BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No.16 of 2013 with
Appeal No.17 of 2013 and
Appeal No.18 of 2013

Date of Decision: 20.3.2013

Appeal No.16 of 2013

Sunday Exports Ltd.
Sunday House, A.K. Road.,
Surat – 395008, Gujarat

          …… Appell   

 Versus  

Adjudicating Officer
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C- 4A, ‘G’
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

          …… R   

Appeal No.17 of 2013

Shri Pravinchandra Dashrathbhai Patel
Residing at 1101, Surbhi Apartments,
Pipod-9, Surat –
–

……
4A, ‘G’
–

……R
Appeal No.18 of 2013

1. Shri Rameshchandra Ishwarlal Gandhi
2. Smt. Gitaben Rameshchandra Gandhi
3. Shri Devang Rameshchandra Gandhi
4. Smt. Devanshi Devang Gandhi
   H. No.6/2507-8, Limbu Sheri,
   Mahidharpura Surat –

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5. M/s. Riddhi Silk Mills
   Gandhi Colony, A.K. Road,
   Surat – 395008, Gujarat …… Appellants Versus

Adjudicating Officer
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C- 4A, ‘G’
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

             ……R   

Mr. M.P. Rao, Senior Advocate for the Appellants.

Mr. Prateek Seksaria, Advocate with Mr. Mihir Mody, Mr. Harish Bora and Mr. Akhilesh
Singh, Advocates for the Respondent.

CORAM : Jog Singh, Member

Per : Jog Singh (Oral)

On the last date of hearing i.e 8th March, 2013 Shri Rao, learned senior counsel for

the appellants sought some time to seek instructions from his clients as to the quantum of

penalty. Today, Shri Rao appears and fairly submits that his clients are prepared to pay a

consolidated amount of `5,00,000/- in all three appeals. This aspect will be looked into at

the time of passing of final order in the three appeals after hearing learned counsel for the

parties.

2. With the consent of the parties all the three appeals have been heard together as

they involve common questions of law and fact. Appeal no.16 of 2013 has been filed by

Sunday Exports Limited, a company listed on the Bombay Stock Exchange Ltd. (BSE)

against order dated November 01, 2012 imposing a penalty of `2,00,000/- by the learned

Adjudicating Officer of the respondent Board under section 15-I(2) of the Securities and

Exchange Board of India Act, 1992 (the Act) read with Rule 5 of the Securities and

Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 2005. In fact a penalty of `1,00,000/ has been imposed under

section 15HB of the Securities and Exchange Board of India Act, 1992 and another sum of

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`1,00,000/- has also been imposed under section 23A(a) of the Securities Contracts

(Regulation) Act, 1956 (for short SCRA).

3. Similarly, Appeal no.17 of 2013 has been preferred by Mr. Pravinchandra

Dashrathbhai Patel and Mr. Fulian Ashvin Reshamwala who are the two Whole Time

Directors of the company against the impugned order dated November 01, 2012 passed by

the learned Adjudicating Officer imposing a penalty of `1,00,000/- on each of them under

section 15HB of the Act.

4. Turning to Appeal no.18 of 2013, it is also noted that it also arises out of the same

set of investigation and facts. However, in this appeal the appellants are Shri

Rameshchandra Ishwarlal Gandhi, Chairman and Managing Director (Appellant no.1) and

his wife Smt. Gitaben R. Gandhi (Appellant no.2). Both of them are the promoters of the

company. Shri Devang Rameshchandra Gandhi, Director and Compliance Officer is

Appellant no.3 and Smt. Devanshi Devang Gandhi, Director is Appellant no. 4. Both of

them happen to be the son and daughter-in-law of Shri Rameshchandra Gandhi,

respectively. M/s Riddhi Silk Mills is a partnership firm owned by Shri and Smt. Devang

Gandhi and it is Appellant No. 5.

5. The Tribunal has heard both the learned counsel for the parties at length and the

pleadings and documents have been perused minutely. Brief facts leading to the present

appeals are that the Board conducted investigations in the dealings in the scrip of the

company for the period from April 15, 2010 to July 21, 2010. The said investigation

revealed that the company had not framed the Model Code of Conduct for prevention of

Insider Trading prior to November 25, 2010 as prescribed under section 12(1) of the

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(referred to hereinafter as PIT Regulations). It was also noticed that the company approved

the unaudited accounts for the quarter ending June 2010 in the meeting held on

July 06, 2010 but submitted the said approved quarterly reports to Bombay Stock Exchange

Limited vide letter dated July 07, 2010. The letter ultimately reached the Exchange on

July 9, 2010. This is contended to be against clause 41(f) of the Listing Agreement read

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with Section 21 of the SCRA and clause 2.0 as specified in Schedule II of Code of

Corporate Disclosures Practice For Prevention of Insider Trading read with Regulation

12(2) of the PIT Regulations. Consequently, adjudication proceedings were initiated

against the company.

6. Similarly, the Board initiated proceedings under section 15-I of the Act read with

Rule 3 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules, 2005 against Mr. Pravinchandra

Dashrathbhai Patel and Mr. Fulian Ashvin Reshamwala who are admittedly the Whole

Time Directors of the said company for their failure in exercising overall supervision in

framing the Model Code of Conduct for prevention of Insider Trading. Further, on the

same set of investigation, the Board also proceeded against Appellants no.1 to 5 whose

names have been mentioned hereinabove and who are appellants in Appeal no.18 of 2013

particularly for violation of clause 1.2 of the Code of Conduct as specified under Part A of

Schedule I read with Regulation 12(1) and 12(3) of the PIT Regulations warranting

imposition of penalty under sections 15G and 15HB of the Act. Allegation was also

levelled against them in respect of violation of clause 41(f) of the Listing Agreement read

with Section 21 of the SCRA and clause 2.0 as specified in Schedule II of Code of

Corporate Disclosures Practice For Prevention of Insider trading.

7. In the above circumstances, the Board appointed Shri P.K. Kuriachen as the learned

Adjudicating Officer in the whole matter by order dated May 03, 2012. He issued two

show cause notices dated May 30, 2012 to the appellants in Appeals no. 16 and 17 of 2013

respectively to show cause as to why an inquiry should not be held against them as per law

for the alleged violations. In the matter of Appeal no.18 of 2013 separate show cause

notices dated June 21 and 22, 2012 were issued to Appellants no.3, 4 and 5; and to

Appellants no. 1 and 2 respectively. From the record it appears that appellant in Appeal

no.16 of 2013 filed its reply dated June 12, 2012 to the show cause notice in question.

However, the two appellants in Appeal no.17 in 2013 did not appear to have filed their

reply. Similarly, five appellants in Appeal no.18 of 2013 also filed their replies vide letters

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dated August 21 and 22, 2012 in response to the said show cause notice. Opportunity of

personal hearing was also afforded to the appellants and the same was availed by them.

8. After a careful consideration of the reply, written submissions and after affording

an opportunity of personal hearing which was attended by authorised representatives of the

appellant, the learned Adjudicating Officer came to the conclusion that the appellants in

Appeal no.16 of 2013 have violated the provisions of clause 1.2 of the code of conduct

specified under Part A of Schedule I read with Regulations 12(1) and 12(3) of the PIT

Regulations and clause 41(f) of the Listing Agreement in question. The learned

Adjudicating Officer also found them guilty of violation Section 21 of the SCRA and

clause 2.0 as specified in Schedule II of Code of Corporate Disclosures Practice For

Prevention of Insider Trading read with Regulation 12(2) of the PIT Regulations. He

accordingly passed the impugned order dated November 1, 2012 imposing penalty in

question.

9. Similarly, in Appeal no.17 of 2013, the learned Adjudicating Officer held that the

appellants therein violated the provisions of clause 1.2 of the code of conduct specified

under Part A of Schedule I read with Regulations 12(1) and 12(3) of the PIT Regulations.

Turning to Appeal no.18 of 2013 it is noted that the learned Adjudicating Officer held

Appellants no.1, 3 and 4 guilty of violating clause 1.2 of the Code of Conduct as specified

under Part A of Schedule I read with Regulation 12(1) and 12(3) of the PIT Regulations.

The learned Adjudicating Officer also found that a profit of `3015/- was earned by

Appellant no.2 and a profit of `1,07,868/- was earned by Appellant no.5 by

purchasing/selling shares under the unpublished price sensitive information period. The

learned Adjudicating Officer, however, gave benefit of doubt in the matter of violation of

section 12A(a), (b) and (c) of the Act read with Regulation 3(a), (b), (c) and (d), 4(1) and

4(2)(e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market) Regulation, 2003 in respect of

Appellant no.3 Shri Devang Rameshchandra Gandhi and M/s. Riddhi Silk Mills Appellant

no.5. All other allegations were proved against all the appellants.

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10. After hearing the learned counsel for the parties Shri M.P. Rao, learned senior

counsel for the Appellant and Shri Prateek Seksaria and Shri Mihir Mody counsel for the

Respondent, and perusing the impugned orders and other connected documents of the

appeal the Tribunal is convinced that there is no legal infirmity in holding of enquiry by the

Shri P.K. Kuriachen, the learned Adjudicating Officer. He has conducted the enquiry and

proceeded against the appellants in a just and fair manner by affording reasonable

opportunity of being heard and producing the documents and reply in support of their case.

11. It is noted that the requirement of framing a Code of Conduct for prevention of

insider trading by the companies is a mandate of law and nobody can be allowed to violate

the same. Similarly, the requirement of communicating the decisions of the Board of the

company to the Stock Exchange promptly is an important check on the unscrupulous

persons who may utilise the information for their personal gains in an improper and illegal

manner and thereby jeopardizing the interest of bonafide investors. In the present case, the

requirement conveg Boa important decisions to the Stock Exchange within

15 minutes is a crucial provision binding on the company and the same is having an

underlying object which can only be achieved by quick communication of the said

decision by the company to the Stock Exchange. The appellant can have very well

conveyed the said decision by way of fax or e-mail etc. within 15 minutes so as to avert the

possibility of being misused the sensitive information in question. In view of this, the three

impugned orders are upheld.

12. However, taking into consideration the totality of facts and circumstances and also

the mitigating factors explained by the learned senior counsel for the appellant in the

matter, the Tribunal is inclined to take a lenient view in the matter of quantum of penalty.

It is submitted by Shri Rao that the Company Secretary who had since long been associated

with the company unfortunately fell sick as he suffered from cancer in January, 2009. He

unfortunately expired on 5.1.2011 and in the circumstance there was nobody to guide the

appellants properly. Similarly it is stated by the learned counsel for the appellants that the

company as well as the other Directors including the Managing Directors have been very

prompt in intimating the outcome of the board meetings in all preceding years and they

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have never defaulted in the matter and this is the first instance of this kind. Keeping in

view the facts and circumstances of the case penalty imposed on the appellant in

Appeal no. 16 of 2013 is reduced to `1,00,000/-. Similarly, penalty imposed on the two

appellants in Appeal no.17 of 2013 is also reduced to `1,00,000/-. However, penalty in

respect of the five appellants in Appeal no.18 of 2013 is reduced to `5,00,000/-. Therefore,

in all, the appellants are required and directed to pay an amount of `7,00,000/- as penalty

under the three impugned orders within a period of two months from the date of receipt of

a copy of this order. The three appeals accordingly stand dismissed with the above said

reduction of monetary penalty only. No costs.

Sd/-
Jog Singh
Member

20.3.2013
Prepared and compared by
RHN