Delhi court pulls up Sebi for 'lethargic approach'

The order came in a case in which the regulator had filed a complaint against a firm and its directors alleging that they had floated the Collective Investment Schemes and raised over Rs 22 crore from public.

A local court has pulled up Securities and Exchange Board of India and other law enforcing agencies for their ‘lethargic approach’ in acting against violators as it fined a Delhi-based company and its two directors Rs 25 crore (Rs 250 million) for raising over Rs 22 crore (Rs 220 million) from investors.

Additional Sessions Judge Pawan Kumar Jain also sentenced Ashwani Sud and Sanjeev Sood, directors of company Timberworld Resorts and Plantations India Ltd, to one year imprisonment after convicting the duo and the firm for the offences under the Securities and Exchange Board of India Act.

While a fine of Rs 15 crore (Rs 150 million) was imposed on the firm, the court slapped a fine of Rs five crore each on the directors.

The court, in its judgement, observed that had Sebi taken a strict action against these convicts in time, the investors might not have lost their money.

"It is also pertinent to state that lethargic approach on the part of regulator and other law enforcing agencies also encourages such type of persons to induce public at large," it observed, adding, "Had the Sebi taken strict action in time against such persons, probably investors would not have lost their hard-earned money".

"Such lethargic approach on the part of regulator and law enforcing agencies embolden such unscrupulous persons to gather an impression that if they gobbled the hard-earned money of common men of this country, law enforcing agency would not be able to apprehend them. . .," it said.

The judge said now a ‘loud and clear message’ should be conveyed to such wrongdoers that if their guilt is proved in the court, they would be dealt with sternly.

"In my view, to curb such type of incidents, a clear message is required to be conveyed to the wrongdoers that if their guilt is proved they shall not only have to disgorge the ill-gotten amount but they shall also have to undergo imprisonment," it said.

The order came in a case in which the regulator had filed a complaint against the firm and its directors alleging that they had floated the Collective Investment Schemes and raised over Rs 22 crore (Rs 220 million) from general public in violation of the provisions of Sebi Act.

According to Sebi, any scheme or arrangement made or offered by any company under which payments made by investors, are pooled and utilised with a view to receive profits, income or property, and is managed on behalf of the investors is a CIS.

In its complaint, Sebi had alleged that despite a public notice of December 18, 1997, accused had failed to get the CIS registered with Sebi or wind up the schemes or repay the amount collected from investors in terms of CIS regulations.

Two of the other accused, Rajesh Sud and A V Mahindra, who were also directors of the firm, were declared proclaimed offenders by the court after they did not appear before it.

During the trial, Sanjeev Sood admitted that he was one of the directors of the firm but said he had resigned from the directorship in February 1995.

Ashwani Sud claimed in the court that during the relevant period, he was in judicial custody and landlords of their office premise had taken away all the files and other material illegally which were lying in the office at that time so he could not communicate either with investors or with Sebi.

The counsel appearing for Sebi contended before the court that the accused firm had raised more than Rs 22 crore (Rs 220 million) from gullible investors in 1994-1998 and till date, they have not returned even a single penny to the investors.

The court convicted the accused while dismissing their contentions.

Regarding the contentions of Sood, it said he had failed to establish that he had ceased to be a director of the firm.            

"Being the directors they were persons in-charge of and responsible to the company accused for the conduct of its business, thus, they are also liable for the violations committed by the company accused," it said.

The court also observed that if realised, the fine amount should be utilised to compensate the investors and directed the Sebi to issue a public notice in media and invite claims from investors.