2007 (1) TMI 642 - AT - SEBI

Appellants penalized for SEBI Regulation breaches including undisclosed shareholding and acting in concert.

Classic Credit Ltd. Versus Securities and Exchange Board of India

The appellants were penalized for violating SEBI Regulations by acquiring shares in excess of prescribed limits without disclosure. They were found to be ... - Issues Involved:1. Violation of Regulations 7 and 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.2. Acting in concert among entities.3. Non-disclosure of shareholding.4. Acquisition of shares as collateral security.5. Imposition of penalties.Summary:1. Violation of Regulations 7 and 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:The appellants were penalized for acquiring shares of Shonkh Technologies International Ltd. in excess of the threshold limits prescribed by Regulations 7 and 10 without making the necessary disclosures or public announcements. The adjudicating officer imposed monetary penalties on the appellants for these violations.2. Acting in concert among entities:The adjudicating officer concluded that Classic Credit Ltd., Panther Investrade Limited, Panther Fincap & Management Services Ltd., and other entities were acting in concert, controlled by Ketan Parekh. This was based on the fact that these entities had common directors, proximate addresses, and common shareholders. The appellants' argument that these factors were not conclusive of acting in concert was rejected.3. Non-disclosure of shareholding:The appellants failed to disclose their shareholding to the target company as required by Regulation 7. The acquisitions made by Classic, PIL, and PFMS on July 18, 2000, through preferential allotment, were not exempt from Regulation 7. The adjudicating officer found that the appellants violated Regulation 7 by not disclosing their shareholding.4. Acquisition of shares as collateral security:The appellants argued that the shares transferred to their demat account were held as collateral security and in trust for arranging finance for third parties. This argument was rejected because the shares were credited in the appellants' demat account, making them the beneficial owners as per Section 2(1)(a) of the Depositories Act, 1996. The appellants did not create a pledge or hypothecation as required by Section 12(3) of the Depositories Act, nor did they make a declaration under Section 187C of the Companies Act, 1956.5. Imposition of penalties:The adjudicating officer imposed penalties of Rs. 5 lacs for violating Regulation 10 and Rs. 1,50,000 for violating Regulation 7 on each entity. The appellants' contention that only one collective penalty should be imposed was rejected. Each entity committed multiple breaches by not complying with the Regulations on different occasions, justifying separate penalties for each violation.Conclusion:The appeals were dismissed, and the appellants were directed to comply with the adjudicating officer's order and deposit the penalty amount within 45 days. No costs were awarded.