2013 (2) TMI 446 - AT - Companies Law

Violation of provisions of the takeover code - Non making of Public offer - Guilty of violating regulations 7 and 10 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - penalty imposed u/s 15 A(b) and 15 H of SEBI Act, 1992 - Held that - Findings arrived at by the adjudicating officer with regard to violation of the provisions of takeover code calls for no interference as the allotment of preferential shares was made to the connected parties & provisions of regulation 7(1) of the takeover code specifically provide that any acquirer, who acquires shares or voting rights which, taken together with shares or voting rights, held by him, would entitle him to more than five percent shares or voting rights in a company, in any manner whatsoever, shall disclose the aggregate of a shareholding or voting rights in that company, to the company. Regulation 10 of the takeover code provides that no acquirer shall acquire shares or voting rights which taken together with shares or voting rights, if any held by him or by persons acting in concert with him, entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations. Violation of these two provisions by the appellant is writ large on the face of it, therefore not inclined to agree with the appellant that the order has been passed merely on conjectures or surmises as adjudicating officer has relied on documents or material collected behind the back of the appellant. As stated in the impugned order itself that the appellants were afforded opportunity to cross-examine the persons whose statements were recorded and consequent to the cross-examination, the appellants filed their reply it is not clear what further principles of natural justice were required to be complied with. Thus to conclude each of the violator is liable to the penalty in accordance with law and such penalty cannot be clubbed treating it as a single violation. Not inclined to interfere with the findings arrived at by the adjudicating officer. Delay in passing order - Held that - As alleged violation took place in the year 2000 and the Board started investigation into the matter as early as in 2003, it issued the show cause notice to the appellant only in February, 2009 and passed the impugned order only in April, 2012. There is no justification available on record to explain this inordinate delay on the part of the respondent Board. The laxity on the part of the Board to punish the guilty within reasonable time is not a good practice. Thus no justification on record as to why the show cause notice was issued after nine years of violation of the regulations and then taking another three years to pass a final order. Keeping in view the penalty that could have been imposed at the relevant time and the inordinate delay in finalization of the case the ends of justice would be met by reducing the penalty to ₹ 1 lac as against ₹ 4 lacs in respect of each of the appellant.

Summary

Issues:
Violation of regulations 7 and 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; Penalty imposition under section 15 A(b) and 15 H of the Securities and Exchange Board of India Act, 1992; Delay in issuing show cause notice and passing the final order.

Analysis:
The judgment by the Securities Appellate Tribunal involved multiple issues, primarily focusing on the violation of regulations 7 and 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, and the subsequent penalty imposition under section 15 A(b) and 15 H of the Securities and Exchange Board of India Act, 1992. The case revolved around preferential allotment of shares by a company to nine entities, leading to a total of 60,56,000 shares being allotted, constituting 15.85% of the total shareholding of the company. The entities were found to be connected to each other, triggering the provisions of the takeover code. The adjudicating officer found the appellants guilty of violating the takeover code and imposed a penalty of Rs. 4 lacs each. The appellants challenged the order, arguing that the penalty was based on conjectures, there was no proof of wrongdoing, and the adjudication was done without following principles of natural justice.

The Tribunal considered the arguments presented by both parties. The counsel for the appellants contended that the penalty was excessive and disproportionate to the alleged acts, while the counsel for the respondent Board supported the order, stating that the violation and connection between the entities were clearly established. The Tribunal, after reviewing the submissions and evidence, upheld the findings of the adjudicating officer regarding the violation of the takeover code. However, it noted the inordinate delay in finalizing the case, spanning several years from the time of the violation. The Tribunal expressed concern over the delay, emphasizing the importance of expedient actions in market-related matters. Considering the delay and the maximum penalties applicable at the time, the Tribunal reduced the penalty for each appellant from Rs. 4 lacs to Rs. 1 lac, ensuring that the ends of justice were met.

In conclusion, while affirming the findings of the adjudicating officer regarding the violation of the takeover code and the penalty imposition, the Securities Appellate Tribunal acknowledged the need for timely actions in such cases and reduced the penalties for each appellant to Rs. 1 lac, emphasizing the importance of expediency and justice in market-related regulatory matters.