2021 (12) TMI 1441 - Board - SEBI

Offence under SEBI - elapse of a period of more than 10 years, the Acquirers are yet to comply with SEBI s direction to make offer to the shareholders - Interest of investors and for protection of their rights - liability of the Acquirers by calculating the offer price in terms of regulation 23 of the Delisting Regulations - HELD THAT - Acquirers by not making public offer has not only deprived the shareholders from exiting their shareholding at a fair price thereby acting in gross defiance of the directions issued under SEBI Order (which finally merged with order passed by the Hon ble Tribunal and the Hon ble Supreme Court of India) but at the same time, the non-compliance on the part of the Acquirers caused a financial gain of INR 38.65 Crore along with interest amount for the undue prolonged delay in making the offer to the shareholders, since the non- compliance to make the public offer has resulted in saving of the above stated amount as calculated towards public offer consideration to the Acquirers. It can be stated that the Acquirers have notionally gained to such extent in this regard. As reiterated that the Acquirers have failed to make the public offer despite SEBI s directions to them to do so and despite the SEBI directions having been upheld by the Hon ble SAT and the Hon ble Supreme Court of India. Acquirers have failed to cooperate with the Independent Valuer despite issuance of First and Second Advisories. We note that adequate opportunities and time have already been provided to the Acquirers to comply with the requirements of law regarding the public offer and the aforestated SEBI s directions issued in this regard. By failing to comply with the directions issued vide SEBI s order dated July 27, 2010, the Acquirers have acted adverse to the interest of the shareholders of the Target Company, by denying them the right to exit at a fair price as per SEBI s directions including the aforesaid two advisories. In order to protect the interest of shareholders and to avoid any further delay in the matter and to implement/execute the directions contained in the SEBI Order dated July 27, 2010 which has long back become final and binding on the Acquirers in light of the First and Second SAT Orders and Second Supreme Court Order, it is imperative to issue further appropriate directions against the Acquirers, which would require the Acquirers to do the needful immediately. Keeping in view the misconduct and non-compliances by the aforesaid Acquirers/entities as discussed in the foregoing paragraphs, Mr. Zafar Yunus Sareshwala and Mr. Uves Yunus Sareshwala are called upon to show cause as to why the suitable directions, including the following, should not be issued/imposed against them u/s 11(1), 11(4)(d) and 11B(1) of the SEBI Act i. direction to disgorge an amount equivalent to the gain made by them by not complying with direction of public offer along with interest; ii. direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. This Order is without prejudice to any other action that SEBI may initiate under the securities laws, as deemed appropriate, against the above mentioned persons/entities. This Order shall come into force with immediate effect.

Summary

Issues Involved:
1. Fraudulent activities by the Target Company and its promoters.
2. SEBI's directions to the Target Company and its promoters.
3. Appeals and orders by SAT and the Supreme Court.
4. Non-compliance with SEBI's directions.
5. Calculation of the public offer price.
6. SEBI's final order and directions.

Issue-wise Detailed Analysis:

1. Fraudulent activities by the Target Company and its promoters:
The investigation by SEBI revealed that the Target Company and its promoters were involved in fraudulent activities, including the issuance of 80,800 fake share certificates, forging signatures of genuine investors, and dematerializing these fake certificates to transfer shares to their own accounts. This defrauded shareholders, and the company provided misleading information during the investigation.

2. SEBI's directions to the Target Company and its promoters:
Based on the investigation, SEBI issued an order on July 27, 2010, restraining the Target Company and its promoters from dealing in the securities market for seven years, prohibiting them from holding director positions in any listed company for the same period, and directing them to make a public offer to acquire shares from public shareholders within three months.

3. Appeals and orders by SAT and the Supreme Court:
The SEBI order was challenged before the SAT, which upheld SEBI's findings and dismissed the appeal, describing the fraud as "of the worst kind." The Supreme Court remanded the matter to SAT, which reaffirmed SEBI's directions. Subsequent appeals to the Supreme Court were dismissed, confirming the directives issued by SEBI.

4. Non-compliance with SEBI's directions:
Despite exhausting legal remedies, the Acquirers did not comply with SEBI's order to make a public offer. This led to adjudication proceedings, resulting in a monetary penalty for non-compliance. SEBI noted that the Acquirers delayed the public offer process and provided inadequate valuation of the shares.

5. Calculation of the public offer price:
SEBI observed that the Acquirers' valuation based on 2017-2018 financials was incorrect. The correct valuation should be based on the financials of 2009-2010, with interest for the delay. SEBI appointed an Independent Valuer to compute the fair value, but the Acquirers failed to provide necessary information, causing further delays.

6. SEBI's final order and directions:
Given the prolonged non-compliance and the need to protect shareholders' interests, SEBI directed the Acquirers to complete the public offer within 60 days and deposit INR 38.65 Crore plus interest in an escrow account. The Acquirers were also restrained from dealing in the securities market until the public offer was completed. SEBI issued a show-cause notice for further possible actions, including disgorgement of gains and market prohibition.

Conclusion:
The judgment highlights severe fraudulent activities by the Target Company and its promoters, the legal journey affirming SEBI's directives, and the persistent non-compliance by the Acquirers. SEBI's final order aims to ensure compliance and protect shareholders' interests by mandating a fair public offer and imposing restrictions on the Acquirers.