ORDER OF THE ADJUDICATING OFFICER 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 DATTATRAYA KADIKAR, PROPRIETOR OF RDK COMPUDATA TECHNIKS FOR THE VIOLATION OF REGULATION 7(1) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
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 15A(b) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the alleged violation of Regulation 7(1) and 7 (2) 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. Dattatraya Kadikar, Proprietor, M/s. RDK Compudata Techniks (hereinafter referred to as the ‘acquirer’) pursuant to acquisition of 1, 303, 500 shares representing 10% of the paid up share capital of Netvista Information Technology Limited (hereinafter referred to as NIT) on February 1, 2000. It was alleged that pursuant to the said acquisition, the acquirer failed to comply with the provisions of Regulation 7(1) and (2) of the Takeover Regulations on account of its failure to make necessary disclosures with regard to its share holding as required under the Regulations.
NOTICE AND REPLY
2. The Adjudicating Officer issued a show cause notice no. A&E/472/04 dated June 11, 2004 under Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) to the acquirer seeking his reply on the alleged contravention of Regulation 7(1) of the Takeover Regulations. The acquirer replied to the notice vide his letter dated August 27, 2004 .In the said reply, the acquirer submitted the following
- The acquisition was in respect of transferring the Intellectual Property Rights in one computer software developed by them to NIT and the acquirers were offered the shares of NIT in lieu of cash. Therefore NIT was in full knowledge of the transaction and transfer of shares to the acquirer.
- The said shares were not acquired from the market but were offered to the acquirer by the company and NIT had agreed that it will take care of all the legal requirements in terms of Company Law, Stock Exchange Regulations, and SEBI Rules and requirements.
In view of the same, the transaction is not related to takeover of the company in any way and should not treated as such by SEBI and further treat the matter as closed.
I have been appointed as Adjudicating Officer in the place of Shri S.V. Krishna Mohan vide SEBI’s order dated September 30, 2004. After considering the reply submitted by the acquirer, it was felt that the acquirer may be granted an opportunity of hearing in the matter and accordingly the acquirer was advised to attend the hearing on October 18, 2004. However vide his letter dated October 13, 2004 the acquirer informed that he is not in a position to attend the said hearing. Vide the said letter the acquirer forwarded a copy of the agreement under which it was offered the shares and contended that as per the terms of the agreement it was the sole responsibility of NIT to take care of legal documentation and formalities required under various laws and as required by SEBI, Stock Exchange and the Registrar of Companies. Subsequently, the acquirer was granted opportunity to attend personal hearing on October 27, 2004 and November 8, 2004. However the acquirer failed to attend the hearing scheduled on the said dates. As the acquirer did not attend avail the opportunity of hearing granted to him, the enquiry is proceeded with on the basis of the material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS:
3. It is noted that the acquirer had acquired 1,303,500shares representing 10% of the paid up share capital of NIT on February 1, 2000. In this regard Regulation 7(1) of Takeover Regulations as applicable on September 30, 2000 provided that ;
“Any acquirer who acquires the shares or voting rights which (taken together with shares or voting rights, if any held by him) would entitle him to more than five percent shares or voting rights in a company, in any manner whatsoever shall disclose the aggregate of his share holding or voting rights in that company, to the company.”
Further, Regulation 7(2) of the Takeover Regulations stipulate that the said disclosures shall be made within 4 days of the receipt of intimation of allotment of shares or the acquisition of shares or voting rights as the case may be.
4. In its reply dated August 27, 2004, the acquirer stated that as the acquisition was in respect of transferring the Intellectual Property Rights in one computer software developed by him for NIT and the shares of NIT were allotted to him in lieu of cash the acquisition cannot be treated as an attempt to takeover the company. Further the acquirer also submitted that as the said shares were not acquired from the market but were offered to the acquirer by the company and NIT had agreed that it will take care of all the legal requirements in terms of Company Law, Stock Exchange Regulations, and SEBI Rules, NIT is responsible for complying with the legal requirements. This contention of the acquirer is not legally tenable as the provisions of Regulation 7(1) read with 7(2) clearly cast the obligation on the acquirer to make necessary disclosures. Hence the obligation to comply with the said provisions cannot be evaded by way of an agreement with the parties.
5. In this regard, it is pertinent to note that the mandate of Regulation 7 of the Takeover Regulations is to require any acquirer to report his holdings exceeding five percent of the shares and voting rights in a company to that company. The object of the provision is to ensure timely disclosures regarding the dominant holdings in a company. The provision requires the acquirers to disclose their identity to the company indicating the aggregate of the shares or voting rights held by them. Further the provision requires the company to disclose the same to the Stock Exchanges on which the shares of the company are listed so that the investors of the company are aware of the identity of the acquirers. Hence the provision provides for dissemination of information to the company and to the investors.
6. In view of the same, the acquirer was bound to comply with the disclosure requirements enumerated under the provisions of the Regulation 7(1) of the Takeover Regulations when its holdings in NIL crossed five percent on February 1, 2000. As the acquirer did not make the necessary disclosures in terms of the requirements of Regulation 7(1) when its holdings in NIL crossed five percent on February 1, 2000, it violated the provisions of Regulation 7(1) of the Takeover Regulations and hence is liable to the penalty prescribed under the provisions of Section 15A(b) of the SEBI Act, 1992.
7. Section 15A(b) of the SEBI Act as it stood on February 1, 2000 provided that if any person who is required under the Act, Rules or Regulations made thereunder to file any return or furnish any information, books or other documents within the time specified in the regulations, fails to file return or furnish the same within the specified time, he shall be liable to a penalty not exceeding five thousand rupees for everyday during which such failure continues.
8. 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 acquisition was not a market purchase but an allotment of shares in lieu of cash in consideration of transfer of intellectual property rights in respect of the a software sold to the company. .
9. In this regard, it is pertinent to note that Regulation 7 of the Takeover Regulations aims to ensure timely disclosures where the holdings of the acquirer exceeds five percent of the shares and voting rights in a company. The disclosure requirements in terms of Regulation 7 serves two purposes i.e the company is informed of sizable holding so that if necessary, it can take necessary measures to prevent the acquirer from dislodging the management. Further, as the said information is made available to the investors through the Stock Exchanges, the investing public will come to know of the position enabling them to take decisions as to whether to continue with the company or to exit from the company. Hence such disclosures help the public and the investors of the company to take well informed investment decisions. Hence, the investors were deprived of valuable information which would have been available to them had the acquirer made necessary disclosures in terms of Regulation 7(1) of the Takeover Regulations when its holding crossed the prescribed limit.
ORDER
In view of the violation of Regulation 7(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 by Shri Dattatraya Kadikar proprietor, RDK Compu Data Techniks pursuant to acquisition of 1,303,500 shares representing 10 % of Netvista Information Technology Limited, in terms of the provisions of Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and Section15A(b) of the SEBI Act, 1992, I hereby impose a penalty of Rs.50,000/- (Rupees Fifty thousand only) on Shri Dattatraya Kadikar proprietor of RDK Compu Data Techniks.
The penalty shall be paid by way of Demand Draft / Pay Order drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai and the same shall be sent to Shri S.V. Muralidhar Rao, General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai – 400 021.
| Date: December 31, 2004 |
Biju S. |
| Place: Mumbai |
Adjudicating & Enquiry Officer |
Cc: 1) Shri Dattatraya Kadikar
2) Securities and Exchange Board of India