In respect of Malabar Trading Company Limited

 BRIEF FACTS OF THE CASE

1. Malabar Trading Company Limited (hereinafter referred to as the Company’ or ‘MTCL’) is a Public Limited Company incorporated on April 18, 1980, having its Registered Office at 106/108, III rd Floor, Cooper Building, Nagindas Master Road, Fort, Mumbai-400 023.
   
2. The Company was originally promoted by Mr. V.K. Pandya, Mr. H.M. Somaiya and Mr. D.B. Shah. The company made its maiden public issue during June 1980 aggregating Rs. 3.00 lakhs for raising working capital and meeting issue expenses. Thereafter, the target company made a rights issue of equity shares aggregating to Rs. 5000 lakhs during February 1997, to augment its long term resources. The issue was under subscribed and no allotments were made. During October 1998, the company was taken over by M/s. Dishman Pharmaceuticals and Chemicals Ltd., Mr. Janmejay Vyas, Mr. Devhooti Vyas and Mr. Rajnikant. The then acquirers had made an open offer to the public and all SEBI formalities relating to the open offer had been complied with. MTCL was incorporated with the main objective of trading, acting as distributors, commission agents etc. The company earlier was engaged in trading activity on a very low key from the beginning. From the financial year 1999-2000, the company has not carried on any business. During the quarter October 2003 to December 2003, the company commenced trading in Organic Fertilisers, resultant of waste management process.
3. The Authorised Share Capital of the company as on 31.03.2003 was Rs. 1100 lakhs, divided into 110 lakhs equity shares of Rs. 10 each. The equity shares of MTCL are listed on the Bombay Stock Exchange. 
    
4. On the 31^st of May, 2004, in compliance with Regulation 15 of the SEBI (Substantial Acquisition of Shares and Takeovers Regulations) 1997 (hereinafter referred to as SAST), a public announcement was made by the acquirers (including PACs) of their offer to the public shareholders of the target company to take over 20% of the equity share capital of MTCL at a price of Rs.10 per share. 
    
5. Pursuant to the acquisition, letter of offer was filed with SEBI. After examining the letter of offer, it was observed that  there was a delay on the part of MTCL  in complying with the provisions of Regulations 6(2), 6(4) & 8(3) of SAST and the details are as  under:

No   (1)	Regulation   (2)	Due date for compliance as per Regulation   (3)	Actual date of compliance (4)	Delay(in no. of Days)
1	6(2)	20.05.1997	06.05.2004	2551
2	6(4)	20.05.1997	06.05.2004	2551
3	8(3)	30.04.1999	07.04.2004	1804
4	8(3)	30.04.2000	07.04.2004	1438
5	8(3)	30.04.2001	07.04.2004	1073
6	8(3)	30.04.2002	07.04.2004	708
7	8(3)	30.04.2003	07.04.2004	343
8	7(3)	03.05.1998	04.05.1998	1

 

1. The relevant extract of the provisions of Regulations 6(2), 6(4) , 8(3) and 7(3) of SAST is reproduced as under-

 

Transitional Provision

Regulation 6(2): Every company whose shares are held by the persons referred to in sub-regulation(1) shall, within three months from the date of notification of these Regulations, disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person.

 Regulation 6(4): Every company, whose shares are listed on a stock exchange, shall within three months of notification of these Regulations, disclose to all the stock exchanges on which the shares of the company are listed, the names and addresses of promoters and, or person(s) having control over the company, and number and percentage of shares or voting rights held by each such person.

 

Continual disclosures

Regulation 8(3): Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March.

Acquisition of 5% and more shares of a company

Regulation 7(3): Every company, whose shares are acquired in a manner referred to in  sub-regulation (1) and (1A), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations (1) and (1A).

APPOINTMENT OF AO

1. I was appointed as Adjudicating Officer vide order dated June 26, 2007 to inquire into and adjudge under Section 15A (b) of the Securities and Exchange Board of India Act, 1992, the alleged violation of Regulations 6(2), 6(4) of SAST and Regulation 8(3) of SAST for the years 1999 till 2003 and Regulation 7(3) for the year 2003 committed by MTCL.

SHOWCAUSE NOTICE, HEARING AND REPLY

1. The Show Cause Notice (hereinafter referred to as SCN) dated October 15, 2007 was issued to MTCL under Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995 (hereinafter referred to as Adjudication Rules).

1. MTCL vide a letter dated 30^th October, 2007 replied to the SCN submitting that the shareholding of the erstwhile promoters had not changed since the acquisition in October, 1998 under takeover code, till the end of May, 2004. The promoters were holding the same number of shares under the same names ever since the takeover and they had never bought/sold a single share in the company till May, 2004.

1.   In the interest of natural justice, an opportunity of personal hearing was granted to MTCL on the 19^th of November, 2007.  During the course of hearing, the representatives namely, Shri Mukesh Siroya, Practicing Company Secretary and Shri Deepak Pandya of MTCL submitted a letter dated November 19, 2007 in which it was, inter alia, contended that the delay was not intentional and requested for condonation of the delay keeping in view the fact that neither the company nor its directors have defaulted earlier under SEBI Act. MTCL also stated that the company being a very small company with a paid-up capital of Rs. 5 lakhs and was passing through a paucity of funds. They also admitted the delay in complying with Regulation 6 (2), 6 (4), 8 (3) and 7 (3) as mentioned in the SCN dated October 15, 2007 and requested for imposing nominal penalty in the matter.

 

CONSIDERATION OF ISSUES AND FINDINGS

1. I note that the MTCL admitted the violations as mentioned in SCN dated October 15, 2007. Non compliance with the provisions of Chapter II of SAST  attracts penalty under law i.e. Section 15 A (b) of SEBI Act, 1992 (as existed then) which reads 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 there under,-

(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) ………………………….

 

12.  While determining the quantum of penalty under Section 15A (b), I have considered the following factors as provided in section 15 J of SEBI Act, 1992 viz. (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 and; (c) the repetitive nature of the default. The amount of disproportionate gain or unfair advantage to MTCL or loss caused to the investors as a result of the default is not computable from the material available on record. I also note that regulation 8(3) had not been complied with by MTCL for the years 1999 to 2003 which establish the repetitive nature of the default on the part of MTCL.

  

1. The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216(SC) held that once the violation of statutory regulations is established, imposition of penalty becomes sine qua non of violation and the intention of parties committing such violation becomes totally irrelevant.

 

The Hon’ble SAT in Appeal No. 30 of 2007 – Top Telemedia Ltd v/s SEBI observed as follows:

“There is no gainsaying the fact that the Board itself had come out with SEBI Regularization Scheme, 2002 for non compliance with Regulations 6 and 8 of the Regulations. This scheme was framed keeping in view the fact that disclosures were not made by several companies and market participants either on account of oversight or lack of knowledge. The scheme which was initially framed for a duration of three to four months was being extended from time to time and eventually expired in June, 2003. When the appellant complied with the statutory provisions on 20.11.2002 the scheme was in operation where under it could have availed the benefit of lesser penalty in terms thereof. The learned counsel for the appellant pointed out and, in our view rightly, that the appellant was not aware of the scheme by then and did not avail of this benefit. Had the appellant availed of the benefit of the provisions of the scheme the total amount of penalty that would have been levied on it would have been much less. We are, therefore, inclined to agree with the learned counsel for the appellant that his clients were not aware of the scheme. Be that as it may, we are of the view that the penalty imposed is very exorbitant and having regard to the facts and circumstances of the case we reduce the same to Rs.5 lacs. The impugned order in Appeal no.30 of 2007 stands modified accordingly.”

 

1. Further Hon’ble  SAT, in Appeal No. 66 of 2003 - Milan Mahendra Securities Pvt. Ltd. Vs SEBI, has also observed, “the purpose of these disclosures is to bring about transparency in the transactions and assist the Regulator to effectively monitor the transactions in the market. We cannot therefore subscribe to the view that the violation was technical in nature”.

 

1. In view of the above, I am convinced that it is a fit case to impose monetary penalty. After taking into consideration all the facts and circumstances of the case and also the amount payable under SEBI Regularization Scheme, 2002, I hereby impose a monetary penalty of Rs.1,00,000 (Rupees One Lakh Only) on MTCL which will be commensurate with the defaults committed by MTCL.

 

1. MTCL shall pay the said amount of penalty by way of demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Ms. Soma Majumder, Deputy General Manager, Division of Corporate Restructuring, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai–400 051.

 

17.  In terms of Rule 6 of the Adjudication Rules, copies of this order are sent to MTCL and also to the Securities and Exchange Board of India.

 

Date: 26.11.2007   D. S. REDDY

Place: Mumbai ADJUDICATING OFFICER