SEBI Imposes Rs. 36 crore fine on PNB Finance and Industries, CCCL and other Entities

SEBI Imposes Rs. 36 crore fine on PNB Finance and Industries, CCCL and other Entities

The Securities Exchange Board of India (SEBI) has imposed a total penalty of Rs. 35.67 crore worth of penalties on PNB Finance and Industries Ltd., Camac Commercial Company Ltd. (CCCL) and Combine Holding Ltd., including promoters Samir Jain and Meera Jain.

In the matter of PNB Finance and Industries (PNBFIL), six entities have been prohibited from the securities market. They are Samir Jain, Meera Jain, Ashoka Viniyoga, Artee Viniyoga, Camac Commercial Company and Combine Holding.

The present matter has a long-chequered history of litigations on various fora amongst various stakeholders pertaining to a total number of eight companies. SEBI had received complaints alleging non-compliance of various provisions of securities laws including non-compliance with minimum public shareholding norms as well as wrong disclosure of promoter shareholdings by certain companies such as Arth Udyog, Ashoka Viniyoga, Ashoka Marketing, PNB Finance and Investments and Camac Commercial Company.

It was alleged that the Noticees no. 2 to 9 were persons acting in concert. By acting in concert, they were holding majority of shares of PNBFIL to the extent of 91.51% of total shareholding of the Company.

It was further alleged that, by controlling 91.51% of total shareholding of the Company and the aforementioned directorship of persons connected with BCCL in the Company, Noticees no. 2 to 9 were controlling the affairs of PNBFIL during the Investigation Period. However, neither PNBFIL had disclosed Noticees no. 2 to 9 as promoters nor these Noticees had disclosed themselves as promoters or being in control of the Company and further, the Company was being wrongly projected as a professionally run company without any promoter.

In this regard the Whole Time Member, S.K. Mohanty, observed, “the core case of SEBI against the Noticees is that Noticees no. 2 to 9, despite having fallen within the defined criteria of ‘Promoters’ of the Company during the Investigation Period, were knowingly not disclosed as promoters either by the Company or by Noticees no. 2 to 9 themselves and were only disclosed as public shareholders of the Company and, by doing so, the Noticees, as a group, were engaged in acts of camouflaging the entire and actual shareholding pattern of the promoter group of the Company and were projecting the Company (PNBFIL) to have zero promoter shareholding and claiming that all its shares were held by public shareholders and further claiming that the Company was a professionally run company.”

The Board while pursuing the definition of ‘control’ as per Regulation 2(1)(e) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) observed that, “the term ‘in any other manner’ shows that the ‘control’ may be exercised by a person or a group of persons in a manner beyond the afore listed examples, depending upon human ingenuity finding new ways of exercising control of a company by resorting to methods/strategies which on the face of it may escape from the purview of control if the concept of control is given a restrictive interpretation but, when looked through the lenses of the spirit of definition of control, as articulated in SAST Regulations, such strategies/manner would certainly come in conflict with definition and shall be seen to be defeating the very objective for which the term ‘control’ has been defined under the law.”

The SEBI pertinently stressed on the fact that present day securities market in India is based on disclosure-based regime.

The Board asserted that SEBI has imposed numerous obligations on the promoters including various disclosure obligations so that the public shareholders and investors are continuously appraised of their position in the company and also stay aware of all the actions being taken by such promoters in respect to the company.

However, the Board opined that these provisions become mute if a company fails to make disclosure of any or all of its promoters, thereby projecting it to be running without any promoters and consequently, avoiding all the disclosure obligations imposed by law upon the promoters.

The SEBI, in this regard observed, “Noticee have jointly and maliciously misrepresented the company to have no individual promoter and to be run by a group of seemingly unconnected corporate entities in such a manner that none of them was in a dominant position.”

The aforesaid violations were apparent in motivating the misconduct on the part of the Company and other Noticees had further demonstrated that such misconduct of Noticees squarely falls within the domain of fraudulent misrepresentation and the same amounts to fraud committed on the public shareholders and investors in terms of provisions of Regulations 2(1)(c)(1), 2(1)(c)(3) and 2(1)(c)(7) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 ( ‘PFUTP Regulations’).

Thus, in view of the violations the SEBI imposed a fine of Rs 12 crore on PNBFIL as well as Rs 1.41 crore each on Samir Jain, Meera Jain, Ashoka Viniyoga, Artee Viniyoga, Camac Commercial Company and Combine Holding. Further, a penalty of Rs 39 lakh has been slapped on Trishla Jain.

The board further restrained, Samir Jain and Meera Jain from holding the post of director, or any key managerial position or associating themselves in any capacity with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI till the company complies with the minimum public shareholding norms.

Lastly, a penalty of Rs 11 crore has been slapped on CCCL and Rs 1.41 crore fine each on Samir Jain and Meera Jain. Besides, a fine of Rs 20 lakh each has been imposed on Ashoka Viniyoga, Artee Viniyoga, PNB Finance and Industries, Combine Holding and Punjab Mercantile and Traders.