Securities Appellate Tribunal
Swallow Associates Llp vs Sebi on 6 April, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 24.01.2022
Date of Decision : 06.04.2022
Appeal No. 490 of 2021
Swallow Associates LLP
463, Dr. Annie Besant Road,
Worli, Mumbai - 400 030. ....Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Somasekhar Sundaresan, Advocate with Mr. Abishek
Venkataraman, Mr. Sameer Pandit, Ms. Shachi Udeshi, Ms. Miloni
Rathore, Advocates i/b Wadia Ghandy & Co. for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Abhiraj Arora, Mr. Karthik
Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay,
Advocates i/b ELP for the Respondent
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per : Justice M. T. Joshi, Judicial Member
2
1. Aggrieved by the order of the learned Adjudicating Officer
(hereinafter referred to as 'AO') of respondent Securities and
Exchange Board of India (hereinafter referred to as 'SEBI') dated
March 31, 2021 imposing a penalty of Rs. 10 lacs under Section
15HA and Rs. 2 lacs under Section 15A(b) of the Securities and
Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI
Act'), the present appeal is preferred.
2. Respondent SEBI had alleged that the present appellant has
violated the provisions of Regulation 10 of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (hereinafter referred to as 'SAST
Regulations') for which a penalty of Rs. 10 lacs was imposed.
Further, it was alleged that the appellant also did not make
disclosure of acquisition of shares and has, thus, violated the
provisions of Regulation 7(1) and 7(1A) of the SAST Regulations
and Regulation 13(3) read with Regulation 13(5) of the Securities
and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992 (hereinafter referred to as 'PIT Regulations') for
which a penalty of Rs. 2 lacs was imposed.
3. The facts on record would show that the appellant was
holding 14.41% of the total share capital of Zensar Technologies
3
Ltd. (hereinafter referred to as 'Zensar'). On January 4, 2010, it
purchased 1.79% of the share capital from the market. Thus, the
percentage of share capital in the hands of the appellant reached to
16.20%. Thereafter, it went on to purchase shares of Zensar from
market till January 12, 2010 making its total holding 20.37%.
4. Regulation 10 of the SAST Regulations provides as under :-
"10. No acquirer shall acquire shares or voting rights
which (taken together with shares or voting rights, if
any, held by him or by persons acting in concert with
him), entitle such acquirer to exercise [fifteen] per cent
or more of the voting rights in a company, unless such
acquirer makes a public announcement to acquire
shares of such company in accordance with the
regulations."
5. It is also alleged that the appellant has not disclosed these
acquisitions as required by the Regulation 7 of the SAST
Regulations as detailed (supra) as well as PIT Regulations as
detailed (supra), therefore, a show cause notice was issued and the
adjudicating proceedings was started.
6. The sum and substance of the appellant's case is that, in
fact, the acquisition of shares in the month of January 2010 by the
appellant was effected between promoters. It was inter se transfer
wherein another promoter of Zensar, namely, Pedriano Investments
Ltd. was the seller through stock markets. The collective
4
shareholding of the promoter group remained unchanged at 53.09%
and within that shareholding the appellant's individual holding
increased from 14.41% to 20.37% as noted by the respondent SEBI.
7. The main submission of the appellant was that the inter se
transfer between the promoters of the company does not trigger any
open offer and, therefore, the charge was unsustainable. The learned
AO however did not agree with the submission, therefore, the
impugned order was passed. Hence the present appeal.
8. We have heard Mr. Somasekhar Sundaresan, the learned
counsel with Mr. Abishek Venkataraman, Mr. Sameer Pandit,
Ms. Shachi Udeshi, Ms. Miloni Rathore, the learned counsel for the
appellant and Mr. Kumar Desai, the learned counsel with Mr.
Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani,
Mr. Shourya Tanay, the learned counsel for the respondent.
9. Regulation 10 of the SAST Regulations as reproduced
(supra) would show that an acquirer shall not acquire shares or
voting rights in addition to the shares or voting rights held by him or
by persons acting in concert with him enabling such acquirer to
exercise 15% or more of the voting rights in the company without
such acquirer making a public announcement of acquisition of
shares. The terms 'acquirer', 'person acting in concert' and
5
'promoter' are material to decide the controversy between the
parties. These terms are defined in Regulation 2 of the SAST
Regulations. Those are as under :-
"2(b) 'acquirer' means any person who, directly or
indirectly, acquires or agrees to acquire shares or
voting rights in the target company, or acquires or
agrees to acquire control over the target company,
either by himself or with any person acting in concert
with the acquirer."
"2(e) 'person acting in concert' comprises,--
(1) persons who, for a common objective or purpose of
substantial acquisition of shares or voting rights or
gaining control over the target company, pursuant to
an agreement or understanding (formal or informal),
directly or indirectly co-operate by acquiring or
agreeing to acquire shares or voting rights in the target
company or control over the target company.
(2) Without prejudice to the generality of this
definition, the following persons will be deemed to be
persons acting in concert with other persons in the
same category, unless the contrary is established :
.................................................."
"2(h) "promoter" means --
(a) any person who is in control of the target
company;
(b) any person named as promoter in any offer
document of the target company or any
shareholding pattern filed by the target
company with the stock exchanges pursuant
to the Listing Agreement, whichever is later;
and includes any person belonging to the
promoter group as mentioned in Explanation
I:
................................................"
6
10. Mr. Somasekhar Sundaresan, the learned counsel for the
appellant emphatically submitted before us, that in view of the clear
provisions of Regulation 10 of the SAST Regulations if any acquirer
or person acting in concert with him acquired more than 15% of
shares in a company, then and then only public announcement is
required to be made. Here, in the present case, there was inter se
transfer of shares between the promoters i.e. persons acting in
concert with each other and, therefore, there was no requirement to
make any public announcement and consequently, there was no
violation of Regulation 10 of the SAST Regulations. He submitted
that the reading of 'or' as disjunctive element is wrong when the
same is contained within classes, within parentheses. In fact, the
word 'or' will have to be read in conjunctive. To buttress his
arguments, Mr. Somasekhar Sundaresan has relied on the decisions
of this Tribunal in the case of Sunil Khaitan & Ors. vs. SEBI
Appeal no. 23 of 2013 decided on June 19, 2013 and Smt. Madhuri
S. Pitti & Ors. vs. SEBI Appeal no. 2 of 2013 decided on October
31, 2013.
11. On the other hand, Mr. Kumar Desai, the learned counsel
for the respondent submitted that these authorities would not be
7
applicable as both of them relating to the additional acquisition of
shares by way of preferential shares, etc. In the present case, we are
dealing with the inter se transfer of shares between the parties.
When one party sell the shares and other buy the same, it cannot be
called as they are acting in concert to acquire the shares. On the
other hand, while one of the promoters was disposing the shares and
another promoter was acquiring the same and, thus, there was no
common objective and as such those cannot be called the persons
acting in concert, therefore, relying on the ratio of decision of the
Hon'ble Supreme Court in Daiichi Sankyo Company Ltd. vs.
Jayaram Chigurupati & Ors. (AIR 2010 SC 3089), and Swedish
Match AB and Ors. vs. SEBI decided on February 18, 2003 by this
Tribunal. It was submitted that the submission of the appellant
cannot be accepted.
12. Mr. Kumar Desai, the learned counsel for the respondent
SEBI further pointed out to us that Regulation 3(1)(e) of the SAST
Regulations whereunder inter se transfer, amongst the promoters is
exempted under certain circumstances. One of the circumstances
being that the transferor as well as the transferee have been holding
shares in the company for a period of atleast three years prior to the
proposed acquisition. He submits that in order to find out whether
such exemption is applicable or not to the present appellant,
8
additional documents were called during the pendency of the
proceedings from the appellant and it was found the appellant does
not fit into such exemption. Thus, Regulation 3(1)(e) also would
make it clear that inter se transfer would come within the ambit of
Regulation 10 except in certain circumstances not applicable to the
present appellant. Regulation 3 of the SAST Regulations provides
that Regulations 10, 11 and 12 of this SAST Regulations shall not
apply in certain circumstances. One of the circumstances is given in
sub-regulation 1(e) is as follows :-
"3(1)(e) inter se transfer of shares amongst -- (i)
group coming within the definition of group as defined
in the Monopolies and Restrictive Trade Practices Act,
1969 (54 of 1969) where persons constituting such
group have been shown as group in the last published
Annual Report of the target company;]
(i) relatives within the meaning of section 6 of the
Companies Act, 1956 (1 of 1956);
(ii) (a) Qualifying Indian promoters and foreign
collaborators who are shareholders;
(b) qualifying promoters:
Provided that the transferor(s) as well as the
transferee(s) have been holding shares in the target
company for a period of at least three years prior to the
proposed acquisition.
........................................................"
9
13. Mr. Somasekhar Sundaresan further submits that when the
provision i.e. Regulation 10 itself is not applicable, there is no need
to advert to the provisions contained in exemption.
14. Keeping in view the above submissions, it would be
relevant to advert the attention to the decisions cited by both the
sides.
15. In the case of Shri Sunil Khaitan & Ors. (supra) relied
upon by the appellant, it was a case of allotment of equity shares
upon conversion of warrants. The appellant argued that as a
promoter group, they were in control of company while acting in
concert. This Tribunal took into consideration the definition of
'person acting in concert', provision of Regulation 10 as well as
Regulation 11(1) of the SAST Regulations. This Tribunal noted that
all the four appellants acquired preferential shares as detailed in the
order. It was found that promoter group was already holding shares
more than 50% of the voting rights. In paragraph 30, it was noted
that they had acted in concert with the other appellants for the
purpose of acquisition. It was observed that the individual no longer
regarded as a separate entity independent of the group, but a part of
the entire unit as one cohesive structure as they were acting in
concert with each other to agreeing to pool their holdings together.
10
Finding that all the four appellants had acted as a unit and group, the
provisions of Regulation 10 of the SAST Regulations would not be
applicable even if individual shareholding crosses the 15%
shareholding limits.
16. In the case of Smt. Madhuri S. Pitti & Ors. (supra) relied
by the appellant, it was a case wherein while making a public
announcement regarding certain other acquisitions, SEBI had noted
in a letter that as one of the appellants, namely, Shri Akshay Pitti
was earlier allotted shares in conversion of the warrants increasing
his individual shareholding from 11.87% to 16.25%, it had attracted
the provision of Regulation 10 of the SAST Regulations. Aggrieved
by this noting in the letter the appeal was filed. This Tribunal
relying on the decision of Sunil Khaitan (supra) and considering the
provisions of relevant definitions detailed (supra) in paragraph no.
22 observed that the definition of 'person acting in concert' reveals
that the people who cooperate with each other in order to acquire
substantial voting rights in a particular company would be
considered as 'persons acting in concert'. It was observed that the
benchmark of 15% would, thus, apply to an individual when the
individual is acquiring shares/voting rights on his behalf alone.
Since the promoter group was already holding more than 15% of the
shares, this Tribunal came to the conclusion that it cannot be said
11
that the appellant nos. 3 Akshay Pitti had violated the provisions of
Regulation 10 of the SAST Regulations.
17. On the other hand, in the case of Daiichi Sankyo Company
Ltd. (supra), the Hon'ble Supreme Court in its order in paragraph no.
44 held as under :-
"44. ......There can be no "person acting in concert"
unless there is a shared common objective or purpose
between two or more persons of substantial acquisition
of shares etc. of the target company. For, dehors the
element of the shared common objective or purpose the
idea of "person acting in concert" is as meaningless as
criminal conspiracy without any agreement to commit a
criminal offence. The idea of "persons acting in concert"
is not about a fortuitous relationship coming into
existence by accident or chance. The relationship can
come into being only by design, by meeting of minds
between two or more persons leading to the shared
common objective or purpose of acquisition of
substantial acquisition of shares etc. of the target
company. It is another matter that the common objective
or purpose may be in pursuance of an agreement or an
understanding, formal or informal; the acquisition of
shares etc. may be direct or indirect or the persons
acting in concert may cooperate in actual acquisition of
shares etc. or they may agree to cooperate in such
acquisition. Nonetheless, the element of the shared
common objective or purpose is the sin qua non for the
relationship of "persons acting in concert" to come into
being."
18. In the case of Swedish Match AB and Ors. (supra), this
Tribunal in paragraph no. 43 held as under :-
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"43. But it is difficult to hold that they were also acting
in concert in the context of acquisition of 21.89% shares
by Swedish Match Singapore in September, 2000. It is
noted that the public offer made in February 1998, was to
acquire equity shares representing 20% of the fully paid
up equity capital of the target company by Swedish
Match Singapore Pte. Ltd. along with Plash and AVP
acting in concert. At that point of time all the said entities
were acquirers. But on 27.9.2000, the said Swedish
Match Company acquired 21.89% shares from Plash and
AVP. In the transaction their respective position was of
buyer and seller and therefore it cannot be said that they
were acquirers or they were acting in concert as far as
the said transaction is concerned. Swedish Match
Singapore and Plash and AVP were not persons acting in
concert at the time of the impugned acquisition of shares
by Swedish Match Singapore, for the reason that they had
no common objective or purpose of substantial
acquisition of shares or voting rights or gaining control
over the target company. In fact at that point of time the
Jatia Group was giving up its joint control in the target
company by divesting its shareholding. The Appellants'
contention that once a person acted in concert (PAC)
with the acquirer, for ever he is to be considered as a
person acting in concert with the acquirer is not correct.
It is not that once a PAC always a PAC. It is not a
permanent relationship. It is the intent and action of the
person that would decide as to whether that particular
person is acting in concert with the acquirer. According
to the Bhagwati Committee, (para 2.22 of the report). In
the instant case of acquisition in the light of the facts it is
difficult to conclude that Swedish Match Singapore Pte.
Ltd. and Plash and AVP were acting in concert or for
that matter Haravon and Seed acted in concert with the
said Swedish Match Singapore at that particular
juncture. It is noted that Swedish Match Singapore
directly acquired 21.89% shares of the target company."
[emphasis supplied]
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19. Upon hearing both the sides, in our view, the impugned
order as regards violation of Regulation 10 of the SAST Regulations
cannot be sustained for the following reasons.
20. It cannot be gainsaid that the transfer of the shares were
made within the promoters and the promoters are the persons acting
in concert with each other and form one group. Therefore, when this
group which already held more than 15% of shareholding any
further acquisition by an individual in that group would not attract
the provisions of Regulation 10 of the SAST Regulations.
21. So far as the cases of Daiichi Sankyo Company Ltd. and
Swedish Match AB and Ors. cited (supra), those were the
acquisitions of shares by the entity from outside any promoter group
and, therefore, the facts as to whether the persons therein were
acting in concern were to be examined. Therefore the decisions
would not be applicable in the present case.
22. Mr. Somasekhar Sundaresan, the learned counsel for the
appellant has additionally pointed out that the transfer within
promoters has been barred without making public announcement
vide subsequent Regulation 3(3) of the SAST Regulations, 2011. In
the present SAST Regulations, 1997, no such provision is there. He,
therefore, pointed out that paragraph no. 27 of the judgment of this
14
Tribunal in the very same case of Smt. Madhuri S. Pitti & Ors. as
under :-
"27. We agree with the Respondent to the extent that
the SEBI Act is certainly a social welfare legislation.
But this does not take away from the undeniable fact
that Regulations 3(3) of the SAST Regulations, 2011
introduced the provision stating that even in case of an
individual's shareholding crossing the stipulated
threshold, which is now 25%, the need to make a public
offer shall arise. The Respondent has in all fairness has
agreed that the new Takeover Code of 2011 does not
apply retrospectively."
23. The learned AO and the learned counsel for the respondent
strongly relied on the provisions of the Regulation 3(1) of the SAST
Regulations, 1997 which is reproduced in paragraph no. 12 above.
On the basis of the said provisions, it was argued that the inter se
transfer amongst the group is exempted under certain circumstances
only i.e. respective promoters holding their shares in the target
company for a period of three years prior to the proposed
acquisition. On the basis of this provision, it is submitted that this
exemption clauses would show that Regulation 10 had prohibited
transfer within group without making public announcement.
24. We are unable to agree with the submission. Reading of
provision of Regulation 10 in the light of the decision already made
by this Tribunal in the case of Smt. Madhuri S. Pitti & Ors. would
15
show that acquisition within the group in case the group is already
held more than 15% of the shareholding is not prohibited.
25. In view of the above, the order of the learned AO imposing a
penalty of Rs. 10 lacs on the appellant for violation of Regulation 10
of the SAST Regulations is quashed and set aside.
26. This contention was to find out as to whether any disclosure
violation against the provisions of Regulation 7(1) read with
Regulation 7(2) and Regulation 11(1) read with Regulation 14(1) of
the SAST Regulations is committed by the appellant.
27. The provisions are as under :-
"7(1). Any acquirer, who acquires shares or voting
rights which (taken together with shares or voting rights,
if any, held by him) would entitle him to more than five
per cent or ten per cent or fourteen per cent [or fifty four
per cent or seventy four per cent] shares or voting rights
in a company, in any manner whatsoever, shall disclose
at every stage the aggregate of his shareholding or
voting rights in that company to the company and to the
stock exchanges where shares of the target company are
listed."
"7(2). The disclosures mentioned in sub-regulations (1)
[and (1A)] shall be made within [two 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."
16
"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 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."
"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:
[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.]"
28. To recollect, in the month of January 2010, the present
appellant who was holding 14.41% of the shares of the company had
acquired 5.96% of the equity shares from another promoter. The
appellant was, therefore, already holding more than 14% of the
shareholding after acquisition of additional shares its shareholding
17
reached to 20.37% which is less than 54%. Therefore, the
provisions of Regulation 7(1) of the SAST Regulations would not be
application in this case.
29. Regulation 7(1A) provides that if any acquirer acquires
shares under sub-regulation (1) of the Regulation 11 or under second
proviso to sub-regulation (2) of regulation 11 is required to disclose
purchase or sale aggregating 2% or more of the share capital to the
target company and the stock exchanges. This takes us to consider
the provisions of Regulation 11. It provides that no acquirer
together with persons acting in concert with him has acquired in
accordance with the provisions of law 15% or more but less than
55% of the shares or voting rights in the company shall acquire
either by himself or through persons acting in concert with him
additional shares or voting rights more than 5% of the voting rights.
30. While dealing with the case of Regulation 10 of the SAST
Regulations, we already found that the entire group was already
holding more than 15% of the share capital i.e. 53.9% of the
shareholding. Due to inter se transfer, this shareholding between the
group continued to be the same i.e. less than 55%. There was no
acquisition of additional more than 5% of the voting rights with the
persons acting in concert with the appellant and, therefore, the
18
provisions of sub-regulation (1) of the Regulation 11 of the SAST
Regulations would not be applicable. Sub-regulation (2) of the
Regulation 11 of the SAST Regulations provides regarding the
acquisition by an acquirer with person acting in concert with him
already holding more than 55% shares but less than 75% of the
shares. It provides that additional shares by the acquirer either by
himself or by person acting in concert with him additional shares
cannot be acquired unless a public accouchement to acquire shares is
made. Here, in the present case, there was no additional acquisition
of shares by the group and, therefore, sub-regulation (2) of the
Regulation 11 of the SAST Regulations would also not be
applicable. Consequently, provision of Regulation 7(1A) of the
SAST Regulations would also not be applicable.
31. Lastly, provisions regarding continual disclosure as provided
by Regulation 13(3) read with Regulation 13(5) are extracted
hereunder :-
"13(3). Any person who holds more than 5% shares
for voting rights in any listed company shall disclose to
the company [in Form C] the number of shares or
voting rights held and change in shareholding or voting
rights, even if such change results in shareholding
falling below 5%, if there has been change in such
holdings from the last disclosure made under sub-
regulation (1) or under this sub-regulation; and such
change exceeds 2% of total shareholding or voting
rights in the company."
19
"13.(5). The disclosure mentioned in sub-regulations
(3) and (4) shall be made within 51[two] working days
of : (a) the receipts of intimation of allotment of shares,
or (b) the acquisition or sale of shares or voting rights,
as the case may be."
32. The provisions would show that if individually any person
who holds more than 5% of shares is required to make a disclosure if
the change in his holding exceeds 2% of the total shareholding or
voting rights in the company. Admittedly, in the present case, the
appellant individually has acquired 5.96% of the total shareholding
of the company which exceeds 2%. Admittedly, no such disclosure
was made and, therefore, the appellant would be liable to pay a
penalty for the same to this limited extent, therefore, the appeal
would fail.
33. As regards, quantum of the penalty on this ground, we find
that the learned AO imposed a composite penalty of Rs. 2 lacs under
Section 15A(b) of the SEBI Act for violation of Regulation 7(1) and
7(1A) of the SAST Regulations and Regulations 13(3) read with
Regulation 13(5) of the PIT Regulations.
34. The learned AO has observed that no data is available on
record to compute unfair advantage to the appellant or amount of
loss caused to an investor. In that view of the matter, in our view,
20
imposition of penalty of Rs. 1 lac for the violation of the provisions
of Regulation 13(3) read with Regulation 13(5) of the PIT
Regulations would be sufficient. In the circumstances, the following
order :-
ORDER
35. The appeal is hereby partly allowed without any order as to costs.
36. The order of the learned AO imposing a penalty of Rs. 10 lac for violation of the provisions of the Regulation 10 of the SAST Regulations is hereby set aside.
37. Similarly, the order of the learned AO imposing a penalty for the violation of Regulation 7(1) and 7(1A) of the SAST Regulations is set aside.
38. Further, the order of the learned AO imposing a penalty for violation of provisions of Regulation 13(3) read with Regulation 13(5) of the PIT Regulations is confirmed.
39. Consequently, while setting aside the penalty of Rs. 2 lacs, the same is substituted to penalty of Rs. 1 lac. 21
40. 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 Justice M. T. Joshi Judicial Member RAJALA Digitally by signed 06.04.2022 KSHMI NAIR RAJALAKSHMI H PTM Date: 2022.04.11 H NAIR 10:14:46 +05'30'