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 THE MATTER OF ALLEGED NON- COMPLIANCE OF REGULATIONS 6, 7 AND 8 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
M/s TOP MEDIA ENTERTAINMENT LTD.
1.0 Background
1.1 The Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigations into the dealings in the shares of M/s. Top Media Entertainment Ltd. (TMEL). 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 contravention of non-compliance with summons dated 25.02.03 issued by the investigating officer and provisions of regulations 6 , 7 and 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’) by TMEL under section 15A(a) of the SEBI Act. Subsequently, vide order dated January 27, 2005, the matter pending before the erstwhile Adjudicating Officer was transferred to the undersigned.
1.2 After conducting inquiry under Rule 4 of the Adjudication Rules in to the allegation of non-compliance of summons dated 25.02.03 by TMEL, the undersigned passed an order dated 25.09.06.
2.0 Inquiry regarding alleged violation of Takeover Regulations
2.1 In the Show Cause Notice dated 27.11.2003 it was inter alia alleged that the TMEL had violated regulations 6, 7 and 8 of the Takeover Regulations. The TMEL 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 in respect of this violation.
2.2 The TMEL had failed to file any reply to the show cause notice despite service of the same on the TMEL. It also failed to appear for hearings despite service of various notices and issue of the direction dated July 11, 2006 as mentioned in detail in the order dated 25.09.06. I do not consider it necessary to repeat the same and further burden this order.
3.0 CONSIDERATION OF EVIDENCE AND FINDINGS
3.1 For the reasons given in the order dated 25.09.06, I proceed with the inquiry in respect of the violation regarding regulation 6,7 and 8 of the Takeover Regulations in absence of TMEL in terms of Rule 4(7) of the Adjudication Rules. It is noted while giving observation regarding alleged violation by TMEL the Investigating Report as relied upon the following observation of the stock exchange Mumbai (BSE) made in its report –
“It was observed from Distribution Schedule alongwith details of persons holding more than 5% shares in the company, dated March 23, 2001, that the joint holdings of Mr. Gautam Trivedi and Mr. Himanshu Trivedi are 17,99,358 shares i.e. 14.49% of the capital of the company. Further, this information was submitted by the company only after it was called for by the surveillance department. Thus, the company had not complied/filed the disclosures under Regulations 6 (2), 6 (4), 7(3), 8(3) and 11 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.”
3.2 The disclosure requirements applicable to a target company are provided under regulations 6 (2), 6 (4), 7(3), and 8(3) of the Takeover Regulations. Thus, the relevant regulations could be regulations 6 (2), 6 (4), 7(3) and 8(3) of the Takeover Regulations. 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.”
3.3 The investigation report relies upon a report of the stock exchange Mumbai (BSE) in which it has been reported by the exchange that the TMEL has not filed the disclosures as mentioned above in para 3.1 above. It is observed that the said report refers to delayed disclosure by the TMEL of shareholding of persons holding 5% or more in the TMEL. While observing this violation it is reported that “……….Thus, the company had not complied/filed the disclosures under Regulations 6 (2), 6 (4), 7(3), 8(3) and 11 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.”
3.4 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. The compliance of the requirements of regulation 6(2) does not depend upon receipt of required information from the persons referred in regulation 6(1). These regulations contemplate independent obligation of company. The requirement of compliance of regulations 6(2) is a one-time requirement. These provisions are transitional provisions and the due date for compliance with the requirements of regulation 6 (2) was 20.05.97.From the above observations in the investigation report, it is noted that TMEL has delayed the disclosure of shareholding of persons holding more than 5% in the TMEL to the stock exchange. Such disclosure was made only after it was called for by the surveillance department of BSE. Thus, it can safely be observed that the TMEL has failed to make disclosures as required under regulation 6(2). Such failure was existing till at least when the TMEL filed Distribution Scheduled dated 23.03.2001 with BSE. Even if this date is taken as the date of compliance with regulation 6(2) by TMEL, there is a delay of approximately 1422 days in compliance with the provisions of this regulation.
3.5 The compliance of regulation 7(3) depends upon receipt of information from the acquirers referred to under sub-regulations (1) and (1A) of regulation 7. From the above observations in investigation report, it can reasonably be said that the TMEL had the information about the shareholding of persons acquiring more than 5% in TMEL which it disclosed to the BSE belatedly. Although there is no material on record to suggest as to when such persons made disclosures to the TMEL about their shareholding to it and for exactly how many days the failure by TMEL continued, it can be reasonably be inferred that there had been failure by TMEL in making disclosures as required under regulation 7 (3) of the Takeover Regulations and such failure was existing till at least when the TMEL filed Distribution Scheduled dated 23.03.2001 with BSE.
3.6 Compliance of regulation 6(4) is also a one-time requirement. Regulation 6(4) requires the target company to disclose to the stock exchanges, the names and addresses of the promoters and persons having control over the target company and the number and percentage of shares or voting rights held by each such person. The requirement of compliance of regulation 8(3) is an annual feature. Regulation 8(3) requires disclosure in respect of the holdings of the persons who hold 15% shares or voting rights in the target company and holdings of the promoters or persons having control over the target company. There is nothing in the above mentioned observation recorded in the investigation report to conclusively suggest that the TMEL delayed disclosure about the shareholding of the persons referred in the regulations 6(4) and 8(3). Therefore, the benefit of doubt may be given to the TMEL in respect of the charge of violation of regulations 6(4) and 8(3) of the Takeover Regulations.
3.7 The above position suggests that the failure in respect of making disclosure as required under regulations 6(2) and 7(3) continued and the failure was substantial. The failure is not an isolated or technical case. It cannot be said to be on account of any oversight or lack of knowledge. In view of the continuous and reckless disregard to the regulatory requirements, the failure of TMEL in making disclosures as required under regulations 6 (2) and 7(3) of the Takeover Regulations can be attributed to indifference or negligence. In view of this, I find that the TMEL has failed to comply with regulations 6 (2) and 7(3) of the Takeover Regulations as mentioned above.
3.8 Considering the above facts and circumstances, I find that TMEL is thus, liable for penalty under section 15A of the SEBI Act for failure to comply with the provisions of regulations 6 (2) and 7 (3) of the Takeover Regulations as observed hereinabove and is thus, liable for penalty under section 15A of the SEBI Act for such failures.
4.0 ADJUDICATION OF THE QUANTUM OF PENALTY
4.1 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 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 TMEL as found herein above; it has made any pecuniary gain or unfair advantage. 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 non for imposing a penalty when the statutory obligations contemplated in the SEBI Act and the regulations made thereunder. 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 disclosure as envisaged under regulations 6(2) and 7(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 decisions 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 or acquiring substantial stake in the company. It is not as if investors routinely buy more than 5% in a 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 The information contemplated in regulation 7(3) is crucial information which enables the stock exchange to effectively perform its regulatory function as a first level regulator. The report / information enable the stock exchange to protect the interests of investors by disseminating the information received from the acquirer through target company and to take effective steps to prevent undesirable transactions. In the present case, the alleged manipulations in the prices of the shares of TMEL by manipulative dealings in the shares of the company by certain entities in concert with the persons including those having or acquiring substantial shares in TMEL had been the matter in investigation. The timely disclosure as contemplated in regulation 7(3) about the acquisition of 5% or more shares or voting rights could have alerted the stock exchange.
4.7 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 purpose of incorporating the provisions in the SEBI Act would become redundant and the violators as in the 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.”
4.8 As mentioned above, failure in compliance with the provisions of regulation 6(2) has continued for substantial number of days. In addition, the TMEL has also made delayed disclosure of the information required under regulation 7(3) of the Takeover Regulations. 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. I am satisfied that the present case warrants imposition of deterrent penalty.
5.0 ORDER
5.1 Having considered the facts and circumstances of this case, I find that a penalty of ten 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 ten lakh rupees on M/s. Top Media Entertainment 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 Media Entertainment Limited and also to SEBI.
| Dated: September 29, 2006 |
SANTOSH SHUKLA |
| Mumbai |
ADJUDICATING OFFICER
|