BEFORETHEADJUDICATINGOFFICER

SECURITIESANDEXCHANGEBOARDOFINDIA
[ADJUDICATIONORDERNO.AK/AO8589/2015]
__________________________________________________
UNDERSECTION15IOFSECURITIESANDEXCHANGEBOARDOFINDIAACT,1992READWITH
RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY
ADJUDICATINGOFFICER)RULES,1995
Inrespectof
ShriArunGoyal(PAN:ACKPG1931G),ShriVishalKumarShah(PAN:AYBPS0534J),M/s.GFL
FinancialsIndiaLimited(PAN:AABCG0597Q),ShriVimalkumarSureshchandraRaval(PAN:
ANIPR5608Q),ShriNareshN.Shah(PAN:ARYPS5993F)

Inthematterof
M/s.GFLFinancialsIndiaLimited
__________________________________________________________________________

FACTSOFTHECASEINBRIEF

1.

SecuritiesandExchangeBoardofIndia(hereinafterreferredtoasSEBI)observedthatShri
ArunGoyal,promoterofM/s.GFLFinancialsIndiaLtd.(hereinafterreferredtoasGFL/the
company) had sold/ transferred shares of the company during the quarter ended
September 30, 2011. It was observed that Shri Arun Goyal had transferred in off market
5,000sharesand10,000sharesonAugust31,2011toShriSandarshGoyalandMs.Radha
Goyal respectively (nonpromoter entities). Based on closing price of Rs. 108/ of GFL on
Bombay Stock Exchange Ltd. (hereinafter referred to as BSE) on August 30, 2011, it was
observed that the change in shareholding of Shri Arun Goyal from the last disclosure had
exceeded Rs.5lakhsinvaluetwiceon August31,2011(onceonsaleof5,000sharesand
again on sale of 10,000 shares). Thus, Shri Arun Goyal was under an obligation to make
disclosure to the Company and the Stock Exchanges, where the shares were listed,
regarding the above change in his promoter shareholding within two working days as per
Regulation 13(4A) read with 13(5) of the SEBI (Prohibition of Insider Trading) Regulations,
1992(hereinafterreferredtoasPITRegulations).

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2.

In order to confirm whether Shri Arun Goyal had made the relevant disclosure to the
Company and the Stock Exchanges under Regulation 13(4A) read with 13(5) of the PIT
Regulations, summons dated February 07, 2014 were issued to him. Since no reply was
received, another summons dated February 13, 2014 was issued to him. Though the
aforesaidtwosummonsweredeliveredtoShriArunGoyal,hedidnotrespondtothesame.
Further,inordertoinquireinteraliaaboutthedisclosures,thecompanywassummonedto
submit the required information vide summons dated November 20, 2013 which was
deliveredonNovember22,2013.AnothersummonsdatedJanuary01,2014wasdelivered
onJanuary06,2014.However,noreplywasreceivedfromthecompanyaswell.

3.

Thus,itwasallegedthatShriArunGoyalhasviolatedRegulation13(4A)readwith13(5)of
SEBI(PIT)Regulation,1992ontwooccasions.Further,ShriArunGoyalfailedtosubmitthe
requisite information as sought from him vide summons dated February 07, 2014 and
reminder dated February 13, 2014, and thus, was also alleged to have violated Section
11C(2)&(3)ofSecuritiesandExchangeBoardofIndiaAct,1992(hereinafterreferredtoas
SEBI Act). Further, for its failure to submit requisite information sought vide summons
datedNovember20,2013andJanuary01,2014,GFLanditsdirectorsShriNareshN.Shah,
ShriVishalKumarShahandShriVimalkumarS.Ravalwereallegedtohaveviolatedsection
11C(2)&(3)ofSEBIAct.

APPOINTMENTOFADJUDICATINGOFFICER

4.

The undersigned was appointed as the Adjudicating Officer vide Order dated March 26,
2014 to inquire into and adjudge under Section 15A(a) and/ or Section 15A(b) of the SEBI
Act read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalty by
AdjudicatingOfficer)Rules,1995(hereinafterreferredtoastheRules)toinquireintoand
adjudge the alleged violation of SEBI Act and/ or PIT Regulations committed by Shri Arun
Goyal, GFL, and its directors Shri Naresh N. Shah, Shri Vishal Kumar Shah and Shri
VimalkumarS.Raval(hereinaftercollectivelyreferredtoasthe'Noticees')

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SHOWCAUSENOTICE,HEARINGANDREPLY
5.

VideShowCauseNoticenoEAD6/AK/VG/20431/2014/15datedJuly14,2014(hereinafter
referredtoas'SCN')issuedunderRule4oftheRules,theNoticeeswereadvisedtoshow
cause as to why an inquiry should not be held against them and penalty not be imposed
underSection15A(a)and/orSection15A(b)oftheSEBIAct,asapplicable,forthealleged
violationsspecifiedintheSCN.ItwasallegedintheSCNthattheNoticeesfailedtosubmit
the requisite information in spite of repeated summons. Further, Shri Arun Goyal was
allegedtohavefailedtofilenecessarydisclosuresunderRegulation13(4A)readwith13(5)
ofPITRegulationsontwooccasions.

6.

Shri Arun Goyal replied to the SCN vide letter dated August 05, 2014 stating that he had
alreadysubmittedhisreplyonFebruary25,2014totheInvestigationDepartmentofSEBI.
The reply further stated that if court gives direction, he will resubmit all the documents
beforetheAdjudicatingOfficer.ShriArunGoyalfurtherinteraliaalsosubmittedthattothe
bestofhisknowledge,hehadneverviolatedanyruleofSEBI/BSE.Thereafter,videhearing
noticedatedDecember11,2014,ShriArunGoyalwasgrantedanopportunityofpersonal
hearing on January 12, 2015 and the hearing notice was delivered to Shri Arun Goyal by
RegisteredPostAcknowledgmentDue (hereinafterreferredtoasRPAD).Withrespect to
Shri Vishal Kumar Shah, GFL and Shri Vimalkumar S Raval, no acknowledgment (AD card)
wasreceivedinrespectofthedeliveryofSCN.Further,withrespecttoShriNareshNShah,
the SCN was returned undelivered from both his last known addresses viz. IV18, The
Rajasthan Society and Haji Bapu Road, Malad (East), Mumbai 400 097 and 101, Manoj
Palace, Chakradhar Nagar, Nalasopara (West), Mumbai 401203. Hence, along with the
hearing notice dated December 11, 2014 granting an opportunity of personal hearing on
January12,2015,theSCNswereresenttotheaforenamedNoticees.TheSCNandhearing
noticeofShriVishalKumarShah,ShriNareshShahandGFLwereaffixedattheirlastknown
addressandtheSCNandHearingNoticeofShriVimalkumarSRavalwasdeliveredtohimby
hand. However, none of the Noticees appeared for the hearing on the scheduled date.
Thereafter, since SCN and hearing notices could be delivered at the addresses of Shri
Vimalkumar S. Raval and Shri Arun Goyal, another opportunity for personal hearing was
grantedtothemonMarch4,2015videhearingnoticedatedFebruary10,2015.Thehearing

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NoticesweredeliveredtobothShriVimalkumarSRavalandShriArunGoyalbyRPADaswell
asbySpeedPostAcknowledgmentDue(hereinafterreferredtoasSPAD).However,once
again neither of the two Noticees appeared for the hearing. In view of the same, I am
compelled to proceed in the matter against GFL and its directors viz. Shri Naresh N Shah,
ShriVishalKumarShahandShriVimalkumarSRavalexparte.

7.

Further,sincevideletterdatedAugust5,2014NoticeeShriArunGoyalhadstatedthathe
had submitted a reply dated February 25, 2014 to the Investigation department of SEBI,
letter dated March 13, 2015 was issued to him, advising him to send a copy of the above
statedreplydatedFebruary25,2015attheearliest.TheNoticeeShriArunGoyalwasalso
granted another opportunity for personal hearing on April 23, 2015 vide the said notice.
However,despitedeliveryofthenoticetoShriArunGoyalbyRPAD,heneitherappearedfor
thehearing,norsubmittedacopyofhispurportedreplydatedFebruary25,2014.

CONSIDERATIONOFISSUESANDFINDINGS

8.

I have carefully examined the SCN, the reply/ submissions of the Noticee Shri Arun Goyal
and the documents available on record. The issues that arise for consideration in the
presentcaseare:
a. Whether Shri Arun Goyal violated Regulation 13(4A) read with 13(5) of PIT
Regulationsontwooccasions?
b. WhetherShriArunGoyalfailedtosubmittherequisiteinformationassoughtfrom
himvidesummonsdatedFebruary07,2014andreminderdatedFebruary13,2014,
andthusviolatedSection11C(2)&(3)ofSEBIAct?
c. Whether GFL and its directors Shri Naresh N. Shah, Shri Vishal Kumar Shah, Shri
Vimalkumar S. Raval failed to submit requisite information sought vide summons
datedNovember20,2013andJanuary01,2014andthusviolatedsection11C(2)&
(3)ofSEBIAct?
d. Does the violation, if any, on the part of the Noticees attract monetary penalty
underSections15A(a)and/or15A(b)oftheSEBIAct,asapplicable?
e. If so, what would be the monetary penalty that can be imposed taking into
considerationthefactorsmentionedinSection15JofSEBIAct?

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9.

Beforemovingforward,itwillbeappropriatetorefertotherelevantSectionsoftheSEBI
Act,whichreadasunder:

SEBIAct,1992
Investigation.
11C. (2) Without prejudice to the provisions of sections 235 to 241 of the Companies
Act,1956(1of1956),itshallbethedutyofeverymanager,managingdirector,officer
andotheremployeeofthecompanyandeveryintermediaryreferredtoinsection12or
every person associated with the securities market to preserve and to produce to the
Investigating Authority or any person authorised by it in this behalf, all the books,
registers, other documents and record of, or relating to, the company or, as the case
maybe,oforrelatingto,theintermediaryorsuchperson,whichareintheircustodyor
power.
(3) The Investigating Authority may require any intermediary or any person
associated with securities market in any manner to furnish such information to, or
producesuchbooks,orregisters,orotherdocuments,orrecordbeforehimoranyperson
authorised by it in this behalf as it may consider necessary if the furnishing of such
informationortheproductionofsuchbooks,orregisters,orotherdocuments,orrecord
isrelevantornecessaryforthepurposesofitsinvestigation.

SEBI(ProhibitionofInsiderTrading)Regulations,1992

Disclosure of interest or holding in listed companies by certain persons Initial

Disclosure
13
(4A)Anypersonwhoisapromoterorpartofpromotergroupofalistedcompany,shall
disclosetothecompanyandthestockexchangewherethesecuritiesarelistedinForm
D,thetotalnumberofsharesorvotingrightsheldandchangeinshareholdingorvoting
rights,iftherehasbeenachangeinsuchholdingsofsuchpersonfromthelastdisclosure
madeunderListingAgreementorundersubregulation(2A)orunderthissubregulation,
andthechangeexceedsRs.5lakhinvalueor25,000sharesor1%oftotalshareholding
orvotingrights,whicheverislower.
(5)Thedisclosurementionedinsubregulations5(3),(4)and(4A)shallbemadewithin
twoworkingdaysof:
(a) thereceiptsofintimationofallotmentofshares,or

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(b)theacquisitionorsaleofsharesorvotingrights,asthecasemaybe.

10.

ThefirstissueforconsiderationiswhetherShriArunGoyalwasrequiredtomakedisclosure
underRegulation13(4A)readwith13(5)ofPITRegulationsandwhetherhefailedtomake
suchdisclosure.InotefromBSEwebsitethatasatquarterendedJune2011,ShriArunGoyal
was the promoter of GFL holding 1,25,800 shares (4.19%). It was observed that Shri Arun
Goyalsold/transferredsharesduringthequarterendedSeptember30,2011.Detailsofthe
sale/transfersareasfollows:

Date
31.08.11

Seller
Folio
000001

31.08.11

000001

Name
Arun
Goyal
Arun
Goyal

Buyer
Folio
S00018
000004

Name
Sandarsh
Goyal
Radha
Goyal

No.
of Type
Shares
5,000
OffMkt
Transfer
10,000
OffMkt
Transfer

11.

Thus, as observed from the table above, Shri Arun Goyal transferred in off market 5,000
sharesand10,000sharesonAugust31,2011toShriSandarshGoyalandMs.RadhaGoyal
respectively (nonpromoter entities). Based on closing price of Rs. 108/ of GFL on BSE on
August30,2011,itwasobservedthatthechangeinshareholdingofShriArunGoyalfrom
thelastdisclosurehadexceededRs.5lakhsinvalue.Regulation13(4A)ofPITRegulations
mandatesthatanypersonwhoisapromoterorpartofpromotergroupofalistedcompany,
mustdisclosetothecompanyandthestockexchangewherethesecuritiesofthecompany
arelisted,thechangeinshareholdingorvotingrightsheldbyhim,ifthechangeexceedsRs.
5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is
lower.Fromthetableabove,InotethatthetransfersmadebyNoticeeShriArunGoyalwere
ofvalueexceedingRs.5lakheach,hencehewasrequiredtomakethenecessarydisclosures
forboththetransactionstothecompanyandthestockexchangewherethesharesofthe
companywerelisted,withintwoworkingdaysunderRegulations13(4A)readwith13(5)of
thePITRegulations.However,nosuchdisclosuresweremadebyNoticeeShriArunGoyal.
ThesamewasalsoconfirmedbyBSEvidetheiremaildatedNovember20,2013.Thus,itis
establishedwithoutdoubtthatthepromoterShriArunGoyalhadviolatedtheprovisions
ofRegulations13(4A)readwith13(5)ofthePITRegulations.

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12.

ThenextissueforconsiderationistheallegednoncomplianceofsummonsbytheNoticees,
ShriArunGoyal,GFLanditsdirectorsviz.ShriNareshN.Shah,ShriVishalKumarShah&Shri
Vimalkumar S. Raval. I note from records that during investigation, the Investigating
Authority (hereinafter referred to as IA) had issued summons to the Noticee Shri Arun
GoyalandthecompanyGFLtoprovidecertaininformation.

13.

TheNoticeeShriArunGoyalvidesummonsdatedFebruary07,2014andFebruary13,2014
wasinteraliaadvisedto inform/produce copiesofdisclosures madeto the companyand
the stock Exchange under PIT Regulations/ SEBI (Substantial Acquisition of Shares and
Takeovers)Regulations,1997(hereinafterreferredtoasTakeoverRegulations,1997)due
toreductionofhisshareholding.

14.

ThecompanyGFLvidesummonsdatedNovember20,2013andJanuary01,2014wasalso
interaliaadvisedtoprovidecertaininformation/documents.

Vide summons dated November 20, 2013, the company was advised to provide the

a.

followingdetails:

i.

ShareholdingpatternforthequartersendingMarch2011,June2011andSeptember
2011 giving details of the shares held by the promoter and non promoter entities
holdingmorethan1%ofthesharecapital;

ii.

CopiesofauditedFinancialresultsforthefinancialyears200910,201011and2011
12;

iii.

CopiesofdisclosuremadetothecompanyaswellastotheStockExchangesduring
March01,2011toSeptember30,2011underSEBI(SubstantialAcquisitionofShares
andTakeovers)Regulations,2011(hereinafterreferredtoasTakeoverRegulations,
2011)orPITRegulations;

iv.

Transactions done by promoters, directors, persons acting in concert (PAC) and

relativesofpromoters,directors,PACduringMarch2011toSeptember2011.

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b.

Vide summons dated January 01, 2014, the company was advised to provide the
followingdetails:

i.

A copy of the Code of Conduct for Insider Trading in terms of the PIT Regulations
adoptedbythecompanyalongwiththedatewhensuchcodewasimplemented.A
copyoftheboardnotes/minutesofthemeetingwheretheinternalcodeforInsider
Tradingwasadopted;

ii.

DetailsofOfficers/directors/designatedemployees(includingtheirdependants)in
termsofthePITRegulationsduringtheperiodApril28,2011toAugust23,2011;

iii.

Detailsofpreclearance,ifany,soughtbydirectors/officers/designatedemployees
and permission granted for the same for the period April 28, 2011 to August 23,
2011.

15.

ThedeliverystatusandstatusofcompliancebytheNoticeeShriArunGoyalandcompany
GFLvisvisthesummonsissuedasaforesaidisasfollows:

Dateof
Summons

To

Modeof
Delivery

February
07,2014

Shri
Arun
Goyal

By Speed
Post AD
and
Courier

February
13,2014

Shri
Arun
Goyal

By Speed
Post AD
and
Courier

November GFL
20,2013

By Speed
PostAD

January
01,2014

By Speed
PostAD

GFL

Statusof
Datebywhich
Compliance
information
wastobe
submitted
"Item Delivered" February 11, Failedtosubmit
the
as per SPAD 2014
information/
tracking.Received
detailssought
and
acknowledged by
theNoticee
"Item Delivered" February 19, Failedtosubmit
the
as per SPAD 2014
information/
tracking.Received
detailssought
and
acknowledged by
theNoticee
Received
and November 25, Failedtosubmit
the
acknowledged by 2013
information/
theNoticee
detailssought
Received
and January
07, Failedtosubmit
acknowledged by 2014
the
theNoticee.
information/
detailssought
Proofofdelivery

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16.

I note that Shri Arun Goyal and GFL had each duly acknowledged the receipt of both the
summonsrespectivelyissuedtoeachoneofthemasperdetailsstatedabove.Ifindfurther
that Shri Arun Goyal and GFL were also informed of consequential proceedings of
Adjudication/ Prosecution under the SEBI Act which may follow as a result of non
complianceofthesaidsummons.Thus,ShriArunGoyalandGFLwereunderanobligationto
providetheinformationassoughtbyIA.

17.

InotethatduringinvestigationletterdatedMarch4,2014wasreceivedfromGFL.Thesaid
letter referred to a separate summons issued by the IA to the director Shri Naresh Shah
requiringthesaiddirectortosubmitcertaindetailsinrespectofpromoterShriArunGoyal.
However, I find that GFLs letter dated March 04, 2014 was silent with respect to details
soughtbyIAontwooccasionsfromGFLitself,despitethefactthatGFLhadreceivedboth
thesummonsdatedNovember20,2013andJanuary01,2014issuedtoit.Furthervidethe
said letter dated March 04, 2014, GFL provided the shareholding of Shri Arun Goyal as of
quarter ended December 2010 and March 2011 and disclosure made by Shri Arun Goyal
underPITregulationsforasubsequentanddifferenttransactiondatedNovember30,2011.

18.

I note here that summons dated November 20, 2013 required that a particular set of
informationbesubmittedbyNovember25,2013asbroughtoutaboveandsummonsdated
January01,2014requiredanothersetofinformationtobesubmittedbyJanuary7,2014as
listed above. I find here that firstly GFLs response had been received nearly two months
afterthedateforsubmissionassetoutbyIAinthesecondsummonsandmorethanthree
monthsafterthedateforsubmissionassetoutbyIAinthefirstsummons.Secondly,Ifind
that the response neither provided the details/ information specifically sought vide two
separatesummons,nor,thespecificdocumentssought,apartfromtotalpromoterholding
andNoticeeShriArunGoyalsholdingasatquarterendedMarch2011asperBSEwebsite,
whichwasalreadyavailableinpublicdomain.This, Ifind,isasgoodasnonsubmissionof
information resulting in violation of section 15A(a) of the SEBI Act for which monetary
penaltycanbeimposed.

19.

IfindherethatHon'bleSecuritiesAppellateTribunal(SAT)invariouscases,includingthat
ofKemefsSpecialitiesPvt.Ltd.v.SEBI(AppealNo.54/2011)hasheldthatiftheinformation

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furnished is incorrect or misleading, the aforesaid provisions would come into play and it
could be said that the delinquent had failed to furnish the required information. In the
extantcase,IfindthatGFLprovideddocumentswhichwerenotsoughtfromitandfailedto
providethespecificdetails/documentssoughtfromit,eventwoandthreemonthslater.At
theadjudicationstagetoo,IfindthatthoughtheSCNandthehearingnoticewereaffixedat
thelastknownaddressofGFL,noreplyhasbeenreceived.

20.

Further,InotethatShriArunGoyalvideletterdatedAugust05,2014hasstatedthathehad
submitted a reply dated February 25, 2014 to the Investigation Department of SEBI. Shri
ArunGoyalalsoenclosedwiththeletteracopyofthefacetsofwhatappearstobeapost
card, showing the name of the sender i.e. Shri Arun Goyal and also of the recipient, i.e.
General Manager, Investigations Department, SEBI. The copy also bears a purported SEBI
stampdatedFebruary25,2014.Howeverthecopyoftheothersidei.e.thecontentsideof
thepostcardwasnotforwarded.Thus,thesaidcopyenclosedwiththeletterdatedAugust
05,2015doesnotthrowanylightonthecontentsoftheletter.Inviewofthesame,apart
fromgrantingseveralopportunitiesforpersonalhearing,videnoticedatedMarch13,2015
theNoticeeShriArunGoyalwasalsospecificallyadvisedtosubmitacopyoftheletterdated
February25, 2014,asclaimed tohavebeensenttotheInvestigationDepartmentof SEBI.
However despite delivery and due acknowledgment of receipt of the hearing notices,
includingthenoticedatedMarch13,2015referredtoabove,theNoticeeShriArunGoyal
neither appeared for the hearing, nor, submitted a copy of the reply dated February 25,
2015.

21.

Since no response could be elicited from Shri Arun Goyal, a reference was made to SEBI,
requesting the concerned department to provide a copy of the letter dated February 25,
2015whichShriArunGoyalclaimedtohavesent.Howeveruponexaminationandperusal
ofmaterial,itwasconfirmedbySEBIthatnoresponsewasreceivedfromShriArunGoyalin
responsetothesummonsissuedbytheIA.Accordingly,itwasdeemednecessarytoinquire
withthedepartmentofSEBIthatreceivesandcoordinatesinwardmail,regardingthesaid
letter dated February 25, 2014. The concerned department was requested to clarify
whetheranysuchcommunicationwasreceivedfromShriArunGoyal.Acopyoftheletteras
providedbyShriArunGoyalwasalsoforwardedtothesaiddepartment.Onsearchingofthe

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database,nosuchcorrespondencefromShriArunGoyalcouldbetraced.Thefactthatthe
replydatedFebruary25,2014purportedtohavebeensentbytheNoticeeShriArunGoyal
couldnotbetracedbySEBI,raisesaseriousdoubtontheauthenticityofthephotocopyof
thefacetsofwhatappearstobeapostcardsubmittedbyShriArunGoyal.Furthermore,his
conduct of not appearing for the personal hearings, failure to furnish a complete copy or
atleast the content part of his purported reply dated February 25, 2014 despite receiving
lettersspecificallyadvisinghimtosubmitthesame,aswellashisstoicsilencesubsequentto
sending reply dated August 05, 2014, diminishes his credence. Though in his reply dated
August5,2014pursuanttotheissuanceoftheSCNShriArunGoyalspecificallyundertookto
submitallthedocumentsagainifdirectedtodoso,hehasnotfurnishedevenasinglecopy,
nor appeared for hearing despite repeated opportunities having been granted to him. In
suchascenario,basedonrecordsbeforeme,therecanonlybeonefinding,i.e.NoticeeShri
ArunGoyalhadfailedtocomplywiththesummonsissuedtohim.
22.

I note that though the respective summons had been duly served on both GFL and the
promoterNoticeeShriArunGoyal,theyfailedtorespondtothesame.Ifindthatthereply
given by the company was not only several months late, it did not provide the specific
details/information/documentssought.Informationregardingshareholdingpatternforthe
quarters ending March 2011, June 2011 and September 2011 giving details of the shares
held by the promoters and entities holding more than 1% of the share capital was not
provided/notsubmittedintherequiredformat.Copiesofauditedfinancialresultsforthe
years200910,201011and201112werenotprovided.Copiesofdisclosuremadetothe
company as well as to the Stock Exchanges during March to September 2011 under
TakeoverRegulations,2011orPITRegulationswerealsonotsubmitted,norwerethedetails
in respect of transactions done by promoters, directors, PAC and relatives of promoters,
directors, PAC during March to September 2011 provided. The company also failed to
provideacopyofthecodeofconductadoptedbythecompanyforInsiderTradinginterms
ofthePITRegulations,alongwiththedatewhensuchcodewasimplemented,copyofthe
board notes/ minutes of the meeting where the internal code for insider trading was
adopted, details of Officers/ directors/ designated employees (including their dependants)
intermsofthePITRegulationsfortheperiodApril28,2011August23,2011aswellasthe
details of pre clearance, if any, sought by directors/ officers/ designated employees and

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permissiongrantedforthesamefortheperiodApril28,2011toAugust23,2011.HenceI
amoftheconsideredviewthatthereplydatedMarch4,2011givenbyGFLcannotbeseen
ascomplianceofthesummonsissuedtoit.Furthermore,thereplyitselfdoesnotreferto
the summons issued to company, but rather summons issued to its director Shri Naresh
Shah.ItappearsfromthesamethatthecompanyGFLavoidedreplyingtothesummonses
issued to it by conveniently referring to summons issued to one of its directors. Hence, I
conclude that the summonses issued to GFL were not replied to by the company. Besides
based on available records, I conclude that Shri Arun Goyal too failed to reply to the
summonsissuedtoit.

23.

Information sought during investigation is significant and relevant as it enables the IA to

drawpreciseconclusionsinamatter.Thefailuretoprovidedetails/information/documents
soughtthroughissueofsummonscanindeedhampertheinvestigation.IfindthatShriArun
GoyalandGFLdidnotcooperatewiththeinvestigationbyfailingtoprovidetheinformation
sought through issue of summons. I am of the view that it is the duty, responsibility and
obligationofeverypersonfromwhominformationissoughttofullycooperatewiththeIA
and promptly produce all documents, records, information, etc. to the IA. If persons/
entitiesdisregardthesummonsissuedtothemduringthecourseoftheinvestigation,asin
theextantcase,SEBIwillnotbeabletodischargeitsstatutoryobligationsinprotectingthe
interests of the investors and safeguarding the integrity of the securities market. Thus, as
the Noticee Shri Arun Goyal and Noticee GFL did not provide the information, the same
affectedtheattemptsofSEBItoeffectivelygathervitalevidenceforthetimelyconclusionof
theinvestigationproceedings.

24.

In the matter, I would like to refer to the Order of Honble Securities Appellate Tribunal
(hereinafter referred to as SAT) in case of Asian Films Production and Distribution Ltd.
(AppealNo.203of2010decidedon19thJanuary,2011),whereinSAThasheldthat:
Noncompliance with summons is, indeed, a serious matter and cannot be viewed lightly.
TherespondentBoardisthemarketregulatorandhastoregulatethesecuritiesmarketand
the law provides that every person associated with the market in any manner should
cooperateinthematterofcarryingoutinvestigations.Intheyear2002,theprovisionsofthe
Act were amended and penalty for noncompliance with summons was enhanced

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considerably to make it more deterrent. Market players who do not cooperate with the
regulator in the matter of investigations commit a serious wrong which can have serious
repercussionsinthemarket.

25.

Also in the matter of Gennex Laboratories Ltd. Vs. SEBI (Appeal no 172/ 2011), the
HonorableSAThasnotedthat"noncompliancetosummonsandconsequentnonfurnishing
of information hampers investigation by statutory authorities and it acts as a severe
handicapinarrivingatjustandreasonableconclusionbythestatutoryauthoritieswithina
reasonable period of time. In the present case also the factum of non compliance to
summonsremainsundisputed."

26.

Inviewofabove,IamoftheviewthattheNoticeeShriArunGoyalandNoticeeGFLhas
not complied with the summonses issued to them and thus failed to comply with
provisionsofSection11C(2)and(3)oftheSEBIAct.

27.

I further note that the directors of the company who are incharge of the affairs of the
company are also responsible for the acts and omissions thereof. I find that in the extant
caseapartfromthecompanyGFL,itsdirectorsviz.ShriNareshN.Shah,ShriVishalKumar
ShahandShriVimalkumarS.Ravalhavealsobeenallegedtohaveviolatedsection11C(2)&
(3)ofSEBIActforfailureofGFLtosubmitrequisiteinformationsoughtvidesummonsdated
November20,2013andJanuary01,2014.Inthematter,InotefromMCAwebsitethatShri
VishalKumarShahandShriVimalkumarS.RavalceasedtobedirectorofGFLw.e.f.February
01,2014andthesummonstoGFLwereissueddatedFebruary07,2014andFebruary13,
2014.Thus,InotethatShriVishalKumarShahandShriVimalkumarS.Ravalwerenotthe
directors of GFL at the relevant point of time when the summons seeking certain
information from GFL were issued to the company. Hence, proceedings in respect of Shri
VishalKumarShahandShriVimalkumarS.Ravalstandabated.

28.

Further, from the annual report of GFL for the financial year (FY) 201314, I find that Shri
Naresh N. Shah was the Independent Director of GFL. Independent Directors are not
engagedinandnotexpectedtobeengagedinthedaytodaymanagementofthecompany.

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29.

In the matter, I note that the Hon'ble Supreme Court of India in the case of Everest
Advertising Pvt. Ltd. Vs State of Delhi 2007 Indlaw SC 334 has emphasized that merely
beingadirectorofaCompanyisnotsufficienttomakethepersonliable,becauseadirector
inaCompanycannotbedeemedtobeinchargeofandresponsibletotheCompanyforthe
conductofitsbusiness.Therequirementisthatthepersonsoughttobemadeliable,should
beinchargeandresponsibletotheCompanyfortheconductofitsbusinessattherelevant
timeandthereisnodeemedliabilityofadirector.

30.

Further, In case of Katta Sujatha (Smt) V Fertilizers and Chemicals Travancore Ltd, 2002
IndlawSC1772,theHonbleSupremeCourtofIndiafollowedbyitsowndecisioninStateof
KarnatakaVPratapChand,1981IndlawSC279andheld:

wherein the question as who is a "person in charge" of business of firm in the context
ofSection 18A, Drugs andCosmetics Act, 1940 was considered by this Court. This Court
explained the meaning by observing that the term "person in charge" must mean that the
personshouldbeinoverallcontrolofthedaytodaybusinessofthecompanyorfirm.
Thepersonshouldbeapartytothepolicybeingfollowedbyacompanyandyetnotbein
chargeofthebusinessofthecompanyormaybeinchargeofbutnotinoverallchargeor
maybeinchargeofonlysomepartofbusiness.

Inviewoftheabove,IfindthatDirectorShriNareshN.Shahtoocannotbemadeliablefor
the failure of the company GFL to reply to the summonses issued to it and the matter
againstDirectorShriNareshN.Shahisalsodisposedofaccordingly.

31.

Inthelightofalloftheabove,theallegationofviolationoftheprovisionsofSections11C(2)
and11C(3)ofSEBIActbythepromoterNoticeeShriArunGoyalandtheNoticeecompany
GFL stands established. Further, I note that Hon'ble SAT in Appeal No.95/04 in Mayfair
Paper & Board Pvt. Ltd. Vs. SEBI has held that failure to furnish information to the
InvestigatingAuthorityofSEBIshallattractthepenaltyprescribedundersection15Aofthe
SEBIAct.

32.

Thus, the aforesaid non compliance of summons by the Noticees viz. Shri Arun Goyal and
GFLmakethemliableforpenaltyunderSection15A(a)ofSEBIActwhichreadasfollows:

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Penaltyforfailuretofurnishinformation,return,etc.
15A. If any person, who is required under this Act or any rules or regulations made
thereunder,
(a) tofurnishanydocument,returnorreporttotheBoard,failstofurnishthesame,he
shallbeliabletoapenaltyofonelakhrupeesforeachdayduringwhichsuchfailure
continuesoronecrorerupees,whicheverisless;

33.

ThenextissueforconsiderationastowhetherthefailureonthepartofShriArunGoyalto
comply with the provisions of Regulation 13(4A) read with 13(5) of the PIT Regulations,
attractsmonetarypenaltyundersection15A(b)ofSEBIAct,and,ifso,whatwouldbethe
monetarypenaltythatcanbeimposedonthesaidNoticee.TheHonbleSupremeCourtof
IndiainthematterofSEBIVs.ShriRamMutualFund[2006]68SCL216(SC)hasheldthat:
Inourconsideredopinion,penaltyisattractedassoonasthecontraventionofthestatutory
obligation as contemplated by the Act and the Regulations is established and hence the
intentionofthepartiescommittingsuchviolationbecomeswhollyirrelevant.

34.

Inviewoftheforegoing,Iamconvincedthatitisafitcasetoimposemonetarypenaltyon
ShriArunGoyalalsoundersection15A(b)oftheSEBIAct,whichreadsasunder:
15A(b).Penaltyforfailuretofurnishinformation,return,etc.
To file any return or furnish any information, books or other documents within the time
specifiedthereforintheregulations,failstofilereturnorfurnishthesamewithinthetime
specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for
eachdayduringwhichsuchfailurecontinuesoronecrorerupees,whicheverisless.

35.

WhiledeterminingthequantumofpenaltyunderSection15A(a)and/or15A(b)ofSEBIAct,
as applicable, it is important to consider the factors stipulated in Section 15J of SEBI Act,
whichreadsasunder:
15JFactorstobetakenintoaccountbytheadjudicatingofficer
Whileadjudgingquantumofpenaltyundersection 15I,theadjudicatingofficershallhave
dueregardtothefollowingfactors,namely:

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(a)the amount of disproportionate gain or unfair advantage, wherever quantifiable,

madeasaresultofthedefault;
(b)the amount of loss caused to an investor or group of investors as a result of the
default;
(c)therepetitivenatureofthedefault.
36.

The disclosures under Regulation 13 of the PIT Regulations aims to make insider trading
transparentbyfacilitatingexposureofanyillegaltrade,and,thereby,servingasadeterrent.
The disclosures also keep the general public/ investors informed about the significant
trading change in shareholding of promoters/ directors/ large shareholders etc. The
Regulationseekstoachievefairtreatmentbyinteraliamandatingdisclosureoftimelyand
adequate information to enable shareholders to make an informed decision and ensuring
thatthereisafairandinformedmarketinthesharesofcompaniesaffectedbysuchchange
in the promoter shareholding. Correct and timely disclosures are also an essential part of
the proper functioning of the securities market and failure to do so results in preventing
investorsfromtakingwellinformeddecision.Thus,thecornerstoneofthePITRegulationsis
investor protection. it is noted that no quantifiable figures are available to assess the
disproportionategainorunfairadvantagemadeasaresultofthedefault.Thereforeitisnot
possibletoquantifytheexactgainsmadebythepromoterNoticeeShriArunGoyalorthe
losscausedtotheinvestorsasaresultofthefailureonhisparttomakedisclosureunder
Regulation13(4A)readwith13(5)ofPITRegulations.

37.

Inaddition totheaforesaid,Iamalsoinclined toconsiderthefollowingmitigatingfactors

whileadjudgingthequantumofpenaltywithrespecttofailureonthepartofthepromoter
NoticeeShriArunGoyaltomakedisclosureunderRegulation13(4A)readwith13(5)ofPIT
Regulations: a) the paidup capital/ market capitalization of the Company at the relevant
pointoftime;b)thetradingvolumesoftheCompanyssharesontheexchangewherethe
shares were listed during the relevant period; and c) the number of transactions in the
instantproceedingthattheNoticeehasviolatedtherelevantprovisionsofPITRegulations.

38.

The paid up capital of the Company was 30,00,000 equity shares of Rs. 10/ each
aggregating Rs. 3,00,00,000/. As per the BSE website at the end of quarter ended June
2011, Shri Arun Goyal held 1,25,800 shares (4.19%) and at the end of quarter ended

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September 2011 quarter, his holding had reduced to 1,10,800 shares (3.69%). The market
capitalization of the company during August 2011 was around Rs. 30 crore. The average
dailyvolumeoftheCompanyssharesonBSEduringtherelevantperiodwasapprox.50,000
shares.ItisfurthernotedthattheNoticeeShriArunGoyalfailedtomakedisclosuresunder
Regulation 13(4A) read with 13(5) of PIT Regulations for 2 transactions, though they both
occurredonthesameday.
39.

It is further noted that no quantifiable figures are also available to assess the
disproportionate gain or unfair advantage made as a result of noncompliance of
summonses by the Noticees viz. Shri Arun Goyal and GFL. Therefore it is not possible to
quantify the exact gains made by the Noticees viz. Shri Arun Goyal and GFL or the loss
causedtotheinvestorsasaresultofthefailureontheirparttocomplywiththesummonses
aswell.

40.

In the matter, I note that the Honble SAT had the occasion to consider a similar factual
situationinAppealNo:114of2005NokiaFinanceInternationalPvt.Ltd.VsSEBI.Inthesaid
appeal, the Honorable SAT examined the failure on the part of the appellant to provide
necessary information to the IA of SEBI. In the said matter, while upholding the penalty
imposedbytheAdjudicatingOfficer,theSATobservedthattheappellantcouldhaveavailed
the opportunity to submit the required information, however, he failed to do so and the
penaltyhasbeenimposedintermsoftheprovisionsoflaw.

41.

Further,InotethatHonbleSATinasimilarmatterofM/s.KajolImpexVs.SEBI(AppealNo.
167of2009)wheretheadjudicatingofficerhadimposedamonetarypenaltyofRs.25lakhs
ontheappellantintermsofprovisionsofsection15A(a)ofSEBIActforitsfailuretorespond
tothesummonsissuedtoitduringthecourseofinvestigationhasobservedasfollows:

The market regulator under the provisions of the Act will not be able to perform its
statutoryfunctionsanddutiesifpersonsconnectedwiththesecuritiesmarketthrottlethe
investigationsbynotrespondingtothesummonsissuedtothem.Inthepresentcase,the
appellantdidnotevenrespondtotheshowcausenoticeissuedbytheadjudicatingofficer
andatnostageoftheproceedingsdiditcooperatewiththeauthoritiesnordiditavailof

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the opportunity of appearing in person before the adjudicating officer. In these

circumstances,wefindthemonetarypenaltyimposedontheappellantsisreasonableand
callsfornointerferencebyusinappeal.

42.

TheaforesaidOrderspassedbytheHonbleSATarerelieduponinthiscaseforguidance.In
theextantcasetoo,IfindthatNoticeeGFLneitherrespondedtotheSCNissuedtoit,nor
availed the opportunity of hearing despite receiving the SCN and hearing notices issued.
Besides,thoughtheNoticeeShriArunGoyalinitiallyrespondedtotheSCNissuedtoitand
specificallyundertookto submitallthedocumentssubmittedtoInvestigationDepartment
of SEBI again if directed to do so, he failed to furnish the same despite specifically being
advisedtodoso.Healsodidnotappearforhearing,despiterepeatedopportunitieshaving
beengrantedtohim.Thus,consideringtheaforesaidobservationsoftheHonbleSAT,the
failure on the part of the Noticees viz. GFL and Shri Arun Goyal to comply with the
respective summonses issued to them, has to be viewed seriously. With regard to the
repetitive nature of the default, I find that the IA had issued two summonses each to the
Noticeesviz. GFLand Shri Arun Goyal,bothofwhichwerereceivedandacknowledgedby
them,but,eachoftheNoticeeviz.GFLandShriArunGoyalfailedtocomplywiththesame.
ThisrepeatedfailuretocomplyindicatesthatthedefaultbytheNoticeesviz.GFLandShri
ArunGoyalwithrespecttononcompliancewiththesummonsisrepetitiveinnature.

43.

Aspromoterofalistedcompany,theNoticeepromoterviz.ShriArunGoyalfurtherhada
responsibility to comply with the disclosure requirements under the PIT Regulations in
accordance with their spirit, intention and purpose so that the investors could take a
decision whether to buy, sell, or hold the company's securities. Noncompliance with
disclosure requirements by thee promoter of a listed company undermines the regulatory
objectivesandjeopardizestheachievementoftheunderlyingpolicygoals.

ORDER

44.

After taking into consideration all the facts and circumstances of the case, I impose the
following penalties which will be commensurate with the violation/s committed by the
Noticees,asapplicable:

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NameoftheNoticee

Violation

Penaltyu/s.

Amount(Rs.)

ofSEBIAct
ShriArunGoyal

Regulation

13(4A)

15A(b)

readwith13(5)ofPIT

Rs.3,00,000/
(RupeesThreeLakhonly)

Regulations
Section 11C(2) and

15A(a)

(3)oftheSEBIAct

Rs.25,00,000/
(Rupees Twenty Five Lakh
only)

Total

Rs.28,00,000/
(Rupees Twenty Eight Lakh
only)

M/s. GFL Financials Section 11C(2) and

IndiaLtd.

(3)oftheSEBIAct

15A(a)

Rs.25,00,000/
(Rupees Twenty Five Lakh
only)

45.

ShriArunGoyalandM/s.GFLFinancialsLtd.shallpaythesaidamountofpenaltybywayof
demanddraftinfavourofSEBIPenaltiesRemittabletoGovernmentofIndia,payableat
Mumbai,within45daysofreceiptofthisorder.Thesaiddemanddraftshouldbeforwarded
toShriG.Vijayakrishnan,DeputyGeneralManager,EnforcementDepartment,SEBIBhavan,
PlotNo.C4A,GBlock,BandraKurlaComplex,Bandra(E),Mumbai400051.

46.

Further,withrespecttoShriVishalKumarShah,ShriVimalkumarSureshchandraRavaland
ShriNareshN.Shah,thechargeofviolationoftheprovisionsofSection11C(2)and(3)ofthe
SEBI Act do not stand established. I, therefore, absolve Shri Vishal Kumar Shah, Shri
VimalkumarSureshchandraRavalandShriNareshN.Shahofthechargesasallegedabove.

47.

IntermsofRule6oftheRules,copiesofthisorderaresenttotheNoticeeandalsotoSEBI.

Date:September24,2015
Place:Mumbai

AnitaKenkare
AdjudicatingOfficer

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