ORDER UNDER SECTION 15-I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

AGAINST SHRI AVADHOOT L. SHILOTRI

IN THE MATTER OF INSIDER TRADING IN THE SHARES OF M/s TATA FINANCE   LTD.

1.0    Background:

1.1     M/s. Tata Finance Limited (hereinafter referred to as "TFL") is a listed company having its shares listed on The Stock Exchange, Mumbai (BSE) and the National Stock Exchange of India Ltd (NSE). Niskalp Investment and Trading Company Limited (hereinafter referred to as "NITCL") is an investment company incorporated under the Companies Act, 1956. During the period 6.2.2001 to 20.7.2001, Shri Avadhoot L. Shilotri (hereinafter referred to as ‘Shri Shilotri) was the President and Chief Executive Officer of NITCL, (then a wholly owned subsidiary of TFL). Immediately, prior to this period, he was the Vice President (Investments) of TFL.

1.2     The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigations (during August / November 2001) into the alleged manipulation and insider trading in the shares of TFL by Shri J.E. Talaulicar, the Chairman of NITCL and a director of TFL alongwith his family members. The findings of investigations are briefly as under –

(a)   On 04.01.2001, at the meeting of the Board of directors of TFL it was decided to make a rights issue of 9% cumulative convertible preference shares. This was confirmed by a further Board resolution passed at a meeting of the Board of TFL held on 29.01.2001. Shri J.E. Talualicar being a director of TFL was present in both the meetings.

(b)  The rights issue opened on 30.03.2001 and closed on 30.04.2001. The final letter of offer in respect of said rights issue contained financial results of TFL and NITCL as on 31.12.2000 and 30.9.2000, respectively showing that the profit after tax (PAT) for TFL and NITCL was Rs.16.41 crores and 11.46 crores, respectively.

(c)   Subsequently, in the light of complaints received by SEBI and TFL alleging non-disclosure of losses of NITCL in the letter of offer, TFL on 30.04.2001 disclosed to its shareholders that there was a substantial erosion in the value of stocks held by it and that NITCL had a provisional loss of Rs. 79.37 crores as on 31.03.2001 mainly due to erosion of value of investments held by it as against the disclosed profit of Rs. 11.46 crores as on 30.09.2000.

(d)  It was noted that for the financial year ended 30.6.2000, dividends from NITCL which amounted to Rs.10.81 crores, was largely responsible for the profits of TFL. Thus, any loss suffered by NITCL would adversely impact the profits of TFL, which would in turn affect the price of the shares of TFL.

(e)    The material information that NITCL had incurred a provisional loss of Rs. 79.37 crores as on 31.03.2001 was not available to the public prior to 30.04.2001 and was therefore, unpublished price sensitive information. This unpublished price sensitive information was available to insiders such as Shri Talaulicar, Shri Pendse and Shri Shilotri.

(f)     On 30.03.2001, an amount of Rs. 70 lacs was paid by NITCL to JHP Securities Pvt. Ltd. (JHP), a member of BSE and the same was transferred to JIP Investment (JIP), a sub- broker of JHP on the next date i.e. March 31, 2001.  The voucher in respect of the said payment of Rs. 70 lacs made by NITCL on 30.03.01 was signed by Shri P.B. Karyekar, Ex- Company Secretary and Accountant of NITCL, Shri Shilotri and Shri Dilip S. Pendse.  

(g)   On 31.03.2001, Shri J.E. Talaulicar alongwith his family members received Rs. 69 lacs from JIP by way of 5 cheques.  Shri Talaulicar in return handed over 1, 00,000 shares of TFL to JIP on April 04. 2001. This amount of Rs. 69 lacs was the consideration for the sale of these shares at the rate of Rs. 69 per share. The said consideration was from the funds paid by NITCL to JHP on 30.03.2001.

(h)  Shri Talaulicar had requested Shri Pendse to sell the said   1,00,000 shares of TFL. An off-market sale was arranged on behalf Shri Talaulicar by Shri Pendse and Shri Pendse alongwith Shri Shilotri arranged for putting the transaction through JHP and also transfer of funds through them from NITCL to Shri Talaulicar.  Shri Talaulicar, being a director of TFL at that time, was aware of  the prevailing market price of shares of TFL. It appeared a very unusual transaction as the scrip  of TFL being  liquid and being traded on premier stock exchanges,  anybody  willing to buy the shares of TFL could have bought them from market at the rate of Rs. 40/ per share, the then prevailing market price rather than buying them at the rate of Rs. 69/ per shares. As the the then market price was well below the agrred price of Rs.69 per share, Shri  Talaulicar with help of Shri  Pendse arranged through JIP to backdate the contract  to suitably match with the consideration of Rs.69/ per share.

(i)     In early May 2001, Shri Talaulicar was informed by Shri Pendse and Shri Shilotri that the shares had not been sold in March 2001 as agreed and that the sale was going to take place during May 2001 at the prevailing market price of Rs. 35 per share only.  Shri Talaulicar was told to refund the difference between the consideration paid to him and the consideration calculated at prevailing market price of the shares.  Shri Pendse with the help of Shri Shilotri gave orders to one Shri Bharat J. Patel who is an associate of JHP and Shri Prashant J. Patel, member of NSE for the sale of these 1,00,000 shares from May 18 to May 29, 2001. These shares were sold at the rate of around Rs. 35 per share through BSE and NSE. These transactions were routed through JIP. The excess money was refunded by Shri Talaulicar and family to the said sub broker.

       

1.3     It was alleged that Shri Shilotri being an ‘insider’ in terms of the then existing provisions of regulation 2 (e) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as ‘the Insider Trading Regulations’) had aided Shri J.E. Talaulicar in insider trading through counseling and organizing the dealings in the shares of TFL and thereby contravened then existing provisions of regulation 3 of the Insider Trading Regulations and is thus guilty of insider trading in terms of regulation 4 of the Insider Trading Regulations. 

1.4   A Show cause notice dated 08.08.2002 was issued by SEBI to Shri Shilotri communicating the findings of the investigations and also advising him to submit his reply / explanations to the findings.

1.5            SEBI also decided to adjudge the  alleged contraventions under section 15G of the Securities and Exchange Board of India Act, 1992 (SEBI Act) read with regulation 4 of the Insider Trading Regulations by Shri Shilotri and accordingly vide order dated August 21, 2002, Shri J. Ranganayakulu, Joint Legal Adviser, SEBI (hereinafter referred to as ‘the erstwhile Adjudicating Officer’) was appointed as the Adjudicating Officer under Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Adjudication Rules’) to inquire into and to adjudge the alleged contraventions as mentioned in the order dated August 21, 2002.

2.0           Show Cause Notice, Reply and Hearing :

2.1            The erstwhile Adjudicating Officer had issued a Show Cause Notice dated 29.09.2003 under Rule 4 of Adjudication Rules read with Section 15G of SEBI Act, 1992 to Shri Shilotri. In the show cause notice it was alleged that Shri Shilotri aided Shri Talaulicar through his counseling and organizing the dealings in the shares of TFL and has thus violated the provisions of the then existing provisions of regulation 3 of the Insider Trading Regulations.  Shri Shilotri was called upon to show cause as to why a penalty cannot be imposed upon him in terms of section 15G of the SEBI Act read with regulation 4 of the Insider Trading Regulations.   

2.2            M/s. Federal & Rashmikant (Regd.), advocates for Shri Shilotri , after seeking time to file reply vide their letters dated 31.10.2003 and 03.12.2003, filed the reply to the show cause notice vide their letter dated 31.12.2003. Shri Shilotri was granted an opportunity of hearing before the said Adjudicating officer on 05.08.2004 when Mr. M.S. Doctor, advocate and Mr. S.S. Kalambi, advocate had appeared on his behalf and reiterated the submissions made in the reply dated 31.12.03 and had also filed a written submission dated 05.08.04.

2.3            In the meanwhile, the erstwhile Adjudicating Officer proceeded on study leave and consequently, vide order dated December 10, 2004, the Adjudication case against Shri Shilotri pending before him was transferred to me. In terms of the order dated December 10, 2004, except the change of the Adjudicating Officer, the other terms and conditions of the original order dated August 21, 2002 remain unchanged and are in full force and in effect and the undersigned is required to proceed to deal with the said pending case from the stage which was reached before such transfer or from any earlier stage as may be deemed fit and complete the adjudication in accordance with the terms of reference made in the original order read with the order dated December 10, 2004. 

2.4            It was noted from record that pursuant to the show cause notice dated 08.08.2002 the Whole Time Member, SEBI, having found Shri Shilotri guilty of violation of the then existing provisions of regulation 3 of the Insider Trading Regulations, passed an order dated 02nd January 2004 under sections 11 (4) (b) and 11B of the SEBI Act and regulation 11 of the Insider Trading Regulations directing Shri Shilotri to dissociate himself from the securities market and not to deal in securities for a period of 6 months.  This order was challenged before the Hon’ble Securities Appellate Tribunal, Mumbai (SAT) in the appeal No. 31/2004. By an order dated 21st May, 2004 the Hon’ble SAT disposed off the said appeal upholding the findings of SEBI that Shri Shilotri was an insider and he was guilty in counseling Shri J.E. Talaulicar and Shri Pendse about the price sensitive information within his knowledge about the state of affairs of NITCL . The said order of SAT was challenged before the Hon’ble Supreme Court of India in Civil Appeal (Diary) No. 15160 / 2004.

2.5            Having considered the allegations in the show cause notice and the submissions / replies submitted on behalf of Shri Shilotri in the present proceedings and relevant material as available on record, the undersigned was of the view that the inquiry in the matter should proceed from the stage which was reached before the transfer of this case as mentioned hereinabove. Therefore, the undersigned issued a notice dated 10th October 2005 to Shri Shilotri in terms of Rule 4 of the Adjudicating Rules, fixing another date of personal appearance on November 02, 2005.  By the said letter the opportunity to file written submissions / reply was also granted to Shri Shilotri.   This letter was issued to Shri Shilotri as well as to his advocates M/s. Federal & Rashmikant (Regd).   The notice sent to Shri Shilotri was returned undelivered for the reason that he was not available at the address.      

2.6            After seeking adjournment in the matter, Mr. M.S. Doctor and Mr. S.S. Kalambi, advocates I/b M/s. Federal & Rashmikant (Regd.) appeared on behalf of Shri Shilotri on 16.11.2005. On the said date, the contraventions alleged to have been committed by Shri Shilotri indicating the relevant provisions of the SEBI Act and Insider Trading Regulations were again explained to learned advocates. Mr. M.S. Doctor, learned advocate submitted that the Hon’ble Supreme Court vide its order dated 20.09.2004 had dismissed the appeal filed by Shri Shilotri against the order dated 21.05.2004 passed by the Hon’ble SAT.

2.6.1    The learned advocate conceded  that in view of these orders of Hon’ble SAT and Hon’ble Supreme Court, it is established that Shilotri was an insider at the relevant time and that he contravened Insider Trading Regulations as found by Hon’ble SAT. Therefore, the learned advocate did not dispute these issues  on merits as to whether Shri Shilotri had contravened the provisions of the then existing provisions of regulation 3 of the Insider Trading Regulations and was thus guilty of insider trading. However, the learned advocate proceeded to make submissions on the question of adjudication of monetary penalty and quantum thereof under section 15G read with section 15I and section 15J of the SEBI Act.

2.6.2    It was submitted that the Adjudicating Officer is bound to consider the factors specified under section 15J read with rule 5 of the Adjudication Rules. In support of this argument learned advocate relied upon the following observations made by Hon’ble SAT in its order dated 25.01.2001 in appeal No. 24/2000 in Cabot International Capital Corporation Vs. SEBI –

“On a perusal of section 151 it could be seen that imposition of penalty is linked to the subjective satisfaction of the Adjudicating Officer. The words in the section that "he may impose such penalty" are of considerable significance, especially in view of the guidelines provided by the legislature in 15J "the Adjudicating Officer shall have due regard to the factors" stated in this section is a direction and not an option. It is not incumbent on the part of the Adjudicating Officer, even if it is established that the person has failed to comply with the provisions of any of the sections specified in sub section (1) of section 15I, to impose penalty. It is left to the discretion of the Adjudicating Officer, depending on the facts and circumstances of each case.”

Referring to the provisions of section 15J, Mr. M.S. Doctor submitted that in this case there is no charge in the show cause notice that Shri Shilotri had made any gain or any other investor or the company (TFL) had incurred loss as a result of the violations committed by Shri Shilotri.  It is the admitted position, as observed in the SAT order dated 21.05.04, that there had not been any pecuniary gain by Shri Shilotri as a result of the violations. This is the only instance where Shri Shilotri has been found guilty of contravening the SEBI Regulations. Therefore, the factors specified in section 15J have not been met in the instant case.

2.6.3    The learned advocate further submitted that the act of insider trading is per se punishable and the intention or motive is not relevant for imposing penalty under the SEBI Act in respect of contravention of the provisions regarding insider trading, however, the monetary penalty should not be imposed in all the cases unless the factors provided under section 15J are satisfied.

2.6.4    Relying upon the observations of the Hon’ble SAT in the above mentioned order in Cabot’s case and the observations of Hon’ble High Court of Bombay in SEBI Vs. Cabot International Capital Corporation (2004) 2 Comp LJ 363 (Bom),  the learned advocate further submitted that in terms of section 15I of the SEBI Act, whether penalty should be imposed for failure to perform the statutory obligation is a matter of discretion left to the Adjudicating Officer and that discretion has to be exercised judiciously and on a consideration of all the relevant facts and circumstances. While exercising such discretion the Adjudicating Officer must see as to whether the facts of the case warrant penalty.

2.6.5     Mr. M.S. Doctor further argued that where a direction under Section 11B and Section 11(4) read with Regulation 11 of the Insider Trading Regulations has been issued and the factors provided under section 15J are not satisfied the monetary penalty cannot be imposed. According to the learned advocate, in this case, as Shri Shilotri had already been debarred for three months pursuant to the SEBI order dated 02.01.2004 as modified by the SAT order dated 21st May 2004 and the factors under section 15J are not satisfied, the case does not deserve imposition of monetary penalty.

2.6.6    Mr. M.S. Doctor also submitted that assuming that the violations committed by Shri Shilotri attract monetary penalty also, then the penalty, if any, could be imposed in accordance with the provisions of section 15G, as they existed before the amendment on 29.10.2002 since the violations pertain to the period before the amendment. He also submitted that Shri Shilotri has already been dismissed from service and struggling and facing difficulties to get a suitable employment. Therefore, considering these facts and circumstances, no penalty may be imposed on him.

3.0           Consideration of the Issues –

3.1      I have carefully considered the charges leveled in the show cause notice, the replies and submissions on behalf of Shri Shilotri and other materials available on record. In view of the findings of the Hon’ble SAT regarding the violations by Shri Shilotri and admissions on his behalf it is established that Shri Shilotri was an insider under the then existing provisions of regulation 2 (e) of the SEBI (Prohibition of Insider Trading) Regulations, 1992. It is also established that he aided Shri J.E. Talaulicar in the insider trading transaction in question through counseling and organizing the dealing in the shares of TFL and thereby contravened the then existing provisions of regulation 3 (iii) of the Insider Trading Regulations and thus he is guilty of insider trading in terms of regulation 4 thereof.

3.2      For the purpose of adjudging the penalty under section 15I read with section 15G and 15J of the SEBI Act in respect of the contraventions by Shri Shilotri, the following issues emerge for determination in view of the arguments set forth by the learned advocate –

 i). Whether the monetary penalty under section 15I cannot be     imposed unless the factors specified under section 15J are satisfied?

ii). Whether under the facts and circumstances of this case monetary penalty could also be imposed where the directions under section 11 (4) (b) and 11B read with regulation 11 of the Insider Trading Regulations have been issued in respect of the same violation?

iii). If the penalty could be imposed, then what could be the quantum of penalty under section 15G read with section 15J of the SEBI Act?

3.3            Issue (i)

3.3.1      As observed by  Hon’ble SAT and also upheld the Hon’ble Bombay High Court in the above mentioned Cabot’s Case, while imposing penalty under section 15I of the SEBI Act, the Adjudicating Officer is bound to consider the factors provided under  section 15J.The said section reads as follows:

“Factors to be taken into account by the adjudicating officer.

15J.   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.”

3.3.2          Section 15J mandates the Adjudicating Officer to “have due regard to” the factors mentioned therein. The  Hon’ble Supreme Court,  in the matter of Shri Sitaram Sugar Co. Ltd. v/s Union of India (1990) 3 SCC 223 held that these words are not a fetter; they are not words of limitation but of general guidance to make an estimate. The Hon'ble Supreme Court in the case of India Cement Ltd. v/s Union of India (1990) 4 SCC 356 held that the meaning of the expression “having regard to” is well settled. It indicates that in exercising the power, regard must be had also to the factors enumerated together with all the factors relevant for the exercise of that power. In view of these judgments, while the Adjudicating Officer is bound to consider the factors provided under section 15J, the adjudicating officers may take into account other criteria/factors also while adjudging the quantum of penalty. Therefore, it is not correct to say that monetary penalty cannot be imposed unless the factors provided under section 15J are not fulfilled.

3.4            Issue (ii)

3.4.1          It is the duty of SEBI to inter alia protect the interests of investors in securities and to regulate and develop the securities market. This duty recognizes that orderly development of the securities market requires investors’ confidence in the market. It also acknowledges that investors’ confidence depends on the comfort afforded to investors that they are placed on equal footing and that they will be protected against the improper use of inside information by the insiders.  With this objective, section 11 (2) (g) of the SEBI Act empowers SEBI to take measures for prohibiting insider trading in securities. The Insider Trading Regulations have been framed as a measure to prohibit insider trading. The intention behind the prohibitions provided in Insider Trading Regulations is inter alia to ensure that the insiders do not breach the fiduciary duty or the duty arising out of a relationship of trust or confidence towards the investors.  Further, these regulations aim to achieve the objective of growth of securities market by ensuring that the securities market operates in fair manner with all the participants having equal access to all the information so that they can make informed investment decisions. 

3.4.2          The scheme of SEBI Act regarding imposition of penalties is very clear. The entire scheme of the Act contemplates deterrent actions in cases of violations regarding insider trading. In respect of such violations, the Act contemplates actions by way of directions, imposition of monetary penalty and by way of prosecution. The scheme of the Act contemplates that different actions have different facets. A prohibitory order could serve a remedial function and may not penalize for an illegal conduct.  The Act and the regulations contemplate action of imposition of monetary penalty as civil liability for the act of insider trading as prohibited by the Insider Trading Regulations. It is the discretion of the Board to initiate, in a particular case, one or all the actions provided under the Act. In the instant case, considering the facts and circumstances of the case, the SEBI initiated proceedings under section 11(4), 11B of the SEBI Act read with regulation 11 of the Insider Trading Regulations and also appointed the Adjudicating Officer to independently inquire and adjudicate under section 15G of the SEBI Act.

3.4.3          In my view, if the position that where directions under the SEBI Act read with Insider Trading Regulations have been issued, the case does not deserve imposition of monetary penalty is accepted, no monetary penalty could be imposed in a case where the actions by way of directions are taken. This does not appear to be the scheme of the Act. If this argument is accepted, in a particular case, where independent proceedings under section 11, 11B of the SEBI Act read with regulation 11 of the Insider Trading Regulations and Chapter VIA are initiated and the directions are issued, such directions would put an end to the proceedings initiated under Chapter VIA automatically. Both the proceedings are independent of each other. The Hon’ble High Court of Bombay in the matter of SEBI Vs. Cabot International Capital Corporation (2004) 2 Comp LJ363 (Bom) has held that the regulatory authority has ample power to initiate both proceedings that is civil or criminal, if a case is made out, within the framework of SEBI Act or regulations. Section 15J does not contemplate that monetary penalty should not be imposed where directions under section 11 and 11B of the SEBI Act have been issued. As already observed in para 3.3.2 of this order the adjudicating officer may take into account other criteria also alongwith the factors mentioned in section 15J while adjudging the quantum of penalty. Therefore, even if the directions have been issued for the same violation and all the factors mentioned in section 15J are not satisfied, in the factual background of the case the monetary penalty may also be imposed.   In my view, the fact that directions have already been issued for the same violations could be a relevant factor while considering the quantum of penalty.

3.4.4          I have carefully gone through the findings of the Hon’ble SAT as confirmed by the Hon’ble Bombay High Court in the above mentioned Cabot’s case. In this case, the Hon’ble Bombay High Court, while holding that the penalty under Chapter VIA of the SEBI Act is a civil penalty and mens rea is not essential for imposing these penalties, also summarized the principles in respect of the penalties. These principles are inter alia as under –

(a).     The relevant consideration for determining the nature of proceedings is the nature of the functions being discharged by the authority and the determination of the liability of the contravener and the delinquency.

(b).     There can be two distinct liability, civil and criminal, under the same Act.

(c).    Even the administrative authority empowered by the Act to adjudicate has to act judiciously and follow the principles of natural justice, to the extent applicable.

(d).     Though looking to the provisions of the statute, the delinquency of the defaulter may itself expose him to the penalty provision yet despite that in the statute minimum penalty prescribed, the authority may refuse to impose penalty for justifiable reasons like the default occurred due to bona fide belief, that he was not liable to act in a manner prescribed by the statute or there was too technical or venial breach, etc.

3.4.5          The Hon’ble High Court has further held that in the factual background of a case, if a person has never consciously or deliberately avoided to comply with the obligations under the SEBI Act and the Regulations and the violations are technical and a minor defect or breach based on a bona fide belief that such person was not liable or required to comply with the Act or Regulations, the monetary penalty may not be imposed.

3.4.6          In this case it is established position that Shri Shilotri was guilty in counseling in Shri Talaulikar about the price sensitive information within his knowledge. As observed by Hon’ble SAT vide order dated 21.05.2004 Shri Shilotri had knowledge of the price sensitive information and he has counseled Shri Talaulikar about the price sensitive information within his knowledge. The arguments about his innocence has been rejected by Hon’ble SAT. Thus, he is guilty of contravention of provision of Regulation 3(iii) of the Insider Trading Regulations with the knowledge. Under the facts and circumstances of this case the violation is not technical violation or minor defect or is based on bona fide belief.  Vide order dated 21.05.2004 Hon’ble SAT it has been established that Shri Shilotri acted in conscious disregard of his obligations. Therefore, this case deserves imposition of monetary penalty under Section 15 I read with Sections 15G and 15J.

3.5      Issue (iii)

3.5.1   Hon’ble  SAT has in the  case of Rameshchandra Mansukhani NRI v. SEBI held that the law as existed at the time of commission of the violation has to be applied in the imposition of monetary penalties and not the law as existing on the date of the order. I agree with the submissions of Mr. M.S.Doctor that for violations committed before the amendment on 29.10.2002, the penalty should be in terms of the unamended provision of Section 15G. The unamended Section 15G reads as under –           

            

            “Penalty for insider trading.

                15G.   If any insider who –

i.        ………………………………………………………………;or

ii.      ……………………………………………………………; or

iii.     counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price sensitive information,

                shall be liable to a penalty not exceeding five lakh rupees.”

3.5.2    While adjudging the quantum of penalty in this case, I have considered the factors provided under Section 15J read with rule 5(2) of the Adjudication Rules. It is admitted position that as a result of the contraventions, Shri Shilotri has not made any pecuniary gain. There is nothing on record to suggest that as a result of these contraventions Shri Shilotri has made unfair advantage. Further, it is submitted by the learned advocate that this is the first violation by Shri Shilotri.

3.5.3    However, the spirit behind prohibition of insider trading is that the insiders must disclose or abstain. Further, they should not take the position adverse to the interest of the general investors and should not place their interest or the interests of those to whom they communicate the unpublished price sensitive information or for whom they counsel or procure the deals ahead of the interest of the investors. The loss caused to investors cannot always be quantifiable in monetary terms and the unfair advantage to insider as a result of insider trading may also not always be possible to be specified in pecuniary terms. The prohibitions provided in the Act and the Regulations have specific purpose as mentioned above and the penalty provisions for enforcing the regulations need to be given effect to ensure that a level playing field is provided to all participants and the securities market works on sound business principles. Therefore, even if no quantifiable loss is caused to any investor or no unfair advantage is made as a result of violations, it has to be kept in mind that in respect of contraventions of Insider Trading Regulations the violator should face the consequences otherwise the objects of the regulations and also of the regulatory jurisdiction would get defeated.

3.5.4    I have also taken to account the delinquency of Shri Shilotri determined by Hon’ble SAT in its order dated 21.05.2004. The Hon’ble SAT has observed that under the facts and circumstances of the case there cannot be better example of insider trading.  The Hon’ble SAT has also observed that “from the sequence of events, the appellant (Shri Shilotri) had wanted to help Shri Talaulicar to enable him to encash the shares knowing well that there was likely to be a fall in the value of the shares otherwise what was the need for the appellant (Shri Shilotri) to have signed the voucher of Rs. 70 lakhs and the entire amount minus Rs. 1 lakh was used for making payment to Shri Talaulicar for sale of the shares of TFL.”  The Hon’ble SAT has further observed that it cannot be ruled out that Shri Shilotri acted only under pressure from Shri Pendse and Shri Talaulicar but with knowledge.   

 

3.5.5    I have also taken into consideration the submission of the learned advocate that Shri Shilotri has already undergone the penalty imposed by the SEBI vide order dated 02.01.2004 and that Shri Shilotri had already been dismissed from service. In view of these factors I find that the maximum penalty of rupees five lakh should not be imposed on Shri Shilotri for his violations.

4.0   ORDER

4.1    Having considered the facts and circumstances of this case, I find that a penalty of Rs. 50,000/- (Rupees fifty thousand only) would be commensurate with the violation after taking into account the factors under section 15J and other relevant factors as mentioned above. Accordingly, in exercise of the powers conferred upon me in terms of section 15I read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer ) Rules, 1995, I hereby impose a penalty of Rs. 50,000/- (Rupees fifty thousand only) as penalty on  Shri Avadhoot L. Shilotri.

4.2   The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India” and payable at Mumbai which shall be sent to Shri Sanjiv Dutt, Chief General Manager, Securities and Exchange Board of India, Mittal Court, B wing 1st Floor, Nariman Point Mumbai. As required under rule 6 of the said Rules a copy of this order is being sent to Shri Shilotri through his advocates and also to SEBI. 

 

Dated: April 27, 2006

Mumbai

 SANTOSH SHUKLA

ADJUDICATING OFFICER