Adjudication Order in respect of Sunplant Agro Ltd., Mr. Awdesh Kumar Singh, Mr. Girija Shankar...

8/19/2019 Adjudication Order in respect of Sunplant Agro Ltd., Mr. Awdesh Kumar Singh, Mr. Girija Shankar Kumar and Mr. Sa…

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Adjudication Order in the matter of M/s. Sun-Plant Agro Ltd. Page 1 of 23

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. AK/AO/2-5/2016]

_____________________________________________________________________

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, 1995

In respect of

M/s. Sun-Plant Agro Ltd. (PAN No. AADCS8447H)

Mr. Awdesh Kumar Singh (PAN No. AKQPS6527G)

Mr. Girija Shankar Kumar (PAN No. AKAPK2774R)

Mr. Sant Kumar (PAN No. BBXPK3112N)

In the matter of Sun-Plant Agro Ltd.

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Order dated May

03, 2011 had inter-alia directed M/s. Sun-Plant Agro Ltd. (hereinafter referred to as 'SPAL/the

Company’) to wind up its existing collective scheme(s) and refund the money collected by it

under the scheme(s) with returns which are due to the investors as per the terms of the offer in

the manner specified in Regulation 73 of the SEBI (Collective Investment Schemes) Regulations,

1999 (hereinafter referred to as the ‘CIS Regulations’) within three months from the date of the

Order.

2. The Company failed to confirm compliance with the aforesaid Order dated May 03, 2011. As per

Section 27 (1) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as

‘SEBI Act’), if an offence under the Act has been committed by a company, every person who at

the time when the offence was committed was in charge of and was responsible to the company

for the conduct of business of the company, as well as the company, shall be deemed to be

guilty of the offence and shall be liable to be proceeded against and punished accordingly. Since

the company failed to confirm compliance of the directions issued to it vide Order dated May


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03, 2011, SEBI issued a Show Cause Notice dated January 03, 2013 under Section 11 and 11B of

the SEBI Act to the Company and its directors viz. Mr. Awdesh Kumar Singh, Managing Director,

Mr. Girija Shankar Kumar, Director and Mr. Sant Kumar, Director (hereinafter collectively

referred to as 'the Noticees') calling them to show cause as to why appropriate actions including

actions referred in Order dated May 03, 2011 under the provisions of Section 11B of SEBI Act

read with Regulation 65 of the CIS Regulations should not be taken against the Noticees for

failure to comply with the Order dated May 03, 2011. The Noticees filed replies/ submissions

dated January 22, 2013, June 08, 2013, July 08, 2013, July 09, 2013, July 19, 2013 and December

09, 2013. After examining the replies/ submissions of the Noticees and other relevant material

available on record, SEBI passed an Order dated December 30, 2013 against the Noticees viz.

SPAL/ the Company and the Directors viz. Mr. Awdesh Kumar Singh, Mr. Girija Shankar Kumar

and Mr. Sant Kumar restraining and debarring the Noticees from accessing the securities market

and further prohibiting them from buying, selling or dealing in securities market, directly or

indirectly, in any manner, whatsoever for a period of five years for non-compliance of the

directions issued vide Order dated May 03, 2011. Various other directions were also issued in

the Order dated December 30, 2013, including the initiation of the adjudication proceeding.

APPOINTMENT OF ADJUDICATING OFFICER

3. In view of the above, the undersigned was appointed as the Adjudicating Officer vide Order

dated April 07, 2014 under Section 15 I of the SEBI Act read with Rule 3 of SEBI (Procedure

for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 (hereinafter

referred to as the ‘Rules’) to enquire into the alleged non-compliance with SEBI Order dated

May 03, 2011 and adjudge under Section 15 HB of the SEBI Act for the alleged violation

committed by the Noticees.

SHOW CAUSE NOTICE, HEARING AND REPLY

4. Show Cause Notices dated August 26, 2014 (hereinafter referred to as 'SCNs') were issued

to the Noticees under rule 4(1) of the Rules to show cause as to why an inquiry should not


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penalty under Section 15HB stand on a completely different footing as per the judgment of

Bharjatiya Steel (2008 SC) which after taking into consideration the judgment in Chairman,

SEBI Vs. Shriram Mutual Fund (2006 SC) holds that when there is a discretion to not award

any penalty at all, the question of mens rea becomes relevant, which has not been alleged

at all in the SCN. The ARs inter alia sought to make all the submissions by November 03,

2014, after which they desired another opportunity of personal hearing to make submission

on merits, if it is found that the proceedings are maintainable and they are called upon to

make submissions on Order dated May 03, 2011 being without jurisdiction, as per the DLF

judgment of the Hon’ble Supreme Court (Harshad Chiman Lal Modi Vs. DLF Universal Ltd.

(2005)7SCC791).

8. Subsequently, vide letter received on November 17, 2014, the Noticees filed a reply inter

alia stating as under:

a.

That the Noticees have been in the business of sale and purchase/ trading of trees much

before February 23, 2000, the date with effect from which Section 11AA was introduced by

way of SEBI (Amendment) Act, 1999. Further that the Noticees are assessed to Income Tax

and Sales Tax. The business of trading is also corroborated by several other documents,

which form part of the Writ Petition filed before the Hon’ble High Court of Calcutta. The

Noticees also submitted copies of the same;

b.

That SEBI admittedly was aware of the existence of trees and the business of trading in

trees in 2002. Further, even when SEBI began corresponding with the Noticees in 2010,

the existence of trees and business of trading of trees could not be said to have escaped its

attention because of passage of time, since in SEBI’s letter dated April 13, 2010 the same

was referred to. Hence, when the Noticees realized that the ex parte ad-interim Order

dated October 21, 2010 did not acknowledge these facts, and had arrived at a conclusion

without any physical inspection or investigation, they prayed for a post decisional hearing.

At the time of the hearing, these materials were presented, and it was prayed that a

physical examination/ inspection of the affairs of the company be conducted before

passing any Order. However, the Order dated May 3, 2011 did not consider these

submissions;


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c.

That the trees are identifiable. If the same is established, the ingredients specified in

Section 11AA of the SEBI Act would no longer be fulfilled and the business could no longer

be termed a Collective Investment Scheme (CIS);

d.

That the Order dated May 03, 2011 was thus, challenged before the Hon’ble High Court of

Calcutta as being without jurisdiction and having been passed in gross violation of

principles of natural justice;

e.

That SEBI must produce the evidence that it relies upon to allege that the Order dated May

03, 2011 has attained finality, non- compliance of which is the foundation of the SCN;

f. That the Hon’ble High Court of Calcutta has heard the matter on several dates when SEBI

appeared on caveat;

g.

That the counsel had submitted that SEBI and the Noticees could jointly approach the

Hon’ble High Court of Calcutta in respect of the Writ Petition filed by the company. These

contentions were not considered before passing of the Order dated December 30, 2013.

The Noticees also provided a copy of the written submissions filed before passing of the

Order dated December 30, 2013;

h.

That SEBI had made an oral statement through its Counsel that it would not act in

pursuance of the show cause notice (11B) while the Hon’ble High Court ex amines the

question of maintainability;

i.

That the Noticees have referred to the judgment of the Hon’ble High Court of Madras in

the matter of All India Trade Union Congress Vs. Neyveli Lignite Corporation Ltd. and

contended that any action in pursuance of the SCN, despite there being no stay order could

still amount to over reaching the Hon’ble High Court;

j.

That the Noticees also submitted that they had been regularly repaying their customers in

accordance with their contractual obligations undertaken by them upon signing the Tree

Sale Agreement with their customers, whereas the Order dated December 30, 2013

recorded that the Noticees had wound up the schemes and were repaying the investors.

The Noticees have stated that what was sought to be illustrated was simply that the

Noticees were duly repaying the customers as per their contractual obligations;

k.

That the SCN is vague and does not even allege existence of mens rea. The Noticees have

contended that Section 15HB of the SEBI Act stands on a completely different footing from


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the other provisions of Chapter VIA of the SEBI Act, because it admits discretion. Given the

in-built discretion, the authority issuing the SCN must disclose the amount of penalty

proposed to be imposed and the reasons on the basis of which the amount is sought to be

justified, so as to give the Noticees an opportunity to respond thereto;

l.

That the judgment of the Hon’ble Supreme court in the case of Surath Chandra

Chakrabarty Vs. State of West Bengal (1970) holds that if a person is not clearly and

definitely told what the allegations are on which the charges preferred are founded, he

cannot possibly by projecting his own imagination, discover all the facts and circumstances

that may be in contemplation of the authorities to be established against him. The

Noticees have contended that the SCN is vague as it does not disclose how much penalty is

proposed to be imposed under Section 15HB and the reasons for arriving at this amount.

The Noticees have also cited the judgment of the Hon’ble Supreme C ourt in the case of

Bharjatiya Steel Industries V. Commissioner, Sales Tax, UP (2008) wherein it was held

that since the assessing authority has been conferred with discretion to levy penalty, it also

may not levy penalty. If it has the discretion not to levy penalty, existence of mens rea

becomes a relevant factor;

m.

That an Order passed by a Court without jurisdiction is a nullity. The Order dated May 03,

2011, which is the foundation for the present SCN has been challenged in the Hon’ble High

Court of Calcutta for want of jurisdiction. In view of the same, the maintainability of the

present proceedings ought to be determined by a reasoned order. The Noticees stated that

they could be called to make submissions on the merit of the case, only when the present

proceedings are found to be maintainable.

9. Thereafter, with respect to submission of the Noticees that the Order dated May 03, 2011

had not attained finality, the Noticees vide letter dated February 10, 2015 were informed

that the same issue had already been discussed in the Order of the Hon'ble Whole Time

Member, SEBI dated December 30, 2013. The Noticees were informed that the undersigned

concurred with the views expressed by the Hon'ble Whole Time Member, SEBI in the

matter. In view of the same, the Noticees were advised to submit documentary evidence, if

any, regarding their submissions, and also in respect of the stay/ quashing of SEBI's Order


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dated May 03, 2011. However, no reply was received from the Noticees. Thereafter, a

hearing Notice dated March 13, 2015 was issued to the Noticees, once again enclosing the

aforesaid letter dated February 10, 2015. The Noticees were again advised to submit

documentary evidence, if any, regarding their submissions, and also in respect of the stay/

quashing of SEBI's Order dated May 03, 2011. The Noticees were further granted an

opportunity for personal hearing on April 28, 2015 in the matter.

10.

Vide letter dated April 28, 2015, the Noticees requested that the hearing be adjourned for a

period of six weeks. The request of the Noticees was acceded to and vide email dated May

06, 2015, they were granted another opportunity for personal hearing on May 19, 2015.

The Noticees were once again advised to submit documentary evidence, if any, regarding

their submissions, and also in respect of the stay/ quashing of SEBI's Order dated May 03,

2011.

11. The Noticees replied to the aforesaid email vide their letter dated May 15, 2015 and stated

that the company had already conveyed its inability to produce the above mentioned

documents in view of the Managing Director of the Company being indisposed. The

Noticees also requested that the hearing scheduled on May 19, 2015 be postponed to June

29 or June 30, 2015.

12. Accordingly, a personal hearing was held on June 29, 2015. Mr. Debesh Panda and Mr. Girija

Shankar Kumar (AR) appeared on behalf of the Noticees. During the hearing, the ARs were

given an opportunity to make submissions on merit in reply to the SCN. The ARs refused to

make any submission on merit in reply to the SCN. The ARs inter alia stated that till an

Order in respect of the maintainability with regard to the above points is passed, the matter

cannot be proceeded with, and that the Noticees reserve their right make arguments onmerit only after such an Order has been passed.

13. In view of the above, letters dated July 28, 2015 were issued to the Noticees. Vide the said

letter, the Noticees were given a final opportunity to file submissions on preliminary issues

and on merits by August 14, 2015, failing which it was informed that it would be presumed


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that the Noticees had no further reply to submit on preliminary issues and on merits, and

the matter would be further proceeded with on the basis of the evidence available on

record. A last and final opportunity for personal hearing was also scheduled on September

04, 2015 to make submissions on both preliminary issues and on merits in the matter.

However, these letters were returned undelivered from the Noticees’ address. Thereafter,

vide letter dated October 07, 2015, the Noticees were given an opportunity to file

submissions on preliminary issues and on merits by October 26, 2015. An opportunity for

personal hearing was also scheduled on November 04, 2015 to make submissions on both

preliminary issues and on merits in the matter. The Noticees were also informed that if no

reply was received by the aforesaid date, or, if they failed to appear for the hearing, it would

be presumed that they had no further reply to submit on preliminary issues and on merits,

and the matter would be further proceeded with on the basis of the evidence available on

record. The said letter dated October 07, 2015 was also emailed to Ms. Amrita Panda and

Mr. Debesh Panda, ARs and Advocates of the Noticee, as well as to the email address

[email protected], from which e-mail correspondence had been received on behalf

of the Noticees in the matter. Vide email dated October 23, 2015, Shri Debesh Panda

requested that no correspondence in the matter be addressed to him directly, and that the

Noticees should be contacted directly.

14. Subsequently, a scanned copy of a letter from the Noticees dated November 02, 2015, was

received from the email address [email protected] requesting for an adjournment of

the personal hearing scheduled on November 04, 2015 to December citing Bihar Assembly

elections, Diwali and Chath. The request of the Noticees was acceded to, and vide hearing

Notice dated December 02, 2015, the Noticees were once again given an opportunity to file

submissions on preliminary issues and on merits by December 15, 2015. As per the Noticees

request, the Noticees were also granted an opportunity for personal hearing on December

21, 2015 to make submissions on both preliminary issues and on merits in the matter. The

Noticees were again informed that if no reply was received by the aforesaid date, or, if they

failed to appear for the hearing, it would be presumed that they had no further reply to

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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submit on preliminary issues and on merits, and that the matter would be further

proceeded with on the basis of the evidence available on record.

15. However, vide email dated December 16, 2015, the Noticees forwarded a letter stating that

the company was filing its Balance Sheet for the years 2012-13, 2013-14 and 2014-15 within

the month of December, 2015. Thereafter, the company shall proceed with the matter in

the Hon’ble High Court of Calcutta. The Noticees requested that the current proceedings be

kept on hold, pending disposal of the Writ Petition before the Hon’ble High Court of

Calcutta.

16.

In view of the above repeated opportunities granted to the Noticees, every time taking into

consideration the requests made by them / their ARs, I am of the considered opinion that

sufficient and adequate opportunities were provided to the Noticees to make their

submissions in the matter, both preliminary and on merit. However, at every stage, the

Noticees have sought to delay the matter and have refused to file any submissions on merit.

In view of the same, I am constrained to proceed in the matter on the basis of the material

available on record, including the replies that have been filed by the Noticees and the

submissions made by them in the personal hearings granted to them. Despite several

opportunities, since the Noticees and their ARs have failed to make submissions on merit in

the matter, it is presumed that they have no further submissions to make in the matter.

CONSIDERATION OF ISSUES AND FINDINGS

17. I have carefully examined the SCN, the submissions made by the Noticees and the

documents available on record. The allegation against the Noticees is that the company

failed to comply with the aforesaid Order dated May 03, 2011. Further, as per Section 27 (1)

of the SEBI Act, 1992, if an offence under the Act has been committed by a company, every

person who at the time when the offence was committed was in charge of and was

responsible to the company for the conduct of business of the company, as well as the

company, shall be deemed to be guilty of the offence and shall be liable to be proceeded


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against and punished accordingly. In view of the above, it was alleged that the Noticees had

not complied with SEBI Order and are liable to be penalized under section 15HB of SEBI Act.

18. The issues that, therefore, arise for consideration in the present case are:

a)

Whether the Noticees failed to comply with SEBI Order dated May 03, 2011?

b)

Does the non-compliance, if any, on the part of the Noticees attract monetary penalty

under section 15 HB of SEBI Act?

c)

If so, what would be the monetary penalty that can be imposed taking into

consideration the factors mentioned in section 15J of SEBI Act?

19. At the outset, I note that the Noticees have repeatedly emphasized that they would make

their submissions on the merits of the case, only after the preliminary objections raised by

them on the issue of maintainability were decided by a reasoned order. I note that similar

issues were raised and discussed in the matter of Praveen Mohnot Vs. SEBI before the

Hon’ble Securities Appellate Tribunal ( SAT) (date of Order- February 05, 2015). In the

matter, a show cause notice issued to the appellants in the said case on December 18, 2008

was decided against the appellants by an Order passed by the Whole Time Member

(hereinafter referred to as ‘WTM’) of SEBI on September 22, 2009. The Hon’ble SAT had vide

an earlier Order dated October 21, 2010, set aside SEBI’s Order dated September 22, 2009 in

the matter and remanded the matters back to SEBI for fresh decision. Accordingly, a fresh

show cause notice was issued on December 27, 2012. In the reply to the show cause notice,

the appellants had sought clarification as to whether the show cause notice dated

December 27, 2012 was a supplementary show cause notice to the earlier show cause

notice dated December 18, 2008, or, it was a fresh show cause notice. The Appellants had

also contended that issuing fresh show cause notice without withdrawing the earlier show

cause notice would be barred by the principle of res judicata. It was further contended that

the show cause notice was contrary to the order of the Hon’ble SAT dated October 21, 2010

and amounted to double jeopardy in the eyes of law. The appellants had requested SEBI to

decide the above issue as preliminary issue. The appellants also stated that they were

reserving their right to file detailed reply after obtaining copy of the investigation report,


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inspection of documents, and cross examination of the witnesses whose statement were

relied upon in the show cause notice, in case the preliminary issue is decided against the

appellants. In the notice given by SEBI fixing personal hearing on August 13, 2013, nothing

was stated that the appellants were called upon to make submissions on the preliminary

issue as also on merits. According to the appellants, the arguments advanced by them at the

personal hearing on August 13, 2013 were only with reference to the preliminary issue.

Since the Appellants were under the impression that fresh hearing would be given to them

in case the preliminary issue is decided against the appellants, the Hon’ble SAT remanded

the matter, stating as follows:

“W hile making it clear that it is open to SEBI to hear on preliminary issue as well as merits

together and pass one composite order, in the facts of present case, in our opinion, SEBI was

not justified in passing impugned order on merits, without making it clear to the appellants

that at the personal hearing, appellants would be heard both on the preliminary issue and on

merits.” (emphasis supplied)

20. In the case at hand, I find that the Noticees were granted innumerable opportunities to

make their submissions both on preliminary issues as well on merits. As noted above, they

were specifically advised to file any further submissions that they had to make on

preliminary issues and also on merits of the case. It was communicated to the Noticees that

failing the same, it would be presumed that the Noticees had no further submissions to

make on preliminary issues and on merits, and the matter would be proceeded with based

on evidence available on record. However, despite the same, the Noticees chose not to avail

of the several opportunities granted to them. Hence, I am of the view that the matter can be

proceeded with both on preliminary issues as well as on merit of the case, in view of the

above stated Order of the Hon’ble SAT.

21.

I note here that while refusing to make submissions on merits, the AR of the Noticees during

the personal hearing conducted on June 29, 2015, emphasized on three issues with regard

to the maintainability of the present proceedings, which are as follows:


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a.

That the Authority issuing the SCN has to produce material to show that the Order

dated May 03, 2011 has attained finality, including any order of the Calcutta High Court

that the Writ Petition is no longer pending;

b.

That the SCN is vague, as it does not disclose the exact amount of penalty proposed to

be imposed and the reasons for proposing such an amount, for the alleged non

compliance with SEBI’s Order dated May 03, 2011. The Noticees are, thus, precluded

from effectively replying and defending themselves;

c.

That the SCN does not allege mens rea and is not a valid SCN under Section 15HB of the

SEBI Act.

22.

We will first look at the submission of the Noticees that the Authority issuing the SCN has to

produce material to show that the Order dated May 03, 2011 has attained finality. I note

from the Order dated December 30, 2013 passed by the Whole Time Member, SEBI that

similar submissions were made by the Noticees in those proceedings as well. The aforesaid

Order dated December 30, 2013 states that:

“8. In my view, present proceedings commenced vide the SCN dated January 03, 2013 are

limited for determination of the issue as to whether the noticees have complied with

directions issued vide order dated May 03, 2011 or not. The Order dated May 03, 2011 is in

operation and force as it has yet not been set aside, quashed or modified by any court/

Tribunal to date. The documents relied upon in support of the charge in the SCN dated

January 03, 2013 are the order dated May 03, 2011 and demand/reminder letters

subsequent thereto and those documents have been served upon and received by the

noticees. I, therefore, do not find any infirmity in the present proceedings on this count. I

further find that the noticees have made extraneous claims in this regard.

9. From the reply and written submissions of the noticees, I note that the arguments of the

noticees relevant to the present proceedings are twofold. First, that the matter is sub-judice

and SEBI should not take any action till the disposal of the writ petition filed by them before

the Hon'ble High Court of Calcutta and also that SEBI had undertaken not to act further in

the matter while the proceedings are pending before the Court. In this regard, I note that the


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writ petition filed by the noticees is yet not admitted by the Hon'ble High Court and as on

date, there is no stay on the operation of the SEBI order dated May 03, 2011 by any order of

Hon'ble High Court Calcutta in the said writ petition. Further, from a perusal of the material

available on record, I note that no undertaking was given by SEBI before the Hon'ble High

Court as stated by the noticees, nor have the noticees furnished any document to

substantiate this claim, I therefore, find that the above argument of the noticees does not

hold any ground.”

23. I note that the same was also brought to the attention of the Noticees vide letter dated

February 10, 2015. The Noticees were informed vide the said letter that the undersigned

was in concurrence with the aforesaid views of the Learned Whole Time Member, SEBI. The

Noticees were further advised to submit documentary evidence, if any, with respect to stay/

quashing of SEBI’s Order dated May 03, 2011. However, I note that the Noticees have not

produced any evidence to support their claim. I note that in the proceedings at hand, the

limited question for consideration before me is whether the Company and its directors have

complied with the directions issued vide the Order dated May 03, 2011. I find that there is

no contention made by the Noticees to support a finding that the directions have indeed

been complied with. Neither have the Noticees been able to produce even a shred of

evidence that there has been a stay on the Order, or, that the same has been quashed.

Thus, I agree with the finding of learned Whole Time Member, SEBI that Order dated May

03, 2011 is in operation and force as it has yet not been set aside, quashed or modified by

any court/ Tribunal to date. And the present proceedings before me are limited for

determination of the issue as to whether the Noticees have complied with the directions

issued vide Order dated May 03, 2011 or not.

24.

In this regard, I find that the Noticees have cited the judgment of the Hon’ble High Court of

Madras in the matter of All India Trade Union Congress Vs. Neyveli Lignite Corporation

Ltd. and contended that any action in pursuance of the SCN, despite there being no stay

order could amount to over reaching the Hon’ble High Court. However, I note that the cited

case does not deal with the issue of stay. The facts in the aforesaid matter relate to a


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dispute between two factions of a Trade Union. Due to dispute, the Estate Officer/ Sub

Divisional Magistrate feared clashes between the two factions, which may hinder public

peace. Hence, exercising powers under Section 144 of the Code of Criminal Procedure

(CrPC), he directed the Tahsildar to put a seal on the building. The Order of the Sub

Divisional Magistrate was challenged before the Madras High Court, which noted that any

Order passed under Section 144 of CrPC remains in force for not more than 2 months, and

that the possession should be handed over to the Petitioner, who was in possession of the

premises immediately prior to the said seal. However, by then, the company, Nevyeli Lignite

Corporation Ltd had taken possession of the disputed premises. It was in this regard that the

Hon’ble High Court had stated that especially when the High Court had taken notice in the

writ petition and the matter was pending further Orders, the action of the Estate Officer in

possessing the property by putting their own lock and their taking possession, would

amount to overreaching the jurisdiction of the High Court. However, in the matter at hand

the Noticees have not brought anything on record to show that the writ petition filed by

them has even been admitted by the Calcutta High Court. Further, nothing is brought on

record to show that facts in the so referred case are similar to the facts in the extant case.

25.

Also, if this argument of the Noticees is accepted, it would imply that once a matter is

appealed, there is de facto stay on the Order against which the appeal is filed. This,

however, is not the correct stance, as is evident from the judgment of the Hon’ble Supreme

Court in the matter of Vishnu Dutt Vs. State of Rajasthan (Date of Order- December 15,

2005), wherein it has been held that -

“…O. XLI R. 5 of the Code of Civil Procedure which clearly lays down that mere filling of an

appeal does not operate as stay of proceedings in execution, but the appellate court has the

power stay of execution. Obviously when the appellate court orders the stay of execution the

order can have affect only when it is made known to the executing court …where a stay order

is passed, execution still stands and can go on unless the court executing the decree has

knowledge of the stay order. It is only when the executing court has knowledge of the stay

order that the court must stay its hands and anything it does thereafter would be a nullity so

long as the stay order is in force.”


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Thus, since there is no Order staying the operation of SEBI’s Order dated May 03, 2011

brought on record, I am of the opinion that the current proceedings can rightfully continue.

26. Furthermore, I note that the same contentions i.e. the matter being sub judice are being

adopted by the Noticees ever since the Show Cause Notice dated January 03, 2013 under

Section 11 and 11B of the SEBI Act was issued to them. More than two years have lapsed

since the Order dated December 30, 2013 was passed by the Learned Whole Time Member.

Despite the same, the Noticees have not been able to produce any documentary evidence/

stay order with respect to the Order dated May 03, 2011 even as on date, however, the

same assertions continued to be made even two years later in the present proceedings. In

light of the same, I am convinced that the same is nothing but a dilatory tactic by the

Noticees. Hence, I am unable to find any merit in the aforesaid submission of the Noticees in

light of the facts of the case at hand.

27. I note that the Noticees have also contended that the SCN is vague. In the matter, I note

that the show cause notice dated August 26, 2014 has clearly brought out the charges

against the Noticees. In fact, the show cause notice provides details of the charges against

the Noticees. The Noticees were also given ample opportunity to present their case as has

been brought out in the earlier paras of the Order. Thus, there was no breach of natural

justice either. I find here that the Noticees have stated that the authority issuing the SCN

must disclose the amount of penalty proposed to be imposed and the reasons on the basis

of which the amount is sought to be justified, so as to give the Noticees an opportunity to

respond thereto. The SCN clearly brought out that the Noticees shall be liable to a penalty

which may extend to one crore rupees under Section 15HB of the SEBI Act. However, the

exact amount of penalty can be arrived at only after considering the submissions of the

Noticees. Further, the reasons for arriving at such amount have to be recorded in Order

passed. In fact, the SCN that quantifies the exact amount of penalty that would be levied,

takes away the ‘in-built’ discretion available under Section 15HB of the SEBI Act that the

Noticees have so emphatically through their submissions stressed upon, as it would pre-

empt the extent of liability if guilt is established.


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28. Further, I note that the Noticees have cited the judgment of the Hon’ble Supreme Court in

the matter of Surath Chandra Chakrabarty Vs. State of West Bengal (197 0) in this regard toargue that if a person is not clearly and definitely told what the allegations are on which the

charges preferred are founded, he cannot possibly by projecting his own imagination

discover all the facts and circumstances that may be in contemplation of the authorities to

be established against him. The Noticees have contended that the SCN is vague as it does

not disclose how much penalty is proposed to be imposed under Section 15HB and the

reasons for arriving at this amount. However, I am of the view that the case cited by the

Noticees does not at all apply to their contention. The charge of non-compliance with SEBI’s

Order dated May 03, 2015 has been plainly and prominently set out in the SCN. The same

can be referred to at Para 2, 3 and 4 of the SCN. The charge has been stated lucidly and can

be simply understood. Further as has been stated earlier, the Section under which the

penalty will be levied has been clearly laid out. The same, i.e. Section 15HB of the SEBI Act

prescribes a maximum of one crore rupees and has been provided to the Noticees as part of

the SCN. However, as has been explained in the preceding para, the exact quantum of

penalty that will be levied cannot be said to be part of the charge.

29. Further, the Noticees firstly were given an opportunity to contest the charges levied against

them and prove that conditions prescribed for levy of the penalty have not been fulfilled

and therefore penalty is not leviable. In addition to the above, the Noticees also had the

opportunity whereby they can put forth why the quantum of penalty should not be the

maximum penalty, etc. Thus, the opportunities given for making submissions and of hearing

provided the Noticees with much latitude to argue their case from dropping of the

proceedings to reducing the levy of penalty from the maximum leviable.

30. I find further that the Noticees have inter alia also stated that the SCN is vague and does not

even allege existence of mens rea. The Noticees have contended that Section 15HB of the

SEBI Act stands on a completely different footing from the other provisions of Chapter VIA

of the SEBI Act, because it admits discretion. The Noticees have cited the judgment of


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Bharjatiya Steel (2008 SC), which after taking into consideration the judgment in

Chairman, SEBI Vs. Shriram Mutual Fund (2006 SC) holds that when there is a discretion to

not award any penalty at all, the question of mens rea becomes relevant, which has not

been alleged at all in the SCN. However, after having perused the Order of the Hon’ble

Supreme Court in both the above cases, I am of the view that the judgment of Bharjatiya

Steel does not state anything contrary to the finding in Chairman, SEBI Vs. Shriram Mutual

Fund. I find that in M/s. Bharjatiya Steel Industries vs. Commissioner, Sales Tax, U.P. on

March 05, 2008 , the Hon’ble Supreme Court had observed as thus:

“Furthermore, the question as to whether mens rea is an essential ingredient or not will

depend upon the nature of the right of the parties and the purpose for which penalty is

sought to be imposed.

18. A distinction must also be borne in mind between a statute where no discretion is

conferred upon the adjudicatory authority and where such a discretion is conferred.

Whereas in the former case the principle of mens rea will be held to be imperative, in the

latter, having regard to the purport and object thereof, it may not be held to be so.”

31. In Chairman, SEBI vs. Shriram Mutual Fund, referred above, the Hon’ble Supreme Court

while interpreting the provisions of the SEBI Act has held that:

“In our considered opinion, penalty is attracted as soon as the contravention of the

statutory obligation as contemplated by the Act and the Regulation is established and hence

the intention of the parties committing such violation becomes wholly irrelevant. A breach

of civil obligation which attracts penalty in the 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. We also

further held that unless the language of the statute indicates the need to establish the

presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was

intentional or not. On a careful perusal of Section 15(D)(b) and Section 15-E of the Act, there

is nothing which requires that mens rea must be proved before penalty can be imposed

under these provisions. Hence once the contravention is established then the penalty is to

follow.” (emphasis supplied)


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32. In abovementioned matter of Bharjatiya Steel Industries vs. Commissioner, Sales Tax that

the Noticees have cited, I note that the Hon’ble Supreme Court after quoting the above

cited lines from the Chairman, SEBI Vs. Shriram Mutual Fund judgment has further stated as

follows:

“ It is, therefore difficult to accede to the contention … that under no circumstances absence

of mens rea would not be a plea for levy of penalty. An assessing authority has been

conferred with a discretionary jurisdiction to levy penalty. By necessary implication, the

authority may not levy penalty. If it has discretion not to levy penalty, existence of mens rea

becomes a relevant factor.”

33. From the above, it becomes apparent that the judgment in Bharjatiya Steel Industries vs.

Commissioner, Sales Tax was re-emphasizing the ruling in Chairman, SEBI vs. Shriram Mutual

Fund. I note that the Hon’ble Supreme Court made it clear in Chairman, SEBI vs. Shriram

Mutual Fund that penalty was attracted as soon as contravention of the SEBI Act was

established, hence, the intention of the parties becomes immaterial. Thus, the Hon’ble

Supreme Court in Chairman, SEBI Vs. Shriram Mutual Fund had made it clear that the

adjudicating officer does not have the discretion under SEBI Act not to levy penalty, if the

contravention of SEBI Act is established. Also that statutory obligation under the SEBI Act

did not require proof of mens rea. On the other hand, the judgment in Bharjatiya Steel

Industries vs. Commissioner, Sales Tax talks about a situation where the statute allows

discretion and hence mens rea becomes a relevant factor.

34. It, thus, becomes clear from the above that the Hon’ble Supreme Court in Bharjatiya Steel

Industries vs. Commissioner, Sales Tax cited Chairman, SEBI vs. Shriram Mutual Fund, not to

overrule it, but, to show that the necessity to prove mens rea depends on the wording on

the statute, and whether it allows discretion. Hence, after perusing both the Orders of the

Hon’ble Supreme Court, it is clear that the later judgment in Bharjatiya Steel Industries vs.

Commissioner, Sales Tax, does not overrule the former judgment in Chairman, SEBI Vs.

Shriram Mutual Fund.


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35. In Chairman, SEBI vs. Shriram Mutual Fund, the Supreme Court further observed therein

that “…The impugned Order sets the stage for various market players to violate statutory

regulations with impunity and subsequently plead ignorance of law or lack of mens rea to

escape the imposition of penalty. The imputing mens rea into the provisions of Chapter VIA

is against the plain language of the statute and frustrates entire purpose and object of

introducing Chapter VIA to give teeth to the SEBI to secure strict compliance of the Act and

the Regulations.”

36. Further, the Supreme Court in Chairman, SEBI vs. Shriram Mutual Fund has also observed

that -

“In the provisions and scheme of penalty under Chapter VI A of the SEBI Act, there is no

element of any criminal offence or punishment as contemplated under criminal proceedings.

Therefore, there is no question of proof of intention or any mens rea by the appellants and it

is not essential element for imposing penalty under SEBI Act and the Regulations.”

In view of the same, I am of the view that mens rea is not an essential element for imposing

penalty under Chapter VI A of the SEBI Act. Though I note that the Noticees have contended

that Section 15HB stands on a different footing from any other provision of Chapter VIA of

the SEBI Act, from the above judgment it is clear that the Supreme Court has not made any

such distinction. The Supreme Court has unambiguously stated that imputing mens rea into

the provisions of Chapter VIA is against the plain language of the statute and frustrates

entire purpose and object of introducing Chapter VIA to give teeth to the SEBI to secure strict

compliance of the Act and the Regulations.

37. The aforesaid gets further strengthened by the fact that subsequent to the judgement in

Bharjatiya Steel Industries vs. Commissioner, Sales Tax, the Hon’ble Supreme Court on

September 29, 2008 in Union of India & Ors vs. M/s. Dharamendra Textile has cited the

judgment in Chairman, SEBI v. Shriram Mutual Fund with respect to in built discretion, and

has stated that the judgment has analyzed the legal position in the correct perspective.


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38. Reliance is also placed on decision of Bombay High Court reported in (2004) 51 SCL 307

(BOM.) (SEBI vs. Cabot International Capital Corporation), wherein the Hon’ble High Court

of Judicature at Bombay in The Securities and Exchange Board of India V/s. Cabot

International Capital Corporation has held as follows:

“The SEBI Act and the Regulations, are intended to regulate the Security Market and the

related aspects, the imposition of penalty, in the given facts and circumstances of the case,

cannot be tested on the ground of “no mens rea, no penalty”. For breaches of provisions of

SEBI Act and Regulations, according to us, which are civil in nature, mens rea is not essential.

On particular facts and circumstances of the case, proper exercise of judicial discretion is a

must, but not on a foundation that mens rea is an essential to impose penalty in each and

every breach of provisions of the SEBI Act.”

Thus, I note that motive or mens rea is not essential to establish the charge in a proceeding

of this nature. In view of all of the above, the contention of the Noticees that the SCN is not

maintainable as it does not allege mens rea, is not tenable.

39.

Hence, in view of the above, I do not find any merit in the preliminary submissions made by

the Noticees on the maintainability of the present proceedings. Further, from the evidence

available on record, I note that the Noticees have failed to comply with the directions issued

to the company under Order Dated May 03, 2011 to wind up its existing collective

investment scheme(s) and refund the money collected by it under the scheme(s) with

returns which are due to the investors. In fact, in their reply received on November 17,

2014, the Noticees have stated that whereas the Order dated December 30, 2013 recorded

that the Noticees had wound up the scheme and were repaying the investors, what was

sought to be illustrated by the Noticees in their replies during those proceedings was simply

that the Noticees were duly repaying the customers as per their contractual obligations.

Thus, the Noticees themselves have clearly and unambiguously stated that they have not

complied with the Order dated May 03, 2011.


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40. I also note that the Noticees have made several submissions such as, SEBI was aware of the

existence of trees and the business of trading in trees in 2002, that the trees are identifiable,

which being the case the ingredients specified in Section 11AA of the SEBI Act would no

longer be fulfilled and the business could no longer be termed a CIS. However, I once again

note that the present proceedings are limited to determination of the issue as to whether

the Noticees have complied with directions issued vide order dated May 03, 2011 or not.

Hence, I am of the view that these submissions are not relevant with respect to the issue at

hand, as the present proceedings are not in the nature of an appeal against SEBI’s Order

dated May 03, 2011.

41. In view of the foregoing, I am convinced that it is a fit case to impose monetary penalty

under Section 15HB of the SEBI Act, which reads as under:

15HB:- Penalty for contravention where no separate penalty has been provided.

Whoever fails to comply with any provision of this Act, the rules or the regulations

made or directions issued by the Board there under for which no separate penalty has been

provided, shall be liable to a penalty which may extend to one crore rupees.

42. In view of the above, I am of the view that the present case is a fit case for imposition of

penalty under Section 15HB of the SEBI Act. While determining the quantum of monetary

penalty under section 15HB, I have considered the factors stipulated in section 15J of SEBI

Act, which reads as under:

“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:-

(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 repetitive nature of the default.”


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43. I notice from the Order dated May 03, 2011 that the company had between 2003-04 to

2008-09 collected a total sum of approximated Rs. 69.34 crore from investors. Further, the

said Order states that the collection for 2009-10 is not known. Thus, the exact amount

collected by the company from investors under the scheme is not known. This entire

amount has, however, been illegally raised without obtaining a registration from SEBI.

Further, the Order noted that the activity of raising funds in the name of sale of plants,

selling plants to a purchaser, maintaining the plants, and thereafter providing return on the

amount invested at the end of the scheme in the form of wood or cash, without any identity

or ear-marking of the particular plant which is sold, clearly made it a CIS, defined under

Section 11AA of SEBI Act and Regulation 3 of CIS Regulations. Hence vide Order dated May

03, 2011, the Learned Whole Time Member, SEBI had confirmed the ex-parte interim Order

dated October 21, 2010 and inter alia directed the company to wind up its existing collective

scheme(s) and refund the money collected by it under the scheme(s) due to the investors as

per the terms of offer in the manner specified in Regulation 73 of CIS Regulations within

three months from the date of the Order. However, I find that even after a passage of

almost five years from the date of the Order, the Noticees have failed to refund the

collected amount. I further note that the aforesaid default by the Noticees is despite the

Order dated December 30, 2013. Further I note that the Order dated December 30, 2013

inter alia states that though as per the Noticee’s own submission, the Noticees had claimed

that they had repaid 60% of the investors, however, the Noticees failed to substantiate their

claim along with proof/ evidence of repayment. No such proof/ evidences have been

provided in the present proceeding before me either.

44. An unregulated, unregistered scheme that collects and pools in resources from lay investors

poses a serious threat to the confidence that investors place in the securities markets. In the

recent past there have been several cases where a multitude of investors have suffered at

the hands of unscrupulous persons who seek to exploit the market. In the matter at hand,

despite having ample opportunity, the Noticees failed to comply with the directions set out


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in the Order dated May 03, 2011 and instead sought to hide behind dilatory tactics. Such

cases of non compliance would have to viewed seriously.

ORDER

45. After taking into consideration all the facts and circumstances of the case, for the failure of

the Noticees to comply with SEBI Order dated May 03, 2011, I impose a penalty of Rs.

1,00,00,000/- (Rupees One Crore only) under section 15HB of the SEBI Act on the Noticees

namely, M/s. Sun-Plant Agro Ltd., Mr. Awdesh Kumar Singh, Mr. Girija Shankar Kumar and

Mr. Sant Kumar (payable jointly and severally), which will be commensurate with the

violations committed by them.

46.

The Noticees shall pay the said amount of penalty by way of demand draft in favour of “SEBI

- Penalties Remittable to Government of India”, payable at Kolkata, within 45 days of receipt

of this order. The said demand draft should be forwarded to S. Madhusudhanan, CIS

Department, SEBI Eastern Regional Office, L&T Chambers, 3rd Floor, 16 Camac Street,

Kolkata 700 017.

47. In terms of Rule 6 of the Rules, copy of this order is sent to the Noticees also to the

Securities and Exchange Board of India.

Date: March 15, 2016 Anita Kenkare

Place: Mumbai Adjudicating Officer

Adjudication Order in respect of Sunplant Agro Ltd., Mr. Awdesh Kumar Singh, Mr. Girija Shankar...

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