2015 (9) TMI 1070 - SC - Companies Law

Unfair Trade Practices relating to Securities Market - main contention of the appellant is that SEBI failed to consider that the appellant was not only a promoter having more than 15% shares of SIL but it was also in the business of sale and purchase of shares which was being done simultaneously and hence exceeding the limit of 5% at any one point of time was immaterial unless on a net accounting it could be found that such ceiling of 5% had been violated by appellant on account of its retaining more than 5% shares of SIL at the end of a financial year. Held that - Even if such acquisition is followed by sale in the same financial year, the liability of making the public announcement would remain unaffected and shall attract action, as in this case. - Hence, the main contention advanced on behalf of the appellant is found to be without any merit. The other contention is that Regulation 14(2) of the Regulations of 1997 postpones the time for required public announcement to acquisition of voting rights when purchased securities are actually converted. According to the contention, only when securities or shares are converted by the acquirer into voting rights by getting it registered or upon exercise of option to acquire voting rights, the liability of making public announcement can be fastened. - Held that - We find that the plea that the matter at hand relates to Regulation 14(2) was not raised before the original authority or the Tribunal. We also find that it is a plea of desperation and undeserving of acceptance. There is no merit in these appeals and hence they are dismissed with consolidated cost of ₹ 50,000/- to be paid by the appellant to SEBI within eight weeks. - Decided against the appellants.

Summary

Issues Involved:
1. Compliance with Regulation 11(1) of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997.
2. Requirement of public announcement under Regulation 14(1).
3. Applicability of Regulation 14(2) in the context of acquisition of shares or voting rights.

Detailed Analysis:

Compliance with Regulation 11(1) of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997:
The appellant, Kosha Investments Ltd., acquired shares of Snowcem India Ltd. (SIL) and became one of its promoters. SEBI's investigation revealed that the appellant acquired additional shares amounting to 10.81% of SIL's paid-up capital without making the required public announcement under Regulation 11(1). SEBI concluded that the appellant held 21,32,900 shares (20.29% of SIL's total paid-up capital) as of March 31, 1999, and acquired more shares beyond the permissible limit of 5% in a financial year, necessitating a public announcement. SEBI directed the appellant to make a public announcement and imposed penalties for non-compliance.

Requirement of Public Announcement under Regulation 14(1):
The appellant argued that their simultaneous sale and purchase of shares did not trigger the requirement for a public announcement under Regulation 11(1). However, SEBI and the Tribunal found that the appellant acquired 6.29% of SIL's paid-up capital during June 1999 to August 1999, exceeding the 5% limit. Regulation 14(1) mandates that a public announcement must be made within four working days of the agreement or decision to acquire shares exceeding the specified percentage. The Tribunal and the Court agreed that the requirement for a public announcement is triggered not only by actual acquisition but also by the decision to acquire shares beyond the 5% limit.

Applicability of Regulation 14(2):
The appellant contended that Regulation 14(2) postpones the requirement for a public announcement until the acquisition of voting rights upon conversion of securities. However, SEBI countered that Regulation 14(2) applies only to securities requiring conversion, such as Global Depository Receipts or American Depository Receipts, and not to direct acquisition of shares or voting rights covered under Regulation 14(1). The Court found this plea to be without merit and emphasized that the requirement for a public announcement under Regulation 14(1) remains unaffected by subsequent sales within the same financial year.

Conclusion:
The Court dismissed the appeals, upholding SEBI's orders and the Tribunal's decision. The appellant's main contentions were found to be without merit, and the requirement for a public announcement under Regulation 11(1) and 14(1) was affirmed. The plea regarding Regulation 14(2) was rejected as it was not applicable to the case at hand. The appellant was directed to pay consolidated costs of Rs. 50,000 to SEBI within eight weeks.