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.
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.
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:
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
The adjudicating officer
has sought to establish interconnectedness among the various entities using
circumstantial evidence. While it is understandable that it would be difficult
to adduce any direct evidence regarding common intention or purpose to obtain
control over a company, the sustainability of an order only on the basis of
circumstantial evidence remains to be seen.