Securities Appellate Tribunal
Pooja R Tikmani & Ors. vs Sebi on 25 July, 2023
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 18.07.2023
Date of Decision : 25.07.2023
Misc. Application No. 998 of 2022
And
Appeal No. 740 of 2022
1.Pooja R Tikmani
2. Vimaladevi R Tikmani
3. Rishi R Tikmani
4. Rajendra Tikmani (HUF) 3, Navyug Society, S M Road, Near C N Vidyalaya, Ambavadi, Ahmedabad - 380 015. ..... 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. Paritosh Gupta, Advocate for the Appellants. Mr. Sumit Rai, Advocate with Mr. Ravishekhar Pandey, Ms. Shefali Shankar and Mr. Amarpal Singh Dua, Advocates i/b. MDP & Partners for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member 2 Per : Justice Tarun Agarwala, Presiding Officer
1. The appellants have filed the present appeal challenging the order of the Adjudicating Officer („AO‟ for short) of the Securities and Exchange Board of India („SEBI‟ for short) dated June 30, 2022 imposing a penalty of Rs. 10 lakhs to be paid jointly and severally by the appellants for violation of Regulation 14(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as „SAST Regulations 1997‟).
2. The facts leading to the filing of the present appeal is, that a show cause notice dated July 22, 2021 was issued to the appellants to show cause as to why an enquiry should not be held and why penalty should not be imposed for violation of Regulation 14(1) of the SAST Regulations. It was alleged that the appellants being persons acting in concert made an open offer during the financial year 2016-17 to the shareholders of Alfa ICA India Limited („Target Company / Company‟ for short) for acquisition of 10,50,400 equity shares of the target company at the rate of Rs. 23/- per share under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as „SAST 3 Regulations 2011‟). In this regard, the Manager to the open offer made a public announcement dated July 27, 2016 and on August 8, 2016 submitted a draft letter of offer to SEBI.
3. While examining the draft letter of offer it was observed that the shareholding of the promoter group increased from 14.33% to 15.99% during September 2003 to December 2003 which was in violation and that no open offer was made since it triggered the SAST Regulations 1997. It was further observed that there was a delay of 12 years and 7 months in making the public announcement / open offer pursuant to the increase in the shareholding of the promoters in violation of Regulation 14(1) of the SAST Regulations 1997.
4. It was further observed that in 2010-11 there was an increase of 21.47% in the shareholding of Noticee no. 4 from 2.36% to 23.83% which was beyond the threshold stated under the SAST Regulations 1997. It was contended that it was not an inter-se transfer of shares within the promoter group and was not covered under Regulation 3(4) of the SAST Regulations 1997 and that no public announcement was made under Regulation 11(1) of the SAST Regulations as there was an increase of more than 5% of the voting rights. 4
5. The show cause notice further alleged that while making an open offer for the acquisition of shares in 2016 the promoters took into consideration the factor of not making a public announcement in 2010-11 and consequently added the payment of interest to the shareholders @ 10% on the offer price that was proposed under the letter of open offer. The show cause notice, thus, alleged that there was a delay in making the public offer by 4 years and 7 months and the appellants again violated Regulation 14(1) of the SAST Regulations.
6. The AO after considering the material evidence on record and the submissions of the parties found that the violation of Regulation 14(1) was established insofar as the delay in making an open offer of 2010-11. The AO found that there was a delay of 4 years and 7 months in making the open offer which was violative of Regulation 14(1) of the SAST Regulations and consequently imposed a penalty of Rs. 10 lakh.
7. We have heard Shri Paritosh Gupta, the learned counsel for the appellant and Shri Sumit Rai, the learned counsel with Shri Ravishekhar Pandey, Ms. Shefali Shankar and Shri 5 Amarpal Singh Dua, the learned counsel for the respondent and we have perused the record.
8. At the outset, the AO has not dealt with the allegations of violation of the SAST Regulations with regard to the alleged non-making of the open offer of 2003 and therefore we proceed with the assumption that there was no violation of the SAST Regulations with regard to the acquisition made by some of the promoters in 2003.
9. The admitted facts as culled out from the record is, that Noticee no. 4 is a HUF and is known by the name of Rajendra Tikmani (HUF). It‟s Karta was one Rajendra Tikmani who died in the year 2015 and after his death Rishi Tikmani Noticee no. 3 became the Karta of Noticee no. 4. Noticee nos. 1 and 3 are the children of Rajendra Tikmani and Noticee no. 2 is the widow of Rajendra Tikmani.
10. The shares that was bought in 2010-11 were bought from the funds of the HUF and these shares were also purchased in the name of HUF. These shares could not be dematerialized because SEBI through its circulars debarred an HUF from dematerializing its shares. The proof of the payment made from the funds of Rajendra Tikmani (HUF) 6 has been indicated on Page 118 of the paper book which is not disputed. The fact that demat account could not be opened in the name of HUF but can be opened in the name of the existing Karta is also admitted by the respondent. In this regard, SEBI issued a master circular for depositories dated December 15, 2016 and also issued frequently asked questions on depository system. Question No. 23 is extracted hereunder:-
"23. Can a demat account be opened in the name of HUF ?
No. In the case of HUF, shares can be held in the name of existing Karta on behalf of HUF."
11. From a perusal of the aforesaid it is clear that a demat account could not be opened in the name of HUF but can be opened in the name of the existing Karta on behalf of the HUF.
12. In view of the aforesaid, the shares bought by Noticee no. 4 were dematerialized and was held in the name of the existing Karta on behalf of HUF. Subsequently when permission was given by SEBI to open a demat account in the name of HUF that Rajendra Tikmani who was holding shares on behalf of the Karta transferred the shares in the name of 7 the HUF. Such transfer of shares were not inter-se transfer of shares as prescribed under Regulation 3 of the SAST Regulations which was not applicable nor did it trigger the open offer under Regulation 10 and 11 as there was no acquisition of shares but was only a ministerial act. The shares were purchased in the name of HUF but was kept in the name of the Karta and subsequently transferred to the HUF account when it was permitted by SEBI.
13. In the light of the aforesaid admitted facts, when the promoters sought to acquire additional shares in 2016 the Manager to the open offer wrongly advised about the possible infraction of the SAST Regulations and wrongly advised to include the component of interest for the alleged acquisition of 2011.
14. In view of the aforesaid we are of the opinion that the transfer of shares by the Karta to the HUF account was not an acquisition of shares nor did it trigger an obligation for making an open offer under Regulation 10 or 11 as the case may be and therefore there was no violation of Regulation 14(1) of the SAST Regulations which required the open offer to be made within four days of the public announcement. 8
15. The finding that there was a delay of 4 years and 7 months in making the open offer under Regulation 14(1) is patently erroneous. The open offer that was made was for the acquisition of additional shares of 2016 and not of the acquisition of shares of 2011. Thus, there is no alleged delay nor there is any violation of Regulation 14(1) of the SAST Regulations.
16. In view of the aforesaid, we do not find any violation of the SAST Regulations, especially Regulation 14(1).
17. Assuming that there was a possible violation of the SAST Regulations as the open offer was not made in 2011 we are of the opinion that there is an inordinate delay in the initiation of the proceedings. The acquisition if any was made in the year 2011. Such transfer of shares was made known to the Stock Exchange and was in the public domain. The mere fact that such acquisition came to their knowledge only when additional offer was being made in 2016 is incorrect and is not a ground to initiate proceedings nor can it condone the inordinate delay.
18. In a similar situation this Tribunal dealt a similar matter in the case of Mr. Rajit Bhanot vs Securities and Exchange 9 Board of India, Appeal No. 396 of 2018 decided on July 9, 2021 this Tribunal held:-
"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 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."
19. The said decision is squarely applicable in the instant case in as much as the alleged acquisition occurred in the year 2011 and the show cause notice was issued on July 22, 2021 after 10 years.
10
20. Similarly, in Ashlesh Gunvantbhai Shah vs SEBI (Appeal No. 169 of 2019) decided on January 31, 2020 this Tribunal held:-
"12. Having considered 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 the alleged violations. The controversy in this regard is squarely covered by a decision of this Tribunal in Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019. The relevant paragraph is extracted herein below:-
"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 vs, Citedal Fine Pharmaceuticals, Madras and Others, [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) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. 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."11
13. Similar view was again relied in Ashok Shivlal Rupani & Ors. vs. SEBI (Appeal No. 417 of 2018 along with other connected appeals decided on August 22, 2019) and again in Sanjay Jethalal Soni & Ors. vs SEBI in Appeal No. 102 of 2019 and other connected appeals decided on November 14 2019.
14. We also find that in the case of Ashok Shivlal Rupani (supra) the period of investigation was January 4, 2010 to January 10, 2011 in the scrip of M/s. Oregon Commercial Ltd. and the show cause notice issued on November 20, 2017 which this Tribunal held that there was an inordinate delay. In the instant case, the same scrip was investigated for the same period and there is a delay of 7 years in issuing the show cause notice. To this extent, the facts are common. Further, Civil Appeal No. 8444 - 8445 of 2019 Securities and Exchange Board of India vs. Ashok Shivlal Rupani & Anr, etc was dismissed by the Supreme Court on November 15, 2019 thus affirming the decision of this Tribunal.
15. 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. Even though there is no period of limitation prescribed in the Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (2019) SCC OnLine SC 294. In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore no penalty could be imposed."
21. In Sanjay Jethalal Soni and Ors. vs. SEBI (Appeal No. 102 of 2019 decided on November 14, 2019 this Tribunal held:-
"11. Having heard the learned counsel for the parties at some length we find that the respondent had investigated the scrips of Shree Global Tradefin Ltd. for the period March 1, 2009 to January 10, 2011 in September 2011. Pursuant thereto, a show cause 12 notice dated April 20, 2012 was issued for the violation found during the investigated period March 1, 2009 to November 30, 2009. The respondents thereafter waited for another five years to issue a second show cause notice dated July 20, 2017 for the investigated period April 1, 2010 to January 10, 2011 which had been investigated in September 2011. We find that the respondents were aware of the alleged violation and thus there is no justification for waiting for more than five years to issue the second show cause notice dated July 20 2017. In our view there is an inordinate delay in initiating the proceedings."
22. In view of the aforesaid, we are of the confirmed opinion that the impugned order cannot be sustained and is quashed. The appeal is allowed with no order as to costs. The miscellaneous application is also disposed of.
23. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member 25.07.2023MADHUKAR Digitally signed by MADHUKAR SHAMRAO SHAMRAO BHALBAR msb BHALBAR Date: 2023.07.25 15:22:22 +05'30'