticed the matter

was investigated and thereafter the proceedings were initiated.

It was also contended that this ground was never raised before

the AO and has been raised before this Tribunal for the first

time.

10. On merits, it was contented that the AO has given a

categorical finding that the appellants had indulged in

matched trades and self trades in a manipulative and

fraudulent manner which amounted to unfair trade practices

and had therefore violated Regulation 3 and 4 of the PFUTP

Regulations. This finding is based on evidence which does

not require any interference.

11. Having heard the learned counsel for the parties at some

length we find that the respondent had investigated the scrips

of Shree Global Tradefin Ltd. for the period March 1, 2009 to

January 10, 2011 in September 2011. Pursuant thereto,

a show cause notice dated April 20, 2012 was issued for the

violation found during the investigated period March 1, 2009

to November 30, 2009. The respondents thereafter waited for

another five years to issue a second show cause notice dated

July 20, 2017 for the investigated period April 1, 2010 to 10

January 10, 2011 which had been investigated in September

2011. We find that the respondents were aware of the alleged

violation and thus there is no justification for waiting for

more than five years to issue the second show cause notice

dated July 20 2017. In our view there is an inordinate delay

in initiating the proceedings.

12. In Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No.

7 of 2016 decided by this Tribunal on May 27, 2019 it was

held:-

"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held:

11 "There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."

The Tribunal on account of an inordinate delay in

initiating the proceedings had quashed the penalty order. The

same view was reiterated by this Tribunal in Ashok Shivlal

Rupani & Anr. vs SEBI decided on August 22, 2019.

13. As a result, without going into the question of

res judicata or estoppel raised by the appellants we are of the

opinion that on account of the inordinate delay in initiating

the proceedings, the impugned penalty order cannot be

sustained.

14. Even on merits, we find that during the investigation

period the observed variations in prices as well as of

quantities traded are less than what was the trend during the

pre-investigation period. Table at page 3 of the impugned

order gives these details. Similarly, we also note that the

percentage of matched trades are negligible except in respect

of 2-3 appellants. Given these facts the alleged intention to 12

manipulate becomes a weak ground for issuing a second show

cause notice after considerable delay.

15. Consequently, the show cause notice and the impugned

order passed by the AO are quashed. All the appeals are

allowed. No orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 14.11.2019 Prepared and compared by:msb