2019 (4) TMI 596 - AT - SEBI

Violation of SEBI PFUTP Regulations - non adherence to mandated disclosure under Regulation 7 of the Takeover Regulations, 1997 - as alleged parties connected to each other and were Persons Acting in Concert ( PACs ) with the Birlas acquired shares of the appellant company without making mandatory disclosures as prescribed under law - HELD THAT - Here the target company in question is the appellant whose promoters held 63% of its share capital at the relevant time. That means even if all other parties coming together would still be in a minority. The argument that an effort in substantial acquisition of shares in the appellant company has been made stands disproved as it is an admitted fact that the combined shareholding of all respondents together was less than 10%. The trigger for mandated disclosure under Regulation 7 of the Takeover Regulations, 1997, has been violated does not have merit since it is found that respondents who were found to be PACs had a maximum shareholding of only about 4.85% of the shareholding in the appellant company. We also found no merit in the argument that all the 10 respondents were persons acting in concert and came together to dislodge the then management of the company based on the fact that they were petitioners/consenting shareholders to a Company Petition filed against mismanagement and oppression etc. In fact what is on evidence is that some of the respondents had sold part of their shares even prior to the Company Petition filed in March 2010. If these entities were in fact consolidating their shareholding in the appellant company such reverse transactions would not have been done. Similarly, some of the entities such as Respondent No. 2 had acquired the shares of the appellant company since the latter s incorporation and as such cannot be held to have acquired the shares of the appellant with a motive or objective of dislodging the management and for taking over the company. In the light of these facts even if Respondents 2 to 11 were parties to a Company Petition filed under Section 397/398 of Companies Act as shareholders with certain objective that same motive cannot be extended to allege commonality of intent or motive as PACs under 2(1) e (1) of the Takeover Regulations, 1997. As held in Daiichi Sankyo Company Limited 2010 (7) TMI 289 - SUPREME COURT OF INDIA and K.K. Modi (supra) 2001 (11) TMI 947 - HIGH COURT OF BOMBAY a common objective for acquiring shares need to be established which is not available in this present matter. Accordingly, we find no merit in the contention that the respondents have violated Regulation 7 of Takeover Regulations, 1997. Appeal dismissed.

Summary

Issues Involved:
1. Maintainability of the appeal.
2. Alleged violation of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
3. Alleged violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003.
4. Alleged violation of anti-money laundering laws.
5. Procedural fairness and natural justice.

Detailed Analysis:

1. Maintainability of the Appeal:
The respondents, including SEBI, argued that the appeal was not maintainable since the appellant (a listed company) was not an aggrieved person. They contended that the real appellant was hiding behind the company, which is a neutral legal entity. They also argued that the impugned communication was an administrative order and thus not appealable. The Tribunal dismissed these preliminary objections, stating that similar grounds were not considered in a previous order dated November 07, 2014, and proceeded to address the basic issues.

2. Alleged Violation of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997:
The appellant alleged that Respondent Nos. 2 to 11 were Persons Acting in Concert (PACs) and collectively acquired about 10% of the appellant company's shares, thereby breaching the 5% disclosure threshold under Regulation 7(1) and 7(2) of the Takeover Regulations, 1997. SEBI's investigation concluded that while some respondents were PACs, their combined shareholding did not exceed the 5% threshold. The Tribunal upheld SEBI's findings, noting that the combined shareholding of identified PACs was only about 4.85%. The Tribunal found no merit in the argument that all respondents were PACs based on their participation in a Company Petition under Section 397/398 of the Companies Act.

3. Alleged Violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003:
The appellant also alleged that the respondents' trading activities and sources of funds might have violated the PFUTP Regulations. SEBI investigated these allegations and found no evidence to support them. The Tribunal did not find any merit in the appellant's contentions regarding violations of the PFUTP Regulations.

4. Alleged Violation of Anti-Money Laundering Laws:
The appellant requested SEBI to investigate potential violations of anti-money laundering laws by the respondents. The Tribunal directed SEBI to complete this investigation within six months and take appropriate action if any violations were found.

5. Procedural Fairness and Natural Justice:
The appellant argued that natural justice was violated as they were not given an opportunity to be heard, and the documents obtained from the respondents were not shared with them. SEBI contended that the impugned communication was an administrative order, not requiring personal hearings or cross-examinations. The Tribunal agreed with SEBI, citing precedents that administrative orders do not always necessitate a hearing.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the appellant's contentions regarding violations of the Takeover Regulations, 1997, and other allegations. However, it directed SEBI to complete the investigation into potential anti-money laundering violations within six months. No order as to costs was made.