BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 27.6.2019
Appeal No.399 of 2018
Pawan Kumar Satyanarayana
350/A, New Cloth Market,
Opp. Raipur Gate, Sarangpur,
Ahmedabad-380002.

…. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C-4A,
G-Block, Bandra Kurla Complex,
Bandra (E), Mumbai – 400 051.

…Respondent
Mr. J.J. Bhatt, Advocate with Mr. Akshit Jain, Advocate i/b.
R.V. Legal for the Appellants.
Mr. Karan D. Bhosale, Advocate with Mr. Anubhav Ghosh and
Mr. Abhishek Mishra, Advocates i/b. The Law Point for the
Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
Per : Justice Tarun Agarwala (Oral)
1.

Pursuant to the investigation conducted into the alleged
irregularities in the scrip of IFL Promoters Ltd, a show cause
notice was issued to the appellant to show cause as to why he
should not be penalized under the Securities Contracts
(Regulation) Act, 1956 (referred to hereinafter as ‘SCRA’) for
2
violation of Section 2(i) and Section 16 of the SCRA. The
show cause notice alleged that Heena Developers P. Ltd.
transferred 5,19,000 shares of IFL Promoters Ltd. to the
appellant in off market transaction and that Heena Developers
P. Ltd. did not receive the payment from the appellant.
2.

In response to the show cause notice the appellant replied
that he had some commercial dealings with Chetan Dogra from
whom he had to receive a sum of Rs.11,25,000/-.

It was
contended that Chetan Dogra transferred 74,000 shares of IFL
Promoters Ltd. in off market, based on which, the appellant
sold
these
shares
in
open
market
and
realized
Rs.10,55,004.57/-.
3.

The Adjudicating Officer found that the said off market
transaction was in violation of Section 2(i)(a) of the SCRA and
consequently imposed a sum of Rs.12,00,000/- upon the
appellant. The appellant being aggrieved by the said order has
filed the present appeal.
4.

We have heard Mr. J.J. Bhatt, learned counsel assisted by
Mr. Akshit Jain, Advocate for the appellant and Mr. Karan D.
Bhosale, Advocate assisted by Mr. Anubhav Ghosh and Mr.
Abhishek Mishra, Advocates for the respondent. Section 2(i)
of the SCRA provides as under:
3
2(i) “spot delivery contract” means a contract
which provides for,(a) actual delivery of securities and the payment
of a price therefor either on the same day as
the date of the contract or on the next
day, the actual period taken for the despatch
of the securities or the remittance of money
therefor through the post being excluded
from the computation of the period
aforesaid if the parties to the contract do
not reside in the same town or locality;
(b) transfer of the securities by the depository
from the account of a beneficial owner to the
account of another beneficial owner when
such securities are dealt with by a depositor.
5.

6.

Section 16 provides as under:
(1)
If the Central Government is of opinion that it
is necessary to prevent undesirable speculation
in specified securities in any State or area, it
may, by notification in the Official Gazette,
declare that no person in the State or area
specified in the notification shall, save with the
permission of the Central Government, enter
into any contract for the sale or purchase of
any security specified in the notification
except to the extent and in the manner, if any,
specified therein.

(2)
All contracts in contravention of the provisions
of sub-section (1) entered into after the date of
notification issued thereunder shall be illegal.

In addition to the above, Notification No.SO 184(E) dated
1.3.2000 provides as under:
4
In exercise of the powers conferred by sub-section
(1) of section 16 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), read with
Government of India Notification No. S.O. 573(E),
dated 30th July, 1992 and Notification No. 183 (E),
dated 1st March, 2000 issued under section 29A of
the said Act, the Securities and Exchange Board of
India (hereinafter referred to as ‘the Board’) being
of the opinion that it is necessary to prevent
undesirable speculation in securities in the whole of
India, hereby declare that no person in the territory
to which the said Act extends, shall, save with the
permission of the board, enter into any contract for
sale or purchase of securities other than such spot
delivery contract or contract for cash or hand
delivery or special delivery or contract in derivatives
as is permissible under the said Act or the Securities
and Exchange Board of India Act, 1992 (15 of
1992) and the rules and regulations made under
such Acts and rules, regulations and bye-laws of
a recognized stock exchange :
Provided that any contracts for sale or purchase
of Government securities, gold related securities,
money market securities and ready forward
contracts in debt securities entered into on the
recognized stock exchange shall be entered into
in accordance with,—
(a) the rules or regulations or the bye-laws
made under the Securities Contracts (Regulation)
Act, 1956 (42 of 1956), or the Securities and
Exchange Board of India Act, 1992 (15 of 1992) or
the directions issued by the Securities and Exchange
Board of India under the said Acts;
(b) the rules made or guidelines or directions issued
under the Reserve Bank of India Act, 1934 (2 of
1934) or the Banking Regulations Act, 1949 (10 of
1949) or the Foreign Exchange Regulation Act,
1973 (46 of 1973) by the Reserve Bank of India;
(c) the provisions contained in the notifications
issued by the Reserve Bank of India under the
5
Securities Contracts (Regulation) Act, 1956 (42 of
1956).
7.

A perusal of the aforesaid provisions indicates that in a
spot delivery contract the payment of consideration must be
done either on the same day or on the next day of the
transaction. In the instant case, the shares of Heena Developers
P. Ltd. were transferred to the appellant in off market
transactions but Heena Developers P. Ltd. did not receive any
consideration against the said shares.

Consequently, the
transaction was not in conformity with the provisions of
Section 2(i) of the SCRA and, therefore, the appellant
contravened the provisions of Section 15 of the SCRA.
8.

However, we find that the imposition of Rs.11,76,600 is
disproportionate and is not based on any cogent reason. Prima
facie we fail to understand as to how the Adjudicating Officer
has arrived at a figure of Rs.11,76,600/-. We can only presume
that since value of the shares was around Rs.11,76,000/- at the
time of purchase the said amount has been directed to be paid
by the appellant. In our opinion, this amounts to disgorgement
for which there is no provision under the Act. We are, also of
the opinion, that the amount is totally disproportionate to the
misconduct. At this stage we thought we should remand the
6
matter for reconsideration on the quantum of penalty but
considering the fact that no other instance has been found
against the appellant and it is a one off violation coupled with
the fact that the litigation should achieve a finality we are of the
opinion that an imposition of Rs.2 lakhs would be sufficient for
violation of Section 2(i) of the SCRA.
9.

For the reason stated aforesaid, the appeal is partly
allowed.

The impugned order is affirmed in so far as the
violation of law is concerned. The penalty is however reduced
from Rs.12 lakhs to Rs.2 lakhs which shall be paid by the
appellant within four weeks from today.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
Sd/Justice M.T. Joshi
Judicial Member
27.6.2019
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