ORDER UNDER RULE 5 OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST PHIROZE SETHNA PRIVATE LIMITED FOR THE VIOLATION OF REGULATION 8 (2) OF SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.��

1. I was appointed as the Adjudicating Officer by the Securities and Exchange Board of India (hereinafter referred to as �SEBI�) vide Order dated September 30, 2004 to inquire into and adjudge under Section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the �SEBI Act�), the violation of Regulation 8 of� Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as �Takeover Regulations�) alleged to have been committed by Phiroze Sethna Private Limited (hereinafter referred to as �PSPL�) for the year 2003 on account of its failure to make necessary disclosures with regard to its shareholding in the company Kerry Jost Engineering Ltd(hereinafter referred to as �KJEL�).

NOTICE AND REPLY

2. A notice no. A&E/BS/23036/2004 dated October 09, 2004 was issued to PSPL in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the �Rules�) seeking reply on the alleged contravention of Regulation 8 of the Takeover Regulations for the year 2003.�

3. PSPL vide letter dated October 30, 2004 replied to the notice. In the said reply, PSPL submitted the following;

�        In December, 2002 they have acquired shares from other promoters to the tune of more than 5% thereby requiring to disclose their name under the promoter group and reflect their shareholding in the returns being filed by KJEL under SAST Regulations 8(1) and 8(2).

�        PSPL informed the Stock Exchange, Mumbai disclosing acquisition of shares by it vide its letter dated 13/12/2002.� A copy of the said letter to the stock exchange was also forwarded to KJEL.

�        As PSPL had already informed stock exchange and the company at the point of acquisition and further as there was no change in the shareholding as of March 2003, they had not made any disclosures to KJEL and this lapse is purely inadvertent, accidental and unintentional.

�        It was purely due to ignorance of such provision and by oversight that they have not submitted the required information to KJEL.� However, based on the information submitted to the Stock Exchange, �copy of which was given to KJEL as mentioned above,� KJEL had filed the information required for the year March 2003 under Regulation 8(3) to the stock exchange on 2/5/2003.

�        Non filing of information under Regulation 8(2) may be condoned since the same data has been filed by KJEL with the Stock Exchange.�

�        As a result of non submission there has been no change in the control or management of KJEL or shareholding among the promoters. Further, PSPL had not made any gain / profit because of non submission of information and such instances would not be repeated in future.

4. After considering the above reply submitted by PSPL, an opportunity of hearing was granted to him on November 17, 2004.�� Shri P.S. Shastry, Vice President, Karvy Investor Services Ltd and Shri C.B. Sagvekar attended the personal hearing on November 17, 2004 as the representatives of PSPL and made the following submissions:

�        Non communication of the shareholding to the target company for the year 2003 in terms of Regulation 8(2) is technical in nature.� However, consequent to the acquisition of shares, disclosures under Regulation 7(1) have been made to the stock exchange and the target company within the stipulated time.

�        As the target company was not doing well at all, the company could not have the benefit of professional services (being not required to appoint company secretary) for complying with the requirements under takeover code.

�        It was an inadvertent oversight and unawareness on the part of the promoters which led to the non compliance.� There was no intention to mislead and the persons have not made any gains out of such non compliance.

�        During the period since 1997 the shares of the company were hardly traded on the BSE.� Hence the investors were also not put to any loss due to this technical non compliance.

In light of the above, PSPL requested SEBI to condone the non compliance.

CONSIDERATION OF EVIDENCE AND FINDINGS:

5. I have taken into consideration the facts and circumstances of the case, the reply of PSPL and the submissions made during the personal hearing. It is noted that PSPL was holding 16000 (8%) shares in KJEL. Further, PSPL is stated to be a Promoter of KJEL.

 

6. In this regard, Regulation 8(2) states the following;

�A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31 as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.��

7. It is noted that PSPL in its reply dated October 30, 2004, as well as during the course of the personal hearing admitted that in respect of the year 2003, it failed to make necessary disclosures in terms of the provisions of Regulation 8(2) of the Takeover Regulations.�

8. In this regard, Section 15A(b) of the SEBI Act provides that if any person who is required under the Act, Rules or Regulations made thereunder to file any return or furnish any information, books or other documents within the time specified in the regulations, fails to file return or furnish the same within the specified time, he shall be liable to a penalty not exceeding five thousand rupees for everyday during which such failure continues. It is noted that the said provision has been amended with effect from October 28, 2002 and the penalty has been enhanced to Rupees one lakh per each day during which the failure continues or Rupees one crore whichever is less.�

9. PSPL admitted the violation of the provisions of Regulation 8(2) of the Takeover Regulations.� As stated above, violation of the said provisions of the Takeover Regulations attract the penalty prescribed under Section 15A(b) of the SEBI Act.

10. The provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the Adjudicating Officer shall take into account 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

11. In this regard, it is noted that the provisions of Regulation 8 of the Takeover Regulations require a promoter or a person having control over a company to make necessary disclosures regarding their holdings to the company. Any violation of said requirement can not be termed as technical violation as the very objective of said provisions is to provide for transparency and dissemination of information to the company. As the information is made available to the investors through the Stock Exchanges, such information enable the investors to take well informed investment decisions.�

12. Non compliance of the said provisions deprives the company and the investors of valuable information.� It is noted that PSPL vide their letter dated 13/12/2002 informed the company and the Stock Exchange, Mumbai regarding the acquisition shares of KJEL.� The said disclosures are stated to have been made in terms of the provisions of Regulation 7(1) of Takeover Regulations.�

13. Compliance of Regulation 7(1) can not be treated as compliance with the provisions of Regulation 8(2) of the Takeover Regulations. Being a promoter of the company, PSPL is bound to make the disclosures in the manner provided under Regulation 8(2) of the Takeover Regulations. �Hence, the violation Regulation 8(2) attracts the penalty prescribed under Section 15A(b) of the SEBI Act.� However, taking into account other mitigating circumstances such as there has been no change in the holding of PSPL during the period the provisions of Regulations 8(2) were not complied by it, and further it appears that no disproportionate gain or unfair advantage resulted on account of the default committed by PSPL, a lenient view is taken with regard to the quantum of penalty.��

ORDER

14. In view of the violation of Regulation 8(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 committed by Phiroze Sethna Private Limited, I hereby impose a penalty of Rs.10,000/- (Rupees Ten Thousand only) under Section 15A(b) of the SEBI Act on Phiroze Sethna Private Limited.

 

 

15. The penalty shall be paid by way of Demand Draft / Pay Order drawn in favour of �SEBI � Penalties Remittable to Government of India� payable at Mumbai and the same shall be sent to Shri S.V. Muralidhar Rao, General Manager, Securities and Exchange Board of India, Mittal Court, �B� Wing, 224, Nariman Point, Mumbai � 400 021.

 

 

S. Biju

Adjudicating� & Enquiry Officer

Date: November 19, 2004

Place: Mumbai

 

Cc: ���������� 1) Phiroze Sethna Private Limited

2) Securities and Exchange Board of India