(1.) 0 BACKGROUND
1.1 M/s Doogar & Associates Ltd. (hereinafter referred to as "DAL") inter alia is registered with SEBI as a Category - I Merchant Banker, bearing registration no INM000001188.
1.2 CMS Traffic Systems Ltd. & others (hereinafter referred to as the "Acquirers") made a public announcement in terms of Regulations 10 & 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 on February 19, 2002 to acquire 20% shares of M/s . Kaycee Industries Ltd. (hereinafter referred to as the Target company). The shares of the Target company are listed in the Stock Exchange, Mumbai. The aforesaid public announcement was made on behalf of the Acquirers by DAL - the Manager to the offer.
1.3 On September 26, 2002 SEBI received an appeal filed by Shri Satish Gupta & others bearing No. CWP 3066 / 2002 before the Delhi High Court, inter alia, alleging that the advertisement for the public announcement for the acquisition of shares of the Target company by DAL was not issued in the New Delhi edition of Nav Bharat Times dated February 19, 2002 as stated in Para 2.2.1 on page 5 of the Letter of Offer.
1.4 Consequently, SEBI directed DAL to give details in this regard. In reply, DAL vide its letter dated January 23, 2003 inter alia submitted that it had instructed M/s Insite Advertising Services (hereinafter referred to as "the Advertising Agency") to issue the public announcement in all the editions of Asian Age (English), Nava Bharat (Hindi) and Nav Shakti (Marathi) on Feburary 15, 2002. Further DAL submitted that on coming to know about the writ petition filed by Shri Satish Gupta, it enquired from the Advertising Agency about the release of advertisement, which informed that the public announcement was made only in Mumbai edition of Nava Bharat and Asian Age. Further DAL also submitted a copy of letter dated May 21, 2002 written by the Advertising Agency to them inter alia stating that due to communication error on the Advertising Agency's part the Advertising Agency could not publish the advertisement in all the editions of Asian Age and Nav Bharat.
1.5 On perusal of the reply of DAL, it prima facie appeared that it had contravened the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and SEBI (Merchant Bankers) Rules and Regulations, 1992
(2.) 0 APPOINTMENT OF ENQUIRY OFFICER
2.1 In view of the above, as required under Chapter II of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, an Enquiry Officer was appointed by SEBI vide order dated March 19, 2003 to, inter alia, inquire into the alleged contravention of provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and SEBI (Merchant Bankers) Regulations, 1992 by DAL in the matter of open offer by the Acquirers to acquire the shares of the Target company.
2.2 The Enquiry Officer issued a show cause notice to DAL vide letter dated May 21, 2003. DAL submitted its reply to the show cause notice vide letter dated May 28, 2003. DAL was also granted an opportunity of personal hearing before the Enquiry Officer. After considering the reply of DAL and oral submissions, the Enquiry officer submitted his report to SEBI on June 30, 2003.
2.3 The Enquiry Officer in his report dated June 30, 2003, inter alia, found that the merchant banker had acted negligently and did not ensure that the public announcement is published in all editions of the English and Hindi National Dailies as per the requirement of Regulation 15(1) of SEBI (SAST) Regulations, 1997. Based on the said findings, the Enquiry Officer recommended a minor penalty of suspension of certificate of Registration of DAL for a period of one month, in terms of Regulation 13(1)(a)(iv) of SEBI(Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.
How CAUSE NOTICE
3.1 Subsequently, enclosing a copy of the Enquiry Report a show cause notice dated July 24, 2003 was issued to DAL as to why the penalty of suspension of certificate of registration for a period of one month as recommended by the Enquiry Officer cannot be imposed against it.
(3.) 0 REPLY AND HEARING
4.1 DAL in its reply dated August 19, 2003 made following submissions :
A. "the mistake of non-publication of public announcement was not deliberate but a genuine error on part of the advertising agency, M/s . Insight Advertising Services". Further "we do not agree with Mr. S.V. Krishna Mohan (Adjudications and Enquiry Officer) that we the merchant banker can not abdicated our responsibility by shifting blame to the Advertising Agency, M/s . Insight Advertising Services, who released the public announcement for the open offer as stated herein above". Further ".. the way Advertising Agencies function in India, it would not have been be possible for us to control any of the events or activities being carried out by them They are neither registered with the capital markets regulatory body nor answerable to them. We have to re-iterate that, we had furnished a copy of our written communication to the Advertising Agency M/s . Insight Advertising Services vide our letter dated 15-02-2002, which was duly acknowledged by them." Further" What we have stated on page No. 5, para 2.2.1 of the Letter of Offer dated 30/03/2002 was based on our understanding that the aforesaid Advertising Agency had published the public announcement as per our written instruction dated 15-02-2002, as there was nothing contrary to the same either informed by them or otherwise" Further" we have acted diligently within our means and resources, i.e. by issuing a written instruction to the Advertising Agency M/s Insight Advertising Services as per letter dated 15-02-2002. We could not have had control on their activities otherwise." Further..."that the mistake was not noticed till May 2002. Whereas, the offer opened on April 19, 2002 and closed on May 18, 2002. In this connection, we have to submit that the same has come to our notice (as well as that of SEBI) in month of May 2002, only upon a complaint being filed by some of the shareholders, viz. Mr. Satish Gupta and others with malafide intentions."
B "..the un-intentional act, supposedly on our part and that it did not cause any prejudice to the shareholdeRs. .............You will also observe that the percentage response (in terms of No. of applications as well as No. of shares) has been well spread from these cities. This clearly shows that the open offer received widespread response from the concerned centres.... The response to the Open Offer to the shareholders of Kaycee Industries Ltd was as follows :-
C. " the target company was incorporated in December 1942 in Lahore (now in Pakistan). The shareholders base has been wide spread and some of the shareholder are either deceased or their successors might not have been aware of their shareholding in the target company. Inspite of the such deficiency, the acquirers have been able to receive response of 1.34 times the open offer size, which you may please appreciate."
D. "...we do not wish to challenge the recommended penalty by Mr. S.V. Krishna Mohan (Adjudication and Enquiry Officer)." Further I have noted the submission that "We have to also state that we have already filed an application for surrendering the Certificate of Registration as Category - I Merchant Banker vide our letter dated 16-06-2003. ";