Yashraj Containeurs Limited And Others vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved On: 08.11.2016 Date of Decision : 15.11.2016

Appeal No. 98 of 2016

1.

Yashraj Containeurs Limited 757/758, Jawala Estate, Soni Wadia, Borivali (West), Mumbai- 400 092

2. Mr. Jayesh Valia B- 1701, Pushp Vinod 1, S. V. Road, Borivali (West), Mumbai- 400 092

3. Ms. Sangeeta J. Valia B- 1701, Pushp Vinod 1, S. V. Road, Borivali (West), Mumbai- 400 092

4. Vasparr Shelter Limited 401, Court Chamber, S. V, Road, Borivali (West), Mumbai- 400 092 ...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. Somasekhar Sundaresan, Advocate with Mr. Dhaval Kothari, Mr. Abishek Venkatraman, Mr. Paras Parekh and Mr. Akash Joshi, Advocates i/b J. Sagar Associates for Appellants.

Mr. Vikram Nankani, Senior Advocate with Mr. Tomu Francis, Advocate for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar 2

1. This appeal is filed to challenge the order passed by the Whole

Time Member ("WTM" for short) of the Securities and Exchange Board

of India ("SEBI" for short) on January 13, 2016. By the said order

appellants are restrained from accessing the securities market and

prohibited from buying, selling or otherwise dealing in securities directly

or indirectly or being associated with the securities market in any

manner, whatsoever for a period of 5 years for violating the securities

laws during the year 2005-2006.

2. Prior to the impugned order dated January 13, 2016, for the same

violations the Adjudicating Officer of SEBI had passed an order on

November 13, 2009, wherein penalty of ` 30 lac was imposed on the

appellants under Section 15HA and Section 15G of the Securities and

Exchange Board of India Act, 1992 ("SEBI Act" for short) 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 (Prohibition of Insider Trading) Regulations, 1992 ("PIT

Regulations" for short).

3. Challenging the aforesaid order passed by the AO, Appellant No. 1

had filed Appeal No. 70 of 2010. While disposing of the said appeal on

December 02, 2010 this Tribunal had observed thus:-

"After arguing these appeals for sometime, the

learned counsel appearing for the appellants pray

that they may be allowed to withdraw the appeals. 3

While granting this prayer, we cannot resist observing

that in view of the serious allegations made against

the appellants which stand established during the

course of the adjudication proceedings, the Securities

and Exchange Board of India (for short the Board)

should not have been content with initiating only

adjudication proceedings against the appellants in

which only a monetary penalty could be levied. This

is a fit case where the Board should have considered

initiating proceedings under Sections 11 and 11B of

the Securities and Exchange Board of India Act, 1992

for issuing appropriate directions against the

appellants to protect the integrity of the market and

the interests of the investors. We have seen this being

done in other cases. This is a fit case where the

Board could have also prosecuted the company and

its promoters. We say so because, apart from the

other serious charges established against the

company and its promoters, it has been found that the

company fudged its accounts and showed profits when

it was actually making losses. It projected a rosy

picture about its performance before the securities

market and the investors with a view to lure them to

invest as a result whereof the price of the scrip of the

company rose from ` 37.25 to ` 98.60 in a short span 4

of 44 days and, interestingly, when the price went up,

the promoters and their front entities off-loaded more

than 9 lac shares in the market. This is, indeed, a

very serious market illegality/irregularity and, in our

view, imposing a monetary penalty alone on the

company and its promoters will not meet the ends of

justice. We are constrained to make these

observations because the lenient view taken by the

Board does not, in our opinion, protect the integrity of

the market and not even the interest of the investors

which is its primary duty. This kind of lenient view

will not be a deterrent for others and would send a

wrong signal that the delinquents could continue with

their nefarious activities by paying a monetary

penalty. Having said this, we leave the matter at that

since the appeals are being withdrawn."

4. Although the order of this Tribunal is dated December 02, 2010

SEBI issued a show cause notice to the appellants only on February 27,

2013, thereby calling upon the appellants to show cause as to why action

should not be taken against the appellants for violating the regulations

framed by SEBI. Admittedly, an opportunity of hearing was granted to

the appellants and thereafter by the impugned order dated January 13,

2016 appellants are restrained from accessing the securities market for a

period of 5 years. Challenging the aforesaid order the present appeal is

filed.

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5. Mr. Sundaresan learned counsel appearing on behalf of appellants

fairly stated that since penalty imposed on the Appellant No. 1 company

by the AO has been accepted and the said penalty has already been paid,

he is not pressing the argument that the appellants have not violated the

regulations framed by SEBI. However, counsel for the appellants

submitted that in the facts of present case, restraining the appellants from

entering the securities market for a period of 5 years is wholly unjustified

for the following reasons:-

a) In the present case, after considering all option

available under the SEBI Act, SEBI had deemed it fit

to impose monetary penalty on the company and had

deemed it fit not to take any drastic action of

restraining the appellants from entering the securities

market. Merely because this Tribunal while

permitting the Appellant No. 1 to withdraw the appeal

filed to challenge the penalty order, had observed that

SEBI may consider initiating proceedings under

Section 11 and 11B of the SEBI Act, the WTM of

SEBI was not justified in restraining the appellants

from entering the securities market for a period of 5

years.

b) Admittedly, on December 02, 2010 this Tribunal had

directed SEBI to consider taking action against the

appellants for the violations committed during the 6

year 2005-2006. Admittedly, SEBI did not deem it

proper to initiate action against the appellants for

more than two years and it is only on February 27,

2013, SEBI sought to issue show cause notice to the

appellants and thereafter, by the impugned order dated

January 13, 2016 sought to restrain the appellants

from accessing the securities market for a period of 5

years. Thus, it is apparent that SEBI has passed the

restraint order belatedly inspite of the fact that there

was no case for restraining the appellants from

accessing the securities market for a period of 5 years.

c) Alternatively, it is submitted that assuming there was

violation committed in the year 2005-2006,

restraining the appellants from accessing the securities

market for a period of 5 years at this belated stage is

unwarranted and excessively harsh. Accordingly, it is

submitted that the debarment be restricted to the

period undergone by the appellants from January 13,

2016 till date.

6. Mr. Nankani, learned Senior Advocate appearing on behalf of

SEBI, relying on the observations made in the order of this Tribunal

dated December 02, 2010, submitted that no fault can be found with the

order impugned in the appeal and hence the impugned order need not be

interfered with.

7

7. We have carefully considered the arguments advanced by counsel

on both sides.

8. In the order of this Tribunal dated December 02, 2010 it is

recorded that in the year 2005-2006 the appellants had fudged the

accounts of the company and showed profits when it was actually making

losses. It is further recorded in the said order that the appellants sought

to project a rosy picture about the performance of the company to the

investors in the securities market with a view to lure them to invest in the

company and in fact as a result of above action, the price of the scrip of

the company rose from ` 37.25 to ` 98.60 in a short span of 44 days.

Moreover, it is also recorded in the said order that when the price of the

scrip went up, the promoters and their front entities off-loaded more than

9 lac shares in the market. All these factors clearly show that in the year

2005-2006 the appellants had indulged in serious violation of the

securities laws and therefore SEBI is justified in taking stern action

against the appellants.

9. Question, however, to be considered is, whether restraint order

passed against the appellants for a period of 5 years is justified in the

facts of present case. Admittedly, for the violations committed during

the year 2005-2006 SEBI had initiated penal action against the company

in the year 2008 and accordingly penalty of ` 30 lac was imposed on the

appellants. However, no action was initiated under Section 11/11B of

SEBI Act and even after this Tribunal on December 02, 2010 directed

SEBI to take action against appellants, SEBI did not initiate action for 8

more than two years. Although there is failure on part of SEBI to take

prompt action, appellants are not justified in contending that the

impugned order be quashed and set aside on account of delay on part of

SEBI in initiating action against the appellants. However, in the present

case, the violations relate to the period 2005-2006 and inspite of initiating

penalty proceedings in the year 2008 Section 11/11B proceedings have

been initiated against the appellants in the year 2013. There is nothing on

record to suggest that in all these years the appellants have violated any

of the securities laws. In these circumstances, in our opinion, it would be

just and proper to restrict the restraint order for a period of two years.

10. Accordingly, for the reasons stated above, the impugned order

dated January 13, 2016 is modified by restricting the restraint order

passed against the appellants from 5 years to 2 years.

11. Appeal is disposed of in the aforesaid terms with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 15.11.2016 Prepared & Compared By: PK