INDIA BUSINESS WORLD - FEBRUARY 16^th - FEBRUARY 29^th - 2008

SECURITIES APPELLATE TRIBUNAL (SAT) UPHOLDS SEBI PENALTY ON HSBC SECURITIES

The Securities Appellate Tribunal (SAT), Mumbai, has upheld a penalty imposed by the capital market regulator on HSBC Securities and Capital Markets. Reaffirming the standards set for merchant bankers involved in securities transactions, SAT held that HSBC Securities & Capital Markets had failed to comply with the disclosure norms relating to an open offer in 2000. According to SAT — a quasi judicial authority — even if compliance lapses don’t result in a loss to investors, such failures are a violation of law and should be dealt with a penalty that the law provides for. Sebi had slapped a penalty on the investment bank for stating in a letter of offer that all shares involved in a particular transaction were listed on stock exchanges of Chennai, Mumbai, Delhi and Ahmedabad. However, in reality while some of the shares were not listed in any stock exchange, some were listed on other bourses and not on the Bombay Stock Exchange.

The disclosure was relating to an open offer for which HSBC was the merchant banker.

The case pertains to a September 5, 2000, share purchase agreement between Global Green Company and three other parties — Tata Tea, Tata Coffee and Conscofe Investments (the sellers) — for the purchase of 1.56 crore shares of Saptarshi Agro (the target company). Under the takeover code, the acquirer made a public offer to the shareholders of the target company for 20 % of the voting capital, following the share purchase agreement.

The violation of norms was noticed in the letter of offer dated September 15, 2000. It was wrongly disclosed in the letter that 2,44,94,200 equity shares of the target company were listed on Chennai, Mumbai, Delhi and Ahmedabad stock exchanges while in reality 1,40,30,000 shares were not listed on BSE. Besides, 59, 80,000 shares were not listed on any of the stock exchange at all.

“In fact an incorrect and wrong information in a letter of offer or other similar documents issued for the benefit of investors in general could lead to serious consequences, including the loss of credibility for the market operators and for the regulatory system. This kind of failure has to be taken very seriously by the market regulator,” the tribunal observed in the order.

SAT upheld Sebi’s wholetime member’s view that HSBC Securities & Capital Markets has violated regulation 24 (4) of the takeover code. The regulation 24 (4) reads — “The merchant banker shall ensure that the contents of public announcement of offer as well as the letter of offer are true, fair and adequate and based on reliable sources, quoting the source wherever necessary.”