Vijay J. Thakkar vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 09.02.2016

Appeal No. 381 of 2014

Vijay J. Thakkar 723, Fortune Tower, Sayajigunj, Vadodara- 390 005 ...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. J. J. Bhatt, Advocate i/b Ms. Rinku Valanju, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per: Justice J.P. Devadhar (Oral)

1.

This appeal is filed to challenge the order passed by the

Adjudicating Officer ("AO" for short) of Securities and Exchange Board

of India ("SEBI" for short) on 28.08.2014 whereby total penalty of

` 22 lac is imposed on the appellant for violating the provisions

contained in the Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 ("PFUTP" Regulations" for short) and SEBI (Stock

Brokers and Sub-Brokers) Regulations, 1992 ("Brokers Regulations" for

short).

2

2. In the impugned order it is held that the appellant as a sub broker

had traded on behalf of his clients along with few brokers in the scrip of

SKS (Ship) Limited which were found to be synchronized/circular trades.

Since the said synchronized/ circular trades were in violation of the

provisions contained in the PFUTP Regulations it was held that the

appellant is guilty of violating PFUTP Regulations and accordingly

penalty of ` 16 lac has been imposed on the appellant under Section

15HA of the Securities and Exchange Board of India Act, 1992 ("SEBI

Act" for short). It is also held in the impugned order that in executing the

aforesaid trades, the appellant has violated the Brokers Regulations and

accordingly penalty of ` 6 lac has been imposed on the appellant under

Section 15HB of the SEBI Act.

3. Argument of Mr. Bhatt learned counsel for the appellant is that the

impugned order cannot be sustained basically on three grounds. Firstly, it

is submitted that in the present case the personal hearing was granted to

the appellant on 06.05.2010 and the impugned order is passed belatedly

on 28.08.2014 i.e. after delay of more than 4 years and 3 months. It is

contended that the gross delay in passing the impugned order has led to

miscarriage of justice in as much as the appellant is held guilty of

violating PFUTP Regulations and Brokers Regulations without

considering submissions of the appellant that the trades executed by the

appellant on behalf of his clients were genuine trades and that the

appellant was not involved in any manipulative, fraudulent or deceptive

transactions. Secondly, it is submitted that even assuming that the trades

in question were synchronized/circular trades, since the AO of SEBI by

three different orders all dated 13.04.2012 has imposed penalty of `1 lac 3

under Section 15HA of the SEBI Act on the respective parties who were

parties to the synchronized/circular trades, the AO is not justified in

passing the impugned order on 28.08.2014 and imposing the penalty of

` 16 lac against the appellant under Section 15HA of the SEBI Act.

Thirdly, it is contended that even if the trades executed by the appellant

on behalf of the clients are found to be prohibited trades, without

establishing any linkage between the appellant and the clients in

executing the prohibited trades, the AO ought not to have held that the

appellant is guilty of violating the Brokers Regulations and consequently

the AO is not justified in imposing penalty of ` 6 lac under Section 15HB

of the SEBI Act.

4. Mr. Desai, learned counsel appearing on behalf of SEBI submitted

that where an order passed by the AO is found to be legally valid and

justified, then, unless it is demonstrated that the delay in passing the

order has caused prejudice, any plea based on the basis of delay ought not

to be considered. In support of the above contentions counsel for SEBI

relied upon judgement of the Apex Court in the case of Anil Rai vs. State

of Bihar reported in (2001) 7 SCC 318 and subsequent judgements of the

Apex Court in case of Ram Bali vs. State of Uttar Pradesh (2004) 10

SCC 598 and in the case of Telestar Travels Private Limited vs. Special

Director of Enforcement reported in (2013) 9 SCC 549. As regards the

disparity in the penalty imposed against the appellant qua the persons

who had indulged in synchronized/circular trades, counsel for SEBI fairly

stated that in the absence of any discussion in the impugned order, this

Tribunal may pass such orders as it deems fit.

4

5. We have carefully considered the rival submissions made by

counsel on both sides.

6. In our opinion, first argument advanced on behalf of the appellant

that the inordinate delay in passing the order has caused serious prejudice

to the appellant deserves acceptance, because, assuming that the appellant

is found to have violated the provisions of the PFUTP Regulations, in the

absence of any finding that the appellant deserves penalty higher than the

penalty imposed on the persons who had indulged in

synchronized/circular trades, the AO would not be justified in imposing

penalty of ` 16 lac against the appellant. It is a matter of record that by

three separate orders all dated 13.04.2012, the AO of SEBI had imposed

penalty of ` 1 lac under Section 15HA of the SEBI Act on each of the

persons who had indulged in synchronized/circular trades. In the

impugned order passed on 28.08.2014 the AO has not considered the

aforesaid orders all dated 13.04.2012 which have direct bearing while

imposing penalty against the appellant. Thus, in the facts of present case,

failure to consider aforesaid orders has led to miscarriage of justice

because, by the impugned order, persons who are similarly situated are

being treated differently without any justification. No doubt, that varying

quantum of penalty could be imposed by the AO, only by recording

reasons in that behalf. Without recording reasons the AO could not have

imposed higher penalty of ` 16 lac on the appellant especially when the

AO of SEBI has imposed penalty of ` 1 lac on each of the persons with

whom the appellant is allegedly said to be connected. Therefore, in the

facts of present case, the argument of the appellant that the inordinate

delay in passing the impugned order has caused serious prejudice to the 5

appellant deserves acceptance. In view of our findings that the inordinate

delay in passing the impugned order has caused serious prejudice to the

appellant, the decisions of the Apex Court relied upon by the counsel for

SEBI do not support the case of SEBI.

7. Apart from the above, the Apex Court in the case of SEBI vs.

Roofit Industries Ltd. reported in (2006) 194 Company Cases 186 (SC)

had held that where a person is liable to penalty under Section 15HA of

SEBI Act, the AO of SEBI has no discretion to impose penalty lesser

than the amount specified under Section 15HA of the SEBI Act.

Therefore, in the facts of present case, whether the AO is justified in

imposing penalty of ` 16 lac under Section 15HA of SEBI Act needs

reconsideration. Depending on that decision, the AO would have to

reconsider the issue relating to the quantum of penalty imposed under

Section 15HB of SEBI Act.

8. For all the aforesaid reasons, we hold that the inordinate delay in

passing the impugned order has caused serious prejudice to the appellant,

and accordingly we set aside the impugned order and restore the matter to

the file of the AO for passing fresh order on merits and in accordance

with law. All contentions of both the parties are kept open.

9. Appeal is disposed of in the above terms, with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member 09.02.2016 Prepared & Compared By: PK