2020 (2) TMI 868 - AT - SEBI

Shares acquired through off market transaction - non disclosure of such acquisition under Regulation 13(1) of the PIT Regulations, 1992 - HELD THAT - Appellant is required to be partly allowed. The observation of the Adjudicating Officer that the appellant has violated the Regulations will have to be accepted. However, the monetary penalty would have to be set aside and the appellant deserves to be let off on warning for the reasons to follow - 1. The appellant has filed on record at Exhibit 'G' page 98 a copy of the order dated 20th October, 2005 of the Bombay High Court in Company Application No.21 of 2005 in Company Petition No.353 of 2003. It would show that one Company namely Solid Carbide Tools Ltd. was already directed to be wound up. In the said proceedings, the appellant had filed the said application claiming to be a creditor of the Company. In the order, the High Court has noted that one Mr. Mukesh Kothari was the director and chairman of the said Company namely Solid Carbide Tools Ltd. Since the year 2001, however said Mr. Mukesh Kothari became a proclaimed offender and was facing criminal prosecution. So far as the claim of the present appellant is concerned, it was found that the appellant had pledged his personal fixed deposits to the Union Bank of India for advances made to Solid Carbide Tools Ltd. Since the loan was not repaid by this Company, the bank invoked the said deposit for adjusting outstanding claim and, thus, the appellant had become the creditor of the said Solid Carbide Tools Ltd. These facts would show that the appellant was the creditor of Solid Carbide Tools Ltd. of which Mr. Kothari was the promoter and chairman. Mr. Kothari remained a proclaimed offender since 2001 upon proclamation by the concerned criminal court. According to the respondent SEBI, the appellant had acquired 4,84,000 shares of the present Company from said Mr. Kothari. According to the appellant, the shares were handed over to him in the year 2001 which ultimately could be transferred in his name in the year 2013 as detailed above. The record would further show that the present Company also remained defunct from the year 2000 and even the trading in the same is suspended by the BSE. The print out of the trading data of the Company obtained from the website of BSE and placed at Annexure B to the written submission as detailed supra would show that there were no trading activity in the shares. All these facts would show that in order to recover the debt, the appellant was rather forced to accept the shares of the present Company awaiting the clearance of the loan in cash. However, as Mr. Kothari went missing and was even proclaimed as an offender by the criminal court, willy nilly he had to get those shares transferred in his name regularly. As regard the disposal of the shares as detailed above, the appellant submitted that he was forced under duress to transfer those shares. One of the disclosures was made through Mr. Sarkhot regarding that transfer however the rest of the disclosures could not be made. Mr. Sham Gandhi in person argued before us. He submitted that he is now 75 years old. He is the victim of circumstances as detailed supra and, therefore, since the acquisition of shares or disposal of shares did not entail him of any gain or loss to any shareholder as the Company is completely defunct, slapping a monetary penalty would amount to adding insult to injury. He, therefore, submitted that the appeal be allowed. Taking into consideration that the appellant is now 75 years old and finding that he was forced to accept the shares by Mr. Kothari as corroborated by the order of the Bombay High Court in Company Petition and that one disclosure regarding the disposal is made, in our view, though the violation of the regulations is proved, monetary penalty is not warranted in this case. Hence appeal is partly allowed. The order of the Adjudicating Officer declaring that the appellant has violated the regulation is hereby upheld. The order of the Adjudicating Officer imposing penalty of ₹ 3 lakhs is hereby set aside. Instead the appellant is hereby warned that the appellant shall not repeat similar violation in future.

Summary

Issues:
Violation of Securities and Exchange Board of India (SEBI) regulations regarding disclosure of share acquisitions and disposals.

Analysis:
1. The appellant was penalized by SEBI for not disclosing the acquisition of 4,84,000 shares of a company in 2000 within the stipulated time frame under various SEBI regulations. Additionally, the appellant failed to disclose the disposal of 4,00,000 shares in 2013, resulting in non-compliance with disclosure requirements under SEBI regulations.

2. The appellant contended that he did not acquire the shares in 2000 but received them as collateral for a loan given to a promoter/director of the company. Due to various circumstances, including the suspension of trading in the company's shares and the defunct nature of the company, the appellant faced challenges in transferring the shares and making timely disclosures.

3. The Adjudicating Officer found the appellant in violation of SEBI regulations and imposed a penalty of ?3 lakhs. However, upon appeal, the Securities Appellate Tribunal acknowledged the violation but decided to set aside the monetary penalty. The Tribunal considered the appellant's age, the circumstances under which he acquired and disposed of the shares, and the lack of financial gain or loss to any shareholders due to the defunct nature of the company.

4. The Tribunal, while upholding the violation of regulations, decided to warn the appellant against future similar violations instead of imposing a monetary penalty. The decision was based on the appellant's age, the forced acquisition and disposal of shares, and the absence of financial impact on shareholders due to the company's defunct status.