IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 150/2003
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Date of Hearing
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20.9.2004
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Date of Decision
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20.9.2004
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In the matter of:
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Lata Engineering Co. Pvt. Ltd.
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Appellant – Represented by
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Shri B. Shankar, CA
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Versus
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Securities & Exchange Board
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Respondent – Represented by
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of India
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Ms. Deepa Kuruvilla, Advocate
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
N.L. Lakhanpal, Member
Per: Dr. B. Samal, Member
1. The appeal was taken up with consent of both the parties.
2. The present appeal is directed against the order-dated 29.8.2003 of the adjudicating officer of respondent. The respondent vide said order has imposed a penalty of Rs. 1 lakh on the appellant for violation of sub-Regulation 3 of Regulation 6 and sub-regulation 2 of Regulation 8 of the said Regulations, read with clause B of Section 15A of the SEBI Act. The penalty is to be paid immediately on receipt of the said impugned order.
3. The facts giving rise to present appeal are stated below:
i) The appellant Lata Engineering Company Pvt. Ltd. (LECL) is incorporated under the Companies Act, 1956.
ii) LECL along with others promoted Kabsons Industries Ltd. (KIL), the target company in August 1994 and subscribed to and was allotted 10,11,000 equity shares of Rs. 10 each in October 1994.
iii) LECL’s shareholding in KIL continued at the same level as originally subscribed till March 2001 when LECL bought further shares in KIL from a co-promoter of KIL.
iv) It is alleged that LECL has contravened the provisions of sub-Regulation 3 of Regulation 6 (for the year 1997) and sub-Regulation 2 of Regulation 8 for the year 1998, 1999, 2000 & 2001 of SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997 as the acquirers i.e. LECL have failed to disclose their shareholding to the company KIL (target company) within the time limit prescribed therein. It is alleged by the respondent that there has been delay by the appellant in submission of such disclosures, which are as follows.
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Year
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Due date of compliance
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Actual date of compliance
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No. of days delay
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1997
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20.4.1997
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28.2.1998
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313
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1998
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21.4.1998
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5.6.1998
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44
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1999
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21.4.1999
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24.5.1999
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32
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2000
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21.4.2000
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22.12.2000
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244
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2001
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21.4.2001
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8.10.2001
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169
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4. The relevant provision of law/said Regulations are as under:
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.
Regulation 8(2) : A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, 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.
In case of any failure or delay in furnishing any information, report or return, as specified in sub-regulation(3) of Regulation 6 and sub-regulation (2) of Regulation 8, the penalty therefore has been prescribed under clause (b) of Section 15A of the SEBI Act, which reads as under:
“If any person, who is required under this Act or any rules or Regulations made thereunder to file any return or furnish any information, books or other documents within the time specified therefore in the Regulations, fails to return or furnish the same within the time specified therefore in the Regulations, 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.”
5. The appellant had submitted a revised status of compliance by them to the adjudicating authority along with the copies of letters dated 10.4.1997, 7.4.1998, 12.4.1999, 5.4.2000, and 6.4.2001 and also a letter of confirmation dated 21.6.2002 from KIL, the target company with regard to date of receipt of disclosures and submitted that there has been no delay on their part in submitting disclosures to KIL for the year 1997 to 2001 and hence Section 15(A)(b) of SEBI Act is not attracted. The appellant also submitted that the data submitted by them in table 1 and 2 to Annexure of their letter dated 6.4.2002 in response to SEBI’s letter dated 1.4.2002 was incorrect and attributed the same to their inexperience in handling these matters. The appellant also requested that further proceedings in the matter may be withdrawn/dropped.
6. On the date of personal hearing on 6.8.2002, the MD of LEC appeared before the adjudicating officer and submitted that they have submitted the position as on 31st March of every year within the stipulated time of 21 days. They have also submitted one more statement to KIL about the position as on their record date. These two papers were filed in separate files. When the first letter by the respondent asking the appellant to submit the details was given, a wrong file was submitted by the appellant. This was due to the fact that the concerned person having resigned. Subsequently, when the show cause notice was issued, the appellant understood the mistake and contacted KIL who confirmed about the compliance. Then the appellant replied to the show cause notice giving the facts and accepting the mistake and submitted the papers to KIL.
7. The representative of KIL, the target company who appeared before the adjudicating officer confirmed that actions were taken on those letters of LECL by way of sending letters by ordinary post under certificate of posting to Hyderabad Stock Exchange as per the details below:
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Date of Letter
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Date on which
action taken by
the Target Company
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10.4.1997
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14.4.1997
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7.4.1998
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13.4.1998
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12.4.1999
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15.4.1999
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5.4.2000
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10.4.2000
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6.4.2001
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9.4.2001
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Unfortunately Hyderabad Stock Exchange vide their letter dated 16.8.2002 confirmed that they have verified their record and found that only one letter dated 20.4.2002 was received by the exchange.
8. The respondent has made out a case that LECL had failed to produce original records of letters under reference bearing acknowledgement of receipt of KIL. The respondent has also noted the admission by the appellant that the letter does not have any evidence regarding the delivery of the letters to the target company on the dates as claimed by them. The appellant has however produced letter dated 21.6.2002 of KIL to the adjudicating officer in support of their submission.
9. LECL is one of the promoters of KIL as stated in the offer document in respect of the public issue made in August 1994 which was also confirmed by Shri Rajiv Kabra of KIL. The adjudicating officer has observed that in order to support the revised status of complaints furnished by them, LECL had obtained the letter dated 21.6.2002 from KIL, possibly by taking advantage of their relationship.
10. Heard both the parties. The representative of the appellant submitted that there has been delay in submission of necessary information due to their ignorance. The target company is incurring loss and the matter has gone to BIFR. He appealed that a lenient view may be taken as they are not financially sound to pay such heavy fine. The learned senior counsel for the respondent submitted that this is a serious matter as the appellant has not complied with various Regulations of SEBI (Substantial Acquisition of Shares & Takeovers) Regulation, 1997 as mentioned above. Failure on the part of LECL has not only defeated the very purpose of timely disclosure of the requisite information to KIL/stock exchanges and dissemination of the same, in turn to the shareholders and public at large, but it has also hampered the ability of stock exchange/SEBI to perform its duties of monitoring compliance and enforcing the provisions of the said Regulations and taking action in case of breach thereof.
11. We have perused the entire record of the appellant, its enclosure. There has been delay in submission of disclosure reports though according to the appellant there is no loss caused to an investor or group of investors as a result of the purported default.
12. We have also perused the Section 15J of the said Act which reads as under:
“While adjudging the quantum of penalty under Section 15-I, the adjudicating officer shall have due regard to the following factors namely:-
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;
c. the repetitive nature of the default”
13. The promoters of KIL is the appellant. KIL, the target company is itself sick and has gone to BIFR. Taking into account that the misconduct was of a technical nature, it would be appropriate in the facts and circumstances of this case to take a lenient view with regard to the penalty. We accordingly confirm that there is a violation of Regulation 6(3) and 8(2) of the said Regulations, read with clause B of Section 15A of the said Act. However, we reduce the penalty to Rs. 25,000/- from Rs. 1,00,000/- imposed by the respondent. The appellant is directed to deposit this amount within three weeks from the receipt of this order.
14. With this modification, the appeal is disposed of. No order as to costs.
(Pronounced in Court)
Justice Kumar Rajaratnam
Presiding Officer
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N.L. Lakhanpal
Member
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Dr. B. Samal
Member
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Place: Mumbai
Date:20.09.04
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