Order Against Sunlog Credit (P) Ltd

 

 

1.     Wiezmann Capital Ltd, a merchant banker, filed a draft open offer document dated April 21, 2001 for acquiring 640,000 shares of Ketaki Estate & Finance Ltd (hereinafter referred to as ‘KEF’), on behalf of the acquirer Shri Jithendernath Alluri and persons acting in concert with him viz., Smt. Rajeshwari Alluri, Smt. Chintalapati Laxmidevi and Smt. Swati Alluri. KEF is listed public company having its registered office at Mumbai. As per the aforesaid draft offer document the acquirers, vide Memorandum of Understanding dated March 12, 2001, agreed to acquire 1,636,530 equity shares of KEF from the persons who were part of the promoter group 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, Subam 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’). The aforesaid agreement to acquire shares and the consequential change in control and management of KEF triggered the open offer for which the aforesaid offer document was filed. As per Para No.4.15 of the aforesaid offer document, chapter II of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘SAST’ Regulations) were not complied by the sellers.  Based on the aforesaid information with respect to the non-compliance of SAST Regulations by the sellers it was decided to launch adjudication under Sec. 15A(b) of SEBI Act, 1992 against the sellers.

2.     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 Sunlog Credit (P) Ltd., (hereinafter referred to as ‘SCL’ for the sake of brevity) to make disclosures of its share holding in KEF to the company, in violation of Regulations 6(1) & (3) and 8(1) and (2) of the SEBI (SAST) Regulations, 1997 under 15A(b) of the SEBI Act, 1992, vide order dated May 02, 2001.

3.     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. Krishna Mohan was appointed as Adjudicating Officer in the place of Smt Poonam Bamba vide order dated March 18, 2004 as the sellers 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.

4.     Notice dated July 10, 2001 was issued to SCL under Rule 4(1) SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 communicating the alleged violation of provisions of SEBI (SAST) Regulations, 1997 as detailed under:

Sl. No (1)	SAST Regulation (2)	Due date for compliance as per regulation (3)	Actual date of compliance (4)	Delay (no. of days) (4)-(3)
1	6(1) & (3)	20.04.1997	-	(not complied)
2	8(1) & (2)	21.04.1997	-	(not complied)
3	8(1) & (2)	21.04.1998	-	(not complied)
4	8(1) & (2)	21.04.1999	-	(not complied)
5	8(1) & (2)	21.04.2000	-	(not complied)
6	8(1) & (2)	21.04.2001	-	(not complied)

 

5.     The notice also called up on SCL to show cause as to why an inquiry in terms of the adjudication rules should not be conducted against it. However, despite receipt of the said notice, SCL did not reply to the notice. Subsequently, vide letter dated November 23, 2002, SCL submitted that it would avail amnesty scheme announced by SEBI.

6.     Notice of inquiry, was issued to SCL by Shri S.V. Krishna Mohan, the then Adjudicating Officer vide letter dated June 21, 2004, fixing August 12, 2004 as the date of inquiry, on noticing that SCL did not avail the amnesty scheme. However, SCL did not attend the proceedings. Instead, vide letter dated August 7, 2004, SCL denied having received the show cause notice dated July 7, 2001 and also denied having replied to the SCN vide its letter dated November 23, 2004. Vide the said letter, it was submitted interalia that it sold 70,000 shares of KEF in August 1996. SCL expressed its inability to attend the adjudication proceedings at Mumbai.

7.     One more opportunity of hearing was decided to be afforded to SCL  by Shri S.V. Krishna Mohan, the then Adjudicating Officer. Accordingly, vide letter dated September 22, 2004, SCL was informed that October 04, 2004 was fixed as the date of inquiry at Mumbai. Copies of the SCN dated July 10, 2001 and SCL’s letter dated November 23, 2002 were also enclosed alongwith the said notice of inquiry. However, despite receiving the said notice, SCL did not attend the proceedings. Instead vide letter dated September 30, 2004, SCL submitted that it did not reply to SEBI vide the letter dated November 23, 2002 and claimed that the said letter purportedly issued by it was fabricated by someone else. SCL further stated that it applied for and was allotted 70,000 shares of KEF in its rights issue and the same were sold in August 1996. Copies of sales bill and receipt from the purchaser were also furnished, in support of the said contention. The details of distinctive nos. certificate numbers of the share certificates and the sale price, buyers name and the bank details of the payments etc were also furnished. SCL denied that it was a promoter of KEF and stated that it neither had any connection with KEF nor acting in concert with KEF’s management. Further, SCL submitted that there were no common directors in SCL and KEF. It also stated that other than the share holding as above, it never held any shares of KEF and hence not covered under SEBI (SAST) Regulations, 1997. SCL once again expressed its inability to attend the inquiry at Mumbai and offered to furnish any other clarification, if required.

8.     In the above circumstances, the undersigned fixed a fresh date of inquiry on January 7, 2004 which was communicated to SCL vide letter dated December 22, 2004. The said notice of inquiry was sent by registered post with acknowledgement due and SCL did not attend the proceedings on the aforesaid date. However, vide letter dated January 1, 2005, SCL reiterated the contents of the letter dated September 30, 2004. 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 SCL waived its rights to attend the inquiry.

9.     The provisions of SEBI (SAST) Regulations, 1997 that are alleged to be violated as follows:

6(1) Any person, who holds more than five per cent 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.

 

6(3) A promoter or any person having control over a company shall within two months of notification of these regulations disclose the number and percentage of shares or voting rights held by him and by person(s) acting in concert with him in that company, to the company.

 

8(1) Every person, including a person mentioned in regulation 6 who hold more than fifteen percent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31^st March.

 

8(2) A promoter or ever person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.

 

10. SCL has denied holding any shares of KEF other than the 70,000 shares it sold in August 1996. The material on record does not give details of shares that are alleged to be held by SCL in the relevant period. Even assuming that SCL did hold shares of KEF which enabled it to apply for the rights issue of KEF, and it continued to hold them in the relevant period, the material available on record does not provide any details viz. percentage and number of share of KEF held by SCL. Therefore, in the absence of the aforesaid information of shares held by SCL in the relevant period, the undersigned is inclined to give SCL the benefit of doubt as regards the alleged violation of Regulation 6(1) of SEBI (SAST) Regulations, 1997.

11. SCL also denied that it was part of the promoter group of KEF. Moreover, the material on record does not have any material to evidence that SCL is a promoter of KEF. SCL is mentioned as a promoter in the offer document dated April 21, 2001 issued by the acquirer, as discussed earlier. Since, this was not issued by KEF or the sellers, SCL cannot be conclusively established as a promoter of KEF as defined in Regulation 2(1)(h)(ii) of SEBI (SAST) Regulations, 1997. Therefore, violation of regulation 6(3) of SEBI (SAST) Regulations, 1997 is not established.

12. The aforesaid finding is applicable mutatis mutandis in respect of regulation 8(2) also. Therefore, violation of regulation 8(2) of SEBI (SAST) Regulations, 1997 is also not established.

13. Violation of regulation 8(1) of the SEBI (SAST) Regulations, 1997 is also not established as it pertains to annual disclosure by persons who hold more than 15% of the target company’s equity and the material on record does not provide information on the shareholding of SCL, as already discussed. The above findings are summarized in table below.

 

14. The violations thus being not established as above, the undersigned decided not to impose any penalty on SCL.

15. 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 the company and also to SEBI.

 

 

 

Date: January 11, 2005                                A. Chandra Sekhar Rao

Place : Mumbai                                              Adjudicating Officer