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CaseIQ

Dilip S. Mehta v. Securities And Exchange Board Of India

Securities Appellate Tribunal

Feb 21, 2013

Judgment

CaseIQ

Smart Summary (Beta)

Factual and Procedural Background

The appellant challenged an order dated 24 September 2012 of the adjudicating officer of the Securities and Exchange Board of India (SEBI or the Board) imposing a monetary penalty of Rs. 6 lakhs under section 15A(a) of the Securities and Exchange Board of India Act, 1992, for alleged violations of Sections 11C(2), 11C(3) and 11C(5) of the Act.

Two summons were issued to the appellant in connection with an investigation into the scrip of Bank of Rajasthan Limited: one dated 23 February 2011 and another dated 9 May 2011. The appellant did not respond to the summons. He admitted receiving the first summons but contended he did not receive the second; the Board produced an acknowledgement for the second summons which the appellant disputed, saying the signature was not of any of his employees. The appellant also asserted that he was not connected with Bank of Rajasthan Limited and had never purchased its shares, and that the summons had been addressed in error due to a person named Ms. Sangeeta Sawant, who he said worked with him and was linked to the bank’s promoters.

Before the Board, the appellant apologised for not appearing, sought pardon and attempted to explain his position. The adjudicating officer imposed the Rs. 6 lakh penalty on the ground of non-compliance with two summons. The appellant appealed, contending (among other things) that he received only one summons and that the penalty was excessive.

Legal Issues Presented

Whether the appellant's failure to comply with the summons(es) issued by the Board justified the imposition of a penalty under section 15A(a) of the SEBI Act for contravention of Sections 11C(2), 11C(3) and 11C(5).
Whether the penalty amount imposed (Rs. 6 lakhs) was excessive in light of the appellant's assertion that he received only one summons and that the summons may have been wrongly addressed.

Arguments of the Parties

Appellant's Arguments

The appellant disputed receipt of the second summons (9 May 2011), asserting the acknowledgement produced by the Board bore a signature not belonging to any of his company’s employees.
He admitted receipt of the first summons (23 February 2011) but contended it was wrongly addressed to him because he was not connected to Bank of Rajasthan Limited and had never purchased its shares; he said he received the summons due to association with Ms. Sangeeta Sawant.
He apologised for not appearing before the Board and requested pardon, and argued that the penalty of Rs. 6 lakhs (imposed on the basis of alleged non-compliance with two summons) was excessive since he allegedly received only one summons.

Respondent Board's Position

The Board treated the appellant as having not complied with the summonses and produced an acknowledgement for the second summons indicating receipt.
On the basis of the appellant's non-response to the summonses, the adjudicating officer imposed a penalty of Rs. 6 lakhs under section 15A(a) for contravention of the cited provisions of the Act.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court heard counsel and examined the record. The court accepted, for the sake of argument, the appellant’s contention that the second summons might not have been received, but held that this did not absolve the appellant because he had admittedly not responded to the first summons dated 23 February 2011.

The court rejected the appellant’s defence that the summons was wrongly addressed. It reasoned that if the appellant believed the summons had been wrongly addressed, he should nonetheless have informed the Board to that effect rather than remain silent. The court emphasised that non-compliance with a summons constitutes a violation of statutory provisions and attracts penalty; even if the appellant had no information to furnish, he should have explicitly so stated in response to the summons.

Balancing these considerations and having regard to the particular facts and circumstances of the case, the court concluded that justice would be served by reducing the penalty imposed by the adjudicating officer.

Holding and Implications

Holding: The court reduced the penalty imposed by the adjudicating officer from Rs. 6 lakhs to Rs. 3 lakhs and disposed of the appeal with no order as to costs.

Implications: The direct effect of the decision is that the monetary penalty against the appellant is reduced to Rs. 3 lakhs. The opinion does not discuss broader legal or precedential effects beyond the disposition of this appeal.

The order is signed by P.K. Malhotra (Member & Presiding Officer (Offg.)) and Jog Singh (Member) dated 21.02.2013.

Show all summary ...

The appellant is aggrieved by the order dated September 24, 2012 passed by the adjudicating officer of the Securities and Exchange Board of India (for short Board) imposing a penalty of ` 6 lakhs under section 15A(a) of the Securities and Exchange Board of India Act, 1992 ( the Act) for violating the provisions of Sections 11C(2), 11C(3) and 11C(5) of the Act.

2. The appellant was issued two summons, one on February 23, 2011 and second on May 9, 2011 asking the appellant to furnish certain information with reference to the investigation initiated by the Board in the scrip of Bank of Rajasthan Limited. Admittedly, the appellant has not responded to the summons. The appellant is disputing receipt of the second summons, although the acknowledgement has been produced by the respondent Board. It is the case of the appellant that the signature on this acknowledgement is not of any one of the employees of his company. With regard to the first summons, which was admittedly received by the appellant, it is submitted that the appellant was under the impression that the summons were wrongly addressed to him. It was further contended that the appellant was not connected with the Bank of Rajasthan Ltd. at all and had never purchased any share of that bank. The appellant received the summons as one Ms. Sangeeta Sawant who was said to be director of a large number of companies was connected with the promoters of the Bank of Rajasthan Ltd. and she was working with the appellant. In his reply before the Board, the appellant had apologized for not appearing and clearing his position and requested that he may be pardoned. However, the Board has imposed a penalty of ` 6 lakhs based on the ground that the appellant has not responded to two summons whereas, the appellant had received only one summons. Therefore, according to the appellant, the penalty imposed by the adjudicating officer based on the alleged non-compliance of two summons by the appellant is excessive and exorbitant.

3. We have heard the learned counsel for the parties and have perused the records. Even if we accept the argument of the learned counsel for the appellant that the second summons was not received, the fact remains that the appellant has not responded to the first summons issued on February 23, 2011. The only defence offered by him is that he was under the impression that summons has been wrongly addressed to him. This reason cannot be accepted. If the appellant was of the view that the summons was wrongly addressed to him he should have replied to the Board accordingly. Non-compliance to summons is violation of the provisions of law and entails penalty. Even if the appellant had no information to furnish, he should have said so and responded to the summons. However, in the peculiar facts and circumstances of the case, we are of the view that ends of justice would be met by reducing the penalty to ` 3 lakhs. We order accordingly. The appeal stands disposed of with no order as to costs. Sd/- P.K. Malhotra Member & Presiding Officer (Offg.) Sd/- Jog Singh Member 21.02.2013 Prepared and compared by: