Order against Mr.Ramesh K Parikh, Ms Varsha R Parikh and Mr Manubhai K Parikh

SECURITIES AND EXCHANGE BOARD OF INDIA 

ADJUDICATION ORDER 

UNDER

SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

READ WITH

SECTIONS 15A(b) & 15H(ii) OF SEBI ACT 1992

AGAINST

 

 

FOR NON DISCLOSURE AND NOT MAKING PUBLIC ANNOUNCEMENT UNDER REGULATIONS 7 & 10 RESPECTIVELY OF SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997 IN ACQUIRING SHARES OF MANNA GLASS TECH INDUSTRIES LTD

 

I was appointed as Adjudicating Officer by SEBI vide order dated 14.11.03 to inquire into and adjudge under Sections 15H(ii) and 15A(b) of SEBI Act, 1992 the acquisition of shares of Manna Glass Tech Industries Ltd. (MGT) by Mr Ramesh K Parikh, Ms Varsha R Parikh and Mr Manubhai K Parikh (acquirers and persons acting in concert) (hereinafter referred to as noticees) without making public announcement  and not making the requisite disclosure to the company in terms of Regulations 10 and 7, respectively of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

 

 

NOTICE

Accordingly show cause notice dated 15.01.04 was issued to the noticees, which alleges that the noticees acting in concert have acquired shares of MGT. From the information furnished by Mr. Ramesh K. Parikh to SEBI vide letter dated 22^nd May 2003, the aggregate holding of the noticees between 15^th-30^th March 2000 was 4,493,700 shares of MGT, constituting 17.06% of its equity as given in table below.

It is alleged that the aforesaid acquisition of more that 5% of MGT’s equity was not informed to the company within 4 days of the acquisition as prescribed under Regulation 7(1)&(2) of SEBI (SAST) Regulations 1997 and liable for penalty under Section 15A(b) of the SEBI Act, 1992

 

Further, in terms of Regulation 10 of SEBI (SAST) Regulations, 1997, the acquirers and persons acting in concert with them are prohibited from acquiring more than 15% of MGT’s equity, unless preceded by public announcement to acquire shares in accordance with the Regulations. It is alleged that the noticees have acquired share in excess of 15% of MGT’s equity as mentioned earlier, without making public announcement, which makes them liable for penalty under Section 15H(ii) of the SEBI Act, 1992

 

REPLY AND HEARING:

 

Noticee 1 and 2 are husband and wife. They filed identical replies vide their letters dated 09.02.04. It was stated that Noticee 1 deals in securities through his proprietary firm S M Consultancy Services through which he buys and sells shares in the normal course of business. In the instant case, 4493,700 shares of MGT were bought from the entities cited in the notice and were all sold through BSE Member. The aforesaid transactions were done for the sole purpose of making profit on the price differential and there was no intention to take over control or management of MGT through acquisition of shares as alleged. It was also stated that the threshold limit for triggering Regulation 7 & 10 of SEBI (SAST) Regulations, 1997 were never breached as the shares of MGT were sold immediately either on the same day or on the next day on receipt of shares duly transferred in their name.  

 

In the personal hearing on 11.10.04, noticee 1, also appearing on behalf of noticee 2, filed letters dated 11.10.04 along with bills of SM Consultancy Services evidencing purchase of MGT’s shares and bill dated 08.04.00 of Integrated Master Securities Ltd. (IMSL) in annexure B, evidencing sale of MGT shares. A consolidated statement of purchase and sale of MGT shares in the period 15-30 March, 2000 was also furnished in Annexure A to this letter.

 

It was stated that the shares were purchased in off market transactions and sold through the broker to avail the benefit of 3 paise to 5 paise difference per share between the purchase and sale price.  In this letter dated 11.10.04 it was stated that delay in sale of MGTs shares purchased from the cited parties was on account of transferring the shares in their name. In subsequent purchases he ensured immediate transfer of shares in his name and hence was able to sell the shares immediately.   

 

Noticee 3 was given an opportunity for hearing on 05.04.04 as he did not file any reply. Noticee 3, vide his letter dated 03.03.04 stated that the notice for personal hearing sent to Mumbai address was redirected to his present address at Patna. He also stated that he has not received the show cause notice and added that he has neither made any investment nor applied for any shares of MGT and does not have any dealings with them of any kind. Accordingly, a copy of the show

cause notice was dispatched to the new address at Patna, through RPAD and its acknowledgement received. Noticee did not file any reply but was given an opportunity of personal hearing on 15.07.04, which he did not attend. Having satisfied that noticee 3 has been given sufficient opportunity, to defend himself, I proceed to record my findings on the basis of material available on record.

 APPRECIATION OF EVIDENCE AND FINDINGS

 

I have carefully perused the material on record and the submissions made by the parties and record my findings as follows:

 

The parties have not disputed the acquisition of 4,493,700 shares of MGT in the period 15^th to 30.03.00. However, it is contended that all these shares were sold within a few days, if not immediately. The material furnished in this regard is examined and the findings in this regard are as follows:

 

	NO. OF SHARES
DATE	BUY	SELL	PARTY	CUMULATIVE HOLDING	% OF MGT'S EQUITY
15-Mar-00	56,000		OMEGA AVENUES Ltd.	56,000	0.21%
15-Mar-00	100,000		INCO CARE PHARMA LTD	156,000	0.59%
15-Mar-00	815,400		INCO CARE PHARMA LTD	971,400	3.69%
27-Mar-00	25,300		G BHAVSAR	996,700	3.78%
27-Mar-00	91,800		GROWTH AGRO	1,088,500	4.13%
27-Mar-00	97,300		SHALIN RESORTS Ltd.	1,185,800	4.50%
27-Mar-00	198,800		SHALIN RESORTS Ltd.	1,384,600	5.26%
27-Mar-00	200,000		G BHAVSAR	1,584,600	6.02%
27-Mar-00		905,500	IMSL	679,100	2.58%
28-Mar-00	20,400		GUJARAT FUN N WATER PARK	699,500	2.66%
28-Mar-00	58,000		G BHAVSAR	757,500	2.88%
28-Mar-00	128,500		G BHAVSAR	886,000	3.36%
28-Mar-00	380,000		SHALIN RESORTS Ltd.	1,266,000	4.81%
28-Mar-00	662,200		G BHAVSAR	1,928,200	7.32%
28-Mar-00		203,600	IMSL	1,724,600	6.55%
29-Mar-00		1,184,300	IMSL	540,300	2.05%
30-Mar-00	160,000		SHALIN RESORTS Ltd.	700,300	2.66%
30-Mar-00	400,000		INDO CARE PHARMA LTD	1,100,300	4.18%
30-Mar-00	1,100,000		INDIAN SHELTERS LTD	2,200,300	8.35%
30-Mar-00		2,500,000	IMSL	(299,700)	-1.14%
	4,493,700	4,793,400

 

It is noticed that there are discrepancies in the figures provided by the noticees at Annexure A to their letter dated 11.10.04 and the bills enclosed thereto. For example, as per Annexure A to the letter dated 11.10.04, the number of shares sold on 27.3.2000 is stated as 7,54,300 whereas as per the bills enclosed thereto it is 905500 shares. Similarly, on 30^th March 2000, the number of shares sold through IMSL is stated 2351500 shares whereas as per the bills enclosed, the figure is 2500000. The date of purchase of 58000 shares from G Bhavsar is mentioned as 27.3.2000 as per Annexure A whereas as per the bill of S M Consultancy Services, the date of purchase is 28.3.2000.

 

While no penalty can be imposed under SEBI (SAST) Regulations, 1997 for the reasons that are explained in the succeeding paragraphs, the method and manner of execution of transactions by the noticees are dubious. The noticees have acquired shares from allottees in the preferential allotment who were allotted shares without receiving consideration thereto and sold the shares in the secondary market through BSE broker. These shares were bought by Shri Ramesh Parikh in the off market transactions through its proprietary concern, S M Consultancy. It is not understood as to why the shares which are listed in BSE and therefore are liquid had to be sold in off market deals by several entities who were allotted shares in the preferential allotment without consideration thereto to noticee No.1. After acquiring shares in the aforesaid manner, the noticees have sold the shares in the secondary market through BSE broker, Integrated Master Securities Ltd. Further, the bills provided by Mr Ramesh Parikh evidencing purchase of shares of 4493700 shares of MGT in the off market deals show that the expressions “bought for you and sold for you” are used, which expressions are normally used on contract notes issued by a broker. The bill further states that “we are not responsible for keeping blank shares after delivery as per association rules”. From the above, there are reasonable grounds to believe that noticee No.1 may be acting as ‘unregistered sub-broker’ in contravention of Section 12 of SEBI Act, 1992. However, these are issues not within the domain of the present adjudication proceedings and it is open for SEBI to initiate action as deemed fit.

 

Now, reverting to the allegations arising from the show cause notice for the violation of Regulation 7 and 10 of SEBI (SAST) Regulations, 1997 by the noticees, it may be seen from the table above that as on 28.03.00, the net holding of the acquirers was 1,724,600 shares of MGT constituting 6.55% of its equity of 26,339,500 shares. Therefore, violation of Regulation 7(1) & (2) of SEBI (SAST) Regulations, 1997 is established as the acquirers have not contended that they have disclosed the aforesaid acquisition to MGT. However, it is also seen that on the very next day i.e. 29.03.00 their aggregate holding was 540,300 shares of MGT constituting 2.05% of its equity. Therefore, the holding of 6.55% on 28.3.2000 was brought down to less than 2.05%, the very next day.

 

In a similar case dealing with non-compliance with Regulation 7 of SAST Regulations which resulted in technical breach of takeover regulation for a very short period, the Hon’ble SAT in its order dt 11.10.02 in appeal Nos.27, 28, 30 & 31 of 2002 in the matter of Kensigton Investment Ltd. Vs SEBI while accepting the contention of the appellant that the acquisition of shares had crossed slightly benchmark of 5% provided in Regulation 7(1) but this ‘over benchmark’ holding was only for a couple of days and in any case less than four days had held that since excess holding was just for a short duration, such an acquisition should not be a concern of company or investor for whose benefit reporting under Regulation 7 was provided for and that reporting in such a case would only be for historical purposes. The Hon’ble SAT had held in the said case that imposition of penalty by the adjudicating officer under such circumstances was not justified.

 

Noting that the appellant’s purchase of shares in the aforesaid case had exceeded the prescribed 5% and the excess holding remained with them for a short period only, the Hon’ble SAT had held as under:

 

In this context it has to be noted that by the time the report would have reached the company and from the company to the stock exchanges (4 days from the acquirer to the company and 7 days from company to the exchanges) the position had changed as the acquirer had ceased to be a shareholder, or his holding had gone below the 5 per cent mark and that being the position, the details of holding which the company or the stock exchange receive would not be of any use for the purpose stated by the Adjudicating Officer in the order. On the contrary, the reporting would in effect be more disinformative than informative and only historical. However, I am not suggesting that in the strict technical sense, the appellants had not failed in their obligation. But then, since the failure is linked to penal consequences, one has to look to it in a realistic manner and the consequences arising out of the failure. SEBI Act is not a penal legislation. In this context it is to be noted that section 15-I providing for adjudication, does not direct the Adjudicating Officer to impose penalty for failure per se. According to section 15-I(2) if on inquiry the adjudicating officer is satisfied that the person has failed to comply with the provisions specified in the section, he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. The expression ‘may’ used is not mandatory. Further the ‘failure’ referred to therein need be considered in the light of judicial pronouncements explaining the situation. The case laws cited by Shri Khambatta on this aspect is considered relevant.

 

The facts of the present case are similar, in as much as the holding of the acquirers in MGT was 6.55% on 28.03.00 and was brought down to 2.05% the very next day. Disclosure of their holding on 28.03.00 by the acquirers to the company would in effect be more disinformative than informative and only historical as observed by SAT in the aforesaid order because by the time the report about the acquisition had reached the company and from the company to the stock exchange (four days from the acquirer to the company and seven days from the company to the exchange), the position had changed as the holding of the acquirer had come down below 5%.

 

For the aforesaid reasons, no penalty is imposed on the acquirer for the violation of Regulation 7(1) of SEBI (SAST) Regulations, 1997 as the aggregate holding which crossed 5% figuring the necessary disclosures was brought down to less than 5% on the very next day.

 

Since the acquirers aggregate holding has not crossed 15% mark on any day in the period 15-30 March, 2000 as can be seen from the table at Page 4 & 5, the provisions of Regulation 10 of SEBI (SAST) Regulations, 1997 are not attracted.

 

ORDER

 

Having regard to the factors contained in Section 15J of SEBI Act, 1992,  the fact that  breach of Regulation 7(1) was for a period of just one day and the holding of the acquirers had come down to less than 5% on the very next day as against the requirement of informing the company about the acquisition within four days, following the Order of Hon’ble SAT in Kenigston’s case cited supra, and since alleged violation of Regulation 10 of SEBI (SAST) Regulations, 1997 has not been established as the holding of the acquirers on any day between 15-30^th March 2000 did not exceed 15% of the paid up capital of the target company, no penalty is imposed on Mr Ramesh K Parikh, Ms Varsha R Parikh and Mr Manubhai K Parikh, under the circumstances.

   

Date:  NOVEMBER 24, 2004	S V Krishna Mohan
Place: Mumbai	Adjudicating Officer