2016 (7) TMI 1347 - AT - Indian Laws

Violation of section 11C(3) and section 11C(5) of the SEBI Act - disclosure requirement - guilty of violating the 1997 Regulations and PIT Regulations - Held that - Failure to make disclosure during the period from February 20, 2010 till May 2010 cannot be attributed to the appellant and, therefore, the appellant cannot be held guilty of violating the 1997 Regulations and PIT Regulations. Consequently, penalty imposed under section 15A(b) of SEBI Act on ground that the appellant has violated the 1997 Regulations and PIT Regulations cannot be sustained. As regards the penalty of ₹ 2,00,000 imposed for violating section 11C(3) and ₹ 2,00,000 for violating section 11C(5) of the SEBI Act it is not in dispute that the appellant had failed to furnish all particulars sought in the summons issued against the appellant and that the appellant had failed to appear inspite of receiving the summons. Counsel for the appellant, however, submitted that in the present case, inadvertently the date of summoning was mistaken to be the 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 15A(b) of SEBI Act for allegedly violating the 1997 Regulations and PIT Regulations is quashed and set aside. However, penalty under section 15A(a) of SEBI Act for violating section 11C(3) and section 11C(5) of SEBI Act respectively is upheld. Each appellant is directed to pay the penalty imposed by the AO of SEBI for violating section 11C(3) and penalty imposed for violating section 11C(5) of SEBI Act, within a period of six weeks from today. If the appellants pay the said amount within six weeks from today, then, SEBI shall accept the same in full and final settlement of the claim under the impugned order. If the appellants fail to pay the aforesaid penalty within six weeks from today, then, SEBI shall be entitled to recover that amount with interest @ 12% p.a. from the date of the order passed by the AO of SEBI till payment.

Summary

Issues:
Violation of SEBI Act, 1992 and related regulations - Disclosure obligations under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and 2011, Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, failure to furnish information, and failure to appear before the enquiry officer.

Detailed Analysis:

1. Violation of Disclosure Obligations under SEBI Regulations:
The appellants challenged the penalties imposed by the Adjudicating Officer of SEBI for violating the provisions of the SEBI Act, 1992, and related regulations. The issue revolved around whether the appellants were liable for penalties under section 15A(b) of the SEBI Act for breaching the disclosure obligations under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and 2011, and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The appellants argued that the issuance of shares by Mahan Industries Limited (MIL) in two tranches caused their shareholding to exceed 5%, triggering the disclosure requirements. However, the Tribunal found that the appellants had subscribed to convertible equity warrants with the intention of maintaining a shareholding below 5%. As there was no indication that their shareholding would exceed 5% due to the tranches, the failure to disclose during the relevant period could not be attributed to the appellants. Consequently, the penalties under section 15A(b) for violating the regulations were quashed and set aside.

2. Failure to Furnish Information and Appear Before SEBI:
The appellants were also penalized for violating section 11C(3) and section 11C(5) of the SEBI Act for failing to provide requested information and appear before the enquiry officer, respectively. The appellants contended that there was a misunderstanding regarding the deadline for submitting the documents requested by SEBI, arguing against the imposition of penalties. However, the Tribunal held that the failure to furnish the required particulars and appear before the SEBI officer constituted violations of the SEBI Act. The penalties imposed by the Adjudicating Officer, amounting to ?2 lakh each for the violations of section 11C(3) and section 11C(5), were deemed reasonable and upheld. The appellants were directed to pay the penalties within six weeks to settle the claims under the impugned order.

3. Conclusion:
In conclusion, the Tribunal quashed the penalties imposed under section 15A(b) of the SEBI Act for violating the SEBI regulations related to disclosure obligations. However, the penalties under section 15A(a) for breaching section 11C(3) and section 11C(5) of the SEBI Act were upheld. The appellants were instructed to pay the respective penalties within six weeks, failing which SEBI would be entitled to recover the amounts with interest. The appeals were disposed of with no costs awarded.