Zylog Systems case: Sebi to probe violations of takeover norms

Sebi today ordered an expeditious investigation into alleged violations of takeover regulations by the promoters of Zylog Systems with regard to acquisition of shares in the company.
Zylog Systems Chairman and CEO Sudarshan Venkatraman, its MD and COO Ramanujam Sesharathnam, company's whole time director Parthasarathy Srikanth, his wife Srikanth Sripriya and Sthithi Insurance Services -- a promoter entity of Zylog -- were barred from the market in June 2013.
Later in July 2015, Sebi had refused to lift the ban on the entities and said the prohibition for violating capital market norms would continue till further orders.
The latest order from Sebi's Whole Time Member Prashant Saran comes after the noticees raised some issues, including that relevant details were not provided to them by the regulator.

"I hereby direct Sebi to investigate the allegations pertaining to the Takeover Regulations levelled against Ramanujam Sesharathnam, Sudarshan Venkataraman, Parthasarathy Srikanth, Sripriya Srikanth and Sthithi Insurance Services Private Ltd and also examine the submissions and material submitted by the concerned noticees," Saran said.
While advising Sebi to expeditiously complete the investigation, he also asked the noticees to co-operate with the regulator in the ongoing probe.

According to Saran, it is also a legal contention put forth by Sripriya that she cannot be a PAC (Person Acting in Concert) with promoters.
Sripriya has stated that she had borrowed money from financial institutions for trading in Zylog shares and did not have any right to exercise voting rights on such shares.

"I also note that the acquisition of 0.63 per cent by Sthithi alone would not lead to triggering regulation 3(2) of the Takeover Regulations.
"Therefore, to prove the allegations, it needs to be seen whether Sripriya (who acquired 8.43 per cent) was a PAC with the promoters in respect of the impugned acquisition," Saran said in the order.
Regulation 3(2) pertains to creeping acquisition of shares that could trigger open offer obligation.
It was alleged that Sripriya failed to make an open offer for the shares acquired by her in the company which had increased beyond the threshold limit of five per cent during the period between July 2012 to October 2012.

Meanwhile, as per today's order, the noticees have requested for inspection of records stating that relevant details have not been provided and requested that it would be logical for Sebi to complete the probe and issue a show cause notice if required based on the complete investigation report.
"Considering the various contentions put forth by the noticees, I am of the view that the same needs to be examined by Sebi in the light of observations made in the confirmatory order," Saran said.