After 24 years, two directors face SEBI case conviction over failure to furnish information

The case is related to summons issued by SEBI on July 23, 2002, during its investigation into alleged violations in the stock manipulation of shares of Roofit Industries. The regulator had sought documents and information as part of the investigation from a company called Vynex Chemical Engineering and its three directors and Gurbux G Motwani, Vinod G Motwani and Kishore G Motwani. According to the SEBI, the company sought extensions of time through letters issued in July, August and September 2002, but failed to provide all the information required despite repeated opportunities.

SEBI also issued a reminder during the period. The regulator alleged that the company and its directors failed to appear before the investigating authority and furnish the complete information sought. During the trial, the accused side argued that the prosecution had failed to establish the directors’ responsibility for the alleged violation. The defence side argued that there is no evidence to establish and prove that the accused are the persons in-charge of and responsible to the affairs of the accused company.

It also maintained that 7 out of the 10 compliance requirements had been fulfilled before the complaint was filed, while the remaining requirements were completed subsequently. It was also argued by the accused persons that the complaint filed by the SEBI officer was without authority. One director Kishore Motwani further argued that he had moved to the UAE in 2001 and was not managing the company’s affairs during the relevant period.

The court rejected the defence, holding that the evidence established the directors’ responsibility for the company’s affairs and that the summons had not been fully complied with. It also noted that the defence had acknowledged partial compliance and that the directors had not appeared before SEBI despite the summons. Court also noted that authorisation was there to file the case. SEBI Special court judge, Ravi M Jadhav wrote in his order, “ The ingredients of the offence are satisfied to sustain the guilt of the accused.

Hence, I hold the tried accused guilty for the above said charge”. While convicting the accused, the court considered the age of the directors, the time elapsed since the alleged offence and the partial compliance. It concluded that imprisonment in custody would not be an appropriate punishment. Court said, “considering the nature and gravity of the offence, age of the accused and the time when the alleged offence was committed, and the partial compliance made by the accused No.1 company, I hold that the custodial incarceration would not be the proper punishment to be imposed upon the accused directors”.

The court sentenced the two directors to imprisonment till the rising of the court and imposed a fine of Rs 10 lakh on each. Company Vynex Industries  Industries was also imposed a fine of Rs 10 lakh. Order said, in default of payment of the fine, each director will have to undergo simple imprisonment for one month. However, at the request of the accused court suspended the sentences , who were convicted under the SEBI Act, allowing them to remain on bail during the appeal period.

The court had sentenced them to imprisonment till the rising of the court and imposed a fine of Rs 10 lakh each. However, advocate for accused submitted that they intend to prefer appeal against the conviction order and requested  that during appeal period the substantive sentence may be suspended and accused be released on bail. Court accepted the request and allowed relase on bail. The proceedings against Gurbux G Motwani, another accused director who died, were dropped.