TaxTMI 
TaxTMI 
2007 (5) TMI 701
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....of equity shares up to 10% of the share capital of the company at Rs 3 per share (Rs. 1 paid-up-share). The words like "Buyback of shares" and "Rs 3 per share" were given in bold font in the advertisement. At the time of publication of advertisement the shares of the company were trading around Rs. 0.25. The proposed buyback price was around 12 times of the trading price prevailing at the time of publication of advertisement. 1.3 On perusing the Balance Sheet of MOH as on 31.03.2002, it was observed that MOH had no free reserves, share premium account and the proceeds of any shares to make it eligible for the buy-back of its shares in terms of Section 77Aof the Companies Act. 1.4 In view of the above, investigation was conducted by Securities and Exchange Board of India (hereinafter referred to as "SEBI") into the buying, selling and dealing in the scrip of MOH, for the period May 2002 to July 2002 under the provisions of the SEBI Act, 1992 read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to in short as "PFUTP Regulations") and other relevant SEBI Regulations. Investigations revealed t....
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.... Oghadlal Shah (hereinafter referred to as "Noticees"), therefore, had violated Regulation 4, 5(1) (a) & (b) and 6(a) of PFUTP Regulations by issuing misleading statements/advertisements, by employing schemes, devise, act or practice intended to defraud and to influence the investment decisions of the investors. 2.0 SHOW CAUSE NOTICES 2.1 A show cause notice dated May 26, 2006 was issued to the Noticee advising them to show cause as to why directions under Section 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of PFUTP Regulations 2003 including debarring them from accessing the capital market and trading in securities should not be issued against them for the violations mentioned at paragraph No. 1.4 above. A supplementary show cause notice dated June 22, 2006 was also issued to the promoters of the company viz. Shri. Sunil M. Shah and Shri. Manubhai Oghadlal Shah for the violations of Regulation 6(a) read with Regulation 3 of PFUTP Regulations, as they have off loaded unlisted shares of MOH in the secondary market. Accordingly, they were advised to show cause as to why a direction under Section 11 and 11B of the Securities and Exchange B....
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.... make preferential allotment to the shareholders of M/s Saturn as he was not keeping good health. He also added that he had subsequently resigned as a director of M/s MOH Ltd. on October 01, 2001. He further stated that he is a heart patient aged 70 years and not connected with the company since last 5 years. Hence, he requested to relieve him from the charges. 4.2 Shri. Sunil M. Shah had also replied to the supplementary show cause notice dated June 22, 2006 vide his letter dated July 07, 2006 wherein he stated as follows: He denied the issuance of any misleading statement or advertisement or had employed any scheme, devise, act or practice with any intent to defraud or influence any person. Advertisement in various financial newspapers was released on July 08-09, 2002 for the purpose of information about the Board meeting held to consider the proposal of buy back of equity shares as per the rules and the same can not be considered as open offer for the buy back of equity shares. Company was of the view to consider possibilities of buy-back of its equity shares to enable the company to reduce its capital base by paying off higher exit value to investo....
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....ers to know them about the Board meeting for the said purpose as per rules. Though the subscribers to the Memorandum of Association of M/s Saturn were common at the time of incorporation of M/s Saturn, the said company was acquired by other persons later on. At the time of allotment of shares of M/s MOH Ltd. to the shareholders of M/s Saturn, the promoters of M/s MOH Ltd. were not entitled for any such shares. M/s MOH Ltd. and M/s Saturn were not the group/associate companies at that time. Regarding the fact of off-loading around 14 crores shares in the market after the publication of the advertisement, he submitted that on the basis of the time slot analysis as shown in the show cause notice only 1 crore shares were traded under the so called impact of the announcement for the buy back. He further stated they have not violated any provisions of PFUTP Regulations and requested to relieve them from the charges and close the matter. 5.0 HEARING 5.1 An opportunity of personal hearing was granted on November 27, 2006 to the Noticee. Shri. Sunil M. Shah alongwith Shri Anish B Shah, Practising Company Secretary attended the hearing before me. He also repr....
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....of Section 77A of the Companies Act, 1956. It was also found during the investigation period that MOH Ltd. was placed in 'Z' group by the Bombay Stock Exchange for its failure to comply with the provisions of listing agreement. 6.6 Thereafter, the Board of Directors of MOH Ltd. in their meeting held on July 15, 2002 which was attended by Shri. Sunil Shah, CMD and Shri. Chaganbhai A. Manani, had resolved that the proposal of buyback of equity shares is not likely to be useful to the company till complete package of restructuring of equity and debt is worked out. It is observed that no advertisement was published regarding the outcome of the Board Meeting in which the proposal of the said buyback was rejected. 6.7 The announcement of buyback of shares in normal circumstances would indicate confidence on the part of management of the company and the same is usually a good news for shareholders. The announcement that the company was considering buyback of 10% of the equity capital at Rs 3 per share when shares were trading around Rs 0.25 signalled the market that the company genuinely believes that fair value of the company shares was much more than market price. This obv....
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....sequent advertisement with the aim to offload the shares in the market and to deceive the gullible investors. 6.10 I find that the shares allotted by MOH Ltd. to the shareholders of Saturn had been dematerialised by the preferential allottees as the top 50 shareholders of MOH Ltd. were holding more than 17 crore as on May 31, 2002 compared to listed capital of 10 crore shares. Out of this, around 14 crore of shares were offloaded into the market after the publication of the advertisement which was on July 08, 2002 and July 09, 2002. I also find that the top 50 share holders prior to the advertisement offloaded the shares and none of the said shareholders were in top 50 shareholders of MOH Ltd as on July 31, 2002. 6.11 I have also examined the price and volume movement of the shares prior to and after the publication of the aforesaid advertisement. I find that unusual price movement pattern was observed on BSE in the trading of equity shares during the period May 2002 to July 2002. 6.12 I observe from the above table that in Time Slot 2 (one month period prior to the publication of the advertisement), volume in the scrip suddenly shot up compared to Time Slot 1. The average....
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....rd of directors of the company at the relevant time. He also stated that they have resigned from the board of directors long back. It may be noted that the show cause notices against them were also duly affixed at their last known address. However, I find that Shri. Sunil M. Shah submitted a common reply to the show cause notice on behalf of the company MOH Ltd and its promoters/directors against whom show cause notice were duly served. Apart from the common reply, Shri. Manubhai Oghadlal Shah filed a separate reply to the show cause notice and also filed a separate submission dated November 27, 2006. He stated that he resigned from the directorship of the company on October 01, 2001 and since then he was not involved in any of the affairs of the company. However, he has not produced any document to prove the same. On the other hand, I find from the shareholding pattern as on December 31, 2001 and September 30, 2002 published by BSE in the scrip of M/s MOH Ltd that Shri Manubai O Shah was holding 15.55% and 4.07% of shares of M/s MOH Ltd respectively and he was shown as promoter of MOH on the said dates. As such it is clear that he was the promoter of the company during the period ....