2014 (6) TMI 901 - AT - Companies Law

Penalty under Section 15A(b) of the SEBI Act, 1992 - Violation of Regulation 8(1) and 8(2) of the SAST Regulations, 1997 - Obligation to make disclosures under SAST Regulations, 1997 & listing agreement are independent to each other - Held that - First contention of the appellant that since disclosures were available in public domain in view of declaration made under Clause 35 of the listing agreement during the period 2001-2008 no penalty ought to have been levied is without any merit because obligation to make disclosures under Clause 35 of the listing agreement is on the company, whereas, obligation to make disclosures under Regulation 8(1) and 8(2) of SAST Regulations, 1997 is on a person holding more than 15% shares of a company. Therefore, obligation to make disclosures under Regulation 8(1) and 8(2) of SAST Regulations, 1997 is independent of the obligation to make disclosure under Clause 35 of the listing agreement. Second argument of the appellant to the effect that there was no disproportionate gain or unfair advantage derived by the appellants or loss caused to the investors as a result of failure on part of the appellant to make disclosures and hence penalty ought not to have been levied is also without any merit because obligation to make disclosure under Regulation 8(1) and 8(2) of SAST Regulations, 1997 is not restricted to cases where there is disproportionate gain or unfair advantage and where loss is caused to the investors as a result of failure to make disclosures. Third contention of the appellant that since the shareholding of the appellants had remained unaltered for all the years in question and therefore, AO ought to have taken a lenient view is also without any merit. Plain reading of Regulation 8(1) and 8(2) of SAST Regulations, 1997 makes it clear that the obligation to make disclosure regarding the number and percentage of shares or voting rights is irrespective of there being any change in the shareholding or not. There can be not dispute that the AO has taken into consideration the above facts while determining the quantum of penalty and accordingly, as against penalty of ₹ 1 crore imposable for each year, has imposed penalty which is less than ₹ 1 lac per year. Argument of the appellants that the failure to comply with Regulation 8(1) and 8(2) of SAST Regulations, 1997 was a mere technical default and that the AO has not considered the provisions of Section 15J in the proper perspective does not merit consideration in view of the fact that the penalty imposed is less than ₹ 1 lac per day as against the penalty of ₹ 1 crore imposable for each of the years in question. - Decided against the appellants.

Summary

Issues:
Challenge to adjudication orders imposing penalty under SEBI Act, 1992 for violating SAST Regulations, 1997.

Analysis:
1. Violation of SAST Regulations, 1997: The appellants challenged adjudication orders imposing a penalty under Section 15A(b) of the SEBI Act, 1992 for violating Regulation 8(1) and 8(2) of the SAST Regulations, 1997. The appellants failed to make yearly disclosures from 1998 to 2008 regarding their shareholding in a company, which constituted a technical violation of the Regulations.

2. Imposition of Penalty: The appellants argued that the penalty of Rs. 10 lac imposed on each appellant was arbitrary and excessive. They contended that since disclosures were available in the public domain under the listing agreement, no penalty should have been levied. However, the tribunal held that the obligation to disclose under the SAST Regulations was independent of the listing agreement's disclosure requirements. The penalty imposed was considered reasonable, taking into account mitigating factors.

3. Disproportionate Gain or Loss: The appellants claimed that no disproportionate gain or loss to investors occurred due to the non-disclosure, hence no penalty should have been imposed. The tribunal clarified that the obligation to disclose under the Regulations is not contingent on disproportionate gain or loss. While these factors are considered in determining the penalty amount, failure to disclose still attracts penalties.

4. Unaltered Shareholding: The appellants argued that since their shareholding remained constant, a lenient view should have been taken. However, the tribunal emphasized that the obligation to disclose is irrespective of changes in shareholding. The penalty imposed was deemed appropriate, considering all relevant factors.

5. Technical Default and Section 15J: The appellants claimed the non-compliance was a technical default and that Section 15J of the SEBI Act was not considered. The tribunal dismissed these arguments, stating that the penalty imposed was significantly less than the potential penalty per day for each year of non-disclosure.

6. Conclusion: The tribunal found no merit in the appeals and dismissed them without costs. The decision upheld the penalty imposed for the violations of the SAST Regulations, emphasizing the independent nature of disclosure obligations and the reasonableness of the penalties considering all relevant factors.