Nearly three years ago, we had discussed SEBI’s initial order relating to trading of shares in Bank of Rajasthan (BoR). Last week, the adjudicating officer of SEBI has passed an order imposing a hefty penalty on 118 entities that traded in shares of for violation of the provisions of the SEBI Takeover Regulations and the SEBI Regulations on Fraudulent and Unfair Trade Practices.
The facts of the case are detailed in the previous post, but they are again summarized in the SEBI adjudicating officer’s order:
… though as per disclosure their holding seemed to have reduced, investigation observed that in reality the holding of the promoters actually increased with the active collusion of front entities who were alleged to be the persons acting in concert (PACs). Thus, it was observed that the shareholding of the promoters of BoR alongwith entities who were alleged to be PACs had increased from 46.80% in June 2007 to 63.15% in December 2009. … It was alleged that while the Promoter Group conveyed the impression that they were reducing their shareholding, they did not dilute their controlling stake in BoR. On the contrary they had actually increased their holding in a deceptive manner with the active collusion of their PACs, that is, the Tayal Group, the Silvassa Group and the Yadav Group.
One of the key questions was whether the several entities that engaged in the sale and purchase of shares of BoR were interconnected and hence persons acting in concert for purpose of the Takeover Regulations. The test applied by the adjudicating officer after analyzing the various relationships between the entities and the trades among them is as follows:
In view of the above, I find that connections/ relations have been established on the basis of common directors, common addresses, fund transfers, off market transfer of shares, and the submission of the Noticees is devoid of merit. Accordingly, I hold that the Promoter, Tayal, Yadav and Silvassa group were PACs.