Securities Appellate Tribunal
M/S. Anarcon Resources Pvt. Ltd. & Ors. vs Sebi on 16 November, 2016
Author: J.P. Devadhar
Bench: J.P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 16.11.2016
Appeal No. 337 of 2015
1.M/s. Anarcon Resources Pvt. Ltd.
32, EZRA Street, Todi Mension, Room No.866, 8th Floor, Kolkata, West Bengal - 700001.
2. Smt. Lalita Agarwal
3. Shri Ratanlal Brijlal Tamkhuwala
4. Shri Rishiraj Agarwal
5. Smt. Sangeeta Rishiraj Agarwal 703/704, Shiv Parwati Co-operative Housing Society, Near Versova Telephone Exchange, S.V.P. Road, Andheri(West), Mumbai - 400 053.
6. M/s. Shri Hanuman Investments Pvt. Ltd.
32, EZRA Street, Todi Mension, Room No.866, 8th Floor, Kolkata, West Bengal - 700001. ...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. Ramesh Mishra, Practising Company Secretary for the Appellants. Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocates i/b. The Vigil Juris for the Respondent.
CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member Per : J.P. Devadhar
1. Six appellants herein have filed the present appeal to challenge the adjudication order passed by the Adjudicating Officer ('A.O.' for short) of 2 Securities and Exchange Board of India ('SEBI' for short) on 5th May, 2015. By the said order, firstly, penalty of Rs.30 lac is imposed on the Appellant nos.1 to 6 under section 15A(b) of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) for violating Regulation 7(1A) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ('SAST Regulations, 1997' for short) with a direction that the said penalty be paid by the Appellant nos.1 to 6 jointly and severally. Secondly, penalty of Rs.5 lac is imposed on Appellant no.6 under Section 15A(b) of the SEBI Act for violating Regulation 13(3) of the Securities and Exchange Board of India (Prohibitions of Insider Trading) Regulations, 1992 ('PIT Regulations' for short).
2. As regards the penalty of Rs.30 lac imposed on the Appellant nos. 1 to 6 for violating Regulation 7(1A) of the SAST Regulations, 1997 counsel for the parties stated that the said issue is covered in favour of the appellants by the decision of this Tribunal in the case of Mr. Ravi Mohan & Ors. Vs. SEBI (Appeal no.97 of 2014) decided on 16.12.2015 and Mr. Ratanlal Tamakhuwala & Ors. vs. SEBI (Appeal no.249 of 2014) decided on 1.7.2016. Accordingly, for the reasons stated in the aforesaid two decisions, penalty of Rs.30 lac imposed against the appellant cannot be sustained.
3. As regards the penalty of Rs.5 lac imposed against the Appellant no.6 for violating Regulation 13(3) of the PIT Regulations it is not in dispute that Appellant no.6 was holding 22.78% shares of Austral Coke and Projects Ltd. ('company' for short). Admittedly, the Appellant no.6 had pledged the shares of the company with SICOM Ltd. ('SICOM' for short) and SICOM had invoked the pledge on 22.12.2009 and 1.2.2010. The shares transferred from the account of the appellant to the account of SICOM due to invocation of 3 pledge exceeded more than 2% of the total shareholding of the company on both the days.
4. Under Regulation 13(3) of the PIT Regulations any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company any change in the shareholding exceeding 2% of the total shareholding or voting rights in the company. In the present case, admittedly the appellant held more than 5% shares of the company and due to invocation of the pledge, more than 2% shares of the company were transferred from the demat account of Appellant no.6 to the demat account of SICOM on both the days. Hence, as per Regulation 13(3) of the PIT Regulations it was obligatory on the part of the Appellant no.6 to disclose to the company the change in its shareholding of the company. Since the Appellant no.6 failed to make such disclosure, proceedings were initiated against Appellant no.6 and penalty of Rs.5 lac is imposed by the impugned order against the Appellant no.6.
5. Counsel for the Appellant no.6 submitted that SICOM had not intimated to the Appellant no.6 about the invocation of pledge and in the absence of any prior intimation the Appellant no.6 could not make disclosure under Regulation 13(3) of the PIT Regulations. Counsel for Appellant no.6 further submitted that assuming that there is violation of Regulation 13(3) of the PIT Regulations, in the facts of the present case imposition of penalty of Rs.5 lac is unduly harsh and unreasonable.
6. We see no merit in the above contentions.
7. It is not in dispute that on invocation of pledge, the pledged shares have been transferred from the demat account of Appellant no.6 to the demat account of SICOM. When the Appellant no.6 had voluntarily pledged shares of the company for taking loan, Appellant no.6 knew that SICOM was entitled to invoke the pledge if there was breach of the loan agreement. Having 4 committed breach of the loan agreement, appellant is not justified in alleging that SICOM had not informed the appellant about the invocation of pledge. In any event, once the shares of the company, on invocation of pledge were transferred from the account of the appellant to the account of SICOM, appellant was bound to know the change in its shareholding and accordingly ought to have made disclosure under the PIT Regulations. Therefore, the appellant cannot escape penal liability for violating the PIT Regulations by alleging that SICOM had not intimated the appellant about the invocation of pledge.
8. Argument of the Appellant no.6 that the penalty of Rs.5 lac imposed against the Appellant no.6 is excessive and arbitrary is also without any merit. Penalty imposable under Section 15A(b) of the SEBI Act for violating Regulation 13(3) of the PIT Regulations shall not be less than one lakh of rupees but which may extend to one lakh of rupees for each day during which such failure continues subject to a maximum of Rs.1 crore.
9. In the present case, since the violations of Regulation 13(3) of the PIT Regulations relate to two different dates, the penalty imposable on the appellant under Section 15A(b) of the SEBI Act would be up to Rs.2 crore (Rs.1 crore for each violation). As against the imposable penalty of Rs.2 crore, the Adjudicating Officer has imposed a penalty of Rs.5 lac which cannot be said to be excessively harsh or unreasonable.
10. In the result, the appeal is partly allowed by quashing the impugned order to the extent it imposes penalty of Rs.30 lac for Appellant nos.1 to 6 for violating Regulation 7(1A) of the SAST Regulation, 1997 and upholding the impugned order to the extent it imposes penalty of Rs.5 lac on Appellant no.6 for violating Regulation 13(3) of PIT Regulations. 5
11. Appellant No.6 is directed to pay the penalty of Rs.5 lac within a period of 6 weeks from today. If appellant fails to pay the said penalty of Rs.5 lac within a period of 6 week from today then SEBI shall be entitled to recover the penalty of Rs.5 lac with interest at the rate of 10% from the date of the impugned order i.e. from 5.5.2015 till payment.
12. Appeal is disposed of in the aforesaid terms with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Jog Singh Member Sd/-
Dr. C.K.G. Nair Member 16.11.2016 Prepared and compared by RHN