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TMI Blog2015 (4) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... urities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short) respectively. Since common question of law is involved in these two appeals, both these appeals are heard together and disposed of by this common decision. 2. Common question of law raised in these two appeals is:- "Whether a listed Company under the format annexed to clause 35 of the Listing Agreement is required to disclose to the Stock Exchange, details of 'otherwise encumbered' shares of that listed Company held by the promoter/ promoter group, even though there is no obligation cast upon the promoter/ promoter group to make such disclosures to the listed Company? 3. For convenience, facts in Appeal No. 183 of 2013 are set out herein. Counsel for parties state that the decision in Appeal No. 183 of 2013 would equally apply to Appeal No. 181 of 2013. 4. Facts relevant for Appeal No. 183 of 2013 are as follows:- a) Appellant is a listed Company duly incorporated under Companies Act, 1956. b) By a show cause notice issued on November 30, 2010, SEBI called upon the appellant to show cause as to why an inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pledge of shares. f) Rejecting the above contention of the appellant, the Adjudication Officer of SEBI by the impugned order dated July 31, 2013 held that the appellant has violated clause 35 of the Listing Agreement and regulation 3(d) and 4(2)(f) of PFUTP Regulations and accordingly imposed penalty of Rs. 40 lac under Section 23 E of SCRA for violating clause 35 of the Listing Agreement and Rs. 60 lac under Section 15HA of SEBI Act 1992 for violating regulation 3(d)and 4(2)(f) of PFUTP Regulations. Challenging the aforesaid order present appeal is filed. 5. Mr. Chagla learned Senior Advocate appearing on behalf of the appellant in Appeal No. 183 of 2013 and Mr, Modi, learned Senior Advocate appearing on behalf of appellant in Appeal No. 181 of 2013 have advanced following arguments:- a) Prior to February 3, 2009, listed Companies were not required to give details of the pledged shares in their quarterly reports filed in compliance with clause 35 of the Listing Agreement. By two circulars both dated February 3, 2009 SEBI called upon the Stock Exchanges to bring to the notice of the Companies regarding the disclosures to be made under regulation 8A(1),8A(2),8A(3) & 8A(4) introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is taking a view contrary to the view already taken by another Adjudicating Officer in the case of Dewan Housing Finance Corporation Ltd. (Supra). In these circumstances, counsel for respective appellants submitted that the orders impugned in each of the appeals be quashed and set aside. 6. Mr. Setalvad, learned Senior Advocate appearing on behalf of SEBI, on the other hand submitted as follows:- a) Amendment to clause 35 of the Listing Agreement as suggested by SEBI as per SEBI circular dated February 3, 2009, have been given effect to by the Stock Exchanges and in fact by its circular dated February 24, 2009, Bombay Stock Exchange ('BSE' for short) has intimated to all the listed Companies regarding the obligation arising from the amendment to clause 35 of the Listing Agreement. Similar circular is issued by National Stock Exchange ('NSE' for short) on February 6, 2009. Hence, there is no merit in the contention of the appellants that clause 35 of the Listing Agreement has not in fact been amended by the Stock Exchanges. b) SEBI in its circular dated February 3, 2009 has specifically recorded that the format for reporting the shareholding pattern is required to be changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs between the promoters and some third party. e) Failure or omission on part of appellants to disclose that about 80% of the shares held by the promoter/promoter group on account of the restraint order passed in the arbitration proceedings constitutes concealment and fraud on investors as per regulation 3(d) of PFUTP Regulations. Similarly, providing incorrect number of encumbered shares to the Stock Exchange would mean 'causing to publish information which is not true', thereby violating regulation 4(2)(f) of PFUTP Regulations. Hence, imposition of penalty on appellants for violating clause 35 of the Listing Agreement as well as PFUTP Regulations is justified. Accordingly, counsel for the respondent submitted that there being no merit in the contentions raised by the appellants, the appeals be dismissed with costs. 7. We have carefully considered rival submissions. 8. First question to be considered herein is, whether the Stock exchanges have in fact amended clause 35 of the Listing Agreement as suggested by SEBI in its circular dated February 3, 2009. From the letter addressed by NSE to SEBI on January 24, 2014 (page 57 of affidavit in reply) it appears that NSE had amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group from selling, transferring or creating third party interest in the shares of the appellant Company held by the said promoter/ promoter group. 10. From the press release issued by SEBI on January 21, 2009 (Page 193 of the Paper Book) it is seen that the necessity to make it mandatory on part of promoters to disclose to the Stock Exchanges details of pledge of shares held by them in listed Companies promoted by them arose on account of the scam that was unearthed in case of Satyam Computer Services Ltd. In the said press release SEBI has further stated that disclosures shall have to be made as and when the shares are pledged as also by way of periodic disclosures and that necessary steps to amend the relevant regulation and the Listing Agreement are being taken. As per the press release, details of pledge of shares and release/sale of 'pledged shares' were to be furnished by the promoters to the Company and the Company was in turn to inform the same to the public through the Stock Exchanges. 11. Immediately after taking the above policy decision, SEBI introduced regulation 8A to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Regulations, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r group but also disclose details of the shares that are otherwise encumbered by the promoter/promoter group. 14. According to SEBI, since the word 'otherwise encumbered' is used in the format appended to clause 35 of the Listing Agreement, every listed Company is obliged to disclose not only shares pledged by promoter/promoter group, but also shares which are otherwise encumbered by the promoter/ promoter group. It is surprising that the format annexed to clause 35 of the Listing Agreement casts an obligation on the listed Companies to disclose to the Stock Exchanges details of the shares that are otherwise encumbered by the promoter/promoter group, without making corresponding obligation on the promoter/ promoter group to make such disclosures to the listed Company. As noted earlier, as per the press release issued by SEBI on January 21, 2009, and as per regulation 8A of Takeover Regulations, 1997, what is to be disclosed by the listed Companies to the Stock Exchanges is the information received by the listed Company from the promoter/promoter group. As per regulation 8A(1)/8A(2) what is to be disclosed by the promoter/promoter group to the listed Company is only details of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice of the Adjudicating Officer in the present case, and in fact in the impugned order it is recorded that the appellants have relied upon the order in case of Dewan Housing Finance Corporation Ltd. (Supra). However, the Adjudicating Officer, in the present case, has neither found fault with the order passed in case of Dewan Housing Finance Corporation Ltd. (Supra) nor assigned any reason for taking a view contrary to the view taken therein. Such an attitude on part of the Adjudicating Officer of SEBI deserves to be condemned. View taken by one Adjudicating Officer of SEBI cannot be disregarded by another Adjudication order without assigning any reasons. It is high time that SEBI takes remedial measures and ensure that its Adjudicating Officers respect orders passed by each other. We make it clear, that respecting each others order does not mean that even an erroneously order, passed by the Adjudicating Officer must be followed blindly. In such a case, contrary view could be taken by recording reasons for taking such contrary view. 16. In the present case, the Adjudicating Officer, without assigning any reason has taken a view contrary to the view taken in case of Dewan Housin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoter group to make such disclosures to the listed Company, and in the absence of such disclosure made by promoter/ promoter group, SEBI is not justified in directing the listed Company to disclose to the Stock Exchanges details of shares which are 'otherwise encumbered' by the promoter/ promoter group. Secondly, as per the press release issued by SEBI on January 21, 2009, clause 35 of the Listing Agreement was to be amended so that details of pledged shares and release/sale of shares are first made by promoter/promoter group to the listed Company and in turn, the listed Company would disclose the same to the public through the Stock Exchanges. Since the promoter/ promoter group are not obliged to disclose to the listed Company details of shares that are otherwise encumbered by them, SEBI is not justified in directing the listed Company to disclose to the Stock Exchange details of 'otherwise encumbered' shares which are not furnished to it by the promoter/promoter group. Thirdly, when an Adjudicating Officer of SEBI has already construed the words 'shares pledged or otherwise encumbered' and held that the said words would cover particulars relating to pledged shares only, the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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