Securities Appellate Tribunal
Mr. Ranjan Verghese vs Sebi on 8 April, 2010
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 177 of 2009
Date of decision: 8.4.2010
Mr. Ranjan Verghese
19 D, Link Heritage,
Kacherippady, Cochin. ......Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai. ...... Respondent
Mr. Joby Mathew, Advocate for the Appellant.
Dr. Poornima Advani, Advocate with Ms. Harshada Nagare, Advocate for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer Samar Ray, Member Per : Justice N. K. Sodhi, Presiding Officer (Oral) This order will dispose of two Appeals no. 177 and 184 of 2009 both of which are directed against the common order dated July 8, 2009 passed by the adjudicating officer imposing a consolidated penalty of Rs.48 lacs on the appellants under Section 15H(ii) of the Securities and Exchange Board of India Act, 1992. The appellants in both the appeals are the promoters of Vertex Securities Limited (referred to hereinafter as the target company). The appellants have been found guilty of having violated Regulations 11(1) and 11(2) read with Regulation 14(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called the Takeover Code). It has been found that the appellants having acquired 4.75 lac shares of the target company which constituted 5.33 per cent of its then share capital had failed to make the public announcement as required by Regulation 11(1) of the Takeover Code.
2. We have heard the learned counsel for the parties and it is their common case that on October 30, 1999 one Tessy Verghese, a promoter of the target company 2 transferred 4.75 lac shares of the target company to Usha Jacob, a director/promoter of that company and that this acquisition triggered Regulation 11(1) of the Takeover Code. It is also admitted by the learned counsel for the parties that all the appellants were acting in concert when this acquisition took place. Again, on April 8, 2006 Dilip Verghese who is the first appellant in Appeal no. 184 of 2009 and a director of the target company acquired 6,30,250 shares from J. V. Panicker, a former managing director of the target company and this acquisition also triggered Regulations 11(1) and 11(2) of the Takeover Code and that all the appellants in both the appeals were acting in concert with each other. Having acquired the shares, the appellants were required to make the necessary disclosures to the target company which, in turn, was required to disclose the same to the stock exchanges in terms of Regulations 6 to 8 of the Takeover Code. Admittedly, this was not done. Adjudication proceedings were initiated against the appellants for non disclosure of their holdings/acquisitions to the target company. By order dated June 30, 2009 the adjudicating officer imposed a consolidated penalty of Rs. 30 lacs on the eight appellants. This order came to be challenged before this Tribunal in two Appeals no. 152 and 161 of 2009 which were dismissed on September 22, 2009 on the admissions made by the appellants. They admitted having acquired the shares and also the fact that they did not disclose the acquisitions to the target company.
3. Since Regulation 11 got triggered when the aforesaid two acquisitions were made, the appellants who were acting in concert with each other were required to make public announcement(s) in terms of Regulation 11 read with Regulation 14 of the Takeover Code. It is common ground between the parties that this was also not done. Adjudication proceedings were initiated against the appellants and by a common order dated July 8, 2009 the adjudicating officer has imposed a consolidated penalty of Rs.48 lacs on the appellants on account of their failure to make the necessary public announcement(s) to acquire further shares in accordance with the Takeover Code. Hence this Appeal.
4. Mr. Joby Mathew learned counsel appearing for the appellant in Appeal no. 177 of 2009 has not challenged the findings recorded by the adjudicating officer as 3 they are based on the admissions made by the parties. He, however, contends that the amount of penalty levied by the adjudicating officer is highly excessive and that the same deserves to be reduced considerably. He further contends that the amount of penalty should be apportioned qua each appellant who should then be directed to pay that amount individually to the respondent Board. Mr. S. U. Kamdar learned counsel appearing for the appellants in the other appeal challenged the impugned order on the ground that the adjudicating officer could not levy any penalty on the appellants as the aforesaid acquisitions were exempt from the provisions of the Takeover Code in terms of Regulation 3(1)(e)(iii)(b) thereof read with the two explanations. According to the learned counsel, the acquisitions were inter se transfers amongst the qualifying promoters of the target company and were, therefore, exempt in terms of the two explanations. We will first deal with the arguments of Shri Kamdar. His argument that the acquisitions are exempt from the provisions of the Takeover Code is being noticed only to be rejected. It is necessary to refer at this stage to the relevant provisions of Regulation 3(1)(e) which grants exemption from the provisions of Regulations 10 to 12 of the Takeover Code. They read as under:-
"Applicability of the regulation.
3. (1) Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to:
(a) ..............
(b) ..............
(c) ..............
(d) ..............
(e) inter se transfer of shares amongst -
(i) ...............
(ii) ...............
(iii) ...............
(a) .....................
(b) [Qualifying] promoters :
(i) ........
(ii) ........
(a) ...............
(1) ......
(2) .......
(b) ...............
(1) .........
(2) .........
...........
(iv) ...................................
4
Explanation.--(1) The exemption under sub-clauses (iii) and
(iv) shall not be available if inter se transfer of shares is at a price exceeding 25% of the price as determined in terms of sub-regulations (4) and (5) of regulation 20.
(2) The benefit of availing exemption under this clause, from applicability of the regulations for increasing shareholding or inter se transfer of shareholding shall be subject to such transferor(s) and transferee(s) having complied with regulation 6, regulation 7 and regulation 8."
A bare reading of the aforesaid provisions leaves no room for doubt that the provisions of Regulations 10 to 12 of the Takeover Code shall not apply to inter se transfers amongst the promoters of the target company provided the two conditions enumerated in the two explanations are satisfied. It is not in dispute that the acquisitions were amongst the promoters/directors of the target company and this could be exempted if both the conditions enumerated in the two explanations were satisfied. We are clearly of the view that the conditions of the second explanation are not satisfied in the case before us. From the language of the second explanation reproduced above it is clear that the benefit of exemption would be available to the inter se transfers provided the transferors and the transferees have complied with Regulations 6 to 8 of the Takeover Code. In other words, inter se transfers amongst the promoters of the target company would be exempt provided the transferor and transferee make the necessary disclosures under Regulations 6 to 8. As already noticed above, Regulations 6 to 8 require the acquirer to disclose his acquisitions to the company which, in turn, is required to make the disclosures to the stock exchanges. As was admitted by the appellants in the earlier appeals and also now before us, these disclosures had not been made. It is common ground between the parties that those who acquired the shares did not make the disclosures and it is on account of this failure that the adjudicating officer by his earlier order of June 30, 2009 had imposed monetary penalties on them. This fact clearly establishes the non compliance with the conditions imposed by the second explanation to Regulation 3(1)(e). In this view of the matter, the appellants are not entitled to the exemption now sought to be claimed by their learned counsel. Mr. Kamdar referred to the language of the two explanations to contend that the language of both of them was 5 different. According to him, the opening words of the first explanation "the exemption under Sub-clauses (iii) and (iv) shall not be available if .........." are missing in the second explanation and, therefore, the acquisitions are exempt under the second explanation. This submission of the learned counsel is contrary to the plain language of the two explanations. The learned counsel is obviously missing the point. The two explanations impose two different conditions to be satisfied before the exemption under Regulation 3(1)(e) regarding the inter se transfer of shares amongst the promoters could be granted. The two explanations are independent of each other and since the requirements of the second explanation or the conditions imposed thereby have admittedly not been complied with in the present case, the exemption could not be granted and the adjudicating officer was right in imposing the monetary penalty.
5. Faced with this situation, the learned counsel then took us through the record to urge that in fact the appellants had given the necessary information which is clear from the letter of April 26, 2007 addressed by the National Stock Exchange of India Limited to the target company. We have perused this letter and it does not establish the fact that the appellants at the time of acquiring the shares had made the necessary disclosures. The letter to which reference has been made does not appear to be very relevant for our purpose and, in any case, it does not refer to the disclosures made under the Takeover Code. Be that as it may, the appellants in their earlier Appeal no. 161 of 2009 had conceded before this Tribunal that the necessary disclosures after the aforesaid acquisitions had not been made and it is on the basis of their admission that the levy of monetary penalty had been upheld. We cannot, therefore, hold that the appellants had made the disclosures.
6. In the memorandum of appeal, the appellants have sought exemption under Regulation 3(1)(e)(iv) of the Takeover Code as well but no such argument was advanced by the learned counsel during the course of the hearing. It is not necessary for us to deal with that ground taken in the memorandum of appeal.
7. Now coming to the plea raised by Shri Joby Mathew on behalf of the appellant in Appeal no. 177 of 2009. We are unable to agree with him that the 6 penalty in the circumstances of the present case deserves to be reduced. The fact that the appellants acting in concert with each other had made the acquisitions which triggered the Takeover Code, it was incumbent upon them to make a public announcement which, admittedly, they have failed to do so. This failure has seriously prejudiced the public investors/shareholders of the company who have been deprived of their valuable right to exit by offering their shares to the acquirer. We cannot lose sight of the fact that one of the primary objects of the Takeover Code is to allow the public shareholders an exit route when the target company is either taken over by an acquirer or an acquirer makes a substantial acquisition therein. Since the public shareholders were deprived of this valuable right, we do not think that this is a fit case where the amount of penalty should be reduced. We also cannot accept the plea that the monetary penalty as imposed by the adjudicating officer should be apportioned on each appellant separately. The adjudicating officer has rightly determined the amount of penalty and it shall be the obligation of the appellants to pay the same jointly and severally.
In the result, the appeals fail and they stand dismissed with no order as to costs.
Sd/-
Justice N. K. Sodhi Presiding Officer Sd/-
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