BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on:26.8.2019 Date of Decision: 8.11.2019 Appeal No.106 of 2019 Sham Sadhuram Gandhi 6 White Rose Apartments N Dutta Marg, Andheri (West) Mumbai – 400053. ….. Appellant Versus The Securities & Exchange Board of India SEBI Bhavan, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai 400051. …… Respondent Mr. Sham S. Gandhi, Appellant-in-person. Mr. Sumit Rai, Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b. K. Ashar & Co. for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Per : Justice M.T. Joshi

1. Aggrieved by the direction of the Adjudicating Officer

(hereinafter referred to as ‘AO’) of respondent Securities and Exchange Board of India imposing a penalty of Rs.3 lakhs on the appellant for violation of the relevant provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as ‘PIT Regulations) and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘SAST Regulations, 1997) and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘SAST Regulations, 2011) the present appeal is preferred.

2. According to the respondent Securities and Exchange

Board of India (hereinafter referred to as ‘SEBI’) the appellant on November 15, 2000, had acquired through off market transaction, 4,84,000 shares of Finalysis Credit & Guarantee Company Limited (hereinafter referred to as ‘the Company’). It was representing 8.79% of the total paid up capital of the Company. In the circumstances he was required to make disclosure of the same to the Company under Regulation 7(1) of the SAST Regulations, 1997 within four working days of such acquisition. Similarly, he was also under obligation to make disclosure to the Company under Regulation 13(1) of the PIT Regulations, 1992 within two working days of such acquisition. The appellant failed to make these disclosures. Thereafter on 26th July, 2013 the appellant disposed of through off market 4,00,000 shares of the Company which represented 7.27% of the paid up capital of the Company. As the appellant was already holding more than 5% of the total shareholding he was under obligation to make disclosure to the Company under Regulation 13(3) of the PIT Regulations, 1992 within two working days and also to make disclosure under Regulation 13(3) read with Regulation 13(5) of the PIT Regulations, 1992. Similarly, as this resulted a change in the shareholding of the appellant by more than 2% additionally he was required to make disclosure to BSE Limited (hereinafter referred to as ‘BSE’) and the Company under Regulation 29(2) of SAST Regulations, 2011. The appellant made disclosure to BSE as late on 5th August, 2013 i.e. with a delay of 3 days and failed to make another disclosure to the Company under Regulation 29(2) of the SAST Regulations,

2011. Additionally the disposal of these very 4 lakh shares

of the company by the appellant being a promoter resulted into requirement to make disclosures under Regulation 13(4A) read with Regulation 13(5) of the PIT Regulations. No such disclosure was made.

3. The appellant submitted as under:-

That he has not acquired the shares in the year 2000. Infact he had given a loan of Rs.30 lakhs to one Mukesh Kothari who was then promoter/director of the Company. He did not repay the amount. On the other hand, he handed over certificates of 4,84,000 shares of the Company along with blank transfer deeds signed by Kothari and his family members. Those share certificates and transfer deeds were lying with the Appellant since 2001 and not since 2000 as alleged in the show cause notice. The trading in the shares of the Company was suspended by BSE with effect from 13th May, 2002. The same was revoked only on 28th March,

2012. The Company remained non operational, therefore

there was no way to get the shares transferred in his name. Only after revocation of the suspension, on 31st January, 2012 he submitted the share certificates to Depository Participants and the shares were credited in the demat account on 21st February, 2012. These shares remained in his demat account till 25th July, 2013. However, a gang of one Abdul Zameer Hakim had under duress forced him to transfer the shares in off market transfers in the following manner. Date No.of shares Transferee 26-7-2013 1,00,000 Abdul Zameer Hakim 26-7-2013 2,00,000 Talat Wahdatali Mahmood 26-7-2013 1,00,000 Rehana Khan 7-8-2013 84,000 Wahadatali Gulamrasool Khan

4. After this forcible transfer, the appellant made the

disclosure of the same to the Compliance Officer of the Company namely Mr. Sarkhot on the very same day. Mr. Sarkhot however filed a disclosure on August 5, 2013. The transfer was effected on July 27, 2013 which was a Friday. After holiday of two days the disclosure was filed by him on August 5, 2013 after the second transfer dated August 7, 2013 took place. Further, Mr. Sarkhot did not notify the disclosure under Regulation 13(4A) read with Regulation 13(5) of PIT Regulations though the same was handed over to him. Further there were no trading in the shares since January, 2001 (except two trades for 400 shares on August 1, 2001 till March, 2012). The Company was defunct and trading in the scrip was suspended by BSE with effect from September 9, 2014. The appellant had submitted the print out of the trading data of the Company taken from the website of BSE and annexed the same to his written submissions dated September 25, 2017 as Annexure ‘B’. He further submitted that as the trading was suspended there was no way to get the shares transferred and disclosures were not made. He further submitted that as no monetary loss is caused to any investors and the appellant had to suffer all these tragic episodes he should be absolved from the proceedings.

5. The Adjudicating Officer however held that as per the

record available with SEBI the appellant had acquired 4,84,000 shares of the Company on November 15, 2000 of which the disclosures was never made under any regulations. Further, as regards the disposal except only one disclosure as dated supra no other disclosure was made and therefore by observing that penal liability would arise as the regulations are violated, a consolidated penalty of Rs.3 lakhs was imposed as detailed above.

6. Heard Mr. Sham Sadhuram Gandhi in person and Mr.

Sumit Rai, learned counsel for the respondent. Upon hearing both the sides in our view the appellant is required to be partly allowed. The observation of the Adjudicating Officer that the appellant has violated the Regulations will have to be accepted. However, the monetary penalty would have to be set aside and the appellant deserves to be let off on warning for the reasons to follow:-

Reasons

1. The appellant has filed on record at Exhibit ‘G’ page

98 a copy of the order dated 20th October, 2005 of the Bombay High Court in Company Application No.21 of 2005 in Company Petition No.353 of 2003. It would show that one Company namely Solid Carbide Tools Ltd. was already directed to be wound up. In the said proceedings, the appellant had filed the said application claiming to be a creditor of the Company. In the order, the High Court has noted that one Mr. Mukesh Kothari was the director and chairman of the said Company namely Solid Carbide Tools Ltd. Since the year 2001, however said Mr. Mukesh Kothari became a proclaimed offender and was facing criminal prosecution. So far as the claim of the present appellant is concerned, it was found that the appellant had pledged his personal fixed deposits to the Union Bank of India for advances made to Solid Carbide Tools Ltd. Since the loan was not repaid by this Company, the bank invoked the said deposit for adjusting outstanding claim and, thus, the appellant had become the creditor of the said Solid Carbide Tools Ltd. These facts would show that the appellant was the creditor of Solid Carbide Tools Ltd. of which Mr. Kothari was the promoter and chairman. Mr. Kothari remained a proclaimed offender since 2001 upon proclamation by the concerned criminal court. According to the respondent SEBI, the appellant had acquired 4,84,000 shares of the present Company from said Mr. Kothari. According to the appellant, the shares were handed over to him in the year 2001 which ultimately could be transferred in his name in the year 2013 as detailed above. The record would further show that the present Company also remained defunct from the year 2000 and even the trading in the same is suspended by the BSE. The print out of the trading data of the Company obtained from the website of BSE and placed at Annexure B to the written submission as detailed supra would show that there were no trading activity in the shares. All these facts would show that in order to recover the debt, the appellant was rather forced to accept the shares of the present Company awaiting the clearance of the loan in cash. However, as Mr. Kothari went missing and was even proclaimed as an offender by the criminal court, willy nilly he had to get those shares transferred in his name regularly.

2. As regard the disposal of the shares as detailed above,

the appellant submitted that he was forced under duress to transfer those shares. One of the disclosures was made through Mr. Sarkhot regarding that transfer however the rest of the disclosures could not be made. Mr. Sham Gandhi in person argued before us. He submitted that he is now 75 years old. He is the victim of circumstances as detailed supra and, therefore, since the acquisition of shares or disposal of shares did not entail him of any gain or loss to any shareholder as the Company is completely defunct, slapping a monetary penalty would amount to adding insult to injury. He, therefore, submitted that the appeal be allowed.

3. Taking into consideration that the appellant is now 75

years old and finding that he was forced to accept the shares by Mr. Kothari as corroborated by the order of the Bombay High Court in Company Petition and that one disclosure regarding the disposal is made, in our view, though the violation of the regulations is proved, monetary penalty is not warranted in this case. Hence the following order:-

4. The appeal is partly allowed. The order of the

Adjudicating Officer declaring that the appellant has violated the regulation is hereby upheld. The order of the Adjudicating Officer imposing penalty of Rs.3 lakhs is hereby set aside. Instead the appellant is hereby warned that the appellant shall not repeat similar violation in future. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Justice M.T. Joshi Judicial Member 8.11.2019 Prepared and compared by RHN