SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
UNDER SECTION 15I OF THE SECURITIES EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 (1) OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
IN INQUIRY AND ADJUDICATION PROCEEDINGS
IN THE MATTER OF ALLEGED NON - COMPLIANCE OF SUMMONS AND VIOLATIONS OF REGULATIONS 6, 7 AND 8 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
BY M/s TOP TELEMEDIA LTD.
1.0 Background
1.1 The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) initiated investigations into the dealings in the shares of M/s. Top Telemedia Ltd. (TTL) and appointed the investigating officer to conduct investigations in terms of the Securities and Exchange Board of India Act, 1992 (the SEBI Act).
1.2 Pursuant to the said investigations, vide order dated August 08, 2003, Shri J. Ranganayakulu, Joint Legal Adviser, SEBI (hereinafter referred to as ‘the erstwhile Adjudicating Officer’) was appointed as the Adjudicating Officer under section 15I of the SEBI Act read with Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘the Adjudication Rules’) to inquire into and to adjudge the alleged contraventions under section 15A(a) of the SEBI Act. Subsequently, by an order dated January 27, 2005, the matter pending before the erstwhile Adjudicating Officer was transferred to the undersigned. As per the said orders, the present inquiry and adjudication proceedings is in respect of the following contraventions as reported by the investigating officer-
(a) That despite the service of the summons dated 25.02.03 at its Ahmedabad office, the TTL failed to make appearance before the investigating officer and produce documents as required by the said summons, on the stipulated date and time.
(b) That TTL had not made disclosures as required under regulations 6, 7 and 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’).
2.0 Inquiry and Show Cause Notice
2.1 The erstwhile Adjudicating Officer had issued a Show Cause Notices dated 27.11.2003 under Rule 4 (1) of the Adjudication Rules to the TTL. In this show cause notice, it was alleged that the summons dated 25.02.03 issued by the investigating officer had been returned by the Department of Posts with an endorsement that they visited the addressee on 01.03.2003, 03.03.2003, 04.03.2003 and 05.03.2003 and the cover could not be delivered as the addressee was not available and that the TTL failed to appear before the investigating officer on 11th March 2003. It was also alleged that the TTL had violated regulations 6, 7 and 8 of the Takeover Regulations. The TTL was called upon to show cause, within 15 days of the date of the receipt of the notice, as to why an inquiry should not be held against it and penalty as specified under section 15A of the SEBI Act should not be imposed upon it.
2.2 The said show cause notice was served on TTL on 11th May 2004, through Ahmedabad Stock Exchange (ASE) at the following address-
“703 Anand Mangal III
Ambawadi, Ahmedabad – 380 006”
2.3 However, the TTL failed to respond to the show cause notice dated 27.11.2003. TTL also failed to appear before erstwhile Adjudicating Officer on the dates fixed by him in terms of rule 4(3) of the Adjudication Rules, vide letters dated August 16, 2004 and September 15, 2004.
2.4 The undersigned issued further notices to the TTL in terms of Rule 4(3) of the Adjudicating Rules, fixing the dates of personal appearance on behalf of the TTL. The details of the said notices are as follows:
Sl. No.
|
Date of notice
|
Date of hearing
|
Address / Mode of dispatch
|
Status of service
|
|
1.
|
26.03.06
|
17.04.06
|
By Registered Post A/D at “701 Anand Mangal III
Ambawadi, Ahmedabad – 380 006”
|
Returned by Department of Posts with remark “left”
|
|
2.
|
17.04.06
|
02.05.06
|
Through ASE to the Ahmedabad Address: at
“701 Anand Mangal III
Ambawadi, Ahmedabad – 380 006”
|
Returned by ASE with advice that the office of the company was closed and that the TTL had shifted its Registered Office to Pune.
|
|
3.
|
12.05.06
|
06.06.06
|
Through ASE and Registered Post A/D to the above mentioned Ahmedabad Address and Pune Address at( as advised by ASE)-
“B1-304,Brahma Memories,
Bhosale Nagar, Pune – 411007.”
|
The notice sent at Pune address was returned undelivered. However, the notice sent through ASE was served through substituted service.
|
2.5 Vide its letter dated 07.06.06 addressed to SEBI, which in turn was forwarded to the undersigned, the TTL submitted that it did not have the complete notices as the notices pasted on its office door were in damaged condition and requested to give the copies of the notices dated 23.06.06, 17.04.06 and 12.05.06 to one Mr. Ashwin Kundar, allegedly the bearer of the letter dated 07.06.06. It was noted that the said letter dated 07.06.06 had been delivered at the SEBI office on 13.06.06 and on this date, no bearer as mentioned in the said letter approached me for copy of any document. The said letter has been written on a letter head of TTL which bears the Ahmedabad address of TTL mentioned in para 2.4 above.
2.6 Since TTL had received the show cause notice dated 27.11.03 on 11.05.04 and there was no sufficient reason shown by it, which prevented it to file its reply or to appear for personal attendance on the dates fixed in these adjudication proceedings, it is clear that TTL was aware of the instant adjudication proceedings and that it could have appeared before the undersigned through its lawyer or a duly authorized representative. Such persons could produce such documents or evidence as may be considered relevant in the proceedings. The relevant documents relating to the adjudication records may be given only to such persons and cannot be given to any other third party.
2.7 Therefore, vide letter dated 11.07.06, TTL was directed to appear before the undersigned to make submissions and give evidence or produce any document which it may desire to submit with respect to the show cause notice dated 27.11.03. It was also advised to TTL that it may appear before the undersigned on July 21, 2006 through duly authorized representative acquainted with the facts and circumstances of the case. TTL was also advised that the copies of the documents desired by it may be given to it or its duly authorized representative. It had also been made clear to the TTL that this was the last opportunity of personal hearing in the matter. This letter was also sent by registered post acknowledgement due at the above mentioned (at para 2.4) Ahmedabad address of TTL. However, the same was returned undelivered by Department of Posts with endorsement “left”.
3.0 CONSIDERATION OF EVIDENCE AND FINDINGS
3.1 I find that the TTL has failed to avail the opportunity of hearing and explanation of violations and production of documents in accordance with rule 4 of the Adjudication Rules despite sufficient opportunities granted to it as mentioned hereinabove. I observe that TTL had kept evading the notices issued in the present proceedings to the extent that while the notices 27.11.2003 and 17.04.2006 sent directly to it by Registered Post Acknowledgment Due were returned undelivered, however, the copy of the notices were served upon it through the ASE on the same address. In fact, TTL responded to the notice dated 17.04.06 vide its letter dated June 07, 2006 from the same address. However, when the direction dated July 11, 2006 had been sent through Registered Post Acknowledgment Due on the same address, the same had been returned undelivered Department of Posts with endorsement “left”. This suggests that the TTL had been deliberately evading the notice in the present proceedings and had been recklessly disregarding the notices and directions issued in the present proceedings. Therefore, I find that TTL has not complied with the direction dated July 11, 2006, issued in the instant proceedings and the time for doing so has expired. It is well settled that the law should not help the evader/wrongdoer to take help of his own tactics.
3.2 For these reasons, I proceed with the inquiry in absence of TTL in terms of Rule 4(7) of the Adjudication Rules. In the instant case, the first allegation against TTL is that it did not respond to the summons dated 25th February 2003 issued to it by investigating officer. Upon examining the material on record, it is observed that the investigating officer issued the summons dated 25th February 2003, to the TTL requiring the appearance on behalf of TTL before him on 11th March 2003 at the time and place specified in the said summons and with the direction inter alia to produce all the documents / details as mentioned therein. In this regard, the investigating officer had reported that the summons were issued to the TTL and Shri Deep Trivedi, Director of TTL. As per the investigation report, -
“M/s. Top Telemedia Limited was summoned to be present on March 11, 2003 and Shri Deep Trivedi was summoned to be present on March 07, 2003 alongwith details. These summons were received by M/s Top Telemedia Ltd. on February 26, 2003 at their Ahmedabad office.”
3.3 I do not find anything on record to suggest that the said summons issued to TTL, separately and independently, had been sent at its Ahmedabad address. In fact, two summons both dated February 25, 2003, were issued to Shri Deep Kumar Trivedi, a director of M/s Top Telemedia Ltd (TTL) and also a director of M/s. Top Media Entertainment Ltd (TMEL), in his individual capacity requiring him to appear before the investigating officer and furnish information regarding his dealings in the shares of TTL and TMEL. These summons issued to Shri Deep Kumar Trivedi had been acknowledged on his behalf on February 26, 2003 at the Ahmedabad office of TTL at the following address: -
“701, Anand Mangal 3
Opp. Care Biotech
Rajnagar Club Lane,
Ambavadi,
Ahmedabad-380006”
For non compliance of these summons issued to Shri Deep Kumar Trivedi, independent and separate adjudication proceedings had been initiated and these proceedings had been concluded vide order dated September 19, 2006.The service of summons on the director (Shri Deep Kumar Trivedi) sent to him in his individual capacity cannot be treated as service of summons on the company (TTL) issued to it separately and independently.
3.4 I observe from the available records that the said summons dated February 25, 2003 issued to TTL was despatched through Registered Post Acknowledgment Due on February 26, 2003 at the following address -
“The Managing Director
M/s Top Telemedia Ltd.,
403, Radhani Complex,
Pune-Station Road,
Next to Shankar Maharaj Samadhi,
Pune – 411 043.”
The said summons was returned undelivered by the Department of Posts with the endorsements (in Marathi) that the cover could not be delivered as the addressee was not available.
3.5 From the records, it appears that the above address was the address of TTL with effect from December 12, 2000. There is nothing on record to suggest that the above address was the registered office address of the TTL at the time of the despatch of the summons on February 26, 2003.Vide letter dated 22.04.06 the ASE has informed that TTL had shifted its registered office from Ahmedabad to Pune. It is also informed that TTL, which was formerly known as ‘Top Cassettes Ltd.’, had changed its name to M/s. Top Telemedia Ltd. and the Registrar of Companies, Pune on 26.03.02, had issued fresh certificate of incorporation consequent upon change of name. ASE has also informed that as per the last correspondence vide letter dated 25.07.02 of TTL whereby it filed its ‘Unaudited Financial Results for the quarter ended on 30.06.02’, the registered office of TTL was ‘B-1 304, Brahma Memories, Bhosale Nagar, Pune- 411 007’. The Registrar of Companies, Pune vide letter dated 27.09.06 has informed that as per Annual Return of TTL made up to 29.09.01, the Registered Office address of TTL is ‘B-1, 304, Bramha Memories, Bhosale Nagar, Pune- 411 007’ and from 2002 onwards the company has not filed any Form No. 18 with the Registrar’s office intimating change of Registered Officer address.
3.6 In view of the above, it can reasonably be said that at the time of the despatch of summons dated February 25, 2003 to TTL, the address (mentioned in para 3.5 above) was not the registered office address of the TTL. Thus, the summons issued to TTL at this address may not be deemed to be served on TTL in terms of section 51 of the Companies Act. As stated in the show cause notice dated 27.11.03, the summons issued at this address had been returned undelivered. Thus, the summons had not been served upon the TTL.
3.7 If the summons is not served, then the obligation on TTL to furnish information and to appear before the investigating officer as required by the said summons does not arise. In such a case, there can not be failure to appear and furnish information as sought by the summons so as to attract the provisions of section 15A of the SEBI Act in this regard.
3.8 It was also reported by the investigating officer that as per the information submitted by The Stock Exchange, Mumbai (BSE) vide letter dated November 20, 2002, the TTL had not made any disclosure as required under regulations 6 and 7 of the Takeover Regulations. Further, the TTL had not made the disclosures as required under regulation 8 of the Takeover Regulations for any financial year other than for the financial year ending March 31, 2002. It is noted the TTL is a listed company and the relevant regulations could be regulations 6 (2), 6 (4), 7(3) and 8(3) of the Takeover Regulations.
3.8.1 The text of these regulations as applicable at the relevant time is extracted below:
“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.
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 of voting rights held by each such person.
7(3). Every company whose shares are acquired in a manner referred to in sub-regulations (1) and (1A), shall disclose to all the stock exchanges on which 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-regulation (1) and (1A).
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.”
3.8.2 It is clear that regulation 6(2) contemplates obligation of the company to disclose, to the concerned stock exchanges, the aggregate number of shares held by each person holding more than five percent shares or voting rights in the company. Regulation 6(4) mandates the company to disclose to the concerned stock exchanges, the names and addresses of its promoters and, or person(s) having control, over the company, and number and percentage of shares of voting rights held by each such person. The compliance of the requirements of regulations 6(2) and 6(4) does not depend upon receipt of required information from the persons referred in regulation 6(1) or the promoters or the persons having control over the company. These regulations contemplate independent obligation of company. The requirement of compliance of regulations 6(2) and 6(4) is a one-time requirement. These provisions are transitional provisions and the due date for compliance with the requirements of regulation 6 (2) and 6 (4) was 20.05.97. In the instant case, there has been complete failure by TTL in making disclosures as required under regulations 6 (2) and 6 (4) and such failure continued for substantial period of time.
3.8.3 The compliance of regulation 7(3) depends upon receipt of information from the acquirers under sub-regulations (1) and (1A) of regulation 7 of the Takeover Regulations. As observed by the Hon’ble High Court of Calcutta in the matter of Arun Kumar Bajoria Vs. SEBI –vide order date 27.03.01 in WP No. 331/2001, the scope of regulation 7 (as applicable at the relevant time) is two fold. First, when any acquirer alongwith the person acting in concert with him acquires shares or voting rights in the target company beyond 5% and 15%, they must disclose the aggregate of their shareholdings to the company. Second, the company is under obligation to disclose the same, within seven days of receipt of information from such persons, to the stock exchanges on which its shares are listed to enable the investors in the company to be aware with regard to the identity of the acquirer and person acting in concert. This can be done only when the information is given by such persons to the company. There is nothing on record that any acquirer of the shares of the TTL covered under sub-regulations (1) and (1A) of regulation 7 of the Takeover Regulations has disclosed the information required thereunder to the TTL which TTL had failed to disclose to the stock exchanges as required under sub-regulation (3) of regulation 7.
3.8.4 The requirement of compliance of regulation 8(3) is an annual feature and does not depend upon receipt of information from the acquirer or promoter or any other person. It is the primary obligation of the target company. In the present case, as on 20.11.2002, the TTL had failed to make disclosures as required under this regulation for any financial year other than for the financial year ending March 31, 2002.
3.8.5 In the instant case, the failure by TTL in making disclosures is noted by the investigating officer as on 20.11.02. This failure in making disclosures could thus, be as follows:
|
Regulations
|
Due date for compliance
|
Actual date of compliance
|
Approx. Delay till 20.11.2002 (no. of days)
|
|
6(2)
|
20.5.1997
|
Nil
|
1992
|
|
6(4)
|
20.5.1997
|
Nil
|
1992
|
|
8(3)
|
30.4.1997
|
Nil
|
2012
|
|
8(3)
|
30.4.1998
|
Nil
|
1647
|
|
8(3)
|
30.4.1999
|
Nil
|
1282
|
|
8(3)
|
30.4.2000
|
Nil
|
916
|
|
8(3)
|
30.4.2001
|
Nil
|
551
|
3.8.6 Assuming that the failure in making disclosures as required in the regulations was till 20.11.02 only, even then, the above position suggests that the failure continued for substantial number of days and violation of Regulation 8(3) was repeated in each year except the financial year ending 31st March 2002, in for which the disclosure was made. It is not an isolated or technical case. The failures cannot be said to be on account of any oversight or lack of knowledge. In view of the repeated disregard to the regulatory requirements, the failure of TTL in making disclosures as required under regulations 6 (2), 6 (4) and 8 (3) of the Takeover Regulations can be attributed to indifference or negligence. In view of this, I find that the TTL has failed to comply with regulations 6 (2), 6 (4), and 8(3) of the Takeover Regulations as mentioned above.
3.9 Considering the above facts and circumstances, I find that there has not been any failure on the part of TTL in complying with the summons dated February 25, 2003 so as to attract the provisions of section 15A of the SEBI Act. However, I find that TTL has failed to comply with the provisions of regulations 6 (2), 6 (4) and 8 (3) of the Takeover Regulations as observed hereinabove, and is thus, liable for penalty under section 15A of the SEBI Act for such failure.
4.0 ADJUDICATION OF THE QUANTUM OF PENALTY
4.1 As observed hereinabove, the failures noted till 20.11.02 are the matter for adjudication in the present proceedings. I find that such failure attracts section 15A (b) of the SEBI Act. Section 15A (b) was amended with effect from 29.10.02 and the penalties in respect of such failures has been enhanced. The said failure substantially relates to the period prior to such amendment. In this regard, Hon’ble Securities Appellate Tribunal has in the case of Rameshchandra Mansukhani NRI v. SEBI held that the law as existed at the time of commission of the violation has to be applied in the imposition of monetary penalties and not the law as existing on the date of the order. In view of the same I proceed to adjudge the failure under section 15A (b) as it existed before 29.10.02. The provisions of unamended Section 15A (a) 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, -
(b) to file any return or furnish any document, books or other documents within the time specified therefor 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,”
4.2 While adjudging the quantum of penalty in this case, I have considered the factors provided under Section 15J read with rule 5(2) of the Adjudication Rules. As observed by Hon’ble SAT and also upheld the Hon’ble Bombay High Court in SEBI Vs. Cabot International Capital Corporation (2004) 2 Comp LJ363 (Bom), while imposing penalty under section 15I of the SEBI Act, the Adjudicating Officer is bound to consider the factors provided under section 15J. Section 15J mandates the Adjudicating Officer to “have due regard to” the factors mentioned therein. Thus, the regard must be had also to the factors enumerated in section 15J together with all the factors relevant for the exercise of the power under section 15I of the SEBI Act.
4.3 There is nothing on record to suggest that as a result of the violations committed by TTL as found herein above; it has made any pecuniary gain or unfair advantage. As mentioned hereinabove, the TTL had repeatedly committed defaults in compliance with the regulations. The loss caused to investors cannot always be quantifiable in monetary terms and the unfair advantage to the violator as a result of non-disclosure may also not always be possible to be specified in pecuniary terms. The disclosure requirement as provided in the Takeover Regulations have specific purpose and the penalty provisions for enforcing the regulations need to be given effect to ensure that the investors are informed of the material information so as to decide on their investment in the target company and that the securities market works on sound business principles.
4.4 Disproportionate gain, unfair advantage, etc. are not sine quo none for imposing a penalty when the statutory obligations contemplated in the SEBI Act and the regulations made thereunder are contravened. The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68SCL216(SC) has 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.
4.5 Timely disclosures as envisaged under regulations 6(2), 6(4) and 8(3) is very important for achieving the object of the SEBI Act. The requirement of making time bound disclosures to the stock exchanges by a listed company as envisaged under the Takeover Regulations is an important material information and has a bearing on the investment or disinvestment decision of the investing public. The object of disclosure requirements provided in Takeover Regulations is to ensure transparency in the transactions and to assist the regulatory bodies to effectively monitor such transactions. The disclosures give information of an investor having substantial stake in the company. The provisions also help safeguard the interests of the investors/shareholder in the target company and for providing the shareholder an opportunity to exit in case of a change in shareholding pattern or control over the target company, which is not to the satisfaction of such shareholder. It is important that the stock exchanges also know of the substantial stakeholders in the target company. Disclosures help in providing a level playing field for all the players. Asymmetry of information works to the detriment of all.
4.6 Further, it must also be kept in mind that any evasion of the mandatory provisions of the SEBI Act and regulations is bound to affect the interests of investors and the securities market as also the sound and smooth functioning of the securities market. If no liability is fixed upon the violator, the entire object of incorporating the mandatory provisions in the SEBI Act would become redundant and the evaders and violators, as in instant case, would continue to deliberately and recklessly discard the law. In this regard, the following observations of Hon’ble High Court of Bombay in the matter of SEBI Vs. Sangeeta J. Valia, vide order dated 05.10.03,is worth mentioning –
“The provisions of penalty in failure to furnish any documents, return or report or any information or books, within the specified period as per the regulations as contemplated under section 15A are in the form of mandatory provisions. These compliances therefore, in our opinion, are essential to serve the purpose and object of the Act, as referred above. The provisions of penalty for non-compliance of the said mandate of the Act is definitely with an object to have an effective deterrent to ensure better compliances of the provisions of such laws, which is in the in the interest of public at large, investors and essential to regulate and control such markets, through the regulatory authority, like SEBI.”
4.7 In view of the above, I am satisfied that the present case warrants imposition of deterrent penalty. As observed hereinabove, the failures by TTL have been continued and repeated for substantial number of days. As per the then existing provisions of section 15A (b) of the SEBI Act, the penalty specified therein was five thousand rupees for every day during which the failure continues.
5.0 ORDER
5.1 Having considered the facts and circumstances of this case, I find that a penalty of fifty lakh rupees would be commensurate with the violation after taking into account the factors under section 15J and other relevant factors as mentioned above. Accordingly, in exercise of the powers conferred upon me in terms of section 15I read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of fifty lakh rupees on M/s. Top Telemedia Limited.
5.2 The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India” and payable at Mumbai which shall be sent to Shri Sanjiv Dutt, Chief General Manager, Securities and Exchange Board of India, Mittal Court, B wing 1st Floor, Nariman Point Mumbai. As required under rule 6 of the said Rules a copy of this order is being sent to M/s. Top Telemedia Limited and also to SEBI.
| Dated: September 29, 2006 |
SANTOSH SHUKLA |
| Mumbai |
ADJUDICATING OFFICER |