N.K.Sodhi, Presiding Officer (Oral) - (1.) THIS appeal is directed against the order dated June 28, 2011 passed by the adjudicating officer imposing a monetary penalty of Rs.10 lakhs on the appellant under section 15 HA of the Securities and Exchange Board of India Act, 1992 (for short the Act) for violating Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (for short FUTP Regulations). Penalty has also been levied on the appellant under section 15A(b) of the Act for her failure to make necessary disclosures under Regulation 13 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter called the Insider Regulations) and Regulation 7(1)(A) read with Regulation 7(2) of the Securities and Exchange Board of India (Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code).
(2.) THE appellant is a promoter and managing director of a company called Alka Securities Ltd. which is a public company whose shares are listed on the Bombay Stock Exchange Ltd., Mumbai (BSE). It shall be referred to hereinafter as the company. The appellant was served with a show cause notice dated July 20, 2010 alleging that despite steep reduction in the promoter shareholding, the company and its promoters including the appellant misled the shareholders and investors by making inflated and palpably incorrect disclosures to BSE regarding promoters shareholding. The allegation is that the mandatory quarterly disclosures of shareholding pattern to the public through BSE were incorrect from quarter to quarter. It was on this count that the appellant was said to have violated Regulations 3 and 4 of the FUTP Regulations which prohibit persons from dealing in securities in a fraudulent manner and from indulging in fraudulent and unfair trade practices in securities. It was also alleged that the act of the appellant in making false disclosures to BSE were devices to manipulate the dealings in the scrip of the company. It is further alleged in the show cause notice that the appellant as a promoter and managing director had substantially transacted in the shares of the company but failed to make necessary disclosures as required under the insider regulations and the takeover code thereby violating Regulation 13 of the Insider Regulations and Regulation 7(1)(A) read with 7(2) of the takeover code. The appellant was called upon to show cause why appropriate penalty be not levied upon her under sections 15 HA and 15 A(b) of the Act. The appellant filed her detailed reply to the show cause notice on February 8, 2011 stating that the disclosures made in regard to the promoter holding were not inflated or inaccurate and that the shares which had been pledged with Dena Bank and other entities had not been taken into account. The appellant did not take the plea in her reply that the provisions of Regulation 7 of the takeover code were not applicable to her. On a consideration of the material collected by the adjudicating officer during the course of the enquiry and taking note of the reply filed by the appellant, the adjudicating officer found that the appellant had misled the investors and the public by disclosing inaccurate promoter shareholding to BSE and was, therefore, guilty of violating Regulations 3 and 4 of the FUTP Regulations. Since the disclosures had not been made under Regulation 13 of the Insider Regulations and Regulation 7 of the takeover code, these provisions were also held to have been violated. As already observed, a sum of Rs.10 lakhs has been imposed as a monetary penalty for the misleading disclosures made to BSE and another sum of Rs.15 lakhs for non disclosures under the Insider Regulations and the takeover code. Hence, this appeal.
(3.) WE have heard the learned counsel for the parties who have taken us through the record and the impugned order. The appellant being the managing director of the company and also its promoter was required to make necessary disclosures on a continual basis to its investors and the public through BSE. The disclosures made by the appellant from time to time have been tabulated in the form of a chart which is referred to in paragraph 23 of the impugned order and the same is reproduced hereinafter for facility of reference. As on 30.06.08 As on 30.09.08 As on 31.12.08 As on 31.03.09 As on 30.06.09 Promoter Actual 17094209 16876387 14471342 6680048 12871943 34.19 33.75 28.94 13.93 13.42 Disclosed 2,54,38,489 2,59,62,179 2,59,62,179 2,59,62,179 51,924,358 50.88 51.92 54.12 54.12 54.12 Public Shareholding more than 1% or more Actual 18756843 18586534 5273141 9300016 14895480 37.51 37.17 10.55 19.39 15.33 Disclosed 10,50,013 19,06,021 28,48,141 47,95,514 8,149,480 2.10% 3.81% 5.94% 10.00% 8.49 Public shareholding less than 1% Actual 14148948 14537079 30255517 31989936 68172577 Disclosed 28.30 29.07 60.51 66.69 71.06 2,35,11,498 2,21,31,800 1,91,59,680 1,72,12,307 35866162 47.02% 44.26% 39.94% 35.88% 63.61 Total Shareholding 5,00,00,000 5,00,00,000 5,00,00,000 ,79,70,000 9,59,40,000 The figures mentioned in the aforesaid chart have not been disputed by the learned counsel appearing for the appellant. A mere look at the chart would make it clear that as on March 31, 2009, the actual promoter holding in the company was 13.93 per cent and what was disclosed to BSE was 54.12 per cent. There is huge variance in the two figures. The fact that the promoters hold a substantial part of the share capital in a company has its own impact on the investors and the public and if the figures are inaccurate or inflated, it is obvious that the investors and the public are being defrauded. The explanation that has been furnished by the learned counsel for the appellant for this huge variance in the two figures is that the shares representing the difference between the two figures had in fact been pledged with Dena Bank some time in the year 1999 and, according to the appellant, the respondent Board failed to take into account these pledged shares. This explanation cannot be accepted. It is common case of the parties that 27 per cent of the total share capital of the company that was held by the promoters had been pledged with Dena Bank by way of security for the trading facility which it had provided to one of its sister concern. The share certificates had been delivered to the bank in physical form. It is also not in dispute that some time in the year 2006/07 Dena Bank got the shares transferred in its own name by invoking the pledge. It is also the admitted position that Dena Bank, thereafter, transferred those shares in its own name and later transferred them in the names of about 225 persons. We have on record letters from some of the persons to whom the shares were transferred by Dena Bank stating that the applicants wish to purchase the shares of Alka Securities. This was done in the year 2008 and thereafter. From the chart reproduced above, it is clear that the disclosures made by the appellant regarding promoter shareholding were subsequent to the transfer of shares by Dena Bank to the aforesaid 225 persons. It, thus, follows that when the disclosures were made the shares were not under pledge with Dena Bank which had not only got the shares transferred to its own name by invoking the pledge but had further sold the shares to other persons. This being the position, we cannot accept the contention on behalf of the appellant that the pledged shares were not taken into account by the respondent Board. The disclosures made by the appellant are on the face of it inaccurate and the promoter shareholding has been highly inflated. As already observed, such misleading disclosures to a stock exchange is meant to create a wrong impression in the mind of the investors luring them to invest in the company. We are, therefore, satisfied that the provisions of Regulations 3 and 4 of the FUTP Regulations had been violated. In this view of the matter, the imposition of penalty of Rs.10 lakhs is justified. 4. Now coming to the charge relating to non disclosures under the Insider Regulations and the takeover code. Since the shares were not under pledge with Dena Bank as observed earlier, the learned counsel for the appellant fairly states that the provisions of Regulations 13(3), (4) and (5) of the Insider Regulations stood violated. What has been strenuously urged on behalf of the appellant is that the provisions of Regulations 7(1)(A) of the takeover code were not applicable in the instant case and that the adjudicating officer was in error in holding the appellant guilty of violating the said provisions. It is contended by the learned counsel for the appellant that the adjudicating officer in the impugned order has nowhere discussed the limits of acquisitions made by the appellant and in the absence of such a finding he could not hold that Regulation 7 of the takeover code had been violated. We are unable to agree with the learned counsel. In paragraph 10 of the show cause notice the existing shareholding of the appellant has been mentioned and the details of further purchases and sales have been furnished. In the reply filed by the appellant, the contents of para 10 of the show cause notice have not been disputed. It is not the case of the appellant in her reply that Regulation 7(1A) of the takeover code was not applicable to her. In the absence of any denial from the appellant the adjudicating officer has relied upon the details in the impugned order to hold that the provisions of Regulation 7(1A) stood violated. We cannot find fault with the adjudicating officer in this regard. It is further clear that the appellant failed to make the necessary disclosures which she was required to make both under the Insider Regulations and the takeover code. This being so, the adjudicating officer was justified in levying with the penalty of Rs.15 lakhs on this count.;