Jul 05, 2006
|
Orders :
Orders of SAT
IN THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal Nos.32 & 33 of 2004
Date of Decision : 5.7.2006
Cauvery Software Engineering Systems Ltd. ….. Appellant
Versus
Securities and Exchange Board of India …..Respondent
Present : None for the appellant
Mr. Kumar Desai, Advocate for the respondent
Coram:
Justice N.K. Sodhi, Presiding Officer
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: Justice N.K. Sodhi, Presiding Officer (oral)
This order will dispose of two appeals Nos. 32 & 33 of 2004 both of which have been filed by Cauvery Software Engineering Systems Ltd. (for short “the company”) which appears to be a vanishing company and we are informed by the learned counsel appearing for the respondent-Board that it has been so declared. Though the impugned orders in the two appeals are different, the appeals can be disposed of together as they emanate from the basic allegation that the company did not co-operate with the Securities and Exchange Board of India (for short “the Board”) during the course of the investigations undertaken by the latter. In appeal No. 32 of 2004, the charge levelled against the company is that it did not respond to the summons issued by the Investigating Officer and thereby violated the provisions of section 11C(3) of the Securities and Exchange Board of India Act, 1992 (hereinafter called “the Act”). In the other appeal, it is alleged that the company did not furnish the detailed information sought for by the Board and that its representative made false statements on oath regarding its share transfer agents. The company is also alleged to have failed to issue shares to the preferential allottees and that the shares allotted to its group companies on preferential basis had been sold by them in the market and the sale proceeds were transferred to the company. There is yet another allegation that the company had not been complying with the provisions of listing agreement with the National Stock Exchange (NSE) and therefore the scrip of the company had been suspended as a result whereof it cannot be traded in the market. It is also alleged that the company had not been complying with the provisions of the listing agreement with the Delhi Stock Exchange (DSE) and that it did not comply with the formalities for delisting the scrip from that exchange. On account of these acts of omission and commission, the company was issued a notice dated May 22, 2003 calling upon it to show cause why necessary directions under section 11B of the Act be not issued to it and its directors and why they should not be debarred from accessing the securities market. A reply to the show cause notice was filed denying all the allegations. The facts as they emerge from the detailed enquiry conducted by the Board in pursuance to the show cause notice are that the company had not been co-operating with the investigations and not even during the enquiry and that the penalty imposed by the Adjudicating Officer by its order dated 18.12.2003 appears to be justified though the reasons have not been properly recorded therein.
2. The shareholding pattern of the company as it stood in December 1999 and December 2000 is shown in the chart reproduced in paragraph 1.2 of the impugned order in Appeal No.33 of 2004 which is not disputed and clearly indicates that the promoters and directors of the company did not hold any shares whereas the corporate bodies which are the group companies of the appellant were holding 40.89% of the shareholding which was subsequently reduced to 7.15% and the public holding which was 56.03% in December 1999 had risen to 92.69% in December 2000. It is obvious that the group companies which were holding the shares of the company had offloaded those shares in the market and sold them to the general public. We have then a chart reproduced in paragraph 6.4 of the impugned order which is based on the price volume data of the scrip of the company on NSE from October 1, 1999 to January 11, 2000. It is clear from the chart that the price of the scrip of the company varied between Rs.5.30 and Rs.25.75 and the volumes were also fluctuating. There is no concrete material available on the record which could indicate that the group companies while trading in the shares of the company had manipulated the price thereof but the fact remains that the price of the scrip of the company had varied between Rs.5.30 and Rs.25.75. It appears that when the price of the scrip had gone up in the market, the group companies offloaded their shares thereby making profits. We also have on record the statement of Shri R.K. Kapur, a director of the company which was recorded during the course of investigations wherein he admitted that the company received monies from Amazing Investments and Finance Pvt. Ltd. and Elite Investments & Holding Pvt. Ltd. (hereinafter referred to as ‘Amazing’ and ‘Elite’ respectively). The bank accounts of the company indicate that it received from Elite and Amazing a sum of Rs.25.62 lakhs during December 1999 and April 2000. It is, thus, clear that when the group companies offloaded the shares in the market and made profits, the money or the profits were siphoned back into the accounts of the company. It may be mentioned that the company in its reply had taken the stand that this money was received from Amazing and Elite on account of supply of software and other related services. No material was placed on the record to substantiate this defence. The Board was therefore justified in drawing an inference that the money had been siphoned back to the company through Amazing and Elite.
3. We have already referred to the chart in paragraph 6.4 of the impugned order which indicates the variation in the price of the scrip of the company between Rs.5.30 and Rs.25.75. As already observed, there is no material on the record to show that Elite and Amazing or any other group company had manipulated in the price of the scrip of the company as a result whereof the price went up to Rs.25.75. Various notices were issued to the company to supply the detailed information but it did not do so and, as observed by the Board in the impugned order, it made some false statements and prolonged the investigations for sinister purposes. It did not co-operate with the Investigating Officer. We are satisfied that if the detailed information had been furnished as sought for, it could have been discovered whether the company and its associates had any role in manipulating the price of the scrip for which presently there is no evidence on the record. The Board was justified in drawing the adverse inference in this regard. The company could not be found at its registered office in Bangalore and responded only to one of the summons which it received at its corporate office in Mumbai. Not only the company but even the associate companies like Amazing and Elite are also not traceable. It is also surprising to note that the company had come out with a public issue and made preferential allotments to its group companies when its promoters and directors held no shares at all. They must have held some shares at the time of its incorporation which could well have been offloaded later. It is also not in dispute that NSE has suspended the listing of the shares of the company and that they are also not being traded on the DSE and this is because of various acts of omission and commission by the company in not fulfilling its obligations under the listing agreements. The net result of the aforesaid actions is that while the promoters and directors of the company along with the group companies have offloaded their shares to the public, the latter is left high and dry as the shares cannot be traded on any of the stock exchanges in the country. It is really a fraud played on the public by the company and its associates. In this view of the matter, the Board was justified in issuing directions to the company and its directors under sections 11, 11(4)(b) and 11B of the Act prohibiting them from accessing the capital market and restraining them from dealing in securities in any manner directly or indirectly for a period of five years.
4. Before concluding, we may mention that none of the directors of the company has come up in appeal. The appellant itself has not appeared before us to contest the impugned orders in the two appeals. Its representative had last appeared before this Tribunal on 17.11.2005 and had not appeared thereafter. This only confirms our suspicions that the company and its associates are vanishing companies. The interim order passed by this Tribunal directing the appellant to deposit a sum of Rs.2 lakhs upon which the recovery of the remaining amount would have remained stayed has also not been complied with. Notwithstanding the absence of the appellant, we have heard the learned counsel for the respondent-Board and disposed of the appeals on merits.
5. For the reasons recorded above, we find no ground to interfere with the impugned orders in the two appeals which stand dismissed. No costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
C. Bhattacharya
Member
Sd/-
R. N. Bhardwaj
Member
Avm