TMI Blog2016 (7) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... date before which the letters, documents were to be filed with SEBI and accordingly it is submitted that it is not a fit case for imposing penalty on the ground the appellant has violated section 11C(3) and section 11C(5) of the SEBI Act. Once it is established that there is failure to furnish requisite particulars called for and there is failure to appear before the concerned officer of SEBI as per the summons issued to the appellant, it obviously means that there is violation of section 11C(3) and section 11C(5) of SEBI Act. Penalty for such violations under section 15A(b) of the SEBI Act is ₹ 1 lakh per day subject to a maximum of ₹ 1 crore. Thus as against the penalty of ₹ 1 crore imposable for violating section 11C(3) and penalty of ₹ 1 crore imposable for violating section 11C(5), the AO of SEBI after considering all mitigating factors has imposed penalty of ₹ 2 lakh for violating section 11C(3) and ₹ 2 lakh for violating section 11C(5) of SEBI Act which cannot be said to be unreasonable and excessive. Accordingly, the penalty imposed for violating section 11C(3) and 11C(5) is upheld. All these appeals penalty imposed under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all other appeals. 3. Accordingly, facts relevant to Appeal No. 22 of 2016 are set out hereinbelow:- (a) Appellant is a private limited company and the business of the appellant is to trade in materials and invest in securities; (b) As on December 31, 2009 Mahan Industries Limited ('MIL' for short) had issued capital of 71,50,000 shares of ₹ 10 each; (c) On January 4, 2010 MIL made preferential allotment of convertible equity warrants for ₹ 30 crores. All appellants herein had subscribed to the said convertible equity warrants; (d) On January 15, 2010 MIL split its one share of ₹ 10 each into 10 equity shares of ₹ 1 each. Hence, as on January 15, 2010 MIL had issued capital of ₹ 7,15,00,000 divided into 7,15,00,000 shares of ₹ 1 each and outstanding convertible equity warrants of ₹ 30 crores; (e) On February 20, 2010 the Board of Directors of MIL decided that convertible warrants, where full consideration was received by MIL may be converted into equal number of shares of ₹ 1 each. Accordingly, on February 20, 2010 MIL made allotment of 24,85,00,000 shares of ₹ 1 each (out of 30,00,00,000 shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1997 Regulations and penalty of ₹ 2,50,000 imposed under section 15A(b) of SEBI Act for violating Regulation 13(1) of PIT Regulations, it is submitted by counsel for appellant that in the present case, the controversy has arisen on account of MIL issuing 30,00,00,000 shares in two tranches i.e. initially issuing 24,85,00,000 shares on February 20, 2010 and thereafter issuing the balance 5,15,00,000 shares in May, 2010. If the entire 30,00,00,000 shares were issued at a time, the shareholding of the appellant would have been less than 5% and hence disclosure obligation would not have arisen. Therefore, if on account of MIL issuing shares in two tranches on account of which the shareholding of the appellant between February 20, 2010 to May, 2010 exceeded 5%, appellant cannot be held guilty of violating the 1997 Regulations and the PIT Regulations and in any event penalty ought not to have been imposed. 5. Counsel for SEBI, on the other hand submitted that in the present case it is not in dispute that as on the date of the appellant acquiring 1,69,50,000 shares of MIL on February 20, 2010 shareholding of the appellant in MIL exceeded 5% and accordingly disclosure provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittedly the appellant therein had made belated disclosures to the stock exchange under Regulation 29(1) of 2011 Regulations but no disclosures were made to the company as provided under Regulation 29(1), (2) and (3) of the 2011 Regulations. In that context, it was held that the obligation to make disclosures under provisions contained in 2011 Regulations and also under the PIT Regulations would arise as soon as there is acquisition of shares by a person in excess of the limits prescribed under the respective regulations. In the present case, the appellant had subscribed to the convertible equity warrants with a view to have less than 5% shareholding and there is nothing on record to suggest that the appellant was informed or made aware that on account of partial conversion of convertible equity warrants on February 20, 2010 the shareholding of the appellant had exceeded 5% and hence, the appellant was required to make disclosures under the 1997 Regulations and PIT Regulations. 8. In these circumstances, in the facts of present case, in our opinion, failure to make disclosure during the period from February 20, 2010 till May 2010 cannot be attributed to the appellant and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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