# DKG BUILDCON PRIVATE LTD v. THE ADJUDICATING & ENQUIRY OFFICER, S.E.B.I

- **Citation:** [2022] 19 S.C.R. 242
- **Court:** Supreme Court of India
- **Decided:** 2022-09-14
- **Case number:** Civil Appeal No. 1742 of 2009
- **Bench:** Ajay Rastogi, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dkg-buildcon-private-ltd-v-the-adjudicating-enquiry-officer-s-e-b-i-36226
- **Pages:** 29

## Headnote

Securities and Exchange Board of India Act, 1992 - ss.11C
(3), 15A(a), 15J -Penalty of rupees one crore levied by the
Adjudicating Officer (AO), upheld by the Securities Appellate
Tribunal (SAT) - Justification of - Held: Appellants had first violated
the summons in August, 2001 and in June, 2002 - Thereafter, SEBI
issued numerous summons, giving the appellants opportunities to
appear and produce the documents and furnish the information as
required - But, the appellants failed to respond to any of the summons
issued during the period of 2001-2002, during the course of the
investigation - Thereafter, SEBI issued fresh summons on 1.04.2003
in respect of the appellant in C.A.No. 1742 of 2009 and on
09.04.2003 in respect to the appellant in C.A.No. 5833 of 2009 for
the appellants to cooperate with the investigation -Thereafter, the
AO passed its order levying penalty on the appellants on 28.11.2003
and on 31.12.2003 respectively - Non-compliance of the aforesaid
fresh summons constituted a fresh offence committed by the
appellants - Thus, the amended provisions of s.15A(a) as amended
w.e.f. 29.10.2002 would apply when levying the penalty on the
appellants in respect of the summons issued subsequent to the
aforesaid amendment -Also, since the duration of the default of
non-compliance committed by both the appellants was over a period
of 100 days from the date of issue of the summons in each case, the
AO rightly applied s.15A(a), more specifically in regard to the
maximum limit of penalty that could be imposed under the provision,
i.e. rupees one crore- Penalty of rupees one crore as levied by the
AO and upheld by the SAT is justified-Further, investigation by
SEBI which had concluded that the appellants and other entities
were involved in aiding and abetting 'KP' and his companies in
rigging the securities market in the years 2000 and 2001 had not
been challenged, at any point, by the appellants - Thus, the relevant
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order of SEBI had attained finality - Taking into consideration the
severity of offences found to have been committed by the appellants
and other entities, and the non-cooperative attitude of the appellants
during the course of the investigation in attempting to obstruct the
same, the quantum of penalty imposed u/s.15A(a) is justified and
with effective consideration of the factors listed in s.15J.
Securities and Exchange Board of India Act, 1992 -
Explanation to s.15J - Held: A bare reading of the Explanation in
the context of the present case creates a presumption in favor of the
Adjudicating Officer that he passed the Orders dated 28.11.2003
and 31.12.2003 against the appellants after due consideration of
the factors mentioned in s.15J.
Securities and Exchange Board of India Act, 1992 - s.11C(3)
- "persons associated with the securities market in any manner" -
Held: A bare reading of s.11C (3) makes it clear that an Investigating
Authority appointed by SEBI to investigate the affairs of any persons
may require such person "associated with the securities market in
any manner to furnish such information to, or produce such books,
or registers, or other documents, or record before him or any person
authorized by it, in this behalf as it may consider necessary, if the
furnishing of such information or the production of such books, or
registers, or other documents, or record is relevant or necessary
for the purposes of its investigation" - In the present case, the
appellants were under investigation by SEBI for its alleged
involvement in aiding and abetting 'KP' and his companies in
manipulating the securities market -Thus, the appellants would
squarely fall under the scope of "persons associated with the
securities market in any manner" u/s.11C(3) -The authority of the
Investigating Authority to direct such persons to appear before him
and furnish information or produce documents as is required for
an investigation is provided in s.11C (3).
Securities and Exchange Board of India Act, 1992 - ss.19,
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[2022] 19 S.C.R. 242
242
DKG BUILDCON PRIVATE LTD.
v.
THE ADJUDICATING & ENQUIRY OFFICER, S.E.B.I.
(Civil Appeal No. 1742 of 2009)
SEPTEMBER 14, 2022
[AJAY RASTOGI AND B. V. NAGARATHNA, JJ.]
Securities and Exchange Board of India Act, 1992 - ss.11C
(3), 15A(a), 15J -Penalty of rupees one crore levied by the
Adjudicating Officer (AO), upheld by the Securities Appellate
Tribunal (SAT) - Justification of - Held: Appellants had first violated
the summons in August, 2001 and in June, 2002 - Thereafter, SEBI
issued numerous summons, giving the appellants opportunities to
appear and produce the documents and furnish the information as
required - But, the appellants failed to respond to any of the summons
issued during the period of 2001-2002, during the course of the
investigation - Thereafter, SEBI issued fresh summons on 1.04.2003
in respect of the appellant in C.A.No. 1742 of 2009 and on
09.04.2003 in respect to the appellant in C.A.No. 5833 of 2009 for
the appellants to cooperate with the investigation -Thereafter, the
AO passed its order levying penalty on the appellants on 28.11.2003
and on 31.12.2003 respectively - Non-compliance of the aforesaid
fresh summons constituted a fresh offence committed by the
appellants - Thus, the amended provisions of s.15A(a) as amended
w.e.f. 29.10.2002 would apply when levying the penalty on the
appellants in respect of the summons issued subsequent to the
aforesaid amendment -Also, since the duration of the default of
non-compliance committed by both the appellants was over a period
of 100 days from the date of issue of the summons in each case, the
AO rightly applied s.15A(a), more specifically in regard to the
maximum limit of penalty that could be imposed under the provision,
i.e. rupees one crore- Penalty of rupees one crore as levied by the
AO and upheld by the SAT is justified-Further, investigation by
SEBI which had concluded that the appellants and other entities
were involved in aiding and abetting 'KP' and his companies in
rigging the securities market in the years 2000 and 2001 had not
been challenged, at any point, by the appellants - Thus, the relevant
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order of SEBI had attained finality - Taking into consideration the
severity of offences found to have been committed by the appellants
and other entities, and the non-cooperative attitude of the appellants
during the course of the investigation in attempting to obstruct the
same, the quantum of penalty imposed u/s.15A(a) is justified and
with effective consideration of the factors listed in s.15J.
Securities and Exchange Board of India Act, 1992 -
Explanation to s.15J - Held: A bare reading of the Explanation in
the context of the present case creates a presumption in favor of the
Adjudicating Officer that he passed the Orders dated 28.11.2003
and 31.12.2003 against the appellants after due consideration of
the factors mentioned in s.15J.
Securities and Exchange Board of India Act, 1992 - s.11C(3)
- "persons associated with the securities market in any manner" -
Held: A bare reading of s.11C (3) makes it clear that an Investigating
Authority appointed by SEBI to investigate the affairs of any persons
may require such person "associated with the securities market in
any manner to furnish such information to, or produce such books,
or registers, or other documents, or record before him or any person
authorized by it, in this behalf as it may consider necessary, if the
furnishing of such information or the production of such books, or
registers, or other documents, or record is relevant or necessary
for the purposes of its investigation" - In the present case, the
appellants were under investigation by SEBI for its alleged
involvement in aiding and abetting 'KP' and his companies in
manipulating the securities market -Thus, the appellants would
squarely fall under the scope of "persons associated with the
securities market in any manner" u/s.11C(3) -The authority of the
Investigating Authority to direct such persons to appear before him
and furnish information or produce documents as is required for
an investigation is provided in s.11C (3).
Securities and Exchange Board of India Act, 1992 - ss.19,
15A(a), 11C(3) - Held: s.19 provides that the SEBI may delegate to
any member, officer of the SEBI or any other person, such of its
powers and functions under this Act (except the powers u/s.29) as
it may deem necessary - Thus, when the appellants failed to comply
with the directions issued u/s.11C(3)and failed to producethe
required documents and information, the Investigating Authority,
DKG BUILDCON PRIVATE LTD. v. THE ADJUDICATING &
ENQUIRY OFFICER, S.E.B.I.
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being a delegated Authority of SEBI, was empowered to levy the
penalty as provided in s.15A(a).
Commissioner of Income Tax, Ahmedabad vs. Gold Coin
Health Food Pvt. Ltd (2008) 9 SCC 622 : [2008] 12
SCR 179, CJ Paul & Ors. vs. District Collector & Ors.
(2009) 14 SCC 564 : [2009] 12 SCR 233, Ritesh
Agarwal & Ors. vs. Securities and Exchange Board of
India & Ors. (2008) 8 SCC 205 : [2008] 8 SCR 553;
Commissioner of Income Tax, Lucknow vs. M/s Onkar
Saran and Son (1992) 2 SCC 514 : [1992] 2 SCR 514;
Mr. Sandeep Kumar Gupta vs. SEBI (Appeal No. 102
of 2013); Iris Infrastructural Pvt. Ltd. vs. SEBI (Appeal
No. 2 of 2006) -held inapplicable .
Adjudicating Officer, Securities and Exchange Board
of India vs. Bhavesh Pabari (2019) 5 SCC 90 : [2019]
18 SCR 898, MBL and Company Limited vs. Securities
and Exchange Board of India (2022) SCC OnLine SC
754 - relied on.
Rose Valley Real Estates and Construction Ltd. vs.
Securities and Exchange Board of India (Appeal No.
106/2013); Padmini Technologies Ltd. vs. SEBI (Appeal
No. 36 of 2004); Vivek Nagpal vs. SEBI (Appeal No.
37 of 2004); Mukesh Malhotra vs. SEBI (Appeal No.
101/2004); Advance Hovercrafts & Composites India
Ltd., Delhi vs. The Adjudicating and Enquiry Officer,
SEBI (Appeal No. 61/05); Spectrum.com Pvt. Ltd. vs.
SEBI (Appeal No. 119 of 2006); and Zodiac.com
Solutions Pvt. Ltd. vs. The Adjudicating and Enquiry
Officer, SEBI (Appeal No. 105 of 2006) - referred to.
Case Law Reference
(2008) 12 SCR 179
held inapplicable
Para 35
(2009) 12 SCR 233
held inapplicable
Para 35
(2008) 8 SCR 553
held inapplicable
Para 35
(1992) 2 SCR 514
held inapplicable
Para 35
(2019) 18 SCR 898
relied on
Para 43
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(CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1742
of 2009)
From the Judgment and Orders dated 07.01.2009 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 106 of 2006
With
Civil Appeal No. 5833 of 2009.
Ambhoj Kumar Sinha, Ms. Diksha Mishra, Abhay Kr. Das, Ms.
Deeksha Mishra, Debmalya C. Banerjee, Rohan Sharma, Kartik
Bhatnagar, Nicholas Choudhury, Anmol, Shreesh Chadha, Atul Sinha,
M/s. Karanjawala & Co., Advs. for the Appellant.
Chander Uday Singh, Sr. Adv., Pratap Venugopal, Ms. Surekha
Raman, Akhil Abraham Roy, Vijay Valsan, M/s. K J John And Co, Advs.
for the Respondent.
The Judgment of the Court was delivered by
NAGARATHNA, J.
1. These Civil Appeals arise out of common impugned Order dated
07.01.2009 passed by the Securities Appellate Tribunal, Mumbai (for
short, "SAT").
2. Since the questions of law and issues which arise to be dealt
with in both the above captioned Civil Appeals are similar, and the matters
are distinct only in their respective facts and events, these appeals are
being disposed of by this common judgment.
3. The appellant in Civil Appeal No. 1742 of 2009 is a Private
Limited Company which was incorporated under the Companies Act,
1956 on 15.04.1997. The appellant in Civil Appeal No. 5833 of 2009 was
incorporated under the Companies Act, 1956 on 02.06.1997.
4. An investigation was carried out by Securities and Exchange
Board of India ('SEBI', for short) in the matter of purchase and sale of
scrip and manipulation of share prices of M/s Shonkh Technology
International Ltd. ('STIL' for the sake of convenience), a Company in
which both the appellants had previously held shares. On noticing unusual
price movement in the shares of STIL, SEBI conducted an investigation
into the buying, selling and dealings in the shares of the Companies under
the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Market) Regulations, 1995 (hereinafter
DKG BUILDCON PRIVATE LTD. v. THE ADJUDICATING &
ENQUIRY OFFICER, S.E.B.I.
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referred to as 'Regulations'). Investigations revealed that one M/s
Shreejee Yatayat India Limited (for short,'SYIL'), a listed company had
acquired the entire Undertaking of STIL and in turn SYIL had allotted
its shares to the shareholders of STIL. The appellant in Civil Appeal No.
1742 of 2009 was allotted 10,00,000 shares of SYIL while the appellant
in Civil Appeal No. 5833 of 2009 was allotted 1,43,000 shares. Having
taken over the business activities of STIL, SYIL changed its name to
STIL with effect from 27.07.2000.
5. Investigations further revealed that the appellants had
transferred the shares of STIL to a Company under the name and style
of Sai Mangal Investrade Pvt. Ltd. (for short, 'SMIPL'). Similarly, entities
like Classic Credit Limited, Goldfish Computers Ltd. and Luminant
Investment Private Ltd. had also received shares of STIL from various
entities which had been allotted shares by SYIL. SMIPL and the other
entities referred to above were all controlled and managed by a person
named, Ketan Parekh, who had rigged the securities market in the years
2000 and 2001.
6. By an Order dated 12.12.2003 passed by SEBI, Ketan Parekh
and the companies controlled by him had been prohibited from buying,
selling or dealing in securities in any manner directly or indirectly for a
period of fourteen years. That Order was upheld by SAT on 14.07.2006
and the appeal filed before this Court was also dismissed.
7. In view of the aforesaid investigations, SEBI initiated
proceedings against several entities including the appellants herein. By a
separate Order dated 16.10.2007, SEBI found that large quantities of
shares of STIL were made available to entities associated with Ketan
Parekh during the period between October, 2000 and April, 2001 and
that facilitated them to create artificial volumes in the said scrip in the
securities market. SEBI also found that the entities associated with Ketan
Parekh had sold a large number of shares of STIL in the securities
market in a synchronized manner with a view to create an artificial
market in the said shares. SEBI came to the conclusion that the appellants
and other entities had facilitated Ketan Parekh and his companies in
manipulating the securities market and had thereby violated Regulation
4 of the Regulations. SEBI restrained them from accessing the securities
market for a period of five years and also prohibited them from buying,
selling or dealing in securities either directly or indirectly for the same
period. SEBI found that a series of unauthorized activities starting from
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the allotment of shares of STIL to various people including Ketan Parekh
entities through a web of transfers virtually wrecked the integrity of the
securities market with a view to make unfair gains.
Re: Civil Appeal No. 1742/2009
8. A letter dated 02.07.2001 was issued by the respondent - SEBI
whereby this appellant (DKG Buildcon Pvt. Ltd.) was asked to furnish
certain details and documents to SEBI. The details are as mentioned
below:
"Annexure
a)
The names of the directors and shareholders of your
company since 1998.
b)
Whether you were the original allottee of shares of Shonkh
Technologies Ltd. If yes, please give complete details in
this regard, such as name and percentage of shares allotted
etc.
c)
No. and percentage of shares of Shonkh Technologies Ltd.
Held by you alongwith the manner, price(s) and date(s) of
acquisition(s) of such shares prior to the allotment to you of
shares of Shreejee Yatayat India Ltd. In July, 2000.
d)
Whether the shares acquired by you of Shreejee Yatayat
India Ltd. on a preferential allotment basis were held
beneficially for someone else. If yes, give details of the
person concerned.
e)
Whether the shares of Shonkh Technologies Ltd. were
purchased from you own funds or after obtaining loan/ICDs
from someone. If yes, give details of the person concerned,
amount borrowed, interest paid, terms and conditions of
repayment.
f)
Whether you are still holding share of Shonkh Technologies
International Ltd. or they have been disposed off. If the
shares have been transferred, by way of pledge, sale, gift,
exchange etc., please furnish the details thereof. These
details should include amount borrowed/consideration
received, cheque number/draft number, name of the pledge/
buyer/donee, etc.
DKG BUILDCON PRIVATE LTD. v. THE ADJUDICATING &
ENQUIRY OFFICER, S.E.B.I. [B. V. NAGARATHNA, J.]
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g)
Any other purchase/acquisition of Shonkh Technology
International Ltd. shares by the company/its subsidiaries/
directors. If yes, give details of the shares of Shonkh
Technologies International Ltd. acquired alongwith the
details of consideration paid, date of transaction, cheque
number/draft number, mode of acquisition, etc."
9. SEBI issued summons on 27.08.2001 requiring the following
detailed information and documents to be submitted by this appellant:
"Annexure
(i)
The list of the directorships of other companies held by the
directors of M/s DKG Buildcon Private Limited.
(ii)
The details of holdings in the scrip of M/s Shreejee Yatayat
Limited as on March 31, 2000.
(iii)
The details of the acquisition of the shares of M/s Shonkh
Technologies Limited. The details shall contain.
•
The date of the acquisition.
•
The quantity and rate of the acquisition.
•
The name and address of the trading member through
whom the acquisition was made.
•
In case the acquisition was made off-market, the
name and address of the transferors.
(iv)
The details of the acquisition of the shares of M/s Shonkh
Technologies International Limited. The details shall contain.
•
The date of the acquisition.
•
The quantity and rate of the acquisition.
•
The name and address of the trading member through
whom the acquisition was made.
•
In case the acquisition was made off-market, the
name and address of the transferors.
(v)
The details of the trading in the scrip of M/s Shonkh
Technologies International Limited during the period from
August 1, 2000 to June 30, 2001. The details shall include.
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a.
The date of the transaction.
b.
The name and address of the trading member through
whom the acquisition is entered into.
c.
In case of off-market transaction, please provide the
name and address of the counter party.
d.
The quantity, rate and value of the transaction.
(vi)
The details of the shares given in fiduciary capacity or
pledged (sic) with entity. The details shall contain:
•
The name and address of the party to whom shares
are given at fiduciary capacity or with whom shares
were pledged.
•
The quantity of the shares given in fiduciary capacity
or pledged."
However, according to this appellant the same was never received
by it.
10. The following are the communications exchanged between
appellant and respondent in Civil Appeal No. 1742 of 2009. Several
summons were also issued to this appellant, the details of which are as
under:
(i)
"Appellant vide letter dated 06.09.2001 provided detailed
information as requested in the letter of date 02.07.2001.
(ii)
Another letter dated 10.06.2002 was issued by SEBI to the
appellant along with a copy of the summons, whereby the
appellant was again asked to furnish certain information
and documents by 19.06.2002.
(iii)
On 18.06.2002 summons was issued by SEBI directing the
appellant to produce the details and documents as mentioned
therein on 21.06.2002 at SEBI's office, Delhi.
(iv)
Another summons dated 19.06.2002 was issuedby the
Investigating Officer to the appellant whereby the appellant
was directed to produce the said documents on 19.06.2002
at the Mumbai office of SEBI.
(v)
Another Investigating Officer of SEBI issued summons
dated 04.03.2003 requiring the appellant's personal
DKG BUILDCON PRIVATE LTD. v. THE ADJUDICATING &
ENQUIRY OFFICER, S.E.B.I. [B. V. NAGARATHNA, J.]
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appearance on 20.03.2003 at SEBI's office, New Delhi. It
was stated therein that the person who was to appear on
behalf of the appellant should be able to answer all questions
relating to the investigation. The appellant was also directed
to produce documents.
(vi)
Appellant vide letter dated 20.03.2003 in reply to the above
summons asked for postponement of the attendance as the
concerned Director, Mr. Navneet Kumar was out of station
and would return only by 30.03.2003 where after he would
be available to appear.
(vii)
The Investigating Officer issued another summons on
24.03.2003 to the appellant requiring attendance on
01.04.2003 at SEBI's office, Mumbai.
(viii) This was followed by another summons issued on 01.04.2003
requiring appellant's attendance on 08.04.2003. It was
mentioned that in default of appearance, SEBI will initiate
adjudication proceedings against the appellant, under which
the appellant could be levied a penalty of One Lakh rupees
for each day during which such failure occurs or continues
or one crore rupees, whichever is less."
Subsequently, a Show Cause Noticedated 11.09.2003 was issued
under Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 (for short, '1995 Rules')
by the respondent to this appellant informing it that SEBI, vide its Order
dated 26.06.2003 had appointed the respondent as the Adjudicating
Officer (for short, 'AO') to inquire into and adjudicate alleged violation
by this appellant under Section 15A(a) of the Securities and Exchange
Board of India Act, 1992 (for short, '1992 Act') for non-compliance of
summons issued by SEBI. This appellant was asked to show cause as to
why an inquiry should not be held against it in terms of Rule 4 of the
1995 Rules, and why penalty should not be imposed under Section 15A(a)
of the 1992 Act.
11. An ex-parte Order dated 28.11.2003 was passed by the
respondent whereby this appellant was held to have not complied with
the requirements of SEBI's summons dated 27.08.2001, 10.06.2002,
18.06.2002 and 01.04.2003. Consequently, the AO imposed a penalty of
rupees one crore on this appellant under Section 15A(a) of the 1992 Act
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on the ground that it had adopted dilatory tactics of stonewalling
investigations launched in the larger public interest which calls for a
deterrent penalty.
12. This appellant preferred an Appeal No. 106 of 2006 on
06.11.2004 before the SAT against the aforesaid Order of the AO along
with an application for condonation of delay. SAT on 01.09.2006 dismissed
the application for condonation of delay as well as the appeal preferred
on the ground that the appeal was time barred and no satisfactory
explanation for the delay was given.
13. Pursuant to this dismissal of the appeal by SAT, this appellant
preferred Civil Appeal No. 4975 of 2006 before this Court whereby
vide an Order dated 04.08.2008 this Court gave a direction that the
delay in filing the appeal before SAT is condoned subject to the appellant
depositing a sum of Rs.1,25,000/- as cost to SEBI within a period of six
weeks from the date of supply of a copy of the said Order to SAT. On
depositing the cost of Rs.1,25,000/-, SAT heard the Appeal No. 106 of
2006 and vide the impugned Order upheld SEBI -respondent's Order
dated 28.11.2003 and dismissed the appeal.
Re: Civil Appeal No. 5833 of 2009
14. On 26.07.2001, the respondent herein issued the first summons
giving details of the information sought from this appellant (R. C. Gupta
& Co. Pvt. Ltd.). The appellant furnished the required information on
29.07.2001.
15. Another summons was issued on 10.06.2002 and then on
18.06.2002 by the respondent, directing this appellant to supply the
required information and documents which was attached to the summons
by 21.06.2002. Some of the information sought were similar to that sought
in the summons dated 26.07.2001. However, additional information was
also sought but this appellant failed to respond to any of the above
summons.
16. SEBI chose to issue another summons on 09.04.2003 giving
the appellant another opportunity to comply with the directions mentioned
herein below and to appear on 12.04.2003, making it clear that the person
who had to appear on its behalf should be such who could answer all the
questions in relation to the investigations. The information and documents
sought from the appellant were crucial to the conduct of the investigation
by SEBI. Despite the repeated directions issued through the aforesaid
DKG BUILDCON PRIVATE LTD. v. THE ADJUDICATING &
ENQUIRY OFFICER, S.E.B.I. [B. V. NAGARATHNA, J.]
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summons, this appellant failed to respond. The information sought from
this appellant was as follows:
"Annexure
1.
The details of holdings in the scrip of M/s Shreejee Yatayat
Limited as on March 31, 2000.
2.
The details of the acquisition of the shares of M/s Shonkh
Technologies Limited. The details shall contain:
•
The date of the acquisition.
•
The quantity and rate of the acquisition.
•
The name and address of the trading member through
whom the acquisition was made.
•
In case the acquisition was made off-market, the
name and address of the transferors.
3.
The details of the acquisition of the shares of M/s Shonkh
Technologies International Limited. The details shall contain:
•
The date of the acquisition.
•
The quantity and rate of the acquisition.
•
The name and address of the trading member through
whom the acquisition was made.
•
In case the acquisition was made off-market, the
name and address of the transferors.
4.
The details of the trading in the scrip of M/s Shonkh
Technologies International Limited during the period from
August 1, 2000 to June 30, 2001. The details shall include:
•
The date of the transaction.
•
The name and address of the trading member
through whom the transaction is entered into.
•
In the case of off-market transaction, please provide
the name and address of the counterparty.
•
Quantity, rate and value of the transaction."
17. Due to the failure of this appellant to comply with the above
mentioned summons, SEBI initiated adjudication proceedings against this
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appellant. The Adjudicating Officer (AO) issued a Show Cause Notice
dated 15.09.2003 wherein this appellant was informed that it had become
liable for the imposition of penalty under Section 15A(a) of the 1992
Act. The Show Cause Notice also made a mention of some of the
information sought earlier through the summons, and this appellant filed
its reply dated 18.12.2003 wherein the appellant furnished the information
on the points referred to in the Show Cause Notice.
18. Thereafter, the AO, after considering the material on record,
passed an order on 31.12.2003 wherein it was found that this appellant
also did not comply with the summons. The AO imposed a penalty of
rupees one crore on this appellant under Section 15A(a) of the 1992
Act.
19. This appellant also preferred an Appeal No. 133 of 2006 on
05.10.2004 before the SAT against the Order dated 31.12.2003 along
with an application for condonation of delay. The SAT on 10.11.2006
dismissed the application for condonation of delay as well as the appeal
preferred on the ground that the appeal was time barred and no
satisfactory explanation for the delay was given.
20. Pursuant to this dismissal of the appeal by SAT, the appellant
preferred Civil Appeal No. 2289 of 2007 before this Court whereby this
Court gave a direction that the delay in filing the appeal before SAT is
condoned subject to the appellant depositing a sum of Rs.1,25,000/- as
cost to SEBI. On depositing the cost of Rs.1,25,000/-, the SAT heard
Appeal No. 133 of 2006 and by the impugned Order dated 07.01.2009
upheld the respondent's Order dated 31.12.2003 and dismissed the appeal.
21. The pertinent observations and decision of the SAT are
encapsulated as under:
(i)
That while the investigations were going on, the appellants
and other entities involved in the manipulation tried to block
the investigation by not responding to the summons issued
to them.
(ii)
It is evident that apart from the fact that the statement of
the representative of the appellants could not be recorded,
it also failed to furnish the information as per the annexure
of documents. That the appellants were bent upon not
appearing before the Investigating Officer and was also
determined not to furnish the information and produce the
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documents sought from it. SEBI initiated Adjudication
Proceedings for not complying with the summons. The AO
found that the appellants had willfully failed to respond to
the summons and imposed a monetary penalty of rupees
one crore on each of them under Section l5A(a) of the Act.
(iii)
SAT did not agree with the contention that the penalty could
not exceed Rs. 1,50,000/-. Section 15A(a) of the Act, as it
originally stood, provided for "a penalty not exceeding
Rs.1,50,000/- for each such failure." This provision was
however amended by the amending Act of 2002 which was
meant to make the penalty more deterrent and provided for
a "penalty of rupees one lakh for each day during which,
such failure continues or rupees one crore, whichever is
less."
The appellant in Civil Appeal No. 1742 of 2009 violated
the summons for the first time in August, 2001 and it was
open to SEBI to proceed against it for that non-compliance.
The appellant again violated the summons in June, 2002.
SEBI could have proceeded against it for that noncompliance as well. Had the SEBI proceeded against the
appellant for those non-compliances which constituted two
separate wrongs, the penalty leviable would have been under
the unamended provisions.
(iv)
That SEBI not having proceeded against the appellant in
Civil Appeal No. 1742 of 2009 for those non-compliances
and having chosen to issue fresh summons in April 2003,
implied that it condoned the earlier lapses and gave the
appellants a fresh opportunity to furnish the information and
appear in person to make a statement. Had the appellants
complied with the summons, it would not have been open
to SEBI to proceed against them for the earlier noncompliances.
(v)
Non-compliance of the summons issued on 01.04.2003 was
a fresh offence committed by the appellant in Civil Appeal
No. 1742 of 2009 for which SEBI proceeded, which
proceedings culminated in the passing of the impugned order.
Since this wrong was committed in April 2003 by which
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time the amended provisions were in place, penalty had to
be levied in accordance with those provisions. SAT observed
that no fault can, thus, be found with the action of the AO
in levying the penalty under the amended provisions.
For the same reason as stated above, the action of the
AO in levying the penalty against the appellant in Civil
Appeal No. 5833 of 2009 was held to be justified and no
fault could be found.
(vi)
Section 11C of the Act was introduced with effect from
29.10.2002 and sub-Section (3) provides that the
Investigating authority may require any person associated
with the securities market "to furnish such information, or
produce such books, or registers, or other documents, or
record before him...". The power to direct a person to
furnish any information or record or documents includes
the power to direct such person to make a statement and
give clarifications with regard to the information and
documents produced by him. In the absence of such a power,
the purpose of the legislature in introducing Section 11C
would be frustrated and SEBI will not be able to investigate
properly the market irregularities and offences. Therefore,
Section 11C (3) gives the power to the Investigating
Authority to call upon any person to make a statement while
furnishing any information, document or record.
(vii)
That the Orders of AO dated 28.11.2003 and 31.12.2003
did not record findings which were beyond the show cause
notice.
(viii) That the penalty imposed was not excessive and that the
same need not be reduced. That penalty cannot be reduced
on the ground that it could be levied only under the
unamended provisions of Section l5A(a) of the 1992 Act as
the most vital part of the information that was being sought
from the appellants was withheld knowingly.
(ix)
That the appellants were aiding and abetting Ketan Parekh
and his companies in manipulating the price of the scrip of
STIL and it is for this reason that they were trying to obstruct
and delay the investigations.
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22. We have heard Ms. Deeksha Mishra, learned counsel for the
appellants and Sri. C.U. Singh, learned senior counsel for the respondents
duly assisted by their instructing counsel and perused the material on
record.
23. The submissions of learned counsel for the appellants herein
are summarised as follows:
(i)
That the penalty of rupees one crorehas been imposed for
alleged non-compliance of summons dated 27.08.2001,
10.06.2002, 18.06.2002 and 01.04.2003 by the appellant in
Civil Appeal No. 1742 of 2009 and for the alleged noncompliance of summons dated 10.06.2002, 18.06.2002 and
09.04.2003 by the appellant in Civil Appeal No. 5833 of 2009.
The maximum penalty of Rs. 1,50,000/- ought to have been
imposed, if at all, as per the unamended Section 15A(a) of
the 1992 Act as it stood on the date when the summons were
issued. As regards the issue of summons dated 01.04.2003
in Civil Appeal No. 1742 of 2009 and summons dated
09.04.2003 in Civil Appeal No. 5833 of 2009 is concerned, it
was submitted that it is in continuation of the earlier summons
issued and cannot be treated in a separate and disjunct manner.
That both the appellants herein had already replied to summons
and were thus, under a bonafide belief that the requirements
of summons had been complied with.
(ii)
That the record in Civil Appeal No. 1742 of 2009 clearly
shows that the summons dated 10.06.2002 and 18.06.2002
had been complied with inasmuch as all the documents and
information requested to be furnished therein had been
supplied vide letter dated 30.07.2002 which was received
by SEBI on 31.07.2002. Similarly, in Civil Appeal No. 5833
of 2009, the first response and detailed reply dated
29.07.2001 of the appellant therein to the first summons
dated 26.07.2001 almost satisfied the queries raised by the
Investigating Officer of SEBI. However, the same remained
unnoticed by the AO while passing the Order dated
31.12.2003. Since the AO had proceeded on a wrong
assumption, presuming that the appellant never complied
with any summon and never furnished any information to
the Investigating Officer, he reached a wrong conclusion.
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(iii)
That there was no violation of Section 15A(a) of the 1992
Act since Section 15A(a) applies only with respect to
documents statutorily required to be furnished to SEBI, and
does not apply to documents required to be furnished to an
Investigating Authority, pursuant to summons issued by it.
The term "Board", as defined in the 1992 Act, is the
Securities and Exchange Board of India established under
Section 3 of the 1992 Act while the term "Investigating
Authority" is defined under Section 11C of the 1992 Act as
an officer directed by the SEBI to conduct an investigation
and report to it. It cannot be said that the powers and
functions of the Investigating Authority are co-extensive
with that of the SEBI.
(iv)
That the penalty imposed by the AO under Section l5A(a)
of the1992 Act is excessive, abusive and untenable, and in
complete disregard of the principle of proportionality. Section
l5A(a) of the 1992 Act merely provides that if any person
who is required under the Act or any rules or regulations
made thereunder fails to furnish any document, return or
report to the SEBI, he shall be liable to a penalty of rupees
one lakhfor each day during which such failure continues
or rupees one crore, whichever is less. The maximum penalty
was augmented from rupees one lakh fifty thousand to
rupees one crorewith effect from 29.10.2002. Prior to
29.10.2002, the penalty leviable under this Section was
restricted only to a sum not exceeding one lakh and fifty
thousand rupees. Assuming, that the appellants had violated
the provisions of Section l5A(a) of the 1992 Act, the
maximum penalty that could have been levied must be
calculated as per the unamended provisions, as was in force
at the time when the offence was alleged to have been
committed and summons were issued, and not the enhanced
penalty as provided by a subsequent amendment which
came into effect only from 29.10.2002.
(v)
Furthermore, the AO has, in imposing the aforesaid penalty,
disregarded the provisions of Section 15J of the 1992 Act
which reads as follows:
"15J. Factors to be taken into account while
adjudging quantum of penalty.-While adjudging the
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quantum of penalty under 15-I or Section 11 or Section
11B, the Board or the adjudicating officer shall have
due regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair
advan-tage, wherever quantifiable, made as a result of
the default;
(b) the amount of loss caused to an investor or group of
investors as a result of the default;
(c) the repetitive nature of the default."
Thus, the provisions of Section 15J make it mandatory
for the AO to consider the factors stated in the relevant
Section and reproduced hereinabove while computing the
quantum of penalty, as is provided for by the use of the
word 'shall' in the said Section. The Order dated 28.11.2003
of the AO in Civil Appeal No. 1742 of 2009 and Order
dated 31.12.2003 in Civil Appeal No. 5833 of 2009 fails to
attribute a motive to the appellants or any gains accruing to
the appellants vis-à-vis the loss, if any, incurred by
unsuspecting common investors in quantified terms on
account of alleged violations by the appellants. Thus, it is
clear that the AO has failed to take into consideration the
said factors while deciding the quantum of penalty,
particularly so, when the appellants had already furnished
the information called for by the Investigating Officer.
(vi)
That the summons issued by the respondent to the appellants
under Section 11(3) of the 1992 Act are non-est in law as
this Section does not empower SEBI to summon and compel
the appearance of companies such as the appellants. Hence,
no consequence can follow from the non-compliance of
such summons. SEBI's powers, prior to the amendment in
2002, was limited to jurisdiction over stock exchanges,
mutual funds, other persons associated with the securities
market, intermediaries and self-regulatory organizations.
After the 2002 amendment, SEBI's jurisdiction extended
to listed companies or companies which propose to get their
securities listed. However, in no event does Section 11(3)
empower SEBI to compel the appearance or production of
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documents by companies such as the appellants herein since
the appellantsare not registered with SEBI as a regulated
intermediary. Furthermore, even under Section 11(3) of the
1992 Act, the power of SEBI to compel appearance and
production of documents is limited to the powers vested in
a Civil Court under the Code of Civil Procedure, 1908, (CPC)
more specifically contained in Section 32 CPC which
provides that the Court may compel the attendance of any
person to whom summons has been issued under Section
30 CPC and for that purpose, may issue a warrant for his
arrest, attach and sell his property, impose a fine upon him
not exceeding five hundred rupees, or order him to furnish
security for his appearance and in default, commit him to
the civil prison.
(vii)
That the Orders dated 28.11.2003 and 31.12.2003 have been
passed in violation of and in grave breach of the principles
of natural justice and statutory procedure and a conscious
disregard of the duties cast on the AO under the provisions
of the 1992 Act. This is evidenced by the fact that the AO,
in the absence of a report by an Investigating Officer, took
upon himself the task of fact finding, investigating,
conducting, hearing, researching, preparing a report and then
adjudicating thereon by himself. Thus, the investigating and
adjudicating roles have been played by the same person.
(viii) The respective Orders are bad in law and have been passed
in violation of and in grave breach of the principles of natural
justice, statutory procedure and conscious disregard of the
duties cast upon the respondent under the provisions of the
1992 Act.
24. The submissions of learned counsel for the respondent in both
the appeals are summarised as under:
(i)
It has been clearly established that there has been no
compliance whatsoever by the appellants of the summons
dated 27.08.2001, 10.06.2002, 18.06.2002 and 01.04.2003
in Civil Appeal No. 1742 of 2009 and the summons dated
10.06.2002, 18.06.2002 and 09.04.2003 in Civil Appeal No.
5833 of 2009 issued by the respondent for production of
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certain documents and submission of information to the
Investigating Authority with reference to its dealings in the
scrip of STIL.
(ii)
The appellants did not co-operate with the Investigating
Officer and did not comply with the summons issued in a
matter involving a larger public interest as the information
sought in terms of the summons was necessary in order to
effectively investigate the price manipulation in the scrip of
STIL and the role of the appellants against the backdrop of
its acquisition of 10,00,000 shares of STIL at Rs.10/- per
share, when others were allotted at Rs.150/- per share; the
circumstances leading to the delivery of 3,00,000 shares of
STIL on 03.11.2000, details regarding the sale of 2,00,000
shares to Goldfish Computers at Rs.160/- per shares, debit
in the DEMAT Account on 2,00,000 shares in favour of
Goldfish Computers on 02.11.2000 etc. have not been
furnished in the response to the said summons.
(iii)
In view of the finding that the appellants were aiding and
abetting Ketan Parekh and his companies in manipulating
the price of the scrip of STIL and that the appellants herein
weretrying to stonewall the investigations initiated by the
respondent, the quantum of penalty levied on the appellants
are in conformity with the offence and warrants no
interference with by this Court.
(iv)
The provisions of Section 11C (3) of the 1992 Act empowers
the respondent to call upon any person to make a statement
while furnishing any information, document and record.
(v)
Section 15A(a) of the 1992 Act finds mention in Chapter
VI A of the 1992 Act, introduced in January, 1995. This
provision was amended by the amending Act of 2002, which
was intended to make the penalty more deterrent. This
provision, amended with effect from 29.12.2002, provides
for a penalty of Rs.1,00,000/- for each day during which
such failure continues or rupees one crore, whichever is
less.