Adjudication Order No. EAD-2/DSR/RG/589-592/2017. Case: In Re: GSS Infotech Limited and Ors. Vs. Securities and Exchange Board of India
|Case Number:||Adjudication Order No. EAD-2/DSR/RG/589-592/2017|
|Party Name:||In Re: GSS Infotech Limited and Ors. Vs|
|Judges:||D. Sura Reddy, General Manager and Adjudicating Officer|
|Issue:||Securities And Exchange Board Of India Act, 1992 - Sections 15-1, 15-1(2), 15A(b), 15HA, 15HB; Securities Contracts Regulation Act, 1956 - Sections 21, 23-I, 23A(a), 23I|
|Judgement Date:||February 13, 2017|
|Court:||Securities and Exchange Board of India|
D. Sura Reddy, General Manager & Adjudicating Officer
Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted an investigation in the matter of GSS Infotech Limited (hereinafter referred to as GSS/the Company) and into the possible violation of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'Act') and various Rules and Regulations made there under for the period from March 07, 2008 to June 30, 2008 (hereinafter also referred to as 'investigation period'). The investigation report mentions about certain violations of provisions of law by the Noticees. SEBI has, therefore initiated adjudication proceedings for the alleged violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(f) and (k) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations), Regulation 6.2, 6.15.2(b), 9.1.0, 9.1.14B(b) of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as DIP Guidelines, 2000) read with Regulation 111 of ICDR Regulations, 2009 and Clause 43A of the Listing Agreement read with Section 21 of the Securities Contacts (Regulation) Act, 1956 (hereinafter referred to as the SCRA) by GSS, Shri Bhargav Marepally and Shri Ramesh Yerramsetti and for the alleged violation of Regulation 6.2 and 6.15.2(b) of the DIP Guidelines, 2000 read with Regulation 111 of the ICDR Regulations by Shri Kamal Kishore Avutapalli, being the Compliance Officer of the Company.
Appointment of Adjudicating Officer:
I have been appointed as the Adjudicating Officer, in place of previous Adjudicating Officer, vide order dated August 29, 2013, under Section 15-1 of the SEBI Act, 1992 read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the 'Adjudication Rules') and under Section 23I of the SCRA read with Rule 4 of the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as SCR Rules), to inquire into and adjudge under Section 15HA, Section 15A(b) and Section 15HB of the SEBI Act, 1992 and Section 23A(a) of the SCRA, the alleged violation of the abovementioned provisions of law by GSS, Shri Bhargav Marepally and Shri Ramesh Yerramsetti and under Section 15HB of the SEBI Act, 1992 for the alleged violation of the abovementioned provisions of law by Shri Kamal Kishore Avutapalli.
Show Cause Notice, Reply and Personal Hearing:
Accordingly, a common notice dated May 15, 2013 (hereinafter referred to as the 'SCN') was issued to the Noticees by the then Adjudicating Officer in terms of Rule 4 of the Adjudication Rules and Rule 4 of the SCR Rules requiring them to show cause as to why an inquiry should not be held against them for the alleged violation of the provisions of law. Thereafter, the noticees sought an opportunity of inspection of documents and the same was granted on various dates. Further, in the interest of natural justice, an opportunity of personal hearing was also granted on various dates. The authorized representatives of the noticees attended the same on August 10, 2016 and November 30, 2016. The noticees also submitted their reply vide letters dated August 24, 2016 and December 20, 2016 in the matter.
Consideration of Issues and Evidence.
I have carefully perused the charges levelled against the Noticees as per the SCN/Supplementary SCN, written submissions made by the Noticees and the material as available on record. The issues that arise for consideration in the present case are:
(a) Whether GSS, Shri Bhargav Marepally and Shri Ramesh Yerramsetti have violated the provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(f) and (k) of the PFUTP Regulations, Regulation 6.2, 6.15.2(b), 9.1.0, 9.1.14B(b) of the DIP Guidelines, 2000 read with Regulation 111 of ICDR Regulations, 2009 and Clause 43A of the Listing Agreement read with Section 21 of the SCRA?
(b) Whether Shri Kamal Kishore Avutapalli has violated the provisions of Regulation 6.2 and 6.15.2(b) of the DIP Guidelines, 2000 read with Regulation 111 of ICDR Regulations, 2009?
(c) Do the violations, if any, on the part of GSS, Shri Bhargav Marepally and Shri Ramesh Yerramsetti attract any penalty under Section 15HA, Section 15A(b) and Section 15HB of the SEBI Act, 1992 and Section 23A(a) of the SCRA?
(d) Do the violations, if any, on the part of Shri Kamal Kishore Avutapalli attract any penalty under Section 15HB of the SEBI Act, 1992?
(e) If yes, what should be the quantum of penalty?
Before proceeding further, it will be appropriate to refer to the relevant provisions of law which read as under:-
Relevant provisions of PFUTP Regulations
Prohibition of certain dealings in securities
No person shall directly or indirectly--
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;
(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;
(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.
Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:--
(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities;
(k) an advertisement which is misleading or that contains information in a distorted manner and which may influence the decision of the investors;
Relevant provisions of DIP Guidelines, 2000
Contents of the Offer Document
6.2 The prospectus shall contain all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue.
(b) The signatories shall further certify that all disclosures made in the prospectus are true and correct.
9.1 Guidelines on Advertisement
9.1.0 An issue advertisement shall be truthful, fair and clear and shall not contain any statement which is untrue or misleading.
9.1.14B The issuer company shall make prompt, true and fair disclosure of all material developments taking place during the period mentioned hereunder, relating to its business and securities and also relating to the business and securities of its subsidiaries, group companies etc., which may have a material effect on the issuer company, by issuing public notices in all the newspapers in which the issuer company had issued pre-issue advertisement under clauses 5.6.A:
(b) In case of a book built issue, between the date of filing the Red Herring Prospectus with the Registrar of Companies and the date of allotment of the securities offered in the issue.
Relevant provisions of Listing Agreement
Statement of deviation in use of issue proceeds
43A. (1) The company agrees to furnish to the stock exchange on a quarterly basis, a statement indicating material deviations, if any, in the use of proceeds of a public or rights issue from the objects stated in the offer document.
(2) Where the company has appointed a monitoring agency to monitor utilization of proceeds...
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