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 MOTOROL SPECIALITY OILS LTD FOR THE VIOLATION OF SECTION 11(2)(i) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.
1) Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Order dated March 01, 2004 appointed Shri S.V. Krishna Mohan as 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 Section 11(2)(i) of the SEBI Act by Motorol Speciality Oils Ltd (hereinafter referred to as ‘MSOL’) on account of its failure to furnish the documents sought by SEBI in respect of the acquisition of the shares of MSOL by Lexus Private Limited (hereinafter referred to as ‘LPL’). In this regard, it is noted that consequent to the acquisition of shares of MSOL, a report dated August 27, 2001, was filed by LPL with SEBI in terms of Regulation 3(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997((hereinafter referred to as ‘Takeover Regulations’). On perusal of the said report, SEBI vide its letter dated December 20, 2001, sought clarification from MSOL as to how the preferential allotment and the acquisition of 44.0247% of shares of MSOL by LPL has not resulted in change in control of MSOL. Further, vide the said letter SEBI also required MSOL to furnish the following;
· Name of the directors on the board of MSOL, pre and post preferential allotment and the group they represent.
· Breakup of 44.0247% and 69.14% of pre and post preferential allotment, respectively held by ‘Other Corporate Bodies’, including details regarding the name, address, number of shares held etc., by each corporate body.
· Details of promoters and persons in control of ‘Other Corporate Bodies’ both pre and post allotment of shares as on August 9, 2001 and August 11, 2001.
2) MSOL vide their letter dated January 02, 2002, informed that the company had circulated a Corrigendum to the EGM Notice dated 21-06-2001, regarding disclosure on change in Board of Directors and control of the Company stating that no change will take place resultant to the said allotment of shares to LPL. MSOL also submitted that the same was duly discussed among the members at the EGM held on July 16, 2001 and was also recorded in the minutes of the meeting. Further, MSOL forwarded the shareholding of the Directors and Relatives, Group Companies and Other Bodies Corporate.
3) Considering the said reply of MSOL and in order to examine the case further, SEBI vide letter No.TO/AT/12811/02 dated July 11, 2002, advised MSOL to furnish the following;
a) Documentary proof of compliance with Chapter-II of the Takeover Regulations by LPL and subsequent compliance by MSOL for the period April, 2002
b) Minutes of EGM held on 16-07-2001
4) MSOL was required to furnish the same on or before July 21, 2002. As no reply was received from MSOL in this regard, a reminder letter dated January 07, 2003 was sent to MSOL and the company was required to furnish the information by January 22, 2003. As it was noted that MSOL did not reply to the said letter, another reminder dated April 22, 2003 was sent by SEBI to MSOL requiring them to send the reply immediately. As MSOL failed to reply to the said letter, a final reminder dated September 26, 2003 was sent by SEBI advising MSOL to furnish the information urgently. Vide the said letter, MSOL was informed that failure to furnish the said information would invite suitable action against it in terms of Regulations and SEBI Act. As it is noted that MSOL did not reply to the said letters and also did not submit the required information sought by SEBI, Adjudication proceedings were initiated vide SEBI’s Order dated March 01, 2004
NOTICE AND REPLY
5) The Adjudicating Officer issued a notice no. A&E/523 /04 dated June 29, 2004 under 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”) to MSOL seeking its reply on the alleged contravention of Section 11(2)(i) of the SEBI Act, 1992. MSOL replied to the notice vide their letter dated July 16, 2004 stating that the company had complied with Chapter-II of the Takeover Regulations for the period 2002. In this regard, MSOL enclosed company’s letter no. MSOL/SEC/2002/1816 dated 12/7/2002 sent to the Stock Exchange, Mumbai enclosing the information under Regulation 6,7 & 8 of the Takeover Regulations. Further, as regards the compliance by LPL, MSOL enclosed a copy of the communication dated 21/7/2001 received from LPL in respect of the disclosure under Regulation 6(1) of the Takeover Regulations. Vide the said letter, MSOL also submitted a copy of the minutes of the EGM of the company held on 16/7/2001. MSOL further submitted that it sincerely regrets the delay in sending the above papers and requested SEBI to waive holding of inquiry against it in terms of Rule 4.
6) I have been appointed as Adjudicating Officer in the place of Shri S.V. Krishna Mohan vide SEBI’s order dated September 30, 2004. After considering the above reply submitted by MSOL, an opportunity of hearing was granted to them on October 27, 2004. MSOL vide their letter dated October 26, 2004 requested for another date of hearing so as to send its authorised representative to attend the hearing. Considering the request of MSOL, another opportunity of hearing was granted to them on November 08, 2004.
7) MSOL failed to attend the said hearing scheduled on November 08, 2004. However, MSOL vide their letter dated November 06, 2004 requested that the submissions made by it, in its earlier communications to SEBI may be taken on record in the Adjudication Proceedings. In view of the said submissions made by MSOL, the inquiry is further proceeded with on the basis of material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS:
8) It is noted that SEBI vide its letter dated 11/7/2002 sought the following information from MSOL.
a) Documentary proof of compliance with Chapter-II of the Takeover Regulations by LPL and subsequent compliance by MSOL for the period April, 2002
b) Minutes of EGM held on 16-07-2001
9) As MSOL failed to submit the said information, SEBI sent reminders dated 7/1/2003, 22/4/2003 and 26/9/2003. In this regard it is noted that MSOL did not reply to the letter dated 11/7/2002 and the subsequent reminders sent by SEBI. Section 11(2(i) of the SEBI Act empowers SEBI to call for information from stock exchanges, mutual funds, other persons associated with securities market, intermediaries and self regulatory organizations in the securities market. The said provision enables SEBI to discharge its regulatory functions effectively.
10) In the present case, it is noted that MSOL was required to furnish the above information on the basis of the report filed by LPL under Regulation 3(4) of the Takeover Regulations pursuant to acquisition of 44.0247% shares of MSOL. It is noted that the said information was necessary as it was stated in the report filed by LPL that there was no change in the Board of Directors and in the control of MSOL pursuant to the acquisition. Vide letter dated July 11, 2002 SEBI required MSOL to furnish the above information by July 21, 2002. Subsequently, SEBI vide letter dated January 07, 2003 required MSOL to submit the information by January 22, 2003. This was followed by another reminder dated April 22, 2003. As no reply was received from MSOL a final reminder was sent to MSOL vide SEBI’s letter dated September 26, 2003.
11) From the above, it is clear that MSOL was given ample opportunity to submit the necessary information. It is pertinent to note that MSOL did not reply to any of these letters. Only when a notice was issued pursuant to the adjudication proceedings initiated against MSOL, it replied vide its letter dated July 16, 2004. It is pertinent to note here that MSOL did not state any reason or explanation for not submitting the information sought by SEBI. Further, though two opportunities of personal hearing were granted to them in respect of the alleged contravention of Section 11(2)(i) of the SEBI Act, MSOL did not avail the opportunities of hearing. In the absence of any explanation by MSOL, for non submission of the information sought by SEBI, it can be concluded that such non furnishing of information indicate willful default committed by MSOL. By not furnishing the information sought by SEBI vide its letter dated July 11, 2002 and subsequent reminders dated 7/1/2003, 22/4/2003 and 26/9/2003, MSOL had violated the provisions of Section 11(2)(i) of the SEBI Act, 1992.
12) In this regard, Section 15 HB of the SEBI Act provides that “Whoever fails to comply with any provision of this Act, the rules, or regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees”.
13) 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 the said information sought by SEBI was not furnished by MSOL even after repeated reminders. Such willful default in furnishing information to SEBI despite various reminders, have to be viewed seriously. Further, MSOL did not offer any explanation for not furnishing the information sought by SEBI. Hence, in view of the violation of Section 11(2)(i) of the SEBI Act committed by MSOL, it is liable to the penalty prescribed under Section 15HB of the SEBI Act. However, taking into account the fact that MSOL furnished certain documentary proof and information in its reply dated July 16, 2004, pursuant to the notice issued in the Adjudication Proceedings, a lenient view is taken with regard to the quantum of penalty.
ORDER
14) In view of the violation of Section 11(2)(i) of the SEBI Act committed by Motorol Speciality Oils Ltd, I hereby impose a penalty of Rs.50,000/- (Rupees Fifty Thousand only) on Motorol Speciality Oils Ltd.
The penalty shall be paid by way of Demand Draft / Pay Order drawn in favour of the “Securities and Exchange Board of India” 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
Date: November 16, 2004
Place: Mumbai
Cc: 1) Motorol Speciality Oils Ltd
2) Securities and Exchange Board of India