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2019 (5) TMI 1762 - AT - SEBIViolation of Takeover Regulations - sale of the shares of the target Company exceeded two percent of the share capital of the target Company and target Company failed to make the disclosure to the stock exchange as contemplated under Regulation 7(1A) of the Takeover Regulations - inter-se transfer of shares from Appellant no.6 for violating Regulation 3(3) read with Regulation 3(4) - HELD THAT - Sale made by the appellants which aggregated two percent or more of the share capital of the target Company was required to be disclosed by the acquirer/appellants of the target Company within two days under Regulation 7(1A). Thus for non-disclosure of the sale of shares the appellants have violated the provisions of Regulation 7(1A). Appellants cannot be faulted and penalised on this score at this stage. They have a decision in their favour in the case of Ravi Mohan 2016 (3) TMI 93 - SECURITIES APPELLATE TRIBUNAL MUMBAI which is still valid till date and has not been set aside by a superior forum. Further the respondent SEBI has accepted the decision of this Tribunal in the case of Ravi Mohan (supra) which can be seen from the fact that a similar provision namely Regulation 29 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011 was amended after Ravi Mohan s decision was given by this Tribunal in 2015. Even though we do not agree with the ratio of the decision in Ravi Mohan s case nonetheless the said decision having been accepted by SEBI the appellant in the instant case cannot be penalized for violation of Regulation 7(1A) read with Regulation 7(2). The imposition of penalty by the Adjudicating Officer on this score cannot be sustained. Even though there is no increase in the percentage of shares or voting power amongst the promoter groups nonetheless the percentage of shareholding of individual shareholder is required to be intimated under Regulations 3(3) and 3(4). Not intimating the authorities under Regulations 3(3) and 3(4) leads to a violation of the said provisions. Thus the imposition of penalty by the Adjudicating Officer on this score needs no interference. In the light of the aforesaid since Appellant no.6 also failed to disclose the sale of its shares to Appellant no.7 the imposition of penalty is justified and needs no interference. A sum of Rs. 2 lakhs was imposed upon the Appellant no.8 for failure to disclose the promoters holding in the annual return for the financial year 2010-11 for apparent violation of Regulation 8(3) - every Company is required to make yearly disclosures in respect of the promoters holding of the Company. The said disclosure is required to be made within thirty days from the financial year ending 31st March. In the instant case there was a delay of 11 days and on account of the delay a penalty of Rs. 2 lakhs has been imposed. The contention of the appellant that they had furnished the disclosure before 31st March but since the information furnished was incorrect the rectified information was submitted within 11 days thereafter and therefore there was no concealment of furnishing of information. The contention of the appellant cannot be accepted in as much as the penalty has been imposed not for furnishing incorrect information but the penalty has been imposed for the delay in furnishing the information. Consequently we do not find any error in the imposition of penalty upon Appellant no.8 for violation of Regulation 8(3). Appeal is partly allowed. The imposition of penalty of Rs. 15 lakhs for violation of Regulation 7(1) and 7(2) is quashed. The imposition of penalty of Rs. 3 lakhs upon Appellant no.1 Rs. 2 lakhs upon the Appellant no.2 and Rs. 6 lakhs on Appellant no.6 and Rs. 8 lakhs upon Appellant no.1 5 and 7 for violation of Regulation 7(1A) read with Regulation 7(2) are also quashed. The imposition of penalty of Rs. 7 lakhs for violation of Regulation 3(3) read with Regulation 3(4) upon Appellant no.7 the imposition of penalty of Rs. 2 lakhs for violation of Regulation 7(3) upon Appellant no.8 and imposition of penalty of Rs. 2 lakhs for violation of Reg.8(3) upon Appellant no.8 is affirmed. The said amount shall be deposited by the appellants jointly and severally within six weeks from today.
Issues Involved:
1. Violation of Regulation 7(1) and 7(2) of the Takeover Regulations. 2. Violation of Regulation 7(1A) read with Regulation 7(2) regarding the sale of shares from 2005 to 2011. 3. Violation of Regulation 3(3) and 3(4) concerning inter-se transfer of shares. 4. Violation of Regulation 8(3) for non-disclosure of promoter holding for the financial year 2010-2011. Detailed Analysis: 1. Violation of Regulation 7(1) and 7(2) of the Takeover Regulations: The appellants contended that they had complied with the rigorous disclosure requirements under Chapter III of the Takeover Regulations when they acquired the target company in 1999. They argued that this compliance should suffice, negating the need for additional disclosures under Regulation 7. However, the Tribunal held that the disclosure obligations under Chapter II (Regulation 7) and Chapter III are separate and distinct. Despite the appellants' compliance with Chapter III, they failed to make the necessary disclosures under Regulation 7. Nevertheless, the Tribunal found that the delay in initiating proceedings (over 11 years) was unreasonable. Given the substantial compliance under Chapter III and the inordinate delay, the Tribunal quashed the penalty of Rs. 15 lakhs imposed for this violation. 2. Violation of Regulation 7(1A) read with Regulation 7(2) regarding the sale of shares from 2005 to 2011: The appellants argued that there was no time limit for disclosure of share sales under Regulation 7(1A) read with Regulation 7(2), citing the Tribunal's decision in Ravi Mohan and others vs. SEBI. The Tribunal, however, interpreted Regulation 7(1A) and 7(2) to require disclosure within two days of the sale of shares aggregating to two percent or more of the share capital. Despite this interpretation, the Tribunal acknowledged that the appellants could not be penalized due to the existing precedent in Ravi Mohan's case, which SEBI had accepted. Consequently, the penalties of Rs. 3 lakhs, Rs. 2 lakhs, and Rs. 6 lakhs imposed on Appellant Nos. 1, 2, and 6, respectively, were quashed. 3. Violation of Regulation 3(3) and 3(4) concerning inter-se transfer of shares: The Tribunal upheld the penalty for the inter-se transfer of shares between Appellant No. 6 and Appellant No. 7, which was not disclosed as required under Regulations 3(3) and 3(4). These regulations mandate notification to the stock exchange and SEBI even for exempted transactions like inter-se transfers if they exceed five percent of the voting share capital. The Tribunal found that the appellants failed to comply with these notification requirements, justifying the penalties imposed. 4. Violation of Regulation 8(3) for non-disclosure of promoter holding for the financial year 2010-2011: The Tribunal confirmed the penalty of Rs. 2 lakhs imposed on Appellant No. 8 for the delay in disclosing promoter holdings in the annual return for the financial year 2010-2011. The appellants argued that the delay was due to an inadvertent error, which was corrected shortly thereafter. However, the Tribunal noted that the penalty was for the delay in disclosure, not for the erroneous disclosure, and thus upheld the penalty. Conclusion: The appeal was partly allowed. The penalties for violations of Regulation 7(1) and 7(2) and Regulation 7(1A) read with Regulation 7(2) were quashed due to the unreasonable delay in proceedings and reliance on existing legal precedents. However, the penalties for violations of Regulation 3(3) and 3(4) concerning inter-se transfers and Regulation 8(3) for delayed disclosure of promoter holdings were upheld. The appellants were directed to deposit the affirmed penalties within six weeks. Each party was ordered to bear its own costs.
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