Sham Sadhuram Gandhi vs Sebi

Order Reserved on:26.8.2019 Date of Decision: 8.11.2019

Appeal No.106 of 2019

Sham Sadhuram Gandhi 6 White Rose Apartments N Dutta Marg, Andheri (West) Mumbai - 400053. ..... Appellant

Versus

The Securities & Exchange Board of India SEBI Bhavan, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai 400051. ...... Respondent

Mr. Sham S. Gandhi, Appellant-in-person.

Mr. Sumit Rai, Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates 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

1.

Aggrieved by the direction of the Adjudicating Officer

(hereinafter referred to as 'AO') of respondent Securities and

Exchange Board of India imposing a penalty of Rs.3 lakhs on

the appellant for violation of the relevant provisions of 2

Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 1992 (hereinafter referred to as

'PIT Regulations) and Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeovers)

Regulations, 1997 (hereinafter referred to as 'SAST

Regulations, 1997) and Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011 (hereinafter referred to as 'SAST

Regulations, 2011) the present appeal is preferred.

2. According to the respondent Securities and Exchange

Board of India (hereinafter referred to as 'SEBI') the

appellant on November 15, 2000, had acquired through off

market transaction, 4,84,000 shares of Finalysis Credit &

Guarantee Company Limited (hereinafter referred to as 'the

Company'). It was representing 8.79% of the total paid up

capital of the Company. In the circumstances he was

required to make disclosure of the same to the Company

under Regulation 7(1) of the SAST Regulations, 1997 within

four working days of such acquisition. Similarly, he was also

under obligation to make disclosure to the Company under

Regulation 13(1) of the PIT Regulations, 1992 within two 3

working days of such acquisition. The appellant failed to

make these disclosures.

Thereafter on 26th July, 2013 the appellant disposed of

through off market 4,00,000 shares of the Company which

represented 7.27% of the paid up capital of the Company. As

the appellant was already holding more than 5% of the total

shareholding he was under obligation to make disclosure to

the Company under Regulation 13(3) of the PIT Regulations,

1992 within two working days and also to make disclosure

under Regulation 13(3) read with Regulation 13(5) of the PIT

Regulations, 1992. Similarly, as this resulted a change in the

shareholding of the appellant by more than 2% additionally

he was required to make disclosure to BSE Limited

(hereinafter referred to as 'BSE') and the Company under

Regulation 29(2) of SAST Regulations, 2011. The appellant

made disclosure to BSE as late on 5th August, 2013 i.e. with a

delay of 3 days and failed to make another disclosure to the

Company under Regulation 29(2) of the SAST Regulations,

2011. Additionally the disposal of these very 4 lakh shares

of the company by the appellant being a promoter resulted

into requirement to make disclosures under Regulation 4

13(4A) read with Regulation 13(5) of the PIT Regulations.

No such disclosure was made.

3. The appellant submitted as under:-

That he has not acquired the shares in the year 2000.

Infact he had given a loan of Rs.30 lakhs to one Mukesh

Kothari who was then promoter/director of the Company. He

did not repay the amount. On the other hand, he handed over

certificates of 4,84,000 shares of the Company along with

blank transfer deeds signed by Kothari and his family

members. Those share certificates and transfer deeds were

lying with the Appellant since 2001 and not since 2000 as

alleged in the show cause notice. The trading in the shares of

the Company was suspended by BSE with effect from

13th May, 2002. The same was revoked only on 28 th March,

2012. The Company remained non operational, therefore

there was no way to get the shares transferred in his name.

Only after revocation of the suspension, on 31st January,

2012 he submitted the share certificates to Depository

Participants and the shares were credited in the demat

account on 21st February, 2012. These shares remained in his

demat account till 25th July, 2013. However, a gang of one 5

Abdul Zameer Hakim had under duress forced him to transfer

the shares in off market transfers in the following manner.

Date No.of shares Transferee 26-7-2013 1,00,000 Abdul Zameer Hakim 26-7-2013 2,00,000 Talat Wahdatali Mahmood 26-7-2013 1,00,000 Rehana Khan 7-8-2013 84,000 Wahadatali Gulamrasool Khan

4. After this forcible transfer, the appellant made the

disclosure of the same to the Compliance Officer of the

Company namely Mr. Sarkhot on the very same day. Mr.

Sarkhot however filed a disclosure on August 5, 2013. The

transfer was effected on July 27, 2013 which was a Friday.

After holiday of two days the disclosure was filed by him on

August 5, 2013 after the second transfer dated August 7,

2013 took place. Further, Mr. Sarkhot did not notify the

disclosure under Regulation 13(4A) read with Regulation

13(5) of PIT Regulations though the same was handed over

to him.

Further there were no trading in the shares since

January, 2001 (except two trades for 400 shares on August 1,

2001 till March, 2012). The Company was defunct and

trading in the scrip was suspended by BSE with effect from

September 9, 2014. The appellant had submitted the print 6

out of the trading data of the Company taken from the

website of BSE and annexed the same to his written

submissions dated September 25, 2017 as Annexure 'B'. He

further submitted that as the trading was suspended there was

no way to get the shares transferred and disclosures were not

made. He further submitted that as no monetary loss is

caused to any investors and the appellant had to suffer all

these tragic episodes he should be absolved from the

proceedings.

5. The Adjudicating Officer however held that as per the

record available with SEBI the appellant had acquired

4,84,000 shares of the Company on November 15, 2000 of

which the disclosures was never made under any regulations.

Further, as regards the disposal except only one disclosure as

dated supra no other disclosure was made and therefore by

observing that penal liability would arise as the regulations

are violated, a consolidated penalty of Rs.3 lakhs was

imposed as detailed above.

6. Heard Mr. Sham Sadhuram Gandhi in person and Mr.

Sumit Rai, learned counsel for the respondent.

Upon hearing both the sides in our view the appellant

is required to be partly allowed. The observation of the 7

Adjudicating Officer that the appellant has violated the

Regulations will have to be accepted. However, the

monetary penalty would have to be set aside and the

appellant deserves to be let off on warning for the reasons to

follow:-

Reasons

1. The appellant has filed on record at Exhibit 'G' page

98 a copy of the order dated 20 th October, 2005 of the

Bombay High Court in Company Application No.21 of

2005 in Company Petition No.353 of 2003. It would

show that one Company namely Solid Carbide Tools

Ltd. was already directed to be wound up. In the said

proceedings, the appellant had filed the said application

claiming to be a creditor of the Company. In the order,

the High Court has noted that one Mr. Mukesh Kothari

was the director and chairman of the said Company

namely Solid Carbide Tools Ltd. Since the year 2001,

however said Mr. Mukesh Kothari became a

proclaimed offender and was facing criminal

prosecution. So far as the claim of the present appellant

is concerned, it was found that the appellant had

pledged his personal fixed deposits to the Union Bank 8

of India for advances made to Solid Carbide Tools Ltd.

Since the loan was not repaid by this Company, the

bank invoked the said deposit for adjusting outstanding

claim and, thus, the appellant had become the creditor

of the said Solid Carbide Tools Ltd.

These facts would show that the appellant was

the creditor of Solid Carbide Tools Ltd. of which Mr.

Kothari was the promoter and chairman. Mr. Kothari

remained a proclaimed offender since 2001 upon

proclamation by the concerned criminal court.

According to the respondent SEBI, the appellant had

acquired 4,84,000 shares of the present Company from

said Mr. Kothari. According to the appellant, the

shares were handed over to him in the year 2001 which

ultimately could be transferred in his name in the year

2013 as detailed above.

The record would further show that the present

Company also remained defunct from the year 2000

and even the trading in the same is suspended by the

BSE. The print out of the trading data of the Company

obtained from the website of BSE and placed at

Annexure B to the written submission as detailed supra 9

would show that there were no trading activity in the

shares. All these facts would show that in order to

recover the debt, the appellant was rather forced to

accept the shares of the present Company awaiting the

clearance of the loan in cash. However, as Mr. Kothari

went missing and was even proclaimed as an offender

by the criminal court, willy nilly he had to get those

shares transferred in his name regularly.

2. As regard the disposal of the shares as detailed above,

the appellant submitted that he was forced under duress

to transfer those shares. One of the disclosures was

made through Mr. Sarkhot regarding that transfer

however the rest of the disclosures could not be made.

Mr. Sham Gandhi in person argued before us. He

submitted that he is now 75 years old. He is the victim

of circumstances as detailed supra and, therefore, since

the acquisition of shares or disposal of shares did not

entail him of any gain or loss to any shareholder as the

Company is completely defunct, slapping a monetary

penalty would amount to adding insult to injury. He,

therefore, submitted that the appeal be allowed. 10

3. Taking into consideration that the appellant is now 75

years old and finding that he was forced to accept the

shares by Mr. Kothari as corroborated by the order of

the Bombay High Court in Company Petition and that

one disclosure regarding the disposal is made, in our

view, though the violation of the regulations is proved,

monetary penalty is not warranted in this case. Hence

the following order:-

4. The appeal is partly allowed. The order of the

Adjudicating Officer declaring that the appellant has

violated the regulation is hereby upheld. The order of

the Adjudicating Officer imposing penalty of Rs.3 lakhs

is hereby set aside. Instead the appellant is hereby

warned that the appellant shall not repeat similar

violation in future.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member

8.11.2019 Prepared and compared by RHN