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TMI Blog2021 (1) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... ock Exchanges cannot be faulted. It was a PSI is also clear from the fact that the investigation revealed insider trading by entities connected with the dominant Shareholders in the shares of Bank of Rajasthan on the day of the Binding Agreement. Submission that insider trading did not happen in the shares of the Appellant does not dilute the issue since it is the same Binding Agreement which triggered the alleged violation of insider trading. Therefore, the appeal fails on merit. We agree with the contentions of the learned Senior Counsel for the appellant on the inordinate delay in issuing the show cause notice and in passing the impugned order by respondent SEBI. After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years' delay in show-causing and concluding proceedings in such known incidence of violation/alleged violations is a failure in effectively performing the behavior modification function of a market regulator. La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts relating to the matter are the following: - (i) On May 18, 2010 at 4.30 AM a Binding Agreement was signed by the Executive Director of the appellant with the dominant shareholders of Bank of Rajasthan who held 28.61% of the equity shares of Bank of Rajasthan proposing an amalgamation of the appellant bank and the Bank of Rajasthan. (ii) Same day, at 5.12 p.m. and at 5.25 pm the Bank of Rajasthan informed the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) respectively that a meeting of its Board of Directors is being convened immediately to discuss the proposal relating to amalgamation of the Bank of Rajasthan with the ICICI Bank (appellant). It also stated that the Board of Directors of the ICICI Bank also was scheduled to meet the same day to discuss this issue. (iii) At 5.57 p.m. the Power of Attorney from the dominant Shareholders was received by the legal advisors to the parties. The Board of Directors of the appellant met at 6.00 p.m. and concluded its meeting around 7.30 p.m. Disclosures relating to the merger/amalgamation were made to NSE at 8.10 p.m. and to the BSE at 8.18 p.m. respectively. 4. We have heard the learned Senior Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the binding conditions have been fulfilled. 7. The learned Senior Counsel relying on a number of judgments stated that contingent agreements are not certain agreements because for those agreements to attain certainty the conditions precedents have to be first fulfilled. Therefore, contingent contracts cannot be treated as certainties. He also emphasized the meaning of 'condition precedent' as defined in the Black's Law Dictionary as An act or event, other than a lapse of time that must exist or occur before a duty to perform something promised arises. If the condition does not occur and is not excused, the promised performance need to be rendered. The most common condition contemplated by this phrase is the immediate or unconditional duty of performance by a promisor. Similarly, the appellant placing Sections 31 to 33 of the Contract Act, reproduced below, emphasized the enforceability of a contract subject to happening of the stated event(s). 31. 'Contingent Contract' defined - A 'contingent contract' is a contract to do or not to do something if some event, collateral to such contract, does or does not happen. 32. Enforcement of cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and not those present alone. 9. Therefore, as per the RBI Guidelines it was contended that the banks could not have considered the Binding Agreement as a concluded contract unless board approvals had been obtained and, therefore, when the boards of both the banks were not privy to the Binding Agreement it was not liable to be disclosed, particularly, when the Binding Agreement also contained confidentiality provisions to that effect. The appellant further relied on the decision of the Supreme Court in M.V. Shankar Bhat Anr. v. Claude Pinto Since (Deceased) by LRs Ors [2003] 4 SCC 86 wherein it was held that 31. When an agreement is entered into subject to ratification by others, a concluded contract is not arrived at. Whenever ratification by some other persons, who are not parties to the agreement is required, such a clause must be held to be a condition precedent for coming into force of a concluded contract. 10. It was also vehemently argued that signing of the Binding Agreement did not constitute Price Sensitive Information as defined under Regulation 2(ha) of PIT Regulations, 1992. In this regard, it was contended that only when an amalgamation is certain it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the RBI Guidelines and BSE Guidelines on amalgamations require disclosures only after board approval; it was not an agreement between the relevant parties as only the dominant Shareholders of the Bank of Rajasthan was a party not the Bank of Rajasthan itself; it was not a PSI and it was treated as a PSI based on the post disclosure price movement of the shares of only Bank of Rajasthan; the relevant disclosure was made immediately after the board approvals and therefore there was no delay in disclosing the relevant information both under the Listing Agreement and PIT Regulations, 1992 and if the Binding Agreement itself was disclosed the appellant would have been charged with premature disclosure thereby impacting the securities of the companies. 14. The learned Senior Counsel also submitted that the impugned order and the submissions of SEBI, particularly, the affidavit-in-reply goes beyond the show cause notice and the impugned order respectively, the former in terms of treating the Binding Agreement as a certainty and the latter as a near certainty and in bringing in new facts and both in misinterpreting the provisions of law. In order to take home this argument the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no merit. The learned Senior Counsel also submitted that the circular of the BSE relied on by the appellant came more than four years later to the event and in any case such circulars/guidelines cannot overrule provisions in an Act and the Regulations. 17. Before we proceed, the relevant provisions of SCRA, Listing Agreement, PIT Regulations, 1992 and Annexure to the PIT Regulations, 1992 are reproduced for convenience below:- S. 21. SCRA.-Where securities are listed on the application of any person in any recognized stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange. Listing Agreement.-Cl. 36. Apart from complying with all specific requirements as above, the Company will keep the Exchange informed of events such as strikes, lockouts, closure on account of power cuts, etc. both at the time of occurrence of the event and subsequently after the cessation of the event in order to enable the shareholders and the public to appraise the position of the Company and to avoid the establishment of a false market in its securities. In addition, the Company will furnish to the Exchange on request such information concernin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be given by listed companies to stock exchanges and disseminated on a continuous and immediate basis. 18. A reading of the aforesaid legal provisions makes it eminently clear that disclosures have to meet all of those stated provisions. Clause 36 is sweeping in nature as it mandates all disclosures to enable the shareholders and the public to appraise the position of the Company and to avoid the establishment of a false market in its securities. It also mandates that the Company will also immediately inform the Exchange of all the events, which will have bearing on the performance/operations of the company as well as price sensitive information. Sub clause 7 further mandates disclosure of any other information having bearing on the operation/performance of the company as well as price sensitive information, which includes but not restricted to the specified events. Under 7(ii) comes merger, amalgamation etc. Price sensitive information as defined under PIT Regulation 2 (ha) means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company . 19. Given the above provisions of law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive Director. Shri. Sanjay Kumar Tayal, one of the two signatories on the other side, was also a Director on the Board of Bank of Rajasthan at the relevant time. Two of them signed on behalf of all the dominant shareholders. In the light of this it would be irrational to assume that the Binding Agreement did not have any certainty or did not have a reasonable certainty of performance. 21. Further, a look at the run up to signing the Binding Agreement as given in the Investigation Report would indicate that it was a story of amalgamation foretold. Starting in February 2010 ICICI Bank Officials at various senior management levels and the dominant shareholders had multiple meetings. On 6th May the dominant shareholders informed their lack of interest to go ahead. However, a meeting was held on 7th May, the very next day, to consider a way forward, which within 10 days thereafter resulted in the Binding Agreement, which also contained all the necessary steps to be taken by the parties, and included the share swap ratio. A two days/five days time frame was given to the Transferor Bank and the Transferee Bank to complete the procedures. Meeting was held between 11.30 p.m. on 17th ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial risk and hence the impact the proposed amalgamation could have on its share prices clearly making it price sensitive information. Therefore, the disclosures by the appellant regarding the potential synergy and performance of the amalgamation and its risk factors would make it both material and price sensitive information. Therefore, the finding to this effect in the impugned order cannot be faulted, irrespective of whether post-facto share prices were in fact affected or not, and whether such an analysis has been done or not. What is relevant for disclosure is the materiality and the ex-ante possibility of impacting prices of the securities, which may not come true ex-post due to several other factors affecting the company concerned or/and the securities market in general. 25. A clear reading of the disclosure provisions both under clause 36 read with Section 21of SCRA and under the PIT Regulations, 1992 would necessitate disclosure of the Binding Agreement since what is liable to be disclosed is material and price sensitive information relating to the performance of a company on a continuous basis. Therefore, what is held in the impugned order that the said Binding Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgamation, restructuring, scheme of arrangement, spin off or selling divisions of the Listed Entity, delisting, redemption/cancellation/retirement of any securities issued by the Listed Entity. This should be informed at time of Board approval or any committee authorized by the Board Acquisition/agreement to acquire: (a) Name of the target entity (b) Whether the promoter/promoter group/group companies have any interest in the entity being acquired? If yes, nature of interest and details thereof; (c) Whether the acquisition would fall within related party transactions? If yes, whether the same is done at arm's length; (d) Industry to which the entity being acquired belongs; As reproduced, the above circular states that information relating to amalgamation etc has to be informed at the time of board approval or any committee authorized by the board. The format also states acquisition/agreement to acquire which clearly envisages situations of a Committee approval and agreement to acquire also to be disclosed. Further, in the absence of clarity, what is presumed by the BSE circular is a standard approach to such proposals i.e. draft proposal placing before a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the event was disclosable; hence consulted their legal advisers though at 12.31 p.m. they advised against disclosing for whatever reasons. In our reasoned view, given the facts of this matter, the signed Binding Agreement in question was price sensitive and admittedly material to the performance of the appellant and needed to be disclosed on an immediate basis which was not done. 29. Similarly, we do not agree with the submissions made by the learned Senior Counsel for the appellant on the usage of some adjectives or qualifiers (amalgamation v. information relating to amalgamation; certainty v. near certainty) or in providing publicly known facts (trading volumes and prices of the appellant before the Tribunal) in bringing out the deficiencies in the show cause notice vis- -vis in the impugned order vis- -vis the affidavit-in-reply. Providing information available in the public domain to the Courts does not suffer from any infirmities. We are of the considered opinion that other deficiencies, though avoidable, do not tarnish the findings in the impugned Order as language of communication, even in judicial proceedings, have not achieved perfection of mathematical/algebraic form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes known to the regulator, for appropriately punishing the guilty not only for the sake of modifying the behavior of the violator but also for sending strong messages to the market participants in general. After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years' delay in show-causing and concluding proceedings in such known incidence of violation/alleged violations is a failure in effectively performing the behavior modification function of a market regulator. The orders relied on by SEBI on the ground of delay are distinguishable from the facts of this matter. Therefore, we are of the considered view that issuance of a penalty order against the appellant in September, 2019 for certain disclosure violations in mid-May 2010 by issuing a show cause notice on June 26, 2018 has caused prejudice to the appellant and the order suffers from laches, as held in this Tribunal's Order in the matter of Ashok Rupani (supra). 31. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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