BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Date of Hearing: 5th July, 2004
Date of decision: 13th July, 2004
Appeal No.143/2003
In the matter of
Shri Deven Mehta Appellant – Represented by
Ms. Prarthana Awasti, Advocate
Versus
G. S. Reddy,
Adjudicating Officer, SEBI Respondent – Represented by
Shri Subhash Jha, Advocate
And
Appeal No.144/2003
In the matter of
S. J. Impex Appellant – Represented by
Ms. Prarthana Awasti, Advocate
Versus
G. S. Reddy,
Adjudicating Officer, SEBI Respondent – Represented by
Shri Subhash Jha, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Per : Dr. B. Samal, Member
The above two appeals were taken up together for hearing with the consent of both the parties.
2. The appeals are against the impugned order dated 18th July, 2003 imposing penalty of Rs.2,50,000 on Shri Deven Mehta and S. J. Impex, the appellants for contravention of regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. An Adjudicating Officer has been appointed in terms of rule 5 of SEBI (Procedure for holding enquiry and imposing penalties by adjudicating officer) Rules, 1995 read with section 15 I of the Securities and Exchange Board of India Act, 1992.
2. There has been allegation that Shri Deven Mehta (the first appellant) as an acquirer along with S. J. Impex (second appellant) and Eden Mercantile Pvt. Ltd., had acquired shares in excess of 5% of the paid up equity capital of VSL but they did not disclose the same to the company i.e. VSL. As the required information was not disclosed to VSL the same in turn was not disclosed to the stock exchanges or to the investors by VSL as per the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 which indicates that the acquirer is required to disclose his holding in excess of 5% of the paid up equity capital of the company. The investigation reports stated that Shri Deven Mehta had acquired 7,55,100 shares to VSL along with persons acting in concert i.e. S. J. Impex and Eden Mercantile Pvt. Ltd., which was in excess of 5% of the paid up equity capital of the company.
3. The findings in the investigation report has been indicated as under:
(i) The report did not substantiate any material or fact or data to show that Shri Deven Mehta (the appellant) is the person who acted in concert with Eden. The adjudicating officer has given the benefit of doubt to the appellant on this account.
(ii) As regards the issue of Shri Deven Mehta acting in concert with S. J. Impex the investigation report has mentioned that they are associate companies which was refuted by Shri Deven Mehta on the basis that Shri S. J. Mehta, proprietor of S. J. Impex being father of Shri Deven Mehta or Shri Deven Mehta appearing on behalf of his father Shri S. J. Mehta should not be construed as evidence to show that Shri Deven Mehta acted in concert with S. J. Impex. The definition of “person acting in concert is:
“any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2% of the paid up capital of the latter company.”
Note: For the purposes of this clause ‘associate’ means:
(a) Any relative of that person within the meaning of section 6 of the Companies Act, 1956 (I of 1956); and
(b) Family trusts and Hindu Undivided Families
Having the word “Relative” been included for the purpose of defining an associate, now it is required to verify the word “relative as per Companies Act, 1956. The Section 6 of the companies Act has defined the word “Relative”, which is as under:
Meaning of “relative”.—A person shall be deemed to be a relative of another if, and only if, --
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) the one is related to the other in the manner indicated in Schedule I-A
SCHEDULE I-A
List of Relatives
1. Father 12. Son’s daughter
2. Mother (including step-mother) 13. Son’s daughter’s husband
3. Son (including step-son) 14. Daughter’s husband
4. Son’s wife. 15. Daughter’s son
5. Daughter (including (step-daughter) 16. Daughter’s son’s wife
6. Father’s father 17. Daughter’s daughter
7. Father’s mother 18. Daughter’s daughter’s husband). 8. Mother’s mother 19.Brother (including step-brother).
9. Mother’s father 20. Brother’s wife
10. Son’s son 21. Sister (including step-sister)
11. Son’s son’s wife 22. Sister’s busband
The respondent found that shri Deven Mehta being the son of Shri S. J. Mehta, the companies promoted by both these persons would fall in the definition of associate companies.
5. The respondent had found that Shri Deven Mehta had acquired 3,91,000 shares by the end of Settlement No.47 which is in excess of 5% equity of VSL, while taking into account that the total equity capital of VSL comprised of 74,46,165 shares of Rs.10/- each amounting to Rs.7,44,61,650/- and 5% would equal to 3,72,308 shares of Rs.10/- each. The appellants have not contested nor did they dispute the acquisition of shares as shown in the investigation report. It is therefore accepted that Shri Deven Mehta had crossed the 5% limit at the end of Settlement No.47 itself and hence he is bound to disclose the same as required under the relevant regulations, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997,at the very first instance of crossing the 5% limit. The subsequent acquisition of 3,00,000 shares by S. J.Impex also needs to be taken into for calculation of the total number of shares acquired by Shri Deven Mehta as S. J. Impex is an associate company. The Adjudicating Officer found that Shri Deven Mehta had acted in concert with S. J. Impex and acquired 7,55,100 shares which is very much in excess of 5% equity capital of VSL..
6. Heard the representatives of both the parties. It is a fact that the appellants had purchased shares which had enabled them to cross the 5% limit. By not disclosing this information to the concerned Stock Exchange and the company, they have violated the said Act. Hence we uphold the order of the Respondent. However, perusing section 15J of the Act and sub rule 2 of Rule 5 of the SEBI (Procedure for holding enquiry and imposing penalties by adjudicating officer) Rules, 1995 we observe that the appellants did not gain unfair advantage and had not indulged in any repetitive violations. It is not possible to quantify the loss incurred by other investors. We, therefore reduce the penalty from a total of Rs.5 lakhs in two appeals to Rs.50,000/- which will be paid by the appellants within six weeks from the date of receipt of this order. The impugned order is modified to this extent.
The appeal is disposed of accordingly.
No order as to costs.
(Pronounced in Court)
Justice Kumar Rajaratnam
Presiding officer
Dr. B. Samal,
Member
Place: Mumbai
Date: 13th July, 2004