9911796707
TMI Blog2001 (1) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... llant held 51% of the issued capital of the company. Subsequently, the company allotted 16,05,020 equity shares to the Appellant through a preferential allotment. As a result of the said allotment the Appellant's aggregate holding in the Company's issued capital increased to 60%. This was in 1997. On 10.11.1998, the Appellant through its Merchant Bankers made an application to the Respondent seeking exemption under regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations) to make a public offer to acquire 14% of the issued capital of the company as against a minimum of 20%, required to be offered to the public under the Regulations. While examining the said proposal, the Respondent felt that since the holding of the Appellant in the company's capital increased from 51 % to 60%, as a result of allotment of 16, 05, 020 equity shares in 1997, the said acquisition attracted regulations 3 (4) and 11, of the 1997 Regulations, and decided to inquire into the matter. For the purpose, Chairman of the Respondent issued two separate orders, on 30.9.1999 and 10. 12.1999, ordering adjudication in the matter of violation of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 15A. He observed: that however does not mean that the Acquirer is not required to submit a report to SEBI under regulation 3 (4) of the 1997 Regulations . 4. On this count, the Adjudicating Officer imposed a sum of Rs. 1, 50, 000/- as penalty on the Appellant. The Appellant is aggrieved on this count. 5. Shri Aspi Chinoy, learned Counsel appearing for the Appellant narrated various steps taken by the company in the process of effecting the preferential allotment. He submitted that the meeting of the Board of Directors of the company held on 24.12.1996 recommended the preferential allotment. Thereafter an extra ordinary general meeting of the share holders, after due notice, was held on 23.1.1997 and therein the resolution for preferential allotment as required under section 81(1A) of the Companies Act, was passed. The company had informed the Stock Exchange, Mumbai (the stock exchange) well in time the preferential issue proposal put for consideration before the Board of Directors and the general body. Minutes of the general body meeting was also forwarded to the stock exchange. The company had received from the Appellant firm commitment to subscribe to the prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospective force, the preferential allotment did not attract the 1997 Regulations. 7. Shri Chinoy further submitted that even if it is assumed for argument sake that the 1997 Regulations were applicable to the instant case, the allotment being preferential allotment covered under regulation 3, there was no requirement to comply with the provisions of regulation 11, as concluded by the Respondent. According to regulation 3 nothing contained in regulations 10, 11, and 12 of the Regulations shall apply to the type of acquisition covered therein. 8. Coming to the charge of non compliance of the provisions of regulation 3 (4), the learned Counsel submitted that the Appellant was under bonafide belief that the provisions of the 1997 Regulations did not apply to the preferential allotment. The 1997 Regulations came into force on 20.2.1997, whereas the Appellant had agreed to buy the shares and the general body of the company had accorded the requisite approval before the said date. To show that failure to report under regulation 3 (4) by the Appellant was unintentional, the learned Counsel pointed out the fact that the company had reported well in time the proposed allotment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent has not in any way resulted in any gain to the Appellant or any loss to anybody. In this context the learned Counsel pointed out that Adjudicating Officer himself had agreed with the Appellant's submission that the delay in filing the report has not resulted in any gain, and that he has not mentioned anywhere in the order that the delay has caused any loss to anybody. Further that this is the first time that such a lapse occurred on the part of the Appellant. Analysing the provisions of section 151, the learned Counsel submitted that it is not mandatory on the part of the Adjudicating Officer to impose penalty even if he comes to the conclusion that the person had failed to comply with the specified requirements of the section. The Adjudicating Officer is vested with the discretion to impose penalty and that discretion is governed by Section 15J, which clearly provides the factors to be taken into consideration for the purpose of deciding the quantum of penalty. Countering the Respondent's contention that against the maximum penalty leviable under the Act the Adjudicating Officer had imposed only a token penalty, the learned Counsel submitted that it is not the quantu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal provisions and the Apex Court's observations, the Appellant should not have been penalised. 12. Shri Ananta Barua, authorised Representative of the Respondent submitted that there is no dispute about the material facts relating to the preferential issue of equity shares to the Appellant. According to him, the procedures preceding the preferential allotment followed by the company are of no relevance, to decide the applicability of the 1997 Regulations. The date of the actual allotment is the relevant date to be considered to decide the applicability of the 1997 Regulations and it was undoubtedly 4.3.1997. But he conceded that the Adjudicating Officer had accepted 2.6.1997 as the relevant date of acquisition, being the date on which the Appellant received the shares. He admitted that accepting 4.3.97 or 2.6.97 as the date of allotment is of no consequence for the limited purpose of deciding the applicability of the Regulations as both these dates are after the notification of the 1997 Regulations. According to Shri Barua in terms of regulation 3 (4) of the 1997 Regulation, an acquirer is required to report to SEBI certain details with supporting documents, in the eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a plain reading of section 15A it is clear that mens rea is not required for imposition of penalty under the section. The language of the section is clear enough to bring thereunder those persons who fail to comply with the requirement specified therein, irrespective of whether the persons had guilty intent or not. Since any person violating the provisions of the law would be liable to visit with the penalties prescribed irrespective of guilty intent, the decision of the Adjudicating Officer imposing monetary penalty on the Appellant is justified. In support of his contention that mens rea is not an essential ingredient of the offence to impose monetary penalty under 15A of the Act, Shri Barua cited the Supreme Court's observation in Gujarat Travancore Agency vs. The Commissioner of Income Tax (AIR 1989 SC 1671) and Addl Commissioner of Income Tax vs. I.M.Patel Company (AIR 1992 SC 1762) and the view expressed by this Tribunal in the SRG Infotech Ltd Vs. SEBI (1999 (22) SCL 422: 1999(35) CLA 473: 2000 CLC 225). 15. I have carefully considered the propositions put forth by the Appellant and the opposition made by the Respondent in their respective pleadings and oral sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Compliance of the provisions of regulation 3 (4) is a post acquisition requirement. Therefore, I have no hesitation to hold that the preferential allotment made to the Appellant comes under the purview of the 1997 Regulations and thereby regulation 3 (4) is attracted. 16. Yet another submission by the Appellant is that since its request for exemption from the compliance of regulation was granted by the Respondent on 3.12.1998 and the delay in complying with requirement under regulation 3 (4) was within the knowledge of the Respondent at that point of time and the Appellant had also sought condonation of the delay specifically while seeking the exemption referred to above and that the 'report' having been already taken on record, the inference is that the delay is also condoned. But this is only the assumption, and not the reality. The Respondent's order dated 3.12.1998 is with regard to compliance of the requirements of regulation 11 relating to further acquisition of shares and its scope is limited to the said extent. The Appellant had sought condonation of delay involved in complying with the provisions of regulation 3 (4) while seeking exemption and as such, gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirement of public offer attracted the case and if so the same has been done. Objective is no doubt laudable. But the question is whether non- reporting in the instance case has in any way defeated the said objective, effected transparency or the shareholders interest. On a perusal of the sequence of events narrated in the pleadings it is clear that the Appellant or the company had no intention to suppress any material information from the Respondent or the shareholders. The company had informed the stock exchange, Registrar of Companies, etc. well in time the details of the proposal such as the quantum of shares proposed to be issued by a way of preferential allotment, the price at which the shares were proposed to be issued, the name of the party to whom the allotment was proposed to be made, etc. In fact, while forwarding to the stock exchange the notice of the Extra Ordinary Meeting of the share holders convened for seeking approval for the preferential allotment, the company had requested the exchange to display the notice on the Notice Board for information of the members of the exchange, as could be seen from the copy of the forwarding letter dated 2.1.1997 annexed to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nature of the default . 21. On a perusal of section 151 it could be seen that imposition of penalty is linked to the subjective satisfaction of the Adjudicating Officer. The words in the section that he may impose such penalty are of considerable significance, especially in view of the guidelines provided by the legislature in 15J the Adjudicating Officer shall have due regard to the factors stated in this section is a direction and not an option. It is not incumbent on the part of the Adjudicating Officer, even if it is established that the person has failed to comply with the provisions of any of the sections specified in sub section (1) of section 151, to impose penalty. It is left to the discretion of the Adjudicating Officer, depending on the facts and circumstances of each case. 22. In this context, it is relevant to have a look at the clear-cut guidelines provided by the Supreme Court in Hindustan Steel's case (supra). Para 7 from the judgement considered releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case are reasonably comparable with the case cited above. In the light of the clear observation of the Court as to when penalty for failure to carry out a statutory obligation could be imposed, it is to be seen as to whether the facts of the present case warranted penalty. The facts to be considered are whether there is anything to show that the Appellant acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. It is also to be seen that whether the breach flows from a bonafide belief of the Appellant that it was not liable to act in the manner prescribed by the statute. 26. In this context it is also relevant to know the significance of the expression shall be liable to a penalty appearing in the section 15A. The Supreme Court in Superintendent Remembrancer of Legal Affairs to Govt. of West Bengal (supra) held that the expression shall be liable to a penalty occurring in many statutes has been held as not conveying the sense of absolute obligation or penalty but merely importing a possibility of such obligation or penalty . 27. As already stated above, in terms of section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of clinching evidence, to disbelieve the Appellant's version that it was under genuine belief that regulation 3 (4) was not applicable to the allotment. The breach flows from the bonafide belief that it was not liable to comply with the requirements under rule 3 (4) and this has to be viewed in the light of the Supreme Court's observation in Jiwani's case relied on by the Appellant. In fact the Adjudicating Officer himself has admitted in para 4.1.4 of the order that this case however relates to a transitional period. The process of acquisition took place while the 1994 regulation was in force. The actual allotment/acquisition took place while the 1997 Regulations come into force. In that process there was lack of clarity on the part of the acquirer as to the applicability of 1997 Regulations . Keeping all the factors in view, the benefit of doubt was given to the acquirer and no penalty was imposed in terms of section 15H (ii) of the Act. In this context I am tempted to observe that even otherwise regulation 11 will not be attracted to the company's preferential allotment in view of the fact that the acquisition is covered under regulation 3. Even though ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
