ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 READ WITH RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY THE ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST SHRI. PK TAYAL AND PERSONS ACTING IN CONCERT.

 

1.      Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) has initiated adjudication proceedings against Shri. P K Tayal and persons acting in concert namely Sundarshan Kulkarni, Devendra Kumar, Dhirendra Shukla, Rakesh Agarwal, Raj Rakesh Agarwal, Somprakash Arya, Rohit Gupta, Deepak Sarupuria, Pravin Kumar, Prashant Ghanekar, Shree Krishna Consultancy Services Limited, Vandana Tayal, Sanjiv Nagar, S D Joshi, Arvind Sharma, Ganesh Tambe, Tradewell Eng. Pvt. Limited, Sharad Chavan, Nandkishore Panchal, Sandeep Murarkar, Sudhir Garg, Rajesh Sharma, D K Verma, Abhay Dhumal (hereinafter referred to as the ‘acquirers’ ) for the alleged violation of the provisions of Regulation 7 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the ‘Takeover Regulations’) on account of failure to make disclosures in respect of their holding in the company Bank of Rajasthan Limited. (hereinafter referred to as the target company).

 

2.      In respect of the acquisition of shares by the acquirers, SEBI vide order dated 16.1.2002 held that prima facie the acquirers have violated the provisions of Regulation 3(4) and Regulation 7 of the Takeover Regulations. In view of the same, adjudication proceedings were initiated against the acquirers. Initially, Shri. P R. Ramesh was appointed as the Adjudicating Officer to conduct the Adjudication Proceedings. Subsequently, I was appointed as the Adjudicating Officer in the matter.

 

SHOW CAUSE NOTICE

3.      A show cause notice under Rule 4(1) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 was issued by the then adjudicating officer on 6.2. 2002. Initially, in addition to the alleged violation of Regulation 7 of the Takeover Regulations, violation of Regulation 3(4) was also referred for adjudication. The acquirers replied to the show cause notice vide their letter dated 11.2.2002. Subsequently, vide order dated 18.2.2002 the adjudicating officer imposed a penalty of Rupees one lakh on the acquirers for the violation of Regulations 3(4) of the Takeover Regulations. It is pertinent to note that the violation of the provisions of Regulation 7 was not considered by the Adjudicating officer in the said order. Subsequently, in respect of the violation of Regulation 7 of the Takeover Regulations, an additional notice was issued by the Adjudicating Officer on 13.3.2002 to which the acquirers vide their reply dated 28.3.2002 made additional submissions.

 

4.      In the present adjudication proceedings, a notice of hearing was issued to the acquirers on June 23, 2006 advising them to attend the hearing on July 14, 2006. As the entity sought a short adjournment, the matter was adjourned to July 24, 2006. On the said date, Advocate Manish Desai of Paras Kuhad & Associates Advocates attended the hearing as the representative of the acquirers and made submissions. The acquirers vide letter dated August 14, 2006 also submitted brief notes of the arguments made on behalf of them.

  

CONSIDERATION OF ISSUES:

5.      I have taken into consideration the facts and circumstances of the case, the submissions advanced on behalf of the acquirers, the material available on record including the documents and the case laws relied upon by the acquirers.

 

6.      The issue for consideration in the matter is whether the acquirers have complied with the disclosure requirements prescribed under Regulation 7 of the Takeover Regulations. Before addressing the said issue, it is necessary to consider certain preliminary objections raised by the acquirers.

 

7.      One of the preliminary issues raised by the acquirers is that the adjudicating officer has not been properly appointed. In this regard, it is noted that there has been no infirmity in the appointment of the then adjudicating officer as he was appointed by the SEBI Chairman.  

 

8.      Another preliminary submission made by the acquirers is that after receipt of the reply to the show cause notice dated February 11, 2002 the adjudicating officer had chosen to call an inquiry only in respect of violation of Regulation 3(4) and not Regulation 7(1) and (2) of the Takeover Regulations. In view of the same, it is contended by the acquirers that the said decision is final and cannot be reopened at this stage. Further, the acquirers also contended that as the adjudicating officer had already passed an order on February 18, 2002, the present proceedings are barred and cannot be sustained in view of the application of the principle of Res Judicata.

 

9.      With regard to the above contentions, it is pertinent to note that initially in the show cause notice issued by the adjudicating officer, violations of Regulation 3 as well as Regulation 7 were alleged. In the order dated  18.2.2002 passed by the adjudicating officer,  a penalty of Rupees one lakh was imposed on the acquirers for violation of Regulation 3 (4). It is pertinent to note that the violation of the provisions of Regulation 7 was not considered by the adjudicating officer in the said order. Subsequently, in respect of the violation of Regulation 7 of the Takeover Regulations, an additional notice was issued by the adjudicating officer on 13.3.2002 to which the acquirers vide their reply dated 28.3.2002 made additional submissions. In the said reply dated 28.3.2002, the acquirers had submitted that they are agreeable to adjudication of Regulation 7.

 

10. As it is noted that vide order dated 18.2.2002, the adjudicating officer had only considered the violation of Regulation 3(4), the present adjudication cannot be said to be barred by the principle of resjudicata on the basis of the said order. In this regard, the case laws cited by the acquirers i.e, Sulochana Amma Vs. Narayanan Nair (1994) 2 SCC 14 and Swamy Atmananda and Others Vs Sri. Ramakrishna Tapovanam & Others AIR 2005 SC 2392  do not support the said contentions of the acquirers  in the facts and circumstances of the present case as it is seen that the issue pertaining to the violation of Regulation 7 was not finally settled so as to be barred by principles of  resjudicata in the present proceedings. Further, in respect of the subsequent notice dated 13.3.2002, the acquirers vide their letter dated 28.3.2002 submitted that they are agreeable to adjudication of Regulation 7 as per the order dated January 28, 2002. In view of the above, subsequent objections raised by the acquirers cannot be entertained and such objections raised by the acquirers are devoid of merit.  

 

11. As stated before, the issue for consideration in the present adjudication proceedings is whether the acquirers violated the provisions of Regulation 7 of the Takeover Regulations. In this regard, it is pertinent to analyse the mandate and scope of Regulation 7 (1) and Regulation 7(2) as it stood at the time of commission of the alleged violations. The text  of the said provisions provided the following :

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 percent shares or voting rights in a company in any manner whatsoever shall disclose the aggregate of his shareholding or voting rights in that company, to the company.”

2.      The disclosures mentioned in sub- regulations(1) shall be made within two days of :-

(a) the receipt of information of allotment of shares; or

(b) the acquisition of shares or voting rights as the case may

 be

12.  While analysing the alleged violation committed by the acquirers, it is pertinent to note the following  contentions made by the acquirers vide their letter dated February 11, 2002. The Tayal Group was holding only 2. 46% shares of the Target company which included the shares of persons belonging to the said group. The Tayal Group in addition to these shares also held 4.11% shares in the target company which were pledged as collateral security against the loan given to Bangur Finance Ltd in the ordinary course of business. The said pledged shares were liable to be returned and re-transferred upon full and final payment of the loan granted to Bangur Finance Ltd. Since the transfer deeds were getting time barred/outdated and Bangur Finance continued making defaults in repayment of the aforesaid loan, Tayal Group got the pledged shares transferred in the names of their nominees. The list of persons acting in concert in terms of Regulation 1997 was submitted to SEBI by Tayal Group vide their letters dated 19th March 1999 and 28th May 1999. Thus the transfer of 4.11% shares in the name of the nominees of Tayal Group cannot be considered as an acquisition as provided  under Regulation 12 and thus cannot be termed as shareholding of the Tayal Group. Thus Regulation 7 is not attracted in the present matter at all. 

 

13. The acquirers further submitted that without prejudice to the above contention, it was only due to the bonafide belief that Regulation 7 is not applicable on the said transfer and there is no requirement to comply with the said provision, the information was not provided to the company under Regulation 7.  

 

14.  The acquirers also submitted that no penal action is required to be taken against the Tayal Group as there has been no violation on the part of the Tayal Group with regard to Regulation 7 of the Regulations 1997. It was submitted that that there was no malafide intention on the part of the Tayal Group and the said breach was purely unintentional. Tayal Group was under the bonafide belief that the group was not liable to comply with the said provisions of Regulations, since the pledged shares were transferred in the names of the nominees of Tayal Group due to the reason that the transfer deeds were getting time barred / outdated. Thus there was an honest belief on the part of the Tayal Group that such transfer was only in the course of business and it was never realized that such a failure would attract penal provisions of the regulations.  

 

15.  It is pertinent to note that in the said reply the acquirers did not state that the pledged shares were transferred prior to the acquisition of 1.89% shares. In this regard, the then Adjudicating Officer in the second show cause notice dated March 13, 2002 brought to the notice of the acquirers that they have not contested that the shares pledged were transferred prior to the acquisition of 1.89% shares and  further the acquirers have not sought to set aside the order passed by SEBI on this ground. As stated before, the adjudication proceedings were initiated against the acquirers pursuant to the order dated January 16, 2002. The second show cause notice, further mentioned that in any case, while acquiring the 1.89 % shares, the limit specified in Regulation 7 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, has been breached and hence the acquires have committed a violation by not furnishing the reports as required under Regulation 7 of the Takeover Regulations. In respect of the said show cause notice, the acquirers vide their letter dated March 28, 2002, replied that in their letter dated March 4, 2002 they had clarified that pledged shares were transferred prior to acquisition of the 1.89 % shares by them. The details in this regard was not submitted only due to the bonafide belief that Regulation 7 is not applicable on the said transfer because pledged shares were not directly related to them and they have to return the shares on repayment of the loans.  The acquirers further submitted that they had informed the target company about their holdings vide their letter dated 15th February 1999 but this fact was not brought to the notice of SEBI in their replies only due to omission.  As stated before, the acquirers vide their letter dated 28.3.2002 submitted that they are agreeable for adjudication in respect of violation of Regulation 7.  

 

16. In the subsequent reply dated July 24, 2006 the acquirers submitted that the acquisition/ transfer/ holding during the relevant period of time during which the noticee along with the PACs is liable to have exceeded the threshold limit of 5% as follows:-

 

·        4.11% by way of transfer prior to 31st March 1998 

·        1.89% acquired after 31st March, 1998 and/ or before 1st February 1999.

·        0.59% acquired by relatives after 31st March 1998 and prior to 1St February, 1999.

 

17. In this  context, the acquirers submitted that presuming without admitting that there was a violation of Regulation 7(1) and7(2), the said violation could have occurred only once either at the time of acquisition of 1.89% shares or at the time of acquisition of 4.11%. The violation in respect of Regulation 7(1) and 7(2) were considered by the Learned Adjudicating Officer and penalties were imposed in respect of 3(4) alone. Any further imposition of penalty in respect of the same set of acts would also be hit by the principles of double jeopardy.

 

18.  In respect of the said contentions raised by the acquirers it is pertinent to mention here that as in the case of resjudicata, the principle of double jeopardy is also not applicable in the present matter since the violation did not result in prosecution and punishment twice for the same offence. In the present case there has been no prosecution and punishment for the same offence twice to be barred by the principle of double jeopardy. The alleged violation of Regulation 7 was not considered earlier. The order dated 18.2.2002 passed by the then adjudicating officer dealt with only the violation of Regulation 3(4) of the Takeover Regulations. As stated before, in respect of violation of Regulation 7, a supplementary notice was issued by the Adjudicating Officer to which the acquirers vide their letter dated 28.3.2002 submitted that they are agreeable for adjudication.

 

19. The acquirers also contended that the transfer of 4.11% shares was in exercise of the rights as pledgees and as there was no fresh acquisition of shares, the transferees cannot be termed as acquirers within the meaning of Regulation 7(1) and Regulation 7(2) as existed then. The acquirers further contended that Regulation 7(1) and Regulation 7(2) did not cover a case of transfer in favour of pledgees at the relevant point of time and it was acknowledged by the SEBI when the provision relating to pledgees was inserted for the first time by way of explanation to Regulation 7(1) and (1A) in 2002. Thus it is only and from 9th September 2002 that the transfer in favour of the pledgees would be termed as acquisition for the purposes of attracting Regulation 7.  The said contention raised by the acquirers is untenable for the reason that the amendment to Regulation 7 on September 9, 2002 inserted an explanation to the said provision thereby broadening the scope of the term acquirer to include a pledgee, other than a bank or financial institution and such pledgee shall make disclosures to the target company and to the stock exchange within two days of creation of the pledge. Hence the disclosure requirement in the case of a pledgee was specified by the said amendment. However, in the present case, the acquirers got these shares transferred in their names on account of the default on the part of the pledger and hence the pledge was no longer subsisting. Facts of the case indicate that the acquirers were aware of their aggregate shareholding and voting rights accrued as a result of the retransfer.

 

20. In this regard, it is pertinent to note that in the letter of offer issued by the target company mentions the mode of acquisition of shares in the bank by the Shree Krishna Group as follows :

 

1.      Shree Krishna Group holds 338950 shares of the Bank which works out to 1.89% of the equity capital of the Bank and cannot be construed as substantial holding. The amount invested is also insignificant considering Rs.1067.50 Crores, the total networth of the Shree Krishna Group as on March 31, 1998 

2.      Some of the Shree Krishna Group’s relatives and friends are also holding 101710 shares of BoR which works out to 0.57% of the equity capital of the bank, the details of which are as follows :

Shri. Somprakash Arya 58650

Shri. Rohit Gupta 39370

Shri. Deepak Saruparia 3690

3.      The Shree Krishna Group also holds 7,37,490 shares of BoR which were pledged to the Shree. Krishna group as collateral security against loans given to Bangur Finance Limited (BFL) in the year 1996–97 and got transferred in the name of Shree Krishna Group’s nominees as the Transfer Deeds were getting time barred and BFL continued to default in meeting the commitments towards payment of interest and principal. 

21. It is pertinent to note from the above details that the exact date on which the shares were transferred to Shree Krishna Group has not been mentioned in the said disclosures. However, the fact that the shares were transferred in the names of the nominees of the Shree Krishna Group clearly indicate that the pledge was no longer subsisting. Hence the contentions of the acquirers that the requirement needs to be followed since the amendment in 2002 is not legally tenable as the shares were already transferred to the acquirers and no pledge or pledger-pledgee relationship existed subsequent to the transfer.

 

22. As stated before, the mandate of Regulation 7 (1) and Regulation 7(2) of Takeover Regulations require the disclosures to be made within two days of acquisition of shares.  In view of the said provisions, the acquirer is bound to make the disclosure within two days of the acquisition. In this regard, though the acquirers contended that they had acquired 4.11% of the shares prior to acquisition of 1.89%, the acquirers have not stated the exact date on which 4.11% of shares were acquired by them. However it is pertinent to note that when 4.11% is added to 1.89%, the aggregate shareholding is above the specified limit of 5% and hence the acquirers are bound to make the disclosures as per the mandate of Regulation 7(1) and (2). In this regard,  the target company vide its letter dated 6.4.2002 informed SEBI that intimation under Regulation 7 (1) was received from Shri.Tayal on 4.5.2000 vide his letter dated 14.4.2000 and the same was intimated to all the Stock Exchanges on 11.5.2000. On perusal of the information forwarded by the target company, it is noted that the pledged shares amounting to 4.11% were transferred to the acquirers on 22.8.97. Further the 0.57% of shares were acquired by friends and relatives (persons acting in concert) on 10.9.1998. The acquirers also given the details of the shares owned by it which amounts to 1.89% which was acquired mainly on 10.9.98.

 

23. In view of the above details, it is seen that the acquirer crossed the specified 5% on 10.9.98. Hence the acquirers were bound to make the disclosures within two days of the said acquisition i.e. by 12.9.1998. The acquirers have contended that vide their letter dated February 15, 1999 they had intimated the company of the total holding of the acquirers being 6.57% of the paid up capital. In this regard it is noted from the letter dated 6.4.2002  received from the  target company that the acquirers had made the disclosures only on 4.5.2000, however in the said letter the target company also mentioned that vide his letter dated February 15, 1999 Shri. PK Tayal had informed about his holding in the target company with nature of interest which was included in the offer document filed with the stock exchanges and SEBI at the time of rights issue in March 1999. On perusal of the said letter received from Shri. PK Tayal, it is noted that details such as names of the persons to whom the said shares have been transferred were mentioned in the said letter. Though it is not mentioned that the said disclosures are made in terms of the provisions of Regulations 7, considering the facts and circumstances of the case, the same may be taken as the disclosures made by the acquirers.

 

24. As stated before, the acquirers were bound to make the necessary disclosures on 12.9.1998. As the acquirers made the disclosures only on 15.2.1999, it is seen that there has been a delay of approximately 155 days in complying with the provisions of Regulation 7 of the Takeover Regulations.

 

25. One of the objectives of the Takeover Regulations is to protect the interests of the investors through mandatory disclosures. The purpose of making these timely disclosures to the stock exchanges is meant to ensure transparency in transactions. Delay in making necessary disclosures deprived the investors of valuable information.  On account of failure to comply with the provisions of Regulation 7, the acquirers are liable to the penalty prescribed under Section 15 A of the SEBI Act.

 

26. Failure to furnish the information, return etc or delay to make requisite disclosures attracts monetary penalty as specifically provided in Section 15A(b) of the SEBI, Act, 1992 which as on the date of commission of the violation provided the following :

“If any person who is required under this Act, or any rules or Regulations made there under –

a) to file any return or furnish any information, books or other documents within the time specified therefore in the Regulations, fails to file return or furnish the same within the time specified thereof in the Regulations, he shall be liable to a penalty not exceeding five thousand rupee for every day during which such failure continues;

27. In support of their contention that no penalty is warranted in the facts and circumstances of the case, the acquirers have emphasised  the  principle laid down by the Honourable Supreme Court in the case of Hindustan Steel Ltd vs. State of Orissa and also the order passed by the Honourable Securities Appellate Tribunal in Appeal No: 37/2002 Sundaram Finance Ltd & Others Vs SEBI stating that the acquirers did not act deliberately in defiance of law or was guilty of conduct contumacious or had acted in conscious disregard of its obligation. In this regard, it is pertinent to note the judgement of the Honourable Supreme Court in Shriram Mutual Fund Vs SEBI wherein the Court held that the violations of the provisions SEBI Act and Regulations attract the penalty irrespective of the intent. The Honourable Court held that penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes totally irrelevant.

 

28. In view of the above, the case laws cited by the acquirers do not support their contentions in the present case and no case has been made out by the acquirers for not imposing any penalty in the adjudication proceedings. Considering the facts and circumstances of the case and considering the fact that the acquirers were aware of their aggregate holding in the target company, I am of the view that the facts of the present case warrant imposition of penalty.

 

29. Section 15J of the SEBI Act read with Rule 5(2) of the SEBI (Procedure for holding inquiry and imposing penalty by the Adjudicating Officer) Rules, 1995, provide the following factors to be taken into account while determining the quantum of the penalty i.e., the amount of disproportionate gain or unfair advantage wherever quantifiable made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.

 

30.  On the basis of the facts available on record it is not possible to quantify the disproportionate gain or unfair advantage accrued to the acquirers as a result of the said default.  With regard to the exact loss caused to the investors, the same cannot be computed on the basis of the facts available on record. However the investors were deprived of valuable information which may have influenced their decisions in respect of investment in the target company. As stated before, there has been delay in complying with the provisions of Regulation 7(1) and 7 (2) by the acquirers.

 

31. In view of the above, in terms of the provisions of Section 15A(b) of the SEBI Act read with Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995, I impose a penalty of Rupees One Lakh (Rs.1,00,000/-) on Shri. P K Tayal and persons acting in concert for the delay in complying with the provisions Regulation 7(1) and 7(2) of the Takeover Regulations. Considering the facts and circumstances of the case I am of the view that the said penalty is in commensurate to the violation committed by them.

 

32.  The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India’ and payable at Mumbai. The demand draft shall be sent to General Manager, CFD, Securities and Exchange Board of India, SEBI Bhavan, Plot No.C-4A, G-Block, Bandra Kurla Complex, Mumbai – 400 051.

 

33. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are sent to Shri. PK Tayal and to Securities and Exchange Board of India.

 

PLACE : MUMBAI BIJU. S       
DATE    : DECEMER 8, 2006   ADJUDICATING OFFICER