BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 53 of 2011
Date of Decision: 29.6.2011
Indasia Holderings Limited
C/o Kross Border Trust Services Limited,
St. Louis Business Centre,
Cnr Desroches & St. Louis Streets
Port Louis, Mauritius.
…… 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. Devanshu Desai, Advocate with Ms. Dhwani Mehta, Advocate for the Appellant.
Dr. Poornima Advani, Advocate with Mr . Angshuman Kaushik, Advocate for the
Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)
This order will dispose of two Ap peals no.53 and 66 of 2011 which involve
identical questions of law and fact and have been filed by the same appellant. Since
arguments have been addressed in Appeal no.53 of 2011, the facts ar e being taken from
this case. Counsel for the parties agree that the decision in this appeal shall govern the
other appeal as well.
- The Securities and Exchange Board of India (for short the Board) investigated the
conversion of Global Depository Receipts (GDR s) issued by Pentamedia Graphics Ltd.
and the subsequent sale of the equity shares in the Indian stock market during the period
from January, 2003 to August, 2003. The focus of the investigations was to ascertain
whether certain entities includi ng the appellant who were invo lved in the conversion of
GDRs and subsequent sale of shares had an ulterior motive including price manipulation
of the scrip. Appellant was among the few overseas corporate bodies which had received
major credits in their demat accounts on account of GDR conversion. The appellant is a
limited company registered in Mauritius and it holds a Category I Global Business
License on the basis of which it trades in the securities market in India through Global 2
Depository Receipts. The investigating o fficer issued summons to the appellant on
November 26, 2007 requiring it to furnish the following information:-
“1. Holdings/transactions in the equity shares/GDRs of PGL - Date-wise transactions in equity shares
- Details of allotment/acquisiti on of GDRs including terms and
conditions of the issue/counterparty details - Reasons for selling substantial portion of holdings during May 2003
– September 2003. - Bank and demat statements.”
Admittedly, the appellant received the summ ons and sent a reply on December 7, 2007
which reads as under:-
“We are in receipt of the letter da ted 26 November 2007 in relation to the
summons to furnish information to the Investigation Authority for the
above Company.
Please note that we are currently compiling the necessary information and
shall provide you with the necessary information in due course.”
Since the information had not been furnished, as many as four more summonses were
issued to the appellant on January 9, 2008, January 25, 2008, February 14, 2008 and
March 3, 2008 requiring it to comply with the same. The summons issued on January 25,
2008 required the appellant to furnish the following inform ation in addition to the
information already sought as per summons dated November 26, 2007:-
“1. Copy of Memorandum and Articles of Association, Certificate of
Incorporation, Overseas Audito rs’ Certificate, Off-shore
Certificate, Tax Residence Certificate - Details of purchase/sales of equity shares of PGL.
- Details of acquisition of GDRs.
- Computation of profits/loss made in the scrip
- Reason for sale of substantial portion of the GDRs.
- It had been observed that GDRs had been converted into shares
immediately upon acquisition and the shares so converted had been
sold in the Indian markets. An explanation of such trading pattern
was sought. - Bank statements for the Fina ncial Year 200 2-03 and 2003-04
highlighting the payment received/made for the trades done.”
Admittedly, no information was furnished by the appellant. The investigating officer felt
hampered during the course of the investigations on account of non co-operation from the
appellant and other overseas corporate bodies and submitted his report to the whole time
member pointing out that material informati on sought from the appellant and others had
not been furnished. The report was consider ed by the whole time member on July 7,
2008 and he felt that linkages and flow of funds/securities could not be established during 3
the course of the investigations since the appellant and other overseas corporate bodies
had failed to furnish the necessary informati on. It was decided to initiate adjudicating
proceedings against the appellant and others . Accordingly, a show cause notice dated
May 19, 2009 was issued to the appellant a lleging violation of Section 11C of the
Securities and Exchange Board of India Act, 1992 (for short the Act). It was pointed out
that the aforesaid 5 summonses had been issu ed and despite the letter dated December 7,
2007 from the appellant informing the Board that the former was in the process of
compiling the necessary information, no information was provided by the appellant. The
appellant did not file any reply to the show cause notice. However, in response thereto it
furnished some information to the Board by its letter of June 9, 2009 making reference to
the show cause notice. Apart from the fact that the information now furnished by the
appellant was belated and was received after the conclusion of the investigations and only
after the show cause notice had been served on the appellant, it was also incomplete and
inadequate. Admittedly, bank account and demat account statements had not been
furnished. Even the details of allotment/acquisition of GDRs including the terms and
conditions of the issue had been withheld. On a consideration of the material on the
record, the adjudicating officer came to the conclusion that the appellant had violated
section 11C of the Act and by his order dated January 31, 2011 imposed a monetary
penalty of ` 20 lacs on the appellant. Hence this appeal. - We have heard the learned counsel for the parties who have taken us through the
record. At the outset, the learned counsel fo r the appellant stated that the appellant had
not received 3 summons dated January 25, 2008, February 14, 2008 and March 3, 2008.
As already noticed above, additional inform ation was sought from the appellant through
the summons issued on Janua ry 25, 2008. The appellant stat es in the memorandum of
appeal that the information that it was cal led upon to provide had been varied by the
Board and it required some time to collect the same. We wonder how the appellant came
to know that some additional/different information had been sought from it when it did
not receive the summons dated January 25, 2008. It is obvious that the appellant is not
telling the truth. Be that as it may, the appellant responded to the show cause notice by
its letter dated June 9, 2009 by which some information had been furnished. It did not
mention in that letter that some of the summ ons referred to in the show cause notice had
not been received by it. This was the first response which the appellant gave after the 4
receipt of the show cause notice and since it di d not take the plea then we are not willing
to accept the ispe dixit of the appellant now for the first time. When confronted with this
factual background, the learned counsel for the appellant contended that we should
proceed on the assumption that the appellant had received the summons. It is, thus, clear
that despite the receipt of summons on 5 occasions, the appellant withheld the
information from the Board which seriously hampered the investigations and the linkages
and flow of funds and securities could not be conclusively established. This is, indeed, a
serious violation committed by the appellant for which adjudication proceedings were
initiated against it. Section 15 A of the Ac t provides that any person who is required
under the Act to furnish any document, return or report to the Board or furnish any
information fails to do so shall be liable to a penalty of1 lac for each day during which such failure continues or1 crore whichever is less. Information was first sought from
the appellant in December, 2007 and only a pa rt of it was furnished in June, 2009 and
that too after the closure of investigations and the issuance of show cause notice. We are
satisfied that the appellant wilfully non-c ooperated with the investigating officer and
failed to furnish the necessary informa tion which has adversely affected the
investigations. In this background, the argumen t of the learned counsel for the appellant
that the penalty of ` 20 lacs imposed on the appellant is highly excessive cannot be
accpeted. It must be understood that the Boar d as a market regulator cannot perform its
duties in accordance with law if the market players do not cooperate with it. Non
furnishing of information and documents has also been made a criminal offence under
section 11C of the Act. It is, indeed, a very serious wrong doing as we do not know what
else would have come out in the investig ations if the appellant had cooperated and
furnished the required information. This being so, we cannot find any fault with the
impugned order. - Before concluding, we may take note of another contention advanced on behalf of
the learned counsel for the appellant. It is urged that the appellant is based in Mauritius
and the information was required to be furnis hed to the investigating officer in Mumbai
and the time allowed for furnishing the information each time was insufficient. We are
unable to accept this contention because a ll the summons had been received by the
appellant and in respons e to the first summons it had responded way back on
December 7, 2007 that it was compiling the necessary information which would be 5
provided to the Board in due course. The inve stigations concluded some time in the first
week of July 2008. Surely, the appellant had enough time from December 2007 till July
2008 to furnish the information. It did not do so and furnished only a part of it when it
received the show cause notice.
In the result, there is no merit in the appeals and they stand dismissed with no
order as to costs.Sd/- Justice N.K.Sodhi Presiding Officer Sd/- P.K. Malhotra Member Sd/- </code></pre>S.S.N. Moorthy
Member
29.6.2011
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