sebi:Order/BM/GN/2022-23/17215-17216

SEBI · SEBI · 2022-02-21 · Barnali Mukherjee, Adjudicating Officer

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Facts / Headnote

Penalty imposed on both noticees for violations of SAST Regulations

Provisions invoked

• s. 15A
• s. 15
• s. 19
• s. 15H
• s. 15J
• s. 28A

Regulations

• Reg. 3
• Reg. 10
• Reg. 2(b)
• Reg. 3(1)
• Reg. 3(3)
• Reg. 10(7)
• Reg. 10(3)
• Reg. 10(4)(c)

Parties

• Mrs. Rupa Modi (PAN: AAHPM1264D)
• Mr. Minesh Modi (PAN: AAHPM1265C)

Holding

Noticee 1 (Mrs. Rupa Modi) violated Regulation 10(3) and 10(7) of SAST Regulations by diluting her shareholding 3 days after the 90-day deadline and by not filing the 10(7) report within 21 working days of buyback closure; Noticee 2 (Mr. Minesh Modi) violated Regulation 10(7) by not filing the report. Penalties of Rs. 1,00,000 and Rs. 4,50,000 were imposed on Noticee 1 under Sections 15HB and 15A(a) respectively, and Rs. 4,50,000 on Noticee 2 under Section 15A(a).

Full text

Adjudication Order in the matter of Netlink Solutions (India) Limited Page 2 of 16 APPOINTMENT OF ADJUDICATING OFFICER 3. SEBI, vide communique dated February 21, 2022 appointed the undersigned as the Adjudicating Officer under Section 15-I of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as ‘Adjudication Rules’) r/w Section 19 of the SEBI Act, 1992 to inquire into and adjudge under section 15HB and 15A (a) of SEBI Act for Noticee 1, and under section 15A(a) of SEBI Act for Noticee 2, for the alleged violations of Regulation 10(3) and 10(7) of SAST Regulation by Noticee 1 and Regulation 10(7) of SAST Regulation by Noticee 2. SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

Adjudication Order in the matter of Netlink Solutions (India) Limited Page 3 of 16 c. However, the said increase in voting rights pursuant to Buyback is exempted under the provisions of Regulation 10(3) of SEBI (SAST) Regulations, 2011 subject to such shareholder reducing her shareholding within 90 days from the date of closure of the said Buyback Offer. d. Vide email dated May 18, 2021, Merchant Banker informed that the Buyback Offer was closed on July 02, 2018. Hence, the date of completion of 90 days from the date of closure of the buyback was September 30, 2018. e. It was observed that, the requisite dilution by Noticee 1 was undertaken after ninety days from the date of the closure of the said buy-back offer i.e on October 04, 2018 with a delay of 3 days. f. Further, the cumulative shareholding of the promoter group breached the creeping acquisition threshold of 5% as prescribed under regulation 3 (2) of the SAST Regulation, and increased by 8.48% pursuant to buyback. Breaching of creeping acquisition limit pursuant to buyback offer is exempted under Regulation 10(4)(c) of SAST Regulation. However, in terms of Regulation 10(7) of SAST Regulation, the Noticee 1 and Noticee 2 were obliged to submit the report with SEBI in the manner prescribed, which was not submitted by the Noticee 1 and Noticee 2. g. SEBI vide its email dated June 01, 2021 had advised MB to inform the Noticee 1 that in case the report is not filed, SEBI may initiate the appropriate enforcement action aga

Adjudication Order in the matter of Netlink Solutions (India) Limited Page 4 of 16 6. Vide letter dated May 31, 2022, the Authorised representative (hereinafter referred to as AR) of the Noticee 1 and Noticee 2 had made following submissions on behalf of Noticee 1 and Noticee 2: a. With respect to allegation that the noticee 1 has violated the provisions of Regulation 10(3) of SEBI SAST Regulations: Noticee has submitted that the Regulation 3(1) is attracted when i. any acquirer acquires further shares or voting rights ii. which taken together with shares or voting rights already held by the Acquirer and persons acting in concert with the Acquirer in such Target Company, iii. entitle them to exercise 25% or more of the voting rights in such target company. b. In the instant case, AR has submitted that it is incorrect to say that the provisions of Regulation 3(1) have been triggered, as even before such increase in voting rights due to Buyback, The Noticee 1, together with Noticee 2, had held 48.97% shares, which is in excess of the threshold limit of 25% of the paid-up share capital and voting rights of the target company. c. He also submitted that, unlike Regulation 3(1), 3(2) or 3(4), which applies to both “acquisition of shares or voting rights”, the Regulation 3(3) applies only where an individual crosses Regulation 3(1)’s threshold pursuant to an “Acquisition of Shares”. AR submitted that the Regulation 3(3) applies if there is an increase in an Individual’s shareholding

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