2020 (3) TMI 586 - AT - SEBI

Failure to make the necessary disclosures regarding creation/invocation/release of certain pledge transactions and off-market transactions/purchase of shares in the company - contention of the appellants is that Regulation 29 of the SAST Regulations is not applicable and is only applicable to the pledgee - penalty has been imposed for violation of Regulation 29(2) and 29(3) which provides that an acquirer who holds shares or voting rights entitling them to 5% or more of the shares or voting rights in the target company shall disclose every acquisition or disposal of shares representing 2% or more within two working days - HELD THAT - Whenever a share which is pledge is invoked meaning thereby the shares are sold, the necessary consequence which follows is the reduction in the shareholding of that particular entity. In the instant case, whenever the pledged shares of a particular appellant was invoked, there was a change in the shareholding of that appellants and, consequently, the appellants under Regulation 29(2) read with 29(3) was required to disclose the change in the shareholding within two working days of the revocation of the shares to the stock exchange as well as to the target company. Admittedly, as per the chart indicated after paragraph 21 of the impugned order, no disclosures were made by the appellants. A perusal of the chart shows two such transactions of the Appellant No. 1 Anjaneya Holdings Pvt. Ltd. that when their share pledges were invoked on August 28, 2012 and November 2, 2012, the percentage of the shareholding was less than 2% being 1.21% and 1.82% respectively. Thus, for the said two transactions penalty under section 29(2) and 29(3) could not be invoked to that extent. The said appellant Anjaneya Holdings Pvt. Ltd. is entitled for relief. Other transactions of all the appellants describing violation for non-disclosure under Regulation 29(2) and 29(3) does not suffer from any error and the order of the AO to that extent is maintained. The contention of the appellants is patently erroneous in as much as the provisions of Regulation 13 provides for a continual disclosures of the shareholding or voting rights and if the shareholding falls below a certain percentage as provided in the said regulations then it is incumbent for the person to make the necessary disclosures. Thus, whenever the pledging of the shares of the appellants were invoked, the appellants were required to make the necessary disclosures as it involved a change in the shareholding. Thus, the contention of the appellants cannot be accepted. We also find that the Appellant No. 1 had also indulged in off-market transaction which resulted in the change in the shareholding and such change is required to be disclosed under Regulation 13(4A) and 13(5) of the PIT Regulations. Since, the same was not done, the penalty imposed was justified. We also find that when the pledge was revoked, the said revocation also triggered the requirement to make the disclosures under Regulation 31(2) and 31(3) of the SAST Regulations which again was not made by the Appellant No. 1. Order of the AO is affirmed with the modification that the penalty of ₹ 15 lacs imposed upon the Appellant No. 1 for violation of Regulation 29(2) read with 29(3) is reduced to ₹ 10 lacs. All other imposition of penalties against the appellants are affirmed. The appeal is partly allowed to the extent stated aforesaid.

Summary

Issues:
Violation of Regulations 29(2) and 29(3) of SAST Regulations, violation of Regulation 13(4A) and 13(5) of PIT Regulations.

Violation of Regulations 29(2) and 29(3) of SAST Regulations:
The appeal was filed against penalties imposed by SEBI for violations of Regulations 29(2) and 29(3) of the SAST Regulations. The appellants failed to disclose pledge transactions and off-market transfers in a company's shares, leading to violations. The appellants argued that Regulation 29 is not applicable to them as they were pledgers, not pledgees. However, the tribunal held that when pledged shares were invoked, resulting in a change in shareholding, disclosures were required under Regulation 29(2) and 29(3). The tribunal found that disclosures were not made by the appellants, constituting a clear violation of the regulations. While some transactions did not trigger penalties due to shareholding percentages, penalties for other transactions were upheld.

Violation of Regulation 13(4A) and 13(5) of PIT Regulations:
Penalties were also imposed for violations of Regulation 13(4A) and 13(5) of the PIT Regulations. The appellants contended that there was no requirement for disclosure under the PIT Regulations for pledged shares. However, the tribunal disagreed, stating that continual disclosures of shareholding or voting rights were mandated, especially when shareholding fell below specified percentages. The tribunal found that disclosures were necessary when pledged shares were invoked, as it constituted a change in shareholding. Additionally, off-market transactions and revocation of pledges triggered disclosure requirements under the PIT Regulations and SAST Regulations, which were not fulfilled by the appellants. Consequently, penalties imposed for these violations were deemed justified.

Conclusion:
The tribunal affirmed most penalties imposed by the Adjudicating Officer but reduced the penalty for one appellant for a specific violation. The overall appeal was partly allowed, with modifications in the penalty amounts. The judgment highlighted the importance of timely and accurate disclosures as mandated by the securities regulations, emphasizing compliance with disclosure requirements to maintain transparency and integrity in the securities market.