2008 (2) TMI 926 - AT - Companies Law

Summary

Issues Involved:
1. Violation of Clauses 1, 2, and 7 of the Code of Conduct prescribed in Schedule III to the Securities and Exchange Board of India (Merchant Bankers) Regulations.
2. Violation of Regulation 24(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations.
3. Adequacy and accuracy of disclosures in the letter of offer.
4. Responsibility and due diligence of the merchant banker.
5. Penalty imposition and its justification.

Summary:

1. Violation of Clauses 1, 2, and 7 of the Code of Conduct:
The appellant, HSBC Securities and Capital Markets (India) Private Ltd, was found to have violated Clauses 1, 2, and 7 of the Code of Conduct for Merchant Bankers. Clause 1 mandates protecting investors' interests, Clause 2 requires maintaining high standards of integrity, and Clause 7 emphasizes providing true and adequate information without misleading claims. The appellant's failure to disclose the correct listing status of shares in the letter of offer was seen as a breach of these clauses.

2. Violation of Regulation 24(4) of the Takeover Code:
Regulation 24(4) requires the merchant banker to ensure that the contents of the public announcement and the letter of offer are true, fair, and adequate. The appellant's letter of offer incorrectly stated that all issued shares were listed on multiple stock exchanges, which was not the case. This misrepresentation was a clear violation of Regulation 24(4).

3. Adequacy and Accuracy of Disclosures:
The appellant argued that the non-disclosure of certain shares being unlisted did not impact shareholders' decisions. However, the Tribunal emphasized that the listing status is a relevant factor for shareholders and that disclosures must be true and fair. The incorrect assertion about the listing status was deemed significant and misleading.

4. Responsibility and Due Diligence of the Merchant Banker:
The appellant claimed to have exercised due diligence by relying on various documents, including annual reports and a shareholding pattern certificate. However, the Tribunal found that the appellant had presumed the shares were listed without verifying from the right sources, such as the target company and stock exchanges. The Tribunal criticized the appellant's passive approach and failure to proactively verify the information.

5. Penalty Imposition and Its Justification:
The appellant contended that there was no willful default or gain from the wrong disclosure and that no serious loss or damage occurred. However, the Tribunal referred to the Supreme Court's ruling in Chairman SEBI v. Shriram Mutual Fund and Anr., which stated that intention or mens rea is not required for imposing penalties for statutory civil obligations. The penalty imposed was the minimum prescribed, and the Tribunal found no reason to interfere with it.

Conclusion:
The appeal was dismissed, and the Tribunal upheld the censure imposed on the appellant for violating Regulation 24(4) of the Takeover Code and Clauses 1, 2, and 7 of the Code of Conduct for Merchant Bankers. The judgment emphasized the importance of accurate and diligent disclosures in maintaining market integrity.