IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.68/2003
Date of decision: December 8, 2006
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Classic Credit Ltd.
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Appellant
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Versus
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Securities and Exchange Board of India ……
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Respondent
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Shri Z Andhyarujnia, Advocate along with Ms. Ruchira Gupta, Advocate for the appellant
Shri Kumar Desai, Advocate along with Ms. Daya Gupta, Advocate for the respondent
CORAM
Justice N. K. Sodhi, Presiding Officer
C. Bhattacharya, Member
Per: Justice N. K. Sodhi, Presiding Officer (Oral)
This order will dispose of a bunch of six Appeals nos.68 to 73 of 2003 in which identical questions of law and fact arise. All the appellants were issued two show cause notices dated 4th December, 2002 and 27th March, 2003 (hereinafter called the first and second show cause notice). In the first show cause notice it was alleged that the appellants and some others referred to therein while acting in concert with each other had acquired shares of Aftek Infosys Ltd., (for short the target company) and as on March 2, 2001 their aggregate holding constituted 15.28% of the paid up capital of the target company and since the appellants did not make a public announcement to acquire further shares of the target company in accordance with the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called the takeover code) they violated Regulation 10 of the takeover code. The charge in the second show cause notice was that the appellants together acquired more than 5% of the paid up capital of the target company without informing the said company and, therefore, they violated Regulation 7 of the takeover code. It was further alleged in the second show cause notice that “the entities 1-7 addressed in this notice are controlled by Ketan Parekh and are acting in concert as per his directions and control in the matter of acquisition of shares of AIL”. Both the show cause notices were considered by the adjudicating officer who, by his order dated April, 22, 2003 found that the appellants had violated both Regulations 7 and 10 of the takeover code and imposed on them a penalty of Rs.5 lacs each for violating Regulation 10 and another penalty of Rs.1.5 lacs each for violating Regulation 7 of the take over code. It is against this order that the present appeals have been filed.
The findings recorded by the adjudicating officer in regard to the violation of Regulation 10 of the takeover code need not detain us for long. By our order passed today in Appeal no.135 of 2003 which also arose from the same impugned order we have held that the total acquisition of the appellants collectively was less than 15% of the total paid up share capital of the target company and, therefore, they had not violated Regulation 10 of the takeover code. In view of that finding and for reasons recorded in that order we hold that the appellants herein had not violated Regulation 10 of the takeover code and the impugned order to that extent has to be set aside.
Now we shall deal with the second show cause notice. As already observed, the charge against the appellants is that they acting in concert with each other had acquired shares of the target company in excess of 5% of its paid up share capital and that they did not report this acquisition to that company and thus violated Regulation 7(1). It had also been pointed out to the appellants in the show cause notice that they were controlled by Ketan Parekh and that they were acting in concert as per his directions and control in the matter of acquisition of shares of the target company. It is common ground between the parties that the appellants did not file any reply to the second show cause notice. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them. They will be deemed to have admitted the fact that they were all controlled by Ketan Parekh and that they were acting in concert as per his directions and control while acquiring the shares of the target company. When we look at the chart referred to in the impugned order showing the total acquisitions made by the appellants and others it is clear that they together acquired 8.46% shares of the target company as on 2.3.2001. This fact is not disputed. It is also not in dispute that the appellants did not inform the target company of this acquisition. In this view of the matter the adjudicating officer was right in holding that the appellants had violated Regulation 7 of the takeover code which provides that any acquirer who acquires shares or voting rights which would entitle him to more than 5% shares or voting rights in a company in any manner whatsoever shall disclose the aggregate of his shareholding or voting rights in that company to the company. The word ‘acquirer’ has been defined to mean any person who acquires shares or voting rights either by himself or with any person acting in concert with the acquirer. In this view of the matter, no fault can be found with the finding of the adjudicating officer. What is contended by the learned counsel for the appellants is that even though the appellants did not file their reply to the show cause notice, they verbally denied the facts stated therein during the course of the adjudication proceedings. We do not think so. The counsel who appeared on behalf of the appellants before the adjudicating officer had only stated that the documents relied upon by the Securities and Exchange Board of India (for short the Board) did not suggest that all the appellants were linked with each other. This statement of the counsel does not amount to denial of facts as mentioned in the show cause notice. Be that as it may, when the counsel stated as aforesaid, the adjudicating officer clarified and pointed out to the counsel that all the appellants had been acting in concert with each other and that the basis for such an observation was their constitutions, their shareholding pattern, their directors and the common addresses which they all had. All this is recorded in the proceedings of the adjudicating officer held on April 21, 2003. Despite the fact that the adjudicating officer gave the aforesaid clarification, the appellants failed to produce any material on the record to show that they were not linked with each other or that Ketan Parekh was not dealing with them. They produced no material to show that they were not acting in concert with each other. The adjudicating officer was right in not accepting a mere denial on the part of the appellants which was only verbal. No fault can, thus, be found with the action of the adjudicating officer.
The learned counsel for the appellants then argued that the charge leveled against the appellants in the show cause notice is vague and that it was not alleged that they were “deemed to have acted in concert” with each other. The argument is that if such an allegation had been made, the appellants would have placed some material to show to the contrary. We have perused the show cause notice and also referred to the precise language used therein in the earlier part of this order. We do not think that the charge was vague. It was as precise as it could be. It was specifically mentioned therein that the appellants were controlled by Ketan Parekh and that they were acting in concert with each other and that they were acting under the directions of Ketan Parekh in the matter of acquisition of shares of the target company. We fail to understand as to what more was required to be stated therein. The shareholding pattern of the appellants was known to them and they also knew that Ketan Parekh was the person who was lurking behind the corporate veil and was controlling the companies in the matter of buying and selling shares in the stock market. It was for them to place material before the adjudicating officer to rebut the allegation. They did not do so despite the clarification given by the adjudicating officer during the course of the proceedings. We cannot, therefore, uphold the contention that the charge was vague or that the appellants did not know what precise allegations they had to meet. The learned counsel for the appellants relied upon the judgements of the Apex court in Lubri-Chem Industries Ltd. vs. Collector of Central Excise, Bombay 1994 (73) E.L.T.257, B.D. Gupta vs. State of Hryana (1973) 3 SCC 149 and Tarlochan Dev Sharma vs. State of Punjab and others(2001) 6 SCC 260 in support of his contention that the charge levied was vague. Since we have held that the charge was not vague, the case law relied upon does not advance the case of the appellants.
No other point was raised.
In the result, the appeals are partly allowed and impugned order in so far as it holds the appellants guilty of violating Regulation 10 of the takeover code is set aside. The other findings recorded by the adjudicating officer in regard to the second show cause notice are upheld. Let the appellants now pay the penalty amount within 45 days from the date of receipt of this order.
Before parting we may clarify that since Triumph International Finance India Ltd. has not filed an appeal against the findings recorded against it in the second show cause notice, those findings against the said company have become final.
No costs.
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Justice N. K. Sodhi
Presiding Officer
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C. Bhattacharya
Member
Smn/