2015 (7) TMI 258 - AT - Companies Law

Penalty under Section 15A(b) of the SEBI Act - Violation of Regulation 8(3) of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations (SAST) 1997 - whether no trading in shares on stock exchange or filing of suo moto consent or no loss occured to any investor due to non disclosure have any impact on penalty amount - Held that - In case of Comfort Fincap Ltd. vs. SEBI 2015 (6) TMI 791 - SECURITIES APPELLATE TRIBUNAL MUMBAI decided on June 25 2014) it was contended that during the relevant period there were no trading in the shares on the stock exchange and hence imposition of penalty for not making disclosure under Regulation 8(3) is unjustified. Rejecting that contention it was held that making disclosure under Regulation 8(3) is mandatory and that obligation is not dependant on the actual trading on the stock exchange. In view of the aforesaid Larger Bench decision of this Tribunal in case of Comfort Fincap Ltd. 2015 (6) TMI 791 - SECURITIES APPELLATE TRIBUNAL MUMBAI first contention of the appellants that the AO was not justified in imposing penalty for not making disclosure under Regulation 8(3) inspite of there being no trading on account of the Stock Exchanges being non functional cannot be accepted. Second contention of the appellants is that they had filed suo moto consent applications before SEBI. Filing of suo moto consent applications do not enhance their case because what was required under Regulation 8(3) of SAST Regulations 1997 is to make yearly disclosures suo moto within 30 days from the financial year ending March 31 and not filing suo moto consent applications after a decade. Having failed to make yearly disclosures year after year from 1998 appellants cannot escape penal liability merely because in the year 2011 they had filed suo moto consent applications seeking consent order. Third contention of the appellants is that no loss has occurred to any investor due to non disclosure under Regulation 8(3). Very same argument was raised in case of Mrs. Komal Nahata 2015 (6) TMI 792 - SECURITIES APPELLATE TRIBUNAL MUMBAI and the said argument was rejected by recording a finding that the mandatory disclosures under the respective regulations framed by the SEBI have to be complied with irrespective of the fact that the investors have actually suffered on account of non disclosures or not. In view of the aforesaid decision of this Tribunal above argument of the appellants cannot be sustained. Argument of the appellants that penalty of Rs. 7 lac on each appellant is excessive and unreasonable is also without any merit. Calculated at the rate of Rs. 1 lac per day for each year subject to a maximum of Rs. 1 crore per year penalty for each year from 1998 till 2011 shall be Rs. 1 crore per year. However after taking into consideration all mitigating factors the AO has imposed composite penalty of Rs. 7 lac on each appellant which cannot be said to be unreasonable or excessive. - Decided against the appellants.

Summary

Issues Involved:
1. Imposition of penalty under Section 15A(b) of the SEBI Act for violating Regulation 8(3) of SAST Regulations, 1997.
2. Justification of penalty imposition due to non-functional stock exchanges.
3. Relevance of suo moto consent applications in penalty imposition.
4. Impact of non-disclosure on investors and penalty justification.
5. Reasonableness of the imposed penalty.

Analysis:

1. The appellants contested the penalty imposed by the Adjudicating Officer (AO) under Section 15A(b) of the SEBI Act for breaching Regulation 8(3) of SAST Regulations, 1997 from 1998 to 2011. While admitting the failure to disclose, they argued that the penalty of Rs. 7 lac per appellant was excessive. They relied on a previous Tribunal decision but were countered by SEBI citing other Tribunal judgments. The appellants contended that the non-functional status of the U.P. and Delhi Stock Exchanges during the relevant period rendered the disclosure inconsequential, questioning the penalty's validity.

2. The appellants further argued that their suo moto consent applications to settle the penalty were rejected by SEBI, implying a mitigating factor against the penalty imposition. However, the Tribunal noted that the obligation to disclose under Regulation 8(3) is independent of trading activity on the stock exchange. The appellants' failure to make yearly disclosures as required by the regulation was emphasized, leading to the rejection of their contention regarding the relevance of the consent applications.

3. The appellants also claimed that no actual loss occurred to investors due to the non-disclosure, seeking to diminish the penalty's justification. However, the Tribunal referenced a prior case where it was held that mandatory disclosures must be complied with regardless of actual investor losses. This argument was thus dismissed, reinforcing the importance of regulatory compliance irrespective of investor impact.

4. Lastly, the appellants challenged the reasonableness of the Rs. 7 lac penalty per appellant. The Tribunal calculated the potential penalty based on the daily rate specified in the regulation, which could amount to Rs. 1 crore per year. Despite the appellants' continuous failure to disclose from 1998 to 2011, the imposed composite penalty of Rs. 7 lac per appellant was deemed reasonable after considering mitigating factors. The Tribunal upheld the AO's decision based on various precedents and dismissed all three appeals.

5. In conclusion, the Tribunal extended the time for the appellants to pay the penalties but upheld the imposition of Rs. 7 lac per appellant. The appeals were disposed of without any costs awarded, affirming the AO's penalty decision based on regulatory compliance and precedents set by previous Tribunal judgments.