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2020 (5) TMI 427 - AT - SEBIShares acquired without making any public announcement - as per WTM Acquisition of the shares were against Regulation 3(2) of the SAST Regulations - HELD THAT - Though a presumption that the promoters would be persons acting in concert can be raised the same can be rebutted either by positive evidence or by negative facts discernable through the conduct of the parties. The fact that the appellant Company did not participate in acquisition of additional shares by two of the other appellants, the fact that there is no resolution passed by the present appellant and fact that there is no communication on record from the appellant Company would show that present appellant Company cannot be termed as person acting in concert. The present appeal will have to be allowed. In the present case, what we find is that Appellant Nos.5 and 6 had not deliberately acquired the shares of the target Company but they were willy nilly required to accept the shares due to inability of the borrowers to repay the loan amount. Besides this the target Company was declared as sick Company under the BIFR and draft rehabilitation scheme was also under consideration. Thus, the act of the Appellant nos. 5 and 6 cannot be equated with corporate raiders trying to circumvent the provision of Regulation in order to seek control of the target Company. They were already promoters of the target Company and they had acquired the shares beyond the limits permitted by the creeping acquisition method. In the circumstances, the direction of the WTM cannot be sustained.
Issues Involved:
1. Violation of SAST Regulations, 2011 by acquiring additional shares without making a public announcement. 2. Determination of liability of promoters acting in concert. 3. Applicability of exemptions under SAST Regulations due to the target company's status as a sick company. 4. Appropriate remedial actions and directions for the violators. Issue-wise Detailed Analysis: 1. Violation of SAST Regulations, 2011: The appellants, promoters of the target company, increased their shareholding from 54.46% to 63.86% without making a public announcement, violating Regulation 3(2) of the SAST Regulations, 2011. The appellants admitted the transactions but claimed the acquisition was due to loan adjustments rather than purchase. 2. Determination of Liability of Promoters Acting in Concert: The WTM held that all promoters and members of the promoter group are deemed to be "persons acting in concert" under Regulation 2(1)(q) of the SAST Regulations, 2011. The appellants failed to rebut this presumption with evidence, leading to the conclusion that all were liable. 3. Applicability of Exemptions under SAST Regulations: The appellants argued that the acquisition was exempt under Regulation 10(1)(d)(i) due to the target company's status as a sick company under BIFR. However, the WTM ruled that without a formulated rehabilitation scheme, no exemption applied. 4. Appropriate Remedial Actions and Directions: The WTM directed all appellants to make a public announcement to acquire shares of the target company. However, upon appeal, it was found that SBEC Systems (India) Ltd. (Appellant in Appeal No.443 of 2018) did not participate in the acquisition and lacked any resolution or communication indicating concerted action. Thus, the appeal was allowed, and the WTM's direction was quashed for this appellant. For Appeal No.444 of 2018, it was determined that Appellant Nos.5 and 6 acquired shares due to loan adjustments and not with the intent to circumvent regulations. The direction for them to make a public announcement was modified. Instead, they were directed to sell the shares acquired in violation and transfer the proceeds to the Investor Protection Fund within six months. Conclusion: - Appeal No.443 of 2018: Allowed. The direction to the appellant was quashed and set aside. - Appeal No.444 of 2018: Partly allowed. The direction for Appellant Nos.1, 2 to 4 was set aside. Appellant Nos.5 and 6 were directed to sell the shares and transfer the proceeds to the Investor Protection Fund.
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