Nikunj Babulal Choradiya vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The appellant has filed the present appeal questioning the order of the Adjudicating Officer (hereinafter referred to as ‘AO’) of Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) dated October 19, 2022 wherein a penalty of Rs. 10 lacs has been imposed under Section 15A(a) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) for not furnishing requisite information and not complying with the summons so served upon him and thereby contravening Section 11C(3) and 11C(6) of the SEBI Act.

The appellant was appointed as the managing director of the company known as Maars Software International Ltd. on February 13, 2008 and resigned on July 7, 2016.

Prior to his appointment, the company had issued 73,80,000 Global Depository Receipts (hereinafter referred to as ‘GDR’) amounting of US$ 17.22 million on August 10, 2007. The entire GDR was subscribed by one subscriber Vintage FZE pursuant to loan agreement executed between Vintage and Euram Bank.

During the course of investigation into the issuance of the GDR, summons were issued under Section 11C(3) and 11C(6) to the managing director on January 12, 2012 and April 20, 2012 requiring the appellant to furnish requisite information and documents pertaining to the GDR issue. Further, summons dated March 28, 2012 and April 18, 2012 was issued to the managing director to appear in person and submit the details sought in the summons.

In spite of the receipt of the summons, requisite information was not supplied nor the managing director appeared before the investigating authority. Accordingly, the present show cause notice was issued and based on the material evidence on record, the AO found that non-compliance of the summons was a serious matter which could not be viewed lightly. Since non-supply has placed impediment in the investigation, the appellant violated the provisions of Section 11C(3) and 11C(6) and consequently, a penalty of Rs. 10 lacs was imposed upon the appellant under Section 15A(a) of the SEBI Act.

We have heard Mr. S. H. Bohra, the learned counsel for the appellant and Mr. Abhiraj Arora, the learned counsel with Mr. Shourya Tanay, Ms. Misbah Dada, Mr. Deepanshu Agarwal, the learned counsel for the respondent.

It was urged that the appellant was not the managing director during the period when the GDR was issued and, therefore, the appellant was not obliged to furnish the information. In our opinion, this submission is patently erroneous. No doubt, the appellant was not involved in the issuance of the GDR since he was not appointed as the managing director at that period of time. However, when the summons were issued in 2012, the appellant was the managing director and was responsible for all the affairs and management of the company. Consequently, the appellant, being the managing director, was duly required to furnish the requisite information that was sought by the investigating authority and was under an obligation to also appear before the investigating authority when he was summoned. Non-compliance of the summons is a serious matter and cannot be viewed lightly.

In Asian Films Production and Distribution Ltd. vs. SEBI in Appeal No. 203 of 2010 decided on January 19, 2011, this Tribunal held as under :-

“Non-compliance with summons is, indeed, a serious matter and cannot be viewed lightly. The respondent Board is the market regulator and has to regulate the securities market and the law provides that every person associated with the market in any manner should cooperate in the matter of carrying out investigations. In the year 2002, the provisions of the Act were amended and penalty for non-compliance with summons was enhanced considerably to make it more deterrent. Market players who do not cooperate with the regulator in the matter of investigations commit a serious wrong which can have serious repercussions in the market. We do not know what would have come to light if the company had furnished the information sought from it.”

The aforesaid decision is squarely applicable in the facts of the present case.

It was urged that the appellant was never served with the summons and that it was sent at the wrong address at Ahmedabad. In this regard, we find that the summons were also sent at the registered office of the company in the official capacity of the appellant as the managing director of the company. This letter was duly served and received and, therefore, it does not lie in the mouth of the appellant to contend that he was not aware that the summons was issued by the investigating authority.

In the light of the aforesaid, we are of the view that failure on the part of the appellant to comply with the summons has hampered the investigation. It was the responsibility of the appellant to provide information that was sought through the summons and was obligated to cooperate with the investigating authority which he did not do so. Non-compliance of the summons is viewed seriously and consequently, we are of the opinion that the appellant was liable for the monetary penalty that was imposed by the AO. In view of the aforesaid, we do not find any error in the impugned order.

The appeal fails and is dismissed.

This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.