Order against Somplast Leather Industries Limited and its directors in the mater of Somplast Leather Industries Limited

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigation into the alleged price manipulation in the shares of Somplast Leather Industries Limited (hereinafter referred to as the Company) for the period-January 2, 2002 to October 1, 2002 (hereinafter referred to as the investigation period). The said investigation inter alia revealed that the Company had made preferential allotment of 2,42,50,000 equity shares of `10 each without taking in-principle approval for listing such shares on the stock exchange. The Company and its directors did not co-operate during the investigation period and failed to produce documents relating to the issue and allocation of preferential issue of shares and in obtaining in-principle approval for listing the said shares. It was alleged that the Company and its directors have violated SEBI Circular SMDRP/Policy/Cir-15/2001 dated March 8, 2001 read with Clause 24(a) of the listing agreement entered into with the stock exchange. In view of the above, SEBI issued a notice dated September 23, 2005 under Sections 11(4)(b) and 11B of the Securities and Exchange Board of India Act, 1992 to the Company and its directors, namely, Mr. N.R.

Vekaria, Mr. R.N. Vekaria, Mr. S.N. Vekaria, Mr. R. D. Patel, Mr. M.P. Shah alias Bhagwati Shah, Mr. Ramanlal C. Hathi, Mr. Girish Shah, Ms. Yogini Vyas and Mr. Sanjay Patel to show cause as to why appropriate action should not be made against them. The Company and its directors have not responded to the notice. An opportunity of hearing was also provided to the Company and its directors on July 10, 2009. One of the directors of the Company, Ms. Yogini Vyas attended the said hearing and submitted that she was only a salaried employee and not a director as alleged. She further stated that one Amit Shah had floated several penny stock companies and had made his employees including peons, drivers as directors. She informed that she had not received earlier notices nor had been informed by the Company officials of any such notices. Mr. N R Vekaria, Mr. S N Vekaria and Mr. R N Vekaria informed SEBI that they could not attend the hearing and requested for another hearing. Accordingly, another opportunity of hearing was afforded on January 29, 2010. On the scheduled date, Mr. S.N. Vekaria (represented himself and also for Mr. N R Vekaria and Mr. R N Vekaria), Mr. Sanjay Patel and Mr. Girish Shah, attended the hearing and submitted that they were not involved in the preferential allotment and that they had resigned as directors of the Company well before the impugned preferential allotment.

They also agreed to furnish evidence of their resignation from the Company. It was also submitted that the Company was controlled and managed by Dr. Amit Shah during the relevant period. Considering the submissions of the aforesaid persons, SEBI initiated further investigation to inter alia to determine whether there was any change in control of the Company and whether there was contravention of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

2. I have considered the notice issued to the Company and its directors, the submissions made by the aforesaid persons, the material collected during the aforesaid investigation and other material available on record. The issue for consideration is whether the Company and its directors have contravened SEBI Circular SMDRP/Policy/Cir-15/2001 dated March 8, 2001 read with Clause 24(a) of the Listing Agreement, as alleged in the notice. The notice had mentioned that the Company had made a preferential allotment of 2,42,50,000 equity shares of `10 each and alleged that the same was done without obtaining in-principle approval for listing such shares on the stock exchange, in contravention of the aforesaid provisions. It was stated therein that the Company informed the Bombay Stock Exchange Limited (hereinafter referred to as BSE) that they had allotted shares on preferential basis listed on the Ahmedabad Stock Exchange Limited (hereinafter referred to as ASE). However, ASE had responded that the scrip was not listed/permitted to be traded on its floor. In short, it was alleged that the Company had not obtained in-principle approval from the stock exchange for listing, before the allotment.

The notice had also mentioned that the Company and its directors did not co-operate during the investigation and did not produce documents relating to the issue and allocation of preferential issue and in-principle approval for listing the said shares with the stock exchange. In this regard, I note that in the aforesaid investigation conducted by SEBI in the matter, the Saurashtra Kutch Stock Exchange Limited and the Company had responded to SEBI summons and informed, vide their respective letters dated June 10, 2010 and July 30, 2010, that the resolution for the purpose of allotment of preferential shares was passed on April 4, 2000 and that the shares were allotted on July 24, 2000. The requirement of obtaining ‘in-principle’ approval was incorporated in Clause 24(a) of the listing agreement, pursuant to the directive of SEBI, vide Circular dated March 8, 2001. Accordingly, Clause 24(a) of the listing agreement was amended inter alia requiring a company to obtain ‘in-principle’ approval from the stock exchanges having nationwide trading terminals where it is listed, before issuing further shares or securities.

In the present case, as per the Company, the resolution for the purpose of allotment of preferential shares was passed on April 4, 2000 and that the shares were subsequently allotted on July 24, 2000. As the Company had allotted shares prior to the aforesaid circular which requires a company to obtain in-principle approval for listing before issuing further shares, it would not be reasonable, in the interest of justice, to hold it guilty for violating the aforesaid SEBI Circular read with the listing agreement. In view of the above, the show cause notice issued to the Company and its directors is disposed of, as ordered hereinbelow.

3. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4) and 11B thereof, hereby dispose of the show cause notice dated September 23, 2005 issued to Somplast Leather Industries Limited, Mr. N.R. Vekaria, Mr. R.N. Vekaria, Mr. S.N. Vekaria, Mr. R. D. Patel, Mr. M.P. Shah (alias Mr. Bhagwati Shah), Mr. Ramanlal Hathi, Mr. Girish Shah Ms. Yogini Vyas, and Mr. Sanjay Patel in the matter of Somplast Leather Industries Limited, without any directions.

4. This Order shall be without prejudice to any other action/proceedings that may be initiated by the Securities and Exchange Board of India against the aforesaid company or its directors, pursuant to the further investigation conducted in the matter.

DR. K.M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JUNE 27, 2011