2016 (3) TMI 1376 - AT - SEBI

Violation of Takeover Regulations, 1997 - acquiring additional shares upto 5%, without making a public announcement - HELD THAT - Admittedly, the additional shares have not been acquired through open market in normal segment on the stock exchange, but the said shares have been acquired by the appellants through off market. Thus, the acquisition of additional shares by the appellants cannot be said to be in compliance with the provisions contained in the second proviso to Regulation 11(2) of the Takeover Regulations, 1997. Argument of the appellants that since the trading in the shares of the company were suspended during the relevant period, the appellants bonafide believed that the shares could be purchased through off market is without any merit, because, under the second proviso to Regulation 11(2) exemption from making open offer is available only if the acquisition is made through open market purchase in normal segment on the stock exchange and not by any other method. Therefore, if the trading in the shares of the company were suspended during the relevant period it could not be presumed that the appellants could acquire shares through off market. The language of the second proviso to Regulation 11(2) being clear and unambiguous, the appellants are not justified in contending that in the absence of trading in the shares of the company on the stock exchange, the appellants could acquire shares in the off market. In the instant case, SEBI by misconstruing the provisions contained in Section 15H(ii) of SEBI Act, has erroneously imposed penalty of ₹ 25 lac by treating the above factors as mitigating factors. In view of the decision of the Apex Court in case of SEBI vs. Roofit Industries Ltd. 2015 (11) TMI 1387 - SUPREME COURT which holds that mitigating factors set out in Section 15J are not applicable to violations covered under Section 15H(ii) as it stood prior to September 8, 2014, we were inclined to remand the matter to enable SEBI to take corrective measures. However, counsel for SEBI was not in favour of remand and sought dismissal of the appeal. Thus, in the facts of present case, where penalty of ₹ 25 lac is imposed as against the imposable penalty of ₹ 25 crore, the appellants are not justified in contending that the penalty imposed is disproportionate to the violations committed. On account of certain arguments advanced by the counsel for appellants which were inconsistent with the pleadings on record, we, on conclusion of arguments had declared that we are dismissing the appeal with costs quantified at ₹ 15,000/-.

Summary

Issues:
Violation of Regulation 11(2) of Takeover Regulations, 1997 - Penalty imposition under SEBI Act.

Detailed Analysis:

1. Violation of Takeover Regulations:
The appellants, as promoters of a company, acquired additional shares exceeding the permissible limit without making a public announcement as required by Regulation 11(2) of the Takeover Regulations, 1997. The Securities and Exchange Board of India (SEBI) imposed a penalty of Rs. 25,00,000 under Section 15H(ii) of the SEBI Act for this violation.

2. Defenses Raised by Appellants:
The appellants argued that the delay in initiating proceedings was unjust and that the acquisition through off-market channels was necessitated due to the suspension of trading. They claimed a bona fide belief in compliance with the regulations and highlighted financial difficulties faced by the company.

3. Regulatory Compliance and Exemption Provisions:
The Tribunal emphasized that strict compliance with exemption provisions is necessary. The appellants failed to acquire additional shares as per the conditions specified in the second proviso to Regulation 11(2), which allows a limited exemption provided the acquisition is made through open market purchase on the stock exchange.

4. Penalty Imposition and Mitigating Factors:
The Tribunal rejected the appellants' contentions that the violations were technical or procedural, emphasizing the seriousness of such breaches. Despite arguments regarding lack of intent, financial constraints, and absence of investor complaints, the penalty of Rs. 25,00,000 was upheld as per legislative provisions.

5. Judicial Interpretation and Precedents:
The Tribunal referenced the Supreme Court's decision in SEBI vs. Roofit Industries Ltd., clarifying that mitigating factors do not apply to violations under Section 15H(ii) of the SEBI Act. The penalty imposed, though significantly lower than the maximum, was deemed proportionate to the violations committed.

6. Disposition of the Appeal:
Ultimately, the Tribunal dismissed the appeal without costs, acknowledging inconsistencies in arguments presented by the appellants' counsel but refraining from penalizing the appellants directly. The decision was based on the regulatory breach and the applicability of penalty provisions under the SEBI Act.

This detailed analysis outlines the core issues of the case, the arguments presented by the parties, the regulatory framework governing the violations, and the Tribunal's rationale for upholding the penalty imposed under the SEBI Act.