ADJUDICATION ORDER NO. - BS/AO-3/2007
ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH 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 HOZEFA VOHRA.
- Securities and Exchange Board
of India (hereinafter referred to as �SEBI�) vide order dated May 13, 2003 appointed Shri. S.V.
Krishna Mohan as the Adjudicating Officer to inquire into and adjudge
under Section 15I read with Sections 15A, 15H and 15HA of the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as the
�SEBI Act�), the violations alleged to have been committed by� Shri Hozefa Vohra (hereinafter
referred to as �the noticee�). It is alleged that the noticee failed to
furnish to SEBI, information regarding his dealings in the scrip of Sun Infoways Ltd. (hereinafter referred to as SIL).
Further, it is also alleged that the noticee violated the provisions of
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
(hereinafter referred to as Takeover Regulations) by acquiring the shares
of SIL without making mandatory public announcement and public offer in
terms of the provisions of Regulations 10 and 12 of the Takeover
Regulations. It is further alleged that the noticee indulged in circular
trading in the scrip of SIL and indulged in fraudulent and unfair trade
practices. Subsequently, I was appointed as the Adjudicating Officer in
place of Shri.S.V.Krishnamohan.
FACTS OF THE CASE
- It is noted from the records
that SIL was promoted by Shri Shrikant Vasant Jogelkar and Shri Sujit Shrikant Jogelkar in June 1994 as Best Mulyankan
Consultants Pvt. Ltd. and the name of the company was changed to Sun Infoways Ltd. with effect from 11th
May 2000.
- During the course of the
investigation conducted by SEBI, the original promoter Shri
Shrikant Vasant Jogelkar submitted that after the public issue of SIL,
he was not able to service the issue proceeds and therefore wanted to exit
from the company. Therefore, Shri Jogelkar and his family members sold their stake in
SIL for a total consideration of Rs.98,34,659/-
(Rs.4.95/- per share) to a group of people (herein after referred to as
the �acquirers�) who were also appointed as directors of SIL. In the light
of the above factual scenario, it is alleged that the noticee along other
persons acting in concert had acquired 98% of the shares of SIL from Shri Shrikant Vasant Jogelkar and his
associates without making public announcement and open offer in terms of
the provisions of Regulations 10 and 12 of the Takeover Regulations.
- Further, it is also alleged
that the Investigating Authority of SEBI issued summons dated August 26,
2002 to the noticee requiring
the noticee to submit certain information pertaining to his dealing in the
scrip.� Further, the noticee was
also required to be present before the investigating authority.� In this regard, it is alleged that the
noticee failed to comply with the said summons. It is further alleged �that the
noticee indulged in circular trades and fraudulent and unfair trade
practices that makes it liable to the penalty under Section 15HA of the
SEBI Act.
NOTICE AND REPLY
- A
Show Cause Notice (hereinafter referred to as �SCN�) A&E/BS/35857/2005
dated March 11, 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 him.
- It is
noted that the said notice sent by registered post was returned
undelivered and in view of the same, substituted service of the notice was
effected on December
29, 2005.
- It is
noted that the noticee did not reply to the show cause notice within the
stipulated time. However considering the facts of the case, it was decided
to conduct an inquiry in the matter and the noticee was granted an opportunity
of hearing on March 2, 2006. It is noted that the
noticee did not attend the hearing scheduled on March 2, 2006.
- As the noticee failed to reply
to the show cause notice despite being granted sufficient time and
opportunities to do so, the inquiry is proceeded
on the basis of the facts and material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
- The first allegation against
the noticee is that he failed to comply with the summons dated August 26,
2002 issued by investigating authority and in view of the same, he is
liable to the penalty prescribed under Section 15 A (a) of the SEBI Act,
1992.� In this regard, it is
pertinent to note that Section 11C (3) of the SEBI Act empowers the
investigating authority of SEBI to require any person associated with the
securities market to furnish such information or to produce such records
as may be required by the investigating authority.� Further, Section 11 C (5) empowers the
investigating authority to examine such persons. Timely submission of
information is very important for concluding investigation proceedings and
non co-operation by an entity can be detrimental to the interests of
investors and securities market on account of any delay in the
investigation.
- In this regard, the provisions
of Section 15A(a) of SEBI Act provides the following:
Penalty for failure to furnish information,
return, etc.: If any person, who is required under this Act or any rules or
regulations made thereunder, to furnish any document,
return or report to the Board, fails to furnish the same, he shall be liable to
a penalty of one lakh rupees for each day during
which such failure continues or one crore rupees,
whichever is less.
- During
the course of the investigation, prima-facie it appeared to the
investigating authority that the noticee acquired the shares of SIL during
the relevant period.� In view of the
same, vide summons dated August 26,
2002, the noticee was advised to appear in person
before the investigating authority.
- On
perusal of the records, it is noted that no
proof of delivery of the said summons is available on record. In the
absence of proof of service of notice, the same cannot be deemed to have
been served on the noticee.� The
Honorable Securities Appellate Tribunal in the matter Appeal No.5 of 2006
Jay Shah Vs. SEBI held that proof of service of summons have to be
necessarily taken into account while deciding questions of failure to
comply with summons.� The observations
of the Honourable Tribunal are taken into account for necessary guidance.
- In
the present case no proof of service of
summons is available on record.�
Further it is also noted that only one notice was issued by the
investigating authority to the noticee. In view of the same, in the facts
and circumstances of the case it cannot be concluded that the noticee
failed to comply with the summons issued by the investigating authority.
- The second issue for
consideration in the matter is that whether the noticee indulged in
circular trading and fraudulent and unfaie trade
practices and is thereby liable to the penalty prescribed under Section
15HA of the SEBI Act. Investigation
report suggests that large number of transactions were executed by many
entities who appear to be connected and on the basis of which, it is alleged
that the purpose of such transactions are for creation of artificial
interest in the scrip. The price of the scrip is noted to have increased
from Rs.10 on Feb 9, 2000 to Rs.700 on 5.9.2000. In view of
the same, alleged violations of the provisions of SEBI (Fraudulent and
Unfair Trade Practices Relating to Securities Markets) Regulations 1995
were also observed.
- However, it is
pertinent to note in this regard that the trading details of noticee are not
made available in this adjudication proceedings in support of the
allegation that the noticee indulged in circular trading or fraudulent and
manipulative trade practices. In view of the same, on the basis of the
evidence made available in this adjudication proceedings,
it can not be concluded that the noticee is liable to the penalty prescribed under Section 15HA of the
SEBI Act.
- The third issue for
consideration in the matter is whether the noticee along with persons
acting in concert had acquired the shares of SIL in violation of the
provisions of the Takeover Regulations. It is noted from the facts of the
case that in January 2000, Shri Shrikant Vasant Jogelkar and his family members sold their 98% stake
in SIL for a total consideration of Rs.98,34,659/- (Rs.4.95/- per share)
to a certain group of persons namely Shri Anil Pujari, Shri. Tanvir Zaki, Shri. Hozefa Vohra, Shri. Rajan Tawate, Shri. Pravin Sonalkar and Shri.Kuldeep
Kumar Handoo.
�
- It is pertinent to note that
thereafter Noticee was appointed as the Director of SIL on 19.2.2000 alongwith Anil Puzari, Tanvir Zaki, Rajan Tawate, Pravin Sonalkar, Hofeza Vohra and Kuldeep Handoo. This
indicates that the said acquisition had resulted in change in management
of the company and also the above persons obtained control over management
of SIL.
- With regard to the question
whether the noticee acted in concert with other persons such as Tanvir Zaki, Anil Puzari, Rajan Tawate, Pravin Sonalkar and Kuldeep Kumar Handoo in acquiring the shares of SIL in violation of
the provisions of the Takeover Regulations, it is pertinent to note
that� regulation 2(b) of the
Takeover Regulations 1997 defines an acquirer in the following manner
-� �Acquirer means any person who
directly or indirectly acquires or agrees to acquire shares or voting
rights in the target company or acquires or agrees to acquire control over
the target company either by himself or with any person acting in concert
with the acquirer�. 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 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 be taken into account to determine whether the
threshold limit prescribed under the regulations have been breached.
- It is noted that the
acquisition enabled the said group of persons to obtain substantial number
of shares and voting rights and consequent to the said acquisition, the
acquirers also gained control over the target company as evident from
their being appointed as directors on the board of SIL. In view of the
same, the aggregate shareholding of the noticee and persons acting in
concert has to be taken into account to see whether the threshold limit
prescribed under the regulations have been breached.� It is noted from the facts of the case
that the acquirers including the noticee were not holding any shares prior
to the said acquisition. Further consequent to the said acquisition, the
aggregate share holding of the acquirers reached 98% of the total shares
and voting rights in SIL.
- In this regard, Regulation 10
of the Takeover Regulations, prescribe that no acquirer shall acquire
shares or voting rights which (taken together with shares or voting
rights, if any, held by him or by persons acting in concert with him),
entitle such acquirer to exercise fifteen percent or more of the voting
rights in a company, unless such acquirer makes a public announcement to
acquire shares of such company in accordance with the regulations.
- Further regulation 12 of the
Takeover Regulations provides that no acquirer shall acquire control over
the target company unless such person makes a public announcement to
acquire shares and acquires such shares in accordance with the
regulations.
- As the acquisition had resulted
in acquirers acquiring 98% of shares and voting rights in SIL, the
requirement of public announcement and offer to acquire the shares from
the general public has to be necessarily adhered to. Further, the noticee
and persons acting in concert had acquired control over the target company
as consequent to acquisition of shares, the said persons were appointed as
directors of SIL on February 1, 2000 and the noticee was appointed Director Technical
w.e.f. 19.2.2000. Hence the requirement of
public announcement and public offer in terms of Regulation 12 also has to
be adhered to. In this regard, it is noted from the evidence available on
record that no public announcement and offer in terms of the provisions of
Regulation 10 and 12 have been made by the acquirers.
�
- Further on the basis of the
evidence available on record, it is seen that the said acquisition is not
under any of the exempted categories under Regulation 3 of the Takeover
Regulations.� 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 view of the same, it is
concluded that as the noticee failed to make necessary public announcement
and offer in terms of Regulation 10 and 12 of the Takeover Regulations, he
violated the provisions of Regulations 10 and 12 of the Takeover
Regulations. The above violations attract the penalty under Section 15H of
the SEBI Act.
- In this regard, It is pertinent to
refer to the order of the Hon�ble Securities
Appellate Tribunal in Appeal No.151/2004 in the matter of Rameshchandra Mansukhani NRI
Vs SEBI wherein the Honourable Tribunal held that the penalty existing on
the date of commission of the violation should be imposed and not enhanced
penalty which came into being by way of subsequent amendment. The order
passed by the Honourable Tribunal is relied upon in this case.
- In this regard, Section 15 H of
the SEBI Act as it stood on the date of acquisition on 29th
January 2000 provided the
following.
�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 noticee attracts the above penalty.
- The provisions of Section 15J
of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding
Inquiry and Imposing Penalties 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:
- The amount of
disproportionate gain or unfair advantage wherever quantifiable, made as
a result of default
- The amount of loss caused
to an investor or group of investors as a result of the default
- The repetitive nature of
default
- With regard to the above
factors to be considered while determining the quantum of penalty, it is
noted that no quantifiable figures are available to ascertain the loss to
the investors or gain accrued to the noticee. However, not making public
announcement and offer as mandated under the Takeover Regulations deprives
the small investors of an exit opportunity and hence is detrimental to the
interests of small investors. Hence taking into account the mandate of
Section 15 H of the SEBI Act as it stood at the time the violation was
committed by the noticee, and considering the facts and circumstances of
the case, I am of the view that the violation committed by the noticee has
to be viewed seriously and attract the maximum penalty prescribed by the
statute.
ORDER
- In view of the violation of the
provisions of Regulation 10 and 12 of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 committed by Shri
Hozefa Vohra 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, impose a penalty of Rs.5,00,000/- (Rupees Five Lakhs)
on Shri Hozefa Vohra.
- 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
Deputy General Manager, Investigation Department � ID8, Securities and
Exchange Board of India, Plot No.C4-A, �G� Block, Bandra
Kurla Complex Bandra
(East), Mumbai 400 051.
- 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 Hozefa Vohra and to Securities and Exchange Board of India
Place: Mumbai������������������������������������������������������� Biju. S
Date:� January 25, 2007��������������������������� ����������� Adjudicating Officer