2019 (12) TMI 1654 - AT - SEBI

Violation of Regulation 11(1) of the SAST Regulations - period of limitation - artificial price rise in the scrip during the period 2004-2008 - appellant submitted before us that the order is liable to be quashed on the sole ground of the delay - HELD THAT - The time line of the events would show that the alleged violation had occurred between March, 2004 to June, 2004. The appellant had disclosed the transaction to the BSE at that time. The show cause notice however was issued in the present case dated 7th November, 2017. The investigation report itself would show that for non availability of the documentary evidences the investigating authority did not recommend taking drastic action to direct making of public announcement. Thus, there was inordinate delay in initiation of the proceedings. No escape from the conclusion that the proceedings are required to be quashed. Therefore the appeal is hereby allowed.

Summary

Issues:
Violation of Regulation 11(1) of SAST Regulations - Imposition of penalty - Delay in proceedings.

Violation of Regulation 11(1) of SAST Regulations:
The judgment involves an appeal against the imposition of a penalty of Rs. 25 lakhs on 12 appellants for violating Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The investigation revealed that the appellants, as promoters of a company, acquired around 2% of the share capital, increasing their shareholding from 70.52% to 77.47%, crossing the limit set by the SAST Regulations. Show cause notices were issued, some appellants did not respond, and the Adjudicating Officer found a violation, leading to the penalty imposition.

Imposition of Penalty:
The appellant argued that the order should be quashed due to a delay in proceedings. The violation occurred between March 2004 to June 2004, but show cause notices were issued in November 2017, with the order passed in May 2018. The appellant contended that the investigating report lacked documentary evidence, recommending against a public announcement. Citing legal precedents, the appellant sought to quash the order based on the delay and lack of evidence, emphasizing the disclosure made to the Bombay Stock Exchange (BSE) at the time of acquisition.

Delay in Proceedings:
The respondent acknowledged the violation and the initiation of proceedings following a reference from the Income Tax authority. The appellant highlighted regular disclosures to the BSE, arguing for the appeal's allowance. The tribunal, after considering both sides, allowed the appeal due to the inordinate delay in initiating proceedings. Citing previous judgments, the tribunal emphasized that the delay prejudiced the appellants, leading to the quashing of the proceedings and no costs imposed. The tribunal's decision was based on the principle that authorities must exercise their powers within a reasonable time, considering the facts and circumstances of each case.

In summary, the judgment addressed issues related to the violation of SAST Regulations, the imposition of a penalty, and the significant factor of delay in initiating proceedings. The tribunal allowed the appeal due to the inordinate delay, emphasizing the importance of reasonable timelines in regulatory actions and quashing the penalty based on legal precedents and the lack of evidence.