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2020 (7) TMI 238 - AT - SEBIAcquisition of the shares by promoters - increase in the collective shareholding of all the appellants - the promoters, from 29.42% to 61.10% which was more than threshold limit of 5% - no public announcement was made - violation of provisions of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011 - HELD THAT - There should be common objective of purchase of shares or voting rights amongst the members to make them persons acting in concert. In the present case, while two promoters had an objective to dispose of their shares, the appellant No. 1 Susheel Somani had an objective to acquire the shares. This itself would show that there was no common cause between the appellant No. 1 Susheel Somani and the two transferors. Therefore, though the promoter group holdings in the company remained constant, the same would be irrelevant as observed by the AO. The order to that extent cannot be faulted with. Whether the appellants were exempted from making a public announcement? - It is an admitted fact that the appellants have made requisite disclosures on 7th day as against the provisions of Regulation 29(3) that the disclosures are required to be made within two working days. Thus, technically the appellants were not exempted from making public announcement and, thus, are in violation of the relevant regulations. The AO has observed that as the condition of making disclosures within two working days is not fulfilled, the act was not fit for grant of exemption. In the circumstances, the penalty was imposed. Quantum of penalty - AO took into consideration the mitigating factors that the interest of the shareholders of the target company is not jeopardized and the penalty of ₹ 15 lacs was imposed. AO has not considered the fact that the appellants made the disclosures though belatedly after five days as required by Regulation 29 of the SAST Regulations. Thus, it was a technical breach and, therefore, in our view instead of imposing a penalty of ₹ 15 lacs, a penalty of ₹ 5 lacs would have been just and sufficient.
Issues Involved:
1. Violation of Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011. 2. Violation of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011. 3. Applicability of exemption under Regulation 10 of the SAST Regulations, 2011. 4. Quantum of penalty imposed by the Adjudicating Officer. Detailed Analysis: 1. Violation of Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011: The appellant No. 1 acquired 31,680 shares of the company, increasing his shareholding from 0.35% to 31.68%. This acquisition was made without making the required public announcement, thereby violating Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011. A penalty of ?15 lacs was imposed on appellant No. 1, which he challenged but later withdrew the appeal with permission to pay the penalty. 2. Violation of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011: The acquisition by appellant No. 1 also increased the collective shareholding of all the appellants from 29.42% to 61.10%, exceeding the threshold limit of 5%. This required a public announcement under Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011. However, no public announcement was made, leading to an additional violation. The AO imposed a penalty of ?15 lacs for this violation as well, which was challenged by the appellants and remanded for a fresh order. 3. Applicability of exemption under Regulation 10 of the SAST Regulations, 2011: The appellants contended that the acquisition was exempt from making a public announcement as it was an inter se transfer between promoters, as provided by Regulation 10 of the SAST Regulations. However, the AO rejected this contention, stating that the two entities who transferred the shares to appellant No. 1 were not 'persons acting in concert' as their objectives differed. Additionally, the AO noted that the required disclosures were made on the 7th day instead of within two working days as mandated, thereby disqualifying the appellants from the exemption. 4. Quantum of penalty imposed by the Adjudicating Officer: The AO considered Section 15J of the SEBI Act, 1992, which includes factors like disproportionate gain, loss to investors, and repetitive nature of the default. The AO acknowledged that the shareholders' interests were not jeopardized and imposed a penalty of ?15 lacs. However, the Tribunal noted that the appellants made the disclosures, albeit late by five days, and considered it a technical breach. Consequently, the Tribunal reduced the penalty to ?5 lacs, deeming it just and sufficient. Order: 1. The appeal is partly allowed. 2. The order of the AO regarding the quantum of penalty is set aside. 3. The appellants are directed to pay a penalty of ?5 lacs as per the revised order.
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