2019 (5) TMI 1172 - AT - SEBI

Increase of shareholding beyond 55% - violation of Section 11 of the Takeover Regulations, 1997 - appellants acquired 2.19% shares in the target company pursuant to a conversion of their portion of warrants thereby increasing their shareholding from 53.85% to 56.04% - SEBI imposing a monetary penalty of ₹ 1 crore under Section 15H(ii) of the SEBI Act, 1992 and a penalty of ₹ 2 lakh was imposed for non-disclosure under Section 15A(b) of the SEBI Act, 1992 - appellants suo motu reduced their shareholding as a remedial measure - HELD THAT - We find that AO of SEBI had found that it could not be ascertained that there was any disproportionate gain or unfair advantage made by the appellants nor could it be ascertained with regard to the loss caused to the investors as a result of the failure on the part of the appellants to make a public announcement within the time required - The allotment of the shares by the target company to the appellants was made in accordance with resolution passed by the shareholders in its annual general meeting. Further there was no repetitive nature of the default made by the appellants. Appellants belong to the promoter group and even though there was a marginal increase in the individual shareholding of the appellants, there was no change in the management or control of the target company due to the increase in the shareholding of the appellants and the promoter s group. Appellants after becoming aware of crossing the threshold limit of 55% took remedial measures and reduced its shareholding to less than 55%. We find that the default is inadvertent, technical and, in any case, unintentional. Imposition of penalty upon the appellants is excessive and disproportionate. The minimum penalty specified under Section 15H(ii) is ₹ 10 lakh to a maximum of ₹ 25 crore. This Tribunal, in appeal, apart from exercising the powers of the Board can also exercise powers to make such orders and given such directions as may be necessary or expedient to secure the ends of justice as specified under Rule 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000. These powers have been conferred upon the Tribunal with a view to do complete justice between the parties which is equitable in nature to be exercised to ensure justice between the parties or to prevent miscarriage of justice. Consequently, for the reasons stated aforesaid, the appeal is partly allowed. The impugned order is modified and the penalty is reduced to ₹ 30 lakh which shall be paid by the appellants to the respondent within six weeks from today

Summary

Issues:
1. Validity of the order imposing monetary penalties under SEBI Act, 1992.
2. Alleged violation of SEBI regulations regarding shareholding threshold and takeover regulations.
3. Justification of the monetary penalty imposed by the Adjudicating Officer.
4. Remedial measures taken by the appellants to rectify the shareholding threshold breach.
5. Comparison with previous cases and discretion in imposing penalties.
6. Assessment of disproportionate gain, loss to investors, and control change due to shareholding increase.
7. Exercise of discretionary powers by the Securities Appellate Tribunal.

Analysis:
1. The appeal challenged the order imposing penalties under the SEBI Act, 1992. The appellants, acting in concert and as promoters of a listed company, acquired shares triggering SEBI regulations. Despite reducing their shareholding post the threshold breach, a penalty was imposed for non-disclosure and violation of takeover regulations.

2. The appellants contended that the marginal shareholding increase beyond 55% was inadvertent, with no change in control or loss to investors. They argued that the penalty was severe, citing a precedent with a lower penalty. The respondent justified the penalty, considering the maximum penalty allowed.

3. The Securities Appellate Tribunal found no disproportionate gain or loss to investors due to the breach. The share allotment was in compliance with shareholder resolutions, and the appellants promptly rectified the breach. The Tribunal noted the technical and unintentional nature of the default.

4. Citing Supreme Court precedents, the Tribunal exercised discretion in reducing the penalty. It found the original penalty excessive and disproportionate, modifying it to &8377; 30 lakh. The Tribunal highlighted its powers to ensure justice and prevent miscarriage of justice, emphasizing equitable outcomes.

5. Ultimately, the appeal was partly allowed, and the penalty reduced to &8377; 30 lakh, to be paid by the appellants within six weeks. The judgment balanced regulatory compliance with fairness and equity, emphasizing the discretionary nature of penalty imposition in such cases.