ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT READ WITH RULE 5 OF THE 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 SHRI SANJAY MUTHE. - Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated May 13, 2003 appointed Shri. S.V. Krishna Mohan as the Adjudicating Officer to inquire into and adjudge under Section 15I read with Sections 15A and 15H of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the violations alleged to have been committed by Shri Sanjay Muthe (hereinafter referred to as ‘the noticee’). It is alleged that the noticee failed to furnish to SEBI, information regarding his dealings in the scrip of Sun Infoways Ltd. (hereinafter referred to as SIL). Further, it is also alleged that the noticee violated the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as Takeover Regulations) by acquiring the shares of SIL without making mandatory public announcement and public offer in terms of the provisions of Regulations 10 and 12 of the Takeover Regulations. Subsequently, I was appointed as the Adjudicating Officer in place of Shri.S.V.Krishnamohan.
FACTS OF THE CASE - It is noted from the records that SIL was promoted by Shri Shrikant Vasant Jogelkar and Shri Sujit Shrikant Jogelkar in June 1994 as Best Mulyankan Consultants Pvt. Ltd. and the name of the company was changed to Sun Infoways Ltd. with effect from 11th May 2000.
- It is noted that during the course of the investigation conducted by SEBI, the original promoter Shri Shrikant Vasant Jogelkar submitted that after the public issue of SIL, he was not able to service the issue proceeds and therefore wanted to exit from the company. Therefore, Shri Jogelkar and his family members sold their stake in SIL for a total consideration of Rs.98,34,659/- (Rs.4.95/- per share) to a group of people (herein after referred to as the “acquirers”) who were also appointed as directors of SIL. In the light of the above factual scenario, it is alleged that the noticee along other persons acting in concert had acquired 98% of the shares of SIL from Shri Shrikant Vasant Jogelkar and his associates without making public announcement and open offer in terms of the provisions of Regulations 10 and 12 of the Takeover Regulations.
- Further, it is also alleged that the Investigating Authority of SEBI issued summons dated June 21, 2001 to the noticee requiring the noticee to submit certain information pertaining to his dealing in the scrip. Further, the noticee was also required to be present before the investigating authority. In this regard, it is alleged that the noticee failed to comply with the said summons.
NOTICE AND REPLY - A Show Cause Notice (hereinafter referred to as ‘SCN’) A&E/BS/49531/2005 dated September 15, 2005 was issued to the noticee in terms of the provisions of Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing penalties by Adjudicating Officers) Rules, 1995 (hereinafter referred to as the Rules), requiring the noticee to show cause as to why an inquiry should not be held for the violation alleged to have been committed by him.
- It is noted that the said notice sent by registered post was returned undelivered and in view of the same, substituted service of the notice was effected on December 29, 2005.
- It is noted that the noticee did not reply to the show cause notice within the stipulated time. However considering the facts of the case, it was decided to conduct an inquiry in the matter and the noticee was granted an opportunity of hearing on March 22, 2006. It is noted that the noticee did not attend the hearing scheduled on March 22, 2006.
- As the noticee failed to reply to the show cause notice despite being granted sufficient time and opportunities to do so, the inquiry is proceeded on the basis of the facts and material available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS - The first allegation against the noticee is that he failed to comply with the summons dated June 21, 2001 issued by investigating authority and in view of the same, he is liable to the penalty prescribed under Section 15 A (a) of the SEBI Act, 1992. In this regard, it is pertinent to note that Section 11C (3) of the SEBI Act empowers the investigating authority of SEBI to require any person associated with the securities market to furnish such information or to produce such records as may be required by the investigating authority. Further, Section 11 C (5) empowers the investigating authority to examine such persons. Timely submission of information is very important for concluding investigation proceedings and non cooperation by an entity can be detrimental to the interests of investors and securities market on account of any delay in the investigation.
- In this regard, the provisions of Section 15A(a) of SEBI Act provides the following:
Penalty for failure to furnish information, return, etc.: If any person, who is required under this Act or any rules or regulations made thereunder, to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. - During the course of the investigation, prima-facie it appeared to the investigating authority that the noticee acquired the shares of SIL during the relevant period. In view of the same, vide letter dated June 21, 2001, the investigating authority required certain details from the noticee.
- On perusal of the records, it is noted that no proof of delivery of the said letter is available on record. In the absence of proof of service of notice, the same cannot be deemed to have been served on the noticee. The Honorable Securities Appellate Tribunal in the matter Appeal No.5 of 2006 Jay Shah Vs. SEBI held that proof of service of summons have to be necessarily taken into account while deciding questions of failure to comply with summons. The observation of the Honourable Tribunal is taken into account for necessary guidance.
- In the present case no proof of service of summons is available on record. Further it is also noted that only one notice was issued by the investigating authority to the noticee. In view of the same, in the facts and circumstances of the case it cannot be concluded that the noticee failed to comply with the summons issued by the investigating authority.
- The second issue for consideration in the matter is whether the noticee along with persons acting in concert had acquired the shares of SIL in violation of the provisions of the Takeover Regulations. It is noted from the facts of the case that in January 2000, Shri Shrikant Vasant Jogelkar and his family members sold their 98% stake in SIL for a total consideration of Rs.98,34,659/- (Rs.4.95/- per share) to a certain group of persons namely Shri Anil Pujari, Shri. Tanvir Zaki, Shri. Hozefa Vohra, Shri. Rajan Tawate, Shri. Pravin Sonalkar and Shri.Kuldeep Kumar Handoo.
- It is pertinent to note that thereafter Shri Anil Pujari was appointed Managing Director of SIL on 19.2.2000 and Tanvir Zaki, Rajan Tawate, Pravin Sonalkar, Hofeza Vohra and Kuldeep Handoo were appointed as directors of SIL. This indicates that the said acquisition had resulted in change in management of the company and also the above persons obtained control over management of SIL.
- In this regard it is pertinent to note that the noticee resigned from the post of director of the company on 2.2.2000. Further, it is also pertinent to note that the facts of the case do not indicate that the notice was a part of the acquirer group which acquired control in February 2000. As stated before, the noticee was a director of the company when the acquirer group referred above acquired control over the target company. It is also noted that as a result of the said acquisition, the notice resigned from the board of the company on 2.2.2000 and new directors were appointed on the board by the acquirers.
- The facts of the case as narrated above do not indicate that the noticee was acting in concert with the acquirer group. In view of the same, on the basis of the facts and circumstances of the case and the evidence available on record, it cannot be concluded that the noticee was part of the acquirer group or persons acting in concert with them. Hence it cannot be concluded that Shri. Sanjay Muthe violated the provisions of Regulation 10 and 12 of the Takeover Regulations thereby warranting imposition of monetary penalty.
- As stated above, the violations committed by Shri Sanjay Muthe are not established. Hence no penalty is imposed on Shri Sanjay Muthe in terms of the provisions of Section 15A and 15H of the SEBI Act.
- 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 Sanjay Muthe and to Securities and Exchange Board of India.
Place: Mumbai | Biju. S | Date: November 27, 2006 | Adjudicating Officer |
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