ORDER UNDER RULE 5 OF 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 DYNO NOBLE ASA FOR THE VIOLATION OF REGULATION 6 AND 8 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Order dated July 25, 2001 appointed Smt. Poonam Bamba as the Adjudicating Officer to inquire into and adjudge under Section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the alleged violation of Regulation 6 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’) committed by Dyno Noble ASA(hereinafter referred to as ‘Dyno’) for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1998, 1999, 2000 and 2001 on account of failure to make necessary disclosures with regard to its shareholding in the company Noble Explochem Limited (hereinafter referred to as ‘NECL’).
NOTICE AND REPLY
2. A notice no. AEO/PB/35943/2001 dated September 05, 2001 was issued to Dyno 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”) seeking reply on the alleged contravention of Regulation 6 of the Takeover Regulations for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1998, 1999, 2000 and 2001.
3. Dyno vide their letter dated September 12, 2001 replied to the said notice. Subsequently I have been appointed as Adjudicating Officer vide SEBI’s Order dated September 30, 2004. After considering the reply, it was felt that an opportunity of hearing may be granted to them. Hence Dyno was advised to attend the personal hearing scheduled on November 08, 2004. Dyno did not attend the said hearing on November 08, 2004. However, Dyno was granted one more opportunity of hearing and was advised to attend the hearing on November 24, 2004. In this regard, Dyno vide their Advocates letter dated November 23, 2004 submitted their reply. In the said reply Dyno submitted the following;
· In accordance with the agreements dated March 17, 1983 and June 07, 1984 executed between Dyno and SICOM, Dyno agreed to contribute to the share capital in NECL.
· The shareholding of Dyno in NECL for the relevant period mentioned in the notice i.e. 1998 to 2001 remained the same ie., 7.64%.
· Till the time Dyno sold the shares after taking appropriate permission from RBI there is no change of shareholding and that Dyno never came across any information from NECL that additional information in this regard was required by any authority in India.
· NECL vide its letter dated September 17, 2001 informed SEBI inter alia that there was innocent inadvertent and unintentional mistake on their part in not making disclosure and that when the mistake came to their knowledge, they have made disclosures to the Mumbai Stock Exchange on June 08, 2001.
· As their shareholding has remained 7.64% the provisions of Regulation 8(1) do not apply to them and that since NECL was in charge of administration and compliance, they believed that NECL must have complied with all the statutory and regulatory provisions.
· Dyno being a company incorporated outside India, it was not aware of any such compliance to be made by them or applicability of the Takeover Regulations to them.
· It never intended or consciously or deliberately avoided to make disclosures or to comply with the provisions of the Takeover Regulations.
· It did not harm any party or shareholders by the alleged non disclosures.
· In view of the orders passed by the Hon’ble Securities Appellate Tribunal in the matter of Cabbot International Capital Corporation Vs SEBI (Appeal No.39 of 2002) if the breach was merely technical or unintentional it does not merit penal consequences.
In view of the above submissions, Dyno requested SEBI not to hold any inquiry and impose penalty on them.
4. After considering the above reply submitted by Dyno, an opportunity of hearing was granted to him on November 24, 2004. Shri Sandeep Bhimekar of M/s Wadia Ghandy & Co Advocates, attended the personal hearing on November 24, 2004 as the representative of Dyno and made the following submissions:
· Provisions of 8(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 do not apply to it since it was holding less than 15% of shares in NECL. Regarding the Regulations 6(1) 6(3) & 8(2) of the Takeover Regulations there was an agreement signed interalia between Dyno and SICOM Ltd on 23/7/1980, thereafter 3 supplemental agreements were entered between the same parties on 22/10/1981, 17/3/1983 and 7/6/1984 vide the last agreement ie., supplemental agreement dated 7/6/1984, Dyno was invited to invest in NECL pursuant to which it subscribed those shares.
· Dyno’s shareholding remained the same ie., 7.64% which is less than 15% till October 2001-2002. It sold the shares after taking appropriate permission from RBI and there was no change of shareholding and Dyno has never come across any information from NECL that additional information in this regard was required by any authority. Dyno believed that all formalities between any government authority or regulatory authority including SEBI is handled by NECL and their shareholding is also been listed from time to time with all authorities in India in accordance with laws prevailing in India. It had no gain or advantage by withholding any such information from SEBI or from any authority. NECL by its letter dated 17/9/2001 had informed SEBI that there was an innocent, inadvertent and unintentional mistake on their part in not making disclosure and that when the mistake came to their knowledge, they made the disclosures to BSE on 8/6/2001.
· The breach if any by Dyno was bonafide and it never intended or consciously or deliberately avoided to make disclosures or to comply with takeover regulations. Dyno has also not gained anything by nondisclosure of the information. NECL had made disclosure regarding the shareholding to BSE.
· In the hearing held in 2002, SEBI vide order dated August 27, 2002, had already pardoned and excused SICOM Ltd who was also a shareholder and promoter of NECL. SICOM was holding approximately 26% of the shareholding of NECL and further SICOM’s shareholding in NECL had increased 35.65% whereas Dyno’s shareholding always remained the same i.e. 7.64%.
· In view of judgment of the Hon’ble Securities Appellate Tribunal in the matter of Cabbot International Corporation Ltd Vs SEBI and in the case of Reliance Industries Ltd Vs SEBI, if a breach was merely technical and un-intentional, it does not merit penal consequences. It was also clarified that ignorance of law is no excuse but erroneous interpretation is a mitigating factor especially when such interpretation is honest and bonafide to the knowledge of the party as in case of Reliance Industries Limited Vs SEBI. In the case of Dyno, the alleged breach can not be termed as deliberate and non disclosure, if any, was due to lack of understanding of law and hence no penalty may be imposed on it.
CONSIDERATION OF EVIDENCE AND FINDINGS:
5. I have taken into consideration the facts and circumstances of the case, the reply of Dyno and the submissions made by it during the personal hearing. It is noted that Dyno was holding 7.64% shares in NECL. Further, Dyno is also stated to be a Promoter of NECL.
6. In this regard, Regulation 6 (1) of the Takeover Regulations reads as under;
“Any person who holds more than five percent shares or voting rights in any company, shall, within two months of notification of the Regulations disclose his aggregate shareholding in that company to the company”.
7. Further, Regulation 6(3) of the Takeover Regulations provides the following;
“A promoter or any person having control over a company shall, within two months of notification of the Regulations 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. In addition to the said requirements, Regulation 8(2) further provides that 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.
9. It is noted that Dyno in their reply dated November 23, 2004, as well as during the course of the personal hearing submitted that the contravention of the provisions of Regulation 6 (1) and 6(3) and Regulation 8(2) of the Takeover Regulations are technical in nature. In this regard, it is noted that the provisions of Regulation 6 and 8 of the Takeover Regulations require any person who acquire shares or voting rights above the prescribed limit or the promoter or the person having control over a company to make necessary disclosures regarding their holdings to the company. Any violation of said requirement can not be termed as technical violation as the very objective of said provisions is to provide for transparency and dissemination of information to the company. As the information is made available to the investors through the Stock Exchanges, such information enable the investors to take well informed investment decisions. In this regard, the contention raised by Dyno that being the foreign company, it was not aware of the legal requirements and was under the impression that the legal requirements are complied by NECL can not be accepted. Regulation 6(1) 6(3) and 8(2) clearly cast the obligation on Dyno to disclose their shareholding to the company(NECL). Further, on the basis of the information submitted to it, NECL in turn has to discharge its statutory obligation of making necessary disclosures to the Stock Exchanges in terms of the provisions of the Regulations. Hence violation of the provisions of Regulation 6 and 8 of the Takeover Regulations may not be regarded as technical in nature.
10. In this regard, Section 15A(b) of the SEBI Act provides that if any person who is required under the Act, Rules or Regulations made thereunder to file any return or furnish any information, books or other documents within the time specified in the regulations, fails to file return or furnish the same within the specified time, he shall be liable to a penalty not exceeding five thousand rupees for everyday during which such failure continues. It is noted that the said provision has been amended with effect from October 28, 2002 and the penalty has been enhanced to Rupees one lakh per each day during which the failure continues or Rupees one crore whichever is less.
11. 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 take into account 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
12. As stated above, the very objective of Regulation 6 and 8 of the takeover regulations is to provide for transparency and dissemination of information to the company and to the Stock Exchange. As the information is made available to the investors through the Stock Exchanges, such information enable the investors to take well informed investment decisions. Non compliance of the said provisions deprives the company and the investors of valuable information.
13. It is noted that the company NECL participated in the Regularization scheme, 2002 introduced by SEBI. Hence, necessary disclosures were made though at a later stage. Further, it is noted that in the Adjudication Proceedings against SICOM Ltd, no penalty was imposed taking into account the fact that there was no change in the shareholding of the entity in NECL during the period of contravention of the provisions of the Regulations. In the present case it is noted that there has been no change in the holding of Dyno during the period the provisions of Regulations 6(1), 6(3) and 8 (2) of the Takeover Regulations were not complied with and further it appears that no disproportionate gain or unfair advantage resulted on account of the default committed by Dyno. Having regard with factors provided under Section 15J of the SEBI Act and the circumstances of the case, I am of the opinion that contravention of Sub Regulation (1) and (3) of Regulation 6 and Sub Regulation (2) of Regulation 8 by Dyno Noble ASA do not merit imposition of penalty. Accordingly no penalty is imposed on Dyno Noble ASA.
| Date: December 29, 2004 |
S. Biju |
| Place: Mumbai |
Adjudicating Officer |
Cc: 1) Dyno Noble ASA
2) Securities and Exchange Board of India