adjudication order against shri pramod jain in the matter of srg infotech limited

8/19/2019 Adjudication Order against Shri Pramod Jain in the matter of SRG Infotech Limited

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Adjudication Order against Shri Pramod Jain in the matter of SRG Infotech Ltd.Page 1 of 15

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. EAD-5/SVKM/AO/49/2015-16]

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF

INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR

HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING

OFFICER) RULES, 1995AGAINST

SHRI PRAMOD JAIN

(PAN – ADHPJ8942J)

L-7, Green Park Extension,

New Delhi – 110 016

Inthe Matter of SRG INFOTECH LIMITED

__________________________________________________________________

BACKGROUND IN BRIEF

1.

Securities and Exchange Board of India (SEBI) conducted investigation intothe irregular trading activities in the scrip of SRG Infotech Ltd. (hereinafter

referred to as "SRG/Company"). It was observed that SRG had come out

with a Rights Issue in 1995 and also stated that software development and

exports, computer education, multimedia and registrar and share transfer

agents as their business activities. SRG had not carried out any of the afore-

mentioned activities except that of registrar and share transfer agent. The price

of the scrip was rigged up in the no-delivery period wherein it rose from ` 9

to ` 20, an increase of 122%. Arihant Equity Fund Ltd. and New Age Shares

and Stock Brokers Pvt Ltd are the promoters of SRG and also dealt in the

scrip in large quantities. These two entities entered orders for large quantities


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and subsequently deleted them either after updating the price or after part

execution of the order.

2. During the fact finding process, the Investigating Authority (IA) issued

Summons dated June 16, 2004 to the ShriPramod Jain (herein after referred to

as“Noticee”) for production of documents and personal appearance to

ascertain their role in the irregularities in the scrip of SRG.

3. Pursuant to the aforesaid summons Noticeeappeared before the IAon July 19,

2004 and allegedly made incorrect statements with regard to opening of a

Bank Account in the name of Arihant Equity Fund Ltd. SEBI initiated

adjudication proceedings against theNoticee,under Section 15HB of SEBI

Act, 1992 (hereinafter referred to as “SEBI Act”)for violationof the

provisions of Sections 11C(3), (5) and (6) of SEBI Act.

APPOINTMENT OF ADJUDICATING OFFICER

4. Shri SatyaRanjan Prasad was appointed as the Adjudicating Officer (AO) vide

order dated 16.11.04 and consequent upon the transfer of Shri SatyaRanjan

Prasad, Shri A Sunil Kumar was appointed as the AO vide orders dated

09.04.2014 and 15.01.2015. Consequent to the transfer of Shri. A. Sunil

Kumar,the undersigned, was appointed as the Adjudicating Officer vide order

dated June03, 2015 to inquire into and adjudge under Section 15HB of the

SEBI Act, the alleged violation of the provisions of Section 11C(3), (5) and

(6) of SEBI Act, 1992, by the Noticee.


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SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

5. Show Cause Notice dated December 07, 2015 (hereinafter referred to as

“SCN”) was issued to the Noticee in terms of Rule 4 of SEBI (Procedure for

Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995

(hereinafter referred to as the ‘Adjudication Rules’) read with section 15I of

SEBI Act, 1992 to show cause as to why an inquiry should not be initiated and

penalty be not imposed under section 15HB of SEBI Act, for the aforesaid

alleged contravention of the provisions of Sections 11C(3), (5) and (6) of

SEBI Act. Copies of the documents relied upon in the SCN were also provided to the Noticee along with the SCN.It was alleged in the SCN that the

Noticee had made incorrect statement before the IA that he was not aware

about the opening of the bank account in the name of Arihant Equity Fund

Ltd. with Bank of America and it was not supported by any Board Resolution

of the Company.

6. In response to the SCN, Noticee submitted his reply vide email dated

17.12.2015 and the relevant portionsare reproduced hereunder:-

6.1. “ Nevertheless, I submit it as follows:

A) The board resolution which you have attached is part of the bank

account opening form, which clearly states on the top of the form that it

needs to be printed on the letter head. No such resolution was ever passed

or printed on the letter head

B) not a single cheque has ever been signed by me

C) Alleged bank account was never operated by me

D) no trade orders have ever been given by me. Neither any

communication by the Said broker


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E) there is no history of any transaction ever in the said scrip, past or in

the future ever done by me, directly or indirectly.

F) there is no motive or benefit behind the alleged offense nor I have ever

received any benefit directly or indirectly.

G) I have never ever dealt with the Said broker not only in the said scrip

or any other scrip, be it in past or future.

H) The allegation fails to justify how a mere signature on bank format

may lead to my culpability in the alleged offense of rigging of share

prices.

6.2. The whole story of the alleged offence lies on mere signing of a bank

format, there is no other iota of evidence even corroborative evidence

suggests of my involvement in any such offence.”

7. Thereafter, Noticee was given an opportunity of personal hearing on January

20, 2016. Noticee , vide letter dated January 13, 2016,requested to proceed in

the matter on the basis of documents available on record and also submitted as

under:

7.1. Before going into the merits of the matter, I have to state as under:

7.2. The said SCN is barred by limitation as the offence alleged u/s 11(6)

SEBI Act, is of the period 1998-99 or at least of 2004-2005 (year on which

15H was invoked) and as per the Section 468 CrPC the limitation for taking

cognizance in a matter punishment of 1 year is prescribed is only 1 year and

hence the said SCN is time barred and not maintainable.

7.3. As per Section 11C (11) SEBI Act provision of CrPC is applicable to

proceedings under the act. As per Section 4 (2) CrPC also Section 468 CrPC

is applicable in the present matter

7.4. Section 15 HB of the SEBI Act cannot be invoked as the Section 11(6)

already prescribed penalty.


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7.5.

Without Prejudice to above, I have to reassert and state as following.

a) Merely signing on bank format of account opening form, does not

tantamount to myself being involved into alleged price rigging or anyviolation. I deny that I was ever been even communicated by the said

bank. Bank forms are required to supported by various other

documents and I deny I have ever signed any other document

b) There was no involvement with any affairs of the company, or share

dealing, communication, in any form, including any telephonic records,

to and from the broker and SEBI has failed to Substantiate.

c)

I was inducted director with a limited purpose and as mentioned in my

reply dated 19/7/2004.

d)

I was not authorized signatory in any banking transaction nor I have

signed of any cheque, be it the said bank account or any other bank.

e) I have not been any beneficiary of any nature, whatsoever, to the

alleged offence nor any motive can be accrued to me.

f) I preferred to not to appeal the Hon’ble Supreme court against SAT

order, purely considering the cost constraints.

g)

I stand by all the statement made by me before SEBI on 19th July 2004

and I have nothing further to add.

h)

I continue to be active in the stock market directly or through

companies, there is no history of my association with the said broker

before and after the said event.

i) Involvement of a person in any transaction can be said only if there is

any communication to and from the trading member but linking and

corroborating the involvement with mere signing, that too a bank

account form, is totally irrational, illogical and unjustified.


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7.6.

In the absence of your any further questionnaire, you may be pleased to

decide the matter on the basis of document available on record and taking

cognizance of my present reply.”

CONSIDERATION OF ISSUES AND FINDINGS

8. I have carefully perused the written submissions of the Noticee and the

documents available on record. The issues that arise for consideration in

the present case are :

a) Whether the Noticeehad made incorrect statement before the IA and

whether he violated the provisions of section 11C(3), 11C(5)and

11C(6) of SEBI Act, 1992?

b) Whether the Noticee is liable for monetary penalty under section

15HB of SEBI Act, 1992?

c) What quantum of monetary penalty should be imposed on the Noticee

taking into consideration the factors mentioned in Section 15J of the

SEBI Act?

Issue I –Violations of the provisions of section 11C(3), 11C(5)and 11C(6) of

SEBI Act, 1992?

9. Before moving forward, it is pertinent to refer to the relevant provisions of

Section 11C (3), (5) and (6) of SEBI Act, 1992 which reads as under:

Section 11C(3), 11C(5) and Section 11C(6) of the SEBI Act, 1992

Section 11C(3): The Investigating Authority may require any intermediary

or any person associated with securities market in any manner to furnishsuch information to, or produce such books, or registers, or other

documents, or record before him or any person authorised by it in this

behalf as it may consider necessary if the furnishing of such information

or the production of such books, or registers, or other documents, or

record is relevant or necessary for the purposes of its investigation.


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Section 11C(5): Any person, directed to make an investigation under sub-

section (1), may examine on oath, any manager, managing director,

officer and other employee of any intermediary or any person associatedwith securities market in any manner, in relation to the affairs of his

business and may administer an oath accordingly and for that purpose

may require any of those persons to appear before it personally.

Section 11C(6): If any person fails without reasonable cause or refuses—

(a) to produce to the Investigating Authority or any person authorised by

it in this behalf any book, register, other document and record which is his

duty under sub-section (2) or sub-section (3) to produce; or

(b) to furnish any information which is his duty under sub-section (3) to

furnish; or

(c) to appear before the Investigating Authority personally when requiredto do so under sub-section (5) or to answer any question which is put to

him by the Investigating Authority in pursuance of that sub-section; or

(d) to sign the notes of any examination referred to in sub-section (7), he

shall be punishable with imprisonment for a term which may extend to one

year, or with fine, which may extend to one crore rupees, or with both, and

also with a further fine which may extend to five lakh rupees for every day

after the first during which the failure or refusal continues.

10. I note that against the backdrop of unusual price rise in the scrip of SRG

from ` 9 to ` 20 and entering of large quantities of orders and

subsequently deletion of the same either after updating the price or after

part execution of the order by Arihant Equity Fund Ltd. and New Age

Shares and Stock Brokers Pvt Ltd who are the promoters of SRG,

Summons dated June 16, 2004 was issued to the Noticee who was director

of Arihant Equity Fund Ltd. for production of documents and personal

appearance to ascertain their role in the irregularities in the scrip of SRG.

11. I note that the noticee appeared before the IA on July 19, 2004 and, inter

alia, made statement that he was not aware about the opening of the bank

account with Bank of America and it was not supported by any Board

Resolution of the Company. It was alleged that these statements made by

the noticee before IA was incorrect.


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12. I find from the records available that the Bank A/c No. 325052 was

opened in the name of Arihant Equity Fund Ltd. on 20.01.1999 with the

Bank of America with Pramod Jain and Sanjeev Bansal as authorizedsignatory.It is also not in dispute that the said Bank account was used for

the trading activity in the scrip of SRG by Arihant Equity Fund Ltd.

13. In response to the SCN, Noticee reiterated his statement dated 19.07.2004

made before the IA that he did not know that the account was ever opened.

In this regard I, note that the Bank of America has been provided bank

account opening form along with Board Resolution of Arihant Equity

Fund Ltd. in a printed format provided by the bank which was signed bythe Noticee. It is clearly stipulated in the format of Board resolution that

the document is being submitted to the bank for the purpose of opening of

Bank account. Therefore, I do not find any merit in the argument put forth

by the Noticee that he did not know that the account was ever opened.

14. Noticee has further contended that as per Bank account opening form, the

Board resolution needs to be printed on the letter head of the company but

no such resolution was ever passed on the letter head. In this regard, I find

that the Noticee signed the extract of the Board resolution in a printed

format provided by the bank as a Director of the Company and the same

also bore the stamp of the Company.In view of the above, it becomes

irrelevant whether or not the Board Resolution was on the letter head of

the Company.

15. Noticee has further submitted that he never signed any cheque of the said

Bank account, he never operated the account, no trade orders have ever

been given by him and there is no history of any transaction ever in the

scrip by him. However, I am of view of that these submissions are of no

merit in the facts of the present case as the charge in the instant


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proceedings is that of making incorrect statements before the IA.

Moreover, all these contentions had previously also been raised by the

noticee before the Hon’ble Securities Appellate Tribunal (SAT) in Appealno. 140 off 2008 in the matter of “Pramod Jain vs. SEBI ” (order dated

July 15, 2009). In the said matter, Hon’ble SAT had made the following

observations against the Noticee. “

“The appellant completely denied any role as a director ofArihant in the

execution of trades in the scrip of SRG. We have carefully gone

throughthe statements of the persons who were summoned to appear

during the course of theinvestigations including that of the appellant and

find that they are all contradictingeach other in material respects and we

are satisfied that the statement of the appellantdoes not inspireconfidence. He has admittedly signed the bank account opening form

which was submitted to the Bank of America for opening a bank account.

This accountwas opened on 22.1.1999 and closed in September, 1999. He

has also signed the boardresolution which was submitted to the bank at

the time of the opening of the account in a printed format provided by the

bank. It is not in dispute that this account was used fortrading in the scrip

of SRG. The learned counsel for the appellant contends that hisclient had

signed a blank bank account opening form and the printed format of

theboard resolution with the details left blank. We have perused the format

of the boardresolution and also the bank account opening form signed by

the appellant. It is clearlystipulated in the format that the document isbeing submitted to the bank for the purposeof opening an account. The

appellant cannot be heard to say that he did not know thatthe account was

ever opened. He signed these documents as a director of the companyand

they also bear the stamp of the company. It is, thus, established that the

appellantalso played some role in the entire game plan and had opened a

bank account to enableArihant to trade in the scrip of SRG. Shri.

Chauhan contends that the demat account and the trading account with

the broker which were necessary for the trading had beenopened and

operated by Sanjeev Bansal and it was he alone who executed

themanipulative trades and not the appellant. May be, the appellant did

not open those twoaccounts but the fact that he opened the bank accountthrough which trading was done is enough to establish his part of the role

in the execution of the manipulative trades. He is not as innocent as he

claims to be and, it appears to us that Sanjeev Bansal obviously played a

major role in the whole episode. “


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16. With regard to contention of Noticee that a mere signature on bank format

does not lead to his culpability in the alleged offense of rigging of share

prices. I find that the SCNin the present matter clearly mentioned that the Noticee has been charged for submission of false and incorrect statement

before the IA. Therefore, I do not find any merit in the said argument.

Moreover, the Hon’ble SAT in Appeal no. 140 of 2008 suprahad already

established that“the appellant also played some role in the entire game

plan and had opened a bank account to enable Arihant to trade in the

scrip of SRG.”

17. Noticee has also made references of Section 11C (11) of SEBI Act, 1992and Section 4 (2) & Section 468 of The Code of Criminal Procedure, 1973

with regard to limitation in the present case.I, however, find that under the

SEBI Act there is nolimitation on initiation of adjudication proceedings

for violation of various provisions ofAct and Regulations made

thereunder.Delay in initiating the proceedings itself cannot be a ground for

discharging the Noticee.

18. Now as regards the violation of section 11C(3), 11C(5)and 11C(6) of

SEBI Act, 1992, I note that section 11C (3) of SEBI Act, authorize the IA

to summon any person associated with securities market in any manner to

furnish such informations, documents, records etc. if the same are

considered relevant for the investigation. This section also authorizes the

IA to call upon the persons before him to provide the necessary or relevant

information for the purposes of its investigation. SAT has observed in the

matter of DKG Buildcon Pvt. Ltd. V/s SEBI, Appeal No. 106/2006, order

dated 07.01.2009 that“Section 11C of the Act was introduced with effect

from 29.10.2002 and sub-section (3) thereof provides that the

investigating authority may require any person associated with the

securities market “to furnish such information, or produce such books, or


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registers, or other documents, or record before him…”. The power to

require a person to furnish any information or record or documents

includes the power to require such person to make a statement and giveclarifications with regard to the information and documents produced by

him. In the absence of such a power the purpose of the legislature in

introducing section 11C would be frustrated and the Board will not be

able to investigate properly the market irregularities and offences. In

order to advance the object of Parliament the language used in sub-

section (3) of section 11C has to be given a wider meaning. We are,

therefore, of the considered opinion that section 11C (3) gives the power

to the investigating authority to call upon any person to make a statement

while furnishing any information, document or record.” Similarly, Section

11C (5) of the SEBI Act empowers the IA to require the personal

appearance of such personto furnish any information or record or

documents and the said power also includes the power to require such

person to make a statement and give clarifications with regard to the

information and documents produced by him. Further, Section 11C (6)

provides for prosecution in case of failure without reasonable cause or

refusal to produce the documents or records, information, appear for

examination and sign the notes of examination. This provision of SEBI

Act, seeks to ensure that the investigation process is not unduly hampered

or delayed and provide effective deterrent against the same.

19. Hence, the IA has been given adequate powers of investigation under

Section 11C (3) & (5) of SEBI Act, and provisions of Section 11C (6)

make it statutorily binding on the person to whom the summons have been

issued under sub-section (3) & (5) of section 11C to furnish necessary true

and correct information as required by the IA and this section also spell

out the consequences of non-cooperation by any person with the IA, which


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may led to initiation of prosecution. However, in addition to the provisions

of Section 11C (6), dealing with prosecution, it is open for SEBI to resort

to the adjudication mechanism under Chapter VIA of the SEBI Act.

20. The issue in adjudication under section 11C(3) and (5) of SEBI Act, 1992,

is to see whether an intermediary/person associated with securities market

is under a statutory duty to produce records and documents to the IA and

whether there is default in this regard. The answer is in the affirmative.

21. In view of the aforesaid discussions and findings, I find that the noticee

did make incorrect statements before the IA. The findings of Hon’ble SAT

extracted earlier also discuss the role played by the Noticee in opening a

bank account with Bank of America which was used for trading in the

scrip of SRG Infotech ltd. It is a settled position of law that making a false

statement or if the information furnished is incorrect or misleading would

amount tofailure to furnish the information sought and thereby violative of

section 11C(3) and (5) of SEBI Act, 1992.

Issue II – Whether Noticee is liable for monetary penalty under section 15HB

of SEBI Act, 1992?

22. It, would also be appropriate here to refer the provision of Section 15HB

of SEBI Act, as it existed at the relevant point of time, which reads as

under: -

Penalty for contravention where no separate penalty has been provided.

Section 15HB – “Whoever fails to comply with any provision of this Act,

the rules or the regulations made or directions issued by the Board

thereunder for which no separate penalty has been provided, shall be

liable to a penalty which may extend to one crore rupees."


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23. I note that Section 15HB is a residuary provision for imposing the monetary

penalty for violation which not covered by any section from 15A to 15HA

under chapter VI A of the SEBI Act. I am of the view that for making a falsestatement before the IA no separate penalty has been provided under SEBI

Act and accordingly penalty can be imposed under section 15HB of SEBI Act,

1992.In this regard reliance is also placed on the order dated February 13,

2006 of Hon’ble SAT in Appeal no. 20 of 2006 in the matter of SPS Share

Brokers Pvt. Ltd. vs. SEBI .

24. As regards the imposition of monetary penalty, reliance is placed upon the

order of the Hon’ble Supreme Court of India in the matter of Chairman,SEBI

vs. Shriram Mutual Fund {[2006] 5 SCC 361} wherein it was held that " In

our view, the penalty is attracted as soon as contravention of the statutory

obligations as contemplated by the Act is established and, therefore, the

intention of the parties committing such violation becomes immaterial. ……….

Hence, we are of the view that once the contravention is established, then the

penalty has to follow and only the quantum of penalty is discretionary."

25. For the reasons stated earlier I hold that the Noticee is liable for monetary penalty under section 15HB of SEBI Act.

Issue III – What quantum of monetary penalty should be imposed on

theNoticee taking into consideration the factors mentioned inSection 15J of theSEBI Act?

26. While determining the quantum of penalty under section 15HB of SEBI Act,

1992, the factors stipulated in section 15J of SEBI Act, which reads as under

are considered:-

“15J - Factors to be taken into account by the adjudicating officer While adjudging quantum of penalty under section 15-I, the adjudicating

officer shall have due regard to the following factors, namely:-


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(a) the amount of disproportionate gain or unfair advantage, wherever

quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of investors as a result

of the default;(c) the repetitivenature of the default.”

27. I note that the material made available on record has not quantified the

amount of disproportionate gain or unfair advantage made by the Noticee and

the loss suffered by the investors as a result of the Noticee's default. Also

there is no material made available on record to assess the amount of loss

caused to investors or the amount of disproportionate gain or unfair advantage

made by the Noticee as a result of default. However, I am of the view that

making incorrect statement before the IA hampers the investigation. Further,

any delay or hurdle in investigation due to non-cooperation by any entity is

detrimental to the interest of investors in securities market and the same

deserves to be viewed seriously.

ORDER

28. After taking into consideration all the facts and circumstances of the case,I, in

exercise of the powers conferred upon me under Section 15I (2) of the SEBI

Act read with Rule 5 of the Adjudication Rules, hereby impose a penalty of

` 1,00,000/- (RupeesOne Lakh Only) on the Noticeei.e. Pramod Jain.

29. The penalty shall be paid by way of demand draft drawn in favour of “SEBI –

Penalties Remittable to Government of India” payable at Mumbai within 45

days of receipt of this Order. The said demand draft shall be forwarded to the

“The Division Chief (Enforcement Department - DRA-II), Securities and

Exchange Board of India, SEBI Bhavan, Plot No. C – 4 A, “G” Block, Bandra

Kurla Complex, Bandra (E), Mumbai – 400 051.”


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30. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and

also to the Securities and Exchange Board of India.

Date: March 23, 2016 S. V. Krishnamohan

Place: Mumbai Chief General Manager &

Adjudicating Officer

adjudication order against shri pramod jain in the matter of srg infotech limited

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