Order against Ketaki Estate and Finance Limited

SECURITIES AND EXCHANGE BOARD OF INDIA

ADJUDICATION ORDER IN THE MATTER OF KETAKI ESTATE & FINANCE LTD., UNDER SECTION 15 I OF THE SEBI ACT READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

AGAINST

ABHILASHAA SECURITIES PRIVATE LIMITED

(INS 011209934)

1. Wiezmann Capital Ltd, a merchant banker filed draft offer document dated April 21, 2001 with respect to the acquisition of the shares of Ketaki Estate & Finance Ltd (hereinafter referred to as ‘KEF’ for the sake of brevity), a listed public company having its registered office at Mumbai. The aforesaid offer document was issued by Shri Jithendernath Alluri, Smt. Rajeshwari Alluri, Smt. Chintalapati Laxmidevi and Smt. Swati Alluri (herein after referred to as the ‘acquirers’) for the acquisition of shares of KEF. As per the aforesaid draft offer document the acquirers were holding an aggregate number of 1636530 equity shares of KEF and vide open offer made to the shareholders of Ketaki Estate & Finance Ltd, it was proposed to acquire an aggregate number of 640000 equity shares. Para No.4.15, chapter II of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘SAST’ Regulations) were not complied with either by the following entities viz., Expert Hotel & Properties Pvt Ltd, Fundamental Finvest Pvt Ltd, G.S. Modi, M. Chand Distributing Co. Pvt Ltd, Narayan Distributors Pvt Ltd, New Ways Finance Pvt Ltd, Nikat Finlease Ltd, Rajhans Exports Pvt Ltd, RKM Securities Pvt Ltd, Saraf Credit & Portfolio Pvt Ltd, Sincere Management Services Pvt Ltd, Shubam Capital Services Pvt Ltd, Tyagi Trading Pvt Ltd, Prabhat Management Services Pvt Ltd, RRP Management Services Pvt Ltd, Joginder Associates Pvt Ltd, R.K. Bansal Finance Ltd, Sunlog Credit Pvt Ltd, Medusa Associates Pvt Ltd, (hereinafter collectively referred to as ‘the sellers’ nor by KEF. Based on the aforesaid information with respect to the non-compliance of SAST Regulations by Ketaki Estate & Finance Ltd and the aforesaid sellers it was decided to launch adjudication against KEF and the sellers.

1. Chapter II of the SAST Regulations, interalia, contained the following provisions:

 

6(2) Every company whose shares are held by the persons referred to in sub–regulation (1) shall within three months from the date of notification of these regulations , disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person.

 

6(4) Every company, whose shares are listed on a stock exchange shall within three months of notification of these regulations, disclose to all the stock exchanges on which the shares of the company are listed, the names and addresses of promoters and/or person(s) having control over the company, and the number and percentage of shares or voting rights held by each such person.

 

8(3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1)and also holdings of promoters or person(s) having control over the company as on 31^st March

 

SEBI appointed Smt. Poonam Bamba as the Adjudicating Officer under Rule 3 of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 read with Section 15 I of SEBI Act, 1992 to inquire into and adjudge the failure of KEF to make disclosures of its share holding to the stock exchanges in which it is listed, in violation of Regulations 6(2) & (4) and 8(3) of the SEBI (SAST) Regulations, 1997 under 15A(b) of the SEBI Act, 1992, vide order dated May 08, 2001 against the abovesaid entities.

 

2. In view of the launching of the amnesty scheme by SEBI in the year 2002, the matter was kept in abeyance. Subsequently, Shri S.V. Krishnamohan was appointed as Adjudicating Officer vide order dated March 18, 2004 as KEF did not avail the amnesty scheme. Thereafter, vide the order dated December 07, 2004 the undersigned has been appointed as Adjudicating Officer in the matter.

 

3. Notice dated July 10, 2001 was issued to KEF under Rule 4(1) SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 communicating the alleged violation of Regulations 6(2) and (4) for the year 1997 and 8(3) for the year 1997, 1998, 1999 and 2001 of SEBI (SAST) Regulations, 1997.

 

4. The said notice also called up on KEF as to why an inquiry in terms of the adjudication rules should not be conducted against it. However, despite receipt of the said notice, KEF did not file any reply. In the above circumstances, the then Adjudicating Officer, Shri S.V. Krishnamohan issued a notice of inquiry dated June 21, 2004 to Ketaki Estate & Finance Ltd under the rules, fixing the date for inquiry for August 12, 2004. KEF did not attend the proceedings despite acknowledging having received the notice of inquiry.

 

5. Therefore, the undersigned decided in terms of Rule 4(7) of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 to proceed with the inquiry as it appeared that KEF deliberately failed to appear for the inquiry.

 

6. The merchant banker to the aforesaid open offer, Weizmann Capital Ltd., in its filing dated April 24, 2001 stated [page 2, para d(ii)] that the KEF did not comply with the provisions of takeover regulations pertaining to transitional and annual disclosures.

 

7. In the absence of any reply received from KEF despite giving it all reasonable opportunities to refute the allegations leveled against it, the undersigned concludes that all the allegations leveled against KEF are true and correct and KEF has nothing on record to prove its compliance with the provisions of law to the effect that KEF has made the disclosures pertaining to shareholding of persons holding more than 5% of its equity and shareholding of its promoters and persons acting in concert with them to the stock exchanges within the stipulated period in 1997. Therefore the undersigned finds KEF guilty of violating regulation 6(2) and (4) and Regulation 8(3) of SEBI (SAST) Regulations, 1997.

 

8. The aforesaid finding is applicable mutatis mutandis in respect of violation of Regulation 8(3) for the subsequent years also as there is no response from KEF to suggest that KEF has made the annual disclosure for the years 1997 to 2001. The undersigned is constrained to find KEF guilty of violating Regulation 8(3) of SEBI (SAST) Regulations, 1997. The above findings are summarized in table below.

 

SEBI (SAST) Regulations, 1997		For the year		Violation established
6(2) & (4)		1997		Yes
8 (3)		1997		Yes
8 (3)		1998		Yes
8 (3)		1999		Yes
8 (3)		2000		Yes
8 (3)		2001		Yes

 

9. SEBI came out with a Regularization Scheme in the year 2002 for non compliance with Regulations 6 and 8 of the SEBI (SAST) Regulations, 1997’. This scheme was open from October 01, 2002 to December 31, 2002 and subsequently extended till March 31, 2003. It is unambiguous from the material available on record (ON2576/03 dated December 16, 2003) that KEF has not participated in the said amnesty scheme.

 

10. Therefore, the only question that remains is the quantum of penalty to be imposed on KEF. The information on shareholding of persons with more than 5% of a company’s equity and the information on holding of promoter are vital to the investors as it has bearing on the control and management of the target company. When there is more than one promoter, it is imperative that the information on their individual and aggregate shareholding is made available to the investors, through the stock exchanges. However, when the target company continuously fails to disclose its shareholding pattern to the stock exchange, as in the instant case, then investors would be unable to take informed investment decisions.

 

Section 15A(b) of Securities and Exchange Board of India Act, 1992 prescribes a punishment of five thousand rupees for every day during which the violation continues, if any person who is required under the Act or any rules or regulations made thereunder to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations with effect from October 29, 2002, the aforesaid punishment has been increased to one lakh rupees for each day or one crore rupees whichever is less.

  

11. In order to determine the quantum of penalty under Section 15A(b), the undersigned considered the following factors as provided in the section 15J of Securities and Exchange Board of India 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.

 

12. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of KEF. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default. However, the default in making disclosures to the Stock exchanges were repetitive in nature in as much as KEF did not also avail the amnesty scheme, despite not making the transitional and annual disclosure under the Regulations.

 

13. Therefore, in exercise of the powers conferred under section 15-1(2) of the SEBI 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. I hereby impose a penalty of Rs 1,00,000/- (Rupees One Lakh only) on Ketaki Estate & Finance Ltd. for the aforesaid violations. The company 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.Muralidhar Rao, General Manager, Division of Corporate Restructuring, Securities and Exchange Board of India Mittal Court, 1^st floor, B- Wing, 224, Nariman Point, Mumbai 400 021.

 

14. In terms 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 KEF and also to SEBI.

A. Chandra Sekhar Rao

Adjudicating Officer