R. RAVICHANDRAN
GENERAL MANAGER,
INVESTIGATION DEPARTMENT
Tel: 22835701, Email: ravi@sebi.gov.in
ISD/RR/KS/SIL/ /2005
February 9, 2005
Shri Vinod Desai
No. 4, Shamet Flats,
Jain Nagar Society, Paldi,
Ahmedabad - 380 006.
Sub: Issuance of show cause notice under Sections 11, 11B and 11(4)(b) of SEBI Act.
- Investigations have been conducted by SEBI in connection with the scrip Shalibhadra Infosec Limited (hereinafter referred to as the company). Investigations revealed that the Chairman of the company, Manager of the company and other promoter associated entities have off-loaded more than 1 crore unlisted shares of the company through the entities M/s. Parshwa Finance, Shri Tushar Jhaveri, Ms. Harsha Jhaveri, Shri Pankaj Patel, Shri Vinod Desai, Shri Mahesh Shah, Shri Ashit Vora, Shri Maulik Patwa and Shri Mukesh Vadecha in the secondary market. It is alleged that you have assisted the promoters of the company in offloading the shares of the company and thereby assisted them in perpetuating fraud on the shareholders. The detailed findings of investigation are given in Annexure III.
- Findings of investigation suggest violation of the following Regulations by you:
(i) Regulation 3 and 6 (a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities Market) Regulations, 1995,
(ii) Regulations 10 and 11 of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997 and
(iii) Regulation 13(3) of SEBI (Insider Trading) (Amendment) Regulations, 2002,
In this connection, Regulation 2 (1) states as follows:
(b) “dealing in securities” means an act of buying, selling or otherwise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal or as agent;
(c) “fraud” includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-
(1) the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent;
and “fraudulent” shall be construed accordingly.
Regulation 3 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities Market) Regulations, 1995 states as follows:
”No person shall buy, sell or otherwise deal in securities in a fraudulent manner”
Regulation 6 (a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities Market) Regulations, 1995 states as follows:
No person shall –
In the course of his business, knowingly engage in any act, or practice which would operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities;
In the instant case, there was creation of artificial demand by you and persons acting in concert with you. Also, you have assisted the promoters of the company in offloading the shares of the company in the market by creating artificial volumes.
Further, violations of Regulations 10 and 11 of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997 by you were also found.
Regulation 10 of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997 states as follows:
“No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen percent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.”
Regulation 11 of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997 states as follows:
(1) “No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 15% or more but less than 75% of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.”
(2) “No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 75% of the shares or voting rights in a company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights, unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.”
Explanation:
For the purpose of Regulation 10 and 11, acquisition shall mean and include,
(a) direct acquisition in a listed company to which the Regulations apply;
(b) Indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad.
Further, Regulation 13(3) of SEBI (Insider Trading) (Amendment) Regulations, 2002 has been violated.
Regulation 13 of SEBI (Insider Trading) (Amendment) Regulations, 2002 states as under:
1. Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company, the number of shares or voting rights held by such person, on becoming such holder, within 4 working days of:-
a. The receipt of intimation of allotment of shares; or
b. The acquisition of shares or voting rights, as the case may be.
2. …
3. “Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in the company.”
In the instant case, it was found that you along with persons acting in concert with you (Shri Raju Shah, Shri Atul Shah, Shri Tushar Jhaveri, Shri Maulik Patwa and Shri Mukesh Vadecha) acquired the shares of the company in excess of the stipulated limits (details are given in Annexure III) without disclosing to the company and without making a public offer in accordance with the Regulations.
- By indulging in the acts mentioned above, you have violated Regulations 3 and 6 (a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities Market) Regulations, 1995, Regulations 10 and 11 of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997 and Regulation 13(3) of SEBI (Insider Trading) (Amendment) Regulations, 2002.
- You are therefore called upon to show cause as to why suitable directions including the following directions should not be issued against you:
a. Restraining you from accessing securities markets and also prohibiting from buying, selling or dealing in securities for a suitable period (except to the extent of (b) below) under Section 11(4)(b) read with Section 11 and 11B of SEBI Act read with Regulations 11 and 13 of SEBI (FUTP) Regulations, 2003 and SEBI (Insider Trading) Regulations as amended in 2002.
b. Directing you (along with persons acting in concert) to make a public offer to the shareholders of the company under Section 11(4)(b) read with Section 11 and 11B of SEBI Act read with Regulations of SEBI (Substantial Acquisitions of shares and Takeovers) Regulations, 1997.
- Your reply, if any, should reach SEBI within 21 days of the date of receipt of this notice failing which it shall be construed that you have no comments to offer and SEBI shall be constrained to proceed with such action as may be deemed necessary as per law.
R. RAVICHANDRAN
Enclosures: a/a