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Order against Jost's Engineering Company Limited

Nov 18, 2004
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Orders : Orders of AO

ORDER OF THE ADJUDICATING OFFICER UNDER 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 JOST’S ENGINEERING COMPANY LIMITED 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. I was appointed as the Adjudicating Officer by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Order dated September 30, 2004 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’) by Jost’s Engineering Company Ltd(hereinafter referred to as ‘JECL’) for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1997, 1998, 1999, 2000,2001,2002 and 2003 on account of its failure to make necessary disclosures with regard to its shareholding in the company Kerry Jost Engineering Ltd(hereinafter referred to as ‘KJEL’)

    2. NOTICE AND REPLY

  2. A notice no. A&E/BS/23036/2004 dated October 09, 2004 was  issued to JECL 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 its 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 1997, 1998, 1999, 2000,2001,2002 and 2003.  
  3. JECL replied to the notice vide their letter dated November 03, 2004. JECL in its reply submitted that KJEL is a company incorporated in 1987 for the manufacture of various varieties of machine tools, drilling machines, metal cutting tools etc., with a licensed capacity of 1200 machines per annum.  JECL is one of the promoters of the KJEL.
  4. JECL submitted that it was purely due to its ignorance that information required under the Regulations 6(1), 6(3), 8(1) and 8(2) was not submitted by them.  However, upon hearing from the Bombay Stock Exchange in November, 2002, KJEL immediately submitted all the details required under regulations on 15/11/2002.
  5. JECL further submitted that since 1997, the promoter group shareholding was same till 2002 when an interse acquisition of shares amongst promoters took place and except for this, there is no change in the promoters shareholding till date.   
  6. JECL further submitted that they have not made any gain or profit on account of non submission of information and assured that such instances would not be repeated in future.
  7. After considering the above reply submitted by JECL, an opportunity of hearing was granted to it on November 17, 2004.   Shri P.S. Shastry, Vice President, Karvy Investor Services Ltd and Shri C.B. Sagvekar, Vice President and Company Secretary of JECL attended the personal hearing on November 17, 2004.  During the course of personal hearing, the representatives of JECL made the following submissions:
  8. Non communication of the shareholding by JECL to the target company is technical in nature.  As the target company was not doing well at all, it could not do any business except for some job orders since 1997 onwards. The company therefore could not afford the benefit of professional services (being not required to appoint company secretary) for complying with the requirements under takeover code.  Since 1999, there has been no change in the shareholding in the promoters group until 2002 when there was one inter-se transaction and since then, the shareholding remained unchanged till date.  The target company on receiving a communication from BSE, submitted all the data relating to all the years in 2002.  It was an inadvertent oversight and unawareness on the part of the promoters which led to the non compliance.  There was no intention to mislead and the persons have not made any gains out of such non compliance. The shares of the company were hardly traded on the BSE since 1997.  Hence the investors were also not put to any loss due to this technical non compliance.  In light of the above, JECL requested SEBI to condone the non compliance.

    9. CONSIDERATION OF EVIDENCE AND FINDINGS:

  9. I have taken into consideration the facts and circumstances of the case, the reply of JECL and the submissions made by JECL during the personal hearing granted to them. It is noted that JECL was holding 71330(35.67%) shares in KJEL. Further, JECL is also stated to be one of the promoters of KJEL.  In this regard, Regulation 6 (1) of the Takeover Regulations provides that 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.  Regulation 6(3) further provides that the 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.  
  10. Regulation 8(1) provides that every person including a person mentioned in Regulation 6 who holds more than fifteen percent shares or voting rights in any company, shall within 21 days from the financial year ending March 31, make yearly disclosures to the company in respect of his holdings as on 31st March. 
  11. 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 purpose of the declaration of the 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. 
  12. It is noted that JECL in its written reply dated November 03, 2004, in response to the show cause notice issued in the adjudication proceedings as well as during the course of the personal hearing submitted that it did not comply with the provisions of Regulation 6 of the Takeover Regulations for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1997, 1998 1999, 2000, 2001, 2002 and 2003.  Section 15A(b) of the SEBI Act provided 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. 
  13. As JECL admitted the violation of the provisions of Regulations 6(1) and 6 (3) and  Regulation 8(1) and 8(2) of the Takeover Regulations, it is liable to the penalty prescribed under Section 15A(b) of the SEBI Act
  14. 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, the amount of disproportionate gain or unfair advantage made as a result of default, loss caused to the investors and the repetitive nature of the default.  In this regard, it is noted that   Regulation 6 and 8 of the Takeover Regulations require any person who acquires shares or voting rights above the prescribed limit or   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 such provisions is to provide for transparency and dissemination of information to the investors and to the company.  Non compliance of the said provisions deprive the company and the investors of valuable information. Hence, the violation of the said provisions attracts the penalty prescribed under Section 15A(b) of the SEBI Act.  However, taking into account the fact, that there has been no change in the holding of JECL during the period it contravened the provisions of Regulations 6 and 8, a lenient view is taken with regard to the quantum of penalty.  

    15. ORDER

  15. In view of the violation of Regulation 6(1) and 6(3) for the year 1997 and Regulation 8(1) and 8(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 for the years 1997, 1998, 1999, 2000,2001,2002 and 2003 committed by Jost’s Engineering Company Ltd, I hereby impose a penalty of Rs.50,000/- (Rupees Fifty Thousand only) under Section 15A(b) of the SEBI Act on Jost’s Engineering Company Ltd.
  16. The penalty shall be paid by way of Demand Draft / Pay Order drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai and the same shall be sent to Shri S.V. Muralidhar Rao, General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 224, Nariman Point, Mumbai – 400 021.

 

S. Biju

Adjudicating  & Enquiry Officer

Cc:            1) Jost’s Engineering Company Ltd

2) Securities and Exchange Board of India