ADJUDICATION ORDER NO. - BS/AO-8/2007

ORDER UNDER SECTION 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 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 FCI OEN CONNECTORS LTD.

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated February 6, 2006 appointed the undersigned as the Adjudicating Officer to inquire into and adjudge under Section 15I read with Sections 15A(b) 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 FCI OEN Connectors Ltd. (hereinafter referred to as ‘the noticee’) on account of the delay in complying with the disclosure requirements under Regulations 6(4) and 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as Takeover Regulations).

FACTS OF THE CASE

1. Fidji Luxco (BC) SCA and FCI S.A. filed a draft letter of offer with SEBI on January 9, 2006 in respect of acquisition of 20% shares of the noticee. It was observed from the said draft letter of offer that apparently the noticee did not comply with the provisions of Regulations 6(4) and 8(3) of the Takeover Regulations within the stipulated time. The said violation attract penalty under the provisions of Section 15A (b) of the SEBI Act and hence adjudication proceedings were initiated against the noticee.

NOTICE AND REPLY

1. A Show Cause Notice (hereinafter referred to as ‘SCN’) A&E/BS/60731/2006 dated February 20, 2006 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 it.

1. The noticee replied to the show cause notice vide its letter dated March 7, 2006. Considering the reply of the noticee, it was   decided to conduct an inquiry into the matter and the noticee was advised to attend the hearing on March 23, 2006. Shri Biju K. Elias, Company Secretary of the noticee attended the hearing on March 23, 2006 and made submissions. The noticee made additional submissions vide letter dated March 27, 2006.

CONSIDERATION OF EVIDENCE AND FINDINGS

1. The issue for consideration in the matter is whether there had been any delay on the part of the noticee in complying with the provisions of Regulations 6(4) and 8(3) of the Takeover Regulations. The text of the said Regulations are as follows:

6(4)  “Every company, whose shares are listed on a stock exchange shall within three months of notification of these regulations, disclose to all the stock exchanges on which the shares of the company are listed, the names and addresses of promoters and / or person(s) having control over the company, and the number and percentage of shares or voting rights held by each such person.”

8(3)  “Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purpose of declaration of dividend, make yearly disclosure to all stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31^st March.”

1. It is noted from the details available on record that there was delay in complying with the said regulations as stated below.

1. The noticee has admitted the delay in complying with requirements of Regulation 6(4) and 8(3) as stated above. However, it has requested to condone the delay in filing the returns and waive the penalty under the SEBI Act on the following grounds:

a)     The Takeover Regulations had come into force in that year itself and were completely new regulations.

b)     The compliance officer / company secretary of our company had joined the company on March 12, 1997 and resigned. The new compliance officer joined our company in the year 2000, after which we have been regular and prompt in making all disclosures under the Takeover Regulations and have been duly complying with all the requirements under the said regulations without any delay. In view of there being changes in compliance officer during the period 1997-2000, there was an inadvertent and unintentional delay on our company’s part.

c)      As soon as we were informed of the amendments to regulations 40A and 40B of the Takeover Regulations, vide a circular dated October 13, 1997 from the Bombay Stock Exchange, we promptly made our disclosures under Regulation 6(4) from that month itself, which clearly, you will please see, shows no intention on our part not to comply with the said regulations.

d)     Similarly, as soon as we were aware that our company was required to comply with Regulation 8(3), we immediately, without any delay, proceeded to comply with the same and are doing so till date.

e)     We further wish to inform you that from 1997 till date, there has been no change in our promoters and / or persons having control over the company. 68% of voting capital of the company is currently held by the promoter, M/s FCI France. The remaining shares are being held by around 7000 shareholders and none of them, during the period from 1997 till date, hold more than 4% of the voting capital of the company. This information was provided to the stock exchange on an annual basis through the shareholding pattern format. FCI France had increased its equity stake during the above period by a preferential allotment, and this information had been provided to the stock exchange in time. Hence we would like to submit that the above delay in filings was not with an intention to defraud the investors or the Government.

f)        Under the above circumstances, we apologise for the delay in filing the returns from 1997 to 2000. We hereby undertake that we will ensure that, in future, all the requirements under law shall be complied with by our company.

1.  On the basis of the details stated in the preceding paragraphs, delay in compliance with the disclosure requirements under Regulation 6(4) and 8(3) of the Takeover Regulations by the noticee is established. The said violation attracts penalty under of Section 15A(b) of the SEBI Act which provides as follows:

“If any person, who is required under this Act or any rules or regulations made thereunder to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, 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.”

1. In this regard, 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 have due regard to 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

1. Based on the facts available on record it can not be concluded whether there was any undue gain to the noticee at the cost of others. However, it is noted that the noticee did not comply on time with Regulation 6(4) for the year 1997 and Regulation 8(3) for the year 1997-1998, 1998-1999 and 1990-2000. Therefore, the default by the noticee can be termed as repetitive in nature. Also it is noted that there had been substantial delay on the part of the noticee in compliance with the above provisions. The contentions raised by the noticee that the Takeover Regulations was a new regulation and it had no compliance officer during the said period can not be considered as mitigating circumstances to condone the delay.

1. Regulations 6(4) and 8(3) of the Takeover Regulations mandate disclosure by the company to the Stock Exchange on holding of major shareholders, promoters and persons in control of the company. The said disclosure to the stock exchange enables wider dissemination of information to the investors and the general public, which enable the investors to take informed decisions.

1. In this regard, it is pertinent to note that the noticee had been filing distribution schedule yearly in accordance with the listing agreement, wherein the shareholding of its promoter / persons who are in control of the company were clearly mentioned. Though the same cannot be taken as compliance of the provisions of Regulations 6(4) and 8(3) of the Takeover Regulations, considering the fact that the distribution schedule indicate the shareholding of promoters / persons in control of the company and also considering the fact that there had been no change in the control over the company, it is seen that the company had made substantial disclosure to the Stock Exchange. In the above facts and circumstances of the case, though the violation of Regulation 6(4) and 8(3) of the Takeover Regulations by the noticee is established, a lenient view is taken with regard to the quantum of penalty attracted in respect of the violation committed by the noticee.

1. In this regard, it is pertinent to note that SEBI Regularization Scheme, 2002 provided for payment of Rs.10,000/ for each year for failure in adhering to disclosure requirements under the provisions of Regulations 6(4) and 8(3) of the Takeover Regulations. The scheme was only in respect of a specified period. It is noted that the noticee did not avail the SEBI Regularization Scheme, 2002. Considering the facts and circumstances of the case and also keeping in mind the lump sum amount prescribed under the erstwhile regularisation scheme, it is appropriate that a penalty of Rs.20,000 is imposed for each year for delay in compliance of the provisions of Regulation 6(4) and 8(3) of the Takeover Regulations.

ORDER

1. Considering the facts and circumstances of the case it is established that FCI OEN Connectors Ltd. failed to comply within prescribed time the provisions of Regulation 6(4) and 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Considering the facts and circumstances of the case and the violation committed by the noticee, I impose a penalty of Rs Eighty Thousand (Rs.80,000) on FCI OEN Connectors Ltd. in terms of the provisions of Section 15A(b) of the SEBI Act, 1992 for delay in complying with the provisions of Regulation 6(4) and 8(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 . In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violation committed by FCI OEN Connectors Ltd.

1. The penalty shall be paid by way of demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order. The said demand draft shall be forwarded to General Manager, Division of Corporate Restructuring, Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

1. 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 FCI OEN Connectors Ltd. and also to Securities and Exchange Board of India.

PLACE: Mumbai                                                                              Biju. S

DATE: March 30, 2007                                                                  Adjudicating Officer