2015 (4) TMI 483 - AT - Companies Law

Penalty for Violation of regulation 13(3) of Securities and Exchange Board of India PIT (Prohibition of Insider Trading) Regulations, 1992 - Violation of regulation 29(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 - Delay in making the relevant disclosures - Physical disability such as blindness can not be a excuse to escape from penal liability. Held that - Penalty for delay in making disclosures under Section 15A(b) of SEBI Act, 1992 is ₹ 1 lac for each day during which such failure continues or ₹ 1 crore whichever is lower. Penalty calculated at the rate of ₹ 1 lac per day, in the present case, exceeds ₹ 1 crore. Thus, as against penalty of ₹ 1 crore imposable under Section 15A(b) of SEBI Act, 1992, adjudicating officer after considering all mitigating factors has imposed penalty of ₹ 5 lac which cannot be said to be excessively harsh or unreasonable. Argument that requisite particulars of sale in question were available on the website of the Stock Exchange and therefore for failure to make disclosures within the stipulated time penalty ought not to have been imposed, is without any merit, because, obligation to make disclosures within the stipulated time is a mandatory obligation and penalty is imposed for not complying with the mandatory obligation. Similarly argument that the failure to make disclosures within the stipulated time, was unintentional, technical or inadvertent and that no gain or unfair advantage has accrued to the appellant, is also without any merit, because, all these factors are mitigating factors and these factors do not obliterate the obligation to make disclosures. When a person dealing in shares in the stock market violates any of the regulatory provisions, then that person whether blind or not, cannot escape penal liability.After taking all mitigating factors, including the fact that the appellant is a blind person, the adjudicating officer has imposed penalty of ₹ 5 lac as against penalty of ₹ 1 crore imposable under SEBI Act, 1992, which cannot be said to be harsh or unreasonable. - Decided against the appellant.

Summary

Issues:
Violation of regulation 13(3) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and regulation 29(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 leading to penalty imposition under Section 15A(b) of SEBI Act, 1992.

Detailed Analysis:

Issue 1: Violation of Regulations and Penalty Imposition
The appellant was penalized by SEBI for not making disclosures as required under regulation 13(3) of PIT Regulations, 1992 and regulation 29(2) of Takeover Regulations, 2011 after selling 64,770 shares of a company. The penalty of Rs. 5 lac was imposed under Section 15A(b) of SEBI Act, 1992. The appellant admitted the failure to make disclosures but argued that the penalty was unjustified due to various reasons, including lack of awareness, technical nature of the error, and absence of any unfair advantage gained. The tribunal rejected these contentions, emphasizing the mandatory nature of disclosure obligations and the mitigating factors not absolving the appellant from compliance.

Issue 2: Proportionality of Penalty
The appellant contended that the penalty of Rs. 5 lac was excessive and unreasonable considering the circumstances, such as the availability of transaction details on the stock exchange website and the appellant being a blind person. However, the tribunal upheld the penalty, noting that the delay in disclosures attracted a potential penalty of Rs. 1 crore under Section 15A(b) of SEBI Act, 1992, and the imposed penalty was within reasonable limits after considering mitigating factors, including the appellant's blindness and investment history.

Issue 3: Appellant's Awareness and Experience
The tribunal highlighted that the appellant, despite being a blind person, was an experienced retail investor in the stock market, dealing with substantial investments. The appellant's familiarity with trading practices and previous investments in various companies contradicted the argument that lack of awareness or blindness should exempt him from penalties for regulatory violations. The tribunal emphasized that regulatory compliance is essential regardless of the investor's personal circumstances.

Conclusion
The tribunal dismissed the appeal, affirming the penalty of Rs. 5 lac imposed by SEBI for the delayed disclosures, emphasizing the mandatory nature of disclosure requirements, the proportionality of the penalty, and the appellant's experience in stock market dealings. The tribunal's decision underscored the importance of regulatory compliance irrespective of an investor's background or inadvertent errors, maintaining the integrity and transparency of securities markets.