TMI Blog2023 (5) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... herein it is unambiguously admitting that the acquirers, i.e. Khemka Brothers have not been able to pay the shareholders who have accepted the offer and cited liquidity crunch in the market as the reason for their failure. As has been explained above, the Regulation requires that the payout to the shareholders who have accepted the offer is to be made within four weeks from the closure of the offer. Prima facie failure on the part of the acquirer to meet the obligation amounts to a breach of Regulations 20 and 22. Section 24(1) of the SEBI Act makes it clear that any SEBI Act, Rules and Regulations breach would invite prosecution. As there was sufficient material available with the complainant, which prima facie indicates a violation of Regulations 20 and 22. Regulation 33 confers discretion on the Board having regard to the facts and circumstances of the case to investigate into the books of account or other records. Based on the report of such investigation under Regulation 36, the Board has the power to issue directions as contemplated under Regulation 39. Regulation 39 expressly saves the power of the Board to initiate criminal prosecution under Section 24 of the Act. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public to acquire 20% of the capital of M/s. Damania Airways Limited in terms of Clause 40 B of the listing agreement of the Stock Exchange, Mumbai and provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (hereafter 1994 Regulations , for short). The offer was opened on 1 February 1996 and closed on 29 February 1996. Regulation 20(1) of the 1994 Regulations imposes a general obligation on the acquirers to publicly announce to acquire shares only when acquirers have every reason to believe they can implement the offer. 3. On 9 April 1996, a letter was dispatched to the complainant by M/s.LKP Merchant Financing Limited, the Managers to the offer, stating inter alia that the despatches are being carried out by registered post from the office of Registrar at Ahmedabad. Further, vide letter dated 29 April 1996, the Managers of the issue informed the complainant that out of 19,358 applicants, cheques to 10,193 applicants had been despatched. They indicated that the acquirers were aware of this delay in completing the despatch, which violated Regulation 20. Hence, they sought an explanation from the acquirers in this regard. On 22 May 1996, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned SEBI Special Judge was of the view that accused No. 3 was unable to substantiate his contention of resignation by producing credible material on record and, therefore, there were sufficient grounds to proceed against the applicant. 12. Being aggrieved, the applicant has invoked the jurisdiction of this Court under Section 482 of the Code. 13. I have heard Mr. Venegaonkar, learned Advocate for the petitioner and Mr. Sancheti, learned Senior Advocate and Mr. Subramaniam, learned Senior Advocate for respondent No. 2. 14. Mr. Venegaonkar, a learned Advocate for the applicant, canvassed two-fold submissions. Firstly, the initiation of prosecution under Section 24 of the said Act was vitiated in the absence of holding of investigation under Chapter 5 of the 1994 Regulations. Therefore, according to him, holding of investigation under the said Chapter is sine qua non before launching prosecution under Section 24 of the Act. In support of his submission, he relied on the judgment of the Apex Court in Reliance Industries Ltd. v. Securities and Exchange Board of India Ors. reported in (2022) 10 SCC 181, unreported judgment of the Division Bench of this Court in Criminal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations reads thus: General Obligations 20. (1) The announcement of public offer to acquire shares shall be made only when the acquirer has every reason to believe that he shall be able to implement the offer. (2) Within fourteen days of the public announcement of offer, the acquirer must also submit a letter of offer to the Board of Directors of the company, whose shares are being acquired. (3) The acquirer shall state the period for which the offer to acquire shares from the other shareholders shall remain open: Provided that every such offer shall be kept open for a period of not less than four weeks from the date of the offer. (4) The directors of the company of which the shares are being acquired shall not sell or enter into an agreement for sale of assets not being sale or disposal of assets, in the ordinary course of business, of the company or its subsidiaries or issue any authorised but unissued securities carrying voting rights during the period, when the offer is open for acceptance unless the approval of the general body of shareholders is obtained. (5) Every document issued to shareholders or any advertisement published in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the record date and also the acquisition date of the offer. (4) Notwithstanding anything contained in the foregoing regulations, the financially weak company or, as the case may be, the lead institution shall ensure that at no point of time shareholding held by the public is reduced to less than twenty per cent of the paid-up share capital of such company. (5) While accepting the offer from the other shareholders, the person acquiring shares shall offer to acquire from the individual shareholder his entire holdings if such holding is upto hundred shares of the face value of rupees ten each or ten shares of the face value of rupees hundred each. Board s right to investigate 33. (1) Where it appears to the Board so to do, it may appoint one or more persons as investigating authority to investigate and undertake inspection of the books of accounts, other records and documents of any person who may have acquired or sold securities to any person for any of the purposes specified in sub-regulation (2). (2) The purposes referred to in sub-regulation (1) may be as follows (a) to investigate into the complaints received from investors, intermedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manager of the Offer and Khemka Brothers dated 9 April 1996, 25 April 1996, 10 July 1996 and 17 August 1996 wherein it is unambiguously admitting that the acquirers, i.e. Khemka Brothers have not been able to pay the shareholders who have accepted the offer and cited liquidity crunch in the market as the reason for their failure. As has been explained above, the Regulation requires that the payout to the shareholders who have accepted the offer is to be made within four weeks from the closure of the offer. Prima facie failure on the part of the acquirer to meet the obligation amounts to a breach of Regulations 20 and 22. Section 24(1) of the SEBI Act makes it clear that any SEBI Act, Rules and Regulations breach would invite prosecution. 21. In the face of aforesaid material, at this juncture, in my opinion, there was sufficient material available with the complainant, which prima facie indicates a violation of Regulations 20 and 22. Regulation 33 confers discretion on the Board having regard to the facts and circumstances of the case to investigate into the books of account or other records. Based on the report of such investigation under Regulation 36, the Board has the power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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