Securities Appellate Tribunal
Mr. Rakesh Kathotia And Others vs Sebi on 27 May, 2019
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on:7.5.2019
Date of Decision: 27.5.2019
Appeal No.7 of 2016
1.Mr. Rakesh Kathotia 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre Marine Lines, Mumbai - 400 020.
2. Ms. Arti Kathotia 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre Marine Lines, Mumbai - 400 020.
3. Ms. Kamladevi Kathotia 41, Venus Apartments 87, Cuffe Parade, Mumbai - 400005.
4. Rakesh Kathotia HUF Rep. by its Karta Rakesh Kathotia 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre Marine Lines, Mumbai - 400 020.
5. Subhkam Properties LLP (Formerly Subhkam Properties Private Limited) 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre Marine Lines, Mumbai - 400 020.
6. Subhkam Ventures (I) Private Limited 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre 2 Marine Lines, Mumbai - 400 020.
7. Subhkam Securities Private Limited 4th Floor, The International House, New Marine Lines Cross Road No.1 Near American Centre Marine Lines, Mumbai - 400 020.
8. Aagam Capital Limited Earlier known as Subhkam Capital Limited Room No.2, 3rd Floor, 5/7, Kothari House Oak Lane, Fort, Mumbai - 400 020. ..... Appellants Versus Securities & Exchange Board of India SEBI Bhavan, Plot No. C-4A, Bandra Kurla Complex, Bandra (E), Mumbai 400051. ... Respondent Mr. Somasekhar Sundaresan, Advocate with Mr. Ravichandra S. Hegde, Mr. Robin Shah and Ms. Ankita Roy, Advocates i/b. Parinam Law Associates for the Appellants.
Mr. Kumar Desai, Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice Tarun Agarwala 3
1. The appellants have challenged the order of the Adjudicating Officer wherein a penalty has been imposed under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 (referred to hereinafter as the 'SEBI Act') for violation of Regulation 7(1) read with Regulation 7(2), Regulation 7(1A), Regulation 7(2), Regulation 7(3), Regulation 8(3) and Regulation 3(3) read with Regulation 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the 'Takeover Regulations).
2. The facts leading to the filing of the present appeal is, that Principle Capital Markets Limited was incorporated as a non banking financial Company on 27th December, 1991. In 2006, the name was changed to Subhkam Capital Limited and, in 2011, it was changed to Aagam Capital Ltd. (hereinafter referred to as the Appellant no. 8/target Company). The said Company is trading in securities and its shares are listed on the BSE.
3. Appellant Nos.1 to 6 are original acquirers of Appellant no.8. Appellant no.7 is Subhkam Securities Private Limited and is also a part of the promoter's group. 4
4. The original acquirers entered into a Share Purchase Agreement on 25th October, 1999 to acquire 59.57 percent of the equity share capital of Appellant no.8/target Company from the erstwhile promoters thus triggering Regulation 10 of the Takeover Regulations. In terms of Regulations 10 and 12 of the Takeover Regulations an open offer was made and a Merchant Banker was appointed and, in accordance with the provisions of the Takeover Regulations, the original acquirers came into control of the target Company. The closure report as stipulated under Regulation 24(7) of the Takeover Regulations was also filed before SEBI within the stipulated 45 days from the date of the closure of the offer.
5. Between 2005 to 2011, the appellants sold certain shares of the target Company. The aggregate sale of the shares of the target Company exceeded two percent of the share capital of the target Company. The target Company failed to make the disclosure to the stock exchange as contemplated under Regulation 7(1A) of the Takeover Regulations.
6. On 23rd March, 2011, Appellant no.7 who is part of the promoter group of the target Company acquired 5.27% shares 5 of the target Company by way of inter-se transfer from Appellant no.6 who is also a promoter of the target Company.
7. On 20th October, 2011, the promoter group/appellants entered into a Share Purchase Agreement with SR Jute Traders Private Limited ("Acquirers") for sale of 17,31,409 equity shares representing 34.63 percent of the target Company. Based on this agreement, the Merchant Banker issued a letter of offer dated 8th August, 2012. While scrutinizing the letter of offer, SEBI observed that the promoters of the target Company had failed to comply with Regulation 7(1) read with Regulation 7(2) of the Takeover Regulations in the year 2000 pursuant to the Share Purchase Agreement dated 25th October, 1999 and the consequent open offer made at that stage. SEBI further observed that the promoters had failed to make the disclosure of the sale of shares of the target Company made during the period 2005- 2011 to the stock exchange as contemplated under Regulation 7(1A) read with Regulation 7(2). SEBI also observed that inter-se transfer of shares between the two promoters was in violation of Regulations 3(3) and 3(4) of the Takeover Regulations. Accordingly, a show cause notice 6 was issued to show cause as to why a penalty should not be imposed upon the appellants for violation of the aforesaid provisions of the Takeover Regulations. Subsequently, another show cause notice was issued directing the appellants to show cause as to why the appellants should not be penalized for violating Regulations 7(3) and 8(3) of the Takeover Regulations for alleged failure to disclose the promoter holding for the financial year 2010-2011 and directed to show cause as to why a penalty should not be imposed.
8. The Adjudicating Officer, after considering the appropriate replies given by the appellants and, after giving them an opportunity of hearing, passed an order holding that the violations of various Regulations stated in the show cause notice were made by the appellants and, accordingly imposed penalty under different heads to different appellants totaling Rs.45 lakhs which was to be paid individually as well as jointly and severally. The appellants being aggrieved by the said order have filed the present appeal.
9. We have heard Mr. Somasekhar Sundaresan assisted by Mr. Ravichandra S. Hegde, Mr. Robin Shah and Ms. Ankita Roy, Advocates for the Appellants and Mr. 7 Kumar Desai assisted by Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates for the Respondent.
10. The learned counsel for the appellant contended that the alleged violation of Regulations 7(1) and 7(2) is patently erroneous. It was contended that when the appellants had entered into an agreement for acquiring the target Company in 1999, the provisions of Chapter III of the Takeover Regulations namely Regulations 10, 12, 13, 14, 15, 16, 17 and 18 were duly complied with. Full and formal compliance of the special provisions under Chapter III was made. A public announcement under Regulation 10 read with Regulations 14 and 15 was made. The acquisition pursuant to the Share Purchase Agreement of 1999 was finally disclosed within the time line stipulated in Regulation 14. Intimation was also given to the stock exchange and the disclosures were also made in the national and regional newspapers. It was contended that under Regulation 7 the disclosures had to be made if the threshold exceeded five percent whereas under Regulation 10 the disclosures is to be made by a public announcement if it exceeds the threshold of fifteen percent or more. It was, thus, contended that when a rigorous procedure for making disclosure was duly complied 8 with by the appellants under Regulations 10 and 12 of the Takeover Regulation it was not necessary for the appellant to make the same disclosure for the same incident/event under Regulation 7. It was thus contended that when the provisions of Regulation 10 was duly complied with the appellants cannot be penalized for failure to comply with the disclosure obligations under Regulation 7.
11. Shri Somasekhar, thus contended that Regulation 7 should thus be read as a general provision for disclosure for acquisition of shares exceeding five percent and Regulation 10 should be read as a special provision for disclosure of acquisition of shares exceeding fifteen percent and, therefore, the special provision would yield to the general provision.
12. On the issue of sale of shares between the years 2005- 2011, the learned counsel contended that there was no violation of Regulation 7(1A) read with Regulation 7(2) in view of the decision of this Tribunal in the case of Ravi Mohan and others vs. SEBI in Appeal No.97 of 2014 and other companion appeals decided on 16th December, 2015 wherein the Tribunal held that since Regulation 7(2) does not contemplate any time limit for disclosure relating to sale of shares in excess of the limit set out under Regulation 7(1A), 9 the appellants in the said appeal cannot be said to have failed to have complied with Regulation 7(1A) within the time stipulated under Regulation 7(1A) read with Regulation 7(2) and, therefore, penalty cannot be sustained for non compliance. It was contended that the ratio of the decision of the Tribunal in Ravi Mohan and others has been accepted by SEBI as it has not been challenged before a higher forum. Instead, it was contended that SEBI in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 has incorporated a provision stipulating a deadline for disclosure for disposal of shares as well.
13. On the issue of inter-se acquisition of shares between the promoters it was contended that no penalty can be imposed under Regulation 3(3) read with Regulation 3(4) in as much as the said provision relates to an exemption clause exempting a person from a charging provision. Non compliance of an exempting provision cannot attract a penalty. It was further urged that in any case inter-se transfer of shares by the promoter of a little over five percent cannot attract the charging provision in as much as the collective shareholding of the appellants/promoters in the target 10 Company remained the same. Further, the individual shareholding of the acquirer did not cross the threshold limit of fifteen percent and, therefore, Regulation 10 was not attracted. It was also urged that the individual shareholding of the acquirer was not already in excess of fifteen percent before the inter-se acquisition for the acquisition of more than five percent in a financial year to attract Regulation 17.
14. On the issue of non disclosure of sale transaction in the annual returns for the financial year 2010-2011 attracting violation of Regulation 8(3) it was urged that the non disclosure was by an inadvertent error and that when the error was noticed the correct disclosure was made soon thereafter. It was contended that the error so made by the Company was not that serious which would be regarded as a non disclosure resulting in a violation of Regulation 8(3). In support of his submission, the learned counsel has placed reliance on a decision in Bonanza Biotech Ltd. vs. SEBI in Civil Appeal No.5865 of 2006 decided on March 7, 2017 wherein the Supreme Court has specially ruled that erroneous disclosure would not constitute a non disclosure.
15. On the other hand, the learned counsel for the Respondent contended that the order of the Adjudicating 11 Officer was just and fair which requires no interference. The learned counsel urged that admittedly the disclosure was not made by the appellants under Regulations 7(1) and 7(2) in the year 1999-2000 and, therefore, the order of penalty to that extent was justified. With regard to the sale of shares made by the appellants between 2005-2011, the learned counsel asserted that the disclosure was required to be made within two days under Regulation 7(1A) read with Regulation 7(2). The learned counsel urged that the decision of this Tribunal in Ravi Mohan's case (supra) needs to be revisited. The learned counsel further contended that for the failure to disclose the promoters holding for the financial year 2010-11, the penalty imposed was for the delay in the disclosure and not for the non-disclosure.
16. Upon a query raised by the Tribunal, the learned counsel for the respondent contended that the proceedings were initiated for violation of the Takeover Regulations in the year 1999-2000 when the respondent came to know about such violation only in the year 2012. The learned counsel contended that no period of limitation has been prescribed for taking action either under the SEBI Act or under the Takeover Regulations and, therefore, proceedings can be 12 initiated against the appellants at any stage and, in the instant case, from the stage when the respondent came to know about the alleged violation. In support of his submission, the learned counsel placed reliance upon the decision of this Tribunal in Vaman Madhav Apte & Ors. Vs. SEBI, Appeal No. 449 of 2014 decided on 4.3.2016, Kunal Pradeep Savla & Ors. Vs. SEBI, Appeal No.231 of 2017 decided on 13.4.2018, Ravi Mohan & Ors. vs. SEBI, Appeal no.97 of 2014 decided on 16.12.2015, Sudarshan Walia & Ors. Vs. SEBI, Appeal No.470 of 2015 decided on 14.10.2016 and a decision of the Supreme Court in SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 decided on 28.2.2019.
17. Before we proceed to consider as to whether the provisions of Regulations 7(1) and 7(2) of the Takeover Regulations have been violated or not it would be appropriate to extract the said provisions. For facility, Regulation 7 as it stood in the year 2000 is extracted hereunder:-
"Acquisition of 5% of more shares or voting rights of a company
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 shares or voting rights in a company, in any manner whatsoever, shall disclose the aggregate of his 13 shareholding or voting rights in that company, to the company.
(2) The disclosures mentioned in sub-regulation (1) shall be made within four working 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.
(3) Every company, whose shares are acquired in a manner referred to in sub-regulation (1), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations (1)."
18. Regulation 7 is contained in Chapter II of the Takeover Regulations, 1997. Chapter II consists of Regulations 6 to 9 under the heading "Disclosures of Shareholding and Control in a Listed Company." Under Chapter II disclosures have to be made by the entities specified therein at various stages as more particularly set out therein. Regulation 6 of Chapter II of the Takeover Regulations provides for disclosure by entities specified therein on the basis of their shareholding as on the date on which the said Regulation came into force. Regulation 7 provides for disclosure by the entities specified therein after the Takeover Regulations came into force. The disclosure obligation under Regulation 7(1) is in relation to acquisition of shares or voting rights in excess of the limit prescribed in Regulation 7(1). The said disclosure obligation 14 is required to be discharged within four working days. The disclosure is required to be made by the acquirer to the Company as well as to the stock exchanges where the shares of the target Company are listed.
19. The disclosure required to be made under Regulations 10 and 12 is in Chapter III under the heading "Substantial Acquisition of shares or voting rights in and acquisition of control over a listed Company". Such disclosures are required to be made by the Merchant Banker to the Board, to the stock exchange as well as to the shareholders of the target Company. Though a more rigorous procedure is made under Chapter III with regard to disclosures than specified under Chapter II, nonetheless, the obligation to make disclosures under Chapter II and Chapter III of the Takeover Regulations are separate and distinct. Disclosure obligation under Chapter II is required to be complied with by the acquirer and, under Chapter III, the obligation is joint and several of the persons required to make the open offer as acquirer alongwith the Merchant Banker.
20. Even though, in the instant case, the disclosures have been made under Chapter III, nonetheless there was an obligation upon the appellants who were the acquirers to 15 make the appropriate disclosure also under Chapter II vis-a- vis Regulation 7. Admittedly, no such disclosure was made and, therefore, the provisions of Regulation 7 was not complied with by the appellants.
21. Since there has been a violation of Regulation 7, the question which arises for consideration is, whether the Adjudication Officer was justified in imposing a penalty of Rs.15 lakhs upon the Appellant Nos.1 to 6. In our view, there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellant for the alleged violation. In our opinion, much water has flown since then and, at this belated stage, the appellant cannot be penalized for the alleged violation which in any case was substantially complied with under Chapter III of the Regulations.
22. In this regard, the decisions cited by the learned counsel for the respondent are not helpful. In Vaman Madhav Apte (supra), Kunal Pradeep Savla & Ors. (supra), Sudarshan Walia & Ors. (supra), Ravi Mohan & Ors. (supra), this Tribunal held that in the absence of any specific provision in the SEBI Act or in the Takeover Regulations after issuing a show cause notice, the fact that 16 there was a delay on the part of SEBI in initiating proceedings for the violation committed cannot be a ground to quash the penalty imposed for such violation. The Tribunal, however, in the aforesaid decisions further went on to hold that in the absence of a time limit prescribed for issuing a show cause notice or for completing the adjudicating proceedings, SEBI cannot arbitrarily delay the procedure and must take all reasonable steps to initiate and complete the proceedings in accordance with law as expeditiously as possible. The Tribunal also held that the Regulator should always make an endeavor to take prompt action against the defaulting Companies in order to render speedy and timely justice.
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 17 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."
24. In the light of the aforesaid, it was contended by the respondent that they took immediate measures by issuing a show cause notice when they came to know about the default when the second open offer was made by the appellants in the year 2011. This submission cannot be appreciated for the following reasons:-
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(i). When the first acquisition was made by the appellants in the year 1999 the rigorous procedure of public announcement was followed by the appellants under Chapter III. The public announcement was made in an English newspaper as well as in a Hindi newspaper and a regional newspaper. The copy of the public announcement was also submitted to SEBI through the Merchant Banker and was also sent to the stock exchange. The closure report giving all the details of the acquisition was also given by the Merchant Banker under Regulation 24(7) which provided all the information relating to the acquisition.
These facts have not been denied. Thus, it does not lie in the mouth of the respondent to contend that the default of the appellant in non compliance of Regulation 7 was only noticed when the appellant made the second offer in 2011. In our opinion, adequate information was disseminated to the respondent through various channels and even though the appellant may not have provided the information under Regulation 7 but the same information was available to the respondent under the provisions of Chapter III of the Takeover Regulations. 19
(ii). Even otherwise after the closure of the open offer of the appellants in 2000 the business of the Company moved ahead and the appellants also sold certain shares from 2005 onwards.
(iii). The respondent had knowledge of the fact that the appellants had acquired more than five percent of the shares which was disclosed under Chapter III but was not disclosed under Regulation 7 of Chapter II of the Takeover Regulations. After more than 11 years steps to penalise the appellants cannot be taken. In our view, there has been an inordinate delay in initiating proceedings and, therefore, on the ground of laches we are of the opinion that the proceedings initiated against the appellants for violation of Regulation 7 cannot be sustained.
25. Penalty of Rs.3 lakhs, Rs.2 lakhs and Rs.6 lakhs has been imposed on Appellant Nos. 1, 2 and 6 respectively for violation of Regulation 7 (1A) read with Regulation 7(2). The Adjudicating Officer found that the sale of shares of the target Company from 2005 to 2011 by these appellants which aggregated to two percent or more of the share capital of the target Company was required to be disclosed within two days 20 of such sale and since the same was not disclosed the penalty was imposed for violation of Section 7(1A) read with Regulation 7(2). In this regard, Regulations 7(1A) and 7(2) as it stood during the relevant period is extracted hereunder:
"Regulation 7(1A) and 7 (2) of Takeover Regulation, 1997 7(1A). Any acquirer who has acquired shares or voting rights of a company under sub regulation (1) of regulation 11, or under second proviso to sub regulation (2) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale.
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."
26. Regulation 7(1A) was inserted to the Takeover Regulations with effect from 9.9.2002. Prior to the insertion of Regulation 7(1A), the disclosure obligation under Regulation 7(1) was in relation to acquisition of shares or voting rights in excess of the limit prescribed in Regulation 7(1) and the said disclosure obligation was required to be 21 discharged within four working days of the event specified under Regulation 7(2). In 2002, Regulation 7(1A) was inserted with effect from 9.9.2002. Through this amendment, any acquirer who had acquired shares or voting rights of the target Company under Regulation 7(1A) was required to disclose purchase or sale of shares or voting rights of the target Company aggregating two percent or more of the share capital of the target Company to the target Company and also to the stock exchange within two days of such purchase or sale. Regulation 7(2) only amplified the starting point of the time limit of two days with regard to the acquisition of shares alone, namely, the time limit for disclosure of the acquisition within two days would start either from the receipt of intimation of allotment of shares or the acquisition of shares or voting rights as the case may be. In our view, there is no dichotomy between 7(1A) and 7(2) in as much as the disclosure is required to be made within two days by the acquirer whether he purchases the shares or sells the shares. If the acquirer sells the shares he is required to make the disclosure under Regulation 7(1A) within two days and, in the event the acquirer acquires the shares or voting rights then he is required to make the disclosure within two days under Regulation 7(1A) read with Regulation 7(2) from the 22 date of receipt of intimation of allotment of shares or from the date of acquisition of shares or voting rights as the case may be.
27. In view of our interpretation of Regulation 7(1A) read with Regulation 7(2) we differ with the view taken by this Tribunal in the case of Ravi Mohan and Others vs. SEBI in Appeal no.97 of 2014 and other companion appeals decided on 15.2.2015 wherein the Tribunal held :
"Disclosure obligation under regulation 7(1A) has to be discharged in accordance with regulation 7(1A) read with regulation 7(2). Since regulation 7(2) does not contemplate for disclosure relating to sale of shares in excess of the limits set out under regulation 7(1A), appellants herein cannot be said to have failed to comply with regulation 7(1A) within the time stipulated under regulation 7(1A) read with regulation 7(2). Consequently penalty imposed on the appellants cannot be sustained."
28. In our view, the sale made by the appellants which aggregated two percent or more of the share capital of the target Company was required to be disclosed by the acquirer/appellants of the target Company within two days under Regulation 7(1A). Thus, for non-disclosure of the sale of shares the appellants have violated the provisions of Regulation 7(1A).
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29. However, the appellants cannot be faulted and penalised on this score at this stage. They have a decision in their favour in the case of Ravi Mohan (supra) which is still valid till date and has not been set aside by a superior forum. Further, the respondent SEBI has accepted the decision of this Tribunal in the case of Ravi Mohan (supra) which can be seen from the fact that a similar provision, namely, Regulation 29 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 was amended after Ravi Mohan's decision was given by this Tribunal in 2015. For facility, Regulation 29 is extracted hereunder :
Disclosure of acquisition and disposal.
"29. (1) Any acquirer who acquires shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, aggregating to five per cent or more of the shares of such target company, shall disclose their aggregate shareholding and voting rights in such target company in such form as may be specified.
(2) Any person, who together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, if there has been change in such holdings from the last 24 disclosure made under sub- regulation (1) or under this sub-regulation; and such change exceeds two per cent of total shareholding or voting rights in the target company, in such form as may be specified.] (3) The disclosures required under sub-
regulation (1) and sub-regulation (2) shall be made within two working days of the receipt of intimation of allotment of shares, or the acquisition or the disposal of shares or voting rights in the target company to,--"
30. Regulation 29 of the Takeover Regulations, 2011 in more or less pari materia with the provision of Regulation 7 of the Takeover Regulations, 1997. The words "or the disposal" were added in Regulation 29(3) by an amendment w.e.f. September 11, 2018 after the decision of this Tribunal in Ravi Mohan's case (supra) decided in the year 2015.
31. Thus, even though we do not agree with the ratio of the decision in Ravi Mohan's case, nonetheless, the said decision having been accepted by SEBI, the appellant in the instant case cannot be penalized for violation of Regulation 7(1A) read with Regulation 7(2). The imposition of penalty by the Adjudicating Officer on this score cannot be sustained.
32. The Adjudicating Officer has imposed a penalty upon Appellant no.7 with regard to the inter-se transfer of shares from Appellant no.6 for violating Regulation 3(3) read with 25 Regulation 3(4). For facility, the provision of Regulations 3(3) and 3(4) are extracted hereunder:-
"3(3) In respect of acquisitions under clauses (c),
(e), (h) and (i) of sub regulation (1), the stock exchanges where the shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed acquisition, in case of acquisition exceeding 5 per cent of the voting share capital of the company.
3(4) In respect of acquisitions under clauses (a),
(b), (c), (e) and (i) of sub regulation (1), the acquirer shall, within 21 days of the date of acquisition, submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise 15 per cent or more of the voting rights in a company."
33. From the aforesaid, it is clear that Regulation 3 is the exemption clause on certain exigencies where disclosure is not required under Regulations 10, 11 and 12 of the Takeover Regulations. Regulation 3(1)(e) specifically states that if it is an inter-se transfer of shares then the requisite disclosure as is required under Regulations 10, 11 and 12 will not be required to be made. However, Regulations 3(3) and 3(4) is an exception to Regulation 3(1)(e). Under the Regulation 3(3) even in the case of inter-se transfers intimation has to be 26 given to the stock exchange within four working days in case of acquisition exceeding five percent of the voting share capital of the Company. Under Regulation 3(4) the acquirer has to intimate the Board within two days of the acquisition. Thus, from a reading of Regulation 3(1)(e) and Regulation 3(3) and Regulation 3(4) read with Regulations 10, 11 and 12 it becomes apparently clear that where the acquisition exceeds five percent of the voting share capital of the Company the public announcement which is required to be made under Regulations 10, 11 and 12 is exempted under Regulation 3(1)(e) of the Regulations. However, such exemption of following the rigorous procedure under Chapter III is exempted subject to the condition that under Regulations 3(3) and 3(4) the said intimation is given to the stock exchange and to the Board. Even though there is no increase in the percentage of shares or voting power amongst the promoter groups, nonetheless, the percentage of shareholding of individual shareholder is required to be intimated under Regulations 3(3) and 3(4). Not intimating the authorities under Regulations 3(3) and 3(4) leads to a violation of the said provisions. Thus, the imposition of penalty by the Adjudicating Officer on this score needs no interference. In the light of the aforesaid, since Appellant 27 no.6 also failed to disclose the sale of its shares to Appellant no.7, the imposition of penalty is justified and needs no interference.
34. A sum of Rs.2 lakhs was imposed upon the Appellant no.8 for failure to disclose the promoters holding in the annual return for the financial year 2010-11 for apparent violation of Regulation 8(3). For facility, Regulation 8(3) is extracted hereunder:-
"Continual disclosure.
8(3). Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March."
35. Under this provision every Company is required to make yearly disclosures in respect of the promoters holding of the Company. The said disclosure is required to be made within thirty days from the financial year ending 31st March. In the instant case, there was a delay of 11 days and, on account of the delay, a penalty of Rs.2 lakhs has been imposed. The contention of the appellant that they had 28 furnished the disclosure before 31st March but since the information furnished was incorrect the rectified information was submitted within 11 days thereafter and, therefore, there was no concealment of furnishing of information. The contention of the appellant cannot be accepted in as much as the penalty has been imposed not for furnishing incorrect information but the penalty has been imposed for the delay in furnishing the information. Consequently, we do not find any error in the imposition of penalty upon Appellant no.8 for violation of Regulation 8(3).
36. For the reasons stated aforesaid, the appeal is partly allowed. The imposition of penalty of Rs.15 lakhs for violation of Regulation 7(1) and 7(2) is quashed. The imposition of penalty of Rs.3 lakhs upon Appellant no.1, Rs.2 lakhs upon the Appellant no.2 and Rs.6 lakhs on Appellant no.6 and Rs.8 lakhs upon Appellant no.1, 5 and 7 for violation of Regulation 7(1A) read with Regulation 7(2) are also quashed. The imposition of penalty of Rs.7 lakhs for violation of Regulation 3(3) read with Regulation 3(4) upon Appellant no.7, the imposition of penalty of Rs.2 lakhs for violation of Regulation 7(3) upon Appellant no.8 and imposition of penalty of Rs.2 lakhs for violation of Reg.8(3) 29 upon Appellant no.8 is affirmed. The said amount shall be deposited by the appellants jointly and severally within six weeks from today. In the circumstances of the case, parties shall bear their own costs.
Sd/-
Justice Tarun Agarwala Presiding Officer Sd/-
Dr. C. K. G. Nair Member Sd/-
Justice M.T. Joshi Judicial Member 27.5.2019 Prepared and compared by RHN