2017 (5) TMI 662 - AT - Companies Law

Violation of various provisions of SAST Regulations of 1997 and 2011 read with Regulation 13(1) of Prohibition of Insider Trading Regulations, 1992 - Penalty imposed - Held that - AO has not brought out any convincing and cogent evidence to support the finding that the noticee i.e. appellant acted as a PAC with Narois within the meaning of Regulation 2(e)(2)(i) of SAST Regulations, 1997. There is no material / evidence which can support the present findings of the learned AO. In fact, to some extent the learned AO has travelled even beyond the scope of show cause notice dated October 1, 2014. Therefore, we are constrained to hold that the learned AO has not satisfactorily examined and considered the contentions of the appellant raised during the proceedings before him, particularly pertaining to the question of person acting in concert i.e. PAC for holding the appellant liable for violation of Section 7(1) of the SAST Regulations, 1997 read with Regulation 35 of SAST Regulations, 2011. In this view of the matter, penalty of ₹ 2,50,000/- imposed on appellant is set aside and restored to the file of learned AO for hearing this aspect afresh and deciding it as per law after giving an opportunity of hearing to the appellant in respect of the allegation under the SAST Regulations, 1997 read with those of 2011. Accordingly, the impugned order is upheld to the extent of imposition of two penalties of ₹ 2,00,000/- each for violation of Sections 11C(3) and (5) of the SEBI Act, 1992 whereas the penalty of ₹ 2,50,000/- under SAST Regulations, 1997 is set aside and the matter is remanded to the learned AO for a fresh look as directed hereinabove. The appellant is directed to deposit the penalty of ₹ 4,00,000/- within a period of four weeks from today failing which the respondent shall be at liberty to initiate appropriate proceedings to recovery of the said amount as per law.

Summary

Issues:
1. Violation of SEBI Act and Regulations - Penalties imposed
2. Interpretation of Regulations on disclosure of shareholding
3. Allegation of person acting in concert (PAC) and violation of SAST Regulations

Analysis:

Issue 1: Violation of SEBI Act and Regulations - Penalties imposed
The appeal challenged penalties imposed under SEBI Act for violations of Regulation 7(1) of SAST Regulations, 1997 and Sections 11C(3) and 11C(5) of SEBI Act, 1992. Referring to a previous judgment, the appellant decided not to contest penalties for Sections 11C(3) and 11C(5) violations, agreeing to deposit the penalty amount. However, the Tribunal found the penalty imposed for the violation of SAST Regulations excessive and unreasonable. The matter was remanded to the Adjudicating Officer for a fresh hearing on this aspect.

Issue 2: Interpretation of Regulations on disclosure of shareholding
The case involved the acquisition of shares by the appellant, Gazala, and Narois in a company, triggering the obligation to disclose shareholding under SAST Regulations and PIT Regulations. The appellant argued against being deemed a PAC with Narois, as found by the Adjudicating Officer, highlighting the lack of convincing evidence. The Tribunal noted the absence of supporting evidence and held that the Adjudicating Officer did not adequately consider the appellant's contentions. Consequently, the penalty imposed under SAST Regulations was set aside for reevaluation.

Issue 3: Allegation of person acting in concert (PAC) and violation of SAST Regulations
The Adjudicating Officer alleged that the appellant, Gazala, and Narois were acting in concert, leading to a violation of SAST Regulations. However, the Tribunal found the lack of substantial evidence to support this claim. It emphasized the need for a thorough examination of the contentions raised by the appellant regarding the PAC allegation. As a result, the penalty under SAST Regulations was annulled, and the matter was referred back for a fresh hearing.

In conclusion, the Tribunal upheld penalties for violations of SEBI Act sections but set aside the penalty under SAST Regulations due to insufficient evidence and directed a reevaluation by the Adjudicating Officer. The appellant was instructed to deposit the penalty amount within a specified period, failing which appropriate recovery proceedings would be initiated. The appeal and miscellaneous application were disposed of with the provided directions and no costs were awarded.