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TMI Blog2019 (5) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... of Regulation 7(1) read with Regulation 7(2), Regulation 7(1A), Regulation 7(2), Regulation 7(3), Regulation 8(3) and Regulation 3(3) read with Regulation 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the 'Takeover Regulations). 2. The facts leading to the filing of the present appeal is, that Principle Capital Markets Limited was incorporated as a non banking financial Company on 27th December, 1991. In 2006, the name was changed to Subhkam Capital Limited and, in 2011, it was changed to Aagam Capital Ltd. (hereinafter referred to as the Appellant no. 8/target Company). The said Company is trading in securities and its shares are listed on the BSE. 3. Appellant Nos.1 to 6 are original acquirers of Appellant no.8. Appellant no.7 is Subhkam Securities Private Limited and is also a part of the promoter's group. 4. The original acquirers entered into a Share Purchase Agreement on 25th October, 1999 to acquire 59.57 percent of the equity share capital of Appellant no.8/target Company from the erstwhile promoters thus triggering Regulation 10 of the Takeover Regulations. In terms of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 7(3) and 8(3) of the Takeover Regulations for alleged failure to disclose the promoter holding for the financial year 2010-2011 and directed to show cause as to why a penalty should not be imposed. 8. The Adjudicating Officer, after considering the appropriate replies given by the appellants and, after giving them an opportunity of hearing, passed an order holding that the violations of various Regulations stated in the show cause notice were made by the appellants and, accordingly imposed penalty under different heads to different appellants totaling Rs. 45 lakhs which was to be paid individually as well as jointly and severally. The appellants being aggrieved by the said order have filed the present appeal. 9. We have heard Mr. Somasekhar Sundaresan assisted by Mr. Ravichandra S. Hegde, Mr. Robin Shah and Ms. Ankita Roy, Advocates for the Appellants and Mr. Kumar Desai assisted by Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates for the Respondent. 10. The learned counsel for the appellant contended that the alleged violation of Regulations 7(1) and 7(2) is patently erroneous. It was contended that when the appellants had entered into an agreement for acquiring the target ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cannot be sustained for non compliance. It was contended that the ratio of the decision of the Tribunal in Ravi Mohan and others has been accepted by SEBI as it has not been challenged before a higher forum. Instead, it was contended that SEBI in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 has incorporated a provision stipulating a deadline for disclosure for disposal of shares as well. 13. On the issue of inter-se acquisition of shares between the promoters it was contended that no penalty can be imposed under Regulation 3(3) read with Regulation 3(4) in as much as the said provision relates to an exemption clause exempting a person from a charging provision. Non compliance of an exempting provision cannot attract a penalty. It was further urged that in any case inter-se transfer of shares by the promoter of a little over five percent cannot attract the charging provision in as much as the collective shareholding of the appellants/promoters in the target Company remained the same. Further, the individual shareholding of the acquirer did not cross the threshold limit of fifteen percent and, therefore, Regulation 10 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants at any stage and, in the instant case, from the stage when the respondent came to know about the alleged violation. In support of his submission, the learned counsel placed reliance upon the decision of this Tribunal in Vaman Madhav Apte & Ors. Vs. SEBI, Appeal No. 449 of 2014 decided on 4.3.2016, Kunal Pradeep Savla & Ors. Vs. SEBI, Appeal No.231 of 2017 decided on 13.4.2018, Ravi Mohan & Ors. vs. SEBI, Appeal no.97 of 2014 decided on 16.12.2015, Sudarshan Walia & Ors. Vs. SEBI, Appeal No.470 of 2015 decided on 14.10.2016 and a decision of the Supreme Court in SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 decided on 28.2.2019. 17. Before we proceed to consider as to whether the provisions of Regulations 7(1) and 7(2) of the Takeover Regulations have been violated or not it would be appropriate to extract the said provisions. For facility, Regulation 7 as it stood in the year 2000 is extracted hereunder:- "Acquisition of 5% of more shares or voting rights of a company 7.(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent shares or voting ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation under Chapter II is required to be complied with by the acquirer and, under Chapter III, the obligation is joint and several of the persons required to make the open offer as acquirer alongwith the Merchant Banker. 20. Even though, in the instant case, the disclosures have been made under Chapter III, nonetheless there was an obligation upon the appellants who were the acquirers to make the appropriate disclosure also under Chapter II vis-avis Regulation 7. Admittedly, no such disclosure was made and, therefore, the provisions of Regulation 7 was not complied with by the appellants. 21. Since there has been a violation of Regulation 7, the question which arises for consideration is, whether the Adjudication Officer was justified in imposing a penalty of Rs. 15 lakhs upon the Appellant Nos.1 to 6. In our view, there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellant for the alleged violation. In our opinion, much water has flown since then and, at this belated stage, the appellant cannot be penalized for the alleged violation which in any case was substantially complied with under Chapter III of the Regulations. 22. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc." 24. In the light of the aforesaid, it was contended by the respondent that they took immediate measures by issuing a show cause notice when they came to know about the default when the second open offer was made by the appellants in the year 2011. This submission cannot be appreciated for the following reasons:- (i). When the first acquisition was made by the appellants in the year 1999 the rigorous procedure of public announcement was followed by the appellants under Chapter III. The public announcement was made in an English newspaper as well as in a Hindi newspaper and a regional newspaper. The copy of the public announcement was also submitted to SEBI through the Merchant Banker and was also sent to the stock exchange. The closure report giving all the details of the acquisition was also given by the Merchant Banker under Regulation 24(7) which provided all the information relating to the acquisition. These facts have not been denied. Thus, it does not lie in the mouth of the respondent to contend that the default of the appellant in non compliance of Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) shall be made within two days of,- (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be." 26. Regulation 7(1A) was inserted to the Takeover Regulations with effect from 9.9.2002. Prior to the insertion of Regulation 7(1A), the disclosure obligation under Regulation 7(1) was in relation to acquisition of shares or voting rights in excess of the limit prescribed in Regulation 7(1) and the said disclosure obligation was required to be discharged within four working days of the event specified under Regulation 7(2). In 2002, Regulation 7(1A) was inserted with effect from 9.9.2002. Through this amendment, any acquirer who had acquired shares or voting rights of the target Company under Regulation 7(1A) was required to disclose purchase or sale of shares or voting rights of the target Company aggregating two percent or more of the share capital of the target Company to the target Company and also to the stock exchange within two days of such purchase or sale. Regulation 7(2) only amplified the starting point of the time limit of two days with regard to the acquisition of shares alone, namely, the time limit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 was amended after Ravi Mohan's decision was given by this Tribunal in 2015. For facility, Regulation 29 is extracted hereunder : Disclosure of acquisition and disposal. "29. (1) Any acquirer who acquires shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, aggregating to five per cent or more of the shares of such target company, shall disclose their aggregate shareholding and voting rights in such target company in such form as may be specified. (2) Any person, who together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, if there has been change in such holdings from the last disclosure made under sub- regulation (1) or under this sub-regulation; and such change exceeds two per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Takeover Regulations. Regulation 3(1)(e) specifically states that if it is an inter-se transfer of shares then the requisite disclosure as is required under Regulations 10, 11 and 12 will not be required to be made. However, Regulations 3(3) and 3(4) is an exception to Regulation 3(1)(e). Under the Regulation 3(3) even in the case of inter-se transfers intimation has to be given to the stock exchange within four working days in case of acquisition exceeding five percent of the voting share capital of the Company. Under Regulation 3(4) the acquirer has to intimate the Board within two days of the acquisition. Thus, from a reading of Regulation 3(1)(e) and Regulation 3(3) and Regulation 3(4) read with Regulations 10, 11 and 12 it becomes apparently clear that where the acquisition exceeds five percent of the voting share capital of the Company the public announcement which is required to be made under Regulations 10, 11 and 12 is exempted under Regulation 3(1)(e) of the Regulations. However, such exemption of following the rigorous procedure under Chapter III is exempted subject to the condition that under Regulations 3(3) and 3(4) the said intimation is given to the stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X
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