BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 09.12.2019
Appeal No. 134 of 2018
Parsoli Corporation Ltd.
Oracle Point, Ground Floor,
3, Guru Nanak Road,
Bandra (West), Mumbai – 400 050.

… Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

… Respondent
Mr. B. M. Chatterji, Senior Advocate i/b Mr. Ranit Basu, Advocate
for the Appellant.
Mr. Vishal Kanade, Advocate with Mr. Anubhav Ghosh, Advocate
i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C. K. G. Nair, Member
Justice M. T. Joshi, Judicial Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
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1.

The present appeal has been filed against the order of the
Adjudicating Officer (hereinafter referred to as, ‘AO’) of Securities
and Exchange Board of India (hereinafter referred to as, ‘SEBI’)
imposing a penalty of Rs. 15 lacs for violation of the provisions of
Regulations 3 and 4 of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 (hereinafter referred to as,
‘PFUTP Regulations’) and Clauses A(1) to A(5) of the Code of
Conduct specified in Schedule II read with Regulation 9 of the
Securities and Exchange Board of India (Stock Brokers and Subbrokers) Regulations.

2.

The facts leading to the filing of the appeal is, that the
appellant is a stockbroker and had registered a client, namely, Nilesh
Prajapati who traded in the scrip of Dalal Street Investments Ltd.
(DSIL) which were highly illiquid shares on September 10, 2008 and
again on September 26, 2008 by selling a total 150 shares on account
of which the share price of the stock rose alarmingly creating an
artificial volume and market price in the said scrip. It was found that
when the scrip was sold by the appellant’s client on September 10,
2008, he did not possess the requisite shares and, accordingly, the
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appellant’s client failed to deliver the shares. In spite of this default
in the delivery of shares, the appellant allowed his client again to sell
30 shares of the same scrip on September 26, 2008. The appellant
was thus, charged for not carrying out proper due diligence in the
registration of his client in as much as it was the appellant’s
responsibility as a stockbroker to satisfactorily identify his client and
further, continuously satisfy itself about the genuineness and
financial soundness of the client which the appellant miserably failed
to do so. Further, the genuineness of the client also became doubtful
as during the investigation, the client could not be traced.

3.

We have heard the learned counsel for the parties.

4.

We find that the appellant is not entitled for any relief
whatsoever. During the investigation, the appellant did not furnish
the requisite information to the investigation team. Further, no reply
was filed by the appellant pursuant to the show cause notice. Inspite
of service of the summons, the appellant failed to appear nor filed
any reply to defend himself even though ample opportunity of
personal hearing was given.

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5.

Thus, we are of the opinion that the charge levelled against the
appellant remained unreburted.

Further, we find that the AO
considered the material evidence on record and came to a conclusion
that the price payable to the stock exchange pursuant to the default
committed by the appellant’s client in the delivery of shares was not
recovered by the appellant from its client leads to an irresistible
inference that the appellant was itself dealing in the illiquid scrip in
order to create artificial volume and market price for vested gain. It
has come on record that during the period when the appellant’s
alleged client sold 120 shares the price rose from Rs. 4,351/- per
share to Rs. 4,438/- per share. The AO was thus, of the opinion that
creating artificial volumes and increase in the price scrip was
violative of Regulations 3 and 4 of the PFUTP Regulations. The AO
also found that due diligence was not carried out by the appellant in
the registration of the client and that the appellant had failed to
satisfy itself about the genuineness and financial soundness of its
client.

6.

Before us, the learned counsel for the appellant tried to satisfy
the Tribunal that due diligence had been carried out and that the PAN
Card, KYC, etc. was all obtained from the client. We are of the
opinion that the documents filed before this Tribunal were not
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produced by the appellant either before the investigation team or
before the AO.

Such documents cannot be considered by this
Tribunal unless leave of the Tribunal is taken by filing an application
for production of additional evidence in consonance with the
principles of Order 41 Rule 27 of the Code of Civil Procedure. Such
documents cannot be entertained nor can it be considered by the
Tribunal.

7.

It was urged that the penalty imposed was excessive and not
inconformity with the misconduct. It was also urged that the factors
available under Section 15J of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as, ‘SEBI Act’) has not been
taken into consideration. In this regard, we find that the AO has
considered the factors under Section 15J of the SEBI Act and has
held that the material available on record is insufficient to quantify
the amount of disproportionate gain or unfair advantage made by the
appellant or the loss suffered by the investors as a result of the acts
done by the appellant can be ascertained. Considering this aspect,
we find that since the quantification could not be done, the AO on the
basis of approximation has levied a penalty of Rs. 15 lacs which in
our opinion is just and appropriate.

In the given facts and
circumstances of the case, we find that a maximum penalty under
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Section 15HA and 15HB is Rs. 25 crores which could be imposed.
Considering the gravity of the offence, the AO has only imposed a
penalty of Rs. 15 lacs instead of imposing a maximum penalty.

8.

For the reasons stated aforesaid, we do not find any merit in
the appeal. Dismissed.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
09.12.2019
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