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ORDER UNDER RULE 5 OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST CHEMATUR ENGINEERING AB FOR THE VIOLATION OF REGULATION 6 AND 8 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide Order dated July 25, 2001 appointed Smt. Poonam Bamba to inquire into and adjudge under Section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the alleged violation of Regulation 6 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’) committed by Chematur Engineering AB (hereinafter referred to as ‘Chematur’ for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1998, 1999, 2000 and 2001 on account of its failure to make necessary disclosures with regard to the shareholding in the company Noble Explochem Limited (hereinafter referred to as ‘NECL’).
NOTICE AND REPLY
2. A notice no. AEO/PB/35945/2001 dated September 05, 2001 was issued to Chematur in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the “Rules”) seeking reply on the alleged contravention of Regulation 6 of the Takeover Regulations for the year 1997 and Regulation 8 of the Takeover Regulations for the years 1998, 1999, 2000 and 2001.
3. Chematur vide their letter dated September 12, 2001 replied to the said show cause notice. Subsequently I have been appointed as the Adjudicating Officer vide SEBI’s Order dated September 30, 2004. After considering the reply submitted by Chematur, it was felt that an opportunity of hearing may be granted to it. Hence Chematur was advised to attend the personal hearing scheduled on November 08, 2004. In this regard, Chematur through their Advocate’s submitted a written reply dated November 06, 2004. In the said reply, Chematur replied as under;
· In accordance with the agreement dated March 17, 1983 and June 07, 1984 executed between Chematur and SICOM, Chematur agreed to contribute to the share capital in NECL. · The shareholding of Chematur in NECL for the relevant period mentioned in the notice i.e. 1998 to 2001 remained the same ie., 4.96%. · Till the time Chematur sold the shares after taking appropriate permission from RBI there is no change of shareholding and that Chematur never came across any information from NECL that additional information in this regard was required by any authority in India. · NECL vide its letter dated September 17, 2001 informed SEBI inter alia that there was innocent inadvertent and unintentional mistake on their part in not making disclosure and that when the mistake came to their knowledge, they have made disclosures to the Mumbai Stock Exchange on June 08, 2001. · As their shareholding has remained 4.96% the provisions of Regulation 6(1) and 8(1) do not apply to them and that since NECL was in charge of administration and compliance, they believed that NECL must have complied with all the statutory and regulatory provisions. · Chematur being a company incorporated outside India it was not aware of any such compliance to be made by them or applicability of the takeover regulations to them. · It never intended or consciously or deliberately avoided to make disclosures or to comply with the provisions of the takeover regulations. · It did not harm any party or shareholders by this alleged non disclosures. · In view of the orders passed by the Hon’ble Securities Appellate Tribunal in the matter of Cabbot International Capital Corporation Vs SEBI (Appeal No.39 of 2002) if the breach was merely technical or unintentional it does not merit penal consequences.
In view of the above submissions, Chematur requested SEBI not to hold any inquiry and impose penalty on them.
4. After considering the above reply submitted by Chematur, an opportunity of hearing was granted to him on November 08, 2004. Shri Sandeep Bhimekar of M/s Wadia Ghandy & Co Advocates, attended the personal hearing on November 08, 2004 as the representative of Chematur and made the following submissions:
· Provision of 6(1) and 8(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 do not apply to it since it was holding less than 15% of shares. Regarding the Regulations 6(3) & 8(2) of the takeover regulations, there was an agreement signed interalia between Chematur and SICOM Ltd on 23/7/1980, thereafter 3 supplemental agreements were entered between the same parties on 22/10/1981, 17/3/1983 and 7/6/1984. Vide the last agreement ie., supplemental agreement dated 7/6/1984 Chematur was invited to invest in NECL pursuant to which Chematur subscribed those shares.
· The shareholding of Chamatur remained the same ie., 4.96% which is less than 5% till October 2001-2002. Chematur sold shares after taking appropriate permission from RBI and there was no change of shareholding and Chamatur has never come across any information from NECL that additional information in this regard was required by any authority. Chematur always believed that all formalities between any government authority or regulatory authority including SEBI is handled by NECL and their shareholding is also been listed from time to time with all authorities in India in accordance with laws prevailing in India. Chematur had no reason to gain any advantage for withholding any such information from SEBI or from any authority. NECL by its letter dated 17/9/2001 had informed SEBI that there was an innocent, inadvertent and unintentional mistake on their part in not making disclosure and that their mistake came to their knowledge they have submitted the information to BSE on 8/6/2001.
· The breach if any by Chematur was bonafide one and it never intended or consciously or deliberately avoided to make disclosures or to comply with takeover regulations. Chematur has also not gained anything from non disclosing of any information. In the hearing held in 2002 SEBI vide order dated December 08, 2002, had already pardoned and excused SICOM Ltd who also were shareholders and promoters of NECL.
· in view of judgment of the Hon’ble Securities Appellate Tribunal in the matter of Cabbot International Corporation Ltd Vs SEBI decided on January 2001 and in the case of Reliance Industries Ltd Vs SEBI, if a breach was merely technical and un-intentional, it does not merit penal consequences. It also clarified that ignorance of law is no excuse but erroneous interpretation is a mitigating factor especially such interpretation is honest and bonafide to the knowledge of the party as held in the case of Reliance Industries Ltd Vs SEBI. In the case of Chematur, the alleged breach was not deliberate and non disclosure, if any was due to lack of understanding of law and hence no penalty may be imposed on it.
CONSIDERATION OF EVIDENCE AND FINDINGS:
5. I have taken into consideration the facts and circumstances of the case, the reply of Chematur and the submissions made by it during the personal hearing. It is noted that Chematur was holding 4.96% shares in NECL. Further, Chematur is also stated to be a Promoter of NECL.
6. In this regard, Regulation 6 (3) of the Takeover Regulations reads as under;
“A promoter or any person having control over a company shall, within two months of notification of the Regulations disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him in that company to the company”.
7. In addition to the said requirements, Regulation 8(2) further provides that a promoter or every person having control over a company shall, within 21 days from the financial year ending March 31 as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.
8. It is noted that Chematur in their reply dated November 06, 2004, as well as during the course of the personal hearing submitted that the contravention of the provisions of Regulation 6 (3) and Regulation 8(2) of the Takeover Regulations are technical in nature. In this regard, it is noted that the provisions of Regulation 6 and 8 of the Takeover Regulations require any person who acquires shares or voting rights above the prescribed limit or the promoter or the person having control over a company to make necessary disclosures regarding their holdings to the company. Any violation of said requirement can not be termed as technical violation as the very objective of said provisions is to provide for transparency and dissemination of information to the company. As the information is made available to the investors through the Stock Exchanges, such information help the investors to take well informed investment decisions. In this regard, the contention raised by Chematur that it being the foreign company, was not aware of the legal requirements and was under the impression that the legal requirements are complied by NECL can not be accepted. Regulation 6(3) and 8(2) clearly cast the obligation on Chematur to disclose their shareholding to the company. Further, NECL on the basis of the information submitted to it, in turn has to discharge its statutory obligation of making necessary disclosures to the stock exchange in terms of the provisions of the Regulations. Hence, the violation of the provisions of Regulation 6 and 8 of the Takeover Regulations can not be termed as technical violation.
9. In this regard, Section 15A(b) of the SEBI Act provides that if any person who is required under the Act, Rules or Regulations made thereunder to file any return or furnish any information, books or other documents within the time specified in the regulations, fails to file return or furnish the same within the specified time, he shall be liable to a penalty not exceeding five thousand rupees for everyday during which such failure continues. It is noted that the said provision has been amended with effect from October 28, 2002 and the penalty has been enhanced to Rupees one lakh per each day during which the failure continues or Rupees one crore whichever is less.
10. The provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the Adjudicating Officer shall take into account the following factors namely,
a) the amount of disproportionate gain or unfair advantage, wherever quantifiable made as a result of the default. b) the amount of loss caused to an investor or group of investors as a result of the default, c) the repetitive nature of the default
11. As stated above, the very objective of Regulation 6 and 8 of the Takeover Regulations is to provide for transparency and dissemination of information to the company and to the Stock Exchanges. As the information is made available to the investors through the Stock Exchanges, such information enable the investors to take well informed investment decisions. Non compliance of the said provisions deprives the company and the investors of valuable information.
12. It is noted that the company NECL participated in the Regularisation scheme introduced by SEBI. Hence, necessary disclosures were made though at a later stage. Further, it is noted that earlier, in the Adjudication Proceedings against SICOM Ltd, no penalty was imposed taking into account the fact that there was no change in the shareholding of the entity in NECL during the period of contravention of the provisions of the Regulations. In the present case it is noted that there has been no change in the holding of Chematur during the period the provisions of Regulations 6 (3) and 8(2) were not complied with and further it appears that no disproportionate gain or unfair advantage resulted on account of the default committed by Chematur Engineering AB. Having regard to the factors provided under Section 15J of the SEBI Act, the circumstances of the case, I am of the opinion that the contravention of Sub Regulation (3) of Regulation 6 and Sub Regulation (2) of Regulation 8 of the Takeover Regulations by Chamatur Engineering AB in the facts of case, do not merit imposition of penalty. Accordingly no penalty is imposed on Chematur Engineering AB.
2) Securities and Exchange Board of India |