sebi:WTM/SKM/EFD-1/DRA-I/24/2019-20

SEBI · SEBI · 2012-03-19 · S.K. Mohanty, Whole Time Member

Reviewed by Varun Matlani, Advocate — Securities Lawyer practicing in SAT and SEBI

Facts / Headnote

Proceedings continued on merit; Noticees' preliminary objections (delay/laches, demand for Board-approved disgorgement policy, parallel penalty proceedings) rejected; methodology for recomputing unlawful gains set out and unlawful gains quantified at Rs. 477,91,034/- for disgorgement.

Provisions invoked

• s. 11

Holding

The Noticees are liable to disgorge unlawful gains of Rs. 477,91,034/-, computed as (Qty sold during Investigation Period x Wt. Avg. Sell Price) – [(Qty bought during Investigation Period x Wt. Avg. Buy Price) + (Qty of excess shares x opening price on first day of Investigation Period, i.e., Rs. 4.33 on October 03, 2006)]. The Noticees' preliminary objections regarding delay, absence of a Board-approved disgorgement policy, and parallel penalty proceedings were rejected.

Full text

Order in the matter of Sumeet Industries Limited Page 2 of 31 67,57,677 shares (38.83%) as on December 31, 2006, and was further reduced to 49,38,010 shares (28.38%) as on March 31, 2007. (b) There was substantial increase in the profit of the Company. It increased from Rs. 6.02 million as on September 30, 2006 to Rs. 18.91 million as on December 31, 2006 (a rise of 214%). The profit of the Company subsequently reduced to Rs. 9. 32 million as on March 31, 2007 (a fall of 50.68%). (c) During the Investigation Period, the shares of the Company were listed on BSE Ltd. (BSE). Price of the scrip went up by 507.4%, while the Sensex recorded an increase of 3.4% (from 12,473.79 on October 03, 2006 to 12,902.63 on March 12, 2007), during the same period. On October 03, 2006, i.e., the first trading day during Investigation Period, the scrip opened at Rs. 4.33, however, the price of the scrip mainly increased during the period from December 05, 2006 to February 21, 2007 during which, in 52 trading sessions, the price of the scrip increased from Rs. 4.81 on December 05, 2006 to Rs. 34.25 on February 21, 2007 (a rise of 612%). (d) One month before the Investigation Period, i.e., during the period from September 01, 2006 to September 30, 2006, the price of the shares of the Company remained in the range of Rs. 4.30 to Rs. 5.90 and the shares of the Company were traded with an average daily volume of 17,775 shares, whereas, one month after the Investigation Period, the price of the scrip d

Order in the matter of Sumeet Industries Limited Page 3 of 31 volume in the scrip and apparently there was no genuine intention to trade in the scrip of SIL. (g) It was also observed that the Company and PK were connected with each other as there was transfer of shares as well of money between them. PK was found to be the counterparty to the sales made by the promoter group entities for 1153032 shares (31.80% of total sales by promoter group entities in the scrip). The buy orders placed by PK accounted for around 77% of the total valid buy orders placed during this period which provided counterparties to mainly the sale of shares by the promoter group entities. (h) Based on the aforesaid irregularities alleged to have been committed by the promoter/director and other related entities, SCNs dated March 19, 2012 (“hereinafter referred to as “2012 SCN”) were issued to several entities in terms of the allegations made in the said SCN of 2012 asking them as to why appropriate directions including the

Order in the matter of Sumeet Industries Limited Page 4 of 31 Noticee no. 9 to 11, before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”). The above stated two appeals were disposed of by Hon’ble SAT vide their common order dated June 30, 2016, wherein, while upholding the order passed by SEBI in principle including the directions to disgorge unlawful gains from the Noticees, Hon’ble SAT was pleased to remand the proceedings to SEBI for the limited purpose of adjudication of the quantum of amount to be disgorged by setting out the norms laid down by SEBI for the purpose. The relevant observations made by Hon’ble SAT in their order dated June 30, 2016 are extracted here under: “…18. In these circumstances, while upholding the decision of WTM of SEBI that the appellants are liable to disgorge the illegal gains made on sale of SIL scrip during the investigation period, we set aside the illegal profits quantified at Rs 4,69,40,232/- and direct that the quantum of illegal profits be determined afresh by setting out the norms laid down by SEBI for determining the illegal profits… “… 20. In the result, we pass the following order:-

Source: SecMarx — sebi:WTM/SKM/EFD-1/DRA-I/24/2019-20. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.