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TMI Blog2022 (7) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... These principles underpin the rule of law , check arbitrariness and are read as the intent of the legislation, which the Courts, if need be, will enforce as a principle of interpretation. The Board is entrusted to preform legislative, executive, investigative and adjudicatory functions. In the context of the present case, it is to be noted that the Board is the draftsman of the legislation having enacted the Takeover Regulations 1997 and hence, their interpretation and understanding of the Regulations is of importance and relevance. In the context of the present case, the Board, nearly five years after the transactions, had issued the show-cause notice and then passed an order taking a view on interpretation of Regulation 10, which was contrary to the view expressed by it in several communications as also orders passed by the adjudicating authority. Past is passed and not present, and by giving retroactive operation without good reason. Regulation 10 of the Takeover Regulations 1997, as interpreted and applied by the Board for over ten years, is sought to be overturned by the Board, thereby, creating penal consequences. This should not be permitted and is hardly acceptable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to sell their shares on or after 31st December 2012, possibity of distruption on the functioning market place, detrimental impact on the market place/investor confidence, qualitative impact of the retroactive directions on the law s santity predicated on predicibilty and legal stability, as well as undermining of the people s faith and trust on the Board as the protector of law. The directions, therefore, cannot be sustained. There is, as noticed and held below, some merit in the contention of the Board that the Appellate Tribunal could not have imposed penalty under Section 15-H when proceedings under the said Section had not been invoked by the Board and there is no order passed by the adjudicating authority imposing penalty under Section 15-H of the Act. However, the effect of the argument raised by the Board would be that the order passed by the Whole Time Member under Regulation 44 giving directions would be quashed and set aside. The respondents would have, therefore, escaped without having to pay any penalty for violation of Regulation 11(1) of the Takeover Regulations 1997. It is in this factual background we have to decide the present appeals. As noticed above, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify and substitute the direction issued under Regulation 44 of the Takeover Regulations 1997 read with Sections 11, 11B and 11(4)(d) of the Act. Similarly, Appellate Tribunal can uphold, set aside, modify and even substitute the order of penalty under Chapter VI-A of the Act. The power to initiate and levy penalty in terms of Section 15-I is vested with an officer to be appointed by the Board, not below the rank of Divisional Commissioner, to act as an adjudicating officer. The adjudicating officer is required to hold an inquiry in the prescribed manner after giving the person a reasonable opportunity of being heard for the purpose of imposing any penalty. Powers are vested with the adjudicating officer to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document. The Appellate Tribunal in the case of Sunil Krishna Khaitan, could not have substituted the penalty imposed by the Board under Regulation 44 with that of penalty under Section 15-H. An appropriate view, in our opinion, would be that when the Appellate Tribunal holds that the order passed by the Whole Time member on violation of Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is engaged in the business of manufacturing and marketing of electrical goods. 4. KEL was founded by late Shri Krishna Khaitan (R12 in the appeal), who had passed away on 04th November 2012 and is represented by his legal representatives. The promoter group consists of his family member/relative and associate entities, which include other respondents in the appeal, namely Sunil Krishna Khaitan, M/s. Khaitan Lefin Limited and M/s. The Oriental Mercantile Company Limited (R11st, R13rd and R14th respectively). 5. In the Extraordinary General Meeting held on 23rd March 2006, the shareholders of KEL had approved issuance of 10,00,000 equity share warrants with the face value of Rs. 10/- each at a premium of Rs. 50/- each on preferential basis to the respondents. The warrants were to be converted into equity shares within a period of eighteen months from the date of allotment. 6. In the Extraordinary General Meeting held on 29th November 2006, the shareholders had approved issuance of 10,00,000 warrants with face value of Rs. 10/- each with premium of Rs. 121/- each on preferential basis to M/s. Khaitan Lefin Limited (R13), For short, KLL an identified member of the promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 11(1) of the Takeover Regulations 1997 and, therefore, the respondents shall make a combined public announcement to acquire shares of the target company, 9 namely KEL, in terms of Regulations 10 and 11(1) of the Takeover Regulations 1997 within forty-five days of the order. Further the respondent, along with the consideration amount, shall pay interest @ 10% per annum from 16th June 2007 till the date of payment to the shareholders who were holding shares in KEL on the date of violation, and whose shares shall be accepted in the open offer, albeit after adjustment of dividend, if any, paid. The effect of the aforesaid direction in the order dated 31st December 2012 would be examined by us subsequently. 11. The respondents preferred an appeal before the Appellate Tribunal, which by the impugned order has been partly allowed. The Appellate Tribunal has held that Regulation 10 was not violated, but Regulation 11(1) was violated albeit the direction with regard to issue of public announcement and open offer was not sustainable at a belated stage. There was a delay of about 5 years in issuing show-cause notice relating to acquisition/incidents which pertain to the year 2006-07, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count the acquisitions made by R23 on 26th April, 2006 and 11th April, 2007 and thereby, revise the offer price to the shareholders. 19. The respondents challenged the letter before the Appellate Tribunal, which vide impugned order dated 31st October 2013 allowed the appeal and permitted the respondents to continue with their offer excluding the Board s directions relating to the acquisitions by R23 in the years 2006 and 2007. The impugned order observes that the Board by such letters could not issue directions to listed companies, by terming it as a mere advice without giving any choice in the matter. Further, placing reliance on the impugned order herein in Sunil Khaitan v. SEBI, Appeal No. 23 of 2013 decided on 19th June 2013, the Appellate Tribunal observed that to determine whether or not the limit under Regulation 10 has been crossed, shareholdings of all members of the group of persons acting in concert would have to be reckoned as a whole.11 B. Contentions of the appellant/Board: 20. On 12th March 2007, individual shareholding of KLL (R13) in KEL had increased from 10.52% to 17.16%, whereas shareholding of the promoter group had collectively increased from 25.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company, and Regulations 11(1) of the Takeover Regulations 1997 provides for an exit option to the existing shareholders. 27. Regulation 3(3) of the Takeover Regulations 2011 makes explicit what was already implicit in the Takeover Regulations 1997, that in a case an individual within the group crosses the stipulated minimum shareholding threshold, such an individual shall make a public offer even when there is no change in aggregate shareholdings of the group, that is, persons acting in concert. Reference is made to the report of the Takeover Regulation Advisory Committee headed by Mr. C. Achuthan, which exhibits that Regulation 3(3) is to clarify the requirement that was already existing in the Takeover Regulations 1997. 28. There is no estoppel against a statute and, therefore, the respondents in appeals herein cannot take any advantage and plead that the Board is deviating from its earlier stance. Reference is made to Sanjiv Coke Manufacturing Company v. M/s. Bharat Coking Coal Limited and Another. (1983) 1 SCC 147 In fact, the interpretation given by the Board in these appeals has been accepted by the Appellate Tribunal in certain cases. 29. The Board has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Securities and Exchange Board of India v. Saikala Associates Limited. (2009) 7 SCC 432. 32. The Appellate Tribunal does not exercise jurisdiction under Article 226 of the Constitution of India and is a creation of the statute and, therefore, cannot pass any order inconsistent with the scheme of the Act. Thus, imposition of monetary penalty for violation of Regulation 11(1) of the Takeover Regulations 1997, as directed by the Appellate Tribunal, is contrary to law and would also result in weakening of investor confidence in securities market as defaulters would be able to escape the obligation. 33. Lastly, the delay in issue of show-cause notice itself would not exonerate the defaulters under the Act and the relevant Regulations, as has been held in Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari. (2019) 5 SCC 90. 34. For brevity, we are not reproducing the submissions made by the respondents as they would be noticed subsequently and are inferable from our reasoning, which upholds the orders by the Appellate Tribunal on the interpretation of Regulation 10 of the Takeover Regulations 1997. Secondly, we have upheld the order of the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, or any company which is a holding company, subsidiary or relative of the acquirer : Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work; (x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company. Note : For the purposes of this clause ―associate‖ means,- (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families; xx xx xx 6. Transitional provision. (1) Any person, who holds more than five per cent shares or voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall make disclosure to the target company and the stock exchange within two days of creation of pledge. (2) The disclosures mentioned in sub-regulations (1) and (1A) 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. (2A) The stock exchange shall immediately display the information received from the acquirer under sub-regulations (1) and (1A) on the trading screen, the notice board and also on its website. (3) Every company, whose shares are acquired in a manner referred to in subregulations (1) and (1A), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations (1) and (1A). 8. Continual disclosures. (1) Every person, including a person mentioned in regulation 6 who holds more than fifteen per cent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concert with him holds, fifty-five per cent (55%) or more but less than seventy-five per cent (75%) of the shares or voting rights in a target company, shall acquire either by himself or through or with persons acting in concert with him any additional shares entitling him to exercise voting rights or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations: Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the 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 conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect acquisition in a listed company to which the regulations apply; (b) indirect acquisition by virtue of acquisition of companies, whether listed or unlisted, whether in India or abroad. 12. Acquisition of control over a company. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations: Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a special resolution passed by the shareholders in a general meeting: Provided further that for passing of the special resolution facility of voting through postal ballot as specified under the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001 shall also be provided. Explanation - For the purposes of this regulation, acquisition shall include direct or indirect acquisition of control of target company by virtue of acquisition of companies, whether listed or unlisted and whether in India or abroad. D. Interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and the stock exchange within two days of creation of the pledge. Sub-regulation (2A) to Regulation 7 states that the stock exchange shall immediately display the information received from the acquirer under sub-regulation (1) and (1A) on the trading screen, the notice board and also on its website. Sub-regulation (3) requires every company whose shares are acquired in the manner referred to in sub-regulation (1) and (1A) to disclose to all stock exchanges, on which the shares of the said company are listed, the aggregate number of shares held by such persons referred above, within seven days of receipt of information under sub-regulation (1) and (1A) of Regulation 7 of the Takeover Regulations 1997. 38. Regulation 6 exposits transparency and openness which is required in the form of disclosure to be made by the shareholders, promoters or a person having control over the company, as well as the company in which they hold the shares. The information is not only given to the stock exchanges where the shares of the company are listed but are also put in the public domain so as to inform the shareholders and others. Similar transparency and openness is mandated by Regulation 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulations 1997, is broad, wide and is given an expansive definition. An acquirer is a person who directly or indirectly acquires or agrees to acquire shares or control over the target company by himself or with any person acting in concert with him. The phrase directly or indirectly as well as the expressions acquired shares or voting rights and with any person acting in concert with the acquirer underlines the extensive and widespread ambit of the term acquirer . The term acquirer is not restricted to the person or individual shareholder as it encompasses any other person acting in concert with the acquirer . 41. The expression person acting in concert as defined in clause (e) to Section 2(1) is again broad and expansive. The expression person acting in concert as per sub-clause (1) to Clause (e) includes a person, who for a common object or for purpose of substantial acquisition of shares, voting rights, gaining control over the company, pursuant to an agreement or understanding formal or informal, directly or indirectly, cooperate by acquiring or agreeing to acquire shares or voting rights in a target company or to take control over a target company. Sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer; 2(e) person acting in concert comprises, - (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly cooperate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. (2) Without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established: 22. A simple reading of the definition of the word acquirer makes it clear that an acquirer may act alone or as part of a group of persons acting in concert. On the other hand, the definition of persons acting in concert reveals that people who cooperate with each other in order to acquire substantial voting rights in a particular company would be considered persons acting in concert. At this point, we find it necessary to quot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the new Takeover Code retrospectively. 23. Therefore, it is evident that the framers of the Takeover Regulation, 1997 intended to bring out a clear distinction between individual acquiring of shares on one hand and shares acquired by persons acting in concert on the other. The benchmark of 15% would, thus, apply to an individual when the individual is acquiring shares/voting rights on his behalf alone. Similarly, when we attempt to determine whether or not the said limit has been crossed, shareholdings of all members of the group of persons acting in concert would have to be reckoned as a whole. Any other interpretation which would serve to dilute the distinction between an individual acquirer and a group of persons acting in concert as an acquirer. It would, indeed, make the concept of persons acting in concert nugatory, which could never have been the intention of the law makers. We, therefore, find Appellant No. 3 free of any blame with respect to provisions of regulation 10 of the SAST Regulations, 1997 regarding his acquisitions in the years 2006 and 2007. (Emphasis Added) 44. We agree with the interpretation. Regulation 10 states that no acquirer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, the interpreter is entitled to infer that the intention of the draftsmen is to deviate and depart from the ordinary, literal or customary meaning. Therefore, when a statutory enactment consciously defines a word or expression by enlarging or restricting the ordinary meaning, in the absence of clear indication to the contrary, the term as defined shall cover what is proposed, authorised, done or referred to in the enactment. Lord Lowry, Wyre Forest District Council v. The Secretary of State for Environment, 1990 2 AC 357 This principle can be also discarded when the definition read and applied would not agree with the subject and context thereby making the provision unworkable or otiose. 46. In the context of Regulation 10, we do not think that the draftsmen had committed a mistake or had forgotten the definition clauses while wording Regulation 10, wherein they have consciously used the expression acquirer , after having defined the same, instead of the word a person , which word has been used in Regulations 6 and 8 of the Takeover Regulations 1997. To accept the interpretation given by the Board, we would have to stretch the language of Regulation 10 and not read it as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 5% of the voting rights. 49. The contention of the Board that the interpretation by the Appellate Tribunal defeats the object and purpose of the Takeover Regulations 1997 is a feeble and evanescent argument. The interpretation, does not render Regulation 10 ineffective to deal with cases where an individual, parts ways with the person(s) acting in concert to acquire shares beyond the threshold of 15% with the intend to gain control or stake in the target company. The argument overlooks the wording of Regulations 2(1)(b) and (e). A person acting in concert as defined in clause (e) to Regulation 2(1) is a fluctuating and not a fixed body of persons. When there are divisions and differences between or amongst the person acting in concert , or even otherwise, an acquirer acts at his own behest or in concert with a different persons or group, Regulation 10 may catch up. Definitions of the terms, acquirer and person acting in concert are situation and fact specific. The legal fiction vide sub-clause 2 to Section 2(1)(e), specifically stipulates - unless contrary is established. Yes, there could be situations when the person(s) acting in concert holding more than 15% voti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirer to exercise 15 /o or more of the voting target company. Where the shareholding of the promoters is already more than 15 /o, this regulation will not be triggered by acq (sic.) additional shares by such promoters. In your case, the promoters' shareholding in the company is stated to be 41.95 /o. Therefore, if a of conversion of warrants into equity shares by promoters of the company, regulation 10 as it exists today prevails, it will not app (sic.) acquisition of additional equity shares. 2. Letter dated 03rd December 2004 written to Kanishk Steel Industries Limited (CFD/DCR/AK/IG/2004) 4. Without necessarily agreeing with your analysis, the following is stated in response to your clarifications; a) Since the promoters of Kanishk Steel Industries Limited and persons acting in concert are already holding 69.55% shares regulation 10 of SEBI (Substantial Acquisition o (sic.) and Takeover) Regulations, 1997, (said Regulations) shall not be applicable. After the preferential allotment of 80,00,000 shares, the shareholding of the promoters and a (sic.) (who will also be Persons Acting in Concerts) shall increase to 74. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person acting in concert , already had shares or voting rights in excess of the prescribed limit, they were not held guilty of violating Regulation 1028. 52. It is important for the regulator to be consistent and predictable. Further regulations must be clear as ambiguous regulations cause confusion and uncertainty. Regularity and predictability, along with certainty, are hallmarks of good regulation and governance. These principles underpin the rule of law , check arbitrariness and are read as the intent of the legislation, which the Courts, if need be, will enforce as a principle of interpretation. The Board is entrusted to preform legislative, executive, investigative and adjudicatory functions. A regulator when it executes statutory functions interprets the enactment and gives meaning and, in that sense, lays down what is believes is the rule. As a legislator who constructs and states at the first instance what is the rule, the Board tacitly promises and prophecies the interpretation that appeals to them. Any good regulatory system must promote and adhere to principle of certainty and consistency, providing assurance to the individual as to the consequence of transactions f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother (2020) SCC Online SC 968 wherein reference was made to earlier judgment in National Buildings Construction Corporation v. S. Raghunathan and Others (1998) 7 SCC 66 to reiterate that claims based on legitimate expectations have been held to acquire reliance on the representations and resulting detriment to the complainant in the same way as claims based on promissory estoppel. 54. In the context of the present case, it is to be noted that the Board is the draftsman of the legislation having enacted the Takeover Regulations 1997 and hence, their interpretation and understanding of the Regulations is of importance and relevance. In the context of the present case, the Board, nearly five years after the transactions, had issued the show-cause notice and then passed an order taking a view on interpretation of Regulation 10, which was contrary to the view expressed by it in several communications as also orders passed by the adjudicating authority.Past is passe and not present, and by giving retroactive operation without good reason and ground See our findings below , the direction violates fundamental notions of predictability and legal stability. Methew P. Harrington: For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts, therefore, try to avoid adopting a construction which penalises a person where the legislature s intention to do so is doubtful. 56. We would quote Section 278 from the Bennion on Statutory Interpretation, 5th Edition, Indian Reprint, which reads as under: Section 278. Statutory interference with economic interests One aspect of the principle against doubtful penalisation is that by the exercise of state power the property or other economic interests of a person should not be taken away, impaired or endangered, except under clear authority of law. In the comments in Section 278 of the treatise, it is stated that the presumption against imposition of statutory detriment to a person s property or other economic interest has been recognised and explained in Entick v. Carrington (1765) 19 State Tr 1029 at 1060 by Brat C.J. in the following words: The great end for which men entered into society was to secure their property. That right is preserved sacred and incommunicable in all instances where it has not been abridged by some public law for the good of the whole. 57. The principle of doubtful penalisation has limited value when interpreting beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said decision and as a finding on the interpretation of Regulation 10. 48 Decision dated 25th July 2012 of the Appellate Tribunal in Hanumesh Realtors Private Limited v. Securities and Exchange Board of India Before Securities Appellate Tribunal, Mumbai, Appeal No. 66 of 2012, Date of Decision: 25.07.2012 is per incuriam as it has referred to the decision in Swedish Match (supra), which decision relates to and interprets Regulation 11(1). In the present reasoning, we are not dealing and interpreting Regulation 11(1) but Regulation 10 of the Takeover Regulations,1997. 60. Contention of the Board that there is no estoppel against law is well known, but the said principle is not applicable for several reasons. First, the interpretation accepted by the Appellate Tribunal is not only plausible but more acceptable than the interpretation propounded by the Board. Secondly, the Board, which has the power to enact the Regulations, interpret and apply them, adjudicate and also pass a penalty order in case of violation for good and substantial reasons had interpreted regulations in the same manner in earlier instances as interpreted by the Appellate Tribunal. Thirdly, the adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and made a part of the regulatory mechanism under the Takeover Regulations 2011. 63. It is a general rule of law of interpretation that unless explicitly mentioned, a law cannot be presumed to be retrospective. In Commissioner of Income Tax, (Central) -I, New Delhi v. Vatika Township Private Ltd., (2015) 1 SCC 1 a constitution bench decision, this court observed that: 31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow s backward adjustment of it 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness , which must be the basis of every legal rule as was observed in the decision reported in L Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997. We proceed on the basis that the respondents are guilty and have failed to make public announcement within stipulated timeline as per the Takeover Regulations 1997. 65. As noticed above, the contention of the Board is that the Appellate Tribunal should not have modified the direction given by the Whole Time Member obligating public announcement with the monetary penalty of Rs. 25,00,000/-. 66. Regulations 44 and 45 of the Takeover Regulations 1997 read thus: 44. Directions by the Board. Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including: (a) directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulation 10, 11 or 12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale; (b) directing transfer of any proceeds or securities to the Investors Protection Fund of a recognised stock exchange; (c) directing the target company or depository to cancel th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act: Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulations applicable to such intermediary is complied with. (5) For any mis-statement to the shareholders or for concealment of material information required to be disclosed to the shareholders, the acquirers or the directors where the acquirer is a body corporate, the directors of the target company, the merchant banker to the public offer and the merchant banker engaged by the target company for independent advice would be liable for action in terms of the regulations and the Act. (6) The penalties referred to in sub-regulations (1) to (5) may include:- (a) criminal prosecution under section 24 of the Act; (b) monetary penalties under section 15H of the Act; (c) directions under the provisions of section 11B of the Act; (d) directions under section 11(4) of the Act; (e) cease and desist order in proceedings under section 11D of the Act; (f) adjudication proceedings under section 15HB of the Act. Civil Appeal No. 8249 of 2013 Anr. Page 58 of 85 67. It may be also relevant to reproduce here Sections 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the directions issued by the Board can include the directions given in clauses (a) to (i), albeit the Board may issue directions even beyond what is stated in clauses (a) to (i). Thus, the Board s power to give directions is wide. This is also clear from the relevant provisions of the Act, namely, Section 11 and 11B and Sections 11(2)(h), which read: 11. Functions of Board. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. xx xx Xx 11-B. Power to issue directions. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors of securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board, after making or causing an inquiry, may issue directions if it is satisfied that it is necessary in the interest of the investors, or orderly development of the securities market; to prevent the affairs of any intermediary or other persons referred to in Section 12 from conducting affairs in a manner detrimental to the interest of the investors or to secure proper management of such intermediary or persons. Section 11(2)(h) provides that the Board is entitled to take measures for regulating substantial acquisition of shares and takeover of companies. Regulation 44 states that the Board while issuing directions, has to keep in mind the interest of the securities market and its role as a protector of interest of investors. We will read the word or between the expression in the interest of securities market or protection of investors as and . The Board, therefore, when it decides to exercise its power under Regulation 44 and issues directions under the said Regulation has to keep the two facets in mind, namely, (i) interest of the securities market; and (ii) protection of interest of the investors. The exercise of discretion of the Board, in fact, would not be restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the public authority to ensure that discretion is used as an effective tool in regulation or administration but does not cause confusion, chaos and instability. 72. In the context of Regulations 44 and 45, it implies that the Board has the power to make a choice between different courses of action or inaction. This choice is not unfettered but is always held subject to implied limitations inherent in every statute, limitations set by the common law and the constitutional mandate of rule of law. The underlying rationale of giving discretion is to ensure that the Board exercises the discretion in consonance with legitimate values of public law, which include need to maintain legal certainty and consistency which are at the heart of the principle of rule of law. 63 These have to be balanced with other equally legitimate public law value, which is the object and purpose of the enactment. The need for the said flexibility is given and is necessary to meet unusual and practical situations and to do justice in a particular case. C. Hilson, Judicial Review, Policies and the Fettering of Discretion [2002] P.L. 111; D. Galligan, The Nature and Functions of Policy Within Discretion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that any person violating a provision of the regulations shall be liable in terms of the Regulation, that is, the Takeover Regulations 1997 and the Act. Sub-regulation (6) to Regulation 45, with reference to the penalties, states that it would include monetary penalties under Section 15-H of the Act. It may also include directions under the provisions of Section 11B and 11(4) of the Act. Further, there is power to issue cease and desist order in proceedings under Section 11D of the Act. Criminal prosecution under Section 24 of the Act can also be initiated. Lastly, adjudicating proceedings under Section 15-H of the Act can be held. Therefore, the authorities have a right to take recourse to multiple proceedings which have been loosely classified and referred to as penalties in Regulation 45(6). Nowhere, however, Regulation 45 stipulates that in case of violation of Regulations 10, 11 or 12 of the Takeover Regulations 1997, the Board must initiate action and issue directions in terms of Regulation 44. The Board, in appropriate case, may take action under Regulation 44 and issue directions, but when it issues such directions, it must keep in mind the interest of securities mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter delay, the noticees shall pay interest on consideration amount as provided under the Takeover Regulations, 1997 to the shareholders who tender their shares in the open offer and who are eligible for interest as per law. 35. I, therefore, in exercise of powers conferred upon me under sections 19, 11 and 11B of the SEBI Act, 1992 and regulations 44 and 45 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulation 32(1)(h) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby issue the following directions: (a) The noticees, Mr. Sunil Krishan Khaitan, Mr. Krishan Khaitan, Khaitan Lefin Limited and The Orientale Mercantile Company Limited shall make a combined public announcement to acquire shares of the Target Company, Khaitan Electricals Limited, in terms of regulations 10 and 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, within a period of 45 days from the date of this Order. (b) The noticees shall, along with consideration amount, pay interest at the rate of 10% per annum, from June 16, 2007 to the date of payment of consideration, to the sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be imposed instead of calling upon the Appellants to make a combined public announcement to acquire shares of the Company at this belated stage. The requirement of making a public announcement would be totally superfluous in the facts and circumstances of the case and would not beget any good. The objective of the preferential allotment of shares in question was only to address the working capital requirements of the Company for its smooth day to day functioning. Therefore, a stable, low-cost funding-source, such as preferential allotment, was undertaken in the larger interests of the Company and, in effect, its shareholders. In this connection, it is pertinent to note that the allotment of preferential shares in question was made after seeking approval of the shareholders of the Company in two duly convened EGM s held on March 23, 2006 and November 29, 2006. 37. Lastly, the acquisitions/ incidents pertain to the year 2006-2007. The show cause notice was issued by the Respondent on March 26, 2012. After holding proceedings against the Appellants, the Impugned Order came to be passed only on December 31, 2012. We note that there is an inordinate delay of about 5 years even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e draft letter of offer submitted to the Board for approval on 19th September 2011 pursuant to the public announcement made by PLL on 9th September 2011, it must be stated, is rather odd and defies objectivity and logic. The Appellate Tribunal is right in noticing that there was lack of clarity on the part of the Board as to the provision under which the power has been exercised, as the Board s power under Regulation 18 of the Takeover Regulations 1997 is to specify changes, if any, in the letter of offer, without there being any obligation on the part of the Board to do so, and thereupon the merchant banker and the acquirer are required to carry out such changes before the letter of offer is despatched to the shareholders. As per sub-regulation (2), the letter of offer is to be despatched to the shareholder not earlier than 21 days from the date of submission of the letter of offer to the Board in terms of sub-regulation (1). In this case, directions of the Board for amendment of the letter of offer was issued after a lapse of more than one year as the draft letter of offer was submitted on 19th September 2011 and the directions were issued vide letter dated 17th December 2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the violation was hidden and camouflaged and thereby the Board or the authorities did not have any knowledge. Though, no hard and fast rules can be laid down in this regard as determination of the question will depend on the facts of each case, the nature of the statute, the rights and liabilities thereunder and other consequences, including prejudice caused and whether third party rights have been created are relevant factors. Whenever a question with regard to inordinate delay in issuance of a show-cause notice is made, it is open to the noticee to contend that the show-cause notice is bad on the ground of delay and it is the duty of the authority/officer to consider the question objectively, fairly and in a rational manner. There is public interest involved in not taking up and spending time on stale matters and, therefore, exercise of power, even when no time is specified, should be done within reasonable time. See State of Gujarat v. Patil Raghav Natha and Others, (1969) 2 SCC 187 at para 11; Mansaram v. S.P. Pathak and Others, (1984) 1 SCC 125 at para 12; Government of India v. Citedal Fine Pharmaceuticals, Madras and Others, (1989) 3 SCC 483 at para 6; State of Oriss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the argument raised by the Board would be that the order passed by the Whole Time Member under Regulation 44 giving directions would be quashed and set aside. The respondents would have, therefore, escaped without having to pay any penalty for violation of Regulation 11(1) of the Takeover Regulations 1997. It is in this factual background we have to decide the present appeals. As noticed above, the respondents have not filed appeals or cross objections challenging the penalty imposed by the Appellate Tribunal for violation of Regulation 11(1) of the Takeover Regulations 1997. F. Power of the Appellate Tribunal under section 15T of the Act: 85. The last aspect of the present appeals relates to the power of the Appellate Tribunal. In reference to impugned judgment in Appeal No. 23 of 2012 Sections 15-T of the Act read as under: As it existed pre-2014 and 2017 amendment 15T. Appeal to the Securities Appellate Tribunal. (1) Save as provided in subsection (2), any person aggrieved,- (a) by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of Regulation 11(1) of Takeover Regulation 1997. We have briefly referred to the reasoning in the earlier paragraphs, and commented on the same. We have also reproduced the reasoning given by the Appellate Tribunal to substitute the direction of the Whole Time Member with that of the penalty. 87. The appeal before the Appellate Tribunal under Section 15T, is the first appeal against the decision of the Board or the adjudicating officer. First appeal is a continuation or is co-terminus with the proceedings of the original adjudicating authority. See, Commissioner of Income Tax, U.P., Lucknow v. Kanpur Coal Syndicate, Kanpur, AIR 1965 SC 325; Jute Corpn. of India Ltd. v. Commissioner of Income Tax and Another, 1991 Supp (2) SCC 744; Commissioner of Income Tax, M.P., Bhopal v. Nirbheram Daluram, (1997) 10 SCC 373; National Thermal Power Co. Ltd. v. Commissioner of Income Tax, (1997) 7 SCC 489 The first appeal is a valuable right of the party aggrieved, and all questions of fact and law decided by the Board or the adjudicating authority, including exercise of discretion whether within the law, are open for full consideration and examination. 70 The Appellate Tribunal, in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be imposed on a person violating any of the provisions of the Regulations. The Appellate Tribunal does not have the power for the first time to initiate and thereupon, impose penalty for non-compliance of the provisions of the Regulations under Chapter VI-A of the Act while deciding an appeal against directions issued under Regulation 44 of the Takeover Regulations, 1997. That power is vested with the authority specified in the Act or the Regulations. The Appellate Tribunal is an appellate forum and not the authority empowered to initiate penalty proceedings under Section 15-H or suo moto issue directions under Section 11, 11B or 11(4)(d) of the Act. It can uphold or set aside the direction issued, or modify and substitute the direction issued under Regulation 44 of the Takeover Regulations 1997 read with Sections 11, 11B and 11(4)(d) of the Act. Similarly, Appellate Tribunal can uphold, set aside, modify and even substitute the order of penalty under Chapter VI-A of the Act. The power to initiate and levy penalty in terms of Section 15-I 73 is vested with an officer to be appointed by the Board, not below the rank of Divisional Commissioner, to act as an adjudicating officer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Time Member, albeit, as noticed above, directions were issued by the Board to amend the draft letter of offer submitted by PLL for the Board s approval on 19th September 2011, vide the Board s letter dated 17th December 2012. The Appellate Tribunal has adversely commented on the Board s conduct in issuing the said direction by directing amendment of the draft letter of offer. During the course of arguments, the Board has not specifically challenged the observations and the adverse finding of the Appellate Tribunal that such directions could not have been issued by the Board vide letter dated 17th December 2012. We will not make any comments or give findings in this regard. 28 Under sub-section (3) to Section 15-I, the Board has the power to call for and examine records of any proceedings if it considers the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market and after causing or making an inquiry pass an order enhancing the quantum of penalty if the circumstances of the case so justify. The second proviso states that an order under sub-section (3) can be passed by the Board after expiry of period of three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in order to carry out the intention of the legislature. As pointed out by Lord Macmillan in London and North Eastern Railway Co. v. Berriman [1946 AC 278, 295] where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficient its intention, beyond the fair and ordinary meaning of its language . 44 See Her Majesty The Queen ex rel. Linda Merk v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70; R. v. Hasslewander, [1993] 2 S.C.R. 398; R. v. Goulis (1981), 125 D.L.R. (3d) 137; Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002 at page 387: The rule [of strict construction] is difficult to reconcile with federal and provincial Interpretation Acts which provide that all legislation is to be deemed remedial and given a liberal and purposive interpretation. In the clearest possible language, this statutory directive requires doubts and ambiguities in penal legislation to be resolved in a manner that promotes the purpose of the legislation, regardless of the impact on accused persons. ; C t , Pier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle upon which the case is decided and for this reason, it is important to analyse a decision and cull out from it the ratio decidendi .. 73. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic discourse with universal applicability, but heavily grounded in the facts and circumstances of the case. Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be read keeping the logical thread intact . 50 27. We agree with the Respondent to the extent that the SEBI Act is certainly a social welfare legislation. But this does not take away from the undeniable fact that Regulations 3(3) of the SAST Regulations, 2011 introduced the provision stating that even in case of an individual s shareholdingcrossing the stipulated threshold, which is now 25%, the need to make a public offer shall arise. The Respondent has in all fairness has agreed that the new Takeover Code of 2011 does not apply retrospectively. We may observe that SEBI Act is not a social welfare legislation but an eco-legal legislation and, therefore, must be interpreted pragmatically taking into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia v. Opee Stock-Link Ltd. and Another, (2016) 14 SCC 134: 15. Upon perusal of the impugned order passed by SAT, we do not find any specific conclusion arrived at by SAT to the effect that the findings recorded by the WholeTime Member as well as the Adjudicating Officer of SEBI were incorrect. The appeals before SAT were in the nature of first appeal and therefore, it was open to SAT to reappreciate the evidence after looking at the facts of the case but upon perusal of the impugned order, we do not find any such finding to the effect that the findings arrived at by the Whole-Time Member as well as the Adjudicating Officer of SEBI were incorrect or perverse for a particular reason. (Emphasis Supplied) 72 15J.Factors to be taken into account by the adjudicating officer.- While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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