BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal No.28, 28A, 28B and 28C/05
Date of Hearing : 6.12.2005
Date of Decision : 8.12.2005
In the matter of:
Appellants : 1. Naresh Chand, New Delhi (28/05)
2. Neeraj Jain, New Delhi (28A/05)
3. Sukhbir Singh Jain, New Delhi (28B/05)
4. Sanjay Jain, New Delhi (28C/05)
Respondent : Securities and Exchange Board of India, Mumbai
Appellants by : Mrs. Jayshree S. Joshi, PCS
Respondent by : S/Shri Paras Parekh & Ravi Hegde,
Advocates
Coram:
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: Justice Kumar Rajaratnam, Presiding Officer
Appeals are taken up with consent of parties for final disposal.
2. The appellants challenge the order of the Adjudicating Officer of SEBI in imposing a penalty of Rs.2 lakhs against the appellants by order dated 29.10.2004.
3. It is alleged that the appellants, while acting in concert, violated regulation 3(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘Regulations’).
4. Regulation 3(3) reads as follows:
“In respect of acquisition under clauses (e), (h) and (i) of sub-regulation (1), the stock exchange where the shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed acquisition, in case of acquisition exceeding 5 percent of the voting share capital of the company.”
There is a reference to the provisions of regulation 3(1) in regulation 3(3), as it then was. Regulation 3(1) reads as under:
“3. (1) Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to :
(a) allotment in pursuance of an application made to a public issue :
Provided that if such an allotment is made pursuant to a firm allotment in the public issues, such allotment shall be exempt only if full disclosures are made in the prospectus about the identity of the acquirer who has agreed to acquire the shares, the purpose of acquisition, consequential changes in voting rights, shareholding pattern of the company and in the board of directors of the company, if any, and whether such allotment would result in change in control over the company;
(b) allotment pursuant to an application made by the shareholder for rights issue,
(i) to the extent of his entitlement; and
(ii) up to the percentage specified in regulation 11:
Provided that the limit mentioned in sub-clause (ii) will not apply to the acquisition by any person, presently in control of the company and who has in the rights letter of offer made disclosures that they intend to acquire additional shares beyond their entitlement, if the issue is under subscribed:
Provided further that this exemption shall not be available in case the acquisition of securities results in the change of control of management;
(c) 1[***]
(d) allotment to the underwriters pursuant to any underwriting agreement;
(e) inter se transfer of shares amongst—
2[(i) group coming within the definition of group as defined in the monopolies and restrictive trade practices act, 1969 (54 of 1969) where persons constituting such group have been shown as group in the last published annual report of the target company;]
(ii) relatives within the meaning of section 6 of the companies act, 1956 (1 of 1956);
(iii) (a) Indian promoters and foreign collaborators who are shareholders;
(b) Promoters :
3[Provided that the transferor(s) as well as the transferee(s) have been holding shares in the target company for a period of at least three years prior to the proposed acquisition;]
1[(iv) the acquirer and persons acting in concert with him, where such transfer of shares takes place three years after the date of closure of the public offer made by them under these regulations.]
2[Explanation.—(1) the exemption under sub-clauses (iii) and (iv) shall not be available if inter se transfer of shares is at a price exceeding 25% of the price as determined in terms of sub-regulations (4) and (5) of regulation 20.
(2) The benefit of availing exemption under this clause, from applicability of the regulations for increasing shareholding or inter se transfer of shareholding shall be subject to such transferor(s) and transferee(s) having complied with regulation 6, regulation 7 and regulation 8;]
(f) acquisition of shares in the ordinary course of business by,—
(i) a registered stock-broker of a stock exchange on behalf of clients;
(ii) a registered market maker of a stock exchange in respect of shares for which he is the market maker, during the course of market making;
(iii) by Public Financial Institutions on their own account;
(iv) by banks and public financial institutions as pledgees;
1[(v) the International Finance Corporation, Asian Development Bank, International Bank for Reconstruction and Development, Commonwealth Development Corporation and such other international financial institutions;
(vi) a merchant banker or a promoter of the target company pursuant to a scheme of safety net under the provisions of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 in excess of limit specified in sub-regulation (1) of regulation 11;]
1[(ff) acquisition of shares by a person in exchange of shares received under a public offer made under these regulations;]
(g) acquisition of shares by way of transmission on succession or inheritance;
(h) acquisition of shares by Government companies within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), and statutory corporations :
3[Provided that this exemption shall not be applicable if a Government company acquires shares or voting rights or control of a listed Public Sector Undertaking through the competitive bidding process of the Central Government 1[or the State Government as the case may be,] for the purpose of disinvestment;]
(i) transfer of shares from State level financial institutions, including their subsidiaries, to co-promoter(s) of the company 1[or their successors or assignee(s) or an acquirer who has substituted an erstwhile promoter] pursuant to an agreement between such financial institution and such co-promoter(s);
4[(ia) transfer of shares from venture capital funds or foreign venture capital investors registered with the Board to promoters of a venture capital undertaking or venture capital undertaking pursuant to an agreement between such venture capital fund or foreign venture capital investors with such promoters or venture capital undertaking;]
(j) pursuant to a scheme :
(i) framed under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
(ii) of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign;
1[(ja) change in control by takeover of management of the borrower target company by the secured creditor or by restoration of management to the said target company by the said secured creditor in terms of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);]
(k) acquisition of shares in companies whose shares are not listed on any stock exchange.
Explanation.—The exemption under clause (k) above shall not be applicable if by virtue of acquisition or change of control of any unlisted company, whether in India or abroad, the acquirer acquires shares or voting rights or control over a listed company;
(l) 2[***] other cases as may be exempted from the applicability of Chapter III by the Board under regulation 4.
5. The appellants, along with persons acting in concert, made an open offer for acquiring 20% of equity capital of Ashiana Ispat Ltd., the target company. The appellants were eligible for exemption under regulation 3(1)(e) on condition that the acquirers informed the Stock Exchanges the details of the proposed transactions four days in advance from the date of the proposed acquisition.
6. The allegation is that, admittedly, the acquisition took place on 20.3.2003 and no such report was sent to the Stock Exchanges. The only question that arises for consideration is whether the appellants had informed the stock exchanges within four working days before 20.3.2003. In other words, the stock exchanges should have received intimation on or before 16.3.2003.
7. The contention of the appellants was that intimations were given on or before 16.3.2003 in compliance with regulation 3(3). Three Stock Exchanges, viz., Jaipur Stock Exchange, Delhi Stock Exchange and Bombay Stock Exchange denied having received any such information. However, Magadh Stock Exchange informed SEBI that intimation was received on 19.2.2003 but no reliance can be placed on it.
8. The appellants had produced UPC receipts to indicate that the appellants had informed the stock exchanges on 17.2.2003. But UPC receipts cannot be fully relied upon since Jaipur, Delhi and Bombay Stock Exchanges have denied having received any intimation. Therefore, the UPC receipts showing the date as 17.2.2003 cannot be totally accepted as proof.
9. There is total confusion in the mind of the Adjudicating Officer at paragraph 5 of the impugned order by which it is stated that the allotment took place on 20.2.2003. It ought to have been, on perusal of records, 20.3.2003. Throughout paragraph 5 errors have been committed by the adjudicating officer that the allotment took place in February and not in March. Since the matter is strictly technical with regard to date, the adjudicating officer should have been careful in referring to the date of allotment.
10. We hold that the allotment took place on 20.3.2003 and the intimation to the stock exchanges ought to have been sent on or before 16.3.2003. Therefore, as stated earlier, the UPC receipts cannot be clinching proof in the light of the letters written by other stock exchanges. We would rather treat the delay with effect from 17.2.2003 and the delay is only one day even according to the respondent. We do not think, in the facts and circumstances of the case, the delay, if any, was deliberate and willful.
11. The case before us is a case of penalty for violation of regulation after taking into account the factors in section 15J of SEBI Act, which deals with quantum of penalty. Section 15J reads as follows:
“15-J. Factors to be taken into account by the adjudicating officer.- While adjudging the 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;
© the repetitive nature of the default.”
In this context, the Division Bench of the Bombay High Court in SEBI vs. Cabot International Capital Corporation reported in (2004) 51 SCL page 307 held that if it can be shown that a contravener never intended or consciously avoided to comply with the obligations under the Regulations, then the Cabot judgment is an authority to hold that no case is made out for any penalty notwithstanding the provisions of section 15J.
12. In this case also the appellants never intended to defy the obligation under the Regulations and that even, according to the respondent, there was a delay of one day in reporting to the Stock Exchanges, which was unintentional and a mere technical violation.
13. Following the judgment of the Bombay High Court in SEBI vs. Cabot International Capital Corporation, (2004) 51 SCL 307 (Bom), and for the reasons stated therein, the impugned order is set aside.
14. The appeals are disposed of accordingly.
15. No order as to costs.
16. The appellants Neeraj Jain, Sukhbir Singh Jain and Sanjay Jain are directed to pay the court fees in accordance with the rules.
Sd/-
Justice Kumar Rajaratnam
Presiding Officer
Sd/- Sd/-
(R.N. Bhardwaj) (C. Bhattacharya)
Member Member
Place: Mumbai
Date: 8th December 2005