DIPAK J. PANCHAL 403, SHASHVAT, OPP GUJARAT COLLEGE, ELLISBRIDGE, AHMEDABAD - 380006 Vs. SECURITIES AND EXCHANGE BOARD OF INDIA SEBI BHAVAN, PLOT NO. C-4A, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400051

JUDGEMENT

(1.) THESE two appeals, No. 198 and 200 of 2011, arise out of a common order dated May 31, 2011 passed by the adjudicating officer of the Securities and Exchange Board of India (for short the Board) holding the appellants guilty of violating provisions of Section 12A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 (the Act) and Regulations 3(a), (b), (c), (d) and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1997 (for short the regulations) and imposing a penalty of Rs. 20 crores on the appellant in Appeal No. 198 of 2011 and Rs. 25 crores on the appellant in Appeal No. 200 of 2011. Learned counsel for the appellants submitted that separate orders may be passed in these two appeals as the transactions of the two appellants in the securities market are separate and distinct. However, we are of the view that facts relating to the appellants in these appeals are same or similar and evidence against each of the appellants, to a large extent, is common. The appellants are husband and wife and investigations against both of them relate to Initial Public Offerings (IPO) scam that took place during the period 2003 to 2005. It is for these reasons that the Board has also passed a common order. We are of the view that no prejudice will be caused to the appellants by passing a common order in these appeals. Wherever necessary, we will deal with their case individually.

(2.) THESE cases arise out of the IPO scam that was unearthed by the Board in the year 2005 -2006. Before we deal with the facts of the present case, let us briefly state how this scam was perpetrated. On receipt of information regarding alleged abuse and misuse of the IPO allotment process, the Board initiated a probe. During preliminary analysis of buying, selling and dealing in the shares allotted through IPOs of as many as 21 companies in the years 2003, 2004 and 2005, it transpired that certain entities opened a large number of demat accounts in fictitious/benami names. These entities acquired shares of those companies allotted in the IPOs by making large number of applications of small value so as to make them eligible for allotment under the retail individual investor category. The strategy adopted was that subsequent to the receipt of the IPO allotment, these fictitious/benami allottees transferred the shares to their principals called the 'key operators' who controlled their accounts and who, in turn, transferred most of the shares to the 'financiers' who had made available funds for executing the game plan. In view of the then booming market, the financiers then sold most of these shares on the first day of listing or soon thereafter thereby making profit out of the price difference between the issue price and the listing/sale price.

(3.) A show cause notice dated June 14, 2006 was issued to Dipak Panchal under Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 (for short, inquiry procedure rules) setting out the charge against him and asking him to show cause as to why enquiry should not be held against him and penalty imposed. A supplementary show cause notice was also issued on October 20, 2009 and findings of the enquiry report were also made available. Similarly, show cause notice was issued to Devangi Panchal on June 7, 2006 followed by two supplementary show cause notices issued on June 14, 2006 and October 20, 2009. The reply received from them was duly considered. Opportunity of personal hearing was also afforded. However, it appears from the details recorded in the impugned order that the opportunity of personal hearing was not availed of by the appellants and, therefore, the adjudicating officer proceeded with the matter on the basis of information/material available on record and the submissions made by the appellants in response to the show cause notices issued to them. After considering the material available on record, the adjudicating officer found the appellants guilty of the charges leveled against them and imposed penalties as stated above. Hence these appeals.