2021 (8) TMI 1397 - AT - SEBI

Violations of disclosure requirements in terms of SAST Regulations and SEBI PIT Regulations 1992 read with SEBI PIT Regulations 2015 - SEBI found irregularities in the scrip of the Company - off market transactions - Manner of creating pledge or hypothecation - appellant submitted that the transfer of the shares to the appellant later on would not amount to purchase of shares - HELD THAT - As per Section 10 of the Depositories Act, 1996 a person in whose name the shares are recorded with the depository is deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. Tribunal considered the provisions of Section 150 of the Companies Act which requires every company to keep a register of its members and enter therein their particulars of shares held by them, as referred to in the section. Further survey of various relevant provisions was taken. Ultimately, it was held that the submissions that retransfer of the shares by the Bank to the appellant therein would not amount to acquisition of the shares cannot be accepted. It was held that such arguments would mean circumventing Takeover Code and Regulation 58 of the Depository Regulations, which cannot be permitted. It was further found that when the law prescribes course for creation of a pledge of shares, the parties cannot agree to create a pledge contrary to the SAST Regulations. Considering all these facts the contention of the appellants was negativated and the appeal against the order of the respondent SEBI was dismissed. Taking into consideration all these factors and the law as crystallized, in our view, the submissions of the appellants cannot be accepted. It is an admitted fact that the shares were transferred to the concerned noticees. Thereafter the shares were again transferred in the demat accounts of the appellants in the similar fashion. Appellants have thus violated the provisions of the regulations detailed above. The order of the AO, therefore cannot be faulted. As regards the issue of delay in launching the proceedings, we find that no plea is taken that the delay has caused any prejudice. Delay simpliciter, if any would not lead us to quash the proceedings initiated by SEBI. As regards the quantum of penalty, the learned AO has imposed the penalty against the Appellants of Rs. 10 lakh under Section 15H of SEBI Act jointly and severally, under Section 23H of SCRA of Rs. 10 lakh each and Rs. 10 lakh only on the Appellant no. 1 under Section 15A(b) of the SEBI Act. Considering the fact that the violations were made on several occasions as detailed in the impugned order, we do not find any reason to interfere in the impugned order in this regard also. The appeal is therefore dismissed.

Summary

Issues Involved:
1. Imposition of penalties under Section 15H of SEBI Act, Section 23H of SCRA, and Section 15A(b) of SEBI Act.
2. Alleged failure to make an open offer as per Regulation 3(2) of SAST Regulations 2011.
3. Off-market transactions and failure to pay consideration as per Section 2(i) of SCRA.
4. Violations of disclosure requirements under SAST Regulations and PIT Regulations 1992 and 2015.
5. Delay in launching proceedings by SEBI.

Issue-wise Detailed Analysis:

1. Imposition of Penalties:
The appellants were penalized under Section 15H of the SEBI Act, Section 23H of the SCRA, and Section 15A(b) of the SEBI Act, amounting to Rs. 40 lakhs. The penalties were imposed due to violations related to substantial acquisition of shares, off-market transactions without consideration, and failure to disclose transactions as required by the relevant regulations.

2. Failure to Make an Open Offer:
The appellants, as promoters of the Company, acquired more than 5% of the paid-up share capital in the financial year 2013-14. They were required to make an open offer under Regulation 3(2) of the SAST Regulations 2011, which they failed to do. SEBI initiated proceedings against them for this failure, which was admitted by the appellants.

3. Off-Market Transactions:
The appellants transferred shares through off-market transactions without paying consideration, violating Section 2(i) of the SCRA. Appellant no. 1 transferred shares to noticees Mr. Piyush Kothari and Mr. Mehul Modi, and Appellant no. 2 received shares from Mr. Nelesh Devendra Vora. These transactions were not regular sell and purchase transactions but were claimed to be for financial assistance, which the appellants argued did not constitute a sale or purchase of shares.

4. Violations of Disclosure Requirements:
The appellants failed to disclose the transactions as required under the SAST Regulations and the PIT Regulations of 1992 and 2015. This failure to disclose was a significant factor in the proceedings and penalties imposed by SEBI.

5. Delay in Launching Proceedings:
The appellants argued that there was a delay of six years in launching the proceedings, which should lead to the quashing of the proceedings. However, the tribunal found that the delay did not cause any prejudice to the appellants and thus did not quash the proceedings based on this argument.

Judgment:
The tribunal upheld the order of the Adjudicating Officer, finding that the appellants had indeed violated the relevant provisions by transferring shares without consideration and failing to disclose the transactions. The tribunal dismissed the appeal, stating that the penalties imposed were justified given the multiple violations. The argument of delay in proceedings was also dismissed as it did not cause any prejudice to the appellants. The appeal was dismissed with no order as to costs. The order was digitally signed due to the COVID-19 pandemic, and parties were directed to act on the digitally signed copy.