TMI Blog2017 (7) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... otment of shares or the acquisition of shares or voting rights, as the case may be, as per the SEBI Prohibition of Insider Trading Regulation, 1992. Thus it clearly indicates that R1 was in default for not having served the declaration under the SEBI Prohibition of Insider Trading Regulation, 1992, when its shareholding in the Company exceeded 5%. The present Company Petition is allowed. The Respondents having furnished the declaration at a later point of time are hereby barred from exercising their rights as to the shares acquired by them in the Petitioner Company in excess of 5%. The Company is hereby authorised to buyback the shares that the Respondents hold in excess of 5% of the shareholding in the Company at the rate which was prevailing on the date of presentation of the Petition or market value, whichever is higher. The Respondents are directed to hand over the share certificates and share transfer forms within 30 days of the order to the Company and in response to that the Petitioner will be liable to pay the buyback price which shall be the value of shares which was prevailing on the date of presentation of the petition or market value whichever is higher. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and affairs of the R-1 Company. The respondent Nos. 3 to 6 are relatives of the R-2 within the meaning of Section 6 of the Companies Act, 1956. The R-3 is the wife of the R-2 and the R-4 to 6 are inter-related to the R-2 and 3. The R-1 Company is a manufacturing company engaged in the manufacturing of C02 and dry ice. The Respondents whether jointly or individually have now purported to acquire, in all, a total number of 6,33,682 shares of and the Petitioner Company being approximately 8.22% of the paid up capital of the Petitioner Company as at July 9, 2004. The Ld. Counsel for the Petitioner submitted that the Managing Director or the R-1 Company being the R-2 visited the office of the Petitioner Company in the first week of August, 2003 with a business proposal for marketing the C02 being manufactured by the Petitioner Company and for being associated in the dry ice business carried on by Nurpur Gases Pvt Ltd with which the Petitioner Company had close business relationship. The proposal was discussed, where after it was decided by the Petitioner Company not to have any business tie up with the R-1 Company. The Ld. Counsel for the Petitioner submitted that ever since Augu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own shareholding and/or voting strength in the Petitioner Company from 3.131% of the paid-up capital as at January 16, 2004 to over 5% of the paid up capital of the Petitioner Company. The Petitioner submitted that the no mandatory disclosure in compliance with the provisions of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended by the Amendment Regulations 2002 for the said increase, had been made by the R-1 who was obviously functioning as a combined unit in the matter of acquiring shares of and in the Petitioner Company. It is further submitted by the Petitioner that the said Prohibition of Insider Trading Regulations require a specific notice under the said Regulations to be issued by any person upon such person's shareholding in a listed company exceeding 5%. On 21 May 2004, the list of Beneficiaries/Beneficial owners (hereinafter referred to as BENPOS reported by depositories to the Petitioner Company indicated that the Respondents had acquired further 2% equity shares of the Petitioner Company which was in violation of Regulation 13(1) 13(3) and under Chapter IV of the Prohibition of Insider Trading Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner Company in any manner whatsoever. As per the BENPOS dated 13 August 2004, the R-1 was holding 6.38% equity shares of the Petitioner Company. Upon intimation to the Respondents about the Petition filed by the Petitioner Company, the R-1 Company brought down its shareholding in the Petitioner Company to 4.91%. Such purported reduction in holding was engineered by transfer of shares to other respondents who are the family members of the R-2 therefore, the said transaction was a sham transaction and done solely for the purposes of circumventing the laws. On 23rd August 2004 the Petitioner received a letter from the R-1 Company allegedly being intimation under regulation 7(1) of the Takeover Regulation notifying that they had acquired 16484 shares after which the total shareholding of the Respondent exceeded 10% of equity share capital of the Petitioner Company. However the declaration was incomplete and not in accordance with Regulation 7(1) of the Takeover Regulation. After hearing both the parties, on 27 August 2004, the then CLB, Kolkata Bench was pleased inter alia, to pass an interim order, freezing the voting rights of the R-1 Company in respect of the shares wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timate to the Petitioner Company about acquisition of shares in the Petitioner Company as required under relevant laws; e. None of the disclosures of shareholding by the Respondents record the frozen shares as was directed by the Learned CLB. In reply, the Ld. Counsel for the 1st Respondent submitted that there is no cause of action whatsoever as against the R-2 to 6 as there has been no violation whatsoever of the provisions of the Insider Trading Regulation. In so far as the R-1 is concerned, the R-1 exceeded 5% of the paid-up capital of the Petitioner Company on June 2nd, 2004. However, the Respondents submit that at no point of time there was any intention on the part of the Respondents to violate any provisions of the law. In fact, the R-1 had made the necessary disclosure of the Regulation 7 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (Takeover Code) within the statutory time period at the time the combined shareholding of the Respondents exceeded 5% and 10% vide their letters dated 20th January, 2004 and 20th August 2004 respectively, copy of which are annexed to the reply of the Company Petition as Annexure R-3 and R-4. However, the R-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total paid up capital of the Petitioner Company on June 2, 2004 and the present Petition has been filed beyond a period of 2 months from the said date and it is, therefore, clearly barred by limitation. The Respondents also filed the counter to the supplementary affidavits denying and disputing the facts save and except which are matters of record and more or less strict to the following two points: i) Whether the expression 'person in Regulation 13 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 can be given the more expansive meaning 'persons acting in concert' which the petitioner is seeking to give it. ii) The petition in the present case has been filed after the two months limitation period provided in Section 111A of the Companies Act, 1956. 26. In the Written Submissions, the Respondents contended that in this context, it is relevant to note that the expression 'persons acting in concert' used in Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares Takeover) Regulations, 1997 finds no mention in the Insider Trading Regulation. As the use of the differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondents was not as per the prescribed format and was incomplete under Regulation 7(1), the Petitioner additionally also pointed out that there were no disclosures made under Regulation 7 (2) of the SAST 1997 either. Additionally, the Petitioner contended that the Respondents failed to make any declarations under Regulation 13 (1) of the Insider Trading Regulations. The aforementioned contentions of the Petitioner have not been denied by the Respondents either. The Respondents contended that R1 had made the necessary disclosure under Regulation 7 of SEBI SAST Regulations, 1997 within the statutory time period at the time the combined shareholding of the Respondents exceeded 5% and 10%, vide their letters dated 20th January, 2004 and 20th August, 2004. The Respondents have also contended that R1 had inadvertently failed to note that upon its individual shareholding exceeding 5% of the total paid up share capital of the Company, Regulation 13 of the Insider Trading Regulations contemplates disclosure of interest by the first Respondents within 4 working days of the acquisition of the shares. Therefore, according to the Respondent's contention R1 had taken immediate ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation 13 of the Securities and Exchange Board of India Prohibition of Insider Trading Regulations, 1992 lays down: (13) Disclosure of interest or holding by directors and officers and substantial shareholders in listed companies - Initial Disclosure. (1) Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form A, the number of shares or voting rights held by such person, on becoming such holder, within 4 working days of: - (a) the receipt of intimation of allotment of shares; or (b) the acguisition of shares or voting rights, as the case may be. (2) Any person who is a director or officer of a listed company shall disclose to the company in Form B the number of shares or voting rights held and positions taken in derivatives by such person and his dependents (as defined by the company), within four working days of becoming a director or officer of the company. Continual disclosure (3) Any person who holds more than 5% shares for voting rights in any listed company shall disclose to the company in Form C the number of shares or voting rights held and change in shareholding or voting rights, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents could be made jointly liable to serve a declaration under Regulation 13 along with R1. 38. In conclusion, it clearly indicates that R1 was in default for not having served the declaration under the SEBI Prohibition of Insider Trading Regulation, 1992, when its shareholding in the Company exceeded 5%. The present Petition has been filed for relief under Section 111A of the Companies Act, 1956, wherein the Petitioner has prayed for declaring the acquisition of shares of and in the company by the R1 to R6 as illegal, null and void and of no effect, for rectifying the records by deleting the names of the Respondents as owners of all shares of and in the Company so acquired by the Respondents, and permanent injunction restraining the Respondents from exercising any rights or receiving any benefits in respect of the shares held by the In the case of B A Packaging (India) Ltd. v. Amrex Marketing Pvt. Ltd. Ors., which was decided on 17th January, 2017 by NCLT, Kolkata Bench, it was observed that no disclosures had been made by the R1 under the SEBI Prohibition of Insider Trading Regulations, 1992 and in particular Regulation 13 thereof which requires mandatory disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king or completing such enquiry. (5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6) Notwithstanding anything contained in this section, any further transfer. during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended. (7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far it may be, apply to the proceedings before the Company Law Board under this section as they apply to the proceedings under that section. In such a situation, SEBI has the power to impose penalty for the violation of SEBI Regulations but Section 111A (3) empowers the Tribunal to direct the parties so that the mischief is undone. In the present case, the acquisition of shares in excess of 5% of the shareholding was in violation of the SEBI In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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