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TMI Blog2015 (7) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... Chairman namely Mr. Sanjay Dalmia, who are Appellants in Appeal nos. 6, 7 and 8 of 2014 respectively, is mainly that they transmitted incorrect shareholding of ten promoters, who are Appellants in appeal nos. 9 to 18 of 2014, to the Stock Exchanges. It gave a wrong impression about the shareholding of the promoters to the general public and investors at large. The main charge against ten promoters is that they wrongly and illegally projected their shareholdings far in excess of their real shareholding by taking into consideration shareholdings of third parties as part of their own shareholding in an illegal manner. 3. Treating prima facie these actions as violative of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(f) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003, hereinafter referred to as PFUTP Regulations, 2003, read with Sections 12A(a), (b) and (c) of SEBI Act, 1992, a Show Cause Notice dated December 12, 2011 was issued to the Appellants seeking an explanation why appropriate action not be taken against them as per law and after holding enquiry as per the procedure envisaged under the Securities Contract (Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have colluded with promoter entities of GHCL to mislead shareholders and investor of GHCL by making false reporting of promoter's shareholding. The Appellant, as the Chairman and promoter, was a beneficiary of such false disclosures. Said penalty has been imposed in terms of Section 15HA of SEBI Act for violation of Regulation 3(a),(b), (c) and (d), 4(1) and 4(2)(f) of the PFUTP Regulations, 2003 read with Section 12A(a), (b) and (c) of SEBI Act. 8. In Appeal No. 9 of 2014, namely, M/s. Carissa Investment Private Ltd vs. SEBI a penalty of Rs. 9 lac has been imposed on the Appellant who is one of the promoters of GHCL Ltd. and is an investment and finance company, primarily engaged in trading of securities in secondary and primary market. The charges pertain to disclosures made by Appellant to GHCL regarding its shareholding during 2007-2008. Penalty has been imposed in terms of Section 15A(b) of SEBI Act for violation of Regulations 7(1A) and 8(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulation, 1997, hereinafter referred to as SAST Regulations, 1997 and Regulation13(3) and (5) of PIT Regulations, 1992 and in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel Shri Shyam Mehta and hence are being dealt with separately. Admittedly, the facts and circumstances of these ten appeals preferred by promoters, are same except on a additional allegation regarding violation of certain provisions of PIT Regulations, 1992 is also noted in Appeal No. 9 of 2014 (Carrisa Investment Ltd.) for which an extra penalty of Rs. 2 lac has been imposed only on Carissa. Appeal nos. 6, 7 and 8 of 2014 - The Company, The Company Secretary and The Chairman. 12. Common case of these appellants is that the appellant company is a leading Indian producer of Soda Ash. It is a public limited company and listed on various stock exchanges i.e. Bombay Stock Exchange Ltd. (BSE), National Stock Exchange (NSE), Ahmedabad Stock Exchange (ASE). Its total issued, subscribed and paid up capital comprises of 100019286 (ten crore nineteen thousand two hundred eighty six only) shares of the face value of Rs. 10 each. It is run by professionals and has prominent persons on its Board of Directors. It is stated to have been filing the requisite shareholding pattern as per law from time to time. However, before filing of such quarterly shareholding pattern ending March 2007, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, only those shares which were in the physical possession of the promoters should be considered as part of their shareholding and not those shares which were held by third parties. On receipt of revised shareholding from the promoters, the Appellant-company, on its own, immediately forwarded the same to the stock exchanges. The company once again addressed a letter dated April 9, 2009 to all the stock exchanges giving a summary sheet of all previous shareholding patterns filed from March 31, 2007 to December 31, 2008 as well as the summary sheet of revised shareholding patterns for the same period under the amended law. 15. It is further argued on behalf of the appellants that despite the abovesaid, the respondent passed an ad-interim ex-parte order dated April 20, 2009 directing the appellants and 45 other parties / promoters directing not to buy, sell or deal in the securities market until further orders. On July 7, 2009, a Whole Time Member of the respondent vacated the said ad-interim ex-parte order dated April 20, 2009 as against 33 promoter entities but the present three appellants and 10 promoter entities were not spared and the debarment continued against them till Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose underlying the requirement of making regular and true disclosures by a company as regards the shares which the promoters may come to hold from time to time is to bring about greater transparency in the functioning of the companies. It is through such disclosures that the investors take an informed decision in a given situation to invest in the scrip of that company or even to exit. This is extremely important for the growth of a healthy capital market. If a particular promoter holds only 2-3 lac shares, the investors may choose not to invest any more in the company. But if the investors, for instance, possesses 50 lac shares in his own right, the investors may be inclined to invest huge amounts in the scrip. Thus, true and correct disclosures as to the exact shareholding pattern of promoters assume greater significance. 19. Therefore, the company, the Company Secretary and the Chairman of the company have a greater responsibility on their shoulders to ensure, in a free and fearless manner, that the promoters make timely and absolutely true disclosures as regards their respective shareholding in the company in consonance with various regulations prescribed by SEBI and the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include- (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent, deceptive behavior by a person depriving another of informed consent or full participation; (7) deceptive behavior by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) the act of an issuer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is less ." "23E. Penalty for failure to comply with provisions of listing conditions or delisting conditions or grounds. - If a company or any person managing collective investment scheme or mutual fund, fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof, it or he shall be liable to a penalty not exceeding twenty-five crore rupees." 20. Similarly, Clause 35 of Listing Agreement and the format prescribed are also being reproduced in order to assess as to whether any ambiguity exists therein as vehemently argued by Shri Modi :- "35. The company agrees to file the following details with the exchange on a quarterly basis, within 21 days from the end of each quarter, in the format specified as under :- (I)(a) Statement showing Shareholding Pattern -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Name of Company : ___________________________________________________________________________________________________________________ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and against which Depository Receipts have been issued xxx GRAND TOTAL (A)+(B)+(C) xxx (I)(b) Statement showing Shareholding of persons belonging to the category "Promoter and Promoter Group" Sr. No. Name of the shareholder Number of shares Shares as a percentage of total number of shares {i.e., Grand Total (A)+(B)+(C) indicated in Statement at para (I)(a) above} 1. 2. TOTAL (I)(c) Statement showing Shareholding of persons belonging to the category "Public and holding more than 1 per cent of the total number of shares" Sr. No. Name of the shareholder Number of shares Shares as a percentage of total number of shares {i.e., Grand Total (A)+(B)+(C) indicated in Statement at para (I)(a) above} 1. 2. TOTAL (I)(d) Statement showing details of locked-in shares Sr. No. Name of the shareholder Number of locked-in shares Locked-in shares as a percentage of total number of shares {i.e., Grand Total (A)+(B)+(C) indicated in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple reading of section 12(A)(a) of the SEBI Act, 1992 read with Regulation 3(a) of the PFUTP Regulations, 2003 as reproduced above clearly reveals that it is not only the fraudulent or manipulative buy or sale of securities which is prohibited but any dealing in securities "otherwise" also may be illegal and hence amounts to fraud on the market. The expression "...otherwise deal in securities..." occurring in Regulation 3(a) read with section 12A(a) of SEBI Act, 1992 is vide enough to cover cases like the one in hand where general investors are sought to be drastically misguided by the promoters of the Company by inclusion of the third parties' shares which the promoters admittedly do not own. The law is absolutely clear on this and there is no ambiguity as sought to be projected by the appellants. Whatever is not included in the Regulation has to be excluded in the interpretation. 23. In this connection, it is pertinent to note that the Company, the Company Secretary and the Chairman are not mere conduit to pass-on whatever details they receive from the promoters to the Stock Exchanges irrespective of the records maintained by the Company in respect of the shares which may be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shown as the promoters of the Company during certain quarters in 2008 and 2009 due to inadequate enforcement of Code of internal procedures and conduct for ensuring compliance. Said Mr. Prem Meiwal and Mr. Nishikant Hayantnagarkar were Head of Finance and Whole Time Director respectively with the Company. Therefore, their names came to be included in the promoters' category totally due to inadvertence. However, on the advice of the new Company Secretary the two names were excluded from the category of promoters. This fact was undisputed in the case of Vakrangee Software Ltd., before SEBI. The learned Adjudicating Officer in this background observed that the Company generally acts upon professional advices and by doing so it could not be said to have violated the regulatory provisions with any malafide motives. We do not see any harm in observing so by the learned Adjudicating Officer in the facts and circumstances of that case. The Adjudicating Officer rightly held in that case that the allegation of wrong filing of quarterly shareholding pattern by the Company to mislead the investors was not established in that case. Therefore, the facts of Vakrangee case are totally different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extreme penalty of debarment (on the chairman Mr. Vinod Baid) from the market for three years. However, the learned Whole Time Member after due application of mind and in all fairness let off the Company of the charge of wrong disclosures of promoters shareholding pattern under Clause 35 of the Listing Agreement. In fact, by an error Bank of India (BOI), a pledgee of 25 lac shares of Genex, was wrongly assumed and shown as a promoter by the staff of the Company. It was held to be a bonafide error by the learned Whole Time Member in the facts of that case and the company was exonerated of this charge. This shows due application of mind on the part of the whole time member to the whole facts and circumstances of the case. Therefore, this case also does not advance the case of the present appellants in any manner. 28. Regarding the case of UBS Securities Asia Ltd. Vs. SEBI., it would be pertinent to appreciate the background in which the principle of ambiguity in law crept in that case before this Tribunal while passing order dated September 9, 2005 in Appeal no. 97 of 2005. The appellant therein, namely, UBS Securities Asia Ltd. was a part of UBS Investment Bank, headquartered in Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unequivocally instead of expecting the appellant to visualize and imagine the likely questions SEBI is to ask. It is an accepted principle of law that if anyone is to be punished for violation or infringement of any Act or Regulation he should clearly know the obligations which are required to be met under the law. If the legislature or the respondent had wanted to make the KYC unambiguous, it could have easily inserted or added the necessary words such as 'ultimate beneficiaries". This Tribunal, rightly finding ambiguity in Regulation 15A of FII Regulations, 1995 set aside the impugned order in that case and allowed the appeal. In the case in and, however, the requirement of law imposes a duty on the company, its officers and the promoters to disclose the shareholding of promoters. It simply means the law then in existence i.e. prior to December 3, 2009, required the company and promoters to disclose sheer number of shares which the promoters owned in their own-right and the law did not even remotely contemplate third party shares over which the promoters had no claim or right in law. The ambiguity was rather sought to be imported by the appellants by procuring various legal opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dinesh Masalia could not have been relied upon by the Board to come to the conclusion that the trades undertaken by Mega in the scrip of three companies did not take place and the profits shown were fictitious. The Board relied upon the said statement of Dinesh Masalia without affording any opportunity to the appellant (Mega) to cross-examine and, therefore, this Tribunal rightly held that SEBI was in error in relying upon the said statement of Dinesh Masalia to hold Mega guilty of the charges levelled against it. In this background, the Tribunal held that there was violation of principles of natural justice qua Mega. 35. Para no. 7 of the said judgment is reproduced hereinbelow:- "7. Before concluding, we would like to mention that there are statements made by several persons which are available on the records of this case and which have been stoutly denied by the appellant. These include the statements of two directors of the appellant's broker DPS to the effect that the purchase and sale of shares executed by DPS on behalf of the appellant company were completely false and fabricated and that payments were made to the appellant company on account of such dummy sales out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erfluous and a mere formality. Moreover, no prejudice shown to have been caused to the appellants by not granting the cross-examination of those 2-3 witnesses. There is sufficient material on record to prove the violations in question by the appellants which indeed formed the basis of the impugned order. 37. In UPSE Securities Ltd. vs. The Manager, Inspection Department, National Stock Exchange of India Limited (NSE) by order dated December 9, 2011, the National Stock Exchange of India Limited imposed a monetary penalty of Rs. 45,000/- on the Appellant for certain irregularities noticed by NSE during the course of inspection of the books of account. This order was challenged by the Appellant before this Tribunal. In this case, NSE conducted some inspection regarding the functioning of the appellant as a stock broker and found irregularities as regards implementation of certain norms prescribed by the NSE for maintaining separate ledger accounts for separate clients. However, there was no clarity in the NSE Guidelines regarding the maintenance of ledger account on account of a client who himself happened to be a sub-broker. NSE's Regulations were silent on this aspect. The appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. Shri Shyam Mehta has vehemently argued that the charge regarding "persons acting in concert" was never taken up in the show cause notice against these 10 promoters and was never proved during the course of enquiry as well. Therefore, the same must fail and these promoters be exonerated of the same. Shri Kumar Desai, learned counsel for the respondent, on the other hand, contended that this contention raised by the appellants is not tenable in view of the provisions of Regulations 7(1A), 8(2) of SAST Regulations, 1997 and definition of "person acting in concert" occurring therein. At the outset, in this context, we would like to reproduce Regulations 7(1A), 8(2), 11(1), 11(2) and definition of 'acquirer' and 'person acting in concert', etc. of SAST Regulations and definition of 'dealing in securities' and 'fraud' of PFUTP Regulations hereinbelow for the sake of convenience :- SAST Regulations, 1997 "7(1A). Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11[or under second proviso to sub-regulation (2) of regulation 11], shall disclose purchase or sale aggregating two per cent or more of the share capital of the targe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words and figures 'seventy-five per cent (75%), the words and figures 'ninety per cent (90%)' were substituted. Provided further that such acquirer may, [notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11,] without making a public announcement under these Regulations, acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him up to five per cent (5%) voting rights in the target company subject to the following :- (i) the acquisition is made through open market purchase in normal segment on the stock exchange but not through bulk deal / block deal/ negotiated deal / preferential allotment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buy-back of shares by the target company; (ii) the post acquisition shareholding of the acquirer together with persons acting in concert with him shall not increase beyond seventy-five per cent (75%).] "2(b). "acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the tar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families." 40. An analysis of the above provisions of SAST Regulations demonstrates that violation of Regulation 11(1) is a pre-condition for attracting the provisions of Regulation 7(1A). It is nowhere brought on record by the respondent that anyone of the 10 appellants on stand alone basis was ever holding more than 15% shares. Similarly, it is also not pointed out that any one of the promoters individually acquired or sold more than 2% shares so as to attract Regulation 7(1A). In fact, there is no allegation in the show cause notice dated December 12, 2011 that anyone of the 10 appellants is a "person acting in concert" with other promoter entities. Pleadings show that all the appellants specifically submitted that they were not acting in concert with each other. Moreover, we find that the concept of "person acting in concert" as reproduced hereinabove is primarily meant for "acquisition of shares or control" and not for any other purpose. Moreover, Regulation 7(1A) requires an individual acquirer to disclose regarding any change in its shareholding if it goes 2% up or down and for the purpose of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ather surprisingly not given any plausible reasoning for holding Carissa liable for violation of this charge except a faint finding in paragraph 15 of the impugned order dated October 25, 2013 to the effect that "in the absence of any reasonable justification from the noticee, we find that noticee has violated Regulations 13(3) and 13(5) of PIT Regulations." We are afraid the learned adjudicating officer could have given such finding qua Carissa without analyzing the charge, the evidence, if any, and the legal provisions applicable in the case. Nothing of the sort has been even sought to be attempted by the learned adjudicating officer before rendering such an unwarranted finding on violation of Regulations 13(3) and 13(5) of the PIT Regulations, 1992 which read as under :- PIT Regulations, 1992 "13. Disclosure of interest or holding by directors and officers and substantial shareholders in listed companies - Initial Disclosure. (1) ............. (2) .............. (3) Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form C the number of shares or voting rights held and change in shareholding or voting rights, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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