Order against Tanvir Zaki

ORDER 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 SHRI TANVIR ZAKI

 

CONSIDERATION OF EVIDENCE AND FINDINGS

1. The first allegation against the noticee is that he failed to comply with the summons dated August 26, 2002 issued by investigating authority and in view of the same, he is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992. In this regard it is pertinent to note that Section 11C (3) of the SEBI Act empowers the investigating authority of SEBI to require any person associated with the securities market to furnish such information or to produce such records as may be required by the investigating authority. Further, Section 11 C (5) empowers the investigating authority to examine such persons. Timely submission of information is very important for concluding investigation proceedings and non cooperation by an entity can be detrimental to the interests of investors and securities market on account of any delay in the investigation.

 

2. In this regard, the provisions of Section 15A(a) of SEBI Act provides the following:

Penalty for failure to furnish information, return, etc.: If any person, who is required under this Act or any rules or regulations made thereunder, to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.

 

3. During the course of the investigation, prima-facie it appeared to the investing authority that the noticee acquired the shares of SIL during the relevant period. In view of the same, the investigating authority issued summons dated August 26, 2002 to the noticee advising him that his attendance was required in connection with the investigation instituted by SEBI.

 

4. On perusal of the records, it is noted that no proof of delivery of the said summons is available on record. In the absence of proof of service of notice, the same cannot be deemed to have been served on the noticee. The Honorable Securities Appellate Tribunal in the matter Appeal No.5 of 2006 Jay Shah Vs. SEBI held that proof of service of summons have to be necessarily taken into account while deciding questions of failure to comply with summons. The observations of the Honourable Tribunal is taken into account for necessary guidance.

 

5. In the present case as no proof of service of summons is available on record. In view of the same, in the facts and circumstances of the case it cannot be concluded that the noticee failed to comply with the summons issued by the investigating authority.

 

6. The second issue for consideration in the mater is whether the noticee along with persons acting in concert had acquired the shares of SIL in violation of the provisions of the Takeover Regulations. It is noted from the facts of the case that in January 2000, Shri Shrikant Vasant Jogelkar and his family members sold their 98% stake in SIL for a total consideration of Rs.98,34,659/- (Rs.4.95/- per share) to the noticee and others namely Shri. Anil Pujari, Shri. Hozefa Vohra, Shri. Rajan Tawate, Shri. Pravin Sonalkar and Shri.Kuldeep Kumar Handoo.

 

7. It is pertinent to note that thereafter on February 1, 2000 the noticee, Rajan Tawate, Pravin Sonalkar, Hofeza Vohra and Kuldeep Handoo were appointed as directors of SIL. This indicates that the said acquisition had resulted in change in management of the company and also the above persons obtained control over management of SIL.

 

8. With regard to the question whether the noticee acted in concert with other persons such as Anil Pujari, Hozefa Vohra, Rajan Tawate, Pravin Sonalkar and Kuldeep Kumar Handoo in acquiring the shares of SIL in violation of the provisions of the Takeover Regulations, it is pertinent to note that regulation 2(b) of the Takeover Regulations 1997 defines an acquirer in the following manner -  Acquirer means any person who directly or indirectly acquires or agrees to acquire shares or voting rights in the target company or acquires or agrees to acquire control over the target company either by himself or with any person acting in concert with the acquirer. The Honourable Securities Appellate Tribunal in Appeal No: 12 of 2001 Naagraj Ganeshmal Jain Vs. P. Sri. Sai. Ram Adjudicating Officer observed that a person becomes an acquirer by virtue of his action- who acquires or agrees to acquire shares etc. The identification is thus action related. Further the above definition of acquirer, read along with the definition of persons acting in concert as contained in regulation 2(1)(d) implies that the commonality of objective between the acquirer and the persons acting in concert mandate their actions should not be viewed in isolation. Hence in cases where shares have been acquired pursuant to a common objective, the aggregate share holding of the acquirers and the persons acting in concert have to be taken into account to determine whether the threshold limit prescribed under the regulations have been breached.

 

9. It is noted that the shares were acquired by the said group of persons to obtain substantial number of shares and voting rights and consequent to the said acquisition, the said persons also acquired control over the target company is evident from their being appointed as directors after the said acquisition. In view of the same, the aggregate shareholding of the noticee and persons acting in concert has to be taken into account to see whether the threshold limit prescribed under the regulations have been breached.  It is noted from the facts of the case that the acquirers including the noticee were not holding any shares prior to the said acquisition. Further consequent to the said acquisition, the aggregate share holding of the acquirers reached 98% of the total shares and voting rights in SIL.

 

10. In this regard, Regulation 10 of the Takeover Regulations, prescribe that no acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen percent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.

 

11. Further regulation 12 of the Takeover Regulations provides that no acquirer shall acquire control over the target company unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations.

 

12. As the acquisition has resulted in acquiring 98% of shares and voting rights in SIL, the requirement of public announcement and offer to acquire the shares from the general public has to be necessarily adhered to. Further, the noticee and persons acting in concert had acquired control over the target company as consequent to acquisition of shares, the said persons were appointed as directors of SIL on February 1, 2000. Hence the requirement of public announcement and public offer in terms of Regulation 12 also has to be adhered to. In this regard, it is noted from the evidence available on record that no public announcement and offer in terms of the provisions of Regulation 10 and 12 have been made by the acquirers.

 

13. Further on the basis of the evidence available on record, it is seen that the said acquisition is not under any of the exempted categories under Regulation 3 of the Takeover Regulations.

 

14. In view of the above, it is concluded that the noticee violated the provisions of Regulation 10 and 12 of the Takeover Regulations. It is noted from the facts of the case no public announcement and offer has been made by the acquirers and the persons acting in concert in accordance with the mandate of the said regulations.

 

15. In view of the same, it is concluded that as the noticee failed to make necessary public announcement and offer in terms of Regulation 10 and 12 of the Takeover Regulations, he violated the provisions of Regulations 10 and 12 of the Takeover Regulations. The above violations attract the penalty under Section 15H of the SEBI Act.

 

16. In this regard, It is pertinent to refer to the order of the Hon’ble Securities Appellate Tribunal in Appeal No.151/2004 in the matter of Rameshchandra Mansukhani NRI vs SEBI wherein the Honourable Tribunal held that the penalty existing on the date of commission of the violation should be imposed and not enhanced penalty which came into being by way of subsequent amendment. The order passed by the Honourable Tribunal is relied upon in this case.

 

17. In this regard, Section 15 H of the SEBI Act as it stood on the date of acquisition on 29^th January 2000 provided the following.

“If any person who is required under this Act or rules or regulations made thereunder, fails to make a public announcement to acquire shares at a minimum price, he shall be liable to a penalty of an amount not exceeding five lakh rupees.

Hence the violation committed by the noticee attracts the above penalty.

 

18. The provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely:
    1. The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
    2. The amount of loss caused to an investor or group of investors as a result of the default
    3. The repetitive nature of default

 

19. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that no quantifiable figures are available to ascertain the loss to the investors or gain to the noticee. However, not making public announcement and offer as mandated under Takeover Regulations deprives the small investors of the exit opportunity and is detrimental to the interest of small investors. Hence taking into account the mandate of Section 15 H of the SEBI Act as it stood at the time the violation was committed by the noticee, and considering the facts and circumstances of the case, I am of the view that the violation committed by the noticee has to be viewed seriously and attract the maximum penalty prescribed by the statute.

ORDER

20. In view of the violations of Regulation 10 and 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 committed by Shri Tanvir Zaki as stated above, in exercise of the powers conferred under Section15 I and Section 15 H of the SEBI Act, 1992, read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 I, impose a penalty of Rs.5,00,000/- (Rupees Five Lakhs) on Shri Tanvir Zaki..

 

21. The penalty shall be paid by way of demand draft drawn 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 shall be forwarded to Deputy General Manager, Investigation Department – ID8, Securities and Exchange Board of India, Plot No.C4-A, “G” Block, Bandra Kurla Complex Bandra (East), Mumbai 400 051.

 

22. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 copies of this order are sent to Shri. Tanvir Zaki and to Securities and Exchange Board of India