SEBI Imposed Penalty for Non-compliance of Summons

SEBI Imposed Penalty for Non-compliance of Summons

The Adjudicating Officer (AO) of SEBI slapped a penalty of Rs. 2 lakhs on the Noticee viz. Shri Surajit Dey, who had been the Director of Ever light Tie-Up Pvt. Ltd.(Ever light) for the violation of the provisions of Sections 11(2)(ia) and 11C(3) read with Section11C(2) of the Securities and Exchange Board of India Act, 1992(SEBI Act),by failing to comply with the summons issued to him by the Investigating Authority.

Herein, SEBI had conducted an investigation on the matter of trading activities of certain entities in the scrip of Kailash Auto Finance Ltd. (KailashAuto) during the period July 01, 2014 to August 31, 2014 (investigation period). It was observed that Ever light had transferred shares of Kailash Auto through off-market route to these certain entities.

The issue in this matter pertained to non-compliance of summons that were sent by SEBI seeking details of transfer of shares through off market, reason/purpose for transfer of shares, consideration received and relationship with respective transferees with the entity. In the said summons, the Noticee was advised to submit information on or before March 15, 2019. However, the Noticee failed to provide any information to SEBI.

In view of the aforesaid, it was alleged that the Noticee had failed to comply with the summons dated 26th February and 12th March, 2019and, therefore, adjudication proceedings were initiated against the Noticee under Section15A(a) of the SEBI Act.

The AO clearly mentioned that the Noticee had neither filed his reply to the SCN (Show Cause Notice) nor availed of the hearing fixed on the stipulated date. The various provisions of the Act were also discussed by the AO by stating that Section 11(2)(ia) empowers the Board to call for information and records relevant to any investigation or inquiry by the Board in respect of any transaction in securities from any person.

Further, under Section 11C(2) it is the duty of the officers of a company and intermediaries to preserve and to produce to the Investigating Authority (IA) or any person authorised by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power.

Section 11C (3) empowers the IA of SEBI to require any intermediary or any person associated with the securities market in any manner to furnish such information to, or produce such books or registers or other documents or record before him or any person authorized by him in this behalf as it may consider necessary if the furnishing of such records/information/documents are necessary.

The AO noted that it is obligatory on the Noticee to provide any information sought by the IA, if it deems such information relevant or necessary for purpose of investigation. The AO also relied upon two decisions of the Hon'ble Securities Appellate Tribunal(SAT).

The first one being the case of Asian Films Production and Distribution Ltd. vs SEBI, wherein it was held that 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.

Another Judgment relied upon was of Rich Capital & Financial Services Limited &Anr vs. SEBI wherein it was observed that SEBI as a regulator is required to conduct investigation and enquiries in the affairs of various parties from time to time. For this purpose, first and the foremost thing is co-operation from the concerned officers of the companies not only to produce the relevant records as and when required by an investigating officer or enquiring authority or by any person authorised by the SEBI in this behalf but to appear in person as and when called upon. In case of failure on the part of the concerned person to furnish such records/information, heavy monetary penalty is prescribed in Section15A(a) of the SEBI Act.

Thus, keeping the aforementioned reasons in consideration, the AO conclusively established that the Noticee by failing to comply with the summons issued to him by the Investigating Authority violated the provisions of Sections 11(2)(ia) and 11C(3) read with Section11C(2) of the SEBI Act and so, monetary penalty was imposed.