2019 (10) TMI 1049 - AT - SEBI

Belated disclosures under the PIT and SAST Regulations - an attempt was made to justify the disclosures made belatedly on the strength that the appellants were unaware of the sale of its shares made by the lenders and that the delay if any, was thus, liable to be condoned - penalty of ₹ 40 lacs imposed for violation of Regulations 13(3), 13(4), 13(4A) and 13(5) of SEBI PIT Regulations read with Regulations 29 and 31 of the Securities and Exchange Board of India SAST Regulations - HELD THAT - Appellants were duty bound to make the necessary disclosures within the stipulated period under the PIT and SAST regulations. Non-disclosures within the stipulated period violated the provisions of the aforesaid regulations and, consequently, the penalty became leviable. Thus, to that extent, the order of the AO holding the appellants guilty of violating the provisions of the PIT and SAST Regulations cannot be faulted and is upheld. Considering the factors enumerated under Section 15J of the SEBI Act, we find that there was no disproportionate gain or unfair advantage gained by the appellants as a result of the default nor anything has come on record to indicate that the delayed disclosures resulted in a loss caused to an investor. However, considering the repetitive nature of the default and the fact that the company has now been wound up and taking into consideration all the facts and circumstances of the case, we think that in the larger interest of justice, the quantum of penalty should be reduced from ₹ 40 lacs to ₹ 30 lacs would meet the ends of justice.

Summary

Issues:
Challenge to penalty imposed for violation of insider trading regulations.

Analysis:
The appellants challenged a penalty of ?40 lacs imposed on them for breaching various regulations under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The appellants, a husband and wife, were former promoters of a company and had pledged their shares to secure loans. The lenders sold their shares without informing them, leading to delayed disclosures under the regulations. A show cause notice was issued, and after a hearing, the penalty was imposed by the Adjudicating Officer.

The appellants contended that they were unaware of the share sale by the lenders, justifying the delayed disclosures. They argued that the violation was technical, causing no harm to investors, and the penalty was excessive. The Tribunal acknowledged the duty of the appellants to make timely disclosures under the regulations, upholding the finding of violation. However, considering the absence of disproportionate gain or investor loss, the penalty was reduced from ?40 lacs to ?30 lacs in the interest of justice. Despite the reduction, the appellants were directed to pay the revised penalty within four weeks.

In conclusion, the appeal was partially allowed, and the penalty reduced from ?40 lacs to ?30 lacs due to the absence of unfair advantage or investor loss. The Tribunal emphasized the importance of timely disclosures under securities regulations while balancing the penalty amount with the circumstances of the case and the interests of justice.