��������� Appeal No.76/2003
���������
����������� Date of decision:� 9.1. 2007
|
Classic
Credit Ltd. |
Appellant |
|
Versus |
|
|
Securities
and Exchange Board of |
Respondent
|
Shri Zal
Andhyarujnia, Advocate along with Mr. Deepak Shah, Advocate for the appellant
Shri Kumar
Desai, Advocate along with Ms. Daya Gupta, Advocate for the�� respondent
CORAM
��������� Justice
N. K. Sodhi, Presiding Officer
��������� C.
Bhattacharya, Member
���������
Per:�� Justice
N. K. Sodhi, Presiding Officer (Oral)
��������� This
order will dispose of a bunch of nine Appeals nos.76 to 84 of 2003 all of which
are directed against the order dated April 22, 2003 passed by the adjudicating
officer imposing monetary penalties on the appellants for violating Regulations
7 and 10 of the Securities and Exchange Board of India (Substantial Acquisition
of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the
Regulations).� As�� common questions of law and fact arise in
all these appeals, these are being disposed of by one order.� Since arguments have been addressed in Appeal
no.76 of 2003, the facts are being taken from this case.� Learned counsels for the parties are agreed
that the decision in this case will govern the other appeals as well.�
��������� It
is alleged that Classic Credit Ltd., Panther Investrade Limited, Panther Fincap
& Management Services Ltd., Luminant
Investments Pvt. Ltd. Chitrakut
Computers Pvt.Ltd., Goldfish Computers Pvt. Ltd., Nakshatra Software Ltd.,
Saimangal Investrade Ltd., Triumph Securities Ltd., Triumph International
Finance India� Ltd. and N. H. Securities
Ltd., (for short Classic, PIL, PFMS, Luminant, Chitrakut, Goldfish,
Nakshatra,� Saimangal, Triumph, TIFIL and
N.H. respectively) acquired shares of Shonkh Technologies International
Ltd.(hereinafter called the target company) in excess of the threshold limits
prescribed by Regulations 7 and 10 of the Regulations without making the
necessary disclosure to the target company and without making a public
announcement thereby violating the said Regulations.�� Adjudication proceedings were accordingly
initiated against each of the aforesaid entities.� The adjudicating officer issued show cause
notice dated
��������� The
third charge is that the aforesaid entities acting in concert had acquired
shares of the target company in excess of 5% of its paid up capital on
different dates referred to in the chart mentioned in the show cause notice
without making the necessary disclosures as required by Regulation 7 of the
Regulations.�� The fourth charge is that
Classic Credit and PFMS had acquired shares from Luminant in excess of the 5%
limit prescribed by Regulation 7 without making the necessary disclosures.
��������� Classic
filed its reply dated
|
�You have made certain statements
whereby you have sought to include us in the same bracket along with the
various entities to whom the notice was sent.�
The reasoning that you have used of directors of some of the companies
being the same and that the companies operate from proximate addresses and
that shareholders are common, is not per se conclusive of the fact that the
entities are acting together for a common purpose and it is not proof that we
are party to violations of Regulation 10 the SEBI (Substantial Acquisition of
shares and Takeovers) Regulations, 1997.���
|
It is clear from the reply filed by
Classic that it did not dispute that the directors of some of the companies
were the same and that the companies operate from proximate addresses and that
their shareholders are common.� According
to Classic these were not per se conclusive of the fact that the entities were
acting together for a common purpose.� On
a consideration of the material produced by the parties the adjudicating
officer came to the conclusion that all the charges leveled against Classic and
other entities except Saimangal stood established and accordingly a sum of Rs.5
lacs penalty was imposed on each of the entities for violating Regulation 10 of
the Regulations and another sum of Rs.1,50,000/-for violating Regulation
7.� Hence this appeal.
��������� We
have heard the learned counsel for the parties.�
The learned counsel for the appellant has not disputed any of the
acquisitions made by Classic as referred to by the adjudicating officer in the
impugned order.� As a matter of fact, he
has not even disputed the acquisition made by the other entities.� What is contended by him is that the
acquisition of shares by Classic, PIL and PFMS on
��������� It
is then argued on behalf of the appellant that Classic, PIL and PFMS were not
acting in concert with each other when they acquired the shares in as much as
they did not have a common purpose in acquiring those.� He referred to the definition of �person
acting in concert� as contained in regulation 2(1)(e) of the Regulations.� We�
cannot accept this contention either.�
The definition of �person acting in concert� makes it clear that persons
who act for a common objective are persons acting in concert.� Sub clause (2) of the definition then
provides the list of persons who will be deemed to be persons acting in concert
with other persons in the same category unless, of course, the contrary is established.� This list contains companies under the same
management.� It was clearly pointed out
to the appellants in the show cause notice that all the entities were being
controlled by Ketan Parekh and this fact was not disputed in reply filed by
Classic or even by the other entities.�
On the other hand, it was said in reply that this fact per se did not
amount to their acting in concert with each other.� We cannot agree with this stand taken by the
appellant.� Sub clause (2) of regulation
2(1)(e) brings in the� deeming provision
and companies having the same management either individually or together are
deemed to act in concert with each other.�
Since Ketan Parekh was in control of the companies and was managing
them, it has to be presumed that the entities were �persons acting in
concert�� with each other.� Having done so, they acquired shares in
excess of 5% of the threshold limit prescribed by Regulation 7.� Admittedly, they did not disclose their
shareholding to the target company.�
Regulation 7 thus stood violated and no fault can be found with the
findings recorded by the adjudicating officer in this regard.� The learned counsel for the appellant
strenuously contended that sub clause (2) of Regulation 2(1)(e) of the
Regulations could not be relied upon by the adjudicating officer since the show
cause notice issued to the appellant did not state in so many words that the
deeming provision was being resorted to.��
The argument is that since the show cause notice did not state that the
appellant was deemed to be �person acting in concert� with others, the
appellant had no opportunity to rebut the allegation.� The contention� is being noticed� only to be rejected.� It is clearly stated in the show cause notice
that the appellant acted in concert with other entities while acquiring the
shares.� It was not necessary that sub
clause (2) of regulation 2(1)(e) had to be referred to.��� It was enough when the adjudicating officer
stated in the show cause notice that the appellant was a �person acting in
concert� with others.� A person deemed to
be acting in concert with others is also a person acting in concert and we do
not think that any specific mention was necessary to be made in the show cause
notice.� The learned counsel also
referred to the provisions of section 370 of the Companies Act to contend that
the criteria prescribed therein for the purpose of determining whether two� or more companies were under the same
management was not satisfied in the instant case and, therefore,� the adjudicating officer was wrong in holding
that the entities referred to in the show cause notice were acting in concert
with each other.� This argument is also
devoid of merit and we cannot accept the same.�
The concept of same management as contained in section 370 is only for the
limited purpose of advancing loans by companies to others under the same
management.� Moreover, this concept is
only for the� purpose of the� definition of �promoter�� in clause (h) of Regulation 2 and not for the
definition of �person acting in concert� with others as contained in clause (e)
of that Regulation.
��������� It
is also urged by the learned counsel for the appellant that the shares
transferred in the demat account of the appellant had not been acquired by it
and that those shares were held by it as collateral security and in trust for
arranging finance for third parties.� He
referred to the agreement executed between the appellant and the transferors in
support of the plea.� Here again, we are
unable to agree with the learned counsel.�
It is common case of the parties that shares were transferred in the
name of the appellant and were credited in its demat account with the
depository.� In other words, the
appellant was shown as the beneficial owner of those shares in the records of
the depository.� This being so, the
appellant will be deemed to be the beneficial owner in view of the provisions
of section 2(1)(a) of the Depositories Act, 1996 which defines a �beneficial
owner� to mean a person whose name is recorded as such with the depository.� Section 10(3) of this Act further provides
that the beneficial owner shall be entitled to all the rights and benefits and
be subjected to all the liabilities in respect of his securities held by the
depositor.� It is, thus,� clear that once the shares stand in the name
of the appellant in the records of the depository, it will be deemed to be the
acquirer of those shares for the purpose of the Regulations and if the
acquisition exceeds the threshold limit prescribed by Regulations 7 and/or 10
the said Regulations will have to be complied with.� Even if one were to assume that the shares
were taken by the appellant by way of security and in trust as contended by the
learned counsel for the appellant, then a pledge or hypothecation in respect of
those shares had to be created in terms of the procedure prescribed by the
Depositories Act.� This is the
requirement of section 12(3) of that Act. Admittedly, this has not been done.
Again, the argument that the shares were held in trust cannot be accepted
because if that were so, then a declaration to that effect under section 187C
of the Companies Act, 1956 had to be made.�
It is the appellant�s own case that no such declaration had been
made.� We cannot, therefore, accept the
plea that the shares were held by the appellant in trust.
��������� We
will now deal with the second charge as contained in the show cause
notice.� Six of the entities referred to
in the earlier part of this order including Classic acquired 23.05% shares of
the target company on 19.1.2001 and 41.69% shares on 9.3.2001 thereby crossing
the threshold limit prescribed by Regulations 7 and 10 of the Regulations.� As already observed, an acquirer who acquires
shares in a company in excess of 5% of its paid up capital is required to
disclose his shareholding to that company.�
Regulation 10, on the other hand, requires an acquirer acquiring 15% or
more shares in a company to make a public announcement to further acquire
shares of that company in accordance with the Regulations.� Since the limits prescribed by both the Regulations
had been exceeded and the entities neither disclosed their shareholding nor did
they make the public announcement, they violated both the Regulations and the
adjudicating officer was right in holding that such a violation had been
committed.�
��������� Now
we shall deal with the third charge.�
Following is the chart relied upon by the adjudicating officer to hold
that the entities referred to in the first column thereof had acquired shares
in excess of the 5% limit on different dates referred to therein.� As already noticed, the percentage of shares
acquired as referred to in the chart has not been disputed.� Since all the entities were acting in concert
with each other and the acquisitions taken together were in excess of 5% of the
total paid up capital of the target company, Regulation 7 stood triggered on
the respective dates when the acquisitions were made.� Here also it is admitted that none of the
entities disclosed their shareholdings to the target company.� The adjudicating officer was, therefore, right
in holding that regulation 7 stood violated.
|
Name |
|
|
|
|
|
|
|
|
|
|
Chitrakut Computers Pvt.
Ltd. |
0 |
75000 |
75000 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Classic Credit Ltd. |
500000 |
0 |
710000 |
1813850 |
1813850 |
1810400 |
810600 |
10000 |
10000 |
|
Goldfish Computers Pvt LTd. |
0 |
325000 |
325000 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Luminant Investments Pvt. Ltd. |
0 |
700000 |
700000 |
0 |
0 |
1000 |
6650 |
0 |
0 |
|
Nakshatra Software Pvt. Ltd. |
0 |
275000 |
275000 |
0 |
0 |
0 |
0 |
0 |
0 |
|
NH Securities Pvt Ltd. |
0 |
75000 |
75000 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Panther Fincap and Mgmt Ser
LTd |
700000 |
75000 |
60000 |
5000 |
21550 |
14900 |
0 |
0 |
0 |
|
Panther Fincap and Mgmt Ser
LTd |
0 |
0 |
0 |
0 |
0 |
300000 |
300000 |
300000 |
300000 |
|
Panther Investrade Ltd. |
425000 |
100000 |
100000 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Panther Investrade Ltd. |
0 |
0 |
0 |
0 |
0 |
300000 |
300000 |
300000 |
300000 |
|
Triumph International
Finance I Ltd |
0 |
0 |
0 |
0 |
0 |
0 |
280000 |
280000 |
280000 |
|
Triumph Securities Ltd. |
0 |
0 |
0 |
0 |
0 |
0 |
70000 |
70000 |
70000 |
|
Triumph Securities Ltd. |
0 |
0 |
0 |
0 |
500000 |
0 |
0 |
0 |
0 |
|
Total No. of shares by Ketan Parekkh Entities |
1625000 |
1625000 |
2320000 |
1818850 |
2335400 |
2426300 |
1767250 |
960000 |
960000 |
|
Total Paid up capital of
Shonkh No of shares |
17513093 |
17513093 |
17513093 |
17513093 |
17513093 |
17513093 |
17513093 |
17513093 |
17513093 |
|
% of paid up Capital held by
Ketan Parekh Entities |
9.28 |
9.28 |
13.25 |
10.39 |
13.34 |
13.85 |
10.09 |
5.48 |
5.48 |
��������� Luminant
sold around 32% of the paid up capital of the target company to Classic and
PFMS on different dates as is clear from the chart reproduced hereunder on
which reliance has been placed by the adjudicating officer:
|
Date |
|
Credit in LIPL demat account on� that date |
Name
of buying Ketan Parekh entity |
|||||||
|
|
No |
% |
No |
% |
CCL |
PFMS |
Total of CCL & PFMS |
|||
|
|
|
|
|
|
No |
% |
No |
% |
No |
% |
|
|
2000000 |
11.42 |
2000000 |
11.42 |
897150 |
5.12 |
698900 |
3.99 |
1596050 |
9.11 |
|
|
850000 |
4.85 |
900000 |
5.14 |
299450 |
1.71 |
550550 |
3.14 |
850000 |
4.85 |
|
|
1000000 |
5.71 |
1000000 |
5.71 |
0 |
0.00 |
999900 |
5.71 |
999900 |
5.71 |
|
|
2000000 |
11.42 |
2060650 |
11.77 |
0 |
0.00 |
2000000 |
11.42 |
2000000 |
11.42 |
|
|
2660000 |
15.19 |
2660000 |
15.22 |
1806450 |
10.31 |
852050 |
4.87 |
2658500 |
15.18 |
From the above it is clear that
Luminant independently held more than 5% of the paid up capital of the target
company on the dates mentioned in the chart and held more than 15% of the paid
up capital of the target company on 27.2.2001.�
It is also clear that Classic and PFMS held more than 5% of the paid up
capital of the target company on different dates referred to in the chart.� Since none of them disclosed their
shareholding to the target company, nor did they come out with a public announcement,
Regulations 7 and 10 stood violated.�
This is what the adjudicating officer has found.� We are in agreement with the findings
recorded in this regard.
��������� Lastly
it was� contended on behalf of the
appellant that in view of the findings of the adjudicating officer that all the
entities referred to in the earlier part of this order had acted in concert
with each other, then they all committed one offence for which collectively the
maximum penalty of Rs.5 lacs could be levied.�
There is no merit in this contention as well.� As found earlier, the appellant and the other
entities had acquired shares in excess of the threshold limit prescribed by
Regulation 7 and Regulation 10 of the Regulations on more than one occasion.� Each of them was required to comply with the
Regulations as and when they got triggered and make the necessary disclosures
and where the acquisition exceeded 15%, the acquirer had to come out with a
public announcement.� None of these
provisions were complied with and, therefore, each of them was guilty of
violating the provisions for which a penalty could be imposed on them.� It cannot be said that only one breach was
committed.� As already observed each of
the entities committed a breach when they did not comply with the
Regulations.� The adjudicating officer
was, therefore, right in levying penalty on each of them.
��������� No
other point has been raised.
��������� For
the reasons recorded above, we find no merit in these appeals and they stand
dismissed. � The appellants will now
comply with the order of the adjudicating officer and deposit the penalty
amount within 45 days from the date of receipt of a copy of this order. No costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
C. Bhattacharya
����������������������������������������������� Member
Smn/