ADJUDICATION ORDER AGAINST MAHESH THANVI, MANAGING DIRECTOR OF M/S E-STAR INFOTECH LTD., UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
AO/BR/01/2005
BACKGROUND
1 Towards the middle and last week of June 2002, SEBI observed several advertisements in newspapers in respect of certain companies. Quite a few of such advertisements glossed over the company’s past, projected a rosy picture of the company’s future and then proceeded to announce that the board of the company was about to consider a corporate action as for instance - Buyback of shares, Preferential allotment, Bonus issue etc. Preliminary scrutiny into the matter brought out that the shares of such companies were thinly traded. It was also noticed that such advertisements were not required by law and the companies were voluntarily publishing them. Significantly, it was further seen that there was unusual price volume movement in the shares of the company around the time of the issuance of such advertisements. In view of the aforesaid, it appeared that the purpose of such advertisements was to attract investor interest in illiquid scrips and induce them to trade in such scrips. Therefore, a formal investigation was initiated into the matter of under a common heading ‘Advertisements on proposed corporate action’ vide SEBI order dated September 11, 2002.
2 One such company which had issued advertisements was E Star Infotech Ltd., of which Mr. Mahesh Kumar Thanvi is the Managing Director. The company is based in Mumbai and listed at the Stock Exchanges of Ahmedabad, Mumbai and Hyderabad. An advertisement of the company appeared in various financial newspapers in the month of June-July 2002 to the effect that a meeting of its Board of directors was to be held shortly to inter-alia, consider bonus issue of shares to existing share holders. The company later informed the stock exchanges that the Board of directors had deferred the proposals of bonus issue of shares. Detailed investigation thereafter commenced into the matter. Investigations revealed that the advertisement was published through an Ahmedabad based advertising agency “Garima Communications” and one of the many newspapers in which it was published was The Economic Times on June 27, 2002.
3 The Investigation Authority submitted its report and its findings with regard to Mr. Mahesh Thanvi are as follows:
“Mr. Mahesh Thanvi, Managing Director, Estar Infotech Ltd. stated before the investigating authority that the advertisement published in the newspapers was not published by the company. According to Mr. Thanvi the Board of Directors of the company namely Shri Vijay Seth, Shri R M Agha, Shri B R Sharma including him had discussed about the bonus issue during the 1st week of June 2002. They had given the letter regarding the ad of the notice regarding the board meeting on bonus issue, approval of proposal with TECS and proposal on FIIs to be placed on June 27, 2002 as they wanted to inform the investors regarding the board meeting to be held on July 3, 2002. They had also informed BSE. They informed to Shark Enterprises their regular advertising agency on June 25, 2002 but Shark Enterprises refused to publish the advertisement on June 26, 2002. After Shark Enterprises refused to place the ad, the company dropped the proposal to place the advertisement since it had already communicated to BSE. On July 4, 2002 the board has considered the proposal of TECS and FII holding but the issue of bonus shares was deferred till July 20, 2002 and the same was communicated to BSE. The board of Directors at their meeting held on 20th July 2002 recommended capitalisation of General Reserve to the extent of Rs. 200 lacs by issue of bonus shares in the ratio of one bonus share for every five equity share held by the shareholders.
Mr. Mahesh Thanvi denied having ever contacted Garima Communications for publishing the said advertisement. When he was shown the copy of the advertisement submitted by Garima Communication which was allegedly approved and signed by him; he said that he had not signed the document and the document has been forged. Mr. Mahesh Thanvi gave two contradicting statements regarding when he first came to know about the publication of the said advertisement:
· According to the statement of Mr. Thanvi recorded on 30th September 2002 he saw the advertisement in the newspapers on 27th June, 2002 and thought that the Shark Enterprises might have released the advertisement. When he asked for clipping of the said advertisement and bill for the same to be raised by Shark Enterprises. Then Shark Enterprises reverted back and stated that they had not released the said advertisement appeared in The Economic Times.
· According to his statement recorded on 16th March, 2004 Mr. Mahesh Thanvi stated that he had not seen the advertisement on June 27, 2002 and came to know about the advertisement when the company received a letter from Ahmedabad Stock Exchange around 10 July 2002.
By giving contradicting statements Mr. Mahesh Thanvi had tried to mislead the investigations and had therefore violated of Section 11 C (3) of SEBI Act, 1992.”
4 Accordingly, Chairman, SEBI, appointed the undersigned as an Adjudicating Officer in terms of Order dated September 13, 2004 to inquire into and adjudge the alleged contravention of Section 11 C (3) of the SEBI Act, 1992 by Mr. Mahesh Thanvi.
SHOW CAUSE NOTICE
5 Pursuant to Chairman’s Order dated September 13, 2004, a Show Cause Notice containing the facts / allegations / violations, as brought out in the Investigation report, was served on Mr. Mahesh Thanvi, in terms of letter no. ISD/ADJ/BR/33542/2005 dated February 11, 2005 asking him to show cause why an inquiry against him should not be held for alleged contravention of Section 11 C (3) of the SEBI Act, 1992 and as to why monetary penalty u/s 15A of the SEBI Act, 1992 should not be imposed on him.
6 From the records available, it was noted Mr. Mahesh Thanvi resided at Ritu Basant, Bungalow No. 52-55, RSC 13, Gorai I, Borivali (West), Mumbai-400091. The said show cause notice was issued to this address. Mr. Mahesh Thanvi replied to the Show Cause Notice vide letter dated February 24, 2005.
REPLIES
7 Mr. Mahesh Thanvi vide his reply dated February 24, 2005 stated that:
“We are in receipt of your above referred letter wherein it has been noticed that your kindselves have misinterpreted the information furnished by the undersigned during the course of his personal appearance at SEBI, Head Office, Mumbai on 30th September 2002 and 16th March 2004 respectively. In view of the same, you have suspected that the undersigned had given contradictory statements in connection with the query as to whether the undersigned had seen the advertisement regarding Board meeting to be held on July 03, 2002. Accordingly your honour has served a show cause notice vide aforesaid letter as to why appropriate proceedings shall not be initiated against the undersigned.
In this connection the following may please be noted:
The undersigned herein reconfirms the statements made during the course of personal appearance both on 30th September 2002 and 16th March 2004 in connection with the reply given to question no. 7 on 16th March 2004 that the undersigned had not noticed the advertisement published in Economic Times dated 27th June 2002 regarding Board Meeting to be held on July 03, 2002, the undersigned meant to clarify that he had not noticed the said advertisement on the date of publication of the notice itself. The fact of the same may be understood in the light of the statement given immediately thereafter that the undersigned had come to know about the notice published only upon receipt of letter from Ahmedabad Stock Exchange around 10th July 2002.
In view of the same, it may please be appreciated that an incorrect inference has been drawn at your end with respect to the statement given on 16th March 2004 and the same is at par with the statement given on 30th September 2002.
The undersigned has always been prompt in furnishing the information/ documents sought during the course of investigations. As may be noted that in his statement under question no. 19 on 16th March 2004 the undersigned had specifically mentioned that he was ready to co-operate at any time with the office of Securities and Exchange Board of India in the matter of investigations.
The undersigned has always submitted factual and correct information/ documents at all times and the question of misleading the investigations does not arise at any point of time ………………the undersigned be given an opportunity for personal representation before taking any action.”
8 An opportunity of personal hearing given to Mr. Mahesh Thanvi on March 09, 2005 before the undersigned vide letter ISD/ADJ/BR/BM/35163/2005 dated March 03, 2005. Mr. Mahesh Thanvi vide letter dated March 07, 2005 requested for a postponement in the date of personal hearing and requested for a date of personal hearing after March 25, 2005 stating that he was out of Mumbai as one of his close relatives had passed away. The said request of him was considered and accordingly vide letter ISD/BR/BM/35577/2005 dated March 09, 2005 Mr. Mahesh Thanvi was granted the postponement in the date of personal hearing to March 28, 2005. On March 28, 2005 Mr. Mahesh Thanvi appeared before the undersigned but due to some logistical problem at the SEBI Head Office the hearing was adjourned to March 30, 2005. However, Mr. Mahesh Thanvi had failed to appear on March 30, 2005 and informed that he had met with an accident while travelling. In view of above another hearing was given on April 7, 2005. However, Mr. Mahesh Thanvi had once again requested for postponement of hearing. Accordingly, another date of hearing was given on April 13, 2005 but vide letter dated April 14, 2005 he intimated that he would not be able to attend the hearing on the said date as he was under hospital treatment for his heart ailment and produced copies of his medical records. Mr. Mahesh Thanvi finally appeared for hearing before the undersigned on May 05, 2005 and was heard.
ISSUES FOR CONSIDERATION
9 The Investigating Authority has submitted that Mr. Mahesh Thanvi gave two statements recorded on 30.09.2002 and 27.03.2004 regarding when he first came to know about the publication of the said advertisement. The issue under consideration is whether these statements are contradictory and whether by giving contradicting statements Mr. Mahesh Thanvi had tried to mislead the investigations which is in violation of 11C (3) of SEBI Act, 1992
10 Mr. Mahesh Thanvi’s reply to the show cause notice is reproduced in paragraph 7 above.
11 Mr. Mahesh Thanvi in his reply has stated that the Investigating Authority has suspected that the he had given contradictory statements in connection with the query as to whether the he had seen the advertisement regarding Board meeting to be held on July 03, 2002. Mr. Mahesh Thanvi reconfirmed the statements made during the course of personal appearance both on 30th September 2002 and 16th March 2004. In connection with the reply given to question no. 7 on 16th March 2004 that he stated that he had not noticed the advertisement published in Economic Times dated 27th June 2002 regarding Board Meeting to be held on July 03, 2002, Mr. Mahesh Thanvi meant to clarify that he had not noticed the said advertisement on the date of publication of the notice itself. In his reply he had stated that the fact of the same may be understood in the light of the statement given immediately thereafter that he had come to know about the notice published only upon receipt of letter from Ahmedabad Stock Exchange around 10th July 2002.
FINDINGS
12 The specific provisions of the SEBI Act, 1992 and the Regulations relevant for this case are enumerated below.
Section 11 C (3) of SEBI ACT 1992
The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before it or any person authorized by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.
Section 15 A of SEBI Act, 1992
If any person, who is required under this Act or any rules or regulations made thereunder,-
(a) to furnish any document, return or report to the Board, fails to furnish the same, 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];
(b) 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];
(c) to maintain books of accounts or records, fails to maintain the same, 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.].
13 The combined reading of the aforesaid Regulations indicate that the Investigating Authority is within his powers to record the statement of any intermediary or any person associated with securities market in any manner which is relevant or necessary for the purpose of the Investigation. Providing misleading information or giving contradictory statements during the process of investigation is liable to hamper the process and lead to incorrect conclusions. This is equivalent to failure to furnish information which is covered under Section 15 A (a) of the SEBI Act, 1992. The investigation procedure is likely to be prejudiced which might prove to be detrimental to the interests of the investors in the securities market. Since there is no explicit provision in the Act for imposition of penalty for providing misleading information to the Investigating Authority/Board and since Section 15A provides for penalty for failure to provide information to the Board, providing misleading information/contradictory statements will attract monetary penalty as provided in Section 15A of the SEBI Act 1992.
14 I have noted that in his statement dated September 30, 2002 Mr. Mahesh Thanvi in response to the question “Have you seen advertisement (s) pertaining to your company on the issue of bonus shares on the same in any newspaper?” replied that “We had seen an advertisement pertaining to our company in The Economic Times dated June 27, 2002”. I have also noted that in his second deposition before the Investigating Authority on 16.03.2004 Mr. Mahesh Thanvi in his reply to “Had you seen the notice published in the Economic Times dated June 27, 2002 regarding a Board Meeting to be held on July 3, 2002 with same agenda?” told that “We had not noticed the same”. When asked as to “When did you come to know regarding the notices being published in the newspapers?” Mr. Thanvi replied that “When we received a letter from Ahmedabad Stock Exchange around July 10, 2002.”
15 As can be seen from above the two depositions by Mr. Mahesh Thanvi regarding the same issue are contrary to each other. In the first statement he mentions that he has seen the advertisement in the Economic Times dated June 27, 2002 but when the scope of the question is narrowed down and made more specific asking him about the advertisement published in Economic Times dated June 27, 2002 he denies having seen such an advertisement though on the first occasion he himself mentions the name of the newspaper and the date of its publication.
16 In his second deposition before the Investigation Authority Mr. Thanvi stated that he had come to know of the advertisement being published in the newspaper only after the Ahmedabad Stock Exchange intimated Mr. Thanvi around July 10, 2002 whereas in his first deposition he had not mentioned any such intimation from the Ahmedabad Stock Exchange during the entire statement recording process.
17 In his reply to the Show Cause Notice Mr. Thanvi reconfirmed the statements made during the course of personal appearance both on 30th September 2002 and 16th March 2004. In connection with the reply given to question no. 7 on 16th March 2004 that he had not noticed the advertisement published in Economic Times dated 27th June 2002 regarding Board Meeting to be held on July 03, 2002, Mr. Mahesh Thanvi meant to clarify that he had not noticed the said advertisement on the date of publication of the notice itself. In his reply he had stated that the fact of the same may be understood in the light of the statement given immediately thereafter that he had come to know about the notice published only upon receipt of letter from Ahmedabad Stock Exchange around 10th July 2002.
18 In his hearing before the Adjudication Officer Mr. Mahesh Thanvi denied having given any advertisement to the Economic Times dated June 27, 2002. When he was asked about his contradictory depositions before the Investigating Authority on two occasions, he stated that an incorrect inference has been drawn by the Investigating Authority and both the statements were at par with each other. Both of them were purely related to the letter received from Ahmedabad Stock Exchange. However during the course of statement recording it also came to light that Mr. Mahesh Thanvi had not taken any action against the person/entity that had reportedly misused the company’s name and forged his signature to issue the advertisement on his company’s behalf.
19 The investigations was pertained to the publication of unwarranted advertisements with the probable motive of misleading investors. I note that Mr. Mahesh Thanvi, MD, M/s. E-Star Software Pvt. Ltd., had himself informed the Stock Exchange, Mumbai about the issuance of bonus shares and the contents of the said advertisement also the same. The fact to be unraveled was the identity of the person who had published this advertisement and probably this might have been the reason for examination of Mr. Mahesh Thanvi on oath. It can be deduced from both the statements recorded on 30.09.2002 and 16.03.2004 that Mr. Thanvi was aware of the advertisement that appeared in the Economic Times dated June 27, 2002 and this information was available to the Investigating Authority during the process of investigation. It has not been brought out in the Investigation Report how the mode by which Mr. Thanvi was aware i.e. whether he read it in the Economic Times dated June 27, 2002 or he was intimated by the Ahmedabad Stock Exchange around July 10, 2002 could have altered the findings of the investigation or the process itself. It was material to know whether he had himself published any misleading advertisement and if he had not, whether he had taken any action against the individual/entity that was responsible for misusing his company’s name. I find that there is no contradiction whether Mr. Thanvi was aware about the said advertisement in the depositions made by him during the statements recorded on 30.09.2002 and 16.03.2004.
ORDER
20 In view of the above findings, I do not find any merit in imposing any penalty on Mr. Mahesh Thanvi, Managing Director, E-Star Infotech Ltd. and hereby propose to drop the adjudication proceedings initiated against him.
21 In terms 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 Mr. Mahesh Thanvi and also to Securities and Exchange Board of India.
DATE: May 25, 2005 B. RAJENDRAN
PLACE: MUMBAI ADJUDICATING OFFICER