ORDER 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 SMT.ROOP REKHA AGARWAL .
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated November 27,2002 appointed Shri. S.V. Krishna Mohan as the Adjudicating Officer to inquire into and adjudge under Section 15I read with Section 15 H of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violation of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 alleged to have been committed by Smt. Roop Rekha Agarwal (hereinafter referred to as ‘the noticee’) by acquiring the shares of Ritesh Polyester Limited (hereinafter referred to as RPL) without making mandatory public announcement and public offer in terms of the provisions of Regulation 10(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (hereinafter referred as Takeover Regulations) and the corresponding provisions of Regulation 11(1) of Takeover Regulations 1997. Subsequently, I was appointed as the Adjudicating Officer in the place of Shri. S. V. Krishnamohan.
2. It is alleged that subsequent to the public issue of RPL, the noticee being a director and also belong to the promoter group of RPL, along with persons acting in concert, had acquired 20.86% of shares of RPL from Shri Pawan Kumar Agarwal and family without making an open offer and thereby violated the provisions of Regulation 10(2) of SEBI Takeover Regulations.
FACTS OF THE CASE
3. RPL came out with a public issue of 30,00,000 shares of Rs.10/- each at a premium of Rs.5/- per share. The issue opened on 12th June 1995 and the earliest closing date was 16th June, 1995 and final closing date was 22nd June 1995.
4. Investigation conducted by SEBI found that the issue did not receive the minimum subscription even after the devolvement period. Moreover, it was found that the noticee who was one of the promoters of RPL committed irregularities including misrepresenting that the issue received the minimum subscription by arranging for finance (in the garb of subscription) from Shri Pawan Kumar Agarwal and family (financiers). In this regard, SEBI vide its order dated February 9, 2004 issued various directions to RPL and its promoters namely Ritesh Exports Ltd, Shri. Surender Kumar Agarwal, Smt. Roop Rekha Agarwal, Shri. Ritesh Agarwal and Shri. Deepak Agarwal to dissociate from the capital market for a period of ten years and also to buy back the shares from the allottes of the public issue.
5. It is also alleged that subsequent to the public issue, the promoters of the target company RPL purchased the shares back from Shri. Pawan Kumar Agarwal and family, in the name of Pratha Investments (Proprietary concern of Smt.Sharmila Gang, wife of Shri Mukesh Gang, Auditor of Ritesh Polyester Limited) and Ritesh Capital which is stated to be a group company.
6. In view of the above factual scenario, it is alleged that the promoters of RPL along with persons acting in concert such as Pratha Investments, Smt, Sharmila Gnag and Ritesh Capital had acquired 20.86% of post issue capital of RPL from Shri. Pawan Kumar and family without making public announcement and open offer in terms of the provisions of Regulation 10(2) of SEBI Takeover Regulations 1994. Subsequently, as the Takeover Regulations 1994 has been repealed by SEBI (Substantial Acquisition of shares and Takeovers) Regulations 1997, and by virtue of the provisions of Regulation 47 of the Takeover Regulations 1997, the said violation is also a violation in terms of the provisions of Regulation 11 (1) of the Takeover Regulations 1997 as the substantive mandate of the said provisions are identical.
NOTICE AND REPLY
7. A Show Cause Notice dated June 8, 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 her.
8. The noticee vide her letter dated June 24, 2005 replied to the show cause notice. In the said reply, the noticee stated that she had not violated the provisions of Regulation 11(1) of the Takeover Regulations 1997 and Regulation 10(2) of the Takeover Regulations 1994.. The noticee further submitted that in this regard the order dated 9.2.2004 passed by SEBI may be perused as the same is self explanatory, with specific reference to Para 21 of the said order.
9. Upon considering the reply submitted by the noticee, it was felt that an inquiry may be held in the matter. In view of the same, the noticee was advised to attend the inquiry on July 21, 2005. Shri V.Harish Kumar Adocate, authorized representative of noticee attended the inquiry and made the following submissions :
· It is submitted that the noticee was not a promoter of RPL, and she had not purchased or acquired any shares either from the market or from Pawankumar Agarwal and family
· It was not necessary for the noticee to make the mandatory public announcement.
· In view of the same, the provisions of Regulation 10(2) of the 1994 Regulations or Regulation 11(1) of SEBI (Substantial Acquisition of shares and Takeovers) Regulations 1997 may not be invoked against her.
10. Subsequently, the noticee vide letter dated August 4, 2005 submitted certain details such as the prospectus of RPL at the time of the public issue and the details of the directors of RPL etc.
CONSIDERATION OF EVIDENCE AND FINDINGS
11. The issue for consideration in the mater is whether the noticee who is a director as well as stated to belong to the promoter group, had acquired along with persons acting in concert, shares of RPL in violation of the provisions of the Takeover Regulations. It is noted from the facts of the case that the company came out with a public issue and in the prospectus dated 30.3.2005 issued by the company in this regard states that, at the time of issue of the prospectus the issued subscribed and paid up capital of the company was 24,96,000 shares of Rs 10 each amounting to Rs. 2,49,60,000. Out of the proposed issue of 30,00,000 equity shares of Rs. 10 each on cash with a premium of Rs. 5 per share, 15,00,000 shares were reserved for firm allotment to the promoters , directors, their friends and relatives. It is further stated that shareholding of the promoters, their friends and relatives falling within the meaning of promoters as defined under the provisions of the SEBI Disclosure and Investor Protection Guidelines shall be subject to lockin in the manner specified in the prospectus.
12. It is noted that, other persons who are alleged to be involved in the acquisition namely Shri. Surender Kumar Agarwal, Shri. Ritesh Agarwal and Shri. Deepak Agarwal are stated to be close relatives of the noticee. As regards the entity Ritesh Exports, it is stated to be a group company and Shri. Surender Kumar Agarwal was the Managing Director of the company at the relevant point of time. The said entities are promoters in terms of the provisions of SEBI Disclosure and Investor Protection Guidelines as their shareholding was taken into account for the purpose of meeting the promoters contribution as per the terms of the public issue and was also subject to lockin in the manner specified in the prospectus. In the above scenario, as per the disclosures made at the time of the issue of the prospectus, it is pertinent to note that the promoters contribution include contribution from the noticee. In view of the same, it is concluded that the noticee was a promoter in terms of the provisions of SEBI Disclosure and Investor Protection Guidelines.
13. Further it is pertinent to note that in terms of the provisions of the Takeover Regulations, the term promoter include the following people
· The person or persons who are in control of the company , directly or indirectly, whether as a shareholder, director or otherwise or
· Person or persons named as promoters in any offer document
Where the promoter is an individual, a relative of the promoter within the meaning of Section 6 of the Companies Act. Though the said definition was added only in the 1997 Regulations, in the facts of the case on the basis of the contribution made by the noticee to meet the requirements of the promoters quota as required under the provisions of the SEBI Disclosure and Investor Protection Guidelines, the noticee was a promoter in terms of the guidelines.
14. With regard to the question whether the noticee along with other promoters had acted in concert with entities such as Ritesh Capital Ltd, Smt. Sharmila Gang, and her proprietory concern Pratha Investment (hereinafter referred to as the persons acting in concert) in acquiring the shares of the target company in violation of the provisions of the Takeover Regulations, it is pertinent to note that regulation 2(b) of the Takeover Regulations 1994 defines an acquirer in the following manner “ Acquirer means any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer.
15. 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 that 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 taken into account to determine whether the threshold limit prescribed in the regulations have been violated.
16. In this context, it is noted from the facts of the case that subsequent to the public issue, large amount of money was withdrawn from the issue proceeds which was stated to be given as short term loans to the persons acting in concert. It is noted from the facts of the case that soon after receipt of money, the same was utilized for the purpose of purchasing the shares of RPL from Shri. Pawan Kumar Aggarwal and family in the following manner.
|
Name of shareholder
|
Quantity
|
Sold to
|
Cheque / Draft
|
Date
|
Amount
|
|
Shri Basudev D.Agarwal
|
1,20,000
|
Ritesh Capital Limited
|
Draft
|
7/9/95
|
900000
|
|
Shri Rajkumar B.Agarwal
|
133000
|
Pratha Investment Cons.
|
Draft
|
5/9/95
|
997500
|
|
Shri Pawankumar B.Agarwal
|
120000
|
Pratha Investment Cons.
|
Draft
|
7/9/95
|
900000
|
|
Shri Pawankumar B.Agarwal
|
29200
|
Pratha Investment Cons.
|
Draft
|
9/9/95
|
219000
|
|
Smt.Savitridevi B.Agarwal
|
246400
|
Pratha Investment Cons.
|
Draft
|
9/9/95
|
1848000
|
|
Smt.Savitridevi B.Agarwal
|
92200
|
Ritesh Capital Ltd.
|
Draft
|
9/9/95
|
691500
|
|
Shri Nareshkumar B. Agarwal
|
126400
|
Ritesh Capital Ltd.
|
Draft
|
5/9/95
|
948000
|
|
Shri Nareshkumar B. Agarwal
|
9800
|
Pratha Investment Cons.
|
Draft
|
5/9/95
|
73500
|
|
Smt.Kalpana P. Agarwal
|
93300
|
Ritesh Capital Ltd.
|
Draft
|
5/9/95
|
699750
|
|
Smt.Sushilkumar N.Agarwal
|
133300
|
Pratha Investment Cons
|
Draft
|
7/9/95
|
999750
|
|
Ms.Preeta R. Agarwal
|
14100
|
Ritesh Capital Limited
|
Draft
|
6/9/95
|
105750
|
|
Smt.Sulochana R. Agarwal
|
216000
|
Pratha Investment Cons
|
Draft
|
9/9/95
|
1620000
|
|
Smt.Sulochana R. Agarwal
|
102600
|
Ritesh Capital Ltd.
|
Draft
|
9/9/95
|
769500
|
17. The fact of acquisition by Ritesh Captital ( presently known as Green field capital )is admitted in the reply dated August 4, 2005 submitted by the noticee and other promoters. The connection between the above mentioned promoter group and the persons acting in concert is evident from the following facts. Ritesh Capital is stated to be a group company of RPL. Further, Smt. Sharmila Gang is the wife of Shri.Mukesh Gang who was the auditor of the target company. Pratha Investment is the proprietory concern of Smt. Sharmila Gang.
18. As stated before, the source of funds for the purchase of the shares of RPL was given by way of short term loan to the said entities. The manner in which the shares were purchased from Shri Pawan Kumar Aggarwal and family by the said entities utilizing the funds given to them as loans by RPL immediately after the public issue clearly indicate the preconceived plan the on the part of the said entities and the promoter group. In this regard, it is pertinent to note that out of the money collected in the public issue, Rs. 147 lakhs which amounts to 67 % of the issue proceeds were disbursed as temporary loans to the persons acting in concert. It is also seen that the entities acting in concert have utilized the money for purchasing the shares of RPL from Shri Pawan Kumar Agarwal and family during the period 5.9.95 to 9.9.95. Hence the commonality of objective is evident from the facts relating to the acquisition. Hence as it is seen that common intention to acquire the said shares by the promoter group and the persons acting concert is established from the facts and circumstances of the case including the source of funds for the acquisition, it is concluded that the promoters along with the persons acting in concert had acquired the shares of the target company on the dates mentioned above. In view of the same, the aggregate shareholding of the promoters and the entities have to be taken in to account to see whether the threshold limit prescribed under the regulations have been violated.
19. Vide his letter dated August 4, 2005 the noticee forwarded the percentage of the shares held by her and other entities at the time of the transaction. It is noted from the said details that Ritesh Exports Ltd held 6,00,000 shares which amount to 8.71%, Shri.Ritesh Agarwal held 4,01,200 shares amounting to 5.82%, Shri. Deepak Agarwal held 2,24,000 shares amounting to 3.25%, Shri Surender Kumar Agarwal held 13,81,300 shares amounting to 20.04%.and the noticee was holding 6,16,500 shares amounting to 8.95%. The aggregate shareholding of the said entities amount to 46.77 % of the shares of the RPL.
20. As stated before, 20.86% of the shares were purchased by the acquirers through persons acting in concert from Shri. Pawan Kumar and family. Consequent to the said acquisition of 20.86% from the sellers, the aggregate share holding of the acquirers and the persons acting in concert have increased from 46.77 % to 67.63% of the share holding of RPL. As the promoters were holding 46.77% shares in the company, acquisition of further shares was in effect consolidation of their holding. In this regard, Regulation 10 (2) of the repealed regulations states the following “An acquirer who on the date of commencement of these regulations holds shares which carry more than ten percent of the voting rights in the capital of the company, shall not acquire any further shares in the company from the open market unless such acquirer makes a public announcement of the intention to acquire shares in the open market market in accordance with the regulations. In this regard, it is also pertinent to note that though consolidation of holdings is permitted to certain extent under Regulation 11(1) of the Take over Regulations 1997, the same also prescribe a similar mandate in the following words
“ No acquirer who together with persons acting in concert with him has acquired in accordance with the provisions of law 15 per cent or more but less than 55% of the shares or voting rights in a company , shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations. Hence even if benefit of 5% of consolidation of holding as permitted under Regulation 11(1) of the Takeover Regulations 1997 is accorded to the acquisition, however as the acquisition was of 20.86% of shares, it has crossed the threshold limit prescribed under the regulations.
21. In view of the above provisions, it is concluded that the acquirers along with the persons acting in concert had violated the provisions of Regulation 10(2) of the Takeover Regulations. As stated before, the Takeover Regulations 1994 has been repealed, by the Takeover Regulations 1997, by virtue of the provisions of Regulation 47 of the regulations the said violation 10(2) of the repealed regulations is also a violation in terms of Regulation 11(1) of the Takeover Regulations 1997. 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 this regard, Section 15 H of the SEBI Act as it stood on the date of acquisition on September 9, 1995 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 acquirers and persons acting in concert attract the above penalty.
22. The provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalty 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:
1. The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
2. The amount of loss caused to an investor or group of investors as a result of the default
3. The repetitive nature of default
23. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that the acquisition of the shares from sellers was pursuant to a preplanned arrangement. It is evident from the facts of the case that the sellers were advised to apply for the public issue of RPL and as per the arrangement the said shares were to be purchased back in the manner stated above as soon as money was received in the public issue. As the promoters purchased the said shares through the persons acting in concert, the same had exceeded the threshold limit of Regulation 10(2) of the Takeover Regulations. In this regard it is noted that with regard to the various irregularities and violations of law found in the public issue of RPL, SEBI vide order dated 9.2.2004 issued various directions to the promoters ( acquirers) and the persons acting in concert with them.
24. In the present adjudication proceedings, with regard to the loss caused to the investors, the same has to be assessed in terms of the requirement of public announcement and the offer to be made to the public to acquire shares in terms of the provisions of the Regulations when the prescribed threshold limit was crossed by way of the acquisition. However no quantifiable figures are available to assess the exact loss caused to the investors. Hence taking into account the mandate of Section H of the SEBI Act as it stood at the time of the violation 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 have to be viewed seriously. However, considering the fact that the acquisition of shares was a concerted effort on the part of the promoters and the persons acting in concert with them and the maximum penalty prescribed for the violation was rupees five lakh, I am of the view that a penalty of rupees one lakh may be imposed on the noticee.
ORDER
25. In view of the violation of Regulation 10(2) of the Takeover Regulations 1994 committed by Smt. Roop Rekha Agarwal 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, hereby impose a penalty of Rupees one lakh (Rs.100,000) on Smt. Roop Rekha Agarwal.
26. 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 General Manager, Corporation Finance Department, Securities and Exchange Board of India, Mittal Court B Wing 224 Nariman Point Mumbai 400021.
27. 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 Smt. Roop Rekha Agarwal and to Securities and Exchange Board of India.
| PLACE: Mumbai |
S. Biju |
| DATE : January 30, 2006 |
Adjudicating Officer |