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ORDER UNDER RULE 5(1) OF THE
SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING
OFFICER) RULES, 1995 READ WITH REGULATIONS
7(1) & (2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS)
REGULATIONS, 1997 AND SECTION 15A OF THE SEBI ACT, 1992. AGAINST CREDIT BACKGROUND: 1.������ I was appointed as the Adjudicating
Officer by the Chairman, SEBI, vide order dated September 30, 2004 to enquire
into and adjudge the alleged contravention of sub-regulations (1) & (2) of
Regulation 7� of the SEBI (Substantial
Acquisition Of Shares & Takeovers) Regulations, 1997 (for brevity�s sake
referred to as the Takeover Regulations) read with sub-section (b) of Section
15A,� of the SEBI Act, 1992 (hereinafter
referred to as the Act) by Credit Lyonnais (Now Calyon SA) (hereinafter referred to as the �acquirer�)� in the matter of the acquisition of the
shares of Unitech Ltd (hereinafter referred to as UL)
a company whose shares are presently listed on the National and Mumbai Stock
exchanges (for brevity�s sake hereinafter referred to as the NSE and BSE
respectively. �As on the date of the
acquisition, the shares of UL were also listed on the Delhi Stock Exchange.�� However, UL got its shares delisted from the said exchange on 2.������ The
facts in brief leading to the present proceedings are as follows: The Securities and Exchange Board of
India (hereinafter referred to as the SEBI) received a letter dated June 30, 2003
from the acquirer stating that they had bought 729,200 shares of UL and were
thereby holding 5.84% of its paid up capital which was in excess of the 5%
investment ceiling imposed by the SEBI (Foreign Institutional Investors)
Regulations, 1952. 3.������ In order to examine the extent of
compliance with Regulation 7 of the Takeover Regulations by the acquirer, SEBI
vide its letter dated 4.������ In response thereto, the BSE vide their
letter dated Subsequently the above facts were also
confirmed by UL to SEBI vide their letter dated May 12, 2004, in which they
also confirmed having disclosed to the DSE on July 9, 2003 the said fact that
was brought to their notice by the acquirer vide letter dated July 3, 2003. �������������������������������� 5.������ These facts were once again confirmed to
SEBI by the NSE vide their letter dated 6.������ As the acquirer had acquired 7,29,2000
shares representing 5.84% of the paid up capital of UL, they were required to
disclose their aggregate share holding in UL to UL as well as the stock
exchanges on which the shares of UL are listed i.e. NSE, BSE and DSE within two
days of their acquisition of 7,29,2000 shares of UL in terms of Regulation 7(1)
& 7(2) of the Takeover Regulations. However, as the acquirer was stated to
have filed the requisite disclosures with UL only on ����������� SHOW CAUSE NOTICE/ REPLY/ PERSONAL
HEARING: 7.������ In
view of the above, adjudicating proceedings were initiated in the first
instance by� issuing a show cause notice
dated July 20, 2004 to the acquirer in terms of Rule 4 of the SEBI (Procedure
for holding enquiry and imposing penalty by the Adjudicating Officer) Rules,
1995 (Rules) where under they were asked to show cause as to why enquiry proceedings
should not initiated against them for the alleged violation of the provisions
of sub regulations (1) and (2) of Regulation 7 of the of the Takeover
Regulations.� The acquirer was also advised to make their submissions, if any, along
with supporting documents that they wished to rely upon, within 14 days from
the date of the receipt of the notice, and also indicate whether they were
desirous of a personal hearing. 8.������ In reply to the same, CLSA Merchant Bankers Ltd. acting on
behalf of the acquirer, inter alia provided the
following details: ��������� �Date when 5% threshold was exceeded:� i)������� Although the
acquirer had purchased 7, 29,000 shares in UL on ii)������ As such, the acquirer did not exceed the threshold limit until
iii)����� Consequently its obligation to make the requisite disclosures
arose on ��������� Date of disclosure
to UL: i)������� From the
letter dated ii)������ They retained at their end a fax confirmation which showed
that the letter of the acquirer was received by UL on iii)
Based upon the
information provided by HSBC, the local custodian of the acquirer, the letter
of the acquirer dated iv)
They retained at their
end a fax confirmation which showed that the letter of the acquirer was
received by UL on �� Date of disclosure to the Stock Exchanges: i)
The acquirer attempted
to notify all the exchanges about the acquisition of the shares of the UL on ii)
The fax sent by the
acquirer was received by the NSE but did not reach the BSE or DSE since their
fax lines were constantly engaged.� iii)
Hence the acquirer
asked UL to assist them in notifying BSE and DSE and accordingly UL notified
the BSE and DSE of the acquisition of the said shares by the acquirer on iv)
It was thus apparant that the acquirer acted in good faith and took
appropriate action to notify the exchanges. v)
The reason for the
delay was that the acquirer was not aware of its obligations to notify the exchanges
until vi)
The acquirer should not
be held at fault for the over burdened fax lines to the BSE and DSE on General
conduct of the acquirer: i)
The acquirer had acted
with utmost honesty, openness and diligence as soon as they became aware that they
had exceeded the threshold limit, since not only did the acquirer notify SEBI
of the said fact on June 30, 2003 itself and sought its permission to sell the
excess holding, but they also made every effort to sell the excess holding as
quickly as possible without disrupting the market and put in place several
procedures to ensure the non recurrence of such incidents. On the basis of the above, it was requested
that the said proceedings be dropped. 9.������ Thereafter, a notice of hearing dated ��������� CONSIDERATION OF ISSUES: 10.���� I have taken into consideration the facts
and circumstances of the case, the submissions made on behalf of the acquirer, the
material available on record including the documents as well as the case laws submitted
by them under cover of their letter dated 11.���� The crux of the issue before me is whether
the acquirer, pursuant to the acquisition of the shares of UL, made the
necessary disclosures to UL and the exchanges on which the shares of UL are
listed, in a timely manner, as required in terms of the provisions of
Regulation 7 of the Takeover Regulations. ��������� 12.��� While considering the same, it would be
necessary to consider the following facts which are undisputed. 13. �The acquirer, the sub account of Credit Lyonnais (Singapore) Merchant Bankers Ltd. had acquired 7,29,200
shares of UL constituting 5.84% of its paid up capital on June 25, 2003, through
a trade settled on June 27, 2003 and thereby exceeded 5% of the voting capital
of UL.� Upon knowledge of the acquisition
of the excess shareholding, HSBC, the local custodian of acquirers placed the
shares under �unavailable status�.� However as the shares acquired were in excess
of the 5% ceiling imposed by the SEBI (FII) Regulations, 1992, amounting to a
violation of the said Regulations, they were issued a warning by SEBI for the
said violation. ��������� 14.���� As far as the Takeover Regulations are
concerned, by virtue of the shareholding of more than 5% as applicable in UL, the
acquirer was required to comply with the provisions of sub regulations (1) and
(2) of Regulation 7 of the Takeover Regulations. � ���� 15.���� In this context, the provisions of sub
regulations (1) and (2) of Regulation 7 of Chapter II of the said Regulations may
be referred to, which read as under: �7. (1) Any acquirer, who acquires shares or voting rights
which (taken together with shares or voting rights, if any, held by him) would
entitle him to more than five per cent, or 10% or 14% shares or voting rights
in a company, in any manner whatsoever, shall disclose at every stage, the
aggregate of his shareholding or voting rights in that company to the company
and to the stock exchanges where the shares of the target company are listed. 7(2) The disclosures mentioned in sub-regulation
(1) and 1A shall be made within two 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.� 16.���� Thus in terms of the provisions of the regulation
reproduced above, an acquirer is required to disclose at every stage to the target
company and to the stock exchanges where the shares of the target company are
listed, within two days of the acquisition of the shares/voting rights, if the
said acquisition entitles him to more than 5% or 10% or 14% in a company, taken
together with the shares or voting rights, if any, held by him.� 17.���� The acquirer has submitted certain
documents detailing the disclosures said to have been made by them to SEBI, UL
and the exchanges in terms of sub regulations (1) and (2) of Regulation 7 of
the Takeover Regulations.� Accompanied by
them are submissions that the disclosures were made in a timely manner by the
acquirer to UL and despite their best efforts belatedly to the exchanges due to
reasons beyond their control.� To
substantiate their stand, the acquirer has also stressed upon their bonafides by submitting copies of the failed fax messages
evidencing proof of the attempts made by them to transmit the required information
to the BSE, NSE and the DSE. Disclosure
to UL 18.�� As
regards the disclosures made by them to UL, the acquirer has primarily relied
upon their letter dated 30 June 2003 addressed to SEBI, a copy of which is also
marked to UL and the Reserve Bank of India which states that the acquirer had
acquired 7, 29,000 shares in UL on June 25, 2003 and that the said trade was
not settled until June 27, 2003.� I have also perused a copy of the letter
dated 19.���� From the same, there can be no dispute that information of the
said acquisition was brought to the notice of UL vide the letter dated June 30,
2003 and both UL and SEBI were made aware of the said acquisition of the shares
of UL by the acquirer, vide the said letter. However it cannot be stated that the
obligation on the acquirer to make the requisite disclosures arose only from
the date of settlement of the trade; i.e. June 27, 2003 in as much as when the
acquirer placed the order to acquire the shares of UL, the intention to acquire
the said shares was manifested on the same date, resulting in the acquisition
taking place on June 25, 2003 itself. 20.���� In this context reference may be made to
the definition of `acquirer� under regulation 2(1) (b) of the Regulations in
terms of which, any person who acquires or agrees to acquire shares in a
company either by himself or with any person acting in concert with the
acquirer is an acquirer. � 21.�� �On a
cumulative analysis of the provisions quoted above read with the facts stated
earlier, it would seem that it is not necessary that the acquirer should
actually acquire shares/voting rights or control to consider them as an
acquirer.� It would suffice even if the
person agrees to acquire shares or voting rights or control over the target
company.� This principle has been clearly
laid down by the Securities Appellate Tribunal in the case of B.P.Amaco Plc. vs. SEBI.�
The Takeover Regulations would thus be attracted where a person acquires
or even agrees to acquire the shares of the company and read in that context, the
acquisition in the instant case would have deemed to have taken place on the
date of agreeing to acquire the shares. ��������� 22.���� In view of the same, I find it difficult to
accept the contention of the acquirer of taking the date of settlement of the
trade as the date of acquisition of the shares of UL.� In fact, CLSA Merchant Bankers Limited vide
their letter dated ��������
Disclosure to the NSE, BSE and
DSE 23.����
As regards the disclosures made by the
acquirers to the exchanges on which the shares of the UL were listed, I have
noted their contention that they attempted to notify all the exchanges i.e.,
NSE, DSE and BSE about the acquisition of the shares of the UL on July 04, 2003
itself by fax, soon after being made aware of their obligations in this regard
on July 03, 2003 by HSBC. 24.���� In terms of Regulation 7(2) of the Regulations, the said
disclosures to the exchanges also ought to have been made on 25.���� It has been clarified that while the information was sent by fax
to NSE on the next day i.e., 26.���� The responsibility of the acquirer in terms
of Regulation 7(1) of the Takeover Regulations does not simply end in their sending/attempting
to send the disclosures but also in ensuring that the disclosures reach the
concerned entity in a time bound manner i.e., Regulation 7(1) requires the
acquirer to disclose the aggregate of their holding in the target company to
the target company and the exchanges on which the shares of the target company
are listed while Regulation 7(2) prescribes the time limit within which the
disclosures are required to be made.� Hence
the emphasis on the requirement specified in Regulation 7 is that the
information should reach the person to whom it is meant, in a timely manner. �� 27.���� From the facts above stated, it is clear that notwithstanding
the contentions of the acquirer having acted in good faith and taking the
necessary action to notify the exchanges, there was non compliance of the
provisions of Regulation 7 of the Regulations, caused to a certain extent due
to the lack of due diligence on their part in as much as ignorance of law is no
excuse.� Placing reliance upon grounds
such as ignorance of their obligation to notify the exchanges on time or the
overburdening of the fax lines of the BSE and the DSE for transmitting the said
information to them, does not weigh much in support of the acquirer�s cause. Modern
technology has provided for different modes of communication.� In the absence of any provision in the
Takeover Regulations providing for a particular mode of communication to be
adopted, it was open for the acquirer to adopt any of the other modes of
communicating the necessary information to the exchanges immediately upon the
said acquisition, viz., email and not merely wait till the last moment for the purpose of fulfilling the statutory obligation
specified under the Regulations. 28.���� One of the objectives of the Takeover
Regulations is to protect the rights of the investors through prompt
disclosures. The purpose of making these timely disclosures to the company, is meant
to ensure transparency in transactions and inform the company about the
cornering/ concentrating of shares by others so as to enable it to take
preventive measures if it so desired, to ward off the entry of potential
raiders and strengthen the position of the management.� Further timely disclosure to the exchanges is
meant to disseminate the required information for the benefit of the
shareholders of the company and the public at large. 29.���� Thus the provisions
of Regulation 7 of the Takeover Regulations which emphasizes upon timely
disclosure has nexus with the object of Regulation 7 of the Takeover
Regulations. 30.���� However, I am conscious of certain aspects
of this case which evidences the numerous attempts made by the acquirer to
comply with the provisiosn of Regulation 7 of the
Regulations, albeit belatedly which reflects to a large extent, their intention
not to violate the provisions of the said Regulations. 31.���� This is further apparent from the fact that
though the acquisition of the shares of 7,29,200
shares of UL constituting 5.84% of its paid up capital resulted in the
acquirer�s breaching the 5% investment sealing imposed by the SEBI (FII)
Regulations, the said default was sought to be rectified by them by off loading
the excess shares so purchased in the market with prior intimation to SEBI.� Proof has also been provided by the acquirer
as regards the absence of liquidity in the market during the time when the
excess shares were sold, evidencing the market equilibrium remaining unaffected
as well as the acquirer making the necessary disclosures to UL in terms of the provisions
of Regulation 13(3) of the SEBI (Prohibition of Insider Trading)
Regulations.� 32.���� I have also studied the plethora of judgments
of the Supreme Court as well as the Securities Appellate Tribunal submitted by
the acquirer in their defense. 33.���� The principles laid down in the said cases
according to the facts and circumstances of the cases which reiterate to a
certain extent� the
dictum laid down by the Supreme Court, stress upon the issue of non levy of
penalty especially in cases where there was a technical breach coupled with a
lack of intention to commit the said breach. 34.���� The documents submitted by the acquirer
clearly indicate that the lapse on their part was inadvertent and unaccompanied
by any intent to deliberately violate the provisions of law, relevant to the
case.� Although mens
rea or a guilty mind is not a necessary ingredient to
determine the offence in case of a violation of the provisions of the Rules and
Regulations of the SEBI, from the conduct of the acquirers, it is clear that the
breach of the Takeover Regulations was inadvertent.� Moreover, considering the quantum of the
breach, the fact that there has been no apparent adverse affect on the market
and no question of loss to any one as also any apparent indication of a
disproportionate gain enjoyed by the acquirers, any penalty does not appear to
be warranted.� 35.���� In view of the foregoing, there also does
not appear to be any reason to hold that the lapse was committed with a view to
defraud the investors or derive any undue personal gain.� Moreover, since the fact of acquisition was
in any case reported to UL, the target company and the stock exchanges, albeit
belatedly and the transparency requirement was fully met, it would be difficult
to conclude that the delay in making the necessary disclosures, was deliberate
and done with an intention to withhold necessary information. ORDER: �������� 36.���� In view of the same, after taking into
consideration the factors laid down in Section 15J of the SEBI Act, 1992, i.e, the amount of disproportionate and unfair advantage
wherever quantifiable as a result of the default, the amount of loss to an
investor or a group of investors as a result of the default, the repetitive
nature of the default, all of which are in the negative and in� favour of the
acquirers, I in exercise of the
powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry
and Imposing Penalty by the Adjudicating Officer) Rules, 1995 am inclined
to hold that as the
non-compliance of the provisions of Regulation 7(1) and (2) of the Takeover
Regulations by the acquirer,� was on
account of oversight which was duly rectified, no penalty need be levied upon the acquirer and
accordingly the
proceedings initiated against the acquirer are hereby dropped.� ��������� PLACE:
MUMBAI����������������������������������������������� G.
BABITA RAYUDU
DATE : �
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