BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 181 of 2011
Date of decision : 22.12.2011 M/s. Alka Securities Ltd.
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. V. M. Singh, Advocate for the Appellant.
Mr. Prateek Seksaria, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
Coram : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : P. K. Malhotra, Member
This order will dispose of two Appeals no. 179 and 181 of 2011 which arise out
of same set of facts. For the sake of convenience, facts are being taken from Appeal no.
181 of 2011. These appeals are directed ag ainst the orders both dated June 28, 2011
passed by the adjudicating officer imposing a monetary penalty of Rs.10 lakh each on
the appellants under Section 15HA of the Secu rities and Exchange Board of India Act,
1992 (for short the Act) for violating regulations 3 and 4 of the Securities and Exchange
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Board of India (Prohibition of Fraudulent and Unfair Tr ade Practices relating to
Securities Market) Regulations, 2003 (for short FUTP Regulations).
- The appellant is a stock broker regist ered with the Securities and Exchange
Board of India (for short th e Board) and its shares are listed on the National Stock
Exchange Limited (NSE). The appellant was served with a show cause notice dated July
20, 2010 alleging that despite steep reductio n in the promoters’ shareholding, the
company and its promoters including the a ppellant misled the shareholders and
investors by making inflated and palpably incorrect disclosures to NSE regarding
promoters’ shareholding. The allegation is that the mandatory quarterly disclosures of
shareholding pattern to the public through NSE were incorrect from quarter to quarter.
It was on this count that the appellant was sa id to have violated regulations 3 and 4 of
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 NSE were
devices to manipulate the dealing in the scrip of the company. - On consideration of the material coll ected 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 NS E and was therefore guilty of violating
regulations 3 and 4 of the FUTP Regulations. Hence this appeal. - We have heard the learned counsel for the parties who have taken us through the
record and the impugned order. On the same set of facts, action was initiated against
Smt. Alka Pandey who was the promoter an d managing director of the company. She
was also charged for violating provisions of regulations 3 and 4 of FUTP Regulations.
While deciding her appeal (No. 180 of 2011 decided on November 15, 2011), this
Tribunal has held as under:
“ 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. 3 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
17094209 16876387 14471342 6680048 12871943 Actual
34.19 33.75 28.94 13.93 13.42
2,54,38,489 2,59,62,179 2,59,62,179 2,59,62,179 51,924,358
Promoter
Disclosed
50.88 51.92 54.12 54.12 54.12
18756843 18586534 5273141 9300016 14895480 Actual
37.51 37.17 10.55 19.39 15.33
10,50,013 19,06,021 28,48,141 47,95,514 8,149,480
Public
Shareholding
more than
1% or more
Disclosed
2.10% 3.81% 5.94% 10.00% 8.49
14148948 14537079 30255517 31989936 68172577 Actual
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
Public
shareholding
less than 1% Disclosed
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 chart have not been disputed by the
learned counsel appearing for the appell ant. 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 fi gures. 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 be ing 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 re presenting 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 tota l 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 thos e 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 th e shares were transferred by Dena Bank
stating that the applicants wish to purcha se the shares of Al ka 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 tr ansfer 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 ha d 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 pos ition, we cannot acc ept 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 inve stors 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 violat ed. In this view of the matter, the
imposition of penalty of ` 10 lakhs is justified.”
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We are of the view that the above reasoning squarely applies to the company as well as
to the appellant in Appeal no. 179 of 2011. L earned counsel for the appellant tried to
distinguish these two appeals from the app eal of Alka Pandey st ating that Brijesh
Kothari, who is the appellant in Appeal no. 179 of 2011, and M/s. Alka Securities Ltd.,
which is the appellant in Appeal no. 181 of 2011, cannot be he ld guilty of violating the
provisions of FUTP Regulations because th eir case stands on a different footing. The
appellant in Appeal no. 179 of 2011 was only one of the directors and was not looking
after the day to day affairs of the comp any whereas Alka Pandey was the managing
director handling the day to da y affairs of the company. We are unable to agree to this
argument of the learned counsel for the appell ant. In the show-cause notice dated July
20, 2010 it was specifically alleged that the appellant was a director of the company and
he acted in contravention of the provision s of the Act, rules and regulations made
thereunder. This allegation ha s not been denied in the written reply. The adjudicating
officer has recorded a finding that the appellant, being the director of the company, was
in charge of and was responsible to the company for the conduct of its business. A
letter dated June 24, 2009 has also been placed on record by the Board which shows
that the appellant was responding to the letters of the Board relating to the affairs of the
company. We have, therefore, no hesitation in upholding the finding of the adjudicating
officer that the appellant, being a director of the company, was in-charge of and was
responsible to the company for the conduct of its business. In re gard to company’s
appeal, it was stated by the learned counsel for the appellant that the company has no
mind of its own and it acts only through its di rectors. According to him, by punishing
the company the current shareholders are being punished. We are unable to accept this
argument either. Section 27 of the Act, inte r alia, provides that when an offence under
the Act has been committed by a company, every person who at the time the offence
was committed was in-charge of, and was re sponsible to, the company for the conduct
of the business of the company, as well as the company, shall be deemed to be guilty of
the offence and shall be liable to be proceeded against. This provision also applies to the
violation of the regulations framed under the Act. Therefore, we are unable to accept the
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argument that since the company acts thr ough its directors, the company cannot be
punished for the violations in question. Following our earlier order dated November 15,
2011 in Appeal no. 180 of 2011, we uphold the findings of the adjudicating officer.
In the result, both the appeals are dismissed with no order as to costs.
Sd/-
P. K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member 22.12.2011
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