BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. Order/SM/DD/2021-22/13458-13459]

UNDER SECTION 23-I OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 ACT, READ WITH RULE 5 OF SECURITIES CONTRACTS (REGULATION) (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 2005

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In respect of:

In the matter of Yamini Investment Company Limited

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FACTS OF THE CASE IN BRIEF:

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) carried out an investigation the scrip of Yamini Investment Company Limited (hereinafter referred to as “Yamini/ Company/ Target Company”) for the period September

10, 2013 to September 30, 2015 (hereinafter referred to as ‘Investigation Period/ Examination Period/ IP’). The focus of the investigation was to ascertain whether there were any violations of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SC(R)A") and /or of any Rules or Regulations made thereunder, relating to the off-market transactions noticed during the aforesaid investigation. The shares of the Company were listed on BSE Ltd (hereinafter referred to as ‘BSE’).

1. During the investigation, SEBI observed that Mr. Anil Bansal (herein after referred to as “Noticee 1”) had transferred 1,60,000 shares on July 13, 2015 to Mr. Rohit

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Sharma (hereinafter referred to as ‘Noticee 2’) (Noticee 1 and Noticee 2 hereinafter being collectively referred to as ‘Noticees’). It was observed that Noticee 1 had not received any consideration from Noticee 2, which was alleged to be in violation of Section 2(i)(a) of SC(R)A read with Sections 13, 16 and 18 of SC(R)A. Therefore, SEBI initiated adjudication proceedings against Noticees under the provisions of Section 23H of SC(R) A.

APPOINTMENT OF ADJUDICATING OFFICER

1. Vide order dated August 24, 2020, Ms. Sangeeta Rathod was appointed as Adjudicating Officer (‘AO’) under Section 23I of the SC(R)A, read with Rule 3 of SC(R)A (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005 (hereinafter referred to as ‘Adjudication Rules’) to inquire into and adjudge under the provisions of Section 23H of SC(R)A, the alleged violation of Section 2(i)(a) read with Sections 13, 16 and 18 of SC(R)A by Noticees in the scrip of Yamini. Subsequent to transfer of Ms. Sangeeta Rathod to another department of SEBI, Shri. Prasanta Mahapatra was appointed as the AO in the said matter. Thereafter, the undersigned was appointed as the AO in the matter by SEBI vide its order dated December 04, 2020.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

1. A show-cause notice dated January 06, 2021 (hereinafter referred to as ‘SCN’) was issued to Noticees under Rule 4 of the Adjudication Rules to show-cause as to why an inquiry should not be initiated against Noticees and penalty, if any, not be imposed upon them under the provisions of Section 23H of SC(R)A for the aforesaid violations alleged to have been committed by them.

1. The allegations levelled against Noticees in the SCN are as under:

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1. It was observed that during the Examination Period the Noticee 1 had transferred 1,60,000 shares on July 13, 2015, to the Noticee 2. In this regard, letters dated February 06, 2020, and February 18, 2020, were issued to the Noticee 2 & 1, respectively. However none of Noticees replied. Further, it is observed from the Depository Instruction Slip

(hereinafter referred to as ‘DIS’) obtained from Depository Participant (hereinafter referred to as ‘DP’) of the Noticee 1, viz. PEE AAR Securities

Limited that consideration amount of Rs. 94,88,000 for the said off market transfer was mentioned. To ascertain whether the actual payment has occurred in terms of provision of SC(R)A bank details of the Noticee 1 were sought from DP and subsequently, bank account statement for its account no. 1711643180 with Kotak Mahindra Bank for the period April 01, 2015, to November 01, 2015, was requested from the Kotak Mahindra Bank. Kotak Mahindra Bank vide email dated March 12, 2020, replied that no transaction in the aforesaid bank account during the period April 01, 2015, to November 01, 2015 has taken place.

1. In light of the above it is alleged that the Noticee 1 has not received any consideration from the Noticee 2. In a ‘spot delivery contract’ the payment of consideration amount must be done either on the same day or the next day of the transaction, as stipulated under section 2(i)(a) of SC(R)A, 1956. In the instant case, it is alleged that the fund transfer against the off market transfer of shares have not taken place. Hence, the transactions of the transferor and transferees do not confirm with the provisions of Spot Delivery Contract as mentioned at Section 2(i)(a) of SC(R)A, 1956. Therefore, it is alleged that the Noticee has violated Section 2(i)(a) read with Sections 13, 16 and 18 of SC(R)A.

1. The SCN was sent to Noticees through Speed Post Acknowledgement Due (herein after referred to as ‘SPAD’) and email dated January 11, 2021. The SCN issued to Noticees through SPAD was returned undelivered. The SCN sent through email also could not be delivered. Thereafter, in the interest of natural

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justice, vide hearing notice dated February 01, 2021, an opportunity of personal hearing was granted to Noticee on March 10, 2021. The Hearing Notice along with SCN were affixed at the last available address of Noticees as per details given below:

1. Noticees failed to avail of the opportunity of personal hearing and failed to file any reply to the SCN.

1. I note that sufficient opportunities have been granted to Noticees to submit their replies to the SCN and to appear for personal hearing. However, despite service of the SCN and hearing notices, none of the given opportunities were availed of by Noticees. The Hon’ble SAT in the matter of Classic Credit Ltd. v. SEBI [2007] 76 SCL 51 (SAT -MUM) has, inter alia, held that “the appellants did not file any reply to the second show-cause notice. This being so, it has to be presumed that the charges alleged against them in the show-cause notice were admitted by them”. Similarly, the Hon'ble SAT, in the case of Sanjay Kumar Tayal

& Ors. v. SEBI (in appeal No. 68/2013) decided on February 11, 2014, also held that “...appellants have neither filed reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges levelled against them in the show cause notices”.

1. In view of the above, I am compelled to proceed ex parte in the matter against Noticees. I am of the view that principles of natural justice have been complied with since sufficient opportunities have been provided to the Noticees to submit their replies and to appear for personal hearing. I am, therefore, of the view that Noticees have nothing to submit and in terms of Rule 4(7) of the Adjudication

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Rules, the matter can be proceeded ex-parte on the basis of material available on record.

CONSIDERATION OF ISSUES, EVIDENCE AND FINDINGS

10. I have carefully perused the charges levelled against Noticees, and other documents/ evidence available on record. The issues that arise for consideration in the present case are:

(a)   Whether Noticees have violated provisions of Section 2(i)(a) of SC(R)A read with Section 13, 16 and 18 of SC(R)A?

(b)   Does the violation, if any, attract monetary penalty under Section 23H of SC(R)A?

(c)    If so, what should be the quantum of monetary penalty?

Issue No. 1: Whether Noticees have violated provisions of Section 2(i)(a) of SC(R)A read with Section 13, 16 and 18 of SC(R)A?

11. Before proceeding further, it is pertinent to refer to the relevant provisions of SC(R)A which are reproduced as under:

Section 2(i) of SC(R)A: In this Act, unless the context otherwise requires,— “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 dispatch 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;

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(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 depository

Section 13 of SC(R)A :If the Central Government is satisfied, having regard to the nature or the volume of transactions in securities in any State or States or area that it is necessary so to do, it may, by notification in the Official Gazette, declared this section to apply to such State or States or area and thereupon every contract in such State or States or area which is entered into after the date of the notification otherwise than between members of a recognised stock exchange or recognised stock exchanges in such State or States or area or through or with such member shall be illegal.

Section 16 of SC(R)A :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.

Section 18 of SC(R)A: Nothing contained in sections 13, 14, 15 and 17 shall apply to spot delivery contracts.

12. The first issue for consideration is whether Noticees have violated the provisions of Section 2(i)(a) of SC(R)A read with Section 13, 16 and 18 of SC(R)A. I note that spot delivery contracts as defined under Section 2(i)(a) of the SC(R)A, 1956, are those such contracts where the actual delivery of shares and payment of consideration are either on the same day or on the next day of the contract.

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13. I note from the Delivery Instruction Slip (DIS) that Noticee 1 had transferred 1,60,000 shares to Noticee 2 on July 13, 2015 and the amount of consideration was mentioned as Rs.94,88,000/-. I note that during investigation, SEBI had inquired about reasons/ purpose for receipt of such shares received through off-market route, relationship between them, consideration paid/ cost of acquisition etc. from Noticees. However, Noticees failed to provide any information to SEBI. I also note that during the course of Investigation, SEBI sought bank account information of Noticee 1 from his Depository Participant, PEE AAR Securities Limited (DP). Based on the information provided by DP, SEBI sought bank account statement of Noticee 1 from Kotak Mahindra Bank (Noticee1 was having bank account with Kotak Mahindra Bank-Account no. 1711643180) for the period April 01, 2015 to November 01, 2015. I note that Kotak Mahindra Bank, vide its email dated March 12, 2020, had informed that no transactions took place in the aforesaid bank account of Noticee 1 for the aforesaid period.

14. Therefore, I note that there is no proof of payment/proof of receipt of consideration for the shares received through off-market transfer. In view of the same, I find that for the aforesaid off-market transfer of shares, Noticee 1 had not received any consideration from Noticee 2.

15. In this regard, I would like to draw reference to Section 16 of SCRA, which provides that 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 therein. Sub section of Section 16 declares that all contracts in contravention of the provisions of sub section (1) entered into after the date of the notification issued thereunder shall be illegal.

16. In terms of Sections 13 and 18 of SCRA, as applicable to States or area notified by the Central Government, any transactions in securities in that State or area

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otherwise than between the members of a recognized stock exchange or through or with such member will be illegal, except spot delivery contracts.

17. In this regard, Hon’ble Securities Appellate Tribunal (‘SAT’) in its order dated July 17, 2007 in the matter of Alok Kehtan Vs. SEBI, Appeal No. 55 of 2007, held that:

“………..it is clear that the appellant sold his unlisted shares on 25.08.1999 in an

off market transaction and received the sale consideration of Rs. 22,50,000/‐ only in January, 2000 which is much beyond the time permitted by section 2(i) of the SCRA. Since the transaction was off market the contract for the sale of shares could only be by way of spot delivery in view of the restriction imposed by the Board under section 16 of SCRA which mandates that the sale consideration ought to have been received either on the same day of the transaction or on the following day. It is, thus, clear that the sale of shares by the appellant on 25.08.1999 in the off market transaction is violative of the restriction imposed under section 16 read with section 2(i) of SCRA.”

18. Further, in the case of Pithampur Steels Ltd, SEBI has passed an order EAD-7/BJD/NJMR/231-234/2018-19 dated September 27, 2018, wherein the learned AO has held that, “….it is clear that the 1,25,000 shares sold by the Noticees 1 to Noticees 2 & 3 in off‐market deal i.e., outside the stock exchange mechanism, against no consideration is not in conformity with the provisions of section 2(i) of SCRA. Therefore, I am of the view that the said transactions are illegal, void and a nullity and consequently in contravention of SEBI Notification G.S.R 219(E) dated March 2, 2000 and provisions of Section 13, 16 and 18 of SCRA.”

19. The facts and circumstances of the instant matter are similar in nature as those mentioned in the aforesaid orders. In the present matter, I note that for the aforesaid off-market transactions entered into by Noticees, Noticee 1 had not received any consideration from Noticee 2 within the prescribed time period to qualify as a spot delivery of contract. Therefore, I find that the transactions are not

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in in conformity with the provisions relating to spot delivery contract as defined under section 2(i)(a) of SC(R)A i.e. actual delivery/ transfer of shares and the payment should be on the same day as date of contract or the next day.

20. Another significant factor to be noted is that the shares were being transferred to the demat account of Noticee 2, which implies transfer of beneficial ownership of the shares. The transfer of beneficial ownership comes along with the rights and liabilities attached to the ownership of shares. The conduct of the parties, which is important in any transaction, establishes that there was a transfer of the shares. The conduct of the parties and nature of the transactions establishes that Noticee 1 and Noticee 2 had entered into a transaction in off-market, without receipt / payment of consideration, which is in contravention of the provisions relating to spot delivery contracts.

21. Therefore, in view of the foregoing, I find that the said off-market transfer of shares of Yamini cannot be considered as a ‘spot delivery contract’ in terms of the provisions of section 2(i)(a) of the SC(R)A.

22. Accordingly, I hold that Noticee1 and Noticee 2, by entering into a transaction of shares outside a stock exchange and which is not a spot delivery contract, have contravened the provisions of Section 2(i) of SC(R)A, read with Sections 13, 16 and 18 of SC(R)A.

23. In view of the above, the allegation that Noticees have violated provisions Section 2(i) of SC(R)A read with Sections 13, 16 and 18 stands established.

Issue No. 2 -Does the violation, if any, attract monetary penalty under

Section 23H of SC(R)A?

24. It has been established in the foregoing paragraphs that Noticees have violated provisions of Section 2(i) of SC(R)A, read with Sections 13, 16 and 18 of SC(R)A.

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25. In context of the above, I refer to the observations of Hon’ble Supreme Court in the matter of Chairman, SEBI vs. Shriram Mutual Fund {[2006] 5 SCC 361} wherein the Hon’ble Court had held “In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties

committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty inthe nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must made by the defaulter with guilty intention or not.”

26. As the violation of the provisions of SC(R)A by Noticees have been established. I am of the view that it is a fit case to impose monetary penalty on Noticees in terms of Section 23H of SC(R)A, 1956, which reads as under:

23H. Whoever fails to comply with any provision of this Act, the rules or articles or bye- laws or the regulations of the recognised stock exchange or directions issued by the Securities and Exchange Board of India for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees.

Issue No. 3- If the answer to issue no. 2 is in affirmative, then what should be the quantum of monetary penalty?

27. While determining the quantum of penalty under Section 23H of the SC(R)A, factors stipulated in Section 23J of SC(R)A have to be given due regard, which are reproduced as under:-

Section 23J:- While adjudging the quantum of penalty under Section 23-I, the

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

(a)    the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

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

(c) the repetitive nature of the default.

Explanation-For the removal of doubts, it is clarified that the power of an adjudicating officer to adjudge the quantum of penalty under sections 23A to 23C shall be and shall always be deemed to have exercised under the provisions of this section.

28. In the present matter, it is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the defaults by Noticee. Further, from the material available on record, it may not be possible to ascertain the exact monetary loss to the investors /clients on account of default by Noticees. As regards the repetitive nature of the default, I do not find that the Investigation having brought on record any regulatory action taken by SEBI in past against Noticees for same violations as those observed in the instant investigation. I also observe that there are no investor complaints on record, arising out of failure on the part of Noticee.

ORDER

29. Having considered all the facts and circumstances of the case, the material/evidence available on record and also the factors mentioned in Section 23J of the SC(R)A, as enumerated above, I, in exercise of the powers conferred upon me under Section 23-I of SC(R)A read with Rule 5 of Adjudication Rules, I hereby impose penalties on Noticees under Section 23H of SC(R)A for the violation of the provisions of SC(R)A as per the details mentioned in the table below:-

I am of the view that the said penalty is commensurate with the violation(s) committed by Noticees.

30. Noticees shall remit / pay the said amount of penalty within 45 days of receipt of this order through online payment facility available on the website of SEBI, i.e., www.sebi.gov.in on the following path, by clicking on the payment link: ENFORCEMENT -> Orders -> Orders of AO -> PAY NOW. In case of any difficulties in payment of penalties, Noticees may contact the support at portalhelp@sebi.gov.in.

31. The said confirmation of e-payment made in the format as given in table below should be sent to "The Division Chief, EFD –1- DRA -III, Securities and Exchange Board of India, SEBI Bhavan, Plot no. C- 7, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051” and also to e-mail id:- tad@sebi.gov.in

1.  Case Name:

2.  Name of payee:

3.  Date of payment:

4.  Amount paid:

5.  Transaction no.:

6.  Bank details in which payment is made:

7.  Payment is made for:

(like penalties/ disgorgement/ recovery/ settlement amount and legal charges along with order details)

32. In the event of failure to pay the said amount of penalty within 45 days of the receipt of this Order, recovery proceedings may be initiated under section 28A of the SC(R)A for realization of the said amount of penalty along with interest thereon, inter alia, by attachment and sale of movable and immovable properties of Noticees.

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33. In terms of the provisions of Rule 6 of the Adjudication Rules, a copy of this order is being sent to Noticees and to the SEBI.

Place: Mumbai

SOMA MAJUMDER

Date: September 20, 2021

ADJUDICATING OFFICER