BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 189 of 2011  

                                   Date of decision: 18.11.2011  

1. Mr. Jogeshwar Rijumal Karachiwala
2. Mr. Prabhudas Rijumal Karachiwala
3. Mr. Avinash Purushottam Karachiwala
4. Mr. Tarun Purushottam Karachiwala
5. Mr. Monish Jogeshwar Karachiwala
6. Mr. Vikram Parameshwar Karachiwala
7. Mr. Nikhil Prabhudas Karachiwala
   Satha Colony, Station Road,
   Ahmednagar – 414 001.

…Appellants

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. R. S. Loona, Advocate with Mr. Abhishek Borgikar, Advocate for Appellants.
Dr. Poornima Advani, Advocate with Mr. Ajay Khaire, Ms. Amrita Joshi,
Advocates for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S. S. N. Moorthy, Member
Per : Justice N. K. Sodhi, Presiding Officer (Oral)

M/s Drillco Metal Carbide Limited (for s hort the company) is a public limited
company whose shares are listed on the Bombay Stock Exchange Limited Mumbai
and Pune Stock Exchange. Its total paid up share capital at the relevant time was
21,94,375 equity shares of ` 10/- each. The company allotted on September 29, 2000,
6,30,800 equity shares repr esenting 28.75 per cent of its total paid up capital to the
appellants on preferential basis as co-promoters after complying with the provisions of
Section 81(1A) of the Companies Act, 1956. Since the acquisition by the appellants
had crossed the threshold limit prescrib ed in Regulations 10, 11 and 12 of the
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (hereinafter called the takeover code) they were
required to make a public announcement to acquire further shares. However,

2
preferential allotment was exempt from the pr ovisions of the takeover code as it then
stood under Regulation 3(1)(c) thereof subjec t to the fulfillment of two conditions.
The first condition was that the company sent a copy of its board resolution in respect
of the proposed preferential a llotment to all the stock exchanges on which the shares
of the company were listed and the second condition was that full disclosures had to
be made to the shareholders as specified in Regulation 3(1)(c) proviso (ii) as it then
stood. Regulation 3(4) of the takeover code as it then stood required the acquirers to
submit a report to the Securities and Exchange Board of India (for short Sebi) within
21 days of the date of acquisition. It is the admitted position of the parties before us
that a copy of the board resolution of the proposed preferential allotment had been sent
to all the concerned stock excha nges. It is also not in di spute that full disclosures as
specified in the second proviso to Re gulation 3(1)(c) had been made to the
shareholders. What was not done by the appellants was that as acquirers they had not
submitted a report to Sebi within 21 days of the allotment which was only meant to
cross check whether the exemption had been properly granted. Th e fact that this
report was not submitted is admitted by the appellants. It is, thus, clear that
Regulation 3(4) of the takeover code as it then stood had been violated.

2. In terms of Regulation 7(1) of the ta keover code as it then stood in the year
   2000, the acquirers who acquired shares or vo ting rights in a company in excess of 5
   per cent were required to disclose their ag gregate shareholding or voting rights to the
   company. It is again the admitted position of the parties before us that this disclosure
   had also not been made by the appellants to the company.
3. Sebi discovered the aforesaid two viol ations only in the year 2010 when an
   open offer had been made by one Rahul Timbadia to the shareholders of the company.
   It was then that it decided to initiate adjudication proceed ings against the appellants.
   The adjudicating officer after holding an e nquiry found the appellants guilty of the
   aforesaid two non disclosures and by hi s order dated August 26, 2011 imposed a
   monetary penalty of ` 5 lacs on all of them collectively making them liable jointly and
   severally. It is against this order that the present appeal has been filed. 3
4. We have heard the learned counsel fo r the parties and they have taken us
   through the impugned order and the record. The fact that the appellant did not submit
   a report to Sebi within 21 days of acquiring the shares of the company on preferential
   basis is not in dispute. The appellants also admit that they failed to disclose their
   acquisitions to the company in terms of Regulation 7(1) of the takeover code as it then
   stood. It is also the admitted position of the parties that the shares that were allotted to
   the appellants had never been listed on any stock exchange and that the trading in the
   scrip of the company had been suspended since January 7, 2002 which suspension is
   still continuing. The company is a sick compa ny. This apart, we are of the view that
   the default committed by the appellants did not, in the circumstances of this case, have
   any adverse effect on the market and that the imposition of the penalty of 5 lacs is highly excessive. The maximum penalty that could be levied as per the provisions of Section 15A(a) of the Securities and Exchange Board of India Act, 1992 as they then stood was 1.5 lacs for each default and this is not a case in which the maximum
   penalty was called for. Even a token penalty could have served th e purpose. In this
   view of the matter, we reduce the penalty to ` 50,000/- in regard to both the defaults.
   The impugned order stands modified accordingly.
   The appeal is disposed of as above . The appellants will now deposit the
   penalty amount within 60 days from today. No costs. Sd/-
   Justice N. K. Sodhi
   Presiding Officer
   Sd/-
   P. K. Malhotra
   Member Sd/-
   S. S. N. Moorthy
   Member
   18.11.2011
   Prepared & Compared by
   ptm

Download Order Copy