sat
sebi (takeovers) regulations
[2006] 66 scl 270 (sat - mum.)
SECURITIES APPELLATE TRIBUNAL, MUMBAI
Mega Resources Ltd.
v.
Securities & Exchange Board of India
JUSTICE KUMAR RAJARATNAM, PRESIDING OFFICER
C. BHATTACHARYA AND R.N. BHARDWAJ, MEMBER
APPEAL NOS. 138 and 138A to 138F OF 2003
OCTOBER 21, 2005
Facts
The SEBI imposed penalty of Rs. 3 lakhs on the appellants for violation of regulation 7 on the ground that the appellants acting in concert had acquired shares of the target company in excess of 5 per cent of total shares without making disclosure to that company.
On appeal:
Held
The submissions of the appellants that they were not acting in concert would have to be rejected at the outset since regulation 2(1)(b) which defines an ‘acquirer’ clearly includes any person, who directly or indirectly acquires or agrees to acquire shares or voting rights in the target company. Thus, the term ‘acquirer’ in regulation 7 would be corresponding to the definition in regulation 2(1)(b). This point need not be overemphasised since the appellants themselves had admitted that they had acted together either directly or indirectly in acquiring the shares. [Para 5]
Having said that, nothing much remained with regard to whether persons acted together in acquiring shares of the target company in excess of 5 per cent without making the necessary disclosure to the target company. It was clear that there was a violation of regulation 7. [Para 6]
The contention of the appellants that they had informed the target company that they had exceeded threshold limit of 5 per cent, was sought to be justified by producing a certificate of posting. However, the target company had categorically stated that no such intimation was received by it. [Para12]
Taking into account the precedents and in the facts and circumstances of the case, it was appropriate to impose a penalty of Rs. 1,50,000 on the appellants. Accordingly, the impugned order was modified to that extent. [Para 15]
Cases referred to
Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 8), Deven Mehta v. SEBI [Appeal No. 143 of 2003] (para 9), Veronica Financial Services Ltd. v. SEBI [Appeal Nos. 105 to 107 of 2003] (para 9) and SMIFS Capital Markets v. SEBI [Appeal Nos. 82 and 82A to 82D of 2004] (para 9).
H.K. Sudhakarefor the Appellant.Kumar Desai and Ms. Daya Guptafor the Respondent.
order
Kumar Rajaratnam, Presiding Officer. - Appeals are taken up with consent of parties for final disposal. Since the impugned order is common to all the appellants and since common questions of law are involved, by consent of parties, a common order is passed.
2. The appellants being aggrieved by the order of the respondent dated 8-9-2003 in imposing penalty of Rs. 3 lakhs for violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “the Regulation”) has preferred this appeal.
3. The allegation against the appellants was that the appellants acting in concert had acquired on 12-5-2000 and 13-10-2000 shares in Ballarpur Industries which exceeded 5 per cent of the total shares and, therefore, violated regulation 7 of the Takeover Code. The defence of the appellants was that the shares were acquired by Mega Resources Ltd. and that Mega Resources Ltd. and the target company did not breach the provisions of regulation 7 as they have not exceeded the threshold of 5 per cent of the total holdings in Ballarpur Inds. Ltd. It was further submitted by the appellants that shares in long positions could not be considered for the purpose of regulation 7. All the appellants took a stand before the Adjudicating Officer that notwithstanding the alleged violation they had informed the target company. It is not disputed that if the total aggregate is taken into account, the appellants would have exceeded the 5 per cent threshold limit. The following chart would indicate this aspect of the matter :
Identity of persons in whose name shares have been transferred on temporary accommodation / As on 12-5-2000 to 13-5-2000 / As on 13-10-2000 to 14-10-2000No. of Shares / No. of Shares
Arun Kumar Bajoria / 241500 / 213500
Lata Devi Bajoria / 250500 / 250500
Pooja Bajoria / 195500 / 173500
Meenakshi Jatia / 70000 / 75000
Mohini Devi Bajoria / 214500 / 214500
Total / 972000 / 927000
4. It was also submitted that the appellants were not acting in concert and the expression “persons acting in concert” only apply to regulations 10 and 11.
5. This submission will have to be rejected at the outset since regulation 2(1)(b) which defines an “acquirer” clearly includes any person, who directly or indirectly acquires or agrees to acquire shares or voting rights in the target company. Thus, the term “acquirer” in regulation 7 would, in our view, be corresponding to the definition in regulation 2(1)(b). This point need not be over emphasised since the appellants themselves have admitted at Annexure-C that they have acted together either directly or indirectly in acquiring the shares. The letter addressed to the Calcutta Stock Exchange dated 15-5-2000 reads as follows :
“This is to inform you that our holding in your company with our associate (Mega Stock Ltd.) have exceeded 5 per cent on 12-5-2000. This is just for your information as required under SEBI Guidelines.”
6. Having said that, nothing much remains with regard to whether the persons acted together in acquiring shares of Ballarpur Inds. in excess of 5 per cent without making the necessary disclosure to the target company. It is clear that there is a violation of regulation 7.
7. The next difficult question that arises for consideration, as always, is with regard to the quantum of penalty.
8. The Supreme Court has pronounced that penalty is penal in nature and pronounced in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, which is as follows :
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”
9. The learned counsel for the appellants relied on a number of cases [Appeal No. 143 of 2003, in Deven Mehta v. SEBI , Appeal Nos. 105 to 107 of 2003 in Veronica Financial Services Ltd. v. SEBI, Appeal Nos. 82 and 82A to 82D of 2004 in SMIFS Capital Markets v. SEBI] where for similar violations the penalty was reasonable keeping in mind the provisions of section 15J of the Act. Section 15J of the Act reads as follows :
“15J. While adjudging quantum of penalty under section 15-I, the Adjudicating Officer shall have due regard to the following factors, namely :—
(a)the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b)the amount of loss caused to an investor or group of investors as a result of the default;
(c)the repetitive nature of the default.”
10. Mr. Desai, the learned senior counsel for the respondent, submitted that the appellants along with one more entity Hoogli Mills were levied with a penalty of Rs. 2,50,000 for acquiring Bombay Dyeing shares in violation of regulation 7(1). Therefore, it was submitted by the respondent that there should not be any reduction in the quantum of penalty.
11. We do not know under what circumstances, the Adjudicating Officer had imposed a penalty of Rs. 2,50,000 on the earlier occasion, since that order is not before us. We always have to be consistent in imposing penalty when there is a violation of regulation 7.
12. The contention of the appellants that he had informed target company that they had exceeded threshold limit of 5 per cent was sought to be justified by producing a certificate of posting. However, the target company has categorically stated that no such intimation was received by the target company.
13. It is brought to our notice that SEBI in similar circumstances has imposed what it considers to be reasonable penalty. In the case of Shalibhadra Infosec Ltd. dated 30-4-2005, SEBI had imposed a penalty of Rs. 1.50 lakhs on similar circumstances. The facts briefly set out in the order is reproduced below :
“5. It was noticed by the investigation of SEBI that the above persons acquired shares of the company in excess of 5 per cent of the voting capital of SIL on 1-4-2002 without making disclosures to the company. They, thus violated the provision of Regulation 7(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations on 1-4-2002. Additionally, the said persons also acquired shares in excess of 15 per cent of the voting capital of the company without making public announcement to acquire shares. They thus violated regulation 15(1) read with regulation 10 (on 3-4-2002 and 13-4-2002) and regulation 11(1) by acquiring shares in excess of 10 per cent on 15-4-2002.
** / ** / **20. Therefore, in exercise of the powers conferred under section 15-1(2) of the SEBI Act, 1992, read with rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I hereby impose a penalty of Rs. 1,50,000 (Rupees one lakh fifty thousand only) on the acquirers for the aforesaid violations.”
14. In the case of Birla Mutual Funds dated 25-5-2005, SEBI had imposed a penalty of Rs. 75,000 for violation of regulations 7(1) and (2) of the Regulations. The relevant portion of the order is extracted below :
“2. The acquirer was found to have acquired a total of 2,50,600 shares of M/s. Subex Systems Limited (hereinafter referred to as ‘SSL’) (market purchase of 1,80,600 shares and on 30-12-1999, 70,000 shares allotted on a preferential basis) during the period from 7-9-1999 to 31-12-1999 under its various schemes, constituting 7.06 per cent of the total paid-up capital of SSL, whose shares were then listed on the Bangalore Stock Exchange and the Hyderabad Stock Exchange (for brevity’s sake, hereinafter referred to as the ‘BgSE and HSE’, respectively).
3. As the sum total holdings of all the schemes of the acquirer constituting 7.06 per cent of the total paid-up share capital of SSL entitled the acquirer to exercise more than 5 per cent of the voting rights of SSL, the acquirer was required to disclose in terms of regulations 7(1) and (2) of the SEBI Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for brevity’s sake, hereinafter referred to as the ‘Takeover Regulations’), their aggregate shareholding in SSL to SSL, within 4 working days of 18-10-1999, i.e., the date on which the acquirer crossed the threshold limit of 5 per cent of the voting rights in SSL.
** / ** / **25. Bearing in mind, the factors enumerated above as well as after taking into consideration, the facts and circumstances of the present case and the material available on record, the rationale behind the requirement of making these disclosures, on a judicious exercise of the discretion conferred upon me, I in exercise of the powers conferred upon me under rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 think it appropriate to levy an amount of Rs 75,000 (Rupees Seventy Five Thousand only) as penalty payable by Birla Mutual Fund for their non-compliance with regulations 7(1) and (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.”
15. Taking into account the precedents referred to above and in the facts and circumstances of the case, we feel it appropriate to impose a penalty of Rs. 1,50,000 on the appellants. We, accordingly, modify the impugned order directing the appellants to deposit a sum of Rs. 1,50,000 within eight weeks from the date of receipt of this order if not paid. Any excess amount deposited shall be refunded to the appellants.
16. Appeals are disposed of accordingly. No order as to costs.