Against  

M/s Thomas Cook Overseas Ltd.

United Kingdom

 

1.0 Background

1.1 M/s Thomas Cook Overseas Ltd. (TCOL) is a company incorporated under the laws of England and having its registered office at The Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England. TCOL is the promoter of Thomas Cook India Ltd. which is a company limited by shares and incorporated in India under the Companies Act, 1956. TCOL owned 60% of the paid up equity share capital of Thomas Cook India Ltd. (TCIL) comprising of 87,50,000 shares of Rs. 10 each. The shares of TCIL are listed on the Bombay Stock Exchange and the National Stock Exchange.

 

TCOL is a wholly owned subsidiary of Thomas Cook UK (TCUK), which is a company incorporated under the laws of England and having its registered office at the Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England. TCUK in turn is a wholly owned subsidiary of Eurocenter Beteiligungs- und Reiservermittlung Gmbh (Eurocenter) which is a company incorporated under the laws of Germany and having its registered office at Zimmersmuhlenweg 55, 61440 Oberursel, Germany. Eurocenter in turn is a wholly owned subsidiary of Thomas Cook AG (TCAG) having its registered office at Zimmersmuhlenweg 55, 61440 Oberursel, Germany. TCAG has another wholly owned subsidiary Thomas Cook International Markets Ltd. (TCIM). TCIM is a company incorporated under the laws of England and having its registered office at the Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England. TCAG is the parent/ holding company of the Thomas Cook group.

 

  An application dated September 29, 2004 was submitted by the holding company of TCOL, M/s. Thomas Cook AG, to Securities and Exchange Board of India (SEBI) under regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘SAST Regulations’) seeking exemption from making open offer in respect of transfer of the 60% shareholding of TCOL in TCIL to TCIM. Along with the above application, TCAG had submitted TCOL’s status of compliance with the provisions of SAST Regulations in Annexure 17 to SEBI. On perusal of the said annexure it was observed that on many occasions TCOL had not complied with the continuous disclosure requirements as stipulated in regulation 8(2) of the SAST Regulations. The relevant provision of SAST  regulations states as under :

 

“ Continual disclosures.

8(1) ……

 

8(2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.

 

8(3) …..

 

8(4) …..”

 

TCAG submitted TCOL’s revised status of compliance with regulation 8 of SAST Regulations, through its advocates, M/s Desai & Diwanji vide their letter dated May 11, 2005 which is as under:

 

Sr. No.	Regulation/ Sub- regulation	Due date for Compliance as mentioned in the regulation	Actual date of compliance	Delay, if any (in no. of days)	Remarks
(1)	(2)	(3)	(4)	(5)	(6)
	8(1)	21.04.2000	16.01.2001	270
	8(2)	21.04.2000	27.02.2001	312
	8(2)	10.05.2000		Not made	Record Date for dividend 19.04.2000
	8(1)	21.04.2001	07.11.2001	200
	8(2)	21.04.2001	07.11.2001	200
	8(2)	29.06.2001	30.06.2001	1	Record Date for dividend 08.06.2001
	8(1)	21.04.2002	09.04.2002
	8(2)	21.04.2002	09.04.2002
	8(2)	21.03.2002	Undated	Disclosure under Regulation 8(3) was made on 28.02.2002	Record Date for dividend 28.02.2002
	8(1)	21.04.2003	11.04.2003
	8(2)	21.04.2003	11.04.2003
	8(2)	17.03.2003	24.02.2003		Record Date for dividend 24.02.2003
	8(1)	21.04.2004	01.04.2004
	8(2)	21.04.2004	01.04.2004
	8(2)	19.03.2004	08.03.2004		Record Date for dividend 27.02.2004

 

On December 19, 2005 SEBI passed an order (Order no. WTM/18/CFD/12/2006) granting exemption to TCAG and TCIM from compliance with regulation 10 of the SAST Regulations for the proposed acquisition of 60% shares of TCIL. However, this exemption was without prejudice to any action that SEBI might take in respect of the non-compliance of regulation 8 of the SAST Regulations. Violations of the aforesaid regulations attract penalty under section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’).

 

 

The undersigned was appointed as the adjudicating officer vide SEBI order dated January 23, 2006 to inquire into and adjudge under section 15 I of the SEBI Act, 1992 read with SEBI (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) the alleged violation of regulation 8 (2) of SAST Regulations.

 

 2.0 Notice / Reply / Personal Hearing

 

2.1             Accordingly, I issued a show cause notice dated September 20, 2006 to TCOL under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 to show cause as to why an inquiry should not be initiated against it and penalty be not imposed on it for failure to make disclosures under regulation 8(2) of SAST Regulations. TCOL was advised to make submissions, if any, along with supporting documents, within 21 days from the date of receipt of notice. TCOL was also advised that in case it failed to reply within the stipulated time, it would be presumed that it has no suitable explanation / reply and that the matter would be further proceeded with on the basis of evidence on record.

 

2.2             TCAG, Germany replied on behalf of its subsidiary, TCOL vide letter dated October 19, 2006. In their reply TCAG have stated that they were not the owners of TCOL during the period of non-compliance having only acquired TCOL on the March 29, 2001 and currently neither TCAG nor TCOL are shareholders of TCIL. Further, TCAG is presently not having any direct or indirect shareholding in TCOL.

 

2.3             It was decided to conduct an inquiry in the matter and therefore a notice of inquiry dated March 15, 2007 was issued fixing April 10, 2007 as date of hearing. M/s Crawford Bayley & Co., Advocates and Solicitors appeared before me as authorized representatives of TCOL on the appointed date and submitted that they would like to file a written submission in the matter. The submission was filed by Crawford Bayley & Co. on behalf of TCOL vide letter dated April 14, 2007.

 

 

 

3.0 Consideration of issues:

 

3.1             I now propose to discuss in detail the charge that has been leveled against TCOL for being adjudicated in the present proceedings, the documents available on record, the submissions made by it in this regard and my findings on the same.

 

3.2             It has been alleged that TCOL has not complied with regulation 8(2) of SAST Regulations for the financial years 1999-2000 & 2000-2001 and in respect of the record date for declaration of dividend for the years 1999-2000, 2000-2001 and 2001-2002 by not disclosing the number and percentage of shares or voting rights held by it in TCIL to TCIL and is hence liable for penalty under section 15A (b) of the SEBI Act.

3.3  As per information submitted, it is evident that TCOL had not complied with the above mentioned disclosure requirements for the financial year ended 31.03.2000 and 31.03.2001 as well as in respect of dividends declared for which the record dates were 19.04.2000 and 08.06.2001.

The violations as mentioned above have been admitted by TCOL in reply dated October 19, 2006 filed by TCAG on its behalf which states as under :-

“Although we no longer have any direct or indirect shareholding in Thomas Cook Overseas Limited, and Thomas Cook Overseas Limited no longer has any shareholding in Thomas Cook (India) Limited, nevertheless in this regard, we tender our unconditional and sincere apologies on behalf of Thomas Cook Overseas Limited for the non-compliance, within the prescribed period, of Regulations 8(1) and 8(2) of the SAST Regulations, 1997 for the periods 2000-2001 with respect to its then shareholding in Thomas Cook (India) Limited.

In this regard, in respect of the relevant periods, we submit, on behalf of Thomas Cook Overseas Limited, that the non-compliance was of a technical nature and did not prejudice the interests of the investors / public shareholders of Thomas Cook (India) Limited. At all relevant times, the investors and public shareholders of Thomas Cook (India) Limited were aware that Thomas Cook Overseas Limited was the promoter of Thomas Cook (India) Limited. Disclosures in this regard were made by Thomas Cook (India) Limited as required by it under the Listing agreement.

The non-compliance was purely non-intentional and was not done malafide or in bad faith. This non-compliance was a technical lapse on the part of Thomas Cook Overseas Limited.”

3.4             In the further submissions made vide letter dated April 14, 2007, TCOL has reiterated that non-compliance was purely un-intentional and was not done malafide or in bad faith. It has further submitted that the non-compliance was only technical in nature and the investment community at large and retail individual shareholders were not prejudiced in any manner whatsoever by this non-compliance.

 

3.5             Section 11(2) (h) of SEBI Act, 1992 empowers SEBI to regulate substantial acquisition of shares and takeover of companies. This was done with the specific objective of protecting the interest of investors, especially the small investors. Small investors are typically scattered and do not have a unified common voice to protect their interests especially when there is a change in control or management etc. With this objective in mind, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 were promulgated which were subsequently replaced by SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The purpose of SAST Regulations is to ensure transparency of information and equal & fair treatment to all shareholders.

The promoters’ stake is an important indication of his (promoters) perception about the future prospects of the company.  Therefore, information pertaining to any change in his shareholding is important for the investors. The promoter entities are required to disclose this information to the company and the company is required to file this information with the regional stock exchange where its shares are listed. The stock exchange, in turn, disseminates this information to the investors and the general public, which in turn enables them to formulate their perception about the prospects of the company. The availability of this information in public domain enables the existing investors and other investing public to assess the promoters’ commitment and company’s prospects.  Thus these disclosures fulfil an economic function which is more than that of  facilitating informed price discovery. Therefore, non disclosure needs to be viewed seriously and not as a mere technical lapse. The admitted default by TCOL in not complying with regulation 8(2) of SAST Regulations has to be considered with respect to its impact as discussed above.

Regulation 8(2) of SAST Regulations stipulates disclosure obligations on all promoters or persons having control over a company in respect of their shareholding or voting rights held by them. It is stipulated that this information would be disclosed to the company within 21 days from the financial year ending on March 31, as well as the record date for the purposes of declaration of dividend. Further the promoters are required to disclose this information in respect of themselves as well as for persons acting in concert with them.

3.6             The submission by TCOL made vide letter dated May 11, 2005 mentions non-compliance of regulation 8(2) in respect of dividends declared for which the record dates were April 19, 2000 and June 08, 2001. However with regard to disclosure in respect of dividend declared for which the record date was February 28, 2002, TCOL has mentioned that disclosure under regulation 8(3) was made on February 28, 2002. Disclosure under regulation 8(3) is to be made by TCIL to the stock exchange while the issue under consideration is ascertainment of violation of regulation 8(2) which is an obligation of the promoter entity i.e. TCOL. The disclosure by TCIL is not relevant in the current matter. Further while mentioning the aspect of disclosure under regulation 8(3) in respect of this dividend declaration, TCOL has not mentioned the status of disclosure with regard to regulation 8(2) and the disclosure is misleading to that extent. In absence of a response from TCOL with regard to disclosure under regulation 8 (2) in respect of dividend declared for which the record date was February 28, 2002, in the above annexure / statement or any other submission, I am constrained to conclude that TCOL has not made the requisite disclosure in this regard.

 As the violation of statutory obligations has been established, TCOL is liable for penalty. Hon’ble Supreme Court of India in its order dated May 23, 2006 in the matter of SEBI Vs. Shriram Mutual Fund (Civil Appeal Nos. 9523 and 9524 of 2003) has held that levy of penalty is attracted once the violation of statutory obligations is established and the intention of parties committing such violation is irrelevant.

3.7             In the submission dated April 14, 2007, TCOL has also contended that the show cause notice dated September 20, 2006 was bad in law as it mentioned regulation 8(1) and 8(2) of SAST Regulations as regulation 8(1)(i) and 8(1)(ii) of SAST Regulations. In this connection, it is observed that the show cause notice described the charges against TCOL in unambiguous terms in terms of regulation 8(1) and 8(2) of SAST Regulations. In para 2 of the show cause notice, regulation 8(2) has been clearly mentioned and the substantive part of the regulation is also mentioned. Further, during the hearing proceedings conducted on April 10, 2007 under rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, the charges were expressly explained to the authorized representatives of TCOL. In view of above, the objection made by TCOL is not tenable and the proceedings shall not be vitiated on account of the insignificant typographical errors.

 

3.8             In view of above, it has been established that TCOL has failed to comply with regulation 8(2) of the SAST Regulations for the years 1999-2000 & 2000-2001 and in respect of dividends declared for which the record dates were 19.04.2000, 08.06.2001 and 28.02.2002 and is thus liable for penalty under section 15A(b) of SEBI Act, 1992 which states as under:

 

“Penalty for failure to furnish information return, etc.

 

15A. If any person, who is required under this Act or any rules or regulations made thereunder,-

(a) … …

 

(b) to file any return or furnish any information, books or other documents within the time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefore in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues;

 

(c)…….”

 

3.9             While imposing penalty it is important to consider the factors stipulated in section 15J of SEBI Act, 1992 which states as under:

“15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, 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. “

3.10         From the documents on record, it is not possible to ascertain the disproportionate gain or advantage which may have accrued to TCOL on this account. Further it is also not possible to ascertain the loss to the investors in monetary terms. However, the investors were definitely deprived of the information on time and were thus impaired from taking informed investment decisions due to this lapse by TCOL. On perusal of the information submitted by TCOL, it is observed that TCOL has defaulted in compliance with the requirements stipulated in regulation 8(2) of SAST Regulations during 1999-2000, 2000-2001 as well as in respect of dividends declared for which the record dates were 19.04.2000, 08.06.2001 and 28.02.2002. There is thus adequate evidence on record to prove that the default by TCOL is repetitive.

3.11 Further, TCOL did not avail the benefit of the SEBI Regularization Scheme, 2002 to regularize non-compliance with regulation 8 of the SAST Regulations.

 

As per regulation 15A(b) of SEBI Act, 1992, a penalty of upto Rupees 5,000/- per day can be imposed for the delay in submitting the required information. Considering the fact that there was a delay of 312 days in submitting the information due on 21.04.2000, the maximum penalty imposable on TCOL in this regard would amount to a sizeable sum. Similarly for the failure in submission of information due on 21.04.2001, the maximum penalty imposable would also be quite large. The penalty for the other violations can also be computed on similar scale which would aggregate to a sizable amount.

3.11         However, considering TCOL’s submission dated April 14, 2007 that there was no change in its holding in TCIL and that there is no evidence of any malafide as also the fact that TCOL has admitted its fault and apologised for it, I am of the opinion that penalty need not be imposed on TCOL on the above scale. I understand that, under the SEBI Consent Order Scheme, a penalty at the rate of Rs. 25,000/- per disclosure violation was proposed. In the circumstances mentioned above, in my opinion it would be appropriate to levy a penalty of twice this amount on TCOL i.e. a penalty of Rs. 50,000/- for each violation of regulation 8 (2) of SAST Regulations. As TCOL has failed to comply with the above regulation on 5 occasions viz. disclosure for the years 1999-2000 & 2000-2001 and in respect of dividends declared for which the record dates were 19.04.2000, 08.06.2001 and 28.02.2002, the total penalty amounts to Rs. 2,50,000/-.

I also observe that there was a delay of only 1 day in compliance with regulation 8(2) of SAST Regulations with regard to dividend declaration for which the record date was 08.06.2001. The due date for disclosure was 29.06.2001 and the filing was actually made on 30.06.2001. In this case, I propose to impose a penalty of only Rs. 5,000/- which is in line with the then prevailing provisions in this regard.

4.0 Penalty

 

4.1 Considering the material available on record, and upon a judicious exercise of powers conferred upon me under Rule 5 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules 1995, I impose a penalty of Rs. 2,05,000/- (Rupees two hundred five thousand only) on M/s Thomas Cook Overseas Ltd., having current address as DIFC Building 5, South Block, 4^th Floor, Sheikh Zayed Road, P.O. Box 73311, Dubai, U.A.E. ( Registered Office : The Thomas Cook Business Park, Coningsby Road, Peterborough, PE3 8SB, England ) under section 15A(b) of SEBI Act, 1992. I think this amount would be appropriate in view of the facts of the case.

4.2 The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI - Penalties remittable to the Government of India” and payable at Mumbai which may be sent to Mrs Soma Majumdar, Deputy General Manager, SEBI, C – 4 A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051, India.

 

PLACE: MUMBAI                                                                                                                   PIYOOSH GUPTA

DATE: MAY 22, 2007                                                                     ADJUDICATING OFFICER