2015 (12) TMI 1246 - AT - Companies Law

Penalty imposed on under section 15A(b) of SEBI Act for failing to make annual disclosures under Regulation 8(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 ( Takeover Regulations, 1997 for short) during the financial years ended March 31, 2002 to 31st March, 2011 - Held that - Every listed company has to make yearly disclosures to the stock exchanges disclosing the shares held by the persons/promoters set out under Regulations 8(1) and 8(2) as on the last day of the financial year including the change in the shareholding, if any, compared to the shareholding on the last day of the previous financial year. In other words whether there is any change in the shareholding or not, the listed company is obliged to make disclosures under Regulation 8(3) and cannot avoid such obligation on ground that there is no change in the shareholding of the persons/promoters set out under Regulations 8(1) and 8(2) of Takeover Regulations, 1997. Various alternative contentions raised by the appellant for the delay in making disclosures under Regulations 8(3) as also various mitigating factors pointed out on behalf of the appellant do not exonerate the appellant from the obligation to make disclosures under Regulation 8(3), because the obligation under Regulation 8(3) is mandatory and the company failing to discharge that obligation is statutorily liable to pay penalty under section 15A(b) of SEBI Act. The penalty imposable under section 15A(b) of the SEBI Act for violating Regulation 8(3) at the relevant time was Rs. One Lakh for each day during which such failure continues or One Crore rupees whichever is less. In the present case, penalty imposable for failure to make yearly disclosures for the financial years ended March 31, 2002 to March 31, 2011 at the rate of Rs. One Lakh per day would run into several crores of rupees. However, after taking into consideration all the mitigating factors set out under Section 15J of SEBI Act, the Adjudicating Officer of SEBI has imposed penalty of ₹ 5 Lakh which cannot be said to be unreasonable or excessively harsh.

Issues Involved:
1. Obligation to make annual disclosures under Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
2. Interpretation of Regulation 8(3) concerning changes in shareholding.
3. Applicability of mitigating factors under Section 15J of the SEBI Act.
4. Justification of the penalty imposed under Section 15A(b) of the SEBI Act.

Detailed Analysis:

1. Obligation to Make Annual Disclosures:
The appellant company was penalized by SEBI for failing to make annual disclosures under Regulation 8(3) of the Takeover Regulations, 1997, for the financial years ending March 31, 2002, to March 31, 2011. The company argued that such disclosures were only necessary if there were changes in the shareholding of the promoters or promoter group. However, the Tribunal held that the obligation to make disclosures under Regulation 8(3) is continual and not conditional upon changes in shareholding. The regulation mandates that every listed company must make yearly disclosures to all stock exchanges where its shares are listed, regardless of whether there were changes in shareholding.

2. Interpretation of Regulation 8(3):
The appellant contended that the phrase "the changes, if any" in Regulation 8(3) implies that disclosures are only required if there are changes in the shareholding of the promoter/promoter group. The Tribunal rejected this interpretation, clarifying that the regulation requires the company to disclose shareholding as on the last day of the financial year and any changes compared to the previous financial year. The Tribunal emphasized that the regulation aims to ensure transparency and inform investors about the shareholding status, whether or not there were changes.

3. Applicability of Mitigating Factors:
The appellant argued that the delay in making disclosures was due to a bona fide belief that disclosures were only necessary if there were changes in shareholding. The Tribunal noted that the obligation under Regulation 8(3) is mandatory, and failure to comply attracts statutory penalties. The Tribunal acknowledged the mitigating factors presented by the appellant but concluded that these factors do not absolve the company from its disclosure obligations.

4. Justification of the Penalty:
The appellant contended that the penalty imposed was excessive and that the breach was technical or venial. The Tribunal highlighted that the penalty under Section 15A(b) of the SEBI Act could be up to Rs. 1 lakh per day of default or Rs. 1 crore, whichever is less. Given the prolonged non-compliance from March 31, 2002, to March 31, 2011, the potential penalty could have been significantly higher. However, considering the mitigating factors, SEBI imposed a penalty of Rs. 5 lakh, which the Tribunal deemed reasonable and not excessively harsh.

Conclusion:
The Tribunal dismissed the appeal, affirming that the appellant company was obligated to make annual disclosures under Regulation 8(3) of the Takeover Regulations, 1997, irrespective of changes in shareholding. The penalty of Rs. 5 lakh imposed by SEBI was upheld as appropriate, considering the statutory requirements and mitigating factors.

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