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BEFORE
THE ADJUDICATING OFFICER
SECURITIES
AND EXCHANGE BOARD OF [ADJUDICATION ORDER NO. AP/AO-11/2006-07] UNDER SECTION 15-I
OF SECURITIES AND EXCHANGE BOARD OF In
respect of QUINTEGRA SOLUTIONS LTD 1. Quintegra
Solutions Ltd. (hereinafter referred as 'QSL') is a company whose shares are
listed in the National Stock Exchange and Madras Stock Exchange. On
2. Accordingly, the undersigned was appointed as Adjudicating Officer under
Section 15 I of SEBI Act, 1992, read with Rule 3 of SEBI (Procedure For Holding
Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995
(hereinafter referred as 'Adjudication Rules') vide SEBI order dated January 17,
2006 to inquire into and adjudge under 15 A (b) of the SEBI Act, 1992, the
aforesaid alleged violation of QSL. 3. A Show Cause Notice (SCN) dated 4. QSL replied to the SCN vide letter dated 5. In the above circumstances the undersigned was of the opinion that an
inquiry should be held in the matter and accordingly notice of inquiry dated 6. I have carefully considered the submissions put forth by QSL and all the
other materials on record. Given the facts of this case it is important to have
clarity on the objectives of SAST Regulations. Section 11(2) (h) of the SEBI
Act, 1992 empowers SEBI to regulate substantial acquisition of shares and
takeover of companies, even though these activities are in the realm of corporate
domain. This was done with the specific objective of protecting the interest of
the investors, especially the small investors. Small investors are typically
scattered, do not have a unified common voice to protect their interest,
especially when there is a change in control or management etc. To address
these issues, the SAST Regulation 1994 was promulgated (subsequently replaced
by the 1997 Regulations); its cardinal principles being 1) Equality of
treatment and opportunity to all shareholders, 2) protection of minority
interest and 3) transparency and fairness. The aforesaid are sought to be
achieved through well defined process of disclosure and opportunity for exit. Therefore,
the default in the instance case, though undisputed, needs to be viewed in the
aforesaid context. 7. Chapter II of SAST provides provision pertaining to continuous disclosures
to and by corporations. Regulation 8(3) requires corporations to make yearly
disclosures to the stock exchanges in which its shares are listed, about the
changes if any, in respect of shareholding of person/s who
I.
hold more than 15% of
the company’s equity
II.
is promoter or is a person
in control of the company as on 31st March of every year as well as on the record date
for dividend declaration, within 30 days. 8. The shares held in a listed company by its promoter / person in control
of a company, is an important reflection of his perception about the company’s
growth prospects, etc. Therefore, information pertaining to any change in his
share holding, is important to the investors. Similarly,
a person holding more that 15% equity of a listed company is not merely a
financial investor, therefore, any change in his
shareholding also is of importance to the investors. Disclosure of these information to the stock exchange enables wide dissemination
of information to the investors and the general public, which in turn enables them
to reformulate their perception about the prospects of the company and take
informed decisions. Seen in this background, disclosure under Regulation 8(3)
of SAST has a much wider economic function that far exceeds the basic function
of facilitating informed price discovery. Therefore, the admitted default by
QSL in not making disclosure needs to be viewed in this background. 9. QSL has admitted the default as alleged. This implies that there was a
change either in the shareholding of persons holding more that 15% of its
equity or there was change in the shareholding of promoter / person having
control over QSL; therefore QSL was required under Regulation
8(3) of SAST to make the
disclosures for the year ending March 2003, 2004 and 2005 within the stipulated
time. 10. What are the consequences of not making the disclosure under Regulation 8(3)?
An entity (including its PACs) holding more than 15% but less than 55% of a
listed company’s equity, can acquire 4.99% of that company’s equity, every
year, without the need to make a public offer, till it reaches 50% level, in
which case change in control would trigger open offer under Regulation 12 of
SAST. In the absence of disclosure under Regulation 8(3), investors will not
have information about any change in shareholding of promoter/person in control
or also about change in shareholding of a person who could be potential contenders
for control over the company. Therefore, a delayed disclosure does not serve
any purpose at all. The aforesaid state of affairs is undoubtedly, undesirable
and what is sought to be avoided through SAST. 11. Page 9 of the LoO dated 12. The disclosures under Regulation 8(3) of SAST were required to be made
within 30 days but were made after a default period of 793, 427 and 62 days for
the year ending March 2003, 2004 and 2005 respectively, as already detailed in
paragraph one of this order. Further, as already discussed, a delayed
disclosure under Regulation 8(3) serves no purpose at all. Besides, it is a well
settled position of law (SAT Order dated 13. The violation of Regulation 8(3) of SAST for the year ending March 2003,
2004 and 2005, will attract penalty under Section 15 A (b) of SEBI Act, 1992
which reads as under: Penalty for failure to
furnish information, return, etc. 15A.
If any person, who is required under this Act or any rules or regulations made thereunder,- (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 of on e lakh rupees for each day during which
such failure continues or one crore rupees, whichever
is less]; 14. To determine the quantum of penalty under Section 15A (b), the
undersigned considered the following factors as provided in the section 15J of
SEBI Act, 1992 viz.(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 and; (c) the repetitive nature of the default. The amount
of unfair gain to QSL by the aforesaid default or loss caused to the investors
as a result of the default is not computable from the material available on
records. However, the nature of default is repetitive as already discussed. I
understand that, under the SEBI Consent Order Scheme a penalty of Rs. 25,000 per default has been proposed by SEBI for the
similar previous violations. In the circumstances, I am of the view that twice the
penalty under the scheme would be appropriate in the instant case. In other
words, the penalty amount would be Rs. 50,000 for
every default and there were three years in which
default occurred, as already discussed. I hereby impose a penalty of Rs. 150,000 (Rupees one lakh
fifty thousand only) on Quintegra Solutions Ltd. for
the aforesaid violation. 15. Quintegra
Solutions Ltd. shall pay the said amount of penalty by way of demand draft in
favour of “SEBI- Penalties Remittable to Government of India”, payable at
Mumbai within 45 days of receipt of this order. The said demand draft should be
forwarded to, Shri S V M D Rao,
General Manager, Division of Corporate Restructuring, Mittal
Court, 1st floor, B- Wing, 224, Nariman Point, Mumbai
400 021. 16. This order of adjudication is made and passed on 27th day of July
2006 at Mumbai. AMIT PRADHAN ADJUDICATING OFFICER |
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