2020 (2) TMI 870 - AT - SEBI

Non disclosure on transfer of shares - exemption by Regulation 10 of SAST Regulation seeked - appellants' reason that all the transfers were between the group i.e. the husband and wife i.e Appellant no.1 and 2 and their private limited Company i.e. Appellant no.3 - HELD THAT - What is exempted under this regulation is the obligation to make an open offer. The disclosure requirement is not exempted by this Regulation. It is to be noted that while appellant Bharat Patel holds an independent account. So far as another account is concerned appellant Minal Patel is the first holder of the same alongwith Bharat Patel. The next of the account is of appellant PAT Financial Consultants Pvt. Ltd. which is a private limited Company. As per the reply submitted to SEBI, appellant PAT Financial Consultants Ltd had various shareholders like son and daughter of appellant Bharat Patel and Minal Patel besides themselves. The term 'persons acting in concert' has nothing to do with the disclosure requirement. The same is to be applied in case of requirement of open offer to be made under the regulations. It is an admitted fact that the beneficial ownership in the shares was transferred at the various points of time which required to be disclosed by the appellant either to the Company or to the stock exchanges as per the regulations. Having failed in this, they would be liable for penalty. The order of the Adjudicating Officer would show that a lenient view is already taken on the imposition of penalty as described supra. In the result, the following order. The appeal is hereby dismissed.

Summary

Issues:
Violation of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Analysis:
1. The appellants were penalized for violating the PIT Regulations and SAST Regulations due to transfers of shares between them during a specific period. The disclosures required under various regulations were not made promptly as mandated by law.

2. The appellants argued that the transfers were within a family group and involved borrowing, lending, and collateral arrangements exempted under Regulation 10 of the SAST Regulations. However, SEBI disagreed, leading to the appeal.

3. Details of specific transfers triggering disclosure requirements were outlined, emphasizing the necessity of timely and accurate disclosures under the relevant regulations to ensure transparency and compliance.

4. The Adjudicating Officer held that the transfers were not exempted under Regulation 10 and that the appellants failed to make required disclosures. Citing a previous tribunal's decision, a penalty of ?2 lakhs each was imposed on the appellants.

5. The appellants contended that the transfers were temporary loans or margin payments exempted under Regulation 10. However, the tribunal upheld the Adjudicating Officer's decision, emphasizing the importance of disclosure requirements under the regulations.

6. The tribunal found that the appellants failed to disclose beneficial ownership transfers as required by law, leading to the imposition of penalties. The argument that the transfers were within a family group and exempted under Regulation 10 was deemed insufficient for non-disclosure.

7. The tribunal dismissed the appeal, affirming the Adjudicating Officer's decision and emphasizing the significance of timely and accurate disclosures to maintain transparency and uphold regulatory compliance in securities transactions.