Adjudication order against M/s Typhoon Holdings Ltd.

Feb 28, 2007

Orders : Orders of AO

ORDER

UNDER RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

Against

M/s Typhoon Holdings Ltd.

Podar Chambers,

109, S A Brelvi Road, Fort,

Mumbai 400001

1.0 Background

1.1 M/s Typhoon Holdings Ltd. is a company incorporated under the Companies Act,1956, having its registered office at Podar Chambers, 109, S A Brelvi Road, Fort, Mumbai 400001 and administrative office at B-29, Akansha CHS, Plot No. 101, Gorai-I, Borivali (West), Mumbai-400092. The shares of M/s Typhoon Holdings Ltd. (hereinafter referred to as “THL”) are listed on Bombay Stock Exchange, Mumbai. THL has an equity capital of Rs. 50,00,000/- comprising of 5,00,000 shares of Rs.10/- each.

1.2 On June 21, 2005, Smt. Kajal Shah residing at R-3, Palm Springs, 18^th Floor, Cuffe Parade, Mumbai – 400 005 entered into agreement for sale of 1,80,000 shares of THL with M/s Lotus Consulting (Mauritius) Ltd., promoter / promoter group shareholder of THL. As the agreement envisaged acquisition of 36% paid-up capital of THL by Smt. Kajal Shah, it necessitated an open offer for acquisition of shares from public in terms of regulation 10 and 12 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “Regulations”).

1.3 On July 05, 2005, M/s Fedex Securities Ltd. (hereinafter referred to as “FSL” or “Merchant Banker”) submitted the draft letter of offer for the public offer for acquisition of 20% of the equity share capital of THL by Smt. Kajal Shah (hereinafter referred to as “acquirer”) to Securities and Exchange Board of India (hereinafter referred to as “SEBI”). FSL also submitted the compliance status of various regulations under the Regulations by the promoters of THL / THL. On perusal of the status, it was observed by SEBI that THL had not complied with regulation 6(2) and 8(3) of the Regulations on many occasions. The relevant provisions of the regulations are mentioned below:-

“Transitional Provision

6. (1) Any person, who holds more than five percent shares or voting rights in any company, shall within two months of notification of these Regulations disclose his aggregate shareholding in that company, to the company.

(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.

(3) …..

(4) …..”

“Continual disclosures

8 (1) …..

(2) …...

(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 31st March.

(4) …..”

1.4 THL submitted the status of compliance with regard to disclosure of information as stipulated in the Regulations which is given below:-

Status of Compliance with the provisions of Chapter II of the Regulations

Sl. No.	Regulation / Sub Regulation	Due date for compliance as mentioned in the Regulation	Actual Date of Compliance	Delay if any (in no. of days)	Remarks
1	2	3	4	5	6
	6(2)	20.05.1997	Not complied with	2966	SEBI has proposed penalty of Rs. 1,75,000/- on consent. THL has agreed to the same.
	8(3)	30.04.1998	Not complied with	2621
	8(3)	30.04.1999	Not complied with	2256
	8(3)	30.04.2000	Not complied with	1891
	8(3)	30.04.2001	Not complied with	1526
	8(3)	30.04.2002	Not complied with	1161
	8(3)	30.04.2003	21.04.2003	No delay

	8(3)	30.04.2004	03.08.2004	95 days
	8(3)	30.04.2005	04.06.2005	35 days
	7(3)		N.A.	N.A.

1.5 It was submitted that in respect of the violations of regulations 6(2) and 8(3) upto 31.03.2002, SEBI had issued a notice for consent proceedings suggesting a penalty of Rs. 1,75,000/- on consent and that THL had agreed to the same. It was alleged that, however, THL had further contravened the provisions of regulation 8(3) of the Regulations for the financial years ended 31.03.2004 and 31.03.2005.

1.6 In view of above the undersigned has been appointed as Adjudicating Officer vide SEBI order dated January 31, 2006 to enquire into and adjudge under Section 15A (b) of SEBI Act, 1992 read with SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 for the alleged violations of regulation 8(3) of the Regulations by THL.

2.0 Notice / Reply / Personal Hearing

2.1 Accordingly, I issued a show cause notice dated September 26, 2006 to THL under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 to show cause as to why an inquiry should not be initiated against it and penalty be not imposed on it for its failure to make yearly disclosure to all the stock exchanges on which the shares of the company were listed in accordance with regulation 8(3) of the Regulations for the financial years 2003-2004 and 2004-2005. THL was advised to make submissions, if any, along with supporting documents, within 14 days from the date of receipt of notice. THL was also advised to note that in case it failed to reply within the stipulated time, it would be presumed that THL has no suitable explanation / reply and that the matter would be further proceeded with on the basis of evidence on record.

2.2 The show cause notice was received by THL and it submitted its reply vide letter dated October 06, 2006. In its reply, THL submitted as under :

“ We accept the fact that there was a delay in filing the return under SEBI takeover code for the financial year ended March 2004 and March 2005. SEBI have every right to impose penalty on the Company for the delay however we would request you to kindly consider the following:

1. The Company is not doing any business since last couple of years.

2. The Company is into financial crises.

3. The Company is complying with all the provision of the Companies Act and Listing Agreements.

4. The non compliance of SEBI takeover code was not intentional but due to oversight.

5. There is no trading in company shares for the past so many years.

6. The Company is not having a single employee who has knowledge of the related provisions of SEBI takeover code. Hence the defaults were committed not knowingly and not deliberately too.

7. The Company has been complying with the provisions within the specified time since 2006.

8. Also there is not a single complaint by any shareholders since past so many years.

In view of the above and since there are no employee and the company being into severe financial crisis we request you to kindly impose a reasonable penalty.”

2.3 In view of above, I was of the opinion that an inquiry be held in the matter and accordingly a notice of inquiry dated February 15, 2007 was sent to THL fixing February 22, 2007 as the date for personal hearing. THL, vide its letter dated February 19, 2007, reiterated its previous submissions made vide its letter dated October 06, 2006. In this letter THL also mentioned that as it had nothing more to submit, it would not want to appear for personal hearing on February 22, 2007.

3.0 Consideration of issues:

3.1 I now propose to discuss in detail the charge that has been leveled against THL for being adjudicated in the present proceedings, the documents available on record, the submissions made by THL and my findings on the same.

3.2 It has been alleged that THL failed to make timely disclosures as required under regulation 8(3) of the Regulations to the stock exchange where its shares are listed viz. Bombay Stock Exchange for the year ended 31.03.2004 and 31.03.2005.

3.3 Section 11(2) (h) of the SEBI Act, 1992 empowers SEBI to regulate substantial acquisition of shares and takeover of companies. This was done with the specific objective of protecting the interest of the investors, especially the small investors. Small investors are typically scattered, do not have a unified common voice to protect their interest, especially when there is a change in control or management etc. With this objective in mind, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 were promulgated which were subsequently replaced by SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The purpose of the Regulations is to ensure transparency of information and equal & fair treatment to all shareholders. Regulation 8(3) of the Regulations requires companies to make yearly disclosures to all the stock exchanges in which their shares are listed, about the changes, if any, in respect of shareholding of person/s who

( i) hold more than 15% of the company’s equity shares or voting rights

( ii). is promoter or is a person in control of the company

as on 31^st March of every year as well as on the record date for dividend declaration. Such information is to be filed within 30 days of 31^st March of every year and after record date for dividend declaration.

3.4. The shareholding of the promoters / persons in control of a listed company, is an important indicator to the general investors. A high level of shareholding and / or accretion of shares by the promoters / persons in control indicates their confidence in the company’s future prospects and vice-versa. The stock exchanges, on receipt of this information, disseminate it to the members of public thus enabling them to take informed decisions. Therefore, disclosure under regulation 8(3) is an important disclosure which has a bearing on the investment or disinvestment decisions of the investing public. The admitted default by THL in not complying with regulation 8(3) of the Regulations has to be considered with respect to its impact as discussed above.

3.5 In view of above, I am of the opinion that THL has violated regulation 8(3) of the Regulations for the financial years ended 31.03.2004 and 31.03.2005. In the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68SCL216(SC), the Hon’ble Supreme Court of India has held that penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant.

3.6 THL has requested that only a reasonable penalty may be imposed on it as, inter-alia, it is having a financial crisis and that the non compliance of SEBI takeover code was not intentional but due to oversight (refer para 2.2 above). I observe that THL has not submitted any proof of its having a financial crisis. Further, while for most years there was a substantial delay in complying with the requirement of regulation 8 (3) of the Regulations, the filing for year ended March 2002 was done within the stipulated time of 30 days from the end of the year. From the conduct of THL, I am more inclined to hold that it was casual or indifferent in its compliance with the Regulations.

3.7 In view of above, I am of the opinion that for violation of regulation 8 (3) of the Regulations for the financial years ended March 2004 & March 2005, THL is liable for penalty under Section 15 A(b) of the SEBI Act, 1992 which states as under:

“Penalty for failure to furnish information, return, etc.

15A. If any person who is required under this Act or any rules or regulation made thereunder,-

(a)……

(b) to file any return or furnish any information, books or other documents within the time specified therefore in the regulations fails to file return or furnish the same within the time specified therefore in the regulations, 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.

(c) …....”

3.8 While imposing penalty it is important to consider the factors stipulated in section 15J of SEBI Act, 1992 which states as under:

“15J Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely:-

(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;

(c) the repetitive nature of the default. “

3.9 THL has accepted that there was delay in filing the returns under the Regulations for the financial year ended March 2004 and March 2005. From the documents on record, it is not possible to ascertain the disproportionate gain or advantage to THL which may have accrued to THL on this account. Further it is also not possible to ascertain the loss to the investors in monetary terms. However, the investors were definitely deprived of the information on time and were thus impaired from taking informed investment decisions due to this lapse by THL. On perusal of the information submitted by THL, it is observed that THL has defaulted in compliance with the requirements stipulated in regulation 8(3) of the Regulations in most years between 1997 to 2005. While there were very substantial delays between the period 1997 to 2002, the disclosures for the financial year ended 31.03.2004 and 31.03.2005 were made with delays of 95 and 35 days respectively. There is thus adequate evidence on record to prove that the default by company is repetitive.

I understand that, under the SEBI consent order scheme, a penalty at the rate of Rs. 25,000/- per disclosure violation amounting to Rs. 1,75,000/- has been suggested to THL who has also agreed to the same. In the circumstances, in my opinion a penalty of twice this amount would be appropriate in the instant case i.e. a penalty of Rs. 50,000/- for each violation.

4.0 Penalty

4.1 Considering the material available on record, and upon a judicious exercise of powers conferred upon me under rule 5 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules 1995, I hereby impose a penalty of Rs.1,00,000/- (Rupees one hundred thousand only) on M/s Typhoon Holdings Ltd., under section 15 A(b) of SEBI Act, 1992. I think this amount would be appropriate in view of the facts of the case.

4.2 The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a crossed demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India “ and payable at Mumbai which may be sent to Mr. S.V.M.D. Rao, General Manager, SEBI, SEBI Bhavan, C – 4 A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

4.3 In terms of rule 6 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, a copy of this order is being sent to THL and to SEBI.

PLACE: MUMBAI PIYOOSH GUPTA