Order against Shri Naseem Gore

Jul 31, 2007

Orders : Orders of AO

ADJUDICATION ORDER NO. BS/AO-22/2007

ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 READ WITH 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 SHRI NASEEM GORE

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) has initiated adjudication proceedings under Section 151 read with Section 15A(b) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act'), in respect of the violations alleged to have been committed by Shri Naseem Gore (hereinafter referred to as the ‘noticee’) (PAN No. AAFPG5778G) on account of his failure to make necessary disclosures of his shareholding in the company Sharyans Resources Ltd. (hereinafter referred to as SRL) in terms of Regulation 13(4) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as Insider Trading Regulations).

NOTICE AND REPLY
A notice no. A&E/BS/80067/2006 dated November 17, 2006 was issued to the noticee in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the "Rules") requiring him to show cause as to why an inquiry should not be held for the violations alleged to have been committed by the noticee.
The noticee vide letter dated July 2, 2007 submitted his reply to the show cause notice. The noticee submitted that he had shifted his office and received the said notice only on June 16, 2007 and therefore there was delay in submitting the reply. Considering the reply submitted by noticee, it was decided to conduct an inquiry in the matter and the noticee was advised to attend the hearing on July 18, 2007. The noticee vide his letter which was received on July 13, 2007 submitted that he was not keeping well and therefore was not in a position to attend the hearing in the matter. The noticee further requested that the matter may be considered on the basis of the facts and position as clarified by him in his reply dated July 2, 2007.

CONSIDERATION OF EVIDENCE AND FINDINGS
It is alleged that the noticee failed to comply with the provisions of Regulation 13(4) of the Insider Trading Regulations which provides for the following:

Any person who is a director or officer of a listed company, shall disclose to the company in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings from the last disclosure made under sub regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.
Regulation 13(5) of the Insider Trading Regulations further provides that the said disclosure shall be made within four working days of the receipt of intimation of allotment of shares or the acquisition or the sale of shares or voting rights as the case may be.
In this regard, it is alleged that the noticee was a director of SRL and he was holding 100,000 shares accounting for 1.42% of the equity shares under NRIs / OCBs and 100,000 shares accounting for 1.42% of the share capital under Directors / Relatives / Others as on December 31, 2003. It is alleged that the noticee failed to disclose about his shareholding during 2003-2004 and 2004-2005 in terms of the provisions of Regulation 13(4) of the Insider Trading Regulations.
It is further noted that the noticee vide its letter dated July 2, 2007 has made the following submissions on the allegation as stated above:

I.      I am a director of SRL and a non resident Indian.

II.      I do not hold any shares of SRL in my individual capacity.

III.      M/s Gore & Co., a partnership firm in which I am a partner held 1,65,000 shares of SRL.

IV.      Since as per the Companies Act, partnership firms are not permitted to be member of any corporate body, the shares of the firm were held in the name of partners. Accordingly, 100,000 shares were held in my name and the balance 65,000 shares were held in the name of the other partner when the same were in physical form and in our demat accounts when the same were dematerialized.

V.      Since the shares beneficially belonged to the partnership firm, M/s Gore & Co. and not to me in individual capacity, I had not disclosed this fact to the company.

VI.      This is also reconfirmed by the fact that when the shares were sold the contract notes and payments were received in the name of the partnership firm. Copies of the contract note and bank statement reflecting the payment received by the firm from the broker is enclosed with the reply.
It is noted from the submissions of the noticee that he has not denied failure on his part in filing the requisite details in Form D to the company as provided under Regulation 13(4) of the Insider Trading Regulations. However, the noticee contends that though the shares were registered in his name, he was not a beneficial owner of the said shares and the same belonged to M/s Gore & Co. wherein he was a partner. The shares had to be registered in the name of the noticee on account of limitations placed by Companies Act which prohibits partnership firms from becoming member of a corporate body. In view of the above fact, the noticee has contended that he is not liable to comply with the provisions of Regulation 13(4) of the Insider Trading Regulations.
A careful reading of Regulation 13(4) reveals that it requires any person who is a director or officer of a listed company to disclose to the company in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings from the last disclosure made under sub regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.
It is not in dispute that the noticee was director of the SRL and in that capacity he is under the purview of Regulation 13(4) as stated above. It is also not disputed that the said shares were registered in the name of the noticee. However, the noticee has contended that he was not the beneficial owner of the said shares. Contention of the noticee that partnership firm M/s Gore & Co. where he was a partner was beneficial owner of the shares and therefore he is not under the purview of Regulation 13(4) can not be accepted because as the same would dilute the mandate of the Insider Trading Regulations. If such contention is accepted it would lead to a situation where it is difficult to monitor the actions of insiders on the basis of the disclosures made by them.
Disclosure stipulated under Regulation 13(4) of the Insider Trading Regulations is aimed at dissemination to the investors of trading details of the directors etc. to enable the investors to take a buy or sell decision of the shares of the company. Further, it also enables monitoring of the holdings of insiders and any changes on account of any price sensitive information. In the present case though it is contended by the noticee that the partnership firm M/s Gore & Co. was the beneficial owner of the shares, considering the fact that the shares were in the name of the noticee and the mandate of the provision of Regulation 13(4), the violation of Regulation 13(4) of the Insider Trading Regulations by the noticee is established as no disclosures are made by the noticee.
Violation of Regulation 13(4) of the insider Trading Regulations, attract penalty under Section 15A(b) of the SEBI Act which provides as follows:

If any person, who is required under this Act or any rules or regulations made thereunder to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
The provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties 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:

a. The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default

b. The amount of loss caused to an investor or group of investors as a result of the default

c. The repetitive nature of default
With regard to the above factors to be considered while determining the quantum of penalty, it is noted that no quantifiable figures are available to ascertain the exact loss to the investors. Further, the violation of the noticee can not be termed as repetitive in nature. Further, no quantifiable figures are available to ascertain the gain accrued to the noticee. In view of the same, a lenient view is taken for quantum of penalty attracted in respect of the violation.
ORDER
In view of the violation of Regulation 13(4) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 committed by Shri.Naseem Gore, in exercise of the powers conferred under Section15 I and Section 15A(b) of the SEBI Act, 1992, read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, I, impose a penalty of Rs. Fifty Thousand (Rs.50,000/) on Shri.Naseem Gore.
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 Chief General Manager, Investigation Department – ID3, Securities and Exchange Board of India, Plot No.C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.
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 Shri. Naseem Gore, and to Securities and Exchange Board of India.

Place: Mumbai Biju. S

Date: July 31, 2007 Adjudicating Officer