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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
RITESH CAPITAL LIMITED( GREENFIELD INFOTEK LIMITED). 1.
Securities and
Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated 2.
It is alleged
that subsequent to the public issue of RPL in 1995, the promoters of RPL
namely, Ritesh Exports Ltd, Shri.
Surender Kumar Agarwal, Smt. Roop Rekha
Agarwal, Shri. Ritesh Agarwal and Shri. Deepak Agarwal along with
persons acting in concert, namely Smt. Sharmila Gang/ Pratha Investment
and Ritesh Capital(hereinafter
referred to as the noticee) had acquired
20.86% of shares of RPL from Shri Pawan
Kumar Agarwal and family without making mandatory public
announcement and open offer and thereby violated the provisions of Regulation
10(2) of SEBI Takeover Regulations. FACTS OF THE CASE3.
RPL came out with a public issue of 30,00,000 shares of Rs.10/- each at a premium of Rs.5/- per
share. The issue opened on 4.
Investigation
conducted by SEBI found that the public issue did not receive the minimum
subscription even after closure of the issue. Moreover, it was found that the
promoters of RPL committed irregularities including misrepresenting that the
issue received the minimum subscription by arranging for finance (in the garb
of subscription) from Shri Pawan
Kumar Agarwal and family (financiers). In this
regard, SEBI vide its order dated 5.
It is also
alleged that subsequent to the public issue, the promoters of the target
company RPL purchased the shares back from the Pawan
Kumar Agarwal and family through Pratha
Investments which is a proprietary concern of Smt.Sharmila
Gang, wife of Shri Mukesh
Gang, Auditor of Ritesh Polyester Limited and also
through the noticee which is a group company of RPL. 6.
In view of the
above factual scenario, it is alleged that the promoters of RPL along with
persons acting in concert such as Pratha Investments/
Smt, Sharmila Gang and the
noticee had acquired 20.86% of post issue capital of RPL from Shri. Pawan Kumar and family
without making public announcement and open offer in terms of the provisions of
Regulation 10(2) of SEBI Takeover Regulations. Subsequently, though
the Takeover Regulations 1994 has
been repealed by SEBI (Substantial
Acquisition of shares and Takeovers) Regulations 1997, however by virtue of the provisions of
Regulation 47 of the Takeover Regulations 1997, the said violation can also be
regarded as a violation in terms of the
provisions of Regulation 11 (1) of the
Takeover Regulations 1997 as the substantive mandate of the said provisions are
identical.
NOTICE AND REPLY 7.
A Show Cause Notice
dated June 8, 2005 was issued to the noticee in terms of the
provisions of Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing
penalties by Adjudicating Officers) Rules, 1995 (hereinafter referred to as the
Rules), requiring the noticee to show cause as to why an inquiry should not be
held for the violation alleged to have been committed by them. 8.
The noticee vide its letter dated ·
Ritesh Capital Limited was not a promoter of Ritesh Polyster Ltd. It is further
submitted that the company had been consistently incurring losses in the past
and as a result of which it has witnessed a series of changes in its employees.
In view of the same, they are unable to confirm whether there was any violation
of the Takeover Regulations. ·
It appears from the findings of the SEBI Chairman’s order dated 9.2.2004
that the company had purchased shares from Pawan
Kumar Agarwal and Family from the open market at the
price at which the shares were issued in the public issue. ·
The company has been incurring losses in the past. The adjudicating
proceedings may take into consideration the applicability of the provisions of
Section 15J of the SEBI Act while noting that the company has neither made any
disproportionate gain or any unfair advantage from the transaction. 9.
Subsequently,
the noticee vide its letter dated CONSIDERATION OF EVIDENCE AND FINDINGS 10. The issue for consideration in the mater is whether
the noticee along with the said promoters and other persons acting in concert,
acquired the shares of RPL in violation of the provisions of the Takeover
Regulations. In this regard, it is noted that the other entities who allegedly
acted in concert with the noticee are associated with the promoter group in the
following way. Smt.
Sharmila Gang is the sole proprietor of M/s. Pratha Investment. It is noted that Shri.
Mukesh Gang , the husband of
Smt. Shamila Gang was the
Auditor of the company RPL at the time of the public issue. Further, it is also noted that other
individuals who are alleged to be involved in the acquisition namely Shri.
Surender Kumar Agarwal, Smt. Rooprekha Agarwal, Shri. Ritesh Agarwal and Shri.
Deepak Agarwal are close
relatives. Further, Ritesh
Exports is stated to be a group company and Shri. Surender Kumar Agarwal was the
Managing Director of the company at the relevant point of time. The said
entities are promoters in terms of the provisions of SEBI Disclosure and
Investor Protection Guidelines as their shareholding was taken into account for
the purpose of meeting the promoters contribution as per the terms of the
public issue and their shareholding was also subject to the requirements of lockin in the manner
specified in the prospectus. 11. With regard to the question whether the noticee along
with the entities mentioned above, acquired the shares of the target company in
violation of the provisions of the Takeover Regulations, it is pertinent to
note that regulation
2(b) of the Takeover Regulations 1994 defines an acquirer in the following
manner “ Acquirer means any person who acquires or agrees to acquire shares in
a company either by himself or with any person acting in concert with the
acquirer”. Regulation 2(d) defines a person acting concert in the following
words “ Persons acting in concert” comprises persons who, pursuant to an
agreement or understanding acquires or agrees to acquire shares in a company
for a common objective or purpose of substantial acquisition of shares….” 12. The Honourable Securities Appellate Tribunal in Appeal No: 12
of 2001 Naagraj Ganeshmal
Jain Vs. P. Sri. Sai. Ram Adjudicating
Officer, observed that a person becomes an acquirer by virtue of his action ‘who
acquires or agrees to acquire shares etc’. The identification is thus action
related. Further, the above definition of acquirer read along with the
definition of persons acting in concert as contained in regulation 2(1)(d)
implies that the commonality of objective between the acquirer and the persons
acting in concert mandate that their actions should not be viewed in isolation.
Hence in cases where shares have been acquired pursuant to a common objective,
the aggregate share holding of the acquirers and the persons acting in concert
have to taken into account to determine contravention of the threshold limit
prescribed in the regulations. 13. In this context, it is noted from the facts of the
case that subsequent to the public issue, large amounts of money were withdrawn
from the issue proceeds which is stated to be given as
short term loans by RPL to the persons acting in concert including the noticee.
It is noted from the facts of the case that soon after receipt of loans, the
same was utilized for the purpose of purchasing the shares of RPL from Shri. Pawan Kumar Aggarwal and family in the following manner.
14. The fact of acquisition by the noticee is admitted by
the noticee during the hearing on 15. The source of funds for the purchase of the shares of
RPL was the loans given by RPL to the noticee, Smt. Sharmila Gang and Pratha
Investment. It is noted from the facts of the case that Pratha
Investments received 60 lakhs, Smt.
Sharmila Gang received 10 lakhs
and the noticee received 77.30 lakhs. It is also
noted that the purchase of shares from Shri. Pawan Kumar Agarwal and family
were made on the dates mentioned above, soon after the said entities received
the funds from RPL. Hence it is evident
that the entities acting in concert have utilized the money for purchasing the
shares of RPL from Shri Pawan
Kumar Agarwal and family. The manner in which the
shares were purchased from Shri Pawan
Kumar Aggarwal and family by the said entities
utilizing the funds given to them as loans by RPL immediately after the public
issue clearly indicate the
preconceived plan the on the part
of the said entities and the promoter
group. In this regard, it is pertinent to note that out of the money collected
in the public issue, Rs. 147 lakhs
which amounts to 67 % of the issue proceeds were disbursed as temporary loans
to the persons acting in concert. 16. In the light of the above facts, commonality of objective on the part
of the promoter group and the persons acting in concert with them is evident .
Hence as it is seen that common intention to acquire the said shares by the
promoter group and the persons acting concert is established from the facts and
circumstances of the case including the source of funds for the acquisition, it
is concluded that the promoters along with the persons acting in concert had
acquired the shares of RPL on the dates mentioned above. In view of the same,
the aggregate shareholding of the promoters and the persons acting in concert
has to be taken into account to find out any breach of the threshold limit
prescribed under the regulations. 17. The
shareholding of the promoters prior to purchase of the shares through the
persons acting in concert, is stated to be the
following. Ritesh Exports Ltd held 6,00,000 shares which amount to 8.71%, Shri.Ritesh
Agarwal held 4,01,200 shares amounting to 5.82%, Shri. Deepak Agarwal held
2,24,000 shares amounting to 3.25%, Shri Surender Kumar Agarwal held
13,81,300 shares amounting to 20.04%.and Smt. Rop Rekha Agarwal
holding 6,16,500 shares amounting to 8.95%. The aggregate shareholding of the
said entities amount to 46.77 % of the shares of the RPL. 18. As stated before, 20.86% of the shares were purchased
by the acquirers through persons acting in concert from Shri.
Pawan Kumar and family. Consequent to said acquisition of 20.86% from the sellers,
the aggregate share holding of the acquirers and the persons acting in concert
have increased from 46.77 % to 67.63% of the shares of RPL. As the promoters
were holding 46.77% shares in the company, acquisition of further shares was in
effect consolidation of their holdings in the company. In this regard,
Regulation 10 (2) of the repealed regulations states the following “An acquirer
who on the date of commencement of these regulations holds shares which carry
more than ten percent of the voting rights in the capital of the company, shall
not acquire any further shares in the company from the open market unless such
acquirer makes a public announcement of the intention to acquire shares in the
open market in accordance with the regulations. In this regard, it is also
pertinent to note that though consolidation of holdings is permitted to a
certain extent under Regulation 11(1) of the Take over Regulations 1997, the
same also prescribe a similar mandate in the following words “ No acquirer who together with persons
acting in concert with him has acquired in accordance with the provisions of
law 15 per cent or more but less than 55% of the shares or voting rights in a
company , shall acquire, either by himself or through or 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 31st
March unless such acquirer makes a public announcement to acquire shares in
accordance with the regulations. Hence even if benefit of 5% of consolidation of
holdings as permitted under Regulation 11(1) of the Takeover Regulations 1997
is accorded to the acquisition, however as the acquisition was of 20.86% of
shares, it has crossed the threshold limit prescribed under the regulations. 19. In view of the above provisions, it is concluded that
the acquirers along with the persons acting in concert had violated the
provisions of Regulation 10(2) of the Takeover Regulations. As stated before,
the Takeover Regulations 1994 has been repealed, by the Takeover Regulations
1997, by virtue of the provisions of Regulation 47 of the regulations the said
violation 10(2) of the repealed regulations is also a violation in terms of
Regulation 11(1) of the Takeover Regulations 1997. It is noted from the facts of the case no public
announcement and offer has been made by the acquirers and the persons acting in
concert in accordance with the mandate of the said regulations. In this regard, Section 15 H of the SEBI
Act as it stood on the date of acquisition on “If any person who is required under this
Act or rules or regulations made thereunder, fails to
make a public announcement to acquire shares at a minimum price, he shall be
liable to a penalty of an amount not exceeding five lakh
rupees. Hence the violation committed by the
acquirers and persons acting in concert attract the above penalty. 20. The provisions of Section 15J of the SEBI Act, 1992
and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalty by
Adjudicating Officer) Rules, 1995 require that while adjudging the quantum of
penalty, the adjudicating officer shall have due regard to the following
factors namely: 1.
The amount of
disproportionate gain or unfair advantage wherever quantifiable, made as a
result of default 2.
The amount of
loss caused to an investor or group of investors as a result of the default 3.
The repetitive
nature of default 21. With regard to the above factors to be considered
while determining the quantum of penalty, it is noted that the acquisition of
the shares from sellers was pursuant to a preplanned arrangement between the
acquirers and the persons acting in concert. It is evident from the facts of
the case that the sellers were advised to apply for the public issue of RPL and
as per the arrangement the said shares were to be purchased back in the manner
stated above as soon as money was received in the public issue. As the
promoters purchased the said shares through the persons acting in concert, the
same had exceeded the threshold limit of Regulation 10(2) of the Takeover
Regulations. In this regard, it is noted that with regard to the irregularities and violations of law found in
the public issue of RPL, SEBI vide order
dated 9.2.2004 issued many directions to
the promoters ( acquirers) and the persons
acting in concert with them. 22. In the present adjudication proceedings, with regard
to the loss caused to the investors, the same has to be assessed in terms of
the requirement of public announcement and the offer to be made to the public
to acquire shares in terms of the provisions of the Regulations when the
prescribed threshold limit was crossed by way of the acquisition. However no
quantifiable figures are available to assess the exact loss caused to the
investors. In this regard it is noted from the submissions of the noticee that
it has been consistently incurring losses over the years. The said fact cannot
be regarded as a mitigating factor considering the manner in which the shares
were acquired by the
noticee pursuant to the arrangement between the acquirers and the persons
acting in concert. Hence taking into
account the mandate of Section 15H of the SEBI Act as it stood when the
violation was committed by the noticee, and considering the facts and
circumstances of the case, I am of the view that the violations committed by
the noticee have to be viewed seriously.
It is noted that the name of the noticee has been changed to Greenfield Infotek Limited. Hence this order is passed against Greenfield Infotek Limited. ORDER 23. In view of the violation of Regulation 10(2) of the
Takeover Regulations 1994 committed by Greenfield Infotek
Limited as stated above, in exercise of the powers conferred under Section15 I
and Section 15 H of the SEBI Act, 1992, read with 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 (Rs.100,000) on Greenfield
Infotek Limited. 24. 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 General Manager, Corporation
Finance Department, Securities and Exchange Board of India, Mittal
Court B Wing, 224 Nariman Point, Mumbai- 400021. 25. 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 Greenfield Infotek
Limited and to Securities and Exchange Board of India. PLACE: Mumbai S.
Biju DATE : |
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