BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. ASK/RGA/AO/57/2014]
__________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 1995
In respect of
Hozef Darukhanawla
PAN NO. AACPD7463Q
In the matter of M/s Zodiac Ventures Ltd.
FACTS OF THE CASE IN BRIEF
1. An open offer was made by Ramesh V. Shah and Jimit R Shah
(hereinafter collectively referred to as “Acquirers”)
Persons Acting in Concert
alongwith the
Pushpa R Shah, Yesha R Shah and
Sunita J Shah (hereinafter collectively referred to as “PACs”) to the
shareholders of Zodiac Ventures Limited (hereinafter referred to as
"ZVL"), Target Company, listed at Bombay Stock Exchange (BSE)
through a public announcement dated February 22, 2013 for
acquisition of 6,32,500 equity shares of the face value of ` 10 each at
an Offer price of ` 30 per fully paid up equity share of `10 each
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payable in cash representing 16.96% of the emerging voting share of
the Target Company.
2. Securities and Exchange Board of India (hereinafter referred to as
“SEBI”) examined the letter of offer pertaining to the aforesaid open
offer and alleged that Mr. Hozef Darukhanawala, one of the promoters
of ZVL (hereinafter referred to as "Noticee") had violated regulation
7(1A) read with 7(2) of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (hereinafter referred to as “SAST
Regulations, 1997”).
APPOINTMENT OF ADJUDICATING OFFICER
3. Shri Piyoosh Gupta was appointed as Adjudicating Officer vide order
dated July 24, 2013 under section 15 I of the Securities and Exchange
Board of India Act, 1992 (hereinafter referred to as “SEBI Act”) read
with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing
Penalty by Adjudicating Officer) Rules, 1995 (hereinafter referred to as
the ‘Rules’) to inquire into and adjudge under section 15A (b) of the
SEBI Act for the alleged violation of regulation 7(1A) read with 7(2) of
SAST Regulations, 1997. Consequent to the transfer of Shri Piyoosh
Gupta, I have been appointed as Adjudicating Officer vide order dated
November 08, 2013.
SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
4. Show Cause Notice No. ASK/RGA/5266/2014 dated February 17,
2014 (hereinafter referred to as “SCN”) was issued to the Noticee
under rule 4(1) of the Rules to show cause as to why an inquiry should
not be initiated and penalty be not imposed under section 15A (b) of
the SEBI Act for the alleged violation specified in the SCN.
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5. It was alleged in the SCN that Noticee has violated regulation 7(1A)
read with 7(2) of SAST Regulations, 1997.
6. Vide letter dated March 04, 2014, Noticee requested for extension of
time for filing reply. Vide letter dated March 07, 2014, Noticee filed a
reply to the SCN. The salient points of submissions of Noticee are as
follows:
•
As a result of the preferential allotment, the capital of the
company increased to 7,75,000 shares of ` 10/- each
aggregating to ` 77,50,000 and further the shareholding
reduced to 23.51%.
•
The sale transactions on dates mentioned in the SCN is not
denied.
•
Delay in filing disclosures under regulation 7(1A) read with 7(2)
of SAST Regulations, 1997 was only due to sheer ignorance.
Noticee was not aware that such disclosures had to be made.
After becoming aware, the relevant disclosures were made on
March 26, 2010. The delay in filing disclosure was only marginal
as less as 30 days and even 1 day in the sale on March 23,
2010.
•
The shares of the company were very thinly traded at that time.
Infact during the period of January 01, 2010 to March 31, 2010
only 6000 shares have been traded that too on February 01,
2010.
7. In the interest of natural justice and in order to conduct an inquiry in
terms of rule 4(3) of the Rules, the Noticee was granted an opportunity
of personal hearing on March 24, 2014 vide notice dated March 04,
2014. Ms. Shailashri Bhaskar, appeared as Authorized Representative
(AR) on behalf of the Noticee and reiterated the submissions made
vide letter dated March 07, 2014 and requested to take a lenient view.
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Noticee also submitted that he will submit copies of disclosures made
by him under regulation 7(1A) read with 7(2) of SAST Regulations,
1997 on or before March 26, 2014. However, vide e-mail dated March
28, 2014 Noticee stated that company is unable to trace the copies of
filings made by the Noticee and requested to treat the filings as
appearing on the BSE website as proof of filings made by him.
CONSIDERATION OF ISSUES AND FINDINGS
8. I have carefully perused the oral and written submissions of the
Noticee and the documents available on record. The issues that arise
for consideration in the present case are :
a. Whether the Noticee had violated the provisions of regulation
7(1A) read with 7(2) of SAST Regulations, 1997?
b. Does the violation, if any, attract monetary penalty under section
15A (b) of SEBI Act?
c. If so, what would be the monetary penalty that can be imposed
taking into consideration the factors mentioned in section 15J of
SEBI Act?
9. Before moving forward, it is pertinent to refer to the relevant provisions
of SAST Regulations, 1997, ICDR Regulations, 2009 and SAST
Regulations, 2011 which reads as under:SAST Regulations, 1997
Acquisition of 5 per cent and more shares or voting rights of a company.
7(1) ….
(1A) Any acquirer who has acquired shares or voting rights of a company
under sub-regulation (1) of regulation 11, or under second proviso to subregulation 2 of regulation 11 shall disclose purchase or sale aggregating two
per cent or more of the share capital of the target company to the target
company, and the stock exchanges where shares of the target company are
listed within two days of such purchase or sale along with the aggregate
shareholding after such acquisition or sale.
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[Explanation.—For the purposes of sub-regulations (1) and (1A), the term
acquirer‘ shall include a pledgee, other than a bank or a financial institution
and such pledgee shall make disclosure to the target company and the stock
exchange within two days of creation of pledge.]
(2) The disclosures mentioned in sub-regulations (1) and (1A) shall be made
within two days of,—
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
Finding
The issues for examination in this case and the findings thereon are as
follows:
(a) Whether the Noticee had violated the provisions of regulation
7(1A) read with regulation 7(2) of SAST Regulations, 1997?
10. As per the provisions of the SAST Regulations, 1997 any acquirer who
has acquired shares or voting rights or control in a company, either
directly or indirectly or either by himself or with persons acting in
concert, and the acquisition is within the limits provided under
regulation 11(1) of the SAST Regulations, 1997 and subsequently
there is change in shareholding exceeding two percent of the share
capital of the company either by purchase or sale then, in terms of the
provisions of regulation 7(1A) read with regulation 7(2) of SAST
Regulations, 1997 the person whose share holding has so changed is
under obligation to make disclosures, within two days, to the company
and to the stock exchange where the shares of the company are listed
regarding such sale or purchase and the aggregate shareholding after
such acquisition or sale.
11. It was alleged in the SCN that Noticee has violated regulation 7(1A)
read with 7(2) of SAST Regulations, 1997 for transactions of sale
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made by the Noticee on February 22, 2010, March 02, 2010 March
05, 2010 and March 23, 2010.
12. It is observed that Noticee was admittedly the promoter of ZVL at the
relevant period and was holding 23.51% of the share capital of ZVL
which was within the limits specified under regulation 11(1) of SAST
Regulations, 1997. Noticee, being a promoter exercised control over
ZVL and thus was an acquirer within regulation 2(b) of the SAST
Regulations, 1997. It is further observed that Noticee had made certain
sale transactions aggregating more than 2% of share capital of ZVL on
different dates during the year 2010. The details of sale transactions of
the Noticee are as follows:
Date
of
Transaction
the Sale Qty
% of share capital
January 12, 2010
4120
0.53%
January 14, 2010
5000
0.65%
February 22, 2010
10,000
1.29%
March 02, 2010
15,000
1.94%
March 05, 2010
23,000
2.97%
March 23, 2010
23000
2.97%
13. From the above table, it is observed that Noticee has sold shares of
ZVL on five (5) different dates. I am of the view that any sale or
purchase for every 2% level requires disclosure under regulation 7(1A)
read with 7(2) of SAST Regulations, 1997. Accordingly, I find that
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Noticee has triggered regulation 7(1A) read with 7(2) of SAST
Regulations, 1997 on three (3) dates only i.e. on February 22, 2010,
March 05, 2010 and March 23, 2010, wherein the sale transactions
aggregated more than 2% of share capital of ZVL and thus, exceeded
the benchmark limit specified under regulation 7(1A) read with 7(2) of
SAST Regulations, 1997. However, I find that on March 02, 2010,
when Noticee sold 15,000 shares, it constituted 1.94% of the share
capital of ZVL which is below the benchmark limit and therefore did not
trigger regulation 7(1A) read with 7(2) of SAST Regulations, 1997.
14. In this regard, it
would be pertinent to mention that the SAST
Regulations, 1997 made under SEBI Act were framed after taking into
consideration the recommendations of the committee chaired by
Justice P.N. Bhagwati. Reliance is therefore, placed on the committee
report
dated
May
7,
2002
(available
in
public
domain
at
www.sebi.gov.in), more specifically to para 15 wherein it is stated that:
•
Disclosure should be made at every stage when the acquirer
crosses the limit of 5%, 10% and 14%;
•
for acquirers holding 15% and above , purchases and sales for
every 2% level should be disclosed;
•
the reporting of acquisitions/sales should be made to the stock
exchanges and to the target company within two days.
15. As found above, Noticee triggered regulation 7(1A) read with 7(2) of
SAST Regulations, 1997 in respect of sale transactions on February
22, 2010, March 05, 2010 and March 23, 2010. Noticee was required
to make disclosures to ZVL and the stock exchange i.e. BSE within two
days of the date of sale along with the aggregate shareholding after
such sale. However, it is observed from the material available on
record and also BSE website that Noticee had made disclosures under
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regulation 7(1A) read with 7(2) of SAST Regulations, 1997 with delay .
The details of delay are as follows :
S.No.
Date of Sale
1.
2.
3.
22.02.2010
05.03.2010
23.03.2010
Due date of
compliance
24.02.2010
07.03.2010
25.03.2010
Actual date of Delay if any (in
compliance
no. of days)
26.03.2010
30
26.03.2010
19
26.03.2010
1
16. I find that Noticee in his reply dated March 07, 2014 has not disputed
the aforesaid sale transactions. Also, Noticee has admitted that there
has been delay in making disclosures in respect of the said
transactions under regulation 7(1A) read with 7(2) of SAST
Regulations, 1997. It is pertinent to state that timeliness is the essence
of disclosure and delayed disclosure would serve no purpose at all. I
am of the view that when mandatory time period is stipulated for doing
a particular activity, completion of the same after that period would
constitute default in compliance and not delay.
17. Therefore, I hold that the Noticee has violated regulation 7(1A) read
with 7(2) of SAST Regulations, 1997.
(b) Does the non-compliance, if any, attract monetary penalty under
section 15A (b) of SEBI Act?
18. In this context, I would like to quote the observations of Hon'ble
Supreme Court in the matter of SEBI Vs. Shri Ram Mutual Fund.
19. The Hon’ble Supreme Court of India in the matter of Chairman, SEBI v..
Shriram Mutual Fund {[2006] 5 SCC 361} held that “In our considered
opinion, penalty is attracted as soon as the contravention of the statutory
obligation as contemplated by the Act and the Regulations is established and
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hence the intention of the parties committing such violation becomes wholly
irrelevant…”.
20. As the violation of the statutory obligation under regulation 7(1A) read
with 7(2) of SAST Regulations, 1997 has been established, I am
convinced that it is a fit case for imposing monetary penalty under
section 15A(b) SEBI Act, which reads as under:Penalty for failure to furnish information, return, etc.
15A. If any person, who is required under this Act or any rules or
regulations made there under,(a)
………………………….
(b) to file any return or furnish any information, books or other
documents within the time specified therefore in the regulations, fails to
file return or furnish the same within the time specified therefore 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.
(c)
………………………….
(c) If so, what would be the monetary penalty that can be imposed
taking into consideration the factors mentioned in section 15J of
SEBI Act?
21. While determining the quantum of penalty under section 15A (b) and
of the SEBI Act , it is important to consider the factors stipulated in
section 15J of SEBI Act, which reads as under:“15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the
adjudicating officer shall have due regard to the following factors,
namely:the amount of disproportionate gain or unfair advantage,
(a)
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.”
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22. From the material available on record, the amount of disproportionate
gain or unfair advantage to the Noticee or loss caused to the investors
as a result of the default is not quantifiable. Though it may not be
possible to ascertain the monetary loss to the investors on account of
default by the Noticee, the details of shareholding of the promotergroup and persons in control over ZVL and timely disclosure thereof,
were of significant importance from the point of view of investors as
that would have prompted them to buy or sell shares of the ZVL. The
fact however remains that the investors were deprived of the important
information at the relevant point of time.
23. I find that the violation by the Noticee of regulation 7(1A) read with 7(2)
of SAST Regulations, 1997 is repetitive in nature.
24. Noticee requested for taking a lenient view in the matter. In this regard,
Noticee had made certain submissions. I proceed to examine the
submissions made by the Noticee:
25. Noticee had submitted that delay in filing disclosures under regulation
7(1A) read with 7(2) of SAST Regulations, 1997 was only due to sheer
ignorance. Noticee was not aware that such disclosures had to be
made. After becoming aware, the relevant disclosures were made on
March 26, 2010. The submission of the Noticee has no merit. It is
noted that Ignorantia juris non excusat’, that is to say, ignorance of law is
not an excuse. Ignorance of law of the state does not exclude any
person from the penalty for the breach of it, because every person is
bound to know the law, and is presumed so to do. If any individual
should infringe the law of the country through ignorance or
carelessness, he must abide by the consequences of his error.
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26. The shares of the company were very thinly traded at that time. Infact
during the period of January 01, 2010 to March 31, 2010 only 6000
shares have been traded that too on February 01, 2010. I do not find
any merit in the submission of the Noticee as less or no trading in the
shares of ZVL cannot exempt the Noticee from filing requisite
disclosures under SAST Regulations,1997.
ORDER
27. After taking into consideration all the facts and circumstances of the
case, I hereby impose a monetary penalty of ` 4,00,000/- (Rupees
Four Lakhs Only) on the Noticee which will be commensurate with the
violation committed by him.
28. The Noticee shall pay the said amount of penalty by way of demand
draft 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 should be forwarded to General Manager, Division of
Corporate Restructuring, SEBI, SEBI Bhavan, Plot No. C– 4 A, “G”
Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
29. In terms of rule 6 of the Rules, copies of this order are sent to the
Noticee and also to the Securities and Exchange Board of India.
DATE: March 28, 2014
A. SUNIL KUMAR
PLACE: MUMBAI
ADJUDICATING OFFICER
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