In the matter of IPO Irregularities - request from Ms. Bela K. Jhaveri, Ms. Sumangala P. Jhaveri and Shri Kamal P. Jhaveri to sell 8,000 Shares of HSBC Investdirect India Ltd
- Order No.WTM/SEBI/ISD/310/2010
Ratio decidendi
The rule this decision rests on
Where a shareholder's demat accounts stand suspended under a consent order imposing a time-bound debarment, the regulator may partially relax the consent terms to permit the sale of specified shares if the shares are sold under an exit offer made by the acquirers after a voluntary delisting, and the shareholder could not or did not participate in the book-building process, provided the relaxation does not defeat the purpose of the debarment. The relaxation is conditioned on safeguards that preserve that purpose. The shares must be free of any encumbrance or attachment by another law enforcement agency or court and must be transferred to a special depository account held by the manager to the offer. The sale proceeds are not released to the debarred holder during the debarment period but are held in escrow and released only on expiry of the debarment, and any tax on the sale is borne by the applicants.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
1. SEBI, pending investigations, vide an ad-interim exparte order dated April 27, 2006, had directed certain persons, including Shri Kamal P. Jhaveri [Kamal] not to buy, sell or deal in the securities market, including in the IPOs, directly or indirectly, till further directions. While the proceedings were in progress, Kamal applied under consent scheme. As part of the terms of consent, Kamal volunteered to undergo debarment for a period of 3 years as per consent order dated February 10, 2009. As a result, operations of the demat accounts wherein Kamal appears as a sole or joint holder have been placed under suspension for a period of 3 years i.e. till February 28, 2012, including demat account nos. 10004618 (Client name: Bela K. Jhaveri) and 10004562 (Client name: Sumangala P. Jhaveri) with Karvy Stock Broking Pvt. Ltd. (DP ID: IN300394).
2. Bela K. Jhaveri (Bela) and Sumangala P. Jhaveri (Sumangala), vide their letter July 26, 2010, have requested SEBI to allow them to sell 4,500 shares and 3,500 shares of HSBC InvestDirect India Ltd. (HSBC) held by them in the respective demat accounts. Further, Kamal, vide his letter dated August 17, 2010 has also requested SEBI to allow sale of the aforesaid shares of HSBC. He has further stated that if the sale proceeds are not released in favour of account holders, then the same may be retained by SEBI and released alongwith interest, if any, after the 3 year voluntary debarment is over.
3. We note that HSBC has delisted its equity shares voluntarily with effect from July 15, 2010. The acquirers, namely, HSBC Securities and Capital Markets (India) Pvt. Ltd. and HSBC Violet Investments (Mauritius) Ltd., have announced, vide their public announcement dated May 13, 2010, that the shareholders who did not or could not participate in the book building process can sell their shares to the acquirers at an exit price of Rs.400 per share during the period of one year starting from the date of delisting.
4. In view of the above facts and circumstances and in partial relaxation of the terms of consent resting in the order dated February 10, 2009, the following directions are issued to facilitate sale of 4,500 shares held in the demat account 10004618 (Client name: Bela K. Jhaveri) and 3,500 shares in the demat account 10004562 (Client name: Sumangala P. Jhaveri) maintained with Karvy Stock Broking Pvt. Ltd. (DP ID: IN300394) which are both jointly held with Kamal: a. Bela, Sumangala and Kamal shall complete all the necessary formalities to give effect to sale of their respective said shares to the acquirers within 15 days from the date of this order.
b. On completion of the necessary formalities as at (a) above, and ensuring that there is no encumbrance / attachment by any other law enforcement agency / Court on the said shares, NSDL and its DP, Karvy Stock Broking Ltd. (DP ID: IN300394) shall transfer the aforesaid shares from the demat account nos. IN300394 10004618 and IN300394 10004562 to the Special Depository Account (IN300394 17601089) maintained by the Manager to the offer.
d. The Manager to the offer shall transfer the entire sale proceeds in respect of aforesaid shares to Karvy within 7 days from the date of transfer to the Special Depository Account.
e. The amount of Rs 14,00,000 (3,500 shares * Rs 400) to Sumangala Jhaveri and Rs 18,00,000 (4,500 shares * Rs 400) to Bela Jhaveri, the first holders of the demat accounts stated shall be kept in escrow A/c by Karvy to be released to the aforementioned persons on February 28, 2012, upon completion of the debarment period.
f. Any tax liability arising out of the aforesaid sale of shares shall be borne by the applicants.
5. A copy of this order shall be served on Ms. Bela K. Jhaveri, Ms. Sumangala P. Jhaveri, Shri Kamal P. Jhaveri, NSDL, Karvy Stock Broking Ltd., SBI Capital Markets Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd. and HSBC Violet Investments (Mauritius) Ltd. to ensure implementation of directions contained herein.
Prashant Saran Date: October 25, 2010 Whole Time Member Place: Mumbai Securities and Exchange Board of India
Dr. K.M.Abraham Whole Time Member Securities and Exchange Board of India
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