2001 (8) TMI 1446 - AT - SEBI

Summary

Issues Involved:
1. Applicability of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 to the appellants.
2. Definition and roles of 'acquirer', 'promoter', and 'person acting in concert'.
3. Compliance with reporting requirements under regulations 3(4) and 3(5).
4. Interpretation of regulation 11(2) regarding consolidation of holdings.
5. Validity of the penalty imposed by the Adjudicating Officer.

Issue-wise Detailed Analysis:

1. Applicability of SEBI Regulations:
The appellants argued that the SEBI regulations were not applicable to them as they were promoters and not acquirers. They contended that the preferential allotment of shares was to infuse funds into the company and not for substantial acquisition or takeover. However, the tribunal held that the SEBI regulations were applicable as the acquisition of shares by the appellants resulted in an increase in their holding to 71.77%, which was significant enough to attract the regulations.

2. Definition and Roles of 'Acquirer', 'Promoter', and 'Person Acting in Concert':
The tribunal examined the definitions provided in the regulations. An 'acquirer' is any person who acquires or agrees to acquire shares or voting rights in a target company. A 'promoter' is a person in control of the company. The tribunal clarified that a promoter could also be an acquirer if they acquire additional shares. The appellants, being promoters, were also considered acquirers as they acquired additional shares. The tribunal also noted that the appellants acted in concert as they had a common objective of acquiring shares to infuse funds into the company.

3. Compliance with Reporting Requirements:
The tribunal held that the appellants failed to comply with the reporting requirements under regulations 3(4) and 3(5). These regulations require the acquirer to submit a report to SEBI within 21 days of the acquisition and pay a fee. The appellants argued that these regulations were not applicable as they already held more than 10% of the shares before the acquisition. However, the tribunal rejected this argument, stating that the reporting requirements are continuous and not a one-time obligation.

4. Interpretation of Regulation 11(2):
The tribunal examined regulation 11(2), which deals with the consolidation of holdings. This regulation requires an acquirer to make a public announcement if their acquisition entitles them to exercise more than 51% of the voting rights. The appellants argued that since they already held more than 51% of the shares, further acquisitions did not attract this regulation. The tribunal rejected this argument, stating that any acquisition beyond 51% would attract the regulation, as its purpose is to ensure transparency and protect the interests of shareholders.

5. Validity of the Penalty Imposed:
The tribunal upheld the penalty of Rs. 1,25,000 imposed by the Adjudicating Officer. It noted that the penalty was justified as the appellants failed to comply with the reporting requirements, which are crucial for maintaining transparency in the securities market. The tribunal also considered the factors under section 15J of the SEBI Act, including the absence of disproportionate gain or loss to investors and the non-repetitive nature of the default. The tribunal found that the Adjudicating Officer had taken these factors into account and imposed a reasonable penalty.

Conclusion:
The tribunal dismissed the appeal, holding that the SEBI regulations were applicable to the appellants, who were both promoters and acquirers. The appellants failed to comply with the reporting requirements under regulations 3(4) and 3(5). The tribunal also upheld the interpretation of regulation 11(2) and the penalty imposed by the Adjudicating Officer.