IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No. 104/2005, 104A to E/2005

 

Date of Hearing	6.9.2005
Date of Decision	29.9.2005

 

In the matter of:

 

Vinaychand Kothari & Ors	Appellant – Represented by
	Mr. Rajnish Rangari, Authorised Representative
Versus
Securities & Exchange Board	Respondent –Represented by
of India	Mr. Ravi Hegde & Mr. Paras Parekh, Advocates

 

Coram:

            Justice Kumar Rajaratnam, Presiding Officer

            C. Bhattacharya, Member

            R. N. Bhardwaj, Member

 

Per:  Justice Kumar Rajaratnam, Presiding Officer

 

 

   1.            Appeals are taken up with consent of parties.

   2.            The appellant being aggrieved with the order of the respondent dated 29.10.2004 in imposing a penalty of Rs. 50,000/-  collectively under 15A of the SEBI Act, has preferred this appeal.

   3.            The facts very briefly are, between March 1999 and June 2000 the appellants acquired 15,09,523 shares in a company known as West Eastern Hotel ltd. (hereinafter referred to as the Target Company).  Since the appellant had crossed the threshold, the appellant agreed to make an open offer.   The open offer of Rs. 5/-. The Chairman of SEBI by order dated 22.3.2001 directed the appellant to make an open offer at a much higher price at Rs. 10/- per share, which was much higher than the earlier agreed price.  It was submitted that the price was increased from Rs. 6/- to Rs. 10/- as a penalty for violation of the SEBI (Substantial Acquisition of Shares & Takeover) Regulations.  The operative portion of the order of the Chairman dated 22.3.2001 reads as follows:

“Taking into consideration the above, in exercise of the powers conferred upon me under section 4(3) of the Securities and Exchange Board of India Act, 1992 read with Regulation 45(6) of the Regulations and Section 11B of the SEBI Act, I hereby direct the acquirers to make an open offer to the shareholders of the target company (being 164 in number, apart from the promoter group) at a price of Rs. 10/- per share taking into account the penalty component in accordance with the terms of the Regulations.”

                                                            (Emphasis by Court)

   4.            In compliance with the order of the Chairman, an open offer was made and the open offer was around 67% above the agreed price. 

   5.            The respondent has now imposed a penalty of Rs. 50,000/- de horse of the open offer for certain technical violation of the Takeover Code (Regulation 7 & 8).

   6.            It appears that on the basis of information furnished by the merchant bankers in the offer document, the appellant received a show cause notice dated 21.8.2002.  The show cause notice indicated that the appellant had not complied with the Regulation 7 and Regulation 8 for the years 1999-2000 of the SEBI (SAST) Regulations. 

   7.            The appellant sent his reply stating that the appellant had agreed for an offer price of Rs. 10/- per equity shares which was much higher than the acquisition price of Rs. 4/- per equity after considering the interest for the delayed period.  In the reply notice, it was further submitted that the appellant did not immediately have all the documents to show that they have complied with the Regulation.  Subsequently, the appellant produced documents and requested that no further action be taken against the appellant.  The reply was given in August 2002.  Curiously nothing was heard from the respondent and the adjudicating officer by an order dated 19.8.2004 asked for a reply once again.  The respondent had not noticed that even on January 23, 2003 it had already submitted its reply.  Notwithstanding this a fresh reply was sent to the new adjudicating officer.  Ultimately, the impugned order was passed after hearing the appellants.  At the time when the impugned order was passed, it appears that there were documents which were available with the appellants which was not accepted by the adjudicating officer.  The adjudicating officer in his order relied more on the fact that the target company participated in the scheme to regularise non-compliance of Regulation 8(3).  By this impugned order it held that this is an admission that the appellant had violated Regulation 7 and 8 for the year 1999-2000. 

   8.            It is a matter of regret that the adjudicating officer did not even peruse the documents placed on record to show that the appellants had complied with the Regulations.  At paragraph 19 of the impugned order, the adjudicating officer states as follows:

“In view of the forgoing, I am also not inclined to accept the documents placed on record by them during the course of the present proceedings i.e. after almost 4 years from the date of due compliance on the ground that these documents had been traced by the target company and furnished to them, as proof of their said filing.”

   9.            It appears that there would have been compliance of Regulation 7 and 8 in the year 1999-2000 if the documents that were produced by the appellant were perused by the respondent. 

10.            In any event, the appellants have incurred huge expenditure in making a public offer of Rs. 10/- when the agreed price was Rs. 6/- and the public offer ought to have been at Rs. 6/-.  This Rs. 4/- was added in the form of a penalty by the Chairman of SEBI and that is why the open offer was at Rs. 10/- and not at Rs. 6/-.

11.            It cannot be forgotten that the adjudicating officer changed and the whole matter took more than 2 years before the proceedings commenced for no fault of the appellant.  It also cannot be forgotten that the appellants have placed documents to show that they have complied with the Regulations which was not accepted by the adjudicating officer since it was not produced at the time of reply to the show cause notice.  The adjudicating officer is bound to look at the documents placed before him and cannot decline to consider the documents merely because it was given belatedly.  It is another matter if the adjudicating officer rejects the document as not being genuine, but refusing to look at the documents does not augur well.  Taking all these factors into account and in the peculiar facts and circumstances of the case, we feel that the ends of justice will be met if a penalty of Rs. 10,000/- is imposed on the appellant.

12.            Accordingly, the impugned order is modified directing the appellant to pay a penalty of Rs. 10,000/-.  The appeals are disposed of accordingly.  No order as to costs.

 

 

 

Place: Mumbai

Date: 29.9.2005

 

 

//SR90528