Securities Appellate Tribunal
Mr. Vijay Sharma vs Sebi on 9 July, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved:28.6.2021
Date of Decision:09.7.2021
Misc. Application No.337 of 2018
And
Appeal No.396 of 2018
1.Mr. Rajeev Bhanot F-100, First Floor, East of Kailash, New Delhi-65.
2. Mrs. Rekha Bhanot F-100, First Floor, East of Kailash, New Delhi-65.
3. Ms. Tania Bhanot F-100, First Floor, East of Kailash, New Delhi-65.
4. Ms. Aditi Bhanot F-100, First Floor, East of Kailash, New Delhi-65.
5. Mr. Arun Soni 331, Ground Floor, Jagriti Enclave, Vikas Marg, New Delhi - 92.
6. Mrs. Roma Soni 2 331, Ground Floor, Jagriti Enclave, Vikas Marg, New Delhi - 92.
7. Mr. Punit Soni 331, Ground Floor, Jagriti Enclave, Vikas Marg, New Delhi - 92. ...Appellants Versus Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, „G‟ Block, Bandra-Kurla Complex, Mumbai-400051. ...Respondent Mr. Somasekhar Sundaresan, Advocate with Ms. Yugandhara Khanwilkar, Mr. Anshuman Sugla, Mr. Arihant Agarwal and Ms. Tanya Gupta, Advocates i/b. Joby Mathew & Associates for the Appellants. Mr. Shyam Mehta, Senior Advocate with Mr. Manish Chhangani, Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates i/b. The Law Point for the Respondent.
With Misc. Application No.360 of 2018 And Appeal No.405 of 2018 Mr. Vijay Sharma Carol, 501, Verandas, Sector 54, Gurgaon, Haryana 122002. ...Appellant 3 Versus Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, „G‟ Block, Bandra-Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent Mr. Somasekhar Sundaresan, Advocate with Ms. Yugandhara Khanwilkar, Mr. Anshuman Sugla, Mr. Arihant Agarwal and Ms. Tanya Gupta, Advocates i/b. Joby Mathew & Associates for the Appellants. Mr. Shyam Mehta, Senior Advocate with Mr. Manish Chhangani, Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates i/b. The Law Point for the Respondent.
With Misc. Application No.525 of 2019 And Appeal No.562 of 2019 Mrs. Shruti Sharma Carol, 501, Verandas, Sector 54, Gurgaon, Haryana 122002. ...Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, „G‟ Block, Bandra-Kurla Complex, Bandra (E), Mumbai-400051. ...Respondent Mr. Somasekhar Sundaresan, Advocate with Ms. Yugandhara Khanwilkar, Mr. Anshuman Sugla, Mr. 4 Arihant Agarwal and Ms. Tanya Gupta, Advocates i/b. Joby Mathew & Associates for Appellants. Mr. Shyam Mehta, Senior Advocate with Mr. Manish Chhangani, Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates i/b. The Law Point for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Per: Justice Tarun Agarwala, Presiding Officer
1. For the reasons stated in the applications, the delay in the filing of the appeals are condoned. Misc. application nos.337 and 360 of 2018 and 525 of 2019 are allowed.
2. This group of appeals is against the common order of 2nd August, 2018 passed by the Whole Time Member („WTM‟ for short) of the Securities and Exchange Board of India („SEBI‟ for short) directing the acquirers, heirs of the deceased and the promoters of M/s. Bhanot Leasing Limited (hereinafter referred to as the „target Company‟) to make an open offer under 5 section 11 and 11 B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as „SEBI Act‟) read with and Regulation 44 and 45 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as „SAST Regulations, 1997‟) and Regulation 32 and 35 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as „SAST Regulations, 2011). There are three kinds of appellants before us, namely, the heirs of the deceased acquirers, the acquirers and the promoters. All are aggrieved by the impugned order.
3. The facts leading to the filing of the present appeal is, that appellant nos.1 to 4 in appeal no.396 of 2018 are the legal heirs of Mr. R.D. Bhanot and Mrs. Krishna Kumari Bhanot. Appellant nos.1, 2 and 4 are also the promoters of the target Company. Appellant no.3 is only an heir to the deceased acquirers. 6 Appellant nos.1 and 5 are also the acquirers. The appellant Mr. Vijay Sharma in appeal no.405 of 2018 and the third appellant Mrs. Shruti Sharma in appeal no.562 of 2019 is also an acquirer.
4. As on 31st March, 2005, the promoters of the target Company held 25.08% of the shares in the financial year April 1, 2005 to 31st March, 2006. Mr. R.D. Bhanot and Mrs. Krishna Kumari Bhanot acquired 7.71% of the shares of the Target Company. Appellant no.1 Mr. Rajeev Bhanot acquired 0.73% of the shares. Similarly, Ms. Shruti Sharma acquired 0.90% shares and Mr. Arun Soni acquired 0.05%. These shares were purchased by these acquirers from the existing shareholders. The acquisition were in excess of the five percent threshold as stipulated under Section 11(1) of the SAST Regulations, 1997 and since the acquirers crossed this threshold in the financial year they were required to make an open offer under the SAST Regulations, 1997.
7
5. Mrs. Krishna Kumari Bhanot, one of the acquirer died on November 30, 2006 and another acquirer Mr. R.D. Bhanot died on August 6, 2015. Even though the acquisition of the shares was in violation of Regulation 11(1) and was in the public domain no steps were taken by the respondent to correct this violation. In 2009, the target Company Bhanot Leasing Limited was amalgamated with M/s. Bhanot Construction and Housing Limited and, consequently, the substratum of the target Company came to an end.
6. On November 24, 2011 and February 2, 2012 certain queries were raised by SEBI seeking details regarding change in the shareholding pattern. Such details were provided by the Company on February 14, 2012. The respondent did nothing in the matter and slept over it. After more than eight years SEBI issued another letter dated July 16, 2014 seeking further details of the acquisition which details were provided by the Company on August 11, 2014. Thereafter, one 8 of the acquirer Mr. R.D. Bhanot who was Chairman and Managing Director of the Company died on August 6, 2015. On September 16, 2015 SEBI asked for some information regarding disclosures made by the promoters. Reply was given and thereafter after a lapse of two years the show cause notice was issued on March 1, 2017.
7. In this show cause notice which was issued to the acquirers and to the promoters of the erstwhile target Company Bhanot Leasing Limited it was alleged that as on March 31, 2005 the promoters held 25.08% of the shares and that in the financial year 2005-06 five of the promoters had acquired 8.85% thereby increasing their shareholding to 33.93%. It was alleged that since the acquisition was beyond 5% during the financial year 2005-06 the noticees were required to make a public announcement under Regulation 11(1) which they failed to do so.
9
8. The appellant Mr. Rajeev Bhanot filed his reply contending that Mr. R.D. Bhanot and Mrs. Krishna Kumari Bhanot who crossed the threshold of five percent by their acquisition have died long back and that Mr. R.D. Bhanot and Mrs. Krishna Kumari Bhanot was the Chairman and Managing Director and were aware of all the transactions. It was also stated that the target Company had merged with M/s. Bhanot Construction and Housing Ltd. and that persons who have transacted and have triggered the Regulation 11(1) have died and, therefore, the proceedings should be abated. The other promoters in their reply contended that they had not acquired any shares. There was no common objective with the acquirer. They were not aware of the acquisition of the shares by the other promoters, and that, in any case, the appellants/promoters were not persons acting in concert.
10
9. The WTM after considering the material evidence on record found that Mr. R.D. Bhanot and Mrs. Krishna Kumari Bhanot who had acquired more than five percent of the shares in 2005-06 had died before the issuance of the show cause notice but held that liability is not personal which dies on the death of the person and that the said liability would continue upon the legal heirs. The WTM further came to the conclusion that the order would only become operative upon the legal heirs only after the order was served upon them.
10. The WTM further came to the conclusion that all the acquirers collectively acquired more than five percent of the shares in the financial year 2005-06 and such acquisition beyond five percent triggered the open offer under Regulation 11(1) which acquirers failed to make and, therefore, became liable for penal action under the SAST Regulations.
11
11. The WTM also came to the conclusion that all other promoters/noticees were acting in concert. The WTM concluded that since the obligation to make an open offer was not personal in nature and the relief of open offer to the shareholders was a valuable right of those shareholders to be enjoyed consequently, directed the appellants to make an open offer
12. The WTM further found that the cause of action survives and does not die on the death of Mr. R.D. Bhanot and Mrs. Krishna Kumar Bhanot. The WTM further found that since no period of limitation is prescribed the proceedings cannot be set aside only on the ground of laches. The appellants, being aggrieved, have filed the present appeals.
13. We have heard Mr. Somasekhar Sundaresan, Advocate assisted by Ms. Yugandhara Khanwilkar, Mr. Anshuman Sugla, Mr. Arihant Agarwal and Ms. Tanya Gupta, Advocates for the appellants and Mr. Shyam Mehta, Senior Advocate assisted by Mr. 12 Manish Chhangani, Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates for the respondent.
14. Before us the respondent also contended that no prejudice has been caused upon the appellants and, therefore, the appeals cannot be dismissed on the ground of laches. The learned senior counsel also placed reliance on the decision of Rajesh Toshniwal vs. SEBI & Ors., appeal no.139 of 2011 decided on June 1, 2012 and in the case of Ram Piari & Ors. vs. SEBI, appeal no.484 of 2015 decided on November 20, 2017 on the issue of promoters acting as a homogenous group and, therefore, are responsible to make the open offer even though one of the promoters had breached the threshold limit as provided under Section 11(1) of the Regulations and that such promoters acting as a homogenous group there is a deemed presumption of them acting in concert. On the issue of delay, the learned senior counsel placed reliance on SEBI vs. Akshya Infrastructure Pvt. Ltd., 13 civil appeal no.6041 of 2013 decided on April 25, 2014 wherein the Supreme Court held that the delay even though the delay was inordinate the proceedings could not be set aside.
15. Having heard the learned counsel for the parties at some length, we are of the opinion that the impugned order cannot be sustained for the following reasons;
16. In the instant case, the acquisition of shares was made in the financial year 2005-06. The show cause notice was issued in the year 2017. There is a lapse of 12 years. There is an inordinate delay in the initiation of proceedings. The acquisition made by the appellant was a fact which was in the public domain and was known to the Stock Exchange as well as to SEBI. Since they had information SEBI did not raise any query for several years. The first query was raised after more than 6 years in November, 2011. The details of the queries were provided by the target Company. Further, details were sought in July, 2014 14 and again in September, 2015. Information was supplied and it was also intimated that two of the acquirers have died. Inspite of receiving the information no steps were taken by the respondent to find out the heirs of the acquirers. On the other hand, the show cause notice was issued to dead persons inspite of having knowledge that the two acquirers have already died. The mere fact that the respondent made queries from time to time does not extend the period of limitation nor does it condone the delay. It only shows the lackadaisical attitude on the part of the respondent in handling the matter. The purpose of making a public offer is to bring relief to the shareholders on the creeping acquisition. Such relief is required to be made at the earliest opportune moment and the purpose is lost if steps are taken after 12 years.
17. The decision cited by the respondent in Akshay Infrastructure cited (supra) is totally distinguishable and is not applicable in the instant case. In that matter, 15 SEBI was required to give comments on the value of the shares which under the Regulations was required to be given within a stipulated period. In that view of the matter, the Supreme Court held that even though there is an inordinate delay in giving the comments the proceedings will not lapse. The said decision is totally distinguishable and is not applicable in the instant case. In the present case, SEBI is sitting quietly and has not taken any action for 12 years. Such delay defeats the purpose of initiation of proceedings for appropriate action.
18. We are constrained to observe that inspite of specific orders being issued from time to time on the question of delay the WTM chooses to ignore those decisions as if they do not exist or is not binding upon them. In the instant case, we find that the WTM has trenchantly asserted that it is a settled position that there is no time limit for issuing notice and that an order cannot be set aside on the ground of delay. Such 16 assertion being used time and again in the order passed by the AO or the WTM is patently erroneous. This Tribunal in a large number of appeals have set aside the orders only on the ground of delay. In one such case namely, Ashok Shivlal Rupani vs. SEBI appeal no.417 of 2018 decided on August 22, 2019. This Tribunal held:
"6. Having considering the matter, we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellants for alleged violations. Much water has flown since the alleged violations and at this belated stage the appellants cannot be penalized. It is alleged that disclosure under PIT Regulations was not made but similar disclosure was made by the appellant under SAST Regulations. Therefore, information was available on the Stock Exchange and therefore it cannot be said that the respondents were unaware of the alleged violations. Further, the purpose of disclosure was to make the market aware of the change of shareholding of the shareholders. When a disclosure was made by the company under SAST Regulations the investors became aware of the change in the shareholding. The non- compliance of Regulation 13 if any becomes technical in nature.
7. In Mr. Rakesh Kathotia v. SEBI (Appeal No.07 of 2016 decided by this Tribunal on 17 27.05.2019) proceedings were quashed on account of inordinate delay. The said decision is squarely applicable to the instant case. For facility, the relevant paragraph of the order is extracted hereunder:
"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India v. Citedal Fine Pharmaceuticals, Madras, [(1989) 3 SCC 483: AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) 12 SCC 670, State of Punjab v. Bhatinda District Coop. Milk P. Union Ltd. (2007) 11 SCC 363 and Joint Collector Ranga Reddy Dist. v. D. Narsing Rao (2015) 3 SCC
695. The Supreme Court recently in the case of Adjudicating Officer, SEBI v. Bhavesh Pabari 2019 SCC OnLine SC 294 held:
"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."18
8. In the light of the aforesaid, we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice and for completion of the adjudication proceedings. Since the power to adjudicate has not been exercised within a reasonable period no penalty could have been imposed for the alleged violations.
9. As a result, without going into the merits of the case, we are of the opinion that on account of inordinate delay the initiation of proceedings by issuance of the show cause notice which culminated into a penalty order cannot be sustained. The show cause notice and the impugned orders passed by the AO are quashed. Both the appeals are allowed."
19. SEBI carried this matter to the Supreme Court in Civil Appeal no.8444-8445 of 2019 which was dismissed by judgment dated November 15, 2019. Thus, the order passed by this Tribunal became binding upon SEBI which they have chosen to ignore completely.
20. Even otherwise, proceedings initiated against Mr. R.D. Bhanot and Mrs. Krishna Kumar Bhanot was ex facie illegal. Inspite of having knowledge that two noticees have died SEBI chose to initiate proceedings 19 against dead persons. It is settled law that no proceedings can be initiated against dead person. Further, the directions of the WTM that the heirs of the deceased are liable to make an open offer is illegal and is without any authority of law. In the first instance, no direction can be issued to any of the heirs unless they are brought on record and heard. Secondly, Regulation 27(1)(c) of the SAST Regulations, 1997 provides as under:
"Withdrawal of offer
27. (1) No public offer, once made, shall be withdrawn except under the following circumstances:-
(a) .........
(b) ..........
(c) the sole acquirer, being a natural person, has died;"
21. The said provision clearly indicates that the direction of making a public offer cannot be made where the acquirer has died. Thus, no direction could be issued to the heirs of the acquirer. In this regard, 20 the principle "actio personalis moritur cum persona" is fully applicable, meaning thereby, that the personal action dies with the person. The finding of the WTM that the open offer which is not personal in nature would survive the death of the acquirer and that the legal heirs are required to make an open offer to the extent of the estate inherited is patently erroneous. The cause of action comes to an end on the death of the acquirer. In this regard, Regulation 3(1)(g) also has a bearing which is extracted as under:-
"Applicability of the regulations.
3.(1) nothing contained in regulations 10, 11 and 12 of these regulations shall apply to:
...............
(g) acquisition of shares by way of transmission on succession or inheritance;"
22. The said provision clearly indicates that even if the acquisitions have triggered the threshold limit under Regulation 11(1) by the original acquirers, the legal 21 heirs cannot be saddled with this liability once they inherit the shares.
23. On the issue that the delay does not cause prejudice, we are of the opinion that the contention of the learned senior counsel for the respondent is patently misplaced. In the first instance, prejudice has been caused to the heirs of the deceased acquirers by issuing an order without impleading them and without giving them an opportunity of hearing. Further, promoters who have not made any acquisition are being prejudiced because they are not acting in concert nor was there any provision under the SAST Regulation of 1997 that promoters are deemed to be acting in concert. Further, there has to be an assessment and a finding that the promoters were acting with a common objective in mind which in the instant case, is lacking. Even otherwise, long delay in initiating proceedings by itself causes prejudice. In addition to the aforesaid, we find that the target 22 Company had merged with another Company. Nothing has been brought on record to show as to who are the original shareholders to whom the open offer is to be made. It is not known as to whether the original shareholders of the original target Company are alive or dead. In the absence of any exercise being done by the respondent on these grounds a serious prejudice has been caused and, therefore, the contention of the respondent cannot be accepted.
24. In the end, the direction of make an open offer after 12 years of the alleged transactions was not an appropriate measure. Regulation 44 provides various measures that can be taken for violation of Regulation 11(1). For facility Regulation 44 is extracted hereunder.
"Directions by the Board.
44.Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including: -23
(a) directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations 10, 11 or 12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale;
(b) directing transfer of any proceeds or securities to the investors protection Fund of a recognised stock exchange;
(c) directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach ofregulations10,11 or 12;
(d) directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquire or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations 10, 11or 12;
(e) debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board;
(f) directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board;
(g) directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the regulations 6,7 or 8;
(h) directing the person concerned not to dispose of assets of the target company 24 contrary to the undertaking given in the letter of offer;
(i) directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to pay to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits."
25. In our view, considering the long lapse of time in initiating the proceedings, the direction to make an open offer was not appropriate in the circumstances of the case.
26. For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeals are allowed. In the circumstances of the case, parties shall bear their own costs.
27. The present matter was 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 25 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 RAJALA Digitally signed 09.07.2021 by KSHMI NAIR RAJALAKSHMI H Date: 2021.07.13 RHN H NAIR 10:51:56 +05'30'