ORDER

UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH REGULATIONS 3(4) & 3(5) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS, 1997 AND SECTION 15A OF THE SEBI ACT, 1992.

AGAINST

MS. VRINDA JATIA AND MS. VASUDHA JATIA

IN THE MATTER OF M/S. THACKKER & COMPANY LTD

BACKGROUND:

1. I was appointed as the Adjudicating Officer by the Chairman, SEBI, vide order dated September 30, 2004 to enquire into and adjudge the alleged contravention of sub-Regulations (4) & (5) of Regulation 3 of the SEBI (Substantial Acquisition Of Shares & Takeovers) Regulations, 1997 (for brevity’s sake referred to as the Takeover Regulations) read with sub-section (b) of Section 15A, of the SEBI Act, 1992 (hereinafter referred to as the Act) by Ms. Vrinda Jatia and Ms. Vasudha Jatia (both minors) (collectively referred to as the “acquirers”) in the matter of their non disclosing the acquisition of the shares of M/s. Thackker & Company Ltd, (hereinafter referred to as TCL) a company whose shares are listed on the Mumbai stock exchange.

2. The brief facts leading to the present proceedings are as follows:

The Securities and Exchange Board of India (hereinafter referred to as the SEBI) received a report dated March 10, 2004 alongwith a demand draft for Rs.10,000/-from Shri Shyam M Jatia stated to have been filed in terms of Regulations 3(4) & 3(5) of the Takeover Regulations in the matter of the acquirers acquiring 400 shares constituting 0.5% of the subscribed and paid-up share capital of TCL by way of inter se transfer of shares amongst relatives on January 3, 2003.

3. In terms of Regulations 3(4) & 3(5) of the Takeover Regulations, the acquirers are required to file a report alongwith supporting documents and the filing fee of Rs.10000/- with SEBI, within 21 days of the date of acquisition. As the requirement therein was not fulfilled within the stipulated period, but after a delay of 414 days, the acquirers were found to have contravened the provisions of the said Regulations.

SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:

4. In view of the above, adjudicating proceedings were initiated in the first instance by issuing a show cause notice dated July 14, 2004 to the acquirers in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 where under they were asked to show cause as to why enquiry proceedings should not be held against them for the alleged violation of the provisions of sub regulations (4) and (5) of Regulation 3 of the of the Takeover Regulations. Further, the acquirers were advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice, and also indicate whether they were desirous of a personal hearing.

5. In reply to the same, Shri Shyam M Jatia, vide his letter dated July 27, 2004, inter alia made the following submissions on behalf of the acquirers:

a. The acquisition of shares are only by way of an inter se transfer of 400 shares constituting 0.5% of the total paid-up share capital of TCL and no new shares had been allotted.

b. The report was filed as per the advise of SEBI issued vide letter dated February 27,2004 and within time stipulated in the said letter.

c. There was no breach of Regulation 15A(b) since the provisions contained therein referred only to the return to be furnished which was not applicable to their case.

d. Regulation 11(2) would not be applicable to their case since no additional shares were acquired.

e. Regulation 15A(a) should not be invoked since they had complied with the advise of SEBI and the necessary reports were filed within the stipulated time.

On the basis of the above submissions, it was requested that the proceedings be dropped and a personal hearing be granted to them.

6. Thereafter, I issued a notice of hearing dated November 9, 2004 under Rule 5(1) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 to the acquirers advising them to be present at the personal hearing to be held on November 16, 2004.

7. Shri Shyam M Jatia, acting on behalf of the acquirers, , requested for an alternate date of hearing vide his letter dated November 18, 2004, on the ground that the notice of hearing was not received by them on time.

8. Subsequently, on the request of the acquirers, the adjudication proceedings originally scheduled for November 16, 2004 were scheduled for hearing on December 7, 2004. On the said date, Shri P N Parikh and Shri Ajay Kumar, M/s. Parikh & Associates, Practicing Company Secretaries, appeared before me on behalf of the acquirers and made their submissions. They also presented written arguments which are as follows:

The said acquisition was by way of inter se transfer amongst relatives’ i.e, from the grandfather to his minor grand daughters and constituted only 0.5% of the total paid-up share capital of TCL.

The acquisition was not a purchase of additional shares as contemplated by Regulation 11(2) of the Takeover Regulations because the aggregate holding of the promoters remained unchanged even after the acquisition.

Since the said acquisition did not result in the violation of Regulations 10,11 and 12 of the Takeover Regulations, the exemption as provided by Regulation 3 was not relevant and therefore the question of not filing the report under Regulation 3(4) did not arise. Even if these shares constituted an interse transfer, the requirement of Regulations 3(3) & 3(4) would not be applicable in as much as the acquisition was only 0.5% as against the minimum 5% as required for compliance and the threshold of 15% was already crossed much before the acquisition.

Since no new additional shares were acquired, Regulation 15A (b) was not applicable while Regulation 15A (a) should not be invoked since the report was filed as per the advise of SEBI.

In terms of Section 15J, there had been no amount of disproportionate gain or unfair advantage made as a result of the inter se transfers either by the transferee or transferors.

There was no malafide intention on the part of the acquirers in not filing the report and the alleged breach was an administrative lapse and of a technical nature and not in deliberate defiance of law.

The orders pronounced in the cases of Cabot International Capital Corp. Vs. Adjudicating Officer, SEBI and Godrej & Boyce Mfg. Co. Ltd vs. S V Krishnamohan, Adjudicating & Enquiry Officer, be taken into account before passing of any order.

CONSIDERATION OF ISSUES:

9. I have taken into consideration the facts and circumstances of the case, the submissions made on behalf of the acquirers, the material available on record as well as the case laws cited in support of their contentions.

10. In the present case, there is no dispute as regarding the fact that a report in terms of Regulation 3(4) and the filing fee in terms of Regulation 3(5) of the Takeover Regulations was required to be filed with SEBI within a period of 21 days from the date of acquisition but that the same was instead filed with a delay of 414 days with SEBI.

11. The acquirers have contended that the applicability of Regulation 3(4) of the Takeover Regulations does not arise since the promoters had already crossed the threshold limit of 15% of shares of the target company prior to the acquisition. However this argument is devoid of any merit. The requirement of reporting to SEBI in terms of sub regulation (4) is consequential to availing the exemption and not a requirement to avail exemption under
regulation 3 of the Takeover Regulations. This concept was made very clear by the Hon’ble Securities Appellate Tribunal in the case of J.M.Financial &
Investment Consultancy Services Ltd Vs. Shri Ananta Barua
A. O, SEBI.

12. Hence in respect of certain acquisitions, which include acquisition by way of inter se transfers, for which exemption has been availed, it is mandatory on the part of the acquirers, within 21 days of the date of acquisition, to file a report with SEBI containing the details of the acquisitions which would entitle such a person to exercise 15% or more of the voting rights. This issue has also been aptly dealt with by the Hon’ble Securities Appellate Tribunal in Appeal No:12/2001 in the case of Naagraj Ganeshmal Jain Vs SEBI. What is envisaged in regulation 3(4) is not a onetime reporting as is evident from the objective of sub regulations 3(4) and 3(5) of the Takeover Regulations. These Regulations i.e. 3(4) and 3(5) were incorporated in the Takeover Regulations to ensure transparency in the various transactions and assist the regulator in monitoring all the exempted transactions under the provisions enumerated under Regulation 3(1) in advance of the proposed acquisition. Hence, the contention of the acquirers that the reporting requirements are not applicable in their case as the inter se transfer constitutes only 0.5% of the paid up share capital and that there was no acquisition of additional shares in the said process is not tenable. In view of the above, it is clear that there has been a failure on the part of the acquirers in strictly complying with the provisions of Regulation 3(4) and 3(5) of the Takeover Regulations.

14. Sections 15(A)(a) and (b) of the SEBI Act, 1992 read as under:

“If any person who is required under this Act, or any rules or Regulations made there under –

(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less.

(b) to file any return or furnish any information, books or other documents within the time specified therefore in the Regulations, fails to file return or furnish the same within the time specified therefor, in the Regulations, he shall be liable to a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less.

15. Thus, in case of contravention of either Sections 15A(a) or 15A(b) of the SEBI Act, 1992, the acquirer would be liable for a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less.

16. The Hon’ble Securities Appellate Tribunal In Appeal No. 21 of 2000, (Housing Development Finance Corporation Ltd Vs SEBI) has held that the penalty prescribed under Section 15A(a) of the SEBI Act is attracted in respect of violation of Regulation 3(4) of the Takeover Regulations. On the basis of the information filed by the acquirers with SEBI, the penalty that can be levied for non-compliance of Regulations 3(4) & 3(5) of the Takeover Regulations works out to Rs.4,14,00,000. However, in terms of the provisions quoted above the maximum penalty that can be levied is one crore rupees only.

17. However, the Parliament in its wisdom has directed certain factors to be taken in to account by the adjudicating officer before imposing a penalty.

18. Section 15J reads as follows:

15 J. While adjudging quantum of penalty under section15-I, the adjudicating officer shall have due regard to the following factors, namely: -

a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;

b) the amount of loss caused to an investor or group of investors as a result of the default;

c) the repetitive nature of the default

19. I have taken into account the factors enumerated in Section 15J of the Act and am of the opinion that although there has been a delayed compliance on the part of the acquirers in strictly complying with the provisions of Regulations 3(4) and 3(5) of the Takeover Regulations, the same does not appear to have been done with a malafide intention. The shares acquired in the instant case are 400 in number and constitute 0.50% of the shareholding of the acquirers. Considering the extent of the said shareholding, the failure to file the report within the stipulated time would not, in my opinion affect the interests of the shareholders in any way. Moreover, it is noted from the records that upon the advice of SEBI rendered through letter dated 27, 2004, the acquirers acted upon the said advice immediately and filed their report vide their letter dated March 10, 2004. Thus there does not appear to have been any disproportionate gain or unfair advantage made as a result of the default and no loss is likely to be caused to any investor or group of investors as a result of the default.

20. In view of the foregoing, I am inclined to hold that the non-compliance of the provisions of Regulation 3(4) and 3(5) of the Takeover Regulations by the acquirers, Ms. Vrinda Jatia and Ms. Vasudha Jatia, was a bonafide mistake due to a technical lapse which has been rectified upon being notified by SEBI and hence no penalty need be levied in the facts of the present case.

ORDER:

21. Accordingly, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, the proceedings against the acquirers are hereby dropped.

PLACE: MUMBAI G. BABITA RAYUDU

DATE: DECEMBER 16, 2004 ADJUDICATING OFFICER

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ORDER UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH REGULATIONS 3(4) & 3(5) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS, 1997 AND SECTION 15A OF THE SEBI ACT, 1992. AGAINST MS. VRINDA JATIA AND MS. VASUDHA JATIA IN THE MATTER OF M/S. THACKKER & COMPANY LTD BACKGROUND: 1. I was appointed as the Adjudicating Officer by the Chairman, SEBI, vide order dated September 30, 2004 to enquire into and adjudge the alleged contravention of sub-Regulations (4) & (5) of Regulation 3 of the SEBI (Substantial Acquisition Of Shares & Takeovers) Regulations, 1997 (for brevity’s sake referred to as the Takeover Regulations) read with sub-section (b) of Section 15A, of the SEBI Act, 1992 (hereinafter referred to as the Act) by Ms. Vrinda Jatia and Ms. Vasudha Jatia (both minors) (collectively referred to as the “acquirers”) in the matter of their non disclosing the acquisition of the shares of M/s. Thackker & Company Ltd, (hereinafter referred to as TCL) a company whose shares are listed on the Mumbai stock exchange. 2. The brief facts leading to the present proceedings are as follows: The Securities and Exchange Board of India (hereinafter referred to as the SEBI) received a report dated March 10, 2004 alongwith a demand draft for Rs.10,000/-from Shri Shyam M Jatia stated to have been filed in terms of Regulations 3(4) & 3(5) of the Takeover Regulations in the matter of the acquirers acquiring 400 shares constituting 0.5% of the subscribed and paid-up share capital of TCL by way of inter se transfer of shares amongst relatives on January 3, 2003. 3. In terms of Regulations 3(4) & 3(5) of the Takeover Regulations, the acquirers are required to file a report alongwith supporting documents and the filing fee of Rs.10000/- with SEBI, within 21 days of the date of acquisition. As the requirement therein was not fulfilled within the stipulated period, but after a delay of 414 days, the acquirers were found to have contravened the provisions of the said Regulations. SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING: 4. In view of the above, adjudicating proceedings were initiated in the first instance by issuing a show cause notice dated July 14, 2004 to the acquirers in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 where under they were asked to show cause as to why enquiry proceedings should not be held against them for the alleged violation of the provisions of sub regulations (4) and (5) of Regulation 3 of the of the Takeover Regulations. Further, the acquirers were advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice, and also indicate whether they were desirous of a personal hearing. 5. In reply to the same, Shri Shyam M Jatia, vide his letter dated July 27, 2004, inter alia made the following submissions on behalf of the acquirers: a. The acquisition of shares are only by way of an inter se transfer of 400 shares constituting 0.5% of the total paid-up share capital of TCL and no new shares had been allotted. b. The report was filed as per the advise of SEBI issued vide letter dated February 27,2004 and within time stipulated in the said letter. c. There was no breach of Regulation 15A(b) since the provisions contained therein referred only to the return to be furnished which was not applicable to their case. d. Regulation 11(2) would not be applicable to their case since no additional shares were acquired. e. Regulation 15A(a) should not be invoked since they had complied with the advise of SEBI and the necessary reports were filed within the stipulated time. On the basis of the above submissions, it was requested that the proceedings be dropped and a personal hearing be granted to them. 6. Thereafter, I issued a notice of hearing dated November 9, 2004 under Rule 5(1) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 to the acquirers advising them to be present at the personal hearing to be held on November 16, 2004. 7. Shri Shyam M Jatia, acting on behalf of the acquirers, , requested for an alternate date of hearing vide his letter dated November 18, 2004, on the ground that the notice of hearing was not received by them on time. 8. Subsequently, on the request of the acquirers, the adjudication proceedings originally scheduled for November 16, 2004 were scheduled for hearing on December 7, 2004. On the said date, Shri P N Parikh and Shri Ajay Kumar, M/s. Parikh & Associates, Practicing Company Secretaries, appeared before me on behalf of the acquirers and made their submissions. They also presented written arguments which are as follows: The said acquisition was by way of inter se transfer amongst relatives’ i.e, from the grandfather to his minor grand daughters and constituted only 0.5% of the total paid-up share capital of TCL. The acquisition was not a purchase of additional shares as contemplated by Regulation 11(2) of the Takeover Regulations because the aggregate holding of the promoters remained unchanged even after the acquisition. Since the said acquisition did not result in the violation of Regulations 10,11 and 12 of the Takeover Regulations, the exemption as provided by Regulation 3 was not relevant and therefore the question of not filing the report under Regulation 3(4) did not arise. Even if these shares constituted an interse transfer, the requirement of Regulations 3(3) & 3(4) would not be applicable in as much as the acquisition was only 0.5% as against the minimum 5% as required for compliance and the threshold of 15% was already crossed much before the acquisition. Since no new additional shares were acquired, Regulation 15A (b) was not applicable while Regulation 15A (a) should not be invoked since the report was filed as per the advise of SEBI. In terms of Section 15J, there had been no amount of disproportionate gain or unfair advantage made as a result of the inter se transfers either by the transferee or transferors. There was no malafide intention on the part of the acquirers in not filing the report and the alleged breach was an administrative lapse and of a technical nature and not in deliberate defiance of law. The orders pronounced in the cases of Cabot International Capital Corp. Vs. Adjudicating Officer, SEBI and Godrej & Boyce Mfg. Co. Ltd vs. S V Krishnamohan, Adjudicating & Enquiry Officer, be taken into account before passing of any order. CONSIDERATION OF ISSUES: 9. I have taken into consideration the facts and circumstances of the case, the submissions made on behalf of the acquirers, the material available on record as well as the case laws cited in support of their contentions. 10. In the present case, there is no dispute as regarding the fact that a report in terms of Regulation 3(4) and the filing fee in terms of Regulation 3(5) of the Takeover Regulations was required to be filed with SEBI within a period of 21 days from the date of acquisition but that the same was instead filed with a delay of 414 days with SEBI. 11. The acquirers have contended that the applicability of Regulation 3(4) of the Takeover Regulations does not arise since the promoters had already crossed the threshold limit of 15% of shares of the target company prior to the acquisition. However this argument is devoid of any merit. The requirement of reporting to SEBI in terms of sub regulation (4) is consequential to availing the exemption and not a requirement to avail exemption under regulation 3 of the Takeover Regulations. This concept was made very clear by the Hon’ble Securities Appellate Tribunal in the case of J.M.Financial & Investment Consultancy Services Ltd Vs. Shri Ananta Barua A. O, SEBI. 12. Hence in respect of certain acquisitions, which include acquisition by way of inter se transfers, for which exemption has been availed, it is mandatory on the part of the acquirers, within 21 days of the date of acquisition, to file a report with SEBI containing the details of the acquisitions which would entitle such a person to exercise 15% or more of the voting rights. This issue has also been aptly dealt with by the Hon’ble Securities Appellate Tribunal in Appeal No:12/2001 in the case of Naagraj Ganeshmal Jain Vs SEBI. What is envisaged in regulation 3(4) is not a onetime reporting as is evident from the objective of sub regulations 3(4) and 3(5) of the Takeover Regulations. These Regulations i.e. 3(4) and 3(5) were incorporated in the Takeover Regulations to ensure transparency in the various transactions and assist the regulator in monitoring all the exempted transactions under the provisions enumerated under Regulation 3(1) in advance of the proposed acquisition. Hence, the contention of the acquirers that the reporting requirements are not applicable in their case as the inter se transfer constitutes only 0.5% of the paid up share capital and that there was no acquisition of additional shares in the said process is not tenable. In view of the above, it is clear that there has been a failure on the part of the acquirers in strictly complying with the provisions of Regulation 3(4) and 3(5) of the Takeover Regulations. 14. Sections 15(A)(a) and (b) of the SEBI Act, 1992 read as under: “If any person who is required under this Act, or any rules or Regulations made there under – (a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less. (b) to file any return or furnish any information, books or other documents within the time specified therefore in the Regulations, fails to file return or furnish the same within the time specified therefor, in the Regulations, he shall be liable to a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less. 15. Thus, in case of contravention of either Sections 15A(a) or 15A(b) of the SEBI Act, 1992, the acquirer would be liable for a penalty not exceeding one lakh rupees for each day during which the failure continues or one crore rupees whichever is less. 16. The Hon’ble Securities Appellate Tribunal In Appeal No. 21 of 2000, (Housing Development Finance Corporation Ltd Vs SEBI) has held that the penalty prescribed under Section 15A(a) of the SEBI Act is attracted in respect of violation of Regulation 3(4) of the Takeover Regulations. On the basis of the information filed by the acquirers with SEBI, the penalty that can be levied for non-compliance of Regulations 3(4) & 3(5) of the Takeover Regulations works out to Rs.4,14,00,000. However, in terms of the provisions quoted above the maximum penalty that can be levied is one crore rupees only. 17. However, the Parliament in its wisdom has directed certain factors to be taken in to account by the adjudicating officer before imposing a penalty. 18. Section 15J reads as follows: 15 J. While adjudging quantum of penalty under section15-I, the adjudicating officer shall have due regard to the following factors, namely: - a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; b) the amount of loss caused to an investor or group of investors as a result of the default; c) the repetitive nature of the default 19. I have taken into account the factors enumerated in Section 15J of the Act and am of the opinion that although there has been a delayed compliance on the part of the acquirers in strictly complying with the provisions of Regulations 3(4) and 3(5) of the Takeover Regulations, the same does not appear to have been done with a malafide intention. The shares acquired in the instant case are 400 in number and constitute 0.50% of the shareholding of the acquirers. Considering the extent of the said shareholding, the failure to file the report within the stipulated time would not, in my opinion affect the interests of the shareholders in any way. Moreover, it is noted from the records that upon the advice of SEBI rendered through letter dated 27, 2004, the acquirers acted upon the said advice immediately and filed their report vide their letter dated March 10, 2004. Thus there does not appear to have been any disproportionate gain or unfair advantage made as a result of the default and no loss is likely to be caused to any investor or group of investors as a result of the default. 20. In view of the foregoing, I am inclined to hold that the non-compliance of the provisions of Regulation 3(4) and 3(5) of the Takeover Regulations by the acquirers, Ms. Vrinda Jatia and Ms. Vasudha Jatia, was a bonafide mistake due to a technical lapse which has been rectified upon being notified by SEBI and hence no penalty need be levied in the facts of the present case. ORDER: 21. Accordingly, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, the proceedings against the acquirers are hereby dropped. PLACE: MUMBAI G. BABITA RAYUDU DATE: DECEMBER 16, 2004 ADJUDICATING OFFICER