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Bonanza Biotech Ltd. v/s Securities & Exchange Board of India

    Appeal No.61/2006 and Appeal No.86/2006
    Decided On, 23 August 2006
    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal
    By, MEMBER
    By, MEMBER
    Mr. J. J. Bhatt, Advocate for the Appellant. Shri Ravi Hegde, Advocate for the Respondent.

Judgment Text
C. Bhattacharya, Member

This order will dispose of two appeals (Appeals no.61 and no.86 of 2006) both filed by M/s. Bonanza Biotech Ltd., against the two impugned orders passed by the Adjudicating Officer on January 30, 2006 and on October 21, 2005, respectively.

The facts of the case are that the Securities & Exchange Board of India (for short the Board) had initiated an investigation into the violations alleged to have been committed by various entities in the process of allotment of shares of one Design Auto Systems Ltd.(DASL) on swap and preferential basis. Violations of various provisions of the Securities & Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and Securities & Exchange Board of India (Stock Brokers & Sub Brokers) Regulations, 1992 were also alleged. The Board’s findings reveal that the appellant had been allotted 10 crore shares of DASL at par value on a preferential swap basis on October 29, 2001. The said allotment was alleged to be not based on any prudent commercial sense. The Board’s findings also revealed that although these 10 crore shares allotted to the appellant were not listed on the BSE, part of these shares had been offloaded in the market through several entities after these were dematted. It was further alleged that upon being questioned in this regard the appellant had provided false information to the Board and to the stock exchanges. For the purpose of conducting investigation ordered by the Board, the investigating authority had issued summons under section 11 C(3) and 11C (5) of the Securities & Exchange Board of India Act, 1992 (for short the Act). Although these summons were acknowledged by the appellant and some information was provided by it on an occasion which was later found to be not fully correct, the appellant had also failed to appear before the investigating authority. In view thereof, the adjudication proceedings were initiated against the appellant and the adjudicating officer issued notice dated September, 23, 2005 (along with copies of summons and annexures) to the appellant. The notice was delivered to the appellant through MP Stock Exchange which confirmed delivery of the notice to the appellant. Further notices were repeatedly issued by the adjudicating officer. However, the appellant failed to appear before the adjudicating officer.

The shares of DASL were listed on the stock exchanges of Mumbai, Madhya Pradesh and Ahmedabad. The 10 crore shares of DASL allotted to the appellants were not listed on the Bombay and Ahmedabad stock exchanges. However, these shares were dematerialized at the Central Depository Services (India) Ltd.(CDSL) even though these were not listed on the Bombay and Ahmedabad stock exchanges. The price of the scrip of DASL was Rs.4.25 as on October 12, 2001 and moved up to Rs.11.20 on November 7, 2001 i.e. just prior to the date when these 10 crore unlisted shares were dematerialized.

While the learned counsel for the respondent mentioned that about two crore unlisted dematerialized shares were released in the market by the appellant, the learned counsel for the appellant admitted that the appellant had directly released about 1 crore shares and another block of about 1 crore shares was pledged by them to a bank for taking a loan which might have later been released in the market as part of the recovery of the bank loan. Apparently, nearly two crore shares were traded/released by the appellant in the market although these were not listed. Having regard to these facts the adjudicating officer has concluded that there can be no two opinions that the appellant did make disproportionate gains from these transactions and enjoyed unfair advantage by circulating such unlisted shares in the market to the detriment of the interest of innocent investors.

The learned counsel for the appellant admitted that repeated notices and summons for investigations were not responded to by them. He pleaded that most of the information was later on submitted in writing. However, the adjudicating officer has recorded that on cross checking and verification by Board’s office it has been found that a number of such information given were not correct.

The fact of non responding to the summons, as recorded, is admitted and the learned counsel for the appellant pleaded on the quantum of penalty which he stated was disproportionately high. We do not feel that the appellant deserves any sympathy or that the penalty imposed is excessive. When the Board ordered an investigation into the matter the appellant had filed writ petition No.150/2004 in the High Court of Madhya Pradesh after receiving the summons for personal appearance from the investigating officer. By the writ petition the appellant had challenged the jurisdiction of the Board. However, the writ petition was dismissed in March, 2005 and the appellant was directed by the Hon’ble High Court of Madhya Pradesh to co-operate with the investigating authority. The investigating authority had issued a series of summons subsequently but the appellant did not respond to the summons or comply with them. As such, the appellant rendered itself liable for a penalty under section 15A of the Act for the failure to comply with the summons issued under section 11C by failing to furnish the details and information and also to appear in person before the investigating authority. Section 15A of the Act provides that in case of failure to furnish any information to the Board, the same would attract a penalty of Rs.1 lac for each day of such failure with a maximum of Rs.1 crore. Having regard to the fact that the appellant did make disproportionate gain out of the transactions which apparently would have run into crores of rupees, we do not find that the penalty of Rs.1 crore levied is excessive or disproportionate. In the above view, Appeal no.61/2006 is without merit and hence dismissed.

The other Appeal no.86/2006 is against the adjudicating officer’s order dated October 21, 2005 imposing a penalty of Rs.5 lacs for failure to respond to the summons issued to the appellant. The learned counsel for the appellant submitted that the appellant had already changed its office location and had sent the necessary intimation of change of address to the concerned authorities including the postal authorities and the Registrar of Companies. The postal acknowledgement for the summons on which the adjudicating officer has relied upon and on the basis of which he has concluded that the summons was received by the appellant indicates that it was addressed at the old address. A copy of the postal acknowledgement is on record of this case and it is seen that it was received by s

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omeone on behalf of the appellant who has also put the appellant company’s rubber stamp on it. Apparently, the summons was issued by the Board to the appellant’s last known address and sent by registered post with acknowledgement due. It appears that these summons though bearing the old address had reached the appellant company and it was received on its behalf by a person who had not only put his signature but also affixed the rubber stamp of the company. In view of the above facts we cannot hold that the adjudicating officer had erred in concluding that the summons was received by the appellant. In the above view of the matter, the appeals fail and the impugned orders are upheld. No order as to costs.