2001 (1) TMI 1019 - AT - SEBI

Summary

Issues Involved:
1. Violation of Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Violation of Regulation 3(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
3. Imposition of monetary penalty under Section 15A and 15H of the SEBI Act, 1992.
4. Applicability of the 1997 Regulations to the preferential allotment.
5. Condonation of delay in compliance with Regulation 3(4).

Detailed Analysis:

1. Violation of Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:
The Adjudicating Officer found that the Appellant acquired 9% of the voting rights through preferential allotment, which required a public offer under Regulation 11(1) of the 1997 Regulations. However, due to the transitional period between the 1994 and 1997 Regulations and the Appellant's lack of clarity on the applicability of the 1997 Regulations, the Adjudicating Officer gave the benefit of doubt to the Appellant and did not impose a penalty under Section 15H(ii) of the SEBI Act.

2. Violation of Regulation 3(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:
The Adjudicating Officer held that the Appellant failed to submit a report to SEBI under Regulation 3(4) within the stipulated time. Despite the Appellant's belief that the 1997 Regulations did not apply to the preferential allotment, the Adjudicating Officer imposed a penalty of Rs. 1,50,000 under Section 15A of the SEBI Act for this violation.

3. Imposition of Monetary Penalty under Section 15A and 15H of the SEBI Act, 1992:
The Appellant argued that the imposition of a penalty was not warranted as the delay in reporting was unintentional and did not result in any gain or loss. The Appellant also cited various legal precedents to argue that penalties should not be imposed for unintentional breaches. The Adjudicating Officer, however, imposed a penalty for the violation of Regulation 3(4) but not for Regulation 11, considering the transitional period and the lack of clarity on the applicability of the 1997 Regulations.

4. Applicability of the 1997 Regulations to the Preferential Allotment:
The Appellant contended that since the substantive requirements for the preferential allotment were completed before the notification of the 1997 Regulations, these regulations should not apply. However, the Adjudicating Officer held that the actual allotment date, which was after the notification of the 1997 Regulations, was the relevant date, making the regulations applicable.

5. Condonation of Delay in Compliance with Regulation 3(4):
The Appellant argued that the delay in reporting under Regulation 3(4) was condoned when SEBI granted an exemption from making a public offer in December 1998. The Adjudicating Officer disagreed, stating that the exemption order did not imply condonation of the delay in reporting.

Conclusion:
The Tribunal found that the Appellant acted in good faith, with no intention to defy the law or act dishonestly. The delay in reporting was due to a genuine belief that the 1997 Regulations did not apply. The Tribunal noted that the Adjudicating Officer had already acknowledged the transitional period and the lack of clarity regarding the applicability of the 1997 Regulations. Given these factors and the Supreme Court's guidelines in similar cases, the Tribunal concluded that imposing a monetary penalty on the Appellant was unwarranted. The order imposing the penalty was set aside, and the appeal was allowed.