TMI Blog2016 (3) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... se or sale within two days of purchase or sale under regulation 7(1A) read with regulation 7(2) of the Takeover Regulations, 1997. 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. - Appeal No. 97 of 2014, Appeal No. 99 of 2014, Appeal No. 311 of 2014 - - - Dated:- 16-12-2015 - J.P. Devadhar and Jog Singh, JJ. For The Appellant : Mr. P. N. Modi, Senior Advocate with Mr. Neville P. Lashkari, Advocate and Mr. Pranav Arora, Advocate i/b Crawford Bayley Co., Sanjay Israni, Advocate For The Respondent : Mr. Kumar Desai, Advocate with Mr. Mihir Mody and Ms. Shruti Chiniwar, Advocates i/b K. Ashar Co., Mr. Tomu Francis, Advocate i/b Economic Laws Practice Per: Justice J.P. Devadhar 1. Appellants in all these appeals are ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 7(1A) of the Takeover Regulations, 1997. e) Some time in February 2013, a third party sought to make an open offer, with a view to acquire shares of the target company from the appellants. In the Draft Letter of Offer filed before SEBI, the lead Manager had observed that in the year 2005 the appellants had failed to comply with regulation 7(1A) of the Takeover Regulations, 1997. f) On the basis of above observation, show cause notice was issued by SEBI on November 28, 2013 calling upon the appellants to show cause as to why action should not be taken against the appellants for failing to make disclosure to the stock exchanges, in the year 2005 regarding sale of more than two per cent shares of the target company as contemplated under regulation 7(1A) of the Takeover Regulations, 1997. g) In the meantime, on 03.04.2013, appellants as and by way of abundant caution had made disclosures to the BSE and NSE as required under regulation 7(1A) of the Takeover Regulations, 1997 and intimated the same to SEBI. h) On receiving reply to the show cause notice, SEBI granted personal hearing to the appellants and by the impugned order dated 18.02.2014 imposed penalty of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulations, 1997 and consequently regulation 7(1A) would not apply to the case of the appellants. d) Relying on a decision of this Tribunal in case of HB Stockholdings Ltd. v/s SEBI (Appeal No. 114 of 2012 decided on 27.08.2013) it is submitted that in the present case, alleged disclosure was required to be made in February 2005, whereas, show cause notice has been issued to the appellants in November 2013, that is after delay of more than 8 years and hence the impugned order is liable to be quashed and set aside. e) Regulation 7(3) of the Takeover Regulations, 1997 provides that every target company whose shares are acquired in the manner referred to in regulation 7(1) 7(1A) of the Takeover Regulations, 1997 to make disclosure to the stock exchanges the aggregate number of shares held by each of such persons within the time stipulated therein, which obviously means that the obligation to make disclosure to the target company under regulation 7(1A) is on individual acquirer and not collectively along with other co-acquirers. f) Under regulation 8(2) of the Takeover Regulations, 1997, a promoter is required to disclose the number and percentage of shares in the target co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small sale of shares did not at all affect the significant shareholding of the promoter group and there was no change of control or management. l) The aggregate quantity of shares sold by all the appellants together was in excess of 2% only to the extent of 0.08%, that is, a mere 8703 shares of which the sale value was a mere ₹ 1,18,573, yet a completely disproportionate penalty of ₹ 6 lac has been imposed on the appellants in Appeal No. 97 of 2014. m) It is well established in law that the power to levy penalty is a discretionary power and the levy of penalty is not mandatory only because it is lawful to do so. In the present case, no investor has made any complaint. There are no allegations of any price or volume manipulations or any other form of mischief. Therefore, the breach or violation, if any, being technical and/or venial, the same ought to have been excused with a warning at the highest, instead of imposing heavy monetary penalty on the appellants. n) As the AO could not ascertain or quantify any disproportionate gain to the appellants or any loss to the investors on account of the alleged non-disclosure, the penalty of ₹ 6 lac imposed on appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agwati. In the said report it was recommended that acquirers holding 15% and above should disclose purchases or sales at every 2% level. Since acquisition of 15% and more shares is directly linked to the control over the company, it is apparent that acquisition of shares by an acquirer under regulation 7(1A) would be acquisition of shares by the acquirer himself together with the persons acting in concert with the acquirer. e) On harmonious/purposive reading of regulation 7(1A) with regulation 11(1) of the Takeover Regulations, 1997, it becomes clear that any acquirer(s) together with persons acting in concert with him/them who have acquired shares or voting rights under regulation 11(1) of the Takeover Regulations, 1997, that is, holding 15% or more but less than 55% of the shares or voting rights shall be obliged to make disclosure of purchase or sale aggregating to 2% or more of the share capital of the target company, to the target company and to the stock exchange within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. Acquirer/s holding shares or voting rights between 15% to 55%, apart from making disclosures when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of shares aggregating to 2% or more to the target company and to the stock exchanges within 2 days of such purchase or sale, the word acquirer in regulation 7(1A) would have to be purposively interpreted to include purchase or sale of shares by the acquirer together with the persons acting in concert with the acquirer. k) Fact that the word acquirer and the word persons acting in concert are separately defined under the Takeover Regulations, 1997 does not affect the interpretation of the word acquirer in regulation 7(1A) put forth by SEBI, because, the expression acquirer as defined under regulation 2(1) (b) refers to acquisition of shares by the acquirer himself or with any person acting in concert with the acquirer. Therefore, for the purposes of regulation 7(1A) the purchase or sale of shares by an acquirer would be purchase or sale by an acquirer together with the persons acting in concert with such acquirer. l) Appellants who had made timely disclosure to the target company under regulation 7(1A) but failed to make timely disclosure to the stock exchange under regulation 7(1A) have clearly violated the mandate of the Takeover Regulations, 1997. m) Fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elates to purchase or sale of shares or voting rights aggregating 2% or more of the share capital of the target company effected by an acquirer individually or by the individual acquirer together with the persons acting in concert with that acquirer. 7. Regulation 7(1A) was inserted to the Takeover Regulations, 1997 with effect from 09.09.2002. For better appreciation of the dispute raised in these appeals, it would be appropriate to quote regulation 7 of the Takeover Regulations, 1997, as it stood prior to insertion of regulation 7(1A) and subsequent to insertion of regulation 7(1A). 8. Regulation 7 of the Takeover Regulations, 1997 as it stood prior to insertion of regulation 7(1A) on 09.09.2002 reads thus:- 7. Acquisition of 5% and more shares or voting rights of a company.- (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 shareholding or voting rights in that company, to the company. (2) The disclosures mentioned in sub-regulation (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the trading screen, the notice board and also on its website.] (3) Every company, whose shares are acquired in a manner referred to in [sub-regulations (1) and (1A)], 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) and (1A)]. 10. At this stage, we may also quote regulation 2(1)(b) which defines the expression acquirer for the purposes of Takeover Regulations, 1997 as follows:- Definitions- 2 (1) In these Regulations, unless the context otherwise requires:-- (a) . (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; 11. 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 . As per Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing to disclose to the stock exchanges, within the time stipulated under regulation 7(1A) read with regulation 7(2). 15. First contention of the appellants is that regulation 7(1A) refers to the obligation of Any acquirer , and therefore, it must be held that regulation 7(1A) gets triggered only when purchase or sale of shares or voting rights of the target company aggregating 2% or more of the share capital of the target company is effected by any individual acquirer. Since sales of shares effected by the individual appellant acquirer in all the appeals do not exceed 2% of the share capital of the target company regulation 7(1A) does not get triggered and therefore the appellants cannot be held guilty of violating regulation 7(1A). 16. There is no merit in the above contention, because, expression acquirer defined under regulation 2(1)(e) stipulates that wherever the expression acquirer is used in the Takeover Regulations, 1997 it shall be referable to a person who acquires shares or voting rights in the target company either by himself or with any person acting in concert with the acquirer. Therefore, purchase or sale of shares by Any acquirer under regulation 7(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired 39.68% shares of the target company and therefore, appellants were acquirer covered under regulation 11(1). When appellants as persons acting in concert sold shares of the target company in excess of 2% of the share capital of the target company, appellants were obliged to make disclosure to the target company and to the stock exchanges under regulation 7(1A). Thus, regulation 7(1A) refers to the shares held by an acquirer together with persons acting in concert with him, and that acquirer together with persons acting in concert with him, when purchases or sells shares or voting rights of the target company in excess of the limits prescribed under regulation 7(1A), is required to make disclosure to the target company and to the stock exchanges. In other words, regulation 7(1A) provides that an acquirer who has acquired shares with persons acting in concert, when acquires additional shares or sells existing shares with persons acting in concert with him must make disclosure. Therefore, argument that regulation 7(1A) refers to purchase or sale of shares by an individual acquirer cannot be accepted. 18. Appellants contend that in regulation 11(1), 11(2) and 11(2A) of the Tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf or with persons acting in concert with the acquirer. In the present case, aggregate sale of shares of the target company by the appellants (acquirers) as persons acting in concert when exceeded 2% of the share capital of the target company, appellants were obliged to make disclosure to the target company and to the stock exchanges and since appellants failed to make disclosure to the stock exchanges the appellants have violated regulation 7(1A). 20. Argument of the appellants that they have not acquired shares of the target company under regulation 11(1) and hence regulation 7(1A) is not attracted is without any merit, because, regulation 11(1) does not prescribe any particular mode of acquiring shares but merely refers to acquisition of 15% or more but less than 55% of the shares by an acquirer together with persons acting in concert with him in accordance with the provisions of law. By referring to an acquirer covered under regulation 11(1) in regulation 7(1A), it is made clear that an acquirer covered under regulation 11(1) i.e. an acquirer (either by himself or together with persons acting in concert with him) holding 15% or more but less than 55% shares of the target ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court in case of Collector of Central Excise, New Delhi vs. Bhagsons Paint Industry (India) reported in 2003 (158) ELT 129 (S.C) has held that if there no statutory bar for adjudicating the matter beyond a particular date, the Tribunal cannot set aside the adjudication order merely on the ground that the adjudication order is passed after a lapse of several years from the date of issuing notice. In the Takeover Regulations, 1997 there is no time limit prescribed either for issuing show cause notice or for adjudicating the show cause notice. Therefore, argument of the appellants that in view of the delay in issuing the show cause notice the impugned order must be quashed cannot be accepted. However, we make it clear that in the absence of time limit prescribed for issuing show cause notice or for completing the adjudication proceedings, SEBI cannot arbitrarily delay the proceedings and must take all reasonable steps to initiate and complete the proceedings in accordance with law as expeditiously as possible. In the facts of present case (Appeal No. 97 of 2014) it is not in dispute that sometime in February 2013 SEBI came to know that the appellants had failed to comply with regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o amend regulation 7(2) with effect from 09.09.2002 by providing that the disclosure obligation under regulation 7(1) and 7(1A) shall be discharged within two days of the events specified under regulation 7(2). Thus, as a result of insertion of regulation 7(1A) and amendment of regulation 7(2), the disclosure obligation in relation to purchase or sale of shares referred to in regulation 7(1A) has to be made within two days of the events specified in regulation 7(2). On perusal of regulation 7(2) it is seen that the events enumerated therein relate only to acquisition of shares and do not relate to sale of shares or voting rights in excess of the limits prescribed under regulation 7(1A). As a result, even though regulation 7(1A) contemplates that an acquirer together with persons acting in concert with him when sell shares of the target company in excess of the limits prescribed under regulation 7(1A) must make disclosure within two days of such sale, in view of the amendment to regulation 7(2), the disclosure obligation under regulation 7(1A) has to be discharged within two days of the events specified under regulation 7(2). Since regulation 7(2) as amended does not contemplate any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Takeover Regulations, 1997. Consequently, SEBI is not justified in imposing penalty on the appellants. 30. It is apparent that after having specified two days time for complying with the obligation specified under regulation 7(1A), there was no need for SEBI to amend regulation 7(2) in relation to the disclosure obligation under regulation 7(1A). In any event, having deemed it fit to amend regulation 7(2), SEBI ought to have ensured that regulation 7(2) as amended contains a clause relating to disclosure of sale of shares or voting rights specified under regulation 7(1A). However, SEBI has failed to do so. 31. It is relevant to note that Takeover Regulations, 1997 have been replaced by Takeover Regulations, 2011. In the Takeover Regulations, 2011, SEBI has taken care to ensure that the disputes raised herein do not arise in those regulations. Since Takeover Regulations, 1997 is replaced by Takeover Regulations 2011, there is no need to issue any direction for taking remedial steps in the matter. 32. Reliance placed by counsel for SEBI on a Division Bench decision of the Bombay High Court in case of Anand Rathi Ors. vs. SEBI reported in 2002 (1) Mh. L. J. 522 is mispl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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