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TMI Blog1998 (4) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... y carrying out an investigation and based on the findings thereof, the matter was referred for adjudication. The Adjducating Officer, after enquiry, came to the conclusion that Shri Doshi violated regulations 6 and 9 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations , 1994 (the Takeover Regulations) and resultantly vide order dated 25.11. 97 imposed one lakh rupees as penalty against him. Aggrieved by this, shri Doshi has appealed to this tribunal praying that the penalty be dropped or the same be substantially reduced . Shri Lalit Ratadia, authorised Representative appearing for the Appellant, submitted that the purchase of shares in question did not attract the provisions of the Takeover Regulations. According to Shri Ratadia, in June 1995 the Appellant alongwith one Shri Dhiren Dhokia entered into an agreement with the members of one Dalmia family who were holding substantial number of shares in the capital of ATL, to participate in the company s management, with the understanding that the said Dalmia family members will give their shares along with the transfer deeds on payment of purchase consideration that the deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected by SEBI. But the draft offer document for the purpose submitted to SEBI for clearance in February 1996 was yet to be approved. According to the learned Representative, non compliance of the regulations is a technical default and does not warrant any penalty , that if such a technical lapse should be punished, the penalty should have been minimal only, and that the quantum of penalty imposed by the Adjudicating Officer by any standard is highly disproportionate to the gravity of the offence. The fact that the default is only technical in nature and that no loss has been caused to any investor, has been over-looked by the Adjudicating Officer while deciding the quantum of penalty and the quantum has been fixed in an arbitrary manner in total disregard to the guiding principles provided in Section 15J of the SEBI Act. Shri Ananta Barua , an Officer of SEBI representing the Respondents, submitted that this is a clear case of intentional violation of the provisions of the Takeover Regulations by the Appellant for personal gains. Referring to various paragraphs in the Memorandum of Appeal in support , he pointed out that the Appellant was fully aware of the requirements of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the same to ignorance or inadequate understanding of the law, cannot be a valid ground to absolve the appellant from the charge. He further submitted that , but for the discovery of the irregularities by the Income Tax department and the apprehension that the Income Tax Department would report the matter to SEBI and the fear of penal action by SEBI, the appellant would not have come forward. He pointed out that the appellant had not made any offer as has been claimed and as such the question of public response to the offer did not arise. Regarding the imposition of penalty and its quantum. Shri Barua submitted that the offence has to be viewed in the light of the fact that the transaction is of a commercial nature for personal gains, disregarding the principles of equity, fair play and transparency. According to him , taking into consideration the facts of the case as admitted by the appellant and the gravity of the offence, the penalty of one lakh rupees imposed by the Adjudicating Officer cannot be considered high. I have heard the views of the respective parties. Material facts are not in dispute in this case. The appellant on 16.06.95 acquired from NFPL 20,000 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the deal,the shares would revert back to the sellers, and that the shares will carry voting rights only on entering the transfer of shares in the company s records, in my view, is devoid of any legal support. The appellant has not substantiated the contention that the transaction was subject to reversal. In any case, the Takeover regulations do not exempt such adhoc acquisition from its scope. In this context, it is pertinent to mention that the obligation to comply with the regulation under reference is cast on the acquirer. A combined reading of regulations 9(1) and 13 would clearly show that the time limit prescribed for public announcement to acquire shares is relatable to the finalisation of the negotiations or entering into the agreement or memorandum of understanding to acquire shares. Date of registration of shares acquired in the Company s register is not the starting point. The argument that the shares will carry voting rights only after registration of the transfer in the company s register of members is not legally tenable. Provisions relating to company s shares, voting rights, etc are available in the Companies Act , 1956. According to section 86 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Authorities was in November 1995. Regulating substantial acquisition of shares and takeover of companies for protecting the interest of investors is one of the functions assigned to SEBI by the Act. For the purpose, SEBI has notified the Takeover Regulations. The Takeover Regulations provide for transparency in the transactions and also for following the principles of equity and fairness of the benefit of the shareholders at large. Regulation 9 which provides for a public announcement to acquire shares of company at a minimum offer price from the other shareholders is one of the core provisions in the Takeover Regulations for protecting the interest of the investors. The SEBI Act provides a maximum penalty of five lakh rupees for the offence of non disclosure of acquisition of shares or failure to make public announcement referred to above. The Act also provides for prosecution of offenders. In view of the stringent penal consequences provided in the Act, it is difficult to accept the appellant s version that non-compliance of regulations is a mere technical lapse to be viewed leniently. The contention that the penalty of one lakh rupees imposed by the Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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