SEBI imposes Rs 5 lakh penalty for non-compliance of summons

SEBI imposes Rs 5 lakh penalty for non-compliance of summons

The case proceeded ex-parte, there being no need to provide an opportunity of personal hearing in the absence of any response from/'cause' being shown by the Noticee

SEBI has imposed a monetary penalty of Rs 5 lakhs on the Noticee viz. Jahman Dealers Private Limited under section 15A(a) for not complying with the summonses issued on 27 September 2019 and subsequently two reminder summonses which were issued on 23 October 2019 and 1 November 2019 respectively.

The penalty was imposed vide SEBI order dated 22 January 2021.

In this case, the BSE had sought certain documents from some companies which had raised funds through preferential issue. Subsequently, BSE appointed an Auditor's Committee to scrutinize these documents submitted by the companies, such as Auditor's certificates, AOA, MOA, Ledger accounts, invoices, bank account statements, loan agreements etc.

Pursuant to an examination of the same BSE had concluded that prima facie there were misutilization of funds received against the issue of equity shares on a preferential basis by several companies including Dwitiya Trading Limited (DTL/Company). Subsequently, the matter was referred to SEBI by the BSE.

The case was then taken up by SEBI for detailed investigation to ascertain the possible violations of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations), Securities and Exchange Board of India Act, 1992 (SEBI Act), Securities Contracts (Regulation) Act, 1956 (SCRA) and any other Regulations made thereunder, if any.

The period of investigation for SEBI was from 28 February 2013 to 10 May 2013. It was observed that the company had misutilized its fund raised through the issue of preferential shares and a part of the said funds was transferred to certain entities purportedly for purchasing shares from the said entities, which included Jahman Dealers Pvt Ltd (Noticee).

It was observed that summonses were issued to various entities, to whom the preferential issue proceeds were given in the form of loans or investments, seeking details about the utilization of the loan/investment proceeds along with documentary evidence. One entity was the Noticee to whom the summons were issued on 27 September 2019 and subsequently, two reminder summonses were issued on 23 October 2019 and 1 November 2019, asking for details pertaining to the utilization of funds.

The summonses were delivered but no response was provided by the Noticee. It was alleged that the Noticee had failed to furnish the information sought through summons thereby violating section 11C (2) and (3) of SEBI Act, 1992.

Despite various advertisements made in newspapers having circulation at the place where the registered office of the Noticee was situated, no response to the SCN had been received from the Noticee till date, despite the passage of 14 days from the date of publication of the said notice in the newspapers.

Referring to Rule 4(3) of the Adjudication Rules, the Adjudicating Officer (AO) opined that only after a 'cause' is shown by a Noticee in response to a notice issued for showing cause, that the AO shall offer an opportunity of hearing to the said Noticee. Therefore, the case proceeded ex-parte, there being no need to provide any opportunity of personal hearing in the absence of any response from/'cause' being shown by the Noticee.

It was noted 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 authorized by him 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 Investigating Authority 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. In this regard, it was noted that it is obligatory on the Noticee to provide any information sought by the IA, if he deems such information relevant or necessary for purpose of investigation.

It was conclusively established that the Noticee had failed to comply with the summonses dated 27 September 2019, 23 October 2019 and 1 November 2019 issued to it by the IA and therefore, it was held that the Noticee had violated the provisions of Sections 11C (3) read with Section 11C (2) of the SEBI Act.