Order in respect of Bharat Fertiliser Industries Limited

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. DSR/AO-03/2007-08]

 

In respect of

 

BRIEF FACTS OF THE CASE

 

1.      Bharat Fertiliser Industries Limited (hereinafter referred as 'BFIL’ or Target Company ) is a company having it’s registered office at Bharat Fertiliser House , 12, Nanabhai Lane , Fort , Mumbai -400 023 was incorporated  on June 10, 1985 at Mumbai as “Patel Packaging Industries Pvt Limited” under the Companies Act, 1956. The company was converted to a public Limited Company consequent to a special resolution adopted by the members on 26^th December 1994 and fresh certificate to this effect was issued by the Registrar of Companies, Maharashtra. The equity shares of BFIL are listed on the Bombay Stock Exchange (hereinafter referred to as ‘BSE’).

 

2.      Wada Alums & Acids Pvt Limited (hereinafter referred to as WAAL) belonging to the promoter group of BFIL acquired 5,10,000 equity shares representing 13% of the post preferential equity capital of the Target Company. The said preferential allotment was made by the Board of Directors of the Target Company on July 1,2006 at a price of Rs. 22/-. Subsequent to such acquisition, the shareholding of the acquirer in the Target Company rose from 2,44,564 to 7,54,564 equity shares representing 20.16% of the post preferential paid up equity share capital of BFIL.

 

On July 1, 2006, in terms of Section 81(1A) of the Companies Act, 1956, the Board of Directors of BFIL,  authorized preferential issue of 5,10,000 equity shares to WAAL belonging to the promoter group of BFIL for cash, at a price of Rs.70/- per equity share.

 

 

3.      Pursuant to the acquisition through the said preferential allotment, the acquirer belonging to the promoter group triggered the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers Regulations), 1997{hereinafter referred to as ‘SAST’} thereby obligating them to make a Public Announcement (hereinafter referred to as ‘PA’} under Regulation 11(1) read with Regulation 14(1) of SAST to acquire minimum 20% of the voting capital of BFIL in terms of Regulation 21(1) of SAST. Subsequently, on July 05, 2006 Fedex Securities Limited , the Merchant Banker to the open offer (hereinafter referred to as MB) on behalf of WAAL made the PA to acquire 7,84,703 shares, representing 20% of the expanded paid up equity share capital of BFIL. In terms of Regulation 18 of SAST, the MB filed the draft Letter of Offer (LoO) on July 7, 2006 with SEBI. The MB also filed the compliance status of Chapter II under SAST which included the compliance status of the promoters of BFIL under Regulations 6 (1), 6(3), 8(1) and 8 (2) of SAST. On perusal of the said status, it was observed that there was delay in complying with the provisions of Regulations 6 (1), 6(3) for the year 1997 and Regulation 8(1) and 8 (2) for the year 1999 of SAST. A table depicting the delay in case of promoters of BFIL is  specifically noted as under:

 

S.No     (1)	Regulation     (2)	Due date for compliance as per Regulation (3)	Actual date of compliance   (4)	Delay if any(in no. of days) (5)
1	6(1)	20.04.1997	Not Complied	3363*
2	6(3)	20.04.1997	Not Complied	3363*
3	8(1)	21.04.1999	03.05.1999	12
4	8(2)	21.04.1999	03.05.1999	12

* The date of filing of the draft letter of offer is taken as reference while calculating the delay (in number of days).

 

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

 

 

Transitional Provision

Regulation 6(1): Any person, who holds more than five percent shares or voting rights in any company, shall within two months of notification of these Regulations disclose his aggregate shareholding in that company, to the company.

 Regulation 6(3): A promoter or any person having control over a company shall within two months of notification of these Regulations disclose the number and percentage of shares or voting rights held by him and by person(s) acting in concert with him in that company, to the company.

Continual disclosures

 

Regulation 8(1): 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 on31st March.

 

Regulation 8(2): A promoter or every person having control over a company shall, within 21 days from the financial year ending March31, as well as the record date of the company for the purposes of declaration of 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.

 

5.      It was also observed that there was delay in complying with the provisions of Regulation 6(2) for the year 1997 and Regulation 8(3) for the year 1998 and 2002 of SAST by the target company. A table depicting the delay is mentioned hereunder:

 

S.No     (1)	Regulation     (2)	Due date for compliance as per Regulation (3)	Actual date of compliance   (4)	Delay if any(in no. of days) (5)
1	6(2)	20.05.1997	Not Complied	3333*
2	8(3)	30.04.1998	Not Complied	2988*
3	8(3)	30.04.2002	Not Complied	1528*

* The date of filing of the draft letter of offer is taken as reference while calculating the delay (in number of days).

 

6.      The relevant extract of the provisions of Regulations 6(2) and 8 (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.

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.

 

APPOINTMENT OF AO

 

7.      Shri. Amit Pradhan was appointed as Adjudicating Officer under Section 15 I of SEBI Act, 1992, read with Rule 3 of SEBI (Procedure For Holding Inquiry And Imposing Penalties By Adjudicating Officer) Rules, 1995 (hereinafter referred as 'Adjudication Rules') vide SEBI orders dated August 2, 2006 to inquire into and adjudge under 15 A (b) of the SEBI Act, 1992, the aforesaid alleged violations made by the BFIL and the following promoters.

 

 

8.      Pursuant to the transfer of Shri. Amit Pradhan to Northern Regional Office, I was appointed as Adjudicating Officer vide order dated June 12, 2007. The proceedings of the Whole Time Member appointing me as Adjudicating Officer were conveyed vide communication dated July 19, 2007.

 

 

SHOWCAUSE NOTICES, HEARING AND REPLIES

 

 

9.      The Show Cause Notices (hereinafter referred to as SCN) dated May 21, 2007 were issued to BFIL and it’s promoters, under Rule 4(1) of Adjudication Rules.

 

10.  I note that BFIL filed it’s reply dated June 4, 2007 contending that  had the MB checked the compliance dates with regard to Regulation 6(2) and 8(3) correctly, the said mistake would not have crept in. BFIL also stated that delay of 3333 days in regard to Regulation 6(2) and 2988 days for Regulation 8(3) for the year 1998 and 1528 days for Regulation 8(3) for the year 2002 as submitted by the MB is not factually correct. BFIL also submitted copies of the letters dated 15.4.1997, 6.4.1998 and 12.4.2002 of the said disclosures which were acknowledged by BSE on 17.4.1997, 7.4.1998 and 12.4.2002 respectively.

 

11.   The promoters of BFIL submitted reply vide letter dated June 4, 2007 interalia contending that had the MB checked the compliance dates with regard to Regulation 6(1) and 6(3) correctly, the said mistake would not have crept in. The promoters also stated that delay of 3363 days in regard to Regulation 6(1) and 6(3) as submitted by the MB is not factually correct and also submitted copy of the letter dated 15.4.1997 of the said disclosures which was acknowledged by BFIL on 15.4.1997.

Further, the promoters admitted the delay of 12 days with regard to Regulation 8(1) and Regulation 8(2) and requested to condone such lapse on their part and not to impose any financial penalty as the delay is not intentional and the violation is minor in nature and not hurting investor and public interest.  

 

12.  In the interest of natural justice, an opportunity of personal hearing was granted to BFIL 19.9.2007 and it’s promoters on 18.9.2007. On their request, a joint hearing was granted to BFIL and it’s promoters on 18.9.2007 which was attended by Shri Yogendra D. Patel, Chairman and Managing Director and Shri Arvind Chakote, Practicing Company Secretary representing BFIL and it’s promoters. They reiterated the submissions made earlier by them vide their letters dated June 4, 2007.

 

13.   Thereafter, another opportunity of hearing was granted to BFIL and it’s promoters alongwith the Merchant Banker namely Fedex Securities Ltd on 9.10.2007.  Shri. Yogendra. D. Patel, Chairman and Managing Director of BFIL and Shri. R. Ramakrishnan, Senior Vice President of Fedex Securities Limited appeared before me for the inquiry. Shri. R. Ramakrishnan submitted that he would be filing written submissions to the notice of inquiry and sought time till 16.10.2007 for this purpose.

 

14.  The MB filed it’s reply dated 11.10. 2007 and submitted that the copies of the relevant disclosures were not made available at the time of due diligence, therefore, consequently a view was taken that the disclosures have not been filed. The MB also stated that the promoter group/target company had submitted acknowledged copies of the filings made by them for the years for which they have reported “Non Compliance”. The MB also clarified that BFIL and it’s promoters have been able to locate the copies subsequently.

 

 CONSIDERATION OF ISSUES AND FINDINGS

 

15.        As regards the compliance of Regulation 6(2) and Regulation 8(3) for the year 1998 and Regulation 8(3) for the year 2002, I have carefully examined the copies of the letters dated 15.4.1997, 6.4.1998 and 12.4.2002 submitted by BFIL and found that the said disclosures were made on time and the said letters were acknowledged by BSE on 17.4.1997, 7.4.1998 and 12.4.2002 respectively. In view of the documentary evidence produced by BFIL showing the proof of making disclosures, the allegations do not stand established. Therefore, it does not warrant imposition of any monetary penalty on BFIL.

 

16.        I have examined the copy of the letter dated 15.4.1997 making disclosures under Regulation 6(1) and Regulation 6(3) which was acknowledged by BFIL on 15.4.1997 and found that the promoters had done the compliances on time. The allegation of non–compliance of Regulation 6(1) and 6(3) does not stand established inasmuch as the same happened due to incorrect information provided by the MB. I note that the promoters have admitted the delay of 12 days while complying with Regulation 8(1) and Regulation 8(2) of SAST which 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 thereunder,-

(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 therefor in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues.

(c) ………………………….

 

17. I further note that vide SEBI (Amendment) Act, 2002, the penalty leviable under section 15A(b) has been enhanced from Rs. Five thousand to Rs. One lakh for each day during which such failure continues or Rs. One crore whichever is less. It may be noted that the said amendment came into force w.e.f. 29.10.2002. Whereas, in the instant case, the violation was committed by the promoters during the year 1999. Therefore, while dealing with the applicability of enhanced penalty under Section 15A (b) of SEBI Act, I have relied on the ratio laid down by Hon’ble Securities Appellate Tribunal in Rameshchandra Mansukahni vs SEBI (Appeal No.151/2004) to the effect that penalties unless specifically made retrospective must inevitably be only with effect from the date of amendment. I have also considered and relied upon section 6 of the General Clauses Act,1897 and also ratios laid down by Supreme Court while interpreting the said section in Ambalal Sarabai Enterprises Ltd. vs. Amrithlal & Co (2001) 8 SCC 397, Darshan Singh vs. Ram Pal Singh and Another 1992 Supp (1) SCC 191,  Govind Das v. ITO, (1976) 1 SCC 906, Jose Da Costa v. Bascora Sadasiva Sinai Narcornium, (1976) 2 SCC 917  and Garikapati Veeraya v. N. Subbiah Choudhry, AIR 1957 SC 540, to the effect that statute unless expressly made retrospective is prospective in operation.

 

18. While determining the quantum of penalty under Section 15A (b), I have considered the following factors as provided in section 15J 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 promoters of BFIL or loss caused to the investors as a result of the default is not computable from the material available on records. I also do not find anything on record to establish the repetitive nature of the default committed by the promoters.

 

19. 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. Further, in Appeal No. 66 of 2003 - Milan Mahendra Securities Pvt. Ltd. Vs SEBI, SAT 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”.

 

20. In view of the above, I am convinced that this case attracts imposition of monetary penalty. After taking into consideration all the facts and circumstances of the case, I am of the view that a penalty of Rs. 40,000 (Rupees Forty Thousand only) will commensurate with the defaults committed by the promoters of BFIL.  Accordingly, I hereby impose a monetary penalty of Rs. 40,000/- (Rupees Forty Thousand only) on the promoters namely Shri. Yogendra D. Patel, Smt. Anjni Y. Patel, Wada Alums & Acids Pvt Ltd, Yogi Investment Pvt Ltd, Vijal Shipping Pvt Ltd, Chavi Impex Pvt Ltd andWada Bottling Industries Pvt Ltd. The promoters are liable to pay the penalty jointly and severally.

 

21. The promoters of BFIL 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.

 

22. In terms of Rule 6 of the Adjudication Rules, copies of this order are sent to BFIL and it’s promoters and also to the Securities and Exchange Board of India.

 

Date: 23.10.2007    D.S.REDDY

Place: Mumbai  ADJUDICATING OFFICER