SEBI's order of penalty of Rs. 2 lakhs held valid by SAT

SEBI's order of penalty of Rs. 2 lakhs held valid by SAT

This Appeal questioned the legality and validity of the order passed in the year 2019 by the Adjudicating Officer (AO) of the Securities and Exchange Board of India imposing a penalty of Rs. 2 lakhs for the violation of Regulation 13(4A) and 13(5) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations) read with Regulation 29(2) of the SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011 (SAST Regulations).

As there was a delay of 382 days in filing the appeal, accordingly an application for condoning the delay had also been filed. Herein, the appellant has mainly contended that the impugned order was never served upon the appellant and that he came to know of the impugned order for the first time when Recovery Notice dated July 09, 2020 was received on July 10, 2020.

On the other hand, the respondent seriously opposed appellant's contention by stating that the impugned order was served on July 01, 2019. In support of this fact, the respondent also had annexed the acknowledgement card which showed the receipt of the impugned order by the appellant himself. In rejoinder, the appellant had disputed the signatures in the acknowledgment card and contended that the signatures were not of the appellant.

On comparison of the signatures in the acknowledgement card with the signatures given in the memorandum of the appeal, the Securities Appellate Tribunal (SAT) has found that there is a distinction in the handwriting. Accordingly, the benefit was given to the appellant and hence, the delay has been condoned.

The Tribunal has also observed that the show cause notice was duly served and the appellant sought time to file a reply but did not do so. Subsequently, the appellant failed to appear on the date fixed for hearing. The AO, after considering the material evidence on record, found that the appellant had sold 15,000 shares on December 18, 2012 and further sold 1,85,000 shares on August 18, 2013 and, on both the occasion, the appellant failed to make the disclosure to the stock exchange as well as to the company under Regulation 13(4A) read with Regulation 13(5) of the PIT Regulations and under Regulation 29(2) of the SAST Regulations.

The Appellant did not dispute this aforementioned selling of the shares. It was only contended that the appellant was not a promoter and was only a director and therefore the aforesaid provisions have no application.

On the contrary, the Tribunal has found from the impugned order that the appellant was named as a promoter and finds place in the relevant records which fact had not been controverted by the appellant since no reply was filed.

It has been elucidated that the appellant was under an obligation to make the relevant disclosures to the stock exchange as well as to the company under Regulation 13(4A) and 13(5) of the PIT Regulations. Since the disclosure was not made, there has been a violation and the AO was therefore justified in imposing a penalty of Rs. 2 lakhs.