Sungold Capital Limited And Others vs Sebi

3. Shri Sharad Gandhi 3, Alankar Building, Darbar Road, Rajpipla, Gujarat - 393 145. .... Appellants Versus Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. ...Respondent

Mr. J.J. Bhatt, Advocate with Ms. Rinku Valanju, Advocate i/b. R.V. Legal for the Appellants.

Mr. Vishal Kanade, Advocate with Mr. Jinay Padh, Advocate i/b. Dave & Girish & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Justice M.T. Joshi, Judicial Member (Oral)

Misc. Application No.250 of 2017

There is a delay of 5 days in filing the appeal. For the

reasons stated in the application, the delay is condoned.

The Misc. Application is allowed.

2 Appeal No.250 of 2017

1. The present appeal is preferred against the order of the

Adjudicating Officer (referred to hereinafter as 'A.O.') of the

respondent dated 30.6.2017. Appellant no.1 has been held

guilty of violation of provisions of Section 21 of the Securities

Contracts (Regulation) Act, 1956 (hereinafter referred to as

'SCRA') read with Clause 35 of the Listing Agreement.

Secondly Appellant no.1, its Executive Director, Appellant no.2

Rajiv Kotia, one Ashok Modi (not before us) and Appellant

no.3 Shri Sharad Gandhi being director/promoter were found

violating the provisions of Regulation 3(d) of 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'). Thirdly

the appellant Rajiv Kotia was found to be violating Regulation

13(4) read with Regulation 13(5) of Securities and Exchange

Board of India (Prohibition of Insider Trading) Regulations,

1992 (hereinafter referred to as 'PIT Regulations').

In a nutshell, the allegations are that though as per Clause

35 of the Listing Agreement the Company has to disclose the

shareholding of the promoter group some of the relatives of the

appellant Rajiv holding shares in Appellant no.1 Company

were shown in the category of public holding and thus making wrong disclosure. This was held in violation of SCRA as well

as PFUTP Regulations.

2. Secondly, the change in the shareholding of the wife and

son of the appellant Rajiv Kotia was also not disclosed which

was held to be in violation of Regulation of 13(4) read with

Regulation 13(5) of the PIT Regulations. The relationship of

the appellant Rajiv Kotia with the various entities in question is

admittedly as under:- Shri Rajiv R Kotia is the Promoter,

Chairman & Managing Director of Sungold Capital Limited.

As per the KYCs of Demat Account opening forms Ravi Rajiv

Kotia is son of Rajiv R Kotia, Seema Rajiv Kotia is wife of

Rajiv R Kotia, Dhaval Ramesh Kotia is brother of Rajiv R

Kotia, Shweta Dhaval Kotia, wife of Dhaval Ramesh Kotia, is

sister-in-law of Rajiv R Kotia and Shilpa Amit Kotia, wife of

Amit Ramesh Kotia, is sister-in-law of Rajiv R Kotia.

3. In the circumstances, the show cause notice issued to the

appellant alleges that the shareholding of the following entities

as per the shareholding pattern filed by the Appellant no.1

Company with BSE is as under:

Sr. Name of the Entity Shareholding % Quarter ending on No. Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 June-09 Sep-09 1 Shilpa Amit Kotia 4.74 4.74 4.74 4.74 4.74 4.04 4.04 2 Dhaval Ramesh Kotia 4.6 4.6 4.6 4.6 4.6 4.5 4.34 3 Shweta Dhaval Kotia 4.4 4.4 4.4 4.4 4.4 1.63 1.63 4 Ravi Rajiv Kotia 4.58 4.58 4.58 4.58 1.47 1.47 5 Seema Rajiv Kotia 4.07 4.07 4.07 4.23 1.94 1.94 TOTAL 13.74 22.39 22.39 22.39 22.55 13.58 13.42 4

4. This shareholding however was disclosed in public

category by the appellant Company. The only plea of the

appellant Rajiv Kotia is that due to estranged relationship Smt.

Seema i.e. his wife and Shri Ravi Rajiv Kotia i.e. his son, they

had to live separately. As regards the others, as quoted above

though they are relatives of his wife, according to him he does

not share good relationship with them and therefore they were

shown in public category. In the circumstances, the

Adjudicating Officer pointed towards the provisions of

Regulation 2(zb) of (Issue of Capital and Disclosure

Requirements) Regulations, 2009 (referred to hereinafter as

ICDR Regulations) which defines promoter group as immediate

relationship of the promoters i.e. wife, child etc.

5. In the circumstance, the defense of Appellant no.1 as well

as the appellant Rajiv Kotia was not accepted by the

Adjudicating Officer. It was further pointed out that there was

no judicial separation and, therefore, the appellant Company

and appellant Rajiv Kotia were found to have committed the

violation of the regulations.

6. Appellant no.3 Sharad Gandhi is the director/promoter of

the appellant Company. He defended himself before the

Adjudicating Officer on the ground that he was promoter of the 5

Company for a period between 1995 to 2015. He retired from

directorship due to old age and he was not aware of the

regulatory provisions. However, finding that this appellant was

also admittedly director/promoter during the relevant period i.e.

March 2008 to September, 2009 the penalty was imposed on

him also.

7. The second issue was regarding the change in the

shareholding of some of the dependent i.e. Ravi (Rajiv Kotia's

son) and Seema (Rajiv Kotia's wife) during the quarter June,

2009 but non-disclosure of the same. Admitedly Ravi and

Seema had traded in the shares of the appellant Company on

various dates from 8.4.2009 to 29.6.2009 as detailed in para

no.25 of the order of the Adjudicating Officer.

8. In view of this trading pattern of the near relatives of the

appellant namely Rajiv the shareholding proportion had

changed. This fact also was not disclosed and was thus found

in violation of Regulation 13(4) read with Regulation 13(5) of

the PIT Regulations. The defense of Appellant no.2 Rajiv

Kotia was same as he raised against the charge no.1. The same

was disbelieved and the order came to be passed.

9. Learned counsel for the appellant submits that during the

pendency of the appeal an affidavit is filed which would show 6

that there is an estrangement between the appellant Rajiv Kotia

on one hand and his wife and son on the other hand. The

learned counsel for the respondent however submitted that the

Regulation 2(zb) of SCRA does provide that the promoter

group would include immediate relative of the promoter and

there would be no escape from disclosure on the ground that

there is separation between the promoter and immediate

relatives.

10. Upon hearing both sides in our view the reasoning

forwarded by Adjudicating Officer are irrefutable. There

cannot be escape, on the ground of estrangement between the

spouses on strained relations. The appeal is therefore liable to

be dismissed. On the quantum of penalty the learned counsel

submitted that the penalty of Rs.5 lakhs under Section 23 of

SCRA for violation of provisions of SCRA as well as Rs.10

lakhs for violation of provisions of Regulation 3(d) of the

PFUTP Regulations, 2003 is excessive particularly when

during investigation no quantified profit or loss for the violation

committed is assessed. However in such matters there would

be no quantifiable profit or loss for the violation. The

Adjudicating Officer has rightly observed that this is a serious

irregularity whereby the general public was misled. 7

11. We do not find that penalty imposed is in any way

unreasonable. In the facts and circumstances, the appeal lacks

merit and is therefore dismissed with no order as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

12.6.2019 Prepared and compared by RHN