Adjudication Order in respect of Kailash Gupta & others in .... 6. Further, in the interest of...

Adjudication Order in respect of Kailash Gupta & Others in the matter of M/s Kailash Auto Finance Limited

of 21 March 17, 2015

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

ADJUDICATION ORDER NO. JJ/AK/AO-41-70/2015

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA

ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING

INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER)

RULES, 1995

In respect of

Sl. No. Name of the Entity PAN No. Order Number

1 Kailash Gupta ACFPG1143F JJ/AK/AO/41/2015

2 Aradhana Motors Pvt. Ltd. AABCA4166D JJ/AK/AO/42/2015

3 Commercial Engg & Body Builders

Co. Pvt. Ltd.

AAACC5823E JJ/AK/AO/43/2015

4 Commercial Automobiles Pvt. Ltd. AACCC4267E JJ/AK/AO/44/2015

5 Commercial Instalments Pvt. Ltd.

(Now known as "Commercial Auto

Dehradun Pvt. Ltd.")

AAACC7060P JJ/AK/AO/45/2015

6 Commercial Motors finance Ltd.

(Now known as "Commercial Motor

Sales Pvt. Ltd.")

AAACC5797K JJ/AK/AO/46/2015

7 Kailash Auto Builders Ltd. AAACK5543M JJ/AK/AO/47/2015

8 Kailash Motors Ltd. AAACK8673J JJ/AK/AO/48/2015

9 Kailash Motors Finance Pvt. Ltd. AAACK5547R JJ/AK/AO/49/2015

10 Shivam Motors Pvt. Ltd. AABCS9330D JJ/AK/AO/50/2015

11 Tirupati Services Ltd. AAACT4868N JJ/AK/AO/51/2015

12 Kailash Chand Gupta ACFPG1143F JJ/AK/AO/52/2015

13 Ishwar Chandra AASPG0144P JJ/AK/AO/53/2015

14 Ishwar Chandra Gupta HUF AAAHI1345A JJ/AK/AO/54/2015

15 Atul Goel AAQPG4483M JJ/AK/AO/55/2015

16 Raghav Gupta ACFPG1142E JJ/AK/AO/56/2015

17 Kailash Chand Gupta HUF AABHK7587D JJ/AK/AO/57/2015

18 Rekha Gupta ACZPG0615N JJ/AK/AO/58/2015

19 Vineet Chandra ABSPC5509M JJ/AK/AO/59 /2015

20 Shalini Gupta AAXPG9709M JJ/AK/AO/60/2015


of 21 March 17, 2015

21 Anubha Gupta AAXPG9710A JJ/AK/AO/61/2015

22 Mittar Sen Goel ABZPG6407B JJ/AK/AO/62/2015

23 Angoori Devi ACWPD3533F JJ/AK/AO/63/2015

24 Ashok Goel ACKPG3719L JJ/AK/AO/64/2015

25 Mohit Goel AHKPG5485E JJ/AK/AO/65/2015

26 Rita Goel ACZPG0616R JJ/AK/AO/66/2015

27 Pratima Goel ADEPG8720A JJ/AK/AO/67/2015

28 Babulal Nema Not Available JJ/AK/AO/68/2015

29 Bhaiya Lal Shukla Not Available JJ/AK/AO/69/2015

30 Gaurishankar Agarwal Not Available JJ/AK/AO/70/2015

In the Matter of M/s Kailash Auto Finance Limited

BACKGROUND

1. An open offer was made by M/s Padma Impex Private Limited (hereinafter

referred to as “Acquirer”) in terms of SEBI (Substantial Acquisition of

Shares and Takeovers) Regulations, 1997 (hereinafter referred to as

"SAST Regulations, 1997"), to the shareholders of M/s Kailash Auto

Finance Limited (hereinafter referred to as "KAFL"), Target Company

listed at Bombay Stock Exchange Limited (BSE), through a public

announcement dated May 18, 2010 for acquisition of 7,61,180 fully paid-

up equity shares of `10 each, representing in aggregate 20% of the paid

up and voting equity share capital of KAFL, at a price of ` 3 per fully paid

up equity share, payable in cash.

2. While examining the offer document pertaining to the afore-mentioned

Open Offer, Securities and Exchange Board of India (hereinafter referred

to as “SEBI”) observed certain non compliance of provisions of SAST

Regulations, 1997 and alleged that the erstwhile promoters of KAFL

namely, Kailash Gupta (hereinafter referred to as "Kailash" /"Noticee

No.1"), Aradhana Motors Pvt. Ltd. (hereinafter referred to as "AMPL" /

"Noticee No.2"), Commercial Engg & Body Builders Co. Pvt. Ltd.

(hereinafter referred to as "CEBBCPL" / "Noticee No.3"), Commercial

Automobiles Pvt. Ltd. (hereinafter referred to as "CAPL" / "Noticee


of 21 March 17, 2015

No.4"), Commercial Instalments Pvt. Ltd. (Now known as "Commercial

Auto Dehradun Pvt. Ltd.") (hereinafter referred to as "CIPL" / "Noticee

No.5"), Commercial Motors Finance Ltd. (Now known as "Commercial

Motor Sales Pvt. Ltd.") (hereinafter referred to as "CMFL" / "Noticee

No.6"), Kailash Auto Builders Ltd. (hereinafter referred to as "KABL" /

"Noticee No.7"), Kailash Motors Ltd. (hereinafter referred to as "KML" /

"Noticee No.8"), Kailash Motors Finance Pvt. Ltd. (hereinafter referred to

as "KMFL" / "Noticee No.9"), Shivam Motors Pvt. Ltd. (hereinafter

referred to as "SMPL" / "Noticee No.10"), Tirupati Services Ltd.

(hereinafter referred to as "TSL" / "Noticee No.11"), Kailash Chand

Gupta (hereinafter referred to as "KCG" / "Noticee No.12"), Ishwar

Chandra (hereinafter referred to as "Ishwar" / "Noticee No.13"), Ishwar

Chandra Gupta HUF (hereinafter referred to as "Ishwar HUF" / "Noticee

No.14"), Atul Goel (hereinafter referred to as "Atul" / "Noticee No.15"),

Raghav Gupta (hereinafter referred to as "Raghav" / "Noticee No.16"),

Kailash Chand Gupta HUF (hereinafter referred to as "KCG HUF" /

"Noticee No.17"), Rekha Gupta (hereinafter referred to as "Rekha" /

"Noticee No.18"), Vineet Chandra (hereinafter referred to as "Vineet" /

"Noticee No.19"), Shalini Gupta (hereinafter referred to as "Shalini" /

"Noticee No.20"), Anubha Gupta (hereinafter referred to as "Anubha" /

"Noticee No.21"), Mittar Sen Goel (hereinafter referred to as "Mittar" /

"Noticee No.22"), Angoori Devi (hereinafter referred to as "Angoori" /

"Noticee No.23"), Ashok Goel (hereinafter referred to as "Ashok" /

"Noticee No.24"), Mohit Goel (hereinafter referred to as "Mohit" /

"Noticee No.25"), Rita Goel (hereinafter referred to as "Rita" / "Noticee

No.26"), Pratima Goel (hereinafter referred to as "Pratima" / "Noticee

No.27"), Babulal Nema (hereinafter referred to as "Babulal" / "Noticee

No.28"), Bhaiya Lal Shukla (hereinafter referred to as "Bhaiya" /

"Noticee No.29"), Gaurishankar Agarwal (hereinafter referred to as

"Gaurishankar" / "Noticee No.30") [collectively referred to as

"Noticees" / "Erstwhile Promoters"] had violated the provisions of

regulation 8(1) & regulation 8(2) of SAST Regulations, 1997 read with

regulation 35 of SEBI (Substantial Acquisition of Shares & Takeover)

Regulations, 2011 (hereinafter referred to as “SAST Regulations, 2011”)


of 21 March 17, 2015

and regulation 7(1A) read with regulation 7(2) of SAST Regulations, 1997

read with regulation 35 of SAST Regulations, 2011 and therefore, liable for

monetary penalty under section 15A(b) of the Securities and Exchange

Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’).

APPOINTMENT OF ADJUDICATING OFFICER

3. Shri Piyoosh Gupta was appointed as the Adjudicating Officer vide order

dated June 27, 2013 under section 15-I of SEBI Act and rule 3 of SEBI

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules, 1995 (hereinafter referred to as ‘Rules’) to inquire and

adjudge under Section 15A(b) of SEBI Act for the violations of provisions

SAST Regulations, 1997 alleged to have been committed by the Noticees.

Pursuant to the transfer of Shri Piyoosh Gupta, the undersigned was

appointed as Adjudicating Officer vide Order dated November 08, 2013 to

enquire and adjudge the matter.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

4. Show Cause Notices (SCNs) dated June 19, 2014 in terms of the

provisions of Rule 4(1) of the Rules were issued to the Noticees, calling

upon the Noticees to show cause why an inquiry should not be held

against them under rule 4(3) of the Rules for the alleged violations as

specified in the SCN and penalty be not imposed under section 15A(b) of

SEBI Act. The said SCNs were delivered to the Noticees.

5. In the interest of natural justice and in order to conduct an inquiry in terms

of rule 4(3) of the Rules, the Noticees were granted an opportunity of

personal hearing on August 07, 2014, vide notices dated July 21, 2014 at

SEBI, Head Office, Mumbai. The said Notices of hearing dated July 21,

2014 along with a copy of SCNs dated June 19, 2014 were delivered to

the Noticees via hand delivery through Lucknow Local Office of SEBI on

July 28, 2014. It is observed that the Noticees have neither appeared for


of 21 March 17, 2015

personal hearing scheduled on August 07, 2014 nor sought any

adjournment.

6. Further, in the interest of natural justice and in order to conduct an inquiry

in terms of rule 4(3) of the Rules, the Noticees were granted final

opportunity of personal hearing on August 25, 2014, vide notices dated

August 07, 2014 at SEBI, Head Office, Mumbai. The said Notices of

hearing dated August 07, 2014 along with a copy of SCNs dated June 19,

2014 were delivered to the Noticees via hand delivery through Lucknow

Local Office of SEBI on August 16, 2014. On the scheduled date of

hearing i.e. August 25, 2014, Mr. Jaspreet Chandok, Advocate and Mr.

Bhavesh Desai, Practicing Company Secretary, Authorized

Representatives (hereinafter referred to as "ARs") had appeared on

behalf of Noticee No. 1 to 27. During the course of hearing, the ARs made

following submissions, which inter alia stated as under:

".............

• Noticees has decided to file settlement proceeding under SEBI (Settlement

of Administrative and Civil Proceedings) Regulations, 2014. The

Settlement application may be filed within four weeks time from the date of

hearing i.e. by September 22, 2014. The same would be intimated to the

AO on or before the above date.

• Further, in the adjudication proceeding we will submit the reply on behalf

of all the Noticees within four weeks time from the date of hearing i.e. by

September 22, 2014.

......"

7. It is observed that Noticee No. 28 to 30 have neither appeared for

personal hearing scheduled on August 25, 2014 nor submitted any reply

or sought any adjournment.

8. Kailash Gupta on behalf of Noticee No.1 to 27 vide letter dated September

22, 2014 had submitted the reply in the matter, which inter alia stated as

under:

".............

• We would like to mention that we did submit the disclosures required as

per regulation 8(1} & 8(2} of the SEBI (Substantial Acquisition of Shares

and Takeover) Regulations, 1997 ("SAST Regulations 1997") to the


of 21 March 17, 2015

Company from time to time but are not able to currently locate the copies

of the same as our equity in the Company was sold by us in the year 2010.

However while going through the internal records available with us we

could find cover pages of the required disclosures under section 8 which

were submitted by the Company to the Bombay Stock Exchange from the

year 1998 to 2010, clearly implying that we had submitted the disclosures

based upon which the Company further submitted the disclosures to the

stock exchange...... We are also trying to obtain the copies of the

disclosures submitted from the records of the Bombay Stock Exchange,

which we will submit to you as soon as we receive the same from them.....

• With respect to the disclosures as stipulated under regulation 7(1A) read

with regulation 7(2) of the SAST Regulation 1997 to the Company i.e.

Kailash Auto Finance Limited and to the stock exchanges we would like to

state that the said transfer was an inter-se transfer amongst the erstwhile

promoters and under our belief/erroneous assumption that when a transfer

is made within the promoter/promoter group the requirement for

compliance under regulation 7(1A) read with regulation 7(2) is not

required.

• Through our letter dated 23rd

August 2014 we had requested your office to

grant us suitable extension of time to submit our reply and file voluntary

settlement application in terms of SEBI (Settlement of Administrative and

Civil Proceedings) Regulations, 2014. Through your order sheet dated

25th

August 2014, after personal hearing by our authorised representatives

you were pleased to grant us four weeks time i.e. till September 22nd

2014

to file the settlement application along with our reply.

• We would like to submit that we have accordingly submitted the Settlement

application along with the required supporting's/annexures with SEBI.

.............."

9. SEBI has informed that the settlement application of Noticee No.1 to 27

has not been registered. Further, SEBI vide letter dated February 03, 2015

has returned the documents related to the settlement application to the

Noitcee No.1 to 27.

10. In the interest of natural justice and in order to conduct an inquiry in terms

of rule 4(3) of the Rules, the Noticees were granted final opportunity of

personal hearing on March 13, 2015, vide notices dated March 04, 2015 at

SEBI, Head Office, Mumbai. The said Notices of hearing dated March 04,

2015 were delivered to the Noticees via hand delivery through Lucknow

Local Office of SEBI. The copy of said notices dated March 04, 2015 were

also sent via registered post at the alternate correspondence address of

Noticee no.1 to 27 i.e. at "C/0 124, Napier Town, Jabalpur, Madhya Pradesh -


of 21 March 17, 2015

482001". On the scheduled date of hearing i.e. March 13, 2015, Mr.

Jaspreet Chandok, Advocate, AR had appeared on behalf of Noticee No.

1 to 27. During the course of hearing, the AR made following submissions,

which inter alia stated as under:

"..........

• We reiterate the submission made vide letter dated September 22, 2014.In

addition to it we submit the additional written submission vide letter dated

March 10, 2015. We submit that we have submitted our settlement

application along with supporting documents to EFD, SEBI. We have not

received the aforesaid letter dated February 03, 2015 from SEBI. As

regards to the violation we have already replied vide letter dated

September 22, 2014 and we have no further submissions to make in the

matter.........."

11. Kailash Gupta on behalf of Noticee No.1 to 27 vide letter dated March 10,

2015 had submitted additional written submissions in the matter, which

inter alia stated as under:

".............

• We would like to bring to your kind attention that we had already

submitted the settlement application along with the required original

supporting documents/annexures, undertaking and waiver, power of

attorney, demand drafts towards application fees etc. under SEBI

(Settlement of Administrative and Civil Proceedings) Regulations, 2014

within four weeks' time as granted by you from the date of hearing i.e. by

September 22, 2014. The above documents were submitted to the attention

of Enforcement Department, SEBI along with a copy of the same to the

attention of your office on 22nd

September 2014. The acknowledgement

copy of covering letters submitting the above to SEBI are annexed along

with this reply for your reference and records....

• In response to our above submission, we had received a letter from SEBI

having reference no: EFD/OW /30207 /2014 dated 20th October 2014

requesting us to remove certain deficiencies and resubmit the settlement

application. Accordingly we had done the needful and resubmitted the

application to SEBI on 10th November 2014. The copy of the letter having

reference no: EFD/OW/30207/2014 dated 20th October 2014 along with

the acknowledgement copy of covering letter of our response dated 10th

November 2014 stating the documents submitted to SEBI is annexed along

with this reply for your reference and records.....

• In response to our above submission, we had received further letter from

SEBI having reference no: EFD/ DRAI/OW/36807/2014 dated 24th

December 2014 requesting us to replace one of the demand draft towards

application fees which appears to have expired by efflux of time due to

non-deposit of the same by SEBI. We have accordingly resubmitted the

same along with our letter dated 12th January 2015. The copy of the letter


of 21 March 17, 2015

having reference no: EFD/ DRAI/OW/36807/2014 dated 24th December

2014 along with the acknowledgement copy of covering letter of our

response dated 12th January 2015 submitted to Enforcement Department,

Division of Regulatory Action-I, SEBI is annexed along with this reply for

your reference and records....

• We request you to take the above on your records and do the needful and

oblige.

........."

12. Further, I am convinced that sufficient opportunities have been given to

the Noticee No. 28 to 30 to explain their case. As per rule 4(7) of the

Rules, if any person fails, neglects or refuses to appear as required by

sub-rule (3) before the Adjudicating Officer, he may proceed with the

inquiry in the absence of such person after recording the reasons therefor.

Despite having been given the opportunities of being heard, the Noticee

No. 28 to 30 had failed to avail of the same. I am, therefore, compelled to

proceed with the matter on the basis of material available on record.

ISSUES FOR CONSIDERATION

13. I have carefully documents available on record. The issues that arise for

consideration in the present case are:

A. Whether the Noticees have violated provisions of regulation 8(1) &

regulation 8(2) of SAST Regulations, 1997 in the years 1998 to 2010?

B. Whether the Noticees have violated provisions of regulation 7(1A) read

with regulation 7(2) of SAST Regulations, 1997 in the year 2009?

C. Whether the Noticees are liable for monetary penalty under Section

15A(b) of the SEBI Act?

D. What quantum of monetary penalty should be imposed on the Noticees

taking into consideration the factors mentioned in Section 15J of the

SEBI Act?


of 21 March 17, 2015

FINDINGS 14. On perusal of the material available on record and giving regard to the

facts and circumstances of the case, I record my findings hereunder.

15. With respect to the additional written submission made by the Noticee

no.1 to 27 vide letter March 10, 2015, I note that the Noticee No. 1 to 27

has submitted the settlement application dated September 22, 2014 to

SEBI. However I find that, SEBI vide letter dated February 03, 2015 has

informed Noticee No. 1 to 27 that their settlement application has not been

registered and the documents along with the demand draft were returned

in original. The said letter dated February has been delivered to the

Noticee no.1 to 27 on February 13, 2015.

ISSUE 1: Whether the Noticees have violated provisions of regulation

8(1) & regulation 8(2) of SAST Regulations in the years

1998 to 2010?

16. The provisions of regulation 8 of SAST Regulations, 1997 are read as

under:

Regulation 8 (1) Every person, including a person mentioned in regulation 6 who

holds more than fifteen per cent shares or voting rights in any

company, shall, within 21 days from the financial year ending March

31, make yearly disclosures to the company, in respect of his holdings

as on 31st March.

(2) A promoter or every person having control over a company shall,

within 21 days from the financial year ending March 31, as well as

the record date of the company for the purposes of declaration of

dividend, disclose the number and percentage of shares or voting

rights held by him and by persons acting in concert with him, in that

company to the company

(3) ……….

17. The provisions of regulation 35 of SAST Regulations, 2011 are

reproduced hereunder:


of 21 March 17, 2015

Regulation 35: Repeal and Savings.

(1) The Securities and Exchange Board of India (Substantial Acquisition

of Shares and Takeovers) Regulations, 1997, stand repealed from the

date on which these regulations come into force.

(2) Notwithstanding such repeal,—

(a) anything done or any action taken or purported to have been done

or taken including comments on any letter of offer, exemption

granted by the Board, fees collected, any adjudication, enquiry or

investigation commenced or show-cause notice issued under the

repealed regulations, prior to such repeal, shall be deemed to have

been done or taken under the corresponding provisions of these

regulations;

(b) the previous operation of the repealed regulations or anything

duly done or suffered thereunder, any right, privilege, obligation

or liability acquired, accrued or incurred under the repealed

regulations, any penalty, forfeiture or punishment incurred in

respect of any offence committed against the repealed regulations,

or any investigation, legal proceeding or remedy in respect of any

such right, privilege, obligation, liability, penalty, forfeiture or

punishment as aforesaid, shall remain unaffected as if the repealed

regulations has never been repealed;

(c) any open offer for which a public announcement has been made

under the repealed regulations shall be required to be continued

and completed under the repealed regulations.

(3) After the repeal of Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers) Regulations, 1997,

any reference thereto in any other regulations made, guidelines or

circulars issued thereunder by the Board shall be deemed to be a

reference to the corresponding provisions of these regulations.

18. I note that regulation 8(1) of SAST Regulations, 1997 mandates every

person including a person mentioned in regulation 6, who holds more than

15% shares or voting rights in a company, were required to file disclosures

of their shareholding as on 31st March of every financial year to the

company within 21 days from the financial year ending 31st March.

Further, regulation 8(2) of SAST Regulations, 1997 mandates every

promoter or person having control over a company, were required to file

disclosures of their shareholding [i.e. number and percentage of shares or

voting rights held by him and by persons acting in concert (PACs)] as on


of 21 March 17, 2015

31st March of every financial year to the company within 21 days from the

financial year ending 31st March.

19. From the documents available on record, I find that the Noticees have not

disputed the fact that they were promoters & also persons acting in

concert (PACs) of KAFL during the financial year from 1998 to 2010 and

were holding more than 15% during said period.

20. I note that under regulation 8(1) & regulation 8(2) of SAST Regulations,

1997 the Noticees were under an obligation to file disclosures regarding

their shareholding to the company within 21 days from the financial year

ending March 31. From the documents available on records, I find that

Noticees had not filed the necessary disclosures required under regulation

8(1) & regulation 8(2) of SAST Regulations, 1997 from the year 1998 to

2001 & 2003 to 2009 and had filed with a delay in the year 2002 & 2010,

the details of which are as shown in the table below:

S.No. Regulations Due date of

compliance

Actual date of

compliance

Delay if any (in

no. of days)

1 8(1) & 8(2) 21.04.1998 Not Complied -

2 8(1) & 8(2) 21.04.1999 Not Complied -

3 8(1) & 8(2) 21.04.2000 Not Complied -

4 8(1) & 8(2) 21.04.2001 Not Complied -

5 8(1) & 8(2) 21.04.2002 30.04.2002 9

6 8(1) & 8(2) 21.04.2003 Not Complied -

7 8(1) & 8(2) 21.04.2004 Not Complied -

8 8(1) & 8(2) 21.04.2005 Not Complied -

9 8(1) & 8(2) 21.04.2006 Not Complied -

10 8(1) & 8(2) 21.04.2007 Not Complied -

11 8(1) & 8(2) 21.04.2008 Not Complied -

12 8(1) & 8(2) 21.04.2009 Not Complied -

13 8(1) & 8(2) 21.04.2010 01.05.2010 10


of 21 March 17, 2015

21. Noticee no.1 to 27 in its reply dated September 22, 2014 has stated that

they have submitted the necessary disclosures under regulation 8(1) &

8(2) of SAST Regulations, 1997 to the company i.e. KAFL from time to

time for the years 1998 to 2010. However, I find that Noticee no.1 to 27

have not submitted any documentary evidence with respect of their having

made disclosures under regulation 8(1) & 8(2) of SAST Regulations, 1997

to KAFL. Thus, I do not find any merit in the submissions of the Noticee

no. 1 to 27.

22. I am of the opinion that the Noticees cannot absolve from its duties of

making disclosures under regulation 8(1) & regulation 8(2) of SAST

Regulations, 1997 in the proper format and within the prescribed time limit.

The purpose of these disclosures is to bring about transparency in the

transactions and assist the Regulator to effectively monitor the

transactions in the market and therefore, there can be no dispute that

compliances of regulations is mandatory and it is duty of SEBI to enforce

compliance of these regulations. The timeliness is the essence of

disclosure and delayed disclosure would serve no purpose at all. I am of

the view that when mandatory time period is stipulated for doing a

particular activity, completion of the same after that period would

constitute default in compliance.

23. I find that the Noticee no. 28 to 30 has failed to file any reply to the said

SCN and has not refuted the charges. The Hon’ble Securities Appellate

Tribunal (SAT) in the matter of Classic Credit Ltd. …v/s… SEBI [2007] 76

SCL 51 (SAT - MUM.) inter-alia held – “the appellants did not file any reply to

the second show-cause notice. This being so, it has to be presumed that the

charges alleged against them in the show-cause notice were admitted by them”.

The order passed by Hon’ble SAT is relied upon in this case for guidance.

Therefore, I presumed that the Noticee no. 28 to 30 has admitted the

charges alleged in the said SCN.


of 21 March 17, 2015

24. In view of the above, I hold that the Noticees was under obligation to make

the required disclosures under regulation 8(1) & regulation 8(2) of SAST

Regulations, 1997 within the prescribed time limit, which the Noticees

have failed to do. Therefore, the allegation of violation of provisions of

regulation 8(1) & regulation 8(2) of SAST Regulations 1997 by the

Noticees in the year 1998 to 2010 stands established.

ISSUE 2: Whether the Noticees have violated provisions of regulation

7(1A) read with regulation 7(2) of SAST Regulations, 1997?

25. The provisions of regulations 7 of SAST Regulations, 1997 are

reproduced hereunder:

Regulation 7 (1)……….

(1A) Any acquirer who has acquired shares or voting rights of a company

under sub-regulation (1) of regulation 11 or under second proviso

to sub-regulation (2) of regulation 11, shall disclose purchase or

sale aggregating two per cent or more of the share capital of the

target company to the target company, and the stock exchanges

where shares of the target company are listed within two days of

such purchase or sale along with the aggregate shareholding after

such acquisition or sale.

Explanation.—For the purposes of sub-regulations (1) and (1A), the

term ‘acquirer’ shall include a pledgee, other than a bank or a

financial institution and such pledgee shall make disclosure to the

target company and the stock exchange within two days of creation

of pledge.

(2) The disclosures mentioned in sub-regulations (1) and (1A) shall be

made within two days of,—

(a) the receipt of intimation of allotment of shares; or

(b) the acquisition of shares or voting rights, as the case may be.

(3)……….

26. As per the provisions of the SAST Regulations, 1997 any acquirer who

has acquired shares or voting rights or control in a company, either directly

or indirectly or either by himself or with persons acting in concert, and the

acquisition is within the limits provided under regulation 11(1) of the SAST


of 21 March 17, 2015

Regulations, 1997 and subsequently there is change in shareholding

exceeding two percent of the share capital of the company either by

purchase or sale then, in terms of the provisions of regulation 7(1A) read

with regulation 7(2) of SAST Regulations, 1997 the person whose share

holding has so changed is under obligation to make disclosures, within two

days, to the company and to the stock exchange where the shares of the

company are listed regarding such sale or purchase and the aggregate

shareholding after such acquisition or sale.

27. From the documents availbale on record, it is observed that total

shareholding of the Noticees in KAFL as on March 31, 2008 was

25,91,130 shares i.e. 68.08% of then total shareholding of KAFL. Upon

acquisition of 88,173 shares i.e. 2.32% of then total shareholding of KAFL

by the Noticees in the financial year 2009, their total shareholding in KAFL

had increased to 26,79,303 shares i.e. 70.40% of then total shareholding

of KAFL.

28. It was alleged in the SCN that as there was an acquisition of more than

2% of shares of KAFL by the Noticees in the financial year 2009, Noticees

were required to make the disclosures as stipulated under regulation 7(1A)

read with regulation 7(2) of SAST Regulations, 1997 to the company i.e.

KAFL and to the stock exchanges, within two days from the date of

acquisition of shares, which Noticees had failed to do.

29. The provisions of regulation 7(1A) of SAST Regulations makes obligatory

to the acquirer to disclose the purchase or sale aggregating two per cent

or more of the share capital of the company to the company and the Stock

Exchange. From the documents available on record, I find that the

Noticees have not disputed the fact that they were promoters & also PACs

and were holding more than 15% during said period. Noticees have also

not disputed the fact that they had acquired 88,173 shares i.e. 2.32% of

then total shareholding of KAFL in the financial year 2009, due to which

their total shareholding in KAFL had increased to 26,79,303 shares i.e.


of 21 March 17, 2015

70.40% of then total shareholding of KAFL from 25,91,130 shares i.e.

68.08% of then total shareholding of KAFL.

30. Thus, due to the acquisition of 2.32% shares in the financial year 2009,

the shareholding of the Noticees had changed by more than 2% in the

financial year 2009. Therefore, the Noticees were under obligation to

make disclosures under regulation 7(1A) read with regulation 7(2) of SAST

Regulations, 1997 to the Company i.e. KAFL and to the Stock Exchanges.

However, from the documents available on records, I find that no

disclosure have been made by the Noticees under the regulation 7(1A)

read with regulation 7(2) of SAST Regulations, 1997 to KAFL and to the

Stock Exchanges. Hence, I note that the Noticees failed to make the

required disclosures under regulation 7(1A) read with regulation 7(2) of

SAST Regulations, 1997 to KAFL and to the Stock Exchanges.

31. In appeal No. 139 of 2011 - Rajesh Toshniwal v. Securities and Exchange

Board of India, Order dated June 01, 2012, Hon’ble Securities Appellate

Tribunal (SAT) held that, “…The next issue to be considered is whether the

entire promoter group has to be considered as a homogenous unit and, therefore,

acting in concert in the acquisition of shares. It is the basic principle of corporate

law that promoter group is a homogenous class. It is the normal practice to club

the entire promoter group into one class unless otherwise proved by the acquirer.

The acquirers have always filed their shareholding as belonging to the promoter

group. In the disclosures made to the stock exchanges and the Board, the

promoters’ shareholding consisted of the group as a whole. Even though there is

a mention in the offer document that the acquirers by themselves are responsible

to the offer to the exclusion of other promoter group the conduct of the promoters

as a whole suggests that their behaviour was always united......The promoters, as

a rule, belong to a homogenous group unless otherwise proved by attendant

circumstances to be otherwise. In the present case, except the statement contained

in the public announcement no circumstance is pointed out which would prove

that a set of promoters are a class apart. It is a matter of record that the

shareholding of the entire promoter group was always disclosed as a group

holding to the regulators. In the public announcement document also the


of 21 March 17, 2015

shareholding of the entire promoters group is specifically grouped

together.......The decision of the Supreme Court in Daiichi case relied on by the

appellant may not be of any assistance to him since it deals with a different set of

facts relating to common object underlying the acquisition of shares. In the case

of K.K. Modi, again relied upon by the appellant, the shareholders were

admittedly a divided house. In the present case the various statements furnished

by the promoter group and the conduct of the parties show that they acted

together...... We cannot appreciate the stand taken by the appellant in this

regard....". Therefore, I am of the view that Erstwhile promoters/ Noticees

are a homogenous group and are persons acting in concert.

32. Noticee no.1 to 27 have contended that there was only an inter-se transfer

among the erstwhile promoters and when a transfer is made within the

promoter group the requirement for compliance under regulation 7(1A)

read with regulation 7(2) of SAST Regulations, 1997 is not required. I am

of the view that if we go by the Noticees interpretation then it would lead to

an undesirable situation where investors would not be able to know of the

change in the shareholding of the acquirers/promoters at the time of

acquisition/sales of the shares by the acquirers/promoters separately and

take an informed decision. Such an interpretation would defeat the very

purpose of regulation 7(1A) of SAST Regulations and would go to negate

the very principles on which the whole SAST Regulations are based i.e. i)

Equality of treatment and opportunity to all the shareholders and (ii)

Protection of interests of shareholders. I am of the view that if the entities

acting as promoters transact regularly in the company's shares and

without changing the collective shareholding of the entire promoter group,

then this could actually result in substantial increase/decrease to individual

promoter shareholding without the knowledge of the public. This would not

be in the interest of the general investors who would thereby be not aware

of such substantial change in the promoter’s shareholding. Thus, I do not

find any merit in the said contention of the Noticee no. 1 to 27

33. By not making the disclosures on time, the Noticees failed to comply with

its statutory obligation. The timely disclosure is mandated for the benefit of


of 21 March 17, 2015

the investors at large. There can be no dispute that compliance of

regulations is mandatory and it is duty of SEBI to enforce compliance of

these regulations. In this connection, it may be noted that the Hon’ble

Securities Appellate Tribunal (SAT) in Appeal no. 66 of 2003 in the case of

Milan Mahendra Securities Pvt. Ltd. vs. SEBI, by its order dated

November 15, 2006, has observed that “the Regulations were framed on the

basis of the input provided by a committee headed by Justice P. N. Bhagwati

which had recommended that substantial acquisition of shares and takeovers

should operate principally to ensure fair and equal treatment to all shareholders

in relation to substantial acquisition of shares and takeovers. The object of the

Regulations is to give equal treatment and opportunity to all shareholders and

protect their interests. To translate these principles into reality measures have to

be taken by the Board to bring about transparency in the transactions and it is for

this purpose that dissemination of full information is required. It is with this end

in view that the Regulations require the making of disclosures on pre-acquisition

and post-acquisition stages and the requirement in Regulation 7 at post

acquisition stage is one among them. As observed, the purpose of these

disclosures is to bring about transparency in the transactions and assist the

Regulator to effectively monitor the transactions in the market. We cannot

therefore subscribe to the view that the violation was technical in nature”.

34. In view of the above, I hold that the Noticees was under obligation to make

the required disclosures under regulation 7(1A) of SAST Regulations 1997

within the time limit prescribed under regulation 7(2) of SAST Regulations

1997, which the Noticees have failed to do. Therefore, the allegation of

violation of provisions of regulation 7(1A) read with regulation 7(2) of

SAST Regulations, 1997 by the Noticees stands established.

ISSUE 3: Whether the Noticees are liable for monetary penalty under

Section 15 A (b) of the SEBI Act, 1992?

35. The provisions of section 15A(b) of SEBI Act is reproduced hereunder:


of 21 March 17, 2015

15A. Penalty for failure to furnish, information, return etc.

If any person, who is required under this Act or any rules or regulations made

thereunder, -

(a)……………

(b) to file any return or furnish any information, books or other documents within the

time specified therefore in the regulations, fails to file return or furnish the same

within the time specified therefore in the regulations, he shall be liable to a penalty of

one lakh rupees for each day during which such failure continues or one crore

rupees, whichever is less.

(c)……………

Note: By SEBI (Amendment) Act, 2002, which came into effect from October 29,

2002, the words “a penalty not exceeding five thousand rupees for every day

during which such failure continues” in section 15A(b) of SEBI Act have been

substituted by the words “a penalty of one lakh rupees for each day during which

such failure continues or one crore rupees, whichever is less”.

36. In the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216 (SC),

the Hon’ble Supreme Court of India has held that “In our considered

opinion, penalty is attracted as soon as the contravention of the statutory

obligation as contemplated by the Act and the regulation is established and hence

the intention of the parties committing such violation becomes wholly irrelevant”.

37. As already observed, the Noticees have violated the provisions of

regulation 8(1) & regulation 8(2) of SAST Regulations, 1997 and

regulation 7(1A) read with regulation 7(2) of SAST Regulations, 1997.

Therefore, I find that the Noticees are liable for monetary penalty under

Section 15A(b) of the SEBI Act.

ISSUE 4: What quantum of monetary penalty should be imposed on

the Noticees taking into consideration the factors

mentioned in Section 15J of the SEBI Act, 1992?

38. While determining the quantum of penalty under section 15A(b), it is

important to consider the factors stipulated in section 15J of SEBI Act,

which reads as under:-


of 21 March 17, 2015

“15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, the adjudicating officer

shall have due regard to the following factors, namely:-

(a) the amount of disproportionate gain or unfair advantage, wherever

quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of investors as a result

of the default;

(c) the repetitive nature of the default.”

39. The object of the SAST Regulations, mandating disclosure of

acquisition/sale beyond certain quantity is to give equal treatment and

opportunity to all shareholders and protect their interests. To translate this

objective into reality, measures have been taken by SEBI to bring about

transparency in the transactions and it is for this purpose that

dissemination of full information is required. It is difficult, in cases of this

nature, to quantify exactly the disproportionate gains or unfair advantage

enjoyed by an entity and the consequent losses suffered by the investors.

There is no material on record which dwells on the extent of specific gains

made by the Noticees by not making the specified disclosures on the due

dates. Further it is also not possible to ascertain the loss to the investors in

monetary terms. By virtue of the failure on the part of the Noticees to make

the necessary disclosures on time, the fact remains that the investors

were deprived of the important information at the relevant point of time. In

other words, by not complying with the regulatory obligation of making the

disclosures, the Noticees had not provided the vital information within the

prescribed time which is detrimental to the interest of investors in

securities market. The entire securities market stands on disclosure based

regime and accurate and timely disclosures are fundamental in

maintaining the integrity of the securities market. Hence, the violation of

the Noticees cannot be viewed lightly. However, I have considered the fact

and circumstances of the case. The violation of regulation 8(1) and

regulation 8(2) of SAST Regulations, 1997 by the Noticees is for the

financial year 1998-2010. Thus, the default of the Noticees with respect to


of 21 March 17, 2015

the violation of regulation 8(1) and regulation 8(2) of SAST Regulations,

1997 was repetitive in nature.

40. In the forgoing paragraphs, it is now established that the Noticees have

violated the provisions of regulation 8(1) & regulation 8(2) of SAST

Regulations, 1997 and regulation 7(1A) read with regulation 7(2) of SAST

Regulations, 1997. In view of the above and considering the facts and

circumstances of the case and factors under Section 15J of the SEBI Act

and the violation committed by the Noticees, I find that imposing a penalty

of ` 15,00,000/- (Rupees Fifteen Lakhs only) for the violation of the

provisions of regulation 8(1) & regulation 8(2) of SAST Regulations, 1997

for the financial years 1998 to 2010 and ` 5,00,000/- (Rupees Five Lakhs

only) for the violation of the provisions of regulation 7(1A) read with

regulation 7(2) of SAST Regulations, 1997 on the Noticees would be

commensurate with the violations committed by them.

ORDER

41. In exercise of the powers conferred under Section 15-I of the SEBI Act

and in terms of the provisions of Section 15A(b) of the SEBI Act & Rule

5(1) of the Rules, I hereby impose a total penalty of ` 20,00,000/- (Rupees

Twenty Lakhs only) on the Noticees for violation of the provisions of

regulation 8(1) & regulation 8(2) of SAST Regulations, 1997 for the

financial years 1998 to 2010 and regulation 7(1A) read with regulation 7(2)

of SAST Regulations, 1997. The Noticees shall be jointly and severally

liable to pay the said monetary penalty.

42. The penalty shall be paid by way of demand draft drawn in favour of “SEBI

– Penalties Remittable to Government of India” payable at Mumbai within

45 days of receipt of this Order. The said demand draft shall be forwarded

to the Deputy General Manager, Corporation Finance Department,


of 21 March 17, 2015

Securities and Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra

Kurla Complex, Bandra (E), Mumbai – 400051.

43. In terms of the provisions of rule 6 of the SEBI (Procedure for Holding

Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995,

copies of this Order are being sent to the Noticees and also to Securities

and Exchange Board of India.

Date: March 17, 2015 Jayanta Jash

Place: Mumbai Adjudicating Officer

Adjudication Order in respect of Kailash Gupta & others in .... 6. Further, in the interest of...

Documents

Transcript of Adjudication Order in respect of Kailash Gupta & others in .... 6. Further, in the interest of...