Securities Appellate Tribunal
Mr. Dhananjay Somani & Ors. vs Sebi on 20 October, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 27.08.2021
Date of Decision: 20.10.2021
Appeal No. 403 of 2018
1. Mr. Dhananjay Somani
Shreeniketan,
Fifth Floor, 86-A N. S. Road,
Marine Drive,
Mumbai- 400 002
2. Aradhana Somani
Shreeniketan,
Fifth Floor, 86-A N. S. Road,
Marine Drive,
Mumbai- 400 002
3. Shree Consultations and Services Pvt. Limited
Empire House, 3rd Floor,
214 Dr. D.N. Road,
Mumbai- 400 001
4. Chemo Pharma Laboratories Limited
Empire House, 3rd Floor,
214 Dr. D.N. Road,
Mumbai- 400 001 ...Appellants
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai- 400 051 ...Respondent
Mr. Pesi Modi, Senior Advocate with Ms. Kalpana Desai,
Mr. Vikas Bengani, Mr. Yahya Batatawala, Advocates and
Dr. S. K. Jain, PCS i/b Dr. S. K. Jain, PCS for the Appellants.
Mr. Kevic Setalvad, Senior Advocate with Mr. Nishit Dhruva,
Mr. Hridhay Khurana, Mr. Yash Garach and Ms. Aalisha Shah,
Advocates i/b MDP & Partners for Respondent.
2
WITH
Appeal No. 432 of 2018
1. India Ener-Gen Private Limited
(Formerly known as Tecil Finance Limited),
3rd Floor, Empire House,
214, Dr. D. N. Road,
Mumbai- 400 001
2. Tecil Chemicals and Hydro Power Limited
First Floor, Anjana Complex,
Vytilla Arror Bye Pass Road,
Kundannor, Kochi,
Kerala- 682 304
3. Ravindra Energy Limited
(Formerly known as Ravindra Trading & Agencies Limited)
BC 109, Davidson Road,
Camp, Belagum,
Karnataka- 590 001
4. Joshi Finance Private Limited
(Formerly known as Joshi Finance Limited)
11/13, Parijat CHS, Ltd.,
MHADA Complex,
Film City Road,
Goregaon (East),
Mumbai- 400 097 ...Appellants
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai- 400 051 ...Respondent
Dr. S. K. Jain, PCS with Mr. Vikas Bengani, Mr. Yahya
Batatawala, Advocates i/b Dr. S. K. Jain PCS for the
Appellants.
Mr. Kevic Setalvad, Senior Advocate with Mr. Nishit Dhruva,
Mr. Hridhay Khurana, Mr. Yash Garach and Ms. Aalisha Shah,
Advocates i/b MDP & Partners for Respondent.
3
CORAM: Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per: Justice M. T. Joshi, Judicial Member
1. Aggrieved by the impugned directions of the Learned
Adjudicating Officer ("AO" for convenience) of the respondent,
Securities and Exchange Board of India ("SEBI" for
convenience) dated August 09, 2018 to pay penalty for various
violations relating to the disclosures and one regarding violation
of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 ("Takeover Regulations" for convenience)
upon failure to make open offer, the present appeals are
preferred.
2. Cumulative penalty of Rs. 18 lakhs was imposed upon
the present appellants for violation of Regulation 8(1) and 8(2)
of the Takeover Regulations, Rs. 3 crores for alleged violation
of Regulation 11(1) read with Regulation 14 of the same
Regulation for failure to make public announcement of open
offer, Rs. 6 lakhs for delay in making the disclosures under
Regulation 3(3) and 3(4) of the same Regulations.
3. All the appellants were former promoters of Indian
Infotech and Software Ltd. (target company) till 2010-11. One
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Jayanti Prime Software Advisory Pvt. Ltd. took over this target
company in 2010-2011. Necessary letter of offer in compliance
with Regulation 10 and 12 of the Takeover Regulations were
filed before the SEBI. While scrutinizing those documents
respondent SEBI observed that the target company and the
erstwhile promoters of the company namely; the present
appellants had violated certain provisions of Takeover
Regulations. In view of the same, the present adjudicating
proceeding was initiated under various regulations against the
company as well as the present appellants. While the company
was absolved, the present appellants were found to be guilty of
some of the violations as detailed (supra). Therefore, the
Learned AO imposed the penalty.
4. So far as the disclosure violations under Regulation 8(1),
8(2), 3(3) and 3(4) of the Regulations are concerned, these
relates to the regular periodic disclosures and of changes and
acquisitions made of the shares by them to be disclosed to the
Company while they were the promoters of the target company.
Relevant regulations are as under :-
"Continual disclosures
8. (1) Every person, including a person mentioned
in regulation 6 who holds more than [fifteen] per
5
cent shares or voting rights in any company,
shall, within 21 days from the financial year
ending March 31, make yearly disclosures to the
company, in respect of his holdings as on 31st
March.
(2) A promoter or every person having control
over a company shall, within 21 days from the
financial year ending March 31, as well as the
record date of the company for the purposes of
declaration of dividend, disclose the number and
percentage of shares or voting rights held by him
and by persons acting in concert with him, in that
company to the company.
(3) Every company whose shares are listed on a
stock exchange, shall within 30 days from the
financial year ending March 31, as well as the
record date of the company for the purposes of
declaration of dividend, make yearly disclosures
to all the stock exchanges on which the shares of
the company are listed, the changes, if any, in
respect of the holdings of the persons referred to
under sub-regulation (1) and also holdings of
promoters or person(s) having control over the
company as on 31st March.
"7(1A) Any acquirer who has acquired shares or
voting rights of a company under sub-regulation
(1) of regulation 11, shall disclose purchase or
sale aggregating two per cent or more of the
share capital of the target company to the target
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company, and the stock exchanges where shares
of the target company are listed within two days
of such purchase or sale along with the aggregate
shareholding after such acquisition or sale.
(2) The disclosures mentioned in sub-regulations
(1) [and (1A)] shall be made within four working
days of,-
(a) the receipt of intimation of allotment of
shares; or
(b) the acquisition of shares or voting rights, as
the case may be.
While the appellants claim that within the prescribed
period of these Regulations they had made disclosures to the
Company, the Learned AO held that there is no proof of receipt
of those disclosures by the Company. The order of the Learned
AO would show that the AO had a serious doubt as to whether
the proof of making the disclosure is genuine. Further
respondent SEBI post hearing of the matter filed brief written
submissions and added one another circumstance which may
cast doubt on the genuineness of the disclosure documents. Be
that as it may, the learned AO did not record the finding that the
documents submitted in proof of making disclosures are not
genuine or were forged. What was concluded by AO was that
there is no proof that these disclosures were received by the
Company.
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5. The appellants case is that the target company is one of
the group companies of the appellants, whose offices were
situated in a single premise i.e. Empire House, 3rd Floor, Fort,
Mumbai. It has a common reception area for all the group
companies. Therefore, all the necessary duly filled in disclosure
forms were received from time to time during the period from
09.11.1967 to 31.05.2006 by one employee Mr. Vishnu D.
Dalvi, who was in employment of one of the appellant namely;
Tecil Chemicals & Hydropower Ltd. After receipt of any
correspondence/ documents said Mr. Vishnu D. Dalvi, used to
forward the documents to the concerned Company of the group.
In support of the same the copies of all the requisite disclosures
forms bearing the stamp of the appellant Tecil and the
signatures of the said Mr. Vishnu D. Dalvi were placed on
record before the Learned AO.
6. The Learned AO observed that while according to law
these disclosures were required to be further made by the
Company to stock exchanges, the Company made those
disclosures only after the takeover by the new promoters. It was
found that the new company under the new management was
reluctant to certify that those disclosures were received in time
by it. Further, the Learned AO took the note of the statement
made in the letter of offer made by Jayanti Prime Software
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Advisory Pvt. Ltd. that those disclosures were not available in
the record of the Company. However, in the proceedings before
the AO the Company under the new management on the basis of
copies of these disclosures/ documents confirmed the receipt of
the filing made by the present appellants. The Company
however was not able to confirm whether the documents were
filed within the stipulated time or not. Thus according to AO
though there is a proof of receipt of those disclosure documents
by Mr. Vishnu Dalvi, who was the employee of one of the
appellants there is no proof that the target company had
received the same and, therefore, the Learned AO did not
believe the case of the appellants of making disclosers.
In the written submissions filed by the respondent after the
hearing in the present appeal was concluded another doubt has
been expressed. In the written submissions, it is submitted that
the disclosure form of April 16, 1997, copy of which was filed
by the appellants on the record of the Learned AO showed that
the disclosure was made by the appellant India Ener-Gen i.e.one
of the appellant. However in fact at that time India Ener-Gen
was not in existence, this name was obtained by India Ener-Gen
by converting Tecil Finance Limited on December 07, 1998 i.e.
more than one and half year from the alleged disclosure.
9
7. To this post hearing submissions, the appellant has
replied by filing post hearing written submissions. It was
submitted that since long the present appellant as well as the
Company was in the process of taking action of changing the
name. In fact the Board of Directors of the Company had
considered the same in the year 1997 and even enabling
Resolutions were passed by the Board on or about January 01,
1998. In the circumstances, in the disputed disclosure form the
name of the Company was shown as "M/s. Tecil Finance
Limited (India Ener-Gen Limited)".
8. Upon hearing both the sides, in our view though the
material placed by the appellant may cast some doubt, taking
into consideration the fact that there are acknowledgement of
receipt of the disclosure by the employee of one of the appellant
Company which also happened to be Member of the group of
the companies including the target company. All these
companies were situated in one premises and therefore placing
of one employee of the reception desk for all the companies is
not only probable but could be a practical approach. It is to be
noted that the target company under the new management had
accepted the receipt of those disclosures. Considering the lapse
of time from the year 1998 onwards, in our view in fact benefit
of doubt should go to the appellants in this case.
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The issue of presumption regarding the receipt and as to when it
arises would differ from facts to facts. It is no doubt true that
there is a proof that the disclosure form was received by the
employee of one of the appellants employee and not by the
target company. However, considering the fact that all these
companies formed one group and were situated in one of the
premises, the explanation of the appellant is plausible.
Considering all these facts, in our view the order of the Learned
AO imposing penalty on the appellants for violation of
Regulation 8(1) and 8(2) so also Regulation 3(3) and 3(4)
cannot be sustained. The appeal would be allowed to that
extent.
9. The appellants in Appeal no 403 of 2018 are alleged to
have committed violation of Regulation 11 read with 14 of the
SAST Regulations. The provisions are as under:-
Consolidation of holdings.
11(1) No acquirer who, together with persons
acting in concert with him, has acquired, in
accordance with the provisions of law, 15 per cent
or more but less than fifty five per cent (55%) of
the shares or voting rights in a company, shall
acquire, either by himself or through or with
persons acting in concert with him, additional
shares or voting rights entitling him to exercise
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more than 5% of the voting rights, with post
acquisition shareholding or voting rights not
exceeding fifty five per cent in any financial year
ending on 31st March unless such acquirer makes
a public announcement to acquire shares in
accordance with the regulations.
(2) No acquirer, who together with persons acting
in concert with him holds, fifty-five per cent (55%)
or more but less than seventy-five per cent (75%)
of the shares or voting rights in a target company,
shall acquire either by himself or through or with
persons acting in concert with him any additional
shares entitling him to exercise voting rights or
voting rights therein, unless he makes a public
announcement to acquire shares in accordance
with these Regulations:
Provided that in a case where the target company
had obtained listing of its shares by making an
offer of at least ten per cent (10%) of issue size to
the public in terms of clause (b) of sub-rule (2) of
rule 19 of the Securities Contracts (Regulation)
Rules, 1957, or in terms of any relaxation granted
from strict enforcement of the said rule, this sub-
regulation shall apply as if for the words and
figures 'seventy-five per cent (75%)', the words
and figures 'ninety per cent (90%)' were
substituted.
Provided further that such acquirer may
notwithstanding the acquisition made under
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regulation 10 or sub-regulation (1) of regulation
11, without making a public announcement under
these Regulations, acquire, either by himself or
through or with persons acting in concert with
him, additional shares or voting rights entitling
him upto five per cent. (5%) voting rights in the
target company subject to the following:-
(i) the acquisition is made through open market
purchase in normal segment on the stock
exchange but not through bulk deal /block deal/
negotiated deal/ preferential allotment; or the
increase in the shareholding or voting rights of
the acquirer is pursuant to a buy back of shares
by the target company;
(ii) the post acquisition shareholding of the
acquirer together with persons acting in concert
with him shall not increase beyond seventy five
per cent.(75%).
Timing of the public announcement of offer.
14. (1) The public announcement referred to in
regulation 10 or regulation 11 shall be made by
the merchant banker not later than four
working days of entering into an agreement for
acquisition of shares or voting rights or
deciding to acquire shares or voting rights
exceeding the respective percentage specified
therein:
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Provided that in case of disinvestment of a
Public Sector Undertaking, the public
announcement shall be made by the merchant
banker not later than 4 working days of the
acquirer executing the Share Purchase
Agreement or Shareholders Agreement with the
Central Government [or the State Government
as the case may be,] for the acquisition of
shares or voting rights exceeding the
percentage of shareholding referred to in
regulation 10 or regulation 11 or the transfer of
control over a target Public Sector
Undertaking.
Applicability of the regulation.
Regulation 3(3) effective between 28.10.1998
and 09.09.2002
3(3) In respect of acquisitions under clauses (c)
(e), (h) and (i) of sub-regulation (1), the stock
exchanges where the shares of the company are
listed shall, for information of the public, be
notified of the details of the proposed
transactions at least 4 working days in advance
of the date of the proposed acquisition, in case
of acquisition exceeding 5 per cent of the voting
share capital of the company.
Regulation 3(3) w.e.f. 09.09.2002
3(3) In respect of acquisitions under clauses (e),
(h),and(i) of sub-regulation (1), the stock
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exchanges where the shares of the company are
listed shall, for information of the public, be
notified of the details of the proposed
transactions at least 4 working days in advance
of the date of the proposed acquisition, in case
of acquisition exceeding 5 per cent of the voting
share capital of the company.
Regulation 3(4) w.e.f. 28.10.1998 and
09.09.2002
3(4) In respect of acquisitions under clauses
(a), (b), (c),(e) and (i) of sub-regulation (1), the
acquirer shall, within 21 days of the date of
acquisition, submit a report along with
supporting documents to the Board giving all
details in respect of acquisitions which (taken
together with shares or voting rights, if any,
held by him or by persons acting in concert with
him) would entitle such person to exercise 15
per cent or more of the voting rights in a
company.
Regulation 3(4) w.e.f. 09.09.2002
3(4) In respect of acquisitions under clauses
(a), (b),(e) and (i) of sub-regulation (1), the
acquirer shall, within 21 days of the date of
acquisition, submit a report along with
supporting documents to the Board giving all
details in respect of acquisitions which (taken
together with shares or voting rights, if any,
held by him or by persons acting in concert with
15
him) would entitle such person to exercise 15
per cent or more of the voting rights in a
company.
Explanation.--For the purposes of sub-
regulations (3) and (4), the relevant date in
case of securities which are convertible into
shares shall be the date of conversion of such
securities."
10. It is an admitted fact that the appellant Chemo Pharma
Laboratories Ltd. off-market purchased 1 lakh shares in October
2010. This has increased the shareholding of the promoter group
from 53.17% to 55.28% i.e. above 55% which triggered the
necessity of making open offer. The appellants claim that since
the seller was in dire need of money, appellant Chemo Pharma
had bought those shares. It was further claimed that marginal
increase of 0.28% above prescribed limit of 55% had occurred.
The appellant claims that there was gross delay in the matter.
After this acquisition the requisite disclosures under the
provisions of insider trading regulations were made to the stock
exchange. While the shares acquired in 2010 the show cause
notice issued on 2013 and impugned order was passed 2018
The violation, if any, was venial and marginal in nature and,
therefore, imposition of penalty of Rs. 3 crores on this ground
by the Learned AO was unwarranted.
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11. The order of the Learned AO would show that the delay in
launching the proceedings has occurred since the information
reached to the respondent SEBI only at the time of receiving
letter of offer by Jayanti Prime Software Advisory Pvt. Ltd.
Further the delay has not caused any prejudice to theses
appellant in defending the case. In our view therefore the order
of the AO holing that the violation has occurred can not be
faulted with.
12. While imposing the penalty of Rs. 3 cores the Learned AO
remarked that in the case of M/s Nirvana Holdings Private Ltd.
vs. SEBI (Appeal No. 31 of 2011 dated 08.09.2011) wherein
this Tribunal observed that, whenever an acquirer violates
Regulation 10, 11 or 12 of the takeover code by not making a
public announcement, he should be directed to comply with the
provisions by making a public offer. However, in view of the
subsequent takeover by Jayanti Prime Software Advisory Pvt.
Ltd., the Learned AO considered the certificate of the price of
the shares of Microsec Capital Limited which was placed along
with the offer letter by the Jayanti Prime Software Advisory Pvt.
Ltd. The Learned AO also appears to have called trade log of
the relevant period from Bombay Stock Exchange. Further AO
considered off market share transfers of the said period and
17
concluded that loss caused to the shareholders would come to
Rs. 94,09,632/-. Therefore, penalty of Rs. 3 crore was imposed
on these grounds.
13. To arrive at the quantum of penalty though the AO relied
on the certificate of Microsec Capital Ltd. and the trade log
received from the Bombay Stock Exchange in the order, this
material was not confronted to the appellants. It is to be noted
that the appellant Chemo Pharma had acquired 1 lakh shares
which had cross the threshold limited of 55% by 0.28%. In the
case of M/s Nirvana Holdings Private Ltd., (cited supra) SEBI
had imposed penalty upon the appellant. This Tribunal held that
the interest of the shareholders are required to be looked into
and in that case directed that the direction to make open offer
should have been made. The Learned senior counsel for the
respondent had pointed out that the Hon'ble Supreme Court of
India had granted stay to the said order in Civil Appeal No.
8223 of 2011. Be that as it may. In the present case, respondent
SEBI itself had imposed penalty for failure to make an open
offer. Therefore, the issue is regarding the quantum of penalty
only. As already pointed out the Learned AO in the order took
the support of the certificate of Microsec Capital Ltd placed in
the letter of open offer and the trade logs called by the Learned
18
AO from Bombay Stock Exchange. These documents however
were not confronted to the appellants.
14. In the circumstances while upholding the finding of the
Learned AO that the appellants have violated the provisions of
Regulation 11 (1) read with 14 of the Takeover Regulations to
make public announcement of open offer and therefore are
liable to pay penalty, the issue of quantum is required to be
remanded to the Learned AO. In this regard, the appellants are
directed to appear before the Learned AO on November 08,
2021 whereupon the Learned AO shall provide the copies of the
documents on which reliance is placed in the impugned order
for quantifying the penalty. The concerned appellants would be
at liberty to place their views/ explanation regarding the
quantum of the penalty upon which the AO shall pass a fresh
order as regard the quantum of penalty for the violation the of
regulation 11(1) read with regulation 14 of the Takeover
Regulations, 1997 within the period of four months from the
date of the receipt of the views/ explanation from the appellants.
Hence, the following order:
ORDER
The appeals are partly allowed, the directions of the AO to pay penalty for violations of regulation 8(1) and 8(2) as well as 19 regulation 3(3) and 3(4) of the Takeover Regulations is hereby set aside.
The order of the AO declaring that the appellants have committed violation of regulation 11(1) read with 14 of the Takeover Regulations is hereby affirmed. The matter however is remitted to the AO for again determining the quantum of the penalty for violation of Regulation 11(1) read with 14 of the Takeover Regulations as per the directions made in paragraph no. 14 above.
15. The present matters were heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member 20.10.2021 RAJALAK Digitally signed by RAJALAKSHMI PK SHMI H H NAIR Date: 2021.10.21 NAIR 13:26:18 +05'30'