TaxTMI 
TaxTMI 
2022 (9) TMI 753
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....s 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 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 shareh....
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....etan 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 fr....
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.... 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 dir....
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....t 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 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....
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....me 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 abovementioned summons, SEBI initiated adjudication proceedings against this 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 reco....
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....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 non-compliance 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 non-compliances. (v) Non-compliance of the summons issued on 01.04.2003 was a fresh offence committed by the appellant in Civil Appe....
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....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 crore has 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 non-compliance 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 bona fide belief that the requirements of summons had been complied with. (ii) That the record in Civil Appeal No. 1742 of 2009 clearly shows....
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.... 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 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 advantage, 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 pro....
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....sregard 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 certain documents and submission of information to the Investigat....
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....y this Court. 25. Having heard the learned counsel for the respective parties, it is noted that the appellants herein are challenging the Orders dated 07.01.2009 of the SAT, Mumbai in Appeal No. 106 of 2006 and Appeal No. 133 of 2006 respectively upholding the Orders dated 28.11.2003 and 31.12.2003 passed by the AO respectively in each case, imposing a monetary penalty of rupees one crore on each appellant under Section 15A(a) of the 1992 Act for failing to comply with the summons issued to the appellants for the production of documents and furnishing of information during the course of certain investigations being carried out by SEBI during the period of 2000-2007 in relation to suspicious purchase and sale of scrip and manipulation of share prices of STIL. For immediate reference Section 15A(a) of the 1992 Act at the relevant point of time is extracted as under: "15A. Penalty for failure to furnish information, return, etc. - If any person, who is required under this Act or any rules or regulations made thereunder,- (a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for eac....
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....th respective applications for condonation of delay before the SAT. Initially, SAT dismissed the aforesaid applications and the appeals on the ground that the appeals were belated and time-barred and the appellants had failed to provide a satisfactory explanation to justify the delay in filing the appeals. Thereafter, this Court passed Orders dated 04.08.2008 in Civil Appeal No. 4975 of 2006 and Civil Appeal No. 2289 of 2007 directing SAT to condone the delay in filing the appeals, subject to the appellants herein depositing a sum of Rs. 1,25,000/- as cost to SEBI within a period of six weeks. 30. Thus, Appeal No. 106 of 2006 and Appeal No. 133 of 2006 were heard by the SAT which, hearing the matter, passed a reasoned common Order dated 07.01.2009 upholding the Orders of the AO dated 28.11.2003 and 31.12.2003 respectively, and dismissing the appeals. Challenging the aforesaid decision of the SAT dated 07.01.2009, the appellants have filed the present Civil Appeals. 31. The primary contention of the appellants is that the non-compliance of summons is not a continuing wrong and that the summons dated 01.04.2003 and summons dated 09.04.2003 respectively were issued in continuati....
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....h per day of failure or rupees one crore, whichever is less. Thus, rupees one crore is the maximum penalty that can be levied if the failure as contemplated under the aforesaid provision crosses one hundred days; otherwise, it is as per the number of days of failure upto one hundred days. 34. Thus, the penalty of rupees one crore as levied by the AO and upheld by the SAT is justified and within the precincts of the relevant provision. Applying the said provision to the facts for the present cases, it is clear that the appellants had failed to comply with the summons dated 01.04.2003 and 09.04.2003 respectively. Thereafter, the AO had passed its order levying penalty on the appellants on 28.11.2003 and on 31.12.2003 respectively. 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 had rightly applied Section 15A(a) of the 1992 Act, more specifically in regard to the maximum limit of penalty that could be imposed under the provision, i.e. rupees one crore. 35. Further, learned counsel for the appellants has placed reliance on certain judgments of this Court....
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.... entities were involved in aiding and abetting Ketan Parekh 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 order of SEBI had attained finality. The said investigation had found that the appellants were involved in certain unauthorized transfer of shares starting from the allotment of shares of STIL to various people including Ketan Parekh's entities through a web of transfers which could virtually wreck the integrity of the securities market, undermine the system and provide for a fertile ground to wangle unfair gains. The investigation had also concluded that the appellants had played a role in facilitating such activities by manipulating the market, and this finding of guilt remains unchallenged by the appellants and is thus admitted. 39. As has been rightly observed by the SAT in its Order dated 07.01.2009, non-furnishing of information by the appellants in compliance of summons cannot be viewed lightly, particularly, when the appellants were involved in offences of such a grave nature being detrimental to the interest of genuine investors and to the smooth and secure f....
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....ontext of the present case creates a presumption in favor of the AO that he has passed the Orders dated 28.11.2003 and 31.12.2003 against the appellants herein after due consideration of the factors mentioned in Section 15J of the 1992 Act. 43. In the case of Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (2019) 5 SCC 90, a three Judge Bench of this Court held that - "5. ...Sections 15A (a) to 15-HA have to be read along with Section 15-J in a manner to avoid any inconsistency or repugnancy. We must avoid conflict and head-on-clash and construe the said provisions harmoniously. Provision of one Section cannot be used to nullify and obtrude another unless it is impossible to reconcile the two provisions. The Explanation to Section 15-J of the SEBI Act added by Act 7 of 2017, quoted above, has clarified and vested in the adjudicating officer a discretion under Section 15-J on the quantum of penalty to be imposed while adjudicating defaults under Sections 15-A to 15-HA... 9. ... the circumstances enumerated in clauses (a), (b) and (c) of Section 15-J of the SEBI Act may have no relevance and may never arise in case of contravention....
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....Exchange Board of India vs. Bhavesh Pabar, it has been observed that: 34. This Court, in the exercise of its jurisdiction under Section 15-Z of the SEBI Act, cannot go into the proportionality and quantum of the penalty imposed, unless the same is distinctly disproportionate to the nature of the violation which makes it offensive, tyrannous or intolerable. Penalty by the very nature of the provision is penal. We can interfere only where the quantum is wholly arbitrary and harsh which no reasonable man would award. In the instant case, the factual findings are not denied and, thus, we are not inclined to intermeddle with the quantum of penalty. The penalty imposed is just, fair and reasonable and, thus, upheld. 12. The above observations make it clear that the imposition of a penalty is subject to interference under Section 15Z of the SEBI Act only where the quantum is found to be wholly arbitrary and harsh or distinctly disproportionate to the nature of the violation. 13. In the present case, the WTM, while imposing an order of debarment, has specifically applied her mind to the issue as regards the impact of such a manipulation. While dealing with this a....