SEBI slaps penalty on the promoter of Unisys Softwares

SEBI slaps penalty on the promoter of Unisys Softwares 

In this matter, the Securities and Exchange Board of India (SEBI) had conducted an investigation in the affairs of the company(Unisys Softwares and Holding Industries Limited) during the period from January 19, 2010 to November 14, 2014 and observed that Mr. Kailash Prasad Purohit (Noticee), promoter of Unisys, had pledged 50,000 shares of Unisys on April 23, 2014. In view of the same, the Noticee was obligated to make disclosures to the exchanges i.e. BSE and CSE and Unisys as required under Regulation 31(1) read with 31(3) of the 2011 SAST(Substantial Acquisition of Shares and Takeovers)Regulations within seven working days.

The Adjudicating Officer has primarily observed that while disclosures were made by the Noticee to Unisys on May 06, 2014, he had failed to make requisite disclosures to the Stock exchanges i.e. BSE and CSE. The Stock exchange i.e. BSE and CSE vide their respective replies have confirmed that they have not received disclosures from the Noticee for his aforesaid pledge transaction.

Thus, it has been established that the Noticee had failed to make disclosure to the stock exchanges i.e. BSE and CSE as mandated under Regulation 31(1) read with 31(3) of the SAST Regulations. The failure of the Noticee, who is a promoter of Unisys, shows defiance of binding obligations cast upon him under the SAST Regulation and hence a penalty of Rs. 2 lakhs has been imposed upon him.

The Adjudicating Officer has elaborately discussed the importance of the SAST Regulations. It has been affirmed that intention of the SAST Regulations is to cover all types of encumbrances by whatever name called.

The Noticee, being a promoter, has to understand the nature of encumbrance and that those encumbrances which entail a risk of the shares held by promoter being appropriated or sold by a third party, directly or indirectly, are required to be disclosed to the stock exchanges in terms of the SAST Regulations.

All stakeholders, including minority shareholders should be aware of the detailed reasons for pledging of shares by the promoters, particularly for situations where promoters are holding a significant stake and have pledged their shares. In case of defaults, the shares of promoters can be invoked and sold by the lenders in large quantities which may lead to distress sale and fall in prices, affecting other investors, including minority shareholders.

Further, the provisions of regulations of the SAST Regulations are meant to ensure timely disclosures of significant change in shareholding as such disclosures also enable the stock exchanges and regulators to monitor such material event. Such disclosures also bring about transparency and enable the investors in the scrip to take an informed investment or disinvestment decision.

All stakeholders, including minority shareholders should be aware of the change in shareholding of the promoters. Any information asymmetry with regard to such transactions as in this case would defeat the purpose of disclosures.

The Judgement of the Hon'ble Securities Appellate Tribunal (SAT)in the matter of Coimbatore Flavors& Fragrances Ltd. vs SEBI had also been referred to wherein it was observed that the purpose of these disclosures is to bring about more transparency in the affairs of the companies.

True and timely disclosures by a company or its promoters are very essential from two angles. Firstly; investors can take a more informed decision to invest or not to invest in particular scrip secondly; the Regulator can properly monitor the transactions in the capital market to effectively regulate the same.