ADJUDICATION ORDER NO. - BS/AO-15/2007

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 SHRI ABHISHEK MORE

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated March 16, 2006 initiated adjudication proceedings against Shri Abhishek More (hereinafter referred to as ‘the noticee’) and I was appointed as the adjudicating officer to inquire into and adjudge under Section 15I read with Sections 15A(a) and 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 the noticee on account of non compliance of the provisions of Regulations 3(3) and delay in compliance with the provisions of Regulation 3(4) and 3(5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as Takeover Regulations) in respect of his shareholding in Growel Investments Ltd. (hereinafter referred to as ‘GIL’).

FACTS OF THE CASE

The noticee acquired 27.4% shares of GIL on September 30, 1998 through inter – se transfer amongst relatives thereby increasing his shareholding from nil to 27.4%. In this regard, it is alleged that the noticee failed to comply with the requirements of notifying the details of the acquisition to the stock exchange as prescribed under Regulation 3(3) and also failed to submit necessary report to the Board within the prescribed time leading to the violation of the provisions of Regulation 3(4) and 3(5) of the Takeover Regulations.

NOTICE AND REPLY

A Show Cause Notice (hereinafter referred to as ‘SCN’) A&E/BS/76807/2006 dated September 15, 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 him.

The noticee replied to the show cause notice vide letter dated September 26, 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 29, 2007. Shri Mahesh Soni, authorized representative of the noticee attended the hearing on March 29, 2007 and made submissions. The noticee made additional submissions vide his letter dated April 6, 2007.

CONSIDERATION OF EVIDENCE AND FINDINGS

The noticee acquired 27.4% shares of GIL on September 30, 1998 through inter – se transfer amongst relatives thereby increasing his shareholding from nil to 27.4%. In terms of the provisions of Regulation 3(1)(e)(ii) of Takeover Regulations, interse transfer of shares amongst relatives is exempted from the requirement of public announcement and offer as laid down under Regulation 10, 11 and 12 of the Takeover Regulations. Further, conditions such as notifying the stock exchange of the proposed acquisition and filing of report with the Board within the prescribed time are also envisaged in terms of the provisions of Regulations 3(3) and 3(4) of the Takeover Regulations. The text of Regulation 3(1)(e)(ii) is as follows:

3(1) nothing contained in regulations 10, 11 and 12 of these regulations shall apply to:

(e) inter se transfer of shares amongst

(ii) Relatives within the meaning of section 6 of the Companies Act, 1956.

In this regard, it is alleged that the noticee failed to submit necessary report to the Stock Exchange and also failed to submit report to SEBI within the prescribed time thereby violating the provisions of Regulation 3(3), 3(4) and 3(5) of the Takeover Regulations. The text of the said Regulations are as follows:

3(3) In respect of acquisitions under clauses … (e), … of sub-regulation (1), the stock exchanges where the shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed acquisition, in case of acquisition exceeding [5%] of the voting share capital of the company.

3(4) In respect of acquisitions under clauses …, (e), … of sub-regulation (1), the acquirer shall, within 21 days of the date of acquisition, submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise [15%] or more of the voting rights in a company.

3(5) The acquirer shall, along with the report referred to under sub-regulation (4), pay a fee of [twenty five thousand rupees] to the Board, either by a bankers cheque or demand draft in favour of the Securities and Exchange Board of India, payable at Mumbai.

The noticee made the following submission with regard to the allegation as stated above:

a) I got custody of the said 66750 shares of GIL representing 27.4% of the total paid up share capital of the company purely under family settlement and no consideration was paid by me as the said shares were gifted to me by my father on September 30, 1998.

b) The information remained to be submitted due to oversight but there was no intention of not giving the required information.

c) As soon as I came to know about the same sometime in 2006, I sought exemption from the SEBI under Regulation 3(4) of the Takeover Regulations by making an application along with filing fee.

d) The transaction was covered under the exempted category under Regulation 3[1](e) of Takeover Regulations, i.e. it was interse transfer between the promoters and no outside public shareholder was involved.

e) The company does not have any major operations and the shares of the company were hardly traded on the floor of the Stock Exchange.

f) By the above transaction, no profit or gain accrued to any of the promoters i.e. either to me or to the seller.

g) By the above transaction, no loss has occurred to any member of the public.

h) The above delay took place unintentionally and accidentally and the same was not willful, I therefore request your good self to kindly condone the delay and also please do not impose any penalty.

Considering the above submissions of the noticee it is noted that admittedly the noticee violated the provisions of Regulation 3(3), 3(4) and 3(5) of the Takeover Regulations in respect of his acquisition of shares on September 30, 1998 which resulted in increase in the shareholding from nil to 27.4%. In this regard, the noticee has admitted that Report under Regulation 3(4) has been filed belatedly on February 3, 2006. Further the noticee has not provided any proof with regard to compliance of Regulation 3(3) of the Takeover Regulations.

In view of the above details violation of Regulation 3(3), 3(4) and 3(5) of the Takeover Regulations by the noticee consequent to acquisition of shares on September 30, 1998 is established. The said violations attract penalty under Section 15 A(a) and 15A(b) of the SEBI Act which on the date of the violation provides for the following:

15 A “If any person, who is required under this Act or any rules or regulations made thereunder

(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of not exceeding one lakh and fifty thousand rupees for each such failure.

b) 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 not exceeding five thousand rupees for every day during which such failure continues.”

The noticee is liable for penalty for delay in compliance of Regulation 3(4) of Takeover Regulations in terms of the provisions of Section 15A(a) of SEBI Act. As held by Hon’ble Securities Appellate Tribunal in HDFC Vs SEBI, violation of Regulation 3(4) attracts penalty under Section 15A(a) of the SEBI Act as the reporting requirement is towards the Board under Regulation 3(4) and Section 15A(a) provides penalty for default in filing report to the Board. Further, the noticee is liable for penalty for non compliance of Regulation 3(3) of Takeover Regulations in terms of the provisions of Section 15A(b) of SEBI Act.

It is observed that there has been delay of 2662 days in filing report under Regulation 3(4) of Takeover Regulations for the acquisition of shares on September 30, 1998. The said violation attract penalty under Section 15A(a) of the SEBI Act as stated above. Further, the noticee failed to notify to the Stock Exchange of the details of the said transactions at least 4 working days in advance of the date of the acquisition in terms of provisions of Regulation 3(3) of the Takeover regulations. The said violations attract penalty under Section 15A(b) of the SEBI Act as stated above.

It is pertinent to refer to the order of the Hon’ble Securities Appellate Tribunal in Appeal No.151/2004 in the matter of Rameshchandra Mansukhani NRI vs SEBI wherein the Honourable Tribunal held that the penalty existing on the date of commission of the violation should be imposed and not enhanced penalty which came into being by way of subsequent amendment. The order passed by the Honourable Tribunal is relied upon in this case and hence the penalty as prescribed by the regulation on the date of the violation is taken into account in this case.
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

Regulation 3(3) and 3(4) of Takeover Regulations ensures that the transactions exempted under Regulation 3(1) are disclosed and conducted in a transparent manner. It is pertinent to note in this regard that there is no evidence available on record to show any disproportionate gain or unfair advantage to the noticee, as a result of belated filing of report or any loss to any investor or group of investors. Further, the violation is not repetitive in nature. The noticee has submitted that the information was not submitted due to oversight but there was no intention of not giving the required information. Further, as soon as the noticee came to know about the same in 2006, he filed the report to SEBI under Regulation 3(4) of the Takeover Regulations along with filing fee. Considering the above factors a lenient view is taken with regard to imposition of penalty on the noticee for the violations as stated above.

ORDER

Considering the facts and circumstances of the case, for contravention of the provisions of Regulation 3(4) and Regulation 3(3) of the Takeover Regulations by Shri Abhishek More, in terms of the provisions of Section 15 A(a) and 15A(b) of the SEBI Act and Rule 5 of the Rules, I , impose a penalty of Rs Rs.50,000/ (Fifty Thousand) each for the said violations. Shri Abhishek More shall pay a consolidated penalty of Rs.100,000/(One Lakh).

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 Deputy General Manager, Division of Corporate Restructuring, Securities and Exchange Board of India, Plot No.C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.

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 Abhishek More and to SEBI.

PLACE: Mumbai Biju. S

DATE: May 31, 2007 Adjudicating Officer