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ADJUDICATION ORDER UNDER RULE
5 OF THE 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 SHRI RAJIV SAMANI CHAIRMAN & MANAGING
DIRECTOR OF NETVISTA INFORMATION TECHNOLOGY LIMITED . 1.�������� Securities and Exchange Board of India
(hereinafter referred to as SEBI) vide order dated December 10, 2003 appointed
Shri S.V. Krishna Mohan as Adjudicating Officer to inquire into and adjudge under
Section 15 H of the Securities and Exchange Board of India Act, 1992
(hereinafter referred to as the �SEBI Act�), the alleged violation of
Regulation 11 (1) of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997(hereinafter referred to
as the �Takeover Regulations�) by Shri. Rajiv Samani (hereinafter referred to
as the �acquirer�)Chairman and Managing Director of Netvista Information
Technology Ltd ��pursuant to acquisition
of 14,03,500� shares� of Netvista Information Technology Limited
(hereinafter referred to as NIT) on (i)
the Board
Resolution in respect of the proposed preferential allotment is sent to all the
stock exchanges on which the shares of the company are listed for being
notified on the notice board (ii)
full
disclosures of the identity of the class of the proposed allottee(s) is made
and if any� of the proposed allottee(s)
is to be allotted such number of shares as would increase his holding to 5% or
more of the post issued capital, then in such cases , the price at which the
allotment is proposed , the identity of such person(s), the purpose and reason
for such allotment, consequential changes if any, in the board of directors of
the company and� in voting rights, the
shareholding pattern of the company and whether such allotment would result in
change in control over the company are disclosed in the notice of the General
Meeting called for the purpose of consideration of the preferential allotment. 2.
In view
of the requirements enumerated under the said provision, it was alleged that
the acquisition of shares by the acquirer is not eligible for exemption from
making public announcement in terms of the provisions of Regulation� 11(1)�
of the Takeover Regulations� as it
was alleged that, in the notice of the general meeting called for the purpose
of consideration of the preferential allotment, necessary disclosures, as
required under Regulation 3(1)( c ) (ii) of the Takeover Regulations were not
made. In view of the same it was alleged that the acquirer violated the
provisions of Regulation 11(1) of the Takeover Regulations which states the
following � No acquirer who together with
persons acting in concert with him has acquired , in accordance with the
provisions of law 15% or more but less than 75% of the shares or voting rights
in a company , shall acquire , either by himself or through with persons acting
in concert with him additional shares or voting rights entitling him to
exercise more than 5% of the voting rights in any financial year ending on
March 31st March, unless such acquirer makes a public announcement
to acquire shares in accordance with the Regulations. �On account of the preferential allotment
made by the company and consequent to the said acquisition, the share holding
of the acquirer increased from 30.56% to 37.85% of the share capital of� NIT. Hence it is alleged that the acquirer
violated the provisions of Regulation 11(1) of the Takeover Regulations. �NOTICE AND REPLY 3. � The Adjudicating Officer issued a show cause
notice no. A&E/474/04 dated
�
4.�� I have been appointed as Adjudicating Officer
in the place of Shri S.V. Krishna Mohan vide SEBI�s order dated �
Prior
to the preferential allotment my shareholding was 32, 38, 500 equity shares
aggregating to 30.56% of the total capital. After the preferential allotment of
14,03,500 shares to RDK, my shareholding has gone below 30.56% of the total
capital. The allotment of���� 14,03,500
shares to RDK was in consideration of intellectual property in respect of a
software and the said shares were held in trust by me till successful
completion of the testing of the software. �
During
the period the shares were held in trust by me, on behalf of RDK, I have not
exercised any voting rights whatsoever. Further by holding of the shares in
trust, the interests of the shareholders, creditors or public at large have not
been prejudiced. �
Though
I am not covered under Regulation 11(1) as my shareholding has not increased by
virtue of preferential allotment, nevertheless we have made necessary
disclosures and submissions as required under Regulation 3(1) (c) (i) and ( ii)
of the Regulations. 5.�� Subsequently, vide his letter dated November
11, 2004 the acquirer forwarded�
copies� of the letters dated
6.7.1999 sent by NIT to the Mumbai Stock Exchange and National Stock Exchange
informing the stock exchanges of the increase in the paid up share capital of
the company pursuant to the allotment of shares. In his letter dated November
11, 2004 though it is stated that the certified copies of the Board resolution
dated 02/07/1999 and certified copy of the resolution passed at the Extra
Ordinary General �Meeting held on
30/03/1999 are enclosed, the same were not enclosed with the letter dated
November 11, 2004. CONSIDERATION OF EVIDENCE AND FINDINGS: 6.�� It is noted from the submissions of the
acquirer that the consent of the shareholders was obtained in accordance with
the provisions of Section 81 (1A) of the Companies Act 1956 at an Extra
Ordinary General Meeting held on March 30, 1999 authorising the Board of
Directors to issue and allot securities including equity shares to the tune of
Rs.1,40, 35,000 in such manner and on such terms and conditions as the Board
may decide. It is submitted by the acquirer that pursuant to the said
resolution passed on 7.�� In this regard on perusal of a copy of� the special resolution passed in the Annual
General Meeting held on December 23, 1999, it is noted that �the said resolution says the following �
Resolved that the allotment on 2 July 1999, of 14, 03,500 equity shares in the
company as fully paid up as per SEBI Guidelines , to Mr. Rajiv Samani in
consideration for the transfer by him, to the company of Intellectual Property
Rights, be and is hereby ratified in terms of Section 81 (1A) of the
Companies� Act 1956.� It is noted that
the said resolution does not mention that the shares are allotted to RDK
Compudata Techniks in consideration of the transfer Intellectual Property
Rights in respect of a software. Instead it is mentioned that the allotment is
made to Shri. Rajiv Samani on � At the Extraordinary General
Meeting of the company held on 30 March 1999, a Special Resolution had been
passed , as required by Section 81(1A) of the Companies Act , 1956 ( �the Act�)
, authorising the Directors to issue further Equity Shares in a manner
otherwise that prescribed by Section 81(1) of the Act. Accordingly 14, 03, 500 Equity
shares were issued and allotted by the Directors to Mr. Rajiv Samani , in
consideration of the transfer, by Mr. Samani to the Company, of Intellectual
Property Rights. Though in the opinion of the
Board, the above allotment of shares to Mr. Samani is in terms of the above
Special Resolution passed on 8.�� Though it is noted from the submissions of
the acquirer that an agreement dated June 21, 1999 was executed between RDK
Compudata Techniks (RDK) a sole proprietory concern of� Mr. Dattatraya Kadikar� and NIT for purchase of a software and it was
agreed that in consideration of transfer of the software , NIT shall issue 14,
03, 500 fully paid up shares� at a
premium of Rs 2 to RDK, the said allotment to RDK is not mentioned in the
explanatory statement� to the notice
for� the meeting December 23, 1999.
Further though it is contended by Shri. Rajiv Samani that the shares were held
by him in trust on behalf of RDK in terms of the agreement executed between NIT
and RDK, it is pertinent to note that the allotment made to RDK is not
mentioned in the explanatory statement�
to the notice for� the meeting December
23, 1999 nor the said fact is mentioned in the resolution . It is further noted that
subsequently a resolution was passed in the Extraordinary General meeting of
the company on ������� � Resolved that the Board of Directors
pursuant to the special resolution passed in Extra-Ordinary General meeting on
30th March , 1999 have allotted 14, 03,500 equity shares of Rs.10
each at a premium of Rs.2 � in their meeting held on 2nd July 1999
to RDK Compudata Techniks in consideration of the Intellectual Property Rights
(IPRs) and the original source code for �Human Soft� software after a delay of
three days due to the time required for testing the software. The said
allotment was ratified in the meeting of the members held on � Resolved further that in supersession
of all earlier resolutions passed in this respect the said allotment of 14, 03,
500 equity shares made to RDK Compudata Techniks against the Intellectual
Property Rights pursuant to the general consent given by the members on
30/03/1999 and the agreement dated 21st June 1999 be and is hereby
ratified u/s 81 (1A ) and other applicable provisions if any of the Companies
Act , 1956 and other relevant Regulations and Acts etc� � �
The explanatory statement to the
notice for the meeting held on 9.�� From the above it is seen that it is
only� in the notice dated� 10. It is pertinent to note that in the resolution
passed in the meeting held on 11. As stated before, preferential allotment in
terms of the provisions of �Regulation� 3 (1) ( C )�
was exempted from the applicability of the requirement of public
announcement under Regulation 11 of the Takeover Regulations subject to
fulfillment of the following conditions. The �Board resolution in respect of the proposed
allotment is sent to all the stock exchanges on which the shares of the company
are listed as required under Regulation��
3 (1) ( C )( i )� and further, full disclosures of the identity
of the class of the proposed allottee is made and if any of the proposed
allottee is to be allotted such number of shares as would increase his holding
to 5% or more of the post issued capital, then in such cases the price at which
the allotment is proposed , the identity of such persons, the purpose and
reason for such allotment, consequential changes if any , in the board of directors
of the company, and in the voting rights, the shareholding pattern of the
company and whether such allotment would result in change in control over the
company are disclosed in the notice of the General Meeting called for the
purpose of consideration of the preferential allotment�. 12. It is seen that though the preferential
allotment is made in pursuance of� a
resolution dated March 30, 1999 passed under Section 81 (1A) of the Companies
Act the explanatory statement to the notice dated February 22, 1999 in respect
of the said resolution at item no 9 states�
that � With a view to augment financial resources for the purpose of the
business of the company, it is proposed to authorise the Board to raise funds
by issuing equity shares out of the unissued capital of the company. As
required under Section 81 ( 1A) of the Companies Act 1956 this resolution is
placed for the approval of the member. No Director is interested or concerned
in this Resolution� 13. The disclosures such as the identity of the allotees,
price, consequential changes in shareholding and voting rights etc., are not
disclosed in the said explanatory statement. As the disclosures required under
Regulation 3(1)( c ) (ii) of the Takeover Regulations were not made, the
preferential allotment� to the acquirer
is not exempted from the requirement enumerated under the provisions of
Regulation 11(1) to make public announcement to acquire shares in accordance
with the Regulations. As it is seen that no public announcement has been made
in accordance with Regulation 11 (1), the acquirer violated the provisions of
Regulation 11(1) of the Takeover Regulations �and hence is liable to the penalty prescribed
under Section 15H(ii) of the SEBI Act 1992. Section 15H(ii)as it stood on July
2, 1999 stated as follows � If any person, who is required under this Act or
any rules or regulations made there under, fails to make public announcement to
acquire shares at a minimum price,� he
shall be liable to a penalty not exceeding�
five lakh rupees. 14. 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,
the amount of disproportionate gain or unfair advantage made as a result of
default, loss caused to the investors and the repetitive nature of the
default.� In this regard, it is noted
from the submissions of the acquirer that the shares were held by him on behalf
of RDK Compudata Techniks and he had not exercised any voting rights whatsoever
during the period the said ��shares were
held by him and the interests of the shareholders, creditors or public at large
have not been prejudiced. 15. In this regard, it is noted that had the
acquirer made a public announcement and offer in terms of the provisions of
Regulation 11 (1), the investors would have got an opportunity to tender their
shares in response to the offer. Hence the interests of the investors are
affected on account of the failure on the part of the acquirer comply with the
provisions of Regulation 11 (1) of the Takeover Regulations. However
considering other factors like passing of a resolution under Section 81(1A) of
the Companies Act and the allotment to Shri. Rajiv Samani did not result in
change in control over the company, a lenient view is taken with regard to the
quantum of penalty. 16. In exercise of the powers
conferred under Section15 (ii) of the SEBI Act, 1992, and Rule 5 of SEBI
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer)
Rules, 1995� I hereby impose a penalty of
Rupees One� lakh on Shri. Rajiv Samani
for the violation of Regulation 11(1) of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 . 17. The penalty shall be paid by
way of demand draft drawn 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 �shall be forwarded
to Shri S.V. Muralidhar Rao, General Manager, Division of Corporate Restructuring,
Securities and Exchange Board of India, Mittal Court, �B� Wing, 224, Nariman
Point, Mumbai � 400 021. 18. In terms of the provisions of
Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 copies of this order are sent to Shri. Rajiv
Samani and to SEBI. ����������������������������������������������������������������������������������� �� Date: Place: Mumbai��������������������������������������������� Adjudicating & Enquiry Officer � |
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