TMI Blog2019 (5) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... core at this stage. They have a decision in their favour in the case of Ravi Mohan [ 2016 (3) TMI 93 - SECURITIES APPELLATE TRIBUNAL MUMBAI] which is still valid till date and has not been set aside by a superior forum. Further, the respondent SEBI has accepted the decision of this Tribunal in the case of Ravi Mohan (supra) which can be seen from the fact that a similar provision, namely, Regulation 29 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 was amended after Ravi Mohan s decision was given by this Tribunal in 2015. Even though we do not agree with the ratio of the decision in Ravi Mohan s case, nonetheless, the said decision having been accepted by SEBI, the appellant in the instant case cannot be penalized for violation of Regulation 7(1A) read with Regulation 7(2). The imposition of penalty by the Adjudicating Officer on this score cannot be sustained. Even though there is no increase in the percentage of shares or voting power amongst the promoter groups, nonetheless, the percentage of shareholding of individual shareholder is required to be intimated under Regulations 3(3) and 3(4). Not intimating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -5-2019 - Justice Tarun Agarwala, Presiding Officer, Dr. C.K.G. Nair, Member AND Justice M.T. Joshi, Judicial Member For the Appellant : Mr. Somasekhar Sundaresan, Advocate with Mr. Ravichandra S. Hegde, Mr. Robin Shah and Ms. Ankita Roy, Advocates i/b. Parinam Law Associates For the Respondent : Mr. Kumar Desai, Advocate with Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b. The Law Point ORDER Per : Justice Tarun Agarwala 1. The appellants have challenged the order of the Adjudicating Officer wherein a penalty has been imposed under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 (referred to hereinafter as the SEBI Act ) for violation of Regulation 7(1) read with Regulation 7(2), Regulation 7(1A), Regulation 7(2), Regulation 7(3), Regulation 8(3) and Regulation 3(3) read with Regulation 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations). 2. The facts leading to the filing of the present appeal is, that Principle Capital Markets Limited was incorporated as a non banking financial Company on 27th Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoters had failed to make the disclosure of the sale of shares of the target Company made during the period 2005- 2011 to the stock exchange as contemplated under Regulation 7(1A) read with Regulation 7(2). SEBI also observed that inter-se transfer of shares between the two promoters was in violation of Regulations 3(3) and 3(4) of the Takeover Regulations. Accordingly, a show cause notice was issued to show cause as to why a penalty should not be imposed upon the appellants for violation of the aforesaid provisions of the Takeover Regulations. Subsequently, another show cause notice was issued directing the appellants to show cause as to why the appellants should not be penalized for violating Regulations 7(3) and 8(3) of the Takeover Regulations for alleged failure to disclose the promoter holding for the financial year 2010-2011 and directed to show cause as to why a penalty should not be imposed. 8. The Adjudicating Officer, after considering the appropriate replies given by the appellants and, after giving them an opportunity of hearing, passed an order holding that the violations of various Regulations stated in the show cause notice were made by the appellants and, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. On the issue of sale of shares between the years 2005- 2011, the learned counsel contended that there was no violation of Regulation 7(1A) read with Regulation 7(2) in view of the decision of this Tribunal in the case of Ravi Mohan and others vs. SEBI in Appeal No.97 of 2014 and other companion appeals decided on 16th December, 2015 wherein the Tribunal held that since Regulation 7(2) does not contemplate any time limit for disclosure relating to sale of shares in excess of the limit set out under Regulation 7(1A), the appellants in the said appeal cannot be said to have failed to have complied with Regulation 7(1A) within the time stipulated under Regulation 7(1A) read with Regulation 7(2) and, therefore, penalty cannot be sustained for non compliance. It was contended that the ratio of the decision of the Tribunal in Ravi Mohan and others has been accepted by SEBI as it has not been challenged before a higher forum. Instead, it was contended that SEBI in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 has incorporated a provision stipulating a deadline for disclosure for disposal of shares as well. 13. On the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohan s case (supra) needs to be revisited. The learned counsel further contended that for the failure to disclose the promoters holding for the financial year 2010-11, the penalty imposed was for the delay in the disclosure and not for the non-disclosure. 16. Upon a query raised by the Tribunal, the learned counsel for the respondent contended that the proceedings were initiated for violation of the Takeover Regulations in the year 1999-2000 when the respondent came to know about such violation only in the year 2012. The learned counsel contended that no period of limitation has been prescribed for taking action either under the SEBI Act or under the Takeover Regulations and, therefore, proceedings can be initiated against the appellants at any stage and, in the instant case, from the stage when the respondent came to know about the alleged violation. In support of his submission, the learned counsel placed reliance upon the decision of this Tribunal in Vaman Madhav Apte Ors. Vs. SEBI, Appeal No. 449 of 2014 decided on 4.3.2016, Kunal Pradeep Savla Ors. Vs. SEBI, Appeal No.231 of 2017 decided on 13.4.2018, Ravi Mohan Ors. vs. SEBI, Appeal no.97 of 2014 decided on 16.12.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the acquirer to the Company as well as to the stock exchanges where the shares of the target Company are listed. 19. The disclosure required to be made under Regulations 10 and 12 is in Chapter III under the heading Substantial Acquisition of shares or voting rights in and acquisition of control over a listed Company . Such disclosures are required to be made by the Merchant Banker to the Board, to the stock exchange as well as to the shareholders of the target Company. Though a more rigorous procedure is made under Chapter III with regard to disclosures than specified under Chapter II, nonetheless, the obligation to make disclosures under Chapter II and Chapter III of the Takeover Regulations are separate and distinct. Disclosure obligation under Chapter II is required to be complied with by the acquirer and, under Chapter III, the obligation is joint and several of the persons required to make the open offer as acquirer alongwith the Merchant Banker. 20. Even though, in the instant case, the disclosures have been made under Chapter III, nonetheless there was an obligation upon the appellants who were the acquirers to make the appropriate disclosure also under Chapter II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. Anr. vs. D. Narsing Rao Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held: There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc. 24. In the light of the aforesaid, it was contended by the respondent that they took immediate measures by issuing a show cause notice when they came to know about the default when the second open offer was made by the appellants in the year 2011. This submission cannot be appreciated for the following reasons:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for violation of Section 7(1A) read with Regulation 7(2). In this regard, Regulations 7(1A) and 7(2) as it stood during the relevant period is extracted hereunder: Regulation 7(1A) and 7 (2) of Takeover Regulation, 1997 7(1A). Any acquirer who has acquired shares or voting rights of a company under sub regulation (1) of regulation 11, or under second proviso to sub regulation (2) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. 7(2). The disclosures mentioned in sub regulations (1) and (1A) shall be made within two days of,- (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be. 26. Regulation 7(1A) was inserted to the Takeover Regulations with effect from 9.9.2002. Prior to the insertion of Regulation 7(1A), the disclosure obligation under Regulation 7(1) was in relation to acquisition of shares or voting rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale made by the appellants which aggregated two percent or more of the share capital of the target Company was required to be disclosed by the acquirer/appellants of the target Company within two days under Regulation 7(1A). Thus, for non-disclosure of the sale of shares the appellants have violated the provisions of Regulation 7(1A). 29. However, the appellants cannot be faulted and penalised on this score at this stage. They have a decision in their favour in the case of Ravi Mohan (supra) which is still valid till date and has not been set aside by a superior forum. Further, the respondent SEBI has accepted the decision of this Tribunal in the case of Ravi Mohan (supra) which can be seen from the fact that a similar provision, namely, Regulation 29 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 was amended after Ravi Mohan s decision was given by this Tribunal in 2015. For facility, Regulation 29 is extracted hereunder : Disclosure of acquisition and disposal. 29. (1) Any acquirer who acquires shares or voting rights in a target company which taken together with shares or voting rights, if any, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at least 4 working days in advance of the date of the proposed acquisition, in case of acquisition exceeding 5 per cent of the voting share capital of the company. 3(4) In respect of acquisitions under clauses (a), (b), (c), (e) and (i) of sub regulation (1), the acquirer shall, within 21 days of the date of acquisition, submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise 15 per cent or more of the voting rights in a company. 33. From the aforesaid, it is clear that Regulation 3 is the exemption clause on certain exigencies where disclosure is not required under Regulations 10, 11 and 12 of the Takeover Regulations. Regulation 3(1)(e) specifically states that if it is an inter-se transfer of shares then the requisite disclosure as is required under Regulations 10, 11 and 12 will not be required to be made. However, Regulations 3(3) and 3(4) is an exception to Regulation 3(1)(e). Under the Regulation 3(3) even in the case of inter-se transfers intimation has to be given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said disclosure is required to be made within thirty days from the financial year ending 31st March. In the instant case, there was a delay of 11 days and, on account of the delay, a penalty of ₹ 2 lakhs has been imposed. The contention of the appellant that they had furnished the disclosure before 31st March but since the information furnished was incorrect the rectified information was submitted within 11 days thereafter and, therefore, there was no concealment of furnishing of information. The contention of the appellant cannot be accepted in as much as the penalty has been imposed not for furnishing incorrect information but the penalty has been imposed for the delay in furnishing the information. Consequently, we do not find any error in the imposition of penalty upon Appellant no.8 for violation of Regulation 8(3). 36. For the reasons stated aforesaid, the appeal is partly allowed. The imposition of penalty of ₹ 15 lakhs for violation of Regulation 7(1) and 7(2) is quashed. The imposition of penalty of ₹ 3 lakhs upon Appellant no.1, ₹ 2 lakhs upon the Appellant no.2 and ₹ 6 lakhs on Appellant no.6 and ₹ 8 lakhs upon Appellant no.1, 5 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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