BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.20/2003
Date of Hearing: 20th July, 2004
Date of decision: 31st Aug., 2004.
In the matter of
Godrej & Boyce Mfg. Co. Ltd., Appellant – Represented by
Shri M. S. Doctor, Advocate
Versus
Shri S. V. Krishna Mohan,
Adjudicating & Enquiry Officer,
Securities and Exchange Board
of India Respondent – Represented by
Shri Jaydeep Mitra, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Shri N. L. Lakhanpal, Member
Per : Dr. B. Samal, Member
The appeal was taken up with the consent of both the parties.
2. The appeal is against the impugned order dated 30th November, 2002 by the Adjudicating and Enquiry Officer imposing a penalty of Rs.90,000/- under section 15A(a) of the SEBI Act, 1992 for the failure of the appellant to submit a report to the Board of its acquisition of shares in the target company within the stipulated period i.e. 21 days from the said acquisition in terms of regulation 3(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
3. The appellant is the promoter of the target company and together with other companies in the promoters group is said to be acting in concert with it. This fact has been declared in the Letter Of Offer. They, as promoters group, had collectively expressed their intention to subscribe to their rights entitlement in full and also their intention to subscribe to any shortfall in subscription to the Right Issue by subscribing to their basic entitlement and subscribing for additional shares and/or subscribing for the rights renunciation of any shareholder (including one or more of the other promoter group companies). The appellant together with the other promoter group companies were in management control of the target company both before and after the Right Issue. Before the Right Issue, the percentage holding of the promoters and their group companies was 42.48% of the paid up and issued share capital of the target company. Post the Right Issue, their shareholding increased to 65.89%
4. The shareholding of the promoter group was as under:
(a) in excess of 10% of the paid up & issued share capital of the target company before the Right Issue
(b) The promoter group was in management control of the target company.
(c) Post the Right Issue, the promoter group increased their shareholding to 65.89% from 42.48% and continued to be in management control of the target company.
It was submitted by the appellant that the provisions of Regulation 3(4) of the SEBI (SAST) Regulations, 1997 are not applicable to the instant case. It was stated that the said provisions would be applicable in respect of a company and its group companies, acting in concert, together holding less than 10% of the paid up capital before the Right Issue in the target company and by virtue of the Right Issue increasing their holding beyond 10%. In the instant case as the promoters were already holding 42.48% of the paid up capital before the Right Issue, according to the appellant, regulation 3(4) is not applicable. Regulation 3(4) of the said regulations reads as under:
Regulation 3(1) reads as under:
“Applicability of the Regulation”
3(1) “Nothing contained in Regulation 10,11 & 12 of these regulations shall apply to:
(4) In respect of acquisition under clauses (a)(b)(***)(e) and (i) of sub-regulation (1), the acquirer shall within 21 days of the date of acquisition submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise 15% or more of the voting rights in a company.
(5) The acquirer shall along with report referred to in sub regulation 4, pay a fee of Rs.10,000 to the Board either by a Banker’s cheque or demand draft in favour of SEBI payable at Mumbai.”
It was pleaded on behalf of the appellant that the breach was an administrative lapse, hence, a lenient view be taken in the matter.
4. As already stated above, the appellant had made its intention clear in the Letter of Offer that it would take up additional shares renounced by other shareholders including the right renunciation from one or more of the other promoter group of companies. Therefore, the appellant pleaded that there was no clandestine or surreptitious manner of acquisition of further shares by the promoters.
5. The shareholding pattern of the acquirers before and after the Right Issue is as under:
|
|
Shareholding before Right issue (as on 06.01.00)
|
|
Shareholding after Rights issue As on 25.03.00
|
|
|
Name
|
Number
|
%
|
Number
|
%
|
|
Godrej & Boyce Mfg. Co. Ltd.,
|
82,000
|
0.51%
|
11,887,801
|
41.90%
|
|
Godrej Soaps Ltd.,
|
2,128,831
|
13.13%
|
2,128,831
|
7.50%
|
|
Godrej Capital Ltd.,
|
3,058.700
|
18.87%
|
3,058,700
|
10.78%
|
|
Swadesshi Detergents Ltd.,
|
131,766
|
0.81%
|
131,766
|
0.46%
|
|
Ensemble Holdings & Finance Ltd.,
|
11,484,864
|
9.16%
|
1,484,864
|
5.23%
|
|
Total
|
6.886,161
|
42.48%
|
18,691,962
|
65.89%
|
|
Equity of GFL
|
16,210,764
|
100.00%
|
28,368,837
|
100.00%
|
It can be seen from the above table that only Godrej & Boyce Mfg. Co. Ltd., had actually acquired shares in the Rights Issue thus increasing its holding from 0.51% to 41.90% of the post Right Issue capital of the target company. The other companies belonging to the promoters group did not acquire any shares in the Right Issue. It can also be seen from the above table that the total number of shares held by them had in fact, remained unchanged. Only with the increase in the post issued capital the percentage of shares held by them had reduced. These companies belonging to the promoters group are persons deemed to be acting in concert under regulation 2(1)(e) (2)(i) of the SEBI (SAST) Regulations, 1997. Godrej & Boyce Mfg. Co. Ltd., which acquired shares in the Right Issue had increased its holding in the target company from 0.51% to 41,90% and did not comply with regulation 3(4) of the SEBI (SAST) Regulations, 1997 by filing the report together with necessary documents within 21 days of the acquisition as required under the regulation. The acquisition was completed on 25/3/2000. The appellant however, had filed a report vide its letter dated 31/10/2002 alongwith a fee of Rs.10,000/- as required under the regulation 3(4). This compliance was made after a delay of nearly 18 months after initiation of the adjudication proceedings.
6. Heard both parties. The learned Counsel Shri M.S. Doctor for the appellant very forcefully submitted that the order of adjudicating officer by imposing a penalty of Rs.90,000/- should be set aside as the violation is of technical nature and not in deliberate defiance of law. The learned counsel also submitted that the Appellant is not guilty of conduct contumacious of dishonest nor has it acted in conscious disregard of its obligation. The adjudicating officer has also not taken into consideration the factors mentioned in Section 15J of the SEBI Act, 1992. He stated that Section J of the SEBI Act compulsorily mandates that, “the adjudicating officer shall have due regard,” to the factors set out therein. Rule 5(2) of the SEBI (Procedure for Holding Inquiries and Imposing Penalties by Adjudicating Officer) Rules, 1995 is identically worded. While passing the impugned order the Respondent has failed to take into account the provisions of Section 15J of the SEBI Act read with Rule 5(2) of the SEBI (Procedure for Holding Inquiries and Imposing Penalties by Adjudicating Officer) Rules, 1995 and failing to do so has acted contrary not only to the compulsory mandate of the statute itself, but also to the orders of this Hon’ble Tribunal passed in the case of Cabot International vs. SEBI and of the Hon’ble High Court in the case of SEBI vs. Cabot International. He further submitted that in the present case no gain or unfair advantage has accrued to the Appellants as a result of the default and nor has any loss been caused to any investor or group of investors as a result of the default. Furthermore, the appellant has stated that it has never in the past violated any provisions of any of the Regulations of SEBI, and nor has any show cause notice in this regard ever been issued to them. In this view of the matter none of the criteria referred to in Section 15J or Rule 5 come into play, and there is therefore no basis whatsoever for any penalty to be imposed on the noticee abovenamed.
7. The learned Counsel Shri J. Mitra for the Respondent pleaded that the desired report was filed by the Appellant on 31/10/2002 after a delay of nearly 18 months after initiative of the adjudicating proceedings. Hence the appellant has not complied with regulations 3(4) and there is a violation though of technical nature. There is no dispute about the facts. It therefore, attracts the penalty as required under the regulations.
8. This Tribunal in Cabot International Corpn. Vs. SEBI relying inter alia on Hindustan Steel Ltd. Vs. State of Orissa AIR 1970 SC 253 had held that the adjudicating officer would be justified in not imposing penalty where the breach of provisions of law is only technical or venial or where the breach flows from a bonafide belief that the offender was not liable to act in the manner prescribed by the statute. We find the facts of the present appeal to be more or less similar. We therefore have no alternative except to set aside the impugned order. No costs.
Justice Kumar Rajaratnam
Presiding officer
Dr. B. Samal, N. L. Lakhanpal,
Member Member
Place: Mumbai
Date: 31.8.2004