In an order dated February 18, 2005, and posted on the Sebi website on Tuesday evening, former Sebi chairman GN Bajpai said he could not agree with the enquiry officer's recommendations of a four-month suspension of the merchant banker's registration.

"I have thought it fit to reduce the penalty as proposed by the enquiry officer and, accordingly, I find a censure will be adequate," Bajpai said.

According to him, "A major penalty of four months on the merchant banker, as recommended by the enquiry officer in his report, if levied, in no way would advance the twin objects of investor protection and promotion and development of the securities market as envisaged by the Sebi Act."

The case before Sebi pertains to JM Morgan Stanley's handling of the disclosures relating to the public announcement of Grasim's offer to acquire shares of L&T.

Sebi alleged that Grasim's public announcement (on October 13, 2002) for the acquisition of a 20 per cent stake in L&T at Rs 190 per share did not contain at least three material disclosures.

This includes the object and purpose of the acquisition of shares of L&T, the reason for the premium paid by Grasim to Reliance Industries [Get Quote] for the acquisition of L&T shares and some material facts in the agreement between Reliance and Grasim.

Sebi says it forced the merchant bankers to make the required disclosures, after which it allowed the offer to proceed.

"The primary consideration is the investors' protection for which purpose the public announcement was required to be made with suitable modifications. This in no way means the merchant banker has not committed any violation due to the alleged non-disclosures in the initial public announcement for which they are liable for action," Bajpai reasoned.

"Non-disclosure in the public announcement is merely in the nature of a technical lapse as the investors' interest has been protected by a subsequent announcement, which provided them an opportunity to take an informed decision about the proposed offer," the order says.

Since "no loss has been caused to the shareholders or investors and that the acquirers have not been found guilty on any count, I think it would not be prudent to levy a major penalty of four months," it added.