A special court in Mumbai on Thursday convicted six companies and their two directors for failing to comply with multiple summons issued by the Securities and Exchange Board of India (Sebi) in connection with a probe into stock price manipulation involving the late stock broker Harshad Mehta. The court observed that the prosecution of the accused is proper irrespective of the fact that Mehta was the key person behind the manipulation.
Conviction and Fine
Special Judge RM Jadhav ordered Dinesh Doshi and Anil Doshi to pay a fine of Rs 1.80 crore. The convicted companies include Starshare Investments & Finanz, Ikshu Finvest, KRN Finvest & Leasing, Esquire International, Money Television and Industries Ltd, and CDP Fincap & Leasing.
In six separate judgments, the judge noted that the accused directors failed to prove that the offence of non-compliance was committed without their knowledge or that they had exercised due diligence to prevent the commission of the offence. The court also highlighted Sebi's submissions that prosecution was proposed against Harshad Mehta, but his demise does not exonerate the accused from criminal liability for non-compliance of summons.
Background of the Case
In 1998, Sebi initiated a probe into significant price manipulation of shares of BPL, Videocon International, and Sterlite Industries. This led to a writ petition in the Bombay High Court seeking a formal inquiry. During the investigation, Sebi identified brokers dealing in these shares on behalf of a group of clients, including the accused companies, which allegedly formed Mehta's Damayanti Group.
Sebi issued summons requiring the accused to produce documents and financial records. While some directors eventually appeared before investigating officers, their cooperation was alleged to be superficial, and they consistently failed to deliver necessary documentation. Sebi issued a show-cause notice in August 1998, threatening prosecution under Section 24 of the Sebi Act for non-compliance. The accused responded by claiming their books of account were still under preparation, an explanation seen as a stalling tactic.
Despite repeated summons through late 1998 and early 1999, the parties allegedly remained uncooperative. Sebi eventually filed a criminal complaint against them for hindering the probe. The matters were presented before the special court in 2014.
Defence Arguments Rejected
During the trial, the defence argued that the directors were not responsible and suggested that Harshad Mehta was the actual figure running the Damayanti Group. They also submitted that the prosecution was barred by the principle of double jeopardy, as the directors had already been convicted in similar cases involving other entities.
The judge noted that while Mehta may have been the key person in the Damayanti Group involved in share market manipulation, the present prosecution is limited to the failure of the accused to furnish information and necessary documents as sought under summons.
Sentencing
Each director was sentenced to pay a total fine of Rs 60 lakh, with the court warning of simple imprisonment for one month in default of payment. The duo were also ordered to collectively pay an additional fine of Rs 60 lakh on behalf of all six companies. Proceedings against two other accused directors, Vinod Shah and Dilip Shah, were abated due to their death during the trial.
