BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 180 of 2011
Date of Decision : 15.11.2011
Smt. Alka Pandey
Maitri, Plot No. 10,
Road No. 10,
Nutan Laxmi Society, JVPD,
Juhu, Mumbai – 400 054.
…Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051.
…Respondent
Mr. Sean Wassoodew, Advocate for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocat e with Mr. Mihir Mody and Mr. Mobin
Shaikh, Advocates for the Respondent.
CORAM : Justice N.K. Sodhi, Presiding Officer
P.K. Malhotra, Member
Per : Justice N.K. Sodhi, Presiding Officer (Oral)
This appeal is directed against the order dated June 28, 2011 passed by the
adjudicating officer imposing a monetary penalty of `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 Trad e 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 Secu rities and Exchange Board of India
(Prohibition of Insider Trad ing) Regulations, 1992 (herei nafter called the Insider
Regulations) and Regulation 7(1)(A) read wi th 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 mana ging 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 sh all 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 th e 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 qua rter to quarter. It was on this count
that the appellant was said to have vi olated Regulations 3 and 4 of the FUTP
Regulations which prohibit persons from dea ling in securities in a fraudulent manner
and from indulging in fraudulent and unfair tr ade practices in securities. It was also
alleged that the act of the appellant in ma king false disclosures to BSE were devices
to manipulate the dealings in the scrip of the company. It is fu rther 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 unde r the insider regulations a nd the takeover code thereby
violating Regulation 13 of the Insider Regul ations and Regulation 7(1)(A) read with
7(2) of the takeover code. The appella nt 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 provi sions of Regulation 7 of th e 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 th e reply filed by the
appellant, the adjudicating of ficer found that the appellant had misled the investors
and the public by disclosi ng inaccurate promoter shar eholding to BSE and was,
therefore, guilty of violating Regulations 3 and 4 of the FUTP Regulations. Since the
disclosures had not been made under Regul ation 13 of the Insider Regulations and 3
Regulation 7 of the takeover code, these prov isions were also held to have been
violated. As already observed, a sum of10 lakhs has been imposed as a monetary penalty for the misleading disclosures made to BSE and another sum of15 lakhs for
non disclosures under the Insider Regulations and the takeover code. Hence, this
appeal. - We have heard the learned counsel fo r the parties who have taken us through
the record and the impugned order. The appe llant being the managing director of the
company and also its promoter was requir ed to make necessary disclosures on a
continual basis to its investors and the pub lic 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 im pugned 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
28.30 29.07 60.51 66.69 71.06
Disclosed 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 4,79,70,000 9,59,40,000
The figures mentioned in the aforesaid char t have not been dis puted 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 s ubstantial part of the share capital in a
company has its own impact on the investor s and the public and if the figures are
inaccurate or inflated, it is obvious that the investors and th e public are being
defrauded. The explanation that has been furnished by the learned counsel for the
appellant for this huge variance in the two fi gures is that the shares representing the
difference between the two figures had in fact been pledged with Dena Bank some
4
time in the year 1999 and, according to the appellant, the respondent Board failed to
take into account these pledged shares. Th is 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 pl edged 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 subseq uent 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 w ith Dena Bank which had not only got the
shares transferred to its ow n 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
` 10 lakhs is justified.
- 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. 5
What has been strenuously ur ged on behalf of the appellan t is that the provisions of
Regulations 7(1)(A) of the takeover code we re 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 orde r has nowhere discussed the limits of
acquisitions made by the appellant and in th e 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 file d 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 takeove r 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 or der 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 th e 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 ` 15 lakhs on this count. - Before concluding, we may take note of another objection that has been raised
by the learned counsel for the appellant. He contends that the appellant had not been
afforded a reasonable opport unity of hearing by the ad judicating officer. We are
unable to agree with the learne d counsel for the appellant. It appears to us that the
appellant was trying to prolong the proceedings and was not serious in concluding the
matter before the adjudicating officer. As many as four opportunities were given to
the appellant on her own request and the cas e was being adjourned from time to time
as referred to in paragraphs 9 to 15 of th e impugned order. In view of the details
referred to by the adjudicating officer in thes e paragraphs we have no hesitation in
rejecting this contention of the appellant as well. It is then pointed out by the learned
counsel for the appellant that the penalty for violating Regulations 3 and 4 of the 6
FUTP Regulations could be levied onl y on the company because the misleading
disclosures that were made by the appellant had been made on behalf of the company.
We are unable to accept this contention ei ther. Regulations 3 and 4 of the FUTP
Regulations prohibit persons from indulging in fraudulent and unfair trade practices
and whoever indulges in such practices has to be dealt with in accordance with these
regulations. Admittedly, the appellant had signed the disclosures made to BSE which
were inaccurate and misleading. She violat ed the provisions of Regulations 3 and 4
and has been rightly penalised. - No other point has been raised.
In the result, the appeal fails and the same is dismissed. No costs.
Sd/- Justice N.K. Sodhi
Presiding Officer
Sd/-
P.K. Malhotra
Member 15.11.2011
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