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TMI Blog2017 (1) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... ver Regulations, 1997, deserve harsh punishment. In these circumstances, we see no reason to interfere with the penalty of ₹ 1 crore imposed on the eight appellants which is directed to be paid jointly and severally. - Appeal No. 101 of 2014, Appeal No. 102 of 2014 - - - Dated:- 15-12-2016 - J.P. Devadhar, Jog Singh and Dr. C.K.G. Nair,JJ. For The Appellant : Mr. Iqbal Chagla, Senior Advocate with Ms. Rajas Kasbekar, Advocate i/b Little and Co., Mr. Vicky Singh, Advocate with Ms. Rajas Kasbekar, Advocate i/b Little and Co. For The Respondent : Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Mr. Vivek Rana, Advocates i/b K. Ashar and Co., Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Mr. Vivek Rana, Advocates i/b K. Ashar Co. Per: Justice J.P. Devadhar 1. Appellants in these two appeals are aggrieved by the order passed by the Adjudicating Officer ( AO for short) of the Securities and Exchange Board of India ( SEBI for short) on February 14, 2014. By the said order penalty of ₹ 1 crore is imposed on the appellants under Section 15HB of the Securities and Exchange Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r short) made an offer to the company for the joint development of the company s property situated at Vile Parle (West) Mumbai, by offering ₹ 150 crore + sharing profit in the ratio of 50:50. f) In the meeting held on January 17, 2009, the Board of Directors of the company approved the proposal to raise finances for the company s real estate business. Accordingly, the company engaged the services of Ernst Young (E Y) to invite bids from renowned builders and shortlist the most suitable bidder. g) On November 12, 2009 Mr. Pramod Jain and two Others made public announcement under the Takeover Regulations, 1997 disclosing their intention to acquire 44,02,201 equity shares (25%) of the company at a price of ₹ 101/- per share. On November 26, 2009 Mr. Pramod Jain and Others filed draft letter of offer seeking approval of SEBI for acquiring 25% shares of the company from the shareholders. h) On December 21, 2009 a resolution was passed by the BoD of the company inter alia to develop the company s property at Vile Parle (West) Mumbai subject to the approval of the shareholders as contemplated under regulation 23(1) of the Takeover Regulations, 1997. i) On Decembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18, 2010 it was resolved that the registered office of the company be moved from Maharashtra to Gujarat. p) On March 22, 2011 shareholders resolution was passed through postal ballot wherein the Board was authorized to enter into an agreement with Sheth Developers Pvt. Ltd. and Suraksha Realty Ltd. for the joint development of the Vile Parle (West) property of the company. q) By a show cause notice dated September 19, 2013, SEBI called upon the appellants to show cause as to why entering into the MoU on December 26, 2009 during the period when the public offer made by Mr. Pramod Jain and Others was pending, should not be held to be in violation of regulation 23(1) of the Takeover Regulations, 1997. r) Appellants in their reply to the show cause notice denied to have violated the Takeover Regulations, 1997. Thereafter, an opportunity of hearing was given to the appellants and by the impugned order dated February 14, 2014 penalty of ₹ 1 crore is imposed on the appellants in both the appeals on the ground that the appellants have violated regulation 23(1) of the Takeover Regulations, 1997 and directed the appellants in both the appeals to pay the aforesaid penalty of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Vile-Parle (West) property in favour of the developers till the contingent event happened in the general body meeting scheduled on January 18, 2010. In support of the above contention reliance is placed on a decision of the Apex Court in case of Mrs. Saradamani Kandappan v/s Mrs. S. Rajalakshmi and Ors. reported in AIR 2011 SC 3234. c) Alleging that execution of the MoU dated December 26, 2009 amounts to encumbering the Vile Parle (West) property, Mr. Pramod Jain and Ors. (acquirers) had sought to withdraw from the open offer. That contention of Mr. Pramod Jain was rejected by SEBI and the said decision of SEBI was upheld by this Tribunal and also by the Apex Court. Once the plea of Mr. Pramod Jain that by entering into an MoU on December 26, 2009 the company had encumbered or created third party rights over the Vile-Parle (West) property of the company is rejected by SEBI and upheld by this Tribunal and also by the Apex Court, it is not open to SEBI to take a contrary view in case of the appellants. Fact that this Tribunal while upholding the order passed by SEBI in the case of Mr. Pramod Jain, had recorded a finding that the MoU executed on December 26, 2009 was in violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l obligations of the board of directors of the target company. 23. (1) Unless the approval of the general body of shareholders is obtained after the date of the public announcement of offer, the board of directors of the target company shall not, during the offer period,- (a) sell, transfer, encumber or otherwise dispose of or enter into an agreement for sale, transfer, encumbrance or for disposal of assets otherwise, not being sale or disposal of assets in the ordinary course of business, of the company or its subsidiaries; or (b) issue 2 [or allot] any authorised but unissued securities carrying voting rights during the offer period; or (c) enter into any material contracts. Explanation.-Restriction on issue of securities under clause (b) of subregulation (1) shall not affect- (i) the right of the target company to issue or allot shares carrying voting rights upon conversion of debentures already issued or upon exercise of option against warrants, as per pre-determined terms of conversion or exercise of option; (ii) issue or allotment of shares pursuant to public or rights issue in respect of which the offer document has already been fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Therefore, in the facts of present case, entering into an MoU on December 26, 2009 for joint development of the Vile-Parle (West) property subject to approval of the shareholders was in gross violation of regulation 23 of the Takeover Regulations, 1997. 10. Apart from the above, as rightly contended by the counsel for SEBI, it is apparent that by executing the MoU on December 26, 2009 the BoD of the company sought to encumber the Vile-Parle (West) property in violation of regulation 23 is established as can be seen from the following:- a) The notice issued by the company to the shareholders on December 21, 2009 specifically records that the company intends to enter into a material contract inter alia for joint development of the Vile-Parle (West) property and since regulation 23 of the Takeover Regulations, 1997 prohibits the BoD to take any steps in that behalf without the approval of the general body of shareholders, EOGM is convened on January 18, 2010 at 11:00 AM seeking approval of the shareholders, inter alia, for joint development of the Vile Parle (West) property. Having convened the EOGM on January 18, 2010, the BoD of the company could not have bypassed the gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97. 11. Argument advanced on behalf of the appellants that the MoU was not a legally enforceable contract and that the Vile-Parle (West) property was not encumbered under the MoU is without any merit, because, the MoU specifically provides that the developers could seek joint development of the Vile-Parle (West) property even if the proposal was rejected by the general body of shareholders and in the event of developers opting to terminate the MoU, then the said property was to remain encumbered till entire amount received by the company under the MoU was refunded with interest to the developers. It is not in dispute that even after the general body of shareholders approved the joint development of the Vile-Parle (West) property the company has decided not to proceed with the joint development of the said property as per the MoU dated December 26, 2009 and in view of the dispute between the parties, the company has not refunded the amount received from the developers. As a result, under the terms of the MoU dated December 26, 2009, the Vile-Parle (West) property continues to be encumbered. 12. Strong reliance was placed by counsel on behalf of the appellants on Section 30 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mod Jain, the Apex Court has considered the issue as to whether an acquirer can be permitted to withdraw the open offer when the public offer is capable of being carried out and has not become impossible to perform. In fact, in para 27 of the order passed in the case of Mr. Pramod Jain, the Apex Court has specifically kept open the issue relating to violation of regulation 23 by the BoD of the company. Nowhere in the case of Mr. Pramod Jain, the Apex Court has held that the BoD of the company had not violated regulation 23 of the Takeover Regulations, 1997. Thus, the decision of the Apex Court in the case of Mr. Pramod Jain and Others (Supra) does not support the case of the appellants. 15. Argument of the appellants in Appeal No. 101 of 2014 that the appellants therein were independent directors and were not involved in the execution of the MoU is without any merit. Admittedly the BoD of the company had passed a resolution on September 24, 2008 authorizing the Managing Director and Director Finance to explore the possibilities of making alternate use of the Vile-Parle (West) property of the company. Admittedly, notices were sent to the shareholders on December 21, 2009 convenin ..... 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