2015 (4) TMI 155 - AT - Companies Law

Disclosures under regulation 29 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - Shares acquired by Public Financial Institution (PFI) on invocation of pledge - Disclosure under regulation 13 of SEBI PIT (Prevention of Insider Trading) Regulations, 1992 - Held that - Fact that Scheduled Commercial Banks/ PFI‟s even after acquiring the pledged shares on invocation of pledge do not show such shares in their audited accounts as their own investments, would have no bearing while construing the scope and ambit of the proviso to regulation 29(4). Once it is seen that the exemption under the proviso to regulation 29(4) relates to the obligation arising from the deemed acquisition specified under regulation 29(4), then, it is wholly irrelevant for the purpose of construing the proviso to regulation 29(4) as to how shares acquired by Scheduled Commercial Banks/ PFI‟s on invocation of pledge are treated in their audited books of accounts. In other words, scope and ambit of the proviso to regulation 29(4) is to be construed on the basis of the language used in the said proviso and not on the basis of the treatment given by Scheduled Commercial Banks/ PFI‟s to the shares acquired by them on invocation of pledge. Similarly, fact that regulation 31(3) specifically requires promoters of every Target Company to make disclosures within seven days from the creation or invocation or release of encumbrance does not support the case of appellants. On the contrary, very fact that the expression invocation of pledge is specifically used in regulation 31(3) and the said expression is conspicuously absent in regulation 29(4) clearly shows that neither regulation 29(4) nor the proviso to regulation 29(4) are intended to apply acquisition of shares on invocation of pledge. Similarly, in the absence of any exemption, under PIT Regulations, 1992 SEBI is justified in holding that on acquisition of shares by invocation of pledge, appellants were required to make disclosures under regulation 13 of PIT Regulations, 1992. Since regulation 13(1) of PIT Regulations, 1992 requires any person holding shares in excess of the limits prescribed therein to make disclosures, and admittedly appellants had acquired shares in excess of the limits prescribed therein, without dealing with various contentions raised by appellant in that behalf we hold that the expression any person in regulation 13(1) of PIT Regulations, 1992 is wide enough to cover acquisition of shares by Scheduled Commercial Banks/ PFI‟s on invocation of pledge and therefore, in the facts of present case, failure on part of appellants to make disclosures constitutes violation of regulation 13 of the PIT Regulations, 1992. Although penalty is imposed on the appellants for the first time for violating disclosure provisions that triggered on acquisition of shares by invocation of pledge, it is a matter on record that various Scheduled Commercial Banks have been making disclosures as and when disclosure provisions are triggered on acquisition of shares by invocation of pledge. If various Scheduled Commercial Banks have been making disclosures from time to time, there is no reason as to why penalty ought not to be imposed on appellants for not complying with the disclosure provisions contained in Takeover Regulations, 2011. In these circumstances, we see no reason to interfere with the quantum of penalty imposed against the appellants. - Decided against the appellant.

Summary

Issues Involved:
1. Whether a Public Financial Institution (PFI) is exempted from making disclosures under regulation 29(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations, 2011) when acquiring shares on invocation of pledge.
2. Interpretation of the proviso to regulation 29(4) regarding deemed acquisition versus actual acquisition of shares.
3. Applicability of disclosure requirements under regulation 13 of the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992 (PIT Regulations, 1992) to PFIs.
4. Whether failure to make disclosures deprived investors of important information.

Detailed Analysis:

1. Exemption for PFIs under Regulation 29(4):
The primary issue is whether PFIs are exempt from making disclosures when they acquire shares on invocation of pledge. The appellants argued that the exemption under the proviso to regulation 29(4) should extend to actual acquisition of shares by PFIs on invocation of pledge. SEBI contended that the exemption is restricted to deemed acquisition of shares specified under regulation 29(4) and does not extend to actual acquisitions.

2. Interpretation of the Proviso to Regulation 29(4):
The Tribunal held that the proviso to regulation 29(4) applies only to deemed acquisitions specified under regulation 29(4) and not to actual acquisitions. The proviso exempts PFIs from making disclosures when shares are taken by way of encumbrance to secure indebtedness, not when shares are actually acquired on invocation of pledge. The language of the proviso, "such requirement... as pledgee in connection with a pledge of shares for securing indebtedness in the ordinary course of business," clearly indicates that it pertains to deemed acquisitions and not actual acquisitions.

3. Applicability of Disclosure Requirements under PIT Regulations, 1992:
The Tribunal found that the expression "any person" in regulation 13(1) of the PIT Regulations, 1992 is wide enough to cover PFIs. Therefore, PFIs are required to make disclosures under regulation 13 when they acquire shares on invocation of pledge. The appellants' argument that PFIs should be excluded from the scope of regulation 13 was rejected.

4. Impact on Investors:
The Tribunal dismissed the argument that failure to make disclosures did not deprive investors of important information. It held that the obligation to make disclosures under regulation 29(1)/29(2) is independent of any disclosures made by the target company. The fact that the target company made disclosures does not absolve PFIs from their disclosure obligations.

Conclusion:
The Tribunal concluded that PFIs are not exempt from making disclosures under regulation 29(1)/29(2) when they acquire shares on invocation of pledge. The exemption under the proviso to regulation 29(4) applies only to deemed acquisitions and not to actual acquisitions. The appellants were found to have violated the disclosure requirements under both the Takeover Regulations, 2011 and the PIT Regulations, 1992. Consequently, the appeals were dismissed, and the penalty imposed by SEBI was upheld.