2017 (2) TMI 288 - AT - Companies Law

Penalty under Section 15A(b) of SEBI Act - appellant acquired and sold shares of Target Company in excess of the limits prescribed under regulation 7(1) read with regulation 7(2) of the SAST Regulations, 1997/ regulation 13(1) of PIT Regulations - Held that - Admittedly, the appellant has failed to make disclosures as stipulated under those provisions. It is also admitted that the appellant has failed to make disclosures as contemplated under regulation 13(3) read with regulation 13(5) of the PIT Regulations. Where a person violates the provisions contained in the Regulations framed by SEBI then that person is inter-alia liable for monetary penalty as stipulated under SEBI Act. Argument of the appellant that inspite of the violations committed by the appellant, no penalty could be imposed on the appellant, because the proceedings have been initiated after several years from the date on which violations took place is without any merit. Neither the SEBI Act nor the Regulations framed thereunder stipulate that proceedings for imposing penalty must be initiated within a specified time from the date on which violations are committed. Argument advanced on behalf of the appellant that substantial shares of the Target Company were acquired by the appellant under a pledge and disclosure provisions would not apply to the pledged shares is equally without any merit. Once the shares are transferred to the demat account of the appellant, the appellant becomes absolute owner of the said shares with all the benefits attached to those shares. In such a case, appellant is bound and liable to make disclosures especially when such acquisitions are in excess of the limits prescribed under the respective regulations. Since the appellant has failed to make disclosures, appellant cannot escape penal liability. Argument of the appellant that the penalty imposed against the appellant is exorbitant and excessively high and that the said penalty has been imposed without considering the mitigating factors set out under Section 15J of the SEBI Act is also without any merit. The disclosures were not made the penalty imposable for violating regulation 7(1) read with 7(2) of the SAST Regulations, 1997/ regulation 13(1) of the PIT Regulations would be ₹ 1 crore and for violating regulation 13(3) read with regulation 13(5) of the PIT Regulations the penalty imposable would be ₹ 1 crore. Thus, as against the penalty of ₹ 2 crore imposable against the appellant, the AO of SEBI after taking into consideration all mitigating factors has imposed penalty of ₹ 13 lac which cannot be said to be excessively high or exorbitant.

Summary

Issues:
Violation of SEBI regulations regarding acquisition and sale of shares, imposition of penalty under SEBI Act, challenge to penalty on grounds of delay, pledge of shares, and excessive penalty imposition.

Analysis:
1. The appellant challenged the penalty imposed by SEBI for violating regulations related to the acquisition and sale of shares, leading to a penalty of ?13 lac under the SEBI Act. The violations were related to exceeding limits prescribed under specific regulations and failure to make required disclosures.

2. The appellant admitted to the violations but argued against the penalty on various grounds. Firstly, they claimed that the delay in initiating proceedings rendered the penalty unjust. Secondly, they argued that shares acquired through pledge do not trigger disclosure requirements. Lastly, they contended that the penalty was excessive and failed to consider mitigating factors under the SEBI Act.

3. The tribunal rejected the appellant's arguments. It emphasized that the acquisition and sale of shares indeed exceeded prescribed limits, triggering disclosure obligations. The appellant's failure to make disclosures under the regulations made them liable for monetary penalties as per the SEBI Act.

4. The appellant's argument regarding the delay in initiating proceedings was dismissed by the tribunal. It clarified that neither the SEBI Act nor its regulations stipulate a specific time limit for initiating penalty proceedings after a violation. The tribunal found no merit in the appellant's claim that the penalty should be deleted due to the delay in initiating proceedings.

5. Regarding the appellant's claim that shares acquired through pledge were exempt from disclosure requirements, the tribunal disagreed. It noted that the appellant did not follow the prescribed procedure for pledged shares and ultimately became the absolute owner of the shares, necessitating disclosures as per the regulations.

6. The tribunal also addressed the appellant's contention about the excessive penalty. It explained that the penalty imposed was within the statutory limits set by the SEBI Act and considered mitigating factors before arriving at the ?13 lac penalty, which was deemed appropriate and not excessively high.

7. In conclusion, the tribunal dismissed the appeal, finding no merit in the appellant's arguments, and upheld the penalty imposed by SEBI. No costs were awarded in the case.