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2015 (11) TMI 1493 - SECURITIES APPELLATE TRIBUNAL MUMBAI

2015 (11) TMI 1493 - SECURITIES APPELLATE TRIBUNAL MUMBAI - TMI - Obligation cast on the promoter/promoter group to make yearly disclosure under Regulation 8(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and regulation 30(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - whether the obligation to make yearly disclosure is on the promoter group or the obligation is o .....

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up fails to disclose the shares or voting rights held by the promoters in the promoter group as also their PACís within the time stipulated under the Takeover Regulations, then, penalty is imposable on the promoter group and the said penalty would be recoverable jointly and severally from the promoters in the promoter group who held shares or voting rights in the Target Company with their PACís. In all these appeals the AOís of SEBI have not considered the question as to whether the appellants a .....

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2, 2013, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223 of 2014, Appeal No. 385 of 2014, Appeal No. 80 of 2015, Appeal No. 325 of 2015 - Dated:- 20-11-2015 - J.P. Devadhar and Jog Singh,JJ. For The Appellant : Mr. Somasekhar Sundaresan, Advocate with Ms. Rinku Valanju, Mr. Abishek Venkataraman and Mr. Dhaval Kothari, Advocates, Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji For The Respondent : Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Sau .....

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s) Regulations, 2011 ( Takeover Regulations 2011 for short). Hence all these appeals are heard together and disposed of by this common decision. 2. In all these appeals, except in Appeal No. 385 of 2014, various Adjudicating Officers ( AO for short) of Securities and Exchange Board of India ( SEBI for short) have held that the obligation to make yearly disclosure under regulation 8(2)/30(2) as the case may be, is on each and every promoter and not on the promoter group and in case of failure to .....

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er cases also, the AO s of SEBI have held that under regulation 8(2)/30(2) as the case may be, the obligation to make yearly disclosure is on the promoter group and not on the individual promoter in the promoter group. 3. Since there is no uniformity amongst the AO s of SEBI in determining the obligation to make yearly disclosure under the regulations in question, we called upon counsel for SEBI, to inform us as according to SEBI, the obligation to make yearly disclosure under the regulations in .....

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its own has taken any steps to resolve the conflict nor SEBI is willing to clarify its stand while arguing before this Tribunal. It is improper on part of SEBI to take such indifferent attitude. Since the regulations in question are framed by SEBI, it is the duty of SEBI to ensure that there is consistency in implementing the regulations framed by it and that there is no uncertainty. It is unfortunate that SEBI wants that the orders passed by its AO s be upheld even though the said orders are mu .....

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re held by Mr. P. A. Raman, his two sons and wives of two sons and two family owned companies. b) Sometime in October 1993, the aforesaid Private Limited Company was converted into a Limited Company in the name of Inland Printers Limited. c) In April 1995, Inland Printers Limited came out with a public issue and thereafter, the shares of the said company were listed on the stock exchanges. d) In the year 2000, due to financial crunch and various other problems the operations of the company were .....

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eover Regulations, 1997 disclosing their shareholding in the company within the stipulated time. However, such disclosures were not made under the Takeover Regulations, 1997. Even after the Takeover Regulations 1997 were repealed and replaced by Takeover Regulations 2011, no disclosures were made under the Takeover Regulations, 2011 for the financial year ending on March 31, 2012 within the time stipulated therein. f) It is only when Tigerstone Trading Pvt. Ltd. evinced interest in acquiring sha .....

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;(2) read with 30(3) of the Takeover Regulations for the year ended March 31, 2012 was made on April 16, 2012 (delayed by 7 days). g) Thereafter, on March 1, 2013 appellants along with other shareholders entered into a Memorandum of Understanding (MOU) with Tigerstone Trading Pvt. Ltd. for sale of the shares held by them in Inland Printers Ltd. In accordance with the regulations framed by SEBI, a letter of offer was also made by Tigerstone Trading Pvt. Ltd. for acquiring shares of Inland Printer .....

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he aforesaid order appellants have filed the present appeal. 5. Mr. Somasekhar Sundaresan, Mr. Mustafa Doctor, Senior Advocate, Mr. Nimay Dave and Mr. Rajesh Khandelwal, learned counsel appearing on behalf of respective appellants have advanced oral arguments and also have tendered written submissions. Their argument in nutshell is as follows:- a) Object of the Takeover Regulations is to intimate to the public the aggregate shareholding of the promoters or persons in control of a listed company, .....

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constitute a single offence. In such a case, penalty that could be imposed for violating a single offence is on the promoter group and penalty cannot be imposed depending on the number of constituents in the promoter group. In other words, it is submitted that the unitary penalty for the unitary obligation cannot be divided across the constituents of the promoter group. b) If the contention of SEBI that each and every individual, body corporate or other entity falling within the definition of p .....

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natively it is submitted that the term promoter defined under regulation 2(1)(h) of the Takeover Regulations, 1997 includes the promoter group as mentioned in Explanation-I to regulation 2(1)(h). Since the expression promoter includes a promoter group , obligation to make disclosures under regulation 8(2)/30(2) as the case may be is on the promoter group and not on each promoter in the promoter group. Therefore, if the promoter group fails to make disclosures under regulation 8(2)/30(2) then, pe .....

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in the proper perspective, the impugned orders are liable to be quashed and set aside. d) Relying on various provisions contained in the Takeover Regulations it is submitted that the entire scheme of the Takeover Regulations is to treat every group of persons acting in concert as one collective whole for every single purpose, save and except when persons hitherto acting in concert part ways and cease to act in concert. Since regulation 8(2) and 30(2) in the respective Takeover Regulations treat .....

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as been done in the cases in hand. 6. Mr. J. J. Bhatt, learned counsel appearing on behalf of appellants in Appeal No. 385 of 2014 submitted as follows:- a) Dispute in Appeal No. 385 of 2014 relates to the penalty imposed on the promoter/promoter group for failing to make disclosures under regulation 30(2) of the Takeover Regulations, 2011 for the financial year ended on March 31, 2012 belatedly by 110 days. b) In Appeal No. 385 of 2014, amongst the promoters, there were several sub groups and t .....

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ut considering that plea, penalty of ₹ 15 lac is imposed on all the promoters (including the appellants) with a direction that the said penalty be recovered jointly and severally. Thus SEBI has considered all the promoters of the company as one promoter group, even though the appellants in Appeal No. 385 of 2014 had specifically pleaded that they form a separate promoter group. As a result, appellants in Appeal No. 385 of 2014 are required to pay penalty imposed on all the promoter/ promot .....

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make disclosures by the promoters of a company under Chapter-II of the Takeover Regulations, 1997 and Chapter-V of the Takeover Regulations, 2011 are irrespective of triggering regulations 10, 11, 12 of the Takeover Regulations, 1997 or regulation 3 & 4 of the Takeover Regulations, 2011 on account of acquisition of shares or voting rights by the promoters of the company. In other words, whether regulation 10, 11, 12 of Takeover Regulations 1997, or regulation 3 & 4 of Takeover Regulation .....

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s to be discharged by the respective promoter/person having control over the company. Since every promoter of a company was obliged to make yearly disclosures of shareholding to the company under the Takeover Regulations, penalty is imposable on each promoter if there is failure to comply with those obligations and hence no fault can be found with the decision of SEBI in imposing penalty on every promoter of the respective companies. c) The obligation to make a disclosure and ministerial act of .....

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amed by SEBI do not include the promoter group . The definition of promoter separately provides as to who would be included within the meaning of the expression promoter group in cases where the promoter is a corporate entity and where the promoter is an individual. e) The expression promoter defined under the regulations framed by SEBI, does not include PAC within the meaning of promoter and the shareholding of a PAC who is not a promoter has to be disclosed alongwith the shareholding of the pr .....

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int or joint and several depends on facts of each case. g) Under regulation 8(2) of Takeover Regulations, 1997 a promoter or every person having control over a company (who may be a promoter or a person other than a promoter for example CEO, COO, CFO etc.) is required to disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him in the company, to the company within 21 days from the financial year ending 31st March every year. The said dec .....

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is placed on the decision of the Apex Court in case of Collector of Customs v/s M/s United Electrical Industries Ltd. reported in AIR 1999 SC 3796. i) When, the regulations in question specifically use the word promoter , appellants are not justified in reading that expression as promoter group . In interpreting a statutory provision it is not permissible to add words to the statute unless without such addition the provision of statute to be interpreted is rendered meaningless. In support of th .....

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is on the Authorized Representative. The form cannot govern the operative part of the rule, regulation or section and in case of any conflict, rule, regulation or the section shall prevail. In support of the above contention reliance is placed on the decision of the Apex Court in case of Aphali Pharmaceuticals Ltd. v/s State of Maharashtra reported in (1989) 4 SCC 378. k) In the declaration made in Appeal No. 280 & 281 of 2014, the persons mentioned therein are not only promoters but also p .....

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ons under Regulation 8(2) of Takeover Regulations, 1997 on their behalf. In such a case the said authorized signatory would be required to make declaration after obtaining the information from each of the promoter as to the number and percentage of their respective shareholdings as on the relevant date. For example, in case of a company having four promoters, out of which two promoters are directors of the company and each promoter is acting in concert and/or is deemed to be acting in concert wi .....

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7 and the obligation to make an open offer under Chapter III of the Takeover Regulations, 1997 are separate and distinct. The obligation to make disclosures under Chapter II are to be complied with by every person who is required to make the disclosure, where as the obligation to make an open offer under Chapter III is a joint and several obligation of the persons required to make the open offer. Therefore, the obligation to make disclosure cannot be compared with the obligation to make open off .....

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regulation 8(2) of Takeover Regulations, 1997 is cast on the promoter individually, whereas, obligation to make an open offer under regulation 10, 11, 12 of the Takeover Regulations, 1997 are on the acquirer and the persons acting in concert with him jointly and/ or severally as specified under regulation 22(19) of Takeover Regulations, 1997. Therefore, the obligation under Chapter II cannot be compared with the obligation under Chapter III of the Takeover Regulations. p) Regulation 28(1) of Ta .....

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pter III of Takeover Regulations, 1997 ought not to be confused with the obligation to make disclosures under Chapter II of Takeover Regulations, 1997. Similarly, making a public announcement under Chapter II of Takeover Regulations, 2011 ought not to be confused with the obligation to make disclosure under Chapter V of Takeover Regulations, 2011. r) Under regulation 30(2) of Takeover Regulations, 2011, the obligation is on each promoter to make a disclosure of the shares and voting rights toget .....

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nalty is attracted as soon as there is contravention of the regulations framed by SEBI. t) There is material difference between regulation 8(2) of Takeover Regulations, 1997 and regulation 30(2) of Takeover Regulations, 2011. Under regulation 8(2), a promoter or every person having control over a company is required to make disclosure whereas, under regulation 30(2) the promoter together with persons acting in concert with him is required to make disclosure. Under regulation 8(2) what is to be d .....

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company, whereas, under regulation 30(2) read with regulation 30(3), the disclosure is to be made to every stock exchange where the shares of the Target Company are listed and at the registered officer of the Target Company. u) In these group of matters, some appellants had made declarations individually and other appellants had made declarations as promoter group. Therefore, in some cases penalty has been imposed individually and in some cases penalty is imposed on the promoter group jointly a .....

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8(2) and regulation 30(2) of the 1997/2011 Takeover Regulations respectively, the obligation to make yearly disclosure is on the promoter group or the obligation is on every promoter covered under the promoter group. 10. Regulation 8(2) of the Takeover Regulations, 1997 provides that A promoter shall make yearly disclosure to the company within the time stipulated therein. Regulation 30(2) read with regulation 30(3) of the Takeover Regulations, 2011 provide that The promoter shall make yearly di .....

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Regulations, 2009 for short) and includes a member of the promoter group. Thus, both under the Takeover Regulations, 1997 and under the Takeover Regulations, 2011, wherever the expression promoter is used, that expression would include any person/member belonging to the promoter group. 11. Since regulation 8(2) of the Takeover Regulations, 1997 and regulation 30(2) & 30(3) of the Takeover Regulations, 2011, use the expression promoter , we quote those regulations which read thus:- 8(2) A pr .....

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rights as of the thirty-first day of March, in such target company in such form as may be specified. 30(3) The disclosures required under sub-regulation (1) and sub-regulation (2) shall be made within seven working days from the end of each financial year to,- a) every stock exchange where the shares of the target company are listed; and b) the target company at its registered office. 12. Dispute in all these appeals is, whether the expression A promoter or The promoter used under the respective .....

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group is also obliged to make yearly disclosure under the aforesaid regulations. In other words, the obligation to be discharged by the promoter would also have to be discharged by the promoter group. To illustrate, if there are five promoters in a listed company and three of them fall within the promoter group, then as per the Takeover Regulations, the obligation to make yearly disclosure would be on the two individual promoters as well as the promoter group consisting of three promoters. 14. A .....

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it in the above contention, because, by defining the expression promoter in the Takeover Regulations, it is expressly made clear that any obligation cast on the promoter would also be the obligation cast on the promoter group. Therefore, when the Takeover Regulations expressly provide that the expression promoter shall include the promoter group , SEBI is not justified in contending that in view of the provisions contained in the General Clauses Act, the obligation to make yearly disclosure is o .....

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f 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: Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity. Explanation I: For the purpose of this clause, promoter group shall include: (a) in case pro .....

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oter is an individual - (i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse; (ii) any company in which 10 percent or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member; (iii) any company in which a company specified in (i) above, holds 10 percent or more, of the share capital; and (iv) any HUF or firm in which t .....

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pany of that body corporate as well as other entities which are brought within the meaning of promoter would be required to make yearly disclosure even if such subsidiary or holding company or other entities do not hold any shares of the Target Company. Similarly, accepting the argument of SEBI would mean that where the promoter is an individual, then, the spouse of that person or any parent, brother, sister or child of that person or of his spouse who are brought within the meaning of the word .....

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aning of promoter should make yearly disclosure. If the argument of SEBI is accepted it would mean that every entity which is considered to be a promoter under the Takeover Regulations would be required to make yearly disclosure even if that entity does not hold any shares of the Target Company. Therefore, such an argument of SEBI which leads to absurd consequences cannot be accepted. 17. Under the Takeover Regulations if it was intended that every promoter of a listed company must make yearly d .....

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s clear that the obligation to make yearly disclosure under the Takeover Regulations is on the promoter/promoter group and not on every promoter in the promoter group of the listed company. Therefore, the argument of SEBI that every promoter must make yearly disclosure under the Takeover Regulations being contrary to the plain language used in the Takeover Regulations, cannot be accepted. 18. Under the Takeover Regulations since the promoter is required to disclose the number and percentage of s .....

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promoter defined under the respective Takeover Regulations includes the promoter group . 19. Fact that regulation 8(2), used the word him , it cannot be inferred that the obligation to make yearly disclosure is on every promoter individually. As the said regulation commences with the word A promoter , it would be grammatically correct to use the word him in relation to the obligation to be discharged by a promoter. Since the expression promoter in the Takeover Regulations includes the promoter .....

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thout any merit, because, firstly, use of the word A promoter instead of the word every promoter clearly indicates that the disclosure could be made not only by promoter but also by a promoter group. Secondly, by including every person/member in the promoter group within the meaning of promoter it is made clear that the obligation cast on the promoter has also to be discharged by the promoter group. Thirdly, all the entities covered under the promoter group though treated as promoter , every suc .....

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the shares held by other promoters in the promoter group and their PAC before making disclosure and therefore, every promoter must be directed to make yearly disclosure. Therefore, it is just and reasonable to hold that under the Takeover Regulations the obligation to make yearly disclosure is on the promoter or the promoter group as the case may be. 21. Various decisions relied on by counsel for SEBI in support of contention that the regulations in question have to be read as it is and not by .....

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e shares are held by a promoter group, then yearly disclosure has to be made by the promoter group in the manner set out under the respective Takeover Regulations. 22. It is true that the language used in that regulation 8(2) of the Takeover Regulations, 1997 differs from the language used in regulation 30(2) of the Takeover Regulations, 2011. However, under both the regulations the basic object is to ensure that at the end of every financial year, the investors in the Target Company are informe .....

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