2023 (5) TMI 771 - HC - Securities / SEBI

Public issue of shares - payout to the shareholders - Persons acquiring shares to make public announcement in certain cases - accused offered the public to acquire 20% of the capital of M/s. Damania Airways Limited in terms of Clause 40 B of the listing agreement of the Stock Exchange, Mumbai - non-despatch of consideration amounts to a violation of Regulation 20 - acquirers replied to the show cause notice stating inter alia that the liquidity crunch in the market caused the delay and that they had already despatched more than 70% of the consideration.

HELD THAT:- All procedures to the offer, including payment of consideration to the shareholders who have accepted the offer, would be completed within four weeks from the date of closure of the offer. The offer closed on 29 February 1996; Khemkas should have made the payments to the shareholders on or before 28 March 1996. the complainant has produced on record letters from the Manager of the Offer and Khemka Brothers dated 9 April 1996, 25 April 1996, 10 July 1996 and 17 August 1996 wherein it is unambiguously admitting that the acquirers, i.e. Khemka Brothers have not been able to pay the shareholders who have accepted the offer and cited liquidity crunch in the market as the reason for their failure. As has been explained above, the Regulation requires that the payout to the shareholders who have accepted the offer is to be made within four weeks from the closure of the offer. Prima facie failure on the part of the acquirer to meet the obligation amounts to a breach of Regulations 20 and 22. Section 24(1) of the SEBI Act makes it clear that any SEBI Act, Rules and Regulations breach would invite prosecution.

As there was sufficient material available with the complainant, which prima facie indicates a violation of Regulations 20 and 22. Regulation 33 confers discretion on the Board having regard to the facts and circumstances of the case to investigate into the books of account or other records. Based on the report of such investigation under Regulation 36, the Board has the power to issue directions as contemplated under Regulation 39. Regulation 39 expressly saves the power of the Board to initiate criminal prosecution under Section 24 of the Act.

Conjoint reading of Regulation 33, along with Regulation 39, confers discretion on the Board to initiate an investigation if such investigation appears to be necessary to the Board.

In the facts of the case, there was sufficient material to demonstrate that there was sufficient material based on correspondence between the Managers of the accused and the complainant wherein the accused admitted that they have not been able to pay the shareholders who had accepted the offer. Furthermore, the accused cited the liquidity crunch in the market as the reason for their failure. Therefore, in the facts of the case, it is not necessary for the Board to lodge an investigation as per Chapter V into the violation of Regulations 20 and 22.

In the absence of incontrovertible documents such as Form 32 under the Companies Act, 1932 or other material to show the applicant's resignation, the SEBI Special Judge has rightly held that the applicant has failed to make out a case for discharge. Hence, there is no merit in the criminal applications. No case is made out for quashing the complaint or charges.Both criminal applications are dismissed.