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Murli Lekhraj Sanwa Finance P. Ltd. & Another v/s Securities & Exchange Board of India

    Appeal No: 337, 337A & 337B of 2004

    Decided On, 14 December 2005

    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal

    By, CORAM: JUSTICE KUMAR RAJARATNAM
    By, PRESIDING OFFICER
    By, C. BHATTACHARYA
    By, MEMBER
    By, R.N. BHARDWAJ
    By, MEMBER

    Appellants – Represented by: Mr. Rohit Kapadia, Sr. Advocate, Mr. Bhavin Shah, Advocate. Respondent- Represented by: Mr. Dipan Merchant with Mr. Ravi Hegde, Advocate.



Judgment Text

Justice Kumar Rajaratnam, Presiding Officer


1. Appeals taken up for disposal with the consent of both the parties.


2. The appellants challenges the order passed by the Whole Time Member of SEBI dated 31st August, 2004 in this appeal. SEBI by exercising powers under Sections 11A and 11B of the SEBI Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 has debarred the appellant from accessing the securities market for a period of two years. The facts very briefly are - certain investigation was conducted by SEBI with respect to the affairs of United Western Bank Limited. The investigation revealed that the scrip of the company rose from Rs. 33/- per share in 25th October, 2000 to Rs. 60.90 as on 14th November, 2000 at BSE and from Rs. 31/- to Rs. 65.5 at NSE. During that period it was also found that the UBWL Employees Equity Trust was buying shares of the bank from the market as well as from the individual investors and there was a sudden spurt in the movement of the shares. The Trust was the major buyer during that period. The appellant was a broker and the proprietor of Sanwa Securities Pvt. Ltd. Proprietary trades were also done. The total volume of trade in the share of the bank by the appellant and the cross deals are set out in the chart below:


3. After examining the whole matter the cross deals executed by the appellant and his company showed :


Highest price variation with respect to previous traded price was of 5.94% on the positive side and 0.73% on the negative side.


The price of the scrip increased steadily from Rs.34.8 (as on 25.10.00) to Rs.63.25 (as on 14.11.00), an increase of 81.75%. This increase was in two settlements, viz., settlement nos. 2000045 to 2000046.


Similarly, the traded quantity which was 4700 shares (as on 25.10.00) increased to 581149 shares (as on 13.11.00).


This increase in price and volume from settlement nos.2000045 and 2000046 was attributed to the cross deals executed by SSPL with the intention of creating an artificial market and rigging up the price of the scrip.


4. In the light of these allegations show cause notice was issued and the appellant made a valiant defense of the transactions. It was submitted by Mr. Kapadia, learned senior counsel for the appellant that all the deals were screen based deals and the cross deals were done only for setting off losses.


5. We have carefully considered the submissions of the learned counsel for the appellant. We are not persuaded by the submissions of Mr. Kapadia that these cross deals did not influence the market. The appellant has also filed an affidavit which reads as follows:


“I, RAJESH AJITLAL DALAL, on behalf of Sava Securities Pvt. Ltd., Mr. Murli Lekhraj, Sava Securities P. Ltd., Sanwa Finance P. Ltd., Sanwa Developments P. Ltd. Jayem Exports P. Ltd., having office at, Sanwa House, 97/99, Bombay Samachar Marg, Apollo Street, Fort, Mumbai 400 001, do hereby solemnly affirm as follows:


“I. THE SAVA GROUP


“1.1 The Sava Group comprises of Mr. Murli Lekhraj, Sava Securities P. Ltd. (“Sava Securities”), Sanwa Finance P. Ltd. (“SFPL”), Sanwa Developments P. Ltd. (“SDPL”), Sino Securities Pvt. Ltd. (“Sino”) and Jayem Exports P. Ltd. (“JEPL”). For the sake of convenience, all these entities are hereinafter collectively referred to as “the SAVA GROUP”.


“1.2 Sava Securities Pvt. Ltd. holds a membership of the National Stock Exchange (“NSE”) since the inception of the NSE, i.e., 1994. Sino holds a membership of the Stock Exchange, Mumbai.


“1.3 In respect of the Cross deals carried out in the shares of United Western Bank Ltd. entered into by the Sava Group through Sava Securities Pvt. Ltd. on NSE in the shares of United Western Bank, the Whole Time Member, SEBI has passed an Order dated 31.08.2004 against Mr. Murli Lekhraj, Sanwa Finance P. Ltd., Sanwa Developments P. Ltd. and Jayem Exports P. Ltd. imposing a ban of two years from accessing the securities market and from buying, selling or dealing in securities for the alleged violation of Regulations 3, 4(a), 4(b) and 4(e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 in respect of transactions


“An Appeal has been preferred before the Hon’ble Securities Appellate Tribunal against the aforesaid Order (Appeal No. 337/2004).


“1.4 In connection with the said Order, SEBI has issued a Show Cause Notice dated 11.06.2004 to Sava Securities under Regulation 6(1) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)Regulations, 2002. Sava Securities replied to the said Show Cause Notice by its letter dated 18.10.2004. Subsequent to the same, SEBI, vide its letter dated 20.12.04 (Ref. no. IVD/ID1/PKN/JJ/28700/04), asked Sava Securities to show cause as to why the Certificate of Registration of the Member should not be suspended for a period of one year in terms of the SEBI (Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty) Regulations, 2002 in respect of the transactions carried out in the shares of United Western Bank Ltd. by the Sava Group. In response to that the Member has filed its reply to SEBI.


“SEBI vide its letter dated 12.05.2005, asked Sava Securities to submit its reply to the Notice, as to why action should not be taken against it by SEBI in terms of the SEBI (Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty) Regulations, 2002. In response to that the Member has filed its reply vide its letter dated 23.6.2005.


“The appellants are advised to confine themselves to the ban already suffered by them from 31st August, 2004 till date.


“1.5 I say that the very same transactions are in question in the Show Cause Notice dated 20.12.04 (Ref. no. IVD/ID1/PKN/JJ/28700/04) as are the subject-matter of the appeal referred to above being Appeal No. 337/2004. I submit that the aforesaid Show Cause Notice against Sava Securities has the effect of visiting the Sava Group with double jeopardy. I submit that the said Show Cause Notice be set aside by this Hon’ble Tribunal. I pray that a direction be given by this Hon’ble Tribunal to SEBI to drop all pending actions/proceedings initiated against the Sava Group in respect of the transactions referred to in Appeal No. 337/2204 and that no further actions/proceedings be taken against the Sava Group in that respect. I submit that it would be in the interest of justice that the impugned order be set aside in view of the ban imposed by the order appealed against being effective already for a period in excess of 15 months.


“I solemnly declare, affirm and confirm that this Declaration of mine is true and full to my knowledge and I believe the same to be true and no portion thereof is false and I have concealed nothing material or relevant to the subject-matter herein mentioned. I further solemnly declare, affirm and confirm that I am aware that if the above declaration made by me or any part thereof, is untrue or false for any reason, then I shall be liable for the same under the laws of Country.” (emphasise given)


6. The learned senior counsel for the appellants submitted that on the very same transactions another show cause notice dated 20/12/2004 issued as to why action should not be taken against the appellant as a broker. He submitted that the show cause notice is nothing but a double jeopardy. It is fairly submitted by the learned senior counsel for the respondent that the allegations are the same but the show cause notice is being issued in the capacity of the appellant being a broker. The learned senior counsel for the appellant relied on Article 20(2) of the Constitution and submitted that by virtue of Section 24(1) of the SEBI Act, 1992 prosecution can be launched by the respondent twice. Section 24(1) reads as follows:


“24. (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both”.


7. We do not agree with the submissions of the learned senior counsel for the appellant that double jeopardy is involved in this case. The Supreme Court in Maqbool Hussain Vs. State of Bombay AIR 1953 SC 325 has held:


“These were the materials which formed the background of the guarantee of fundamental right given in article 20(2). It incorporated within its scope the plea of ‘autrefois convict’ as known to the British jurisprudence or the plea of double jeopardy as known to the American Constitution but circumscribed it by providing that there should be not only a prosecution but also a punishment in the first instance in order to operate as a bar to a second prosecution and punishment for the same offence.”


8. In Hira Lal Hari Lal Bhagwati Vs. CBI, New Delhi AIR 2003 SC 2545 the Supreme Court took the view that if a criminal liability is compounded with respect to a settlement on civil issues registration of FIR was unwarranted. The Supreme Court held:


“In our view, in the present case, the alleged criminal liability stands compounded on a settlement with respect to the civil issues and, therefore, the First Information Report was erroneously issued and was totally unwarranted. From the aforesaid judgment, the proposition that follows in the instant case is that the Kar Vivad Samadhan Scheme, 1998 issued by the Government of India was a voluntary Scheme whereby if the disputed demand is settled by the Authority and pending proceedings are withdrawn by an importer, the balance demand against an importer shall be dropped and the importer shall be immuned from penal proceedings under any law in force. We are, therefore, of the opinion that this judgment squarely comes in the face of any argument sought to be propounded by the respondent that the Kar Vivad Samadhan Scheme, 1998 does not absolves the appellants from criminal liability under the Indian Penal Code. The learned single Judge of the High Court of Delhi, in our opinion, has not appreciated the fact that the continuance of the proceedings in the instant case would only tantamount to driving the present appellants to double jeopardy when they had been honourably exonerated by the Collector of Customs by their adjudication and further the GCS of which one of the appellants is the General Secretary in which capacity he is accused in the present case was granted amnesty under the Kar Vivad Samadhan Scheme, 1998. In our opinion, the present case does not warrant subjecting a citizen especially senior citizens of the age of 92 and 70 years to fresh investigation and prosecution on an incident or fact situation giving rise to offence under both the Customs Act and the Indian Penal Code when the matter has already been settled. Likewise, the respondent herein has initiated criminal proceedings against Accused No. 2 and Accused No. 1, inter alia, on the ground alleging that the appellants in conspiracy with the co-accused named therein with each other have cheated the Government of India in terms of evasion of Customs Duty and by concealment of facts obtained CDEC in respect of MRI and Lithotripsy machines and by violating the provisions of 'actual user' condition as per Import Export Policy and Customs Notification No. 279/83, dated 30-9-1983 and Customs Notification No. 64/88, dated 1-3-1988 during the year 1987-90, despite acknowledging the fact that Customs Duty has been paid by the appellants to the Customs Department and settled and that commission of offences under S. 120-B read with S. 420 of the Indian Penal Code are made out.


“In our view, under the penal law, there is no concept of vicarious liability unless the said statute covers the same within its ambit. In the instant case, the said law which prevails in the field i.e. the Customs Act, 1962 the appellants have been therein under wholly discharged and the GCS granted immunity from prosecution. It is well established principle of law that the matter which has been adjudicated and settled need not to be dragged into the Criminal Courts unless and until the act of the appellants could have been described as culpable. The true fact and import of the Kar Vivad Samadhan Scheme, 1998, in our view, is that once the said Scheme is availed of and all the formalities complied with including the payment of the duty, the immunity granted under the provisions of the Customs Act, 1962 also extends to such offences that may prima facie be made out on identical allegations i.e. of evasion of customs duty and violation of any Notification issued under the said Act.


“In our view, there is no prima facie case made out in respect of the alleged offence under S. 120-B read with S. 420 of the Indian Penal Code and, therefore, the charge-sheet and the process issued thereunder has to be quashed.” (emphasise given)


9. The learned counsel for the respondent has rightly submitted that there can be no question of double jeopardy if a person is proceeded against as an investor and later show cause notice is is

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sued in his capacity as a broker. The enquiries are different in nature and a broker is subject to SEBI (Brokers and Sub-brokers) Regulations, 1992 while an investor is debarred under Section 11(4) and 11B of the SEBI Act, 1992 under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. However nothing precluded SEBI from issuing show cause notice to the appellant as a broker at a time that the alleged misconduct took place. The show cause notice in the present case is dated 27/10/2003 and the show cause notice with respect to the appellant as a broker is dated 20/12/2004 one year and two months later. No reason for the delay is before us. (Italics by Court ) 10. Taking into account the appellant has suffered debarment for one year and 4 months and taking into account the peculiar facts and circumstances of the case it would be appropriate that the period of debarment undergone by the appellant till date shall be treated as the period of penalty under Section 11 and 11B of the SEBI Act, 1992. We also feel in the extraordinary facts and circumstances the show cause notice dated 20/12/2004 shall stand withdrawn taking all these factors into account and the fact that the appellant has already endured the debarment both as a broker and as an individual by the order dated 31/08/2004 without this order being a precedent for the reasons stated above. With these directions the appeal is disposed of. 11. No order as to costs.
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