HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LTD. Vs. THE WHOLE TIME MEMBER, SECURITIES AND EXCHANGE BOARD OF INDIA

JUDGEMENT

(1.) THE present appeal challenges the order dated 7 March, 2007 passed by the Whole Time Member, Securities and Exchange Board of India (the Board, for short) holding that HSBC Securities and Capital Markets (India) Private Ltd (Appellant) had violated Clauses 1, 2 and 7 of the code of conduct prescribed in Schedule III to the Securities and Exchange Board of India (Merchant Bankers) Regulations (Merchant Bankers Regulations, for short) and Regulation 24(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations (Takeover Code, for short). The Whole Time Member of the Board, in the impugned order, imposed the minor penalty of censure on the appellant under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (Enquiry Regulations, for short).

(2.) A share purchase agreement was executed on 5th September, 2000 between Global Green Company Ltd (the acquirer, for short) and three other companies namely, Tata Tea Ltd, Tata Coffee Ltd and Conscofe Investments Ltd (the sellers, for short) for the acquisition of 1,56,47,630 shares of Saptarishi Agro Industries Ltd (target company, for short). In terms of regulation 10 of the Takeover Code, the acquirer made a public offer to the shareholders of the target company to acquire 20% of its voting capital following the share purchase agreement. The appellant was appointed the merchant banker for the open offer. The charge in the enquiry proceedings was that the appellant as a merchant banker had failed to comply with regulation 24(4) of the Takeover Code and Clauses 1, 2, 7 and 9 of the Code of Conduct prescribed in Schedule III to the Merchant Bankers Regulations in as much as in the letter of offer dated 15 September, 2000 there was a wrong disclosure that all 2,44,94,200 issued equity shares of the target company were listed on the stock exchanges of Chennai, Mumbai, Delhi and Ahmedabad whereas 1,40,30,000 shares were, in fact, not listed on the Bombay Stock Exchange and these included 59,80,000 shares not listed on any stock exchange. This inaccuracy came to the notice of the Board from the letter of offer issued in August 2003 in connection with the takeover of the same target company by another acquirer. The alleged wrong disclosure was made in the following table included in the final letter of offer that was issued in September 2000. <FRM>JUDGEMENT_33_LAWS(SB)2_2008.htm</FRM>

(3.) A merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgement.