Adjudication Order in respect of The Karur Vysya Bank Ltd in the matter of Arvind Remedies Ltd

Case:  Adjudication Order in respect of The Karur Vysya Bank Ltd in the matter of Arvind Remedies Ltd

Violation of: 

             Regulation 29(1) and 29(2) read with Regulation 29(3) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "SAST Regulations, 2011") and Regulations 13(1), and 13(3) read with Regulation 13(5) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as "PIT Regulations, 1992")

Parties: Karur Vysya Bank Ltd (hereinafter referred to as “Noticee”)

Arvind Remedies Ltd. (hereinafter referred to as “ARL / the company”)

 

Examination Period: January 01, 2014 to January 31, 2015

Facts of the case:

·      ARL had taken a short term loan of Rs. 25 Crores from the Noticee for the purpose of working capital requirements for which 75,00,000 shares of ARL were pledged by the promoter – Arvindkumar B Shah.

·     Subsequently, the Noticee has invoked pledge of 75,00,000 shares of ARL on various dates. It was alleged that due to invocation of pledge, the shareholding of the Noticee increased to 40,29,500 shares, constituting 5.91% of the total share capital of ARL, on October 15, 2014.

·     As the shareholding of the Noticee crossed 5% of the share capital of ARL, the Noticee was required to make requisite disclosure, within two working days, to the company under Regulation 13(1) of PIT Regulations, 1992, and

·     Under Regulation 29(1) read with 29(3) of SAST Regulations, 2011 the Noticee was required to disclose the same to the Stock Exchanges and Company.

·      However, no disclosures as stipulated under afore-mentioned Regulations were made by the Noticee thereby violating Regulation 13(1) of PIT Regulations, 1992 and Regulation 29(1) and 29(3) of SAST Regulations, 2011.

               

·       Further it was observed that due to the invocation of pledged shares, the shareholding of the Noticee had further increased to 63,29,500 shares, constituting 9.29% of the total share capital of ARL, on January 27, 2015. As prior to the said acquisition, Noticee was already holding more than 5% of the share Capital of ARL and the said acquisition of shares was more than 2% of the share capital of ARL.

·      The Noticee was required to make requisite disclosure in this regard within two working days of the acquisition to the company under Regulation 13(3) read with 13(5) of PIT Regulations, 1992, and to the company and stock exchanges under Regulation 29(2) read with Regulation 29(3) of SAST Regulations, 2011. However, no disclosures as stipulated under afore- mentioned Regulations were made by the Noticee.

Issues:

a.  Whether the Noticee failed to disclose the change in its shareholdings to the stock exchanges and the company, and thereby violated Regulation 29(1) and 29(2), read with 29(3) of SAST Regulations, 2011, and Regulations 13(1), and 13(3) read with 13(5) of PIT Regulations, 1992?

b.   Does the violation, if established, attract monetary penalty under Section 15A (b) of SEBI Act, 1992?

c.   Quantum of Penalty

Show Cause Notice, Replies and Personal Hearing

Show Cause Notice dated March 13, 2018 was issued for the aforesaid violations to which the following replies were submitted

·     Regulation 29(4) states that Regulation 29 shall not be applicable to Scheduled Commercial Bank or Public Financial Institution and since Karur Vyas Bank is a Scheduled Commercial Bank, provisions of Regulation 29 of SAST Regulations, 2011 is not applicable to the noticee

·      At no point, the noticee held more than the threshold limit of 5 % of the share capital of ARL, hence no disclosure required under Regulation 13 (1) of PIT Regulations, 1992 and Regulation 29(2) and 29 (3) of SAST Regulations, 2011 not required. Continual disclosure as per Regulation 13 (3) read with Regulation 13(5) also not applicable to the Noticee.

·      Bank has intimated to ARL on the invocation of pledged shares as also the disposal of invoked shares vide letter dated 13.12.2014 and 17.02.2015.

During the personal hearing granted to the Noticee, the following submissions were made -

·     Noticee invoked the pledges on various dates and immediately sold the shares in the market through proper market mechanism and had at no time shares exceeding the prescribed limits in the SAST and PIT regulations.

·      Noticee’s highest holding during the relevant period (i.e. September 08, 2014 to February 23, 2015) was on 15.10.2014 which amounted to 2.94% which was below the threshold limit for disclosure under SAST and PIT Regulations.

·   Noticee further submitted that they are a bank of 100 years of existence and shares were acquired in the normal course of banking transaction by invoking the security given for the loan.

Findings

The Noticee  invoked a total of 75,00,00 shares during the period from September 08,2015 to February 02, 2015 and  the pledged shares were invoked  in tranches on various dates further they were  immediately or shortly sold  afterwards, in the market.

The shareholding of the Noticee was constantly fluctuating and the same ranged between 1.51% to nil during the period from September 08, 2014 to February 24, 2015.

The highest shareholding of the Noticee during the above period was on October 08, 2014 and October 15, 2014, when it held 20,00,000 shares, amounting to 2.94% of the shareholding of ARL, which is much below the threshold of 5% specified under the SAST Regulations, 2011 and the PIT Regulations, 1992.

In view of the same, the Adjudicating Officer is of the view that the requirement for disclosure under the SAST Regulations, 2011 and PIT Regulations, 1992 cannot be cast on the Noticee.

                                            

Adjudication Order:

No penalty is warranted against the Noticee in the matter and accordingly the matter is disposed of.