2015 (4) TMI 558 - AT - Companies Law

Penalty for violation of regulation 29(1),29(2) & 29(3) of the SEBI SAST (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - Violation of regulation 13(1),13(3) read with regulation 13(5) of the SEBI PIT (Prevention of Insider Trading) Regulations, 1992 - Delay in disclosures - Held that - In the present case, appellant holding 4.71% shares of SRS received additional shares of SRS on account of amalgamation and it is not in dispute that on receiving those shares, the holding of appellant SRS exceeded the limit prescribed under SAST Regulations, 2011 and PIT Regulations, 1992. Admittedly, disclosures made to the Stock Exchange under regulation 29(1) and regulation 29(2) of SAST Regulations, 2011 were delayed by 120 and 128 days respectively. As noted earlier, penalty for violating regulation 29(1) at the rate of ₹ 1 lac per day would be more than ₹ 1 crore. Similarly, penalty for violating regulation 29(2) at the rate of ₹ 1 lac per day would be more than ₹ 1 crore. As against the above, after considering all mitigating factors, AO has imposed composite penalty of ₹ 4.5 lac which cannot be said to be excessive or unreasonable. Argument of appellant that the delay was unintentional and that the appellant has not gained from such delay and therefore penalty ought not to have been imposed is without any merit, because, firstly, penal liability arises as soon as provisions under the regulations are violated and that penal liability is neither dependent upon intention of parties nor gains accrued from such delay. Secondly, taking above factors as mitigating factors, AO has imposed penalty of ₹ 4.5 lac as against the liability of ₹ 1 crore each imposable for violations committed under regulation 29(1) and 29(2) of SAST Regulations 2011. Similarly, fact that additional shares were not received on account of any positive act on part of appellant is also untenable, because, liability to make disclosure arises once the shareholding of a person exceeds the limits prescribed under SAST Regulations, 2011 and PIT Regulations, 1992, irrespective of the mode and the manner of acquiring those shares. - Decided against the appellant.

Summary

Issues:
- Appellant aggrieved by adjudication order imposing penalty for violating SEBI regulations.
- Delay in making disclosures under SAST Regulations and PIT Regulations.
- Appellant's arguments of unintentional delay and lack of malafide intention.
- Comparison of penalty imposed with potential penalties under SEBI Act.
- Analysis of previous tribunal decisions and their applicability to the current case.

Issue 1: Appellant aggrieved by adjudication order
The appellant challenged the penalty imposed by the Adjudicating Officer (AO) of the Securities and Exchange Board of India (SEBI) under Section 15A(b) of the SEBI Act, 1992. The penalty of Rs. 4.5 lac was imposed for violating regulations related to substantial acquisition of shares and prevention of insider trading.

Issue 2: Delay in making disclosures
The appellant received additional shares due to a scheme of amalgamation approved by the Delhi High Court. However, the appellant failed to make timely disclosures as required by the regulations. The appellant's shareholding exceeded the prescribed limits triggering the need for disclosures under SAST Regulations, 2011, and PIT Regulations, 1992.

Issue 3: Appellant's arguments
The appellant contended that the delay in filing disclosures was unintentional and without malafide intention. It was argued that the appellant did not gain anything from the delay and that the shares were received due to the amalgamation, not through any positive act.

Issue 4: Comparison of penalties
The respondent argued that the appellant cannot escape penal liability for failing to make disclosures as required by the regulations. The penalty under the SEBI Act for delays in disclosures could potentially be much higher than the Rs. 4.5 lac imposed by the AO.

Issue 5: Analysis of previous tribunal decisions
The Tribunal analyzed previous decisions related to similar cases. It was noted that the penalty imposed on the appellant was not excessive considering the violations committed. The Tribunal distinguished the present case from previous cases where penalties were reduced, emphasizing that the appellant had violated multiple regulations, warranting the penalty imposed by the AO.

In conclusion, the Tribunal dismissed the appeal, finding no merit in the appellant's arguments. The penalty of Rs. 4.5 lac imposed by the AO was deemed appropriate given the violations of the regulations. The Tribunal upheld the decision, emphasizing the importance of timely disclosures and compliance with SEBI regulations.