ADJUDICATION ORDER NO. - BS/AO-7/2007
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 KAKATIYA TEXTILES LIMITED.
- Vide order dated January 9, 2006 issued by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), I was appointed as the Adjudicating Officer to inquire into and adjudge under Section 15I read with Sections 15A(b) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violations alleged to have been committed by Kakatiya Textiles Ltd. (hereinafter referred to as ‘the noticee’) on account of the delay in complying with the disclosure requirements under Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as Takeover Regulations).
FACTS OF THE CASE
- Shri L G Ramamurthi and Shri Sumanth Ramamurthi filed a draft letter of offer with SEBI on December 26, 2005 in respect of acquisition of 20% shares of KTL. It was observed from the said draft letter of offer that apparently the noticee did not comply with the provisions of Regulation 8(3) of the Takeover Regulations within the stipulated time. The said violation attracts penalty under the provisions of Section 15A(b) of the SEBI Act and hence adjudication proceedings were initiated against the noticee.
NOTICE AND REPLY
- A Show Cause Notice (hereinafter referred to as ‘SCN’) A&E/BS/60732/2006 dated February 20, 2006 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 it.
- The noticee did not reply to the show cause. However, in the interest of justice, it was decided to conduct an inquiry into the matter and the noticee was advised to attend the hearing scheduled on July 21, 2006.
- It is noted that vide letter dated July 21, 2006, one Shri J.V. Choudhary on behalf of the noticee and the four erstwhile promoters viz. Shri J. S. Krishna Murthy, Shri J.V. Choudhary, Mrs. J. Usha Rani and Shri J. Eshwar Krishna requested for some other date to enable them to represent in the inquiry. It was further submitted that their family had suffered heavy loss in running the company which was taken over by them in 1999 from the original promoters. In view of the same, it was requested to sympathetically consider the lapses, if any and condone the same. It was further informed that they have disposed off their shareholding in the company in accordance with SEBI Take-over Code to Shri L G Ramamurthi and Shri Sumanth Ramamurthi of Super Spinning Group, Coimbatore. Accordingly, the management of the company has changed from 30th June 2006.
- As the noticee failed to attend the hearing on July 21, 2006, it was granted another opportunity of hearing on August 22, 2006. It is noted that the hearing notice sent by registered post was duly received and acknowledged under the seal of the noticee. However, the noticee failed to attend the inquiry on the said date. Further, a letter dated August 24, 2006 was received from Shri J.V. Choudhary, reiterating the facts stated in his earlier letter dated July 21, 2006.
- In the interest of justice, the noticee was granted another opportunity of hearing on September 22, 2006. It is noted that the hearing notice sent by registered post was duly received and acknowledged under the seal of the noticee. However, the noticee failed to attend the inquiry on the said date.
- As the noticee failed to reply to the show cause notice despite being given sufficient time and opportunity, the inquiry is proceeded with taking into account the facts and material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
- The issue for consideration in the matter is whether there had been any delay on the part of the noticee in complying with the provisions of Regulations 8(3) of the Takeover Regulations. The text of the said Regulations are as follows:
“8(3) Every company whose shares are listed on a Stock Exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purpose of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March.”
- It is noted from the details provided in the draft letter of offer that there was delay in complying with the said regulations as stated below.
|
Regulation
|
Due Date of compliance
|
Actual Date of Compliance
|
Delay
|
|
8(3)
|
21.4.1999
|
19.2.2000
|
305
|
|
8(3)
|
21.4.2000
|
9.6.2000
|
50
|
|
8(3)
|
21.4.2001
|
28.5.2001
|
38
|
|
8(3)
|
21.4.2002
|
14.5.2002
|
24
|
|
8(3)
|
21.4.2004
|
6.4.2005
|
350
|
- It is noted that the noticee failed to submit any suitable reply for the delay in compliance with Regulation 8(3) of the Takeover Regulations within the stipulated time. Further, the noticee failed to attend the inquiry in the matter despite having given sufficient time and opportunities to do so.
- It is noted from the letter of Shri J.V. Choudhary, erstwhile promoters of the noticee that they had suffered heavy loss in running the company. In view of the same, it was requested to sympathetically consider the lapses, if any and condone the same. It was further informed that they have disposed off their shareholding in the company in accordance with SEBI Takeover Regulations to Shri L G Ramamurthi and Shri Sumanth Ramamurthi of Super Spinning Group, Coimbatore. Accordingly, the management of the company has changed from 30th June 2006.
- The above explanation can not be taken as reasonable ground for the delay in compliance with the requirements under Regulation 8(3) of the Takeover Regulations. The above reporting requirements to the stock exchanges by the company are designed for the purpose of making the investors aware of the shareholding and provide for transparency. Any delay in such reporting cannot be justified on the basis of poor financial condition of the company. In this regard, it is also pertinent to note that the management of the company has changed from 30th June 2006, but the company is liable for the violation of Regulation 8(3) of the Takeover Regulations.
- In view of the same, the delay in complying with the disclosure requirements under Regulation 8(3) of the Takeover Regulations by the noticee is established. The violation attracts penalty under Sections 15A(b) of the SEBI Act which states 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.”
- In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules 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 the 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 the default
- Though, it is not possible to quantify the gains made by the noticee or the loss caused to investors based on the facts available on record, it can be presumed that delay in disclosure may result in a situation where certain information is available to a limited set of persons only and investors were deprived of valuable information. In this context, the law not only prescribes necessary disclosures but also stipulates a time limit within which the said disclosures have to be made. It is noted that there is substantial delay in compliance with the provisions of Regulation 8(3) of the Takeover Regulations by the noticee and the delay is stated below.
|
Regulation
|
Due Date of compliance
|
Actual Date of Compliance
|
Delay
|
|
8(3)
|
21.4.1999
|
19.2.2000
|
305
|
|
8(3)
|
21.4.2000
|
9.6.2000
|
50
|
|
8(3)
|
21.4.2001
|
28.5.2001
|
38
|
|
8(3)
|
21.4.2002
|
14.5.2002
|
24
|
|
8(3)
|
21.4.2004
|
6.4.2005
|
350
|
- Further, as seen from the above table, the failure on the part of the noticee can be termed as repetitive in nature. No mitigating factors have been cited for the repetitive non compliance on the part of the noticee. In view of the same, the violation committed by the noticee attract penalty prescribed under Section 15A(b) of the SEBI Act.
- In this regard, it is pertinent to note that SEBI Regularization Scheme, 2002 provided for payment of Rs.10,000/ for each year for failure in adhering to disclosure requirements under the provisions of Regulation 8(3) of the Takeover Regulations. The scheme was only in respect of a specified period. It is noted that the noticee did not avail the SEBI Regularization Scheme, 2002. Considering the facts and circumstances of the case and also keeping in mind the lump sum amount prescribed under the erstwhile regularisation scheme, it is appropriate that a penalty of Rs.20,000 is imposed for each year for delay in compliance of the provisions of Regulation 8(3) of the Takeover Regulations.
|
Sr. No.
|
Regulation
|
Due Date of compliance
|
Actual Date of Compliance
|
Penalty (Rs.)
|
|
1
|
8(3)
|
21.4.1999
|
19.2.2000
|
20,000
|
|
2
|
8(3)
|
21.4.2000
|
9.6.2000
|
20,000
|
|
3
|
8(3)
|
21.4.2001
|
28.5.2001
|
20,000
|
|
4
|
8(3)
|
21.4.2002
|
14.5.2002
|
20,000
|
|
5
|
8(3)
|
21.4.2004
|
6.4.2005
|
20,000
|
|
|
|
|
Total
|
100,000
|
ORDER
- Considering the facts and circumstances of the case it is established that Kakatiya Textiles Ltd. failed to comply within the prescribed time the disclosure requirements under Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 in respect of the years stated above. Considering the facts and circumstances of the case and the violations committed by the noticee, I impose a penalty of Rs One Lakh (Rs.100,000) on Kakatiya Textiles Ltd. in terms of the provisions of Section 15A(b) of the SEBI Act, 1992 for failure to comply with the disclosure requirements under Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 within the prescribed time in respect of the years 1999, 2000, 2001, 2002 and 2004 as stated above. In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violation committed by Kakatiya Textiles Ltd.
- 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, Division of Corporate Restructuring, Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), 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 Kakatiya Textiles Ltd. and also to Securities and Exchange Board of India.
PLACE: Mumbai Biju. S
DATE: March 30, 2007 Adjudicating Officer