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2015 (7) TMI 377
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....ary Mr. Bhuwneshwar Mishra; and against Chairman namely Mr. Sanjay Dalmia, who are Appellants in Appeal nos. 6, 7 and 8 of 2014 respectively, is mainly that they transmitted incorrect shareholding of ten promoters, who are Appellants in appeal nos. 9 to 18 of 2014, to the Stock Exchanges. It gave a wrong impression about the shareholding of the promoters to the general public and investors at large. The main charge against ten promoters is that they wrongly and illegally projected their shareholdings far in excess of their real shareholding by taking into consideration shareholdings of third parties as part of their own shareholding in an illegal manner. 3. Treating prima facie these actions as violative of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(f) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003, hereinafter referred to as PFUTP Regulations, 2003, read with Sections 12A(a), (b) and (c) of SEBI Act, 1992, a Show Cause Notice dated December 12, 2011 was issued to the Appellants seeking an explanation why appropriate action not be taken against them as per law and after holding enquiry as per the procedure envisa....
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....-Executive Chairman of GHCL Ltd. He is also alleged to have colluded with promoter entities of GHCL to mislead shareholders and investor of GHCL by making false reporting of promoter's shareholding. The Appellant, as the Chairman and promoter, was a beneficiary of such false disclosures. Said penalty has been imposed in terms of Section 15HA of SEBI Act for violation of Regulation 3(a),(b), (c) and (d), 4(1) and 4(2)(f) of the PFUTP Regulations, 2003 read with Section 12A(a), (b) and (c) of SEBI Act. 8. In Appeal No. 9 of 2014, namely, M/s. Carissa Investment Private Ltd vs. SEBI a penalty of Rs. 9 lac has been imposed on the Appellant who is one of the promoters of GHCL Ltd. and is an investment and finance company, primarily engaged in trading of securities in secondary and primary market. The charges pertain to disclosures made by Appellant to GHCL regarding its shareholding during 2007-2008. Penalty has been imposed in terms of Section 15A(b) of SEBI Act for violation of Regulations 7(1A) and 8(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulation, 1997, hereinafter referred to as SAST Regulations, 1997 and Regulation13....
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.... the promoters and have been argued by learned Senior Counsel Shri Shyam Mehta and hence are being dealt with separately. Admittedly, the facts and circumstances of these ten appeals preferred by promoters, are same except on a additional allegation regarding violation of certain provisions of PIT Regulations, 1992 is also noted in Appeal No. 9 of 2014 (Carrisa Investment Ltd.) for which an extra penalty of Rs. 2 lac has been imposed only on Carissa. Appeal nos. 6, 7 and 8 of 2014 - The Company, The Company Secretary and The Chairman. 12. Common case of these appellants is that the appellant company is a leading Indian producer of Soda Ash. It is a public limited company and listed on various stock exchanges i.e. Bombay Stock Exchange Ltd. (BSE), National Stock Exchange (NSE), Ahmedabad Stock Exchange (ASE). Its total issued, subscribed and paid up capital comprises of 100019286 (ten crore nineteen thousand two hundred eighty six only) shares of the face value of Rs. 10 each. It is run by professionals and has prominent persons on its Board of Directors. It is stated to have been filing the requisite shareholding pattern as per law from time to time. However, before filing of....
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....tions, 1995 and the amendment of Clause 35 of the Listing Agreement, only those shares which were in the physical possession of the promoters should be considered as part of their shareholding and not those shares which were held by third parties. On receipt of revised shareholding from the promoters, the Appellant-company, on its own, immediately forwarded the same to the stock exchanges. The company once again addressed a letter dated April 9, 2009 to all the stock exchanges giving a summary sheet of all previous shareholding patterns filed from March 31, 2007 to December 31, 2008 as well as the summary sheet of revised shareholding patterns for the same period under the amended law. 15. It is further argued on behalf of the appellants that despite the abovesaid, the respondent passed an ad-interim ex-parte order dated April 20, 2009 directing the appellants and 45 other parties / promoters directing not to buy, sell or deal in the securities market until further orders. On July 7, 2009, a Whole Time Member of the respondent vacated the said ad-interim ex-parte order dated April 20, 2009 as against 33 promoter entities but the present three appellants and 10 promoter entities ....
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....reement" with the Stock Exchange on which the shares are sought to be listed. Next, the purpose underlying the requirement of making regular and true disclosures by a company as regards the shares which the promoters may come to hold from time to time is to bring about greater transparency in the functioning of the companies. It is through such disclosures that the investors take an informed decision in a given situation to invest in the scrip of that company or even to exit. This is extremely important for the growth of a healthy capital market. If a particular promoter holds only 2-3 lac shares, the investors may choose not to invest any more in the company. But if the investors, for instance, possesses 50 lac shares in his own right, the investors may be inclined to invest huge amounts in the scrip. Thus, true and correct disclosures as to the exact shareholding pattern of promoters assume greater significance. 19. Therefore, the company, the Company Secretary and the Chairman of the company have a greater responsibility on their shoulders to ensure, in a free and fearless manner, that the promoters make timely and absolutely true disclosures as regards their respective share....
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....by any person as principal, agent or intermediary referred to in section 12 of the Act." "2(c). "fraud" includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include- (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent, deceptive behavior by a person depriving another of informed consent or full participation; (7) deceptive behavior by a person depriving another of informed consent or ful....
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....maintain the same, 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 ." "23E. Penalty for failure to comply with provisions of listing conditions or delisting conditions or grounds. - If a company or any person managing collective investment scheme or mutual fund, fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof, it or he shall be liable to a penalty not exceeding twenty-five crore rupees." 20. Similarly, Clause 35 of Listing Agreement and the format prescribed are also being reproduced in order to assess as to whether any ambiguity exists therein as vehemently argued by Shri Modi :- "35. The company agrees to file the following details with the exchange on a quarterly basis, within 21 days from the end of each quarter, in the format specified as under :- (I)(a) Statement showing Shareholding Pattern -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------....
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.... B (2) Non-institutions (a) Bodies Corporate (b) Individuals - i. Individual share-holders holding nominal share capital up to Rs. 1 lakh ii. Individual share-holders holding nominal share capital in excess of Rs. 1 lakh (c) Any other (specify) Sub-Total (B)(2) Total Public Shareholding (B)= (B)(1)/(B)(2) Total (A) + (B) (C) Shares held by Custodians and against which Depository Receipts have been issued xxx GRAND TOTAL (A)+(B)+(C) xxx (I)(b) Statement showing Shareholding of persons belonging to the category "Promoter and Promoter Group" Sr. No. Name of the shareholder Number of shares Shares as a percentage of total number of shares {i.e., Grand Total (A)+(B)+(C) indicated in Statement at para (I)(a) above} 1. 2. ....
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....se 35 of the Listing Agreement is one thing; and a conscious and well considered decision to include huge number of shares of third parties by the promoters of the company into their shares knowing fully well that the third parties' shares do not belong to the promoters for reflecting the same in the shareholding pattern of the promoters to the Stock Exchanges under clause 35 is a very serious matter and cannot be pardoned. When common investors and general public come to know that the promoters in the case in hand, actually hold about 16 lac shares only instead of about 2.30 crore shares as wrongly reported to Stock Exchanges, their faith in the capital market is shattered. This modus operandi adopted by the Appellants and their promoters in the present case would undoubtedly amount to unfair trade practice, if not a fraud played upon the market. 22. Similarly, a simple reading of section 12(A)(a) of the SEBI Act, 1992 read with Regulation 3(a) of the PFUTP Regulations, 2003 as reproduced above clearly reveals that it is not only the fraudulent or manipulative buy or sale of securities which is prohibited but any dealing in securities "otherwise" also may be illegal and hence a....
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....1 when the merger had been approved by High Court of Kolkata but the same was not given effect to in view of stated institutional approvals and such other formalities. The learned Whole Time Member of SEBI noted that because of merger and consequent confusion due to time consuming process involved in institutional approvals etc., the documents and other records remained with Binani Cement but Munga was actually delisted on 23rd August, 2003. Therefore, in this background, the learned Whole Time Member let off Binani Cement with a simple warning to be careful in future as regards timely compliance with various provisions of the Listing Agreement. Therefore, this case is totally distinguishable and does not help the case of the Appellant in any manner. 25. In the case of Vakrangee Software Ltd. dated 10th October, 2012, one Mr. Prem Meiwal and Mr. Nishikant Hayantnagarkar were shown as the promoters of the Company during certain quarters in 2008 and 2009 due to inadequate enforcement of Code of internal procedures and conduct for ensuring compliance. Said Mr. Prem Meiwal and Mr. Nishikant Hayantnagarkar were Head of Finance and Whole Time Director respectively with the Company. Th....
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....third parties by the promoter group is writ large and company, the Company Secretary and Chairman miserably failed to inform the stock exchanges about the true shareholding pattern of the promoters. 27. In the case of Genex Laboratories Ltd. dated 13th September, 2013, there were two allegations levelled against the Company; first related to non implementation of at least three corporate announcements which were not implemented by Genex and, therefore, they were held to be misleading in nature. The learned Whole Time Member very rightly held that Genex had made false announcements in order to create an opportunity for the Chairman of the Company to off load his shares in the market at inflated price by generating artificial interest in the scrip of Genex. He was severely and rightly dealt with by the learned Whole Time Member in his order dated 13th September, 2013 by imposing extreme penalty of debarment (on the chairman Mr. Vinod Baid) from the market for three years. However, the learned Whole Time Member after due application of mind and in all fairness let off the Company of the charge of wrong disclosures of promoters shareholding pattern under Clause 35 of the Listing Agr....
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....top 5 investors, shareholders, fund-manager and Directors of fund etc. 30. Under these circumstances, by order dated 17th May, 2005, SEBI in terms of Section 19 of the SEBI Act, 1992 read with Section 11(4) and 11B of SEBI Act, 1992, prohibited UBS / its affiliated/ agents from dealing in securities in the capital market in the manner prescribed in the Impugned order itself. UBS was further directed to establish highest standards of Customer Due Diligence process in line with the requirements of FII Regulations of SEBI. 31. The said impugned order was challenged by UBS before this Tribunal and after and taking into account all the submissions, documents, replies and affording an opportunity of personal hearing to the appellant, this Tribunal found that "the regulator did not have a clear and explicit understanding of the KYC requirement. Had it been so, it would have been spelt out unequivocally instead of expecting the appellant to visualize and imagine the likely questions SEBI is to ask. It is an accepted principle of law that if anyone is to be punished for violation or infringement of any Act or Regulation he should clearly know the obligations which are required to be m....
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....al year. SEBI's allegation / charge against the company was that those transactions of shares never took place and the entire profit was fictitious. To support this allegation, SEBI relied upon the statement of one Mr. Dinesh Masalia, one of the Directors of the broker which was stated to have undertaken trades on behalf of the Mega Corporate Ltd. The whole case of the appellant (Mega) was that it had dealt only with its brokers in selling and purchasing said shares of three companies and earned profit. Therefore, the broker or his director alone would have been in a position to clarify the points and allegations raised by SEBI against Mega. Mega also produced atleast two cheques of Rs. 20 lac each signed by Dinesh Masalia on behalf of the broker and issued to the appellant towards dues of Mega on account of sale of scrips of three companies. In view of this documentary evidence, the statement of Dinesh Masalia could not have been relied upon by the Board to come to the conclusion that the trades undertaken by Mega in the scrip of three companies did not take place and the profits shown were fictitious. The Board relied upon the said statement of Dinesh Masalia without affording an....
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....n the case in hand, the appellants claim that they had included shares of third parties in their shareholdings on the basis of certain arrangements between the third parties and the appellants and some of the said parties (only 2 or 3 in number) had denied such arrangements. In the case in hand, it has been categorically held that the appellants could not have included the shares of third parties into their shareholdings as per the law and hence have been rightly held guilty of violating the provisions of law by SEBI in the impugned order. This finding of SEBI is being upheld by this Tribunal in light of the discussion made hereinabove. Therefore, even if an opportunity to cross examine those 2 or 3 third parties was granted to the appellants, it would not have served any purpose and would also not have made any difference in the findings reached by SEBI. Hence such an opportunity would have been superfluous and a mere formality. Moreover, no prejudice shown to have been caused to the appellants by not granting the cross-examination of those 2-3 witnesses. There is sufficient material on record to prove the violations in question by the appellants which indeed formed the basis of t....
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....the contentions and arguments regarding violation of FUTP Regulations read with Sections 12A(a), (b) and (c) of SEBI Act raised and argued by Shri Shyam Mehta, learned senior counsel on behalf of these 10 promoters remain the same and identical as have been argued by Shri P. N. Modi, learned senior counsel. Therefore, we do not propose to reiterate the same. The case of the 10 promoters in respect of violation of FUTP Regulations, 2003 and provisions of SEBI Act in question is, therefore, rejected in view of finding and observations particularly given in paragraphs nos. 18 to 37 as mentioned hereinabove. The only additional point raised by Shri Shyam Mehta, learned senior counsel who appeared on behalf of the 10 promoters is that the finding of the learned adjudicating officer in holding the appellants guilty of violation of Regulations 7(1A) and 8(2) of the SAST Regulations, 1997 is totally wrong and untenable. Shri Shyam Mehta has vehemently argued that the charge regarding "persons acting in concert" was never taken up in the show cause notice against these 10 promoters and was never proved during the course of enquiry as well. Therefore, the same must fail and these promoters b....
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....t to acquire shares in accordance with the regulations. 11(2). No acquirer, who together with persons acting in concert with him holds, fifty-five percent (55%) or more but less than seventy-five per cent (75%) of the shares or voting rights in a target company, shall acquire either by himself or through [or with] persons acting in concert with him any additional shares [entitling him to exercise voting rights] or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations : Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures 'seventy-five per cent (75%), the words and figures 'ninety per cent (90%)' were substituted. Provided further that such acquirer may, [notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11,] without mak....
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....ompany which is a holding company, subsidiary or relative of the acquirer : Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work; (x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company. Note : For the purposes of this clause "associate" means, -- (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families." 40. An analysis of the above provisions of SAST Regulations demonstrates that violation of Regulation 11(1) is a pre-condition for att....
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....adjudicating officer has not recorded any specific finding that there was an understanding or agreement, direct or indirect, among the 10 appellants. In the absence of any such finding or evidence on record, none of the 10 appellants can be held guilty of violating Regulation 7(1A) of the SAST Regulations, 1997. 43. At this stage, we may also deal with an additional allegation levelled only against M/s. Carissa Investment Pvt. Ltd., the appellant in appeal no. 9 of 2014 regarding violation of Regulations 13(3) and 13(5) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (for short PIT Regulations, 1992). The charge is that the appellant failed to make disclosure to the stock exchange regarding 2% change in the shareholding within 4 days of such triggers. According to SEBI, this was required to be done by the appellant along with its aggregate shareholding as per Regulations 13(3) and 13(5) of the PIT Regulations, 1992. The learned adjudicating officer has, rather surprisingly not given any plausible reasoning for holding Carissa liable for violation of this charge except a faint finding in paragraph 15 of the impugned order dated October 25, 2013 to the effect that "....