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Order No.
ASK/AO/116/2014-15
ASK/AO/117/2014-15
ASK/AO/118/2014-15
In the matter of
2. Shri Kailash C. Sharma, Shri Nalin R Panchal and, Shri Vishal S Gogawat
(hereinafter referred to individually by their name and collectively as Noticees) were
in charge of and were responsible to the SMIL for the conduct of its business and their
designation and nature of directorship as per the DLO are as under:
Sr. No.
1
2
3
Designation
Managing Director
Whole Time Director
Director
DIN
02859319
02861075
02931446
Nature of Directorship
Executive Promoter Director
Executive Director
Promoter
Non-Executive
Director
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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3. It was observed in the investigation that SMIL did not disclose in the DLO the
material information regarding the fact that its project Krishna Marvel for which SMIL
had proposed to use the proceeds of Rights Issue was under dispute despite the said fact
being known to SMIL. Therefore, it was alleged that the Noticees violated Regulation
57(1) of Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 (hereinafter referred to as ICDR Regulations,)
regarding material disclosures in offer document and Clause IV(B) of Part A of
Schedule VIII read with Regulation 57(2)(a)(ii) of ICDR Regulations, 2009.
4. Investigation further revealed that as per the disclosures made by SMIL in DLO,
Sukusama Trades and Investments Private Ltd (STIP) was a related party of SMIL as on
September 30, 2010 and that no related party transaction had taken place between STIP
and SMIL. However, from the ledger statements of STIP for the period of April 1, 2010
to March 31, 2011, it was observed that during the period April-September 2010, SMIL
had paid a total of ` 3.01 crore to STIP in three different transactions from July 14, 2010
to August 07, 2010 and it received only ` 20 lakh on September 28, 2010. Thus, as at
the end of September 2010, SMIL was to receive ` 2.81 crore back from STIP.
However, no disclosure regarding the said fact was made in DLO by SMIL. Therefore, it
was alleged that Noticees violated Clause IX(B)(12)(a) of Part A of Schedule VIII read
with Regulation 57(2)(a)(ii) of ICDR Regulations, 2009.
5. It was further observed that as per the DLO the company had a turnover of ` 26.68
crore for the six month period of April-September 2010. However, as per form No. 231
of MVAT returns dated April 29, 2011 filed by SMIL for the period of April 1, 2010 to
September 30, 2010, the gross turnover was more than ` 30 crore for trades in tiles.
Thus it was observed that SMIL had not disclosed the actual turnover in its books of
account for the six month period of April-September 2010. Further, while SMIL had
booked profits of ` 7.66 lakh by such trades in tiles and showed the same in the
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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Statement of Profit and Loss Account, it did not show the turnover of the tiles traded by
it in its Statement of Profit and Loss Account as stipulated by IX(B)(10) of Part A of
Schedule VIII of ICDR Regulations, 2009. Therefore, it was alleged that Noticees have
violated Clause IX(B)(10) of Part A of Schedule VIII read with Regulation 57(2)(a)(ii)
of ICDR Regulations, 2009.
APPOINTMENT OF ADJUDICATING OFFICER
6. Shri Piyoosh Gupta was appointed as Adjudicating Officer vide order dated April 3,
2013 to inquire and adjudge under section 15HB of the Securities and Exchange Board
of India Act, 1992 (hereinafter referred to as SEBI Act) the alleged violations of
provisions of Clause IV(B), Clause IX(B)(10) and Clause IX(B)(12)(a) of Part A of
Schedule VIII read with Regulation 57(2)(a)(ii) of ICDR Regulations, 2009; and
Regulation 57(1) of ICDR Regulations, 2009 by the Noticees. Subsequently, upon the
transfer of Shri Piyoosh Gupta, I was appointed as Adjudicating Officer, in the present
matter, vide order dated November 08, 2013.
SHOW CAUSE NOTICE, REPLY AND HEARING
7. Common Show Cause Notices dated July 31, 2014 (herein after referred to as SCN)
was issued to the Noticees under rule 4 of SEBI (Procedure for Holding Inquiry and
imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as
Rules) to show cause as to why an inquiry should not be held against them in terms of
rule 4 of the Rules read with section 15I of SEBI Act, 1992 and penalty be not imposed
under section 15HB of SEBI Act, 1992 for the violations specified in the SCN. The
copies of the documents relied upon in the SCN were provided to the Noticees along
with the SCN.
8. Shri Kailash Chandra Sharma vide letter dated October 10, 2014 replied to the SCN
and made the following submissions:
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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Suit No. 6671 of 1999 has not been filed against the Company or its directors or in
respect of the property owned by the Company. The suit has been filed by one
Shree Bhanbhai Nenshi Mahila Vidayalay against Krishna developers.
Furthermore, as per the certificate given by Advocate Sanjeev R Singh, the suit is
in respect of Plot A/2 admeasuring 3,939.80 sq mts of CTS 484 whereas the
company has acquired development rights in respect of 8,287 sq mts in Plot Nos
CTS no. 455, 464 (Part) and 484(Part) except property bearing CTS No. 484 Plot
A/2. Therefore, the said Suit No. 6671 of 1999 before the Bombay High Court did
not affect the development rights acquired by SMIL and hence the same was not
required to be disclosed in the DLO.
The details of related party transactions are clearly disclosed in a table at page 98
of DLO under the heading Statement of Related Party Transactions. STIP had
plans to carry out some investment and in view of the same SMIL subscribed to
equity shares of STIP and paid them share application money. However, when
STIP dropped the plans to carry out the proposed investment, they refunded ` 20
lakh to SMIL. It has been disclosed on page 99 of the DLO that share application
money of ` 281 lakh has been advanced to an Associate (as mentioned in the DLO,
STIP was the only associate of the company.) Hence, the allegation that SMIL
has not disclosed the same in the DLO is erroneous.
Trading in Tiles is not the main business activity of the company and not part of its
operations and was a one time activity to avoid loss. As per the accounting
practices followed at the relevant time and to show a true and correct view of the
financial statements to our shareholders, only profit from sale of tiles were
included in the Profit and Loss account. If SMIL had shown the full sale of tiles in
the DLO, it would have given a misleading figure of turnover of the company since
the sale of tiles is not part of the main operations of the company and was only a
one time activity and not part of the operations of the company.
DLO was dated December 17, 2010 whereas the MVAT return was the revised
return as filed by SMIL in April 2011. Further, sales figure as disclosed in the
DLO was sales net of tax whereas the sales figures in its MVAT return is
gross sales inclusive of tax.
9. Shri Nalin R Panchal and Shri Vishal S Gogawat vide letters dated October 13, 2014
informed that they are adopting the submissions made by Shri Kailash Chandra Sharma
vide letter dated October 10, 2014 and the said submissions may be treated as final
submission from their side in respect of the SCN.
10. In the interest of natural justice and in order to conduct an inquiry in terms of rule
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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4(3) of the Rules, the Noticees were granted an opportunity of personal hearing on
November 21, 2014 at SEBI, Head Office, Mumbai, vide notice dated November 03,
2014. On the scheduled date of hearing Shri Joby Mathew, Advocate, appeared as
Authorised Representative (AR) on behalf of the Noticees and reiterated the submissions
made by the noticees in the reply to SCN. AR submitted that the DLO dated December
17, 2010 filed with SEBI through KSL in the matter of the Proposed Rights Issue of
SMIL was withdrawn and the company did not go ahead with the Rights Issue. He
further submitted that the Whole Time Member, SEBI, vide order dated November 10,
2014 has disposed of the similar violations alleged against the noticees arising out of the
same investigation as in the present matter.
CONSIDERATION OF ISSUES AND FINDINGS
11.
The issues that arise for consideration in the present case are :
a) Whether the Noticees had violated the provisions of Clause IV(B), Clause
IX(B)(10) and Clause IX(B)(12)(a) of Part A of Schedule VIII read with
Regulation 57(2)(a)(ii) of ICDR Regulations, 2009; and Regulation 57(1) of
ICDR Regulations, 2009?
b) Does the violation, if any, on the part of the Noticee attract monetary penalty
under Section 15HB of SEBI Act?
c) If so, what would be the monetary penalty that can be imposed taking into
consideration the factors mentioned in Section 15J of SEBI Act?
12. Before moving forward, it is pertinent to refer to aforesaid provisions which reads as
under:
Regulation 57 of SEBI (ICDR) Regulations) 2009
"Manner of disclosures in the offer document.
57. (1) The offer document shall contain all material disclosures which are true and
adequate so as to enable the applicants to take an informed investment decision.
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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(c) turnover in respect of products not normally dealt in by the issuer but included in (b)
above, shall be mentioned separately.
FINDINGS
13. I have carefully considered the SCN issued to the noticees, their replies/submissions
and the relevant material available on record. Having considered the same, I record my
findings hereunder.
14. Noticees have submitted that the DLO was withdrawn and SMIL did not make its
proposed rights issue and the letter of offer was not issued to the shareholders of SMIL.
The Noticees have brought to my attention the fact that Whole Time Member (WTM) of
SEBI vide Order dated November 10, 2014 (Said order) in a separate proceedings
against the noticees under sections 11(1), 11(4)(b) and 11B of SEBI Act, 1992 read with
ICDR Regulations, on the same set of facts and allegations, had exonerated them of the
charges leveled against them.
15. I note that in the said order, there was a specific finding that DLO was withdrawn by
KSL vide its letter dated May 23, 2013 and accordingly, SEBI did not issue any
observation on the said DLO and SMIL did not make the proposed rights issue. I further
note that in the said order the WTM has also recorded the finding that "The issues of
non-disclosures have remained academic particularly in view of the fact that no case of
any fraudulent device is made out in this case and that the rights issues was withdrawn
and letter of offer was not issued to the shareholders of SMIL." As regards the violation
of the provisions of Clause IV(B), Clause IX(B)(10) and Clause IX(B)(12)(a) of Part A
of Schedule VIII read with Regulation 57(2)(a)(ii) of ICDR Regulations, 2009; and
Regulation 57(1) of ICDR Regulations, 2009, the WTM SEBI has held that these
provisions are applicable in case of public issues and has disposed of the SCN without
issuing any directions under sections 11(1), 11(4)(b) and 11B of SEBI Act, 1992 read
with ICDR Regulations.
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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16. I have also gone through the charges leveled against the noticees in the SCN which
have arisen out of the certain non-disclosures / wrong disclosures contained in DLO
which was filed in respect of the proposed rights issue of SMIL. I find that these charges
leveled against the noticees are applicable to public issues whereas in the instant
proceedings, it is a case of proposed rights issue. Moreover, the DLO in respect of the
proposed Rights issue was withdrawn and SMIL did not make its proposed rights issue.
I am, therefore, of the view that the charges leveled against the noticees are not tenable.
The similar view was also taken by WTM SEBI in the said order and I do not find any
reason to disagree with the same.
Order
17. In view of the foregoing, the alleged violations of the provisions of Clause IV(B),
Clause IX(B)(10) and Clause IX(B)(12)(a) of Part A of Schedule VIII read with
Regulation 57(2)(a)(ii) of ICDR Regulations, 2009; and Regulation 57(1) of ICDR
Regulations, 2009 by the Noticees as specified in the SCN do not stand established and
the matter is accordingly disposed of.
18.In terms of rule 6 of the Rules, copies of this order are sent to the Noticees and also
to the Securities and Exchange Board of India.
A. Sunil Kumar
Adjudicating Officer
Adjudication order in the matter of proposed Rights Issue of Splash Media and Infra Ltd.
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