BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

Date of Decision : 27.6.2019
Appeal No.399 of 2018

Pawan Kumar Satyanarayana
350/A, New Cloth Market,
Opp. Raipur Gate, Sarangpur,
Ahmedabad-380002. …. Appellant

Versus

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

Mr. J.J. Bhatt, Advocate with Mr. Akshit Jain, Advocate i/b. R.V. Legal for the Appellants.
Mr. Karan D. Bhosale, Advocate with Mr. Anubhav Ghosh and Mr. Abhishek Mishra, Advocates 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 (Oral)

1.Pursuant to the investigation conducted into the alleged irregularities in the scrip of IFL Promoters Ltd, a show cause notice was issued to the appellant to show cause as to why he should not be penalized under the Securities Contracts (Regulation) Act, 1956 (referred to hereinafter as ‘SCRA’) for violation of Section 2(i) and Section 16 of the SCRA. The show cause notice alleged that Heena Developers P. Ltd. transferred 5,19,000 shares of IFL Promoters Ltd. to the appellant in off market transaction and that Heena Developers P. Ltd. did not receive the payment from the appellant.

2.In response to the show cause notice the appellant replied that he had some commercial dealings with Chetan Dogra from whom he had to receive a sum of Rs.11,25,000/-. It was contended that Chetan Dogra transferred 74,000 shares of IFL Promoters Ltd. in off market, based on which, the appellant sold
these shares in open market and realized Rs.10,55,004.57/-.

3.The Adjudicating Officer found that the said off market transaction was in violation of Section 2(i)(a) of the SCRA and consequently imposed a sum of Rs.12,00,000/- upon the appellant. The appellant being aggrieved by the said order has filed the present appeal.

4.We have heard Mr. J.J. Bhatt, learned counsel assisted by Mr. Akshit Jain, Advocate for the appellant and Mr. Karan D. Bhosale, Advocate assisted by Mr. Anubhav Ghosh and Mr. Abhishek Mishra, Advocates for the respondent. Section 2(i) of the SCRA provides as under:

2(i) “spot delivery contract” means a contract which provides for,(a) actual delivery of securities and the payment of a price therefor either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the securities or the remittance of money therefor through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality; (b) transfer of the securities by the depository from the account of a beneficial owner to the
account of another beneficial owner when such securities are dealt with by a depositor.

5.Section 16 provides as under:

(1) If the Central Government is of opinion that it is necessary to prevent undesirable speculation
in specified securities in any State or area, it may, by notification in the Official Gazette, declare that no person in the State or area specified in the notification shall, save with the permission of the Central Government, enter
into any contract for the sale or purchase of any security specified in the notification except to the extent and in the manner, if any, specified therein.

(2) All contracts in contravention of the provisions of sub-section (1) entered into after the date of
notification issued thereunder shall be illegal. In addition to the above, Notification No.SO 184(E) dated
1.3.2000 provides as under:

4 In exercise of the powers conferred by sub-section (1) of section 16 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), read with Government of India Notification No. S.O. 573(E), dated 30th July, 1992 and Notification No. 183 (E), dated 1st March, 2000 issued under section 29A of the said Act, the Securities and Exchange Board of India (hereinafter referred to as ‘the Board’) being of the opinion that it is necessary to prevent undesirable speculation in securities in the whole of India, hereby declare that no person in the territory to which the said Act extends, shall, save with the permission of the board, enter into any contract for
sale or purchase of securities other than such spot delivery contract or contract for cash or hand
delivery or special delivery or contract in derivatives as is permissible under the said Act or the Securities
and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made under such Acts and rules, regulations and bye-laws of a recognized stock exchange :

Provided that any contracts for sale or purchase of Government securities, gold related securities,
money market securities and ready forward contracts in debt securities entered into on the recognized stock exchange shall be entered into in accordance with,— (a) the rules or regulations or the bye-laws
made under the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the directions issued by the Securities and Exchange Board of India under the said Acts; (b) the rules made or guidelines or directions issued under the Reserve Bank of India Act, 1934 (2 of
1934) or the Banking Regulations Act, 1949 (10 of 1949) or the Foreign Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India; (c) the provisions contained in the notifications issued by the Reserve Bank of India under the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

7.A perusal of the aforesaid provisions indicates that in a spot delivery contract the payment of consideration must be done either on the same day or on the next day of the transaction. In the instant case, the shares of Heena Developers P. Ltd. were transferred to the appellant in off market transactions but Heena Developers P. Ltd. did not receive any consideration against the said shares.

Consequently, the transaction was not in conformity with the provisions of Section 2(i) of the SCRA and, therefore, the appellant contravened the provisions of Section 15 of the SCRA.

8.However, we find that the imposition of Rs.11,76,600 is disproportionate and is not based on any cogent reason. Prima facie we fail to understand as to how the Adjudicating Officer has arrived at a figure of Rs.11,76,600/-. We can only presume that since value of the shares was around Rs.11,76,000/- at the
time of purchase the said amount has been directed to be paid by the appellant. In our opinion, this amounts to disgorgement for which there is no provision under the Act. We are, also of the opinion, that the amount is totally disproportionate to the misconduct. At this stage we thought we should remand the matter for reconsideration on the quantum of penalty but considering the fact that no other instance has been found
against the appellant and it is a one off violation coupled with the fact that the litigation should achieve a finality we are of the opinion that an imposition of Rs.2 lakhs would be sufficient for violation of Section 2(i) of the SCRA.

9.For the reason stated aforesaid, the appeal is partly allowed.

The impugned order is affirmed in so far as the violation of law is concerned. The penalty is however reduced
from Rs.12 lakhs to Rs.2 lakhs which shall be paid by the appellant within four weeks from today.

Sd/Justice Tarun Agarwala
Presiding Officer

Sd/Dr. C. K. G. Nair
Member

Sd/Justice M.T. Joshi
Judicial Member
27.6.2019 Prepared and compared by RHN