IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
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Date of Hearing
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08/12/2004
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Date of Decision
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12/01/2005
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Appeal No: 82 of 2004
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Appellant – Represented by:
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SMIFS Capital Markets Ltd.
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Ms. Tushna Thapliyal, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Dipan Merchant, Advocate
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Appeal No: 82A of 2004
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Appellant – Represented by:
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SMIFS Capital Services Ltd.
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Ms. Tushna Thapliyal, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Dipan Merchant, Advocate
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Appeal No: 82B of 2004
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Mackertich Consultancy Services
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Appellant – Represented by:
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Pvt. Ltd.
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Ms. Tushna Thapliyal, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Dipan Merchant, Advocate
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Appeal No: 82C of 2004
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Appellant – Represented by:
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Ajay Kumar Kayan
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Ms. Tushna Thapliyal, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Dipan Merchant, Advocate
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Appeal No: 82D of 2004
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Appellant – Represented by:
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C. Mackertich.
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Ms. Tushna Thapliyal, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Dipan Merchant, Advocate
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CORAM
Justice Kumar Rajaratnam, Presiding Officer
N.L. Lakhanpal, Member
Per: N.L. Lakhanpal, Member
1. The appeals are taken up for final disposal through a common order with the consent of parties.
2. The appeals arise from order dated 15/04/2004 passed by Shri S.V.Krishnan Mohan, Adjudicating and Enquiry Officer, the operative part of which reads as follows:
“ORDER
“In terms of Regulation 7(1) and (2), the aforesaid acquisition in excess of 5% is required to be reported to the target company within 4 working days thereto which has not been complied with.
“In terms of Section 15A(b) of SEBI Act, 1992 failure to report the said acquisitions to the target company would attract the penalty of Rs. 1,00,000/- for each day during which such failure continues or one crore rupees whichever is less.
“Having regard to the submission made, the factors contained in Section 15J of SEBI Act, 1992 and the gravity of the charges established for the aforesaid reasons, I hereby, impose the following penalties for contravention of Regulation 7(1) and (2) of SEBI (SAST) Regulations, 1997 as under in terms of Section 15A(b) of SEBI Act, 1992.
“i) For non-disclosure of acquisition of shares of the target company on 27.11.98, a consolidated penalty of Rs. 1 crore on (a) SMIFS Capital Markets Ltd., (b) Shri Ajay Kayan and (c) C. Mackertich.
“ii) For non-disclosure of acquisition of shares of the target company on 16.08.99, a consolidated penalty of Rs. 1 crore on (a) SMIFS Capital Markets Ltd., (b) Mackertich Consultancy Services Pvt. Ltd., (c) Shri Ajay Kayan and (d) C. Mackertich.
“iii) For non-disclosure of acquisition of shares of the target company on 27.10.00 a consolidated penalty of Rs. 1 crore on (a) SMIFS Capital Services Ltd., (b) Mackertich Consultancy Services Pvt. Ltd., and (c) C. Mackertich.”
3. The appellant No.1 is a company engaged primarily in the business of investment banking. The appellant No.2 is a fully owned subsidiary of appellant No.1 while appellant No.3 is registered as a non-banking financial company with the Reserve Bank of India. Appellant Nos.4 and 5 are stock brokers. All the appellants have been charged with violation of Regulation 7 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’). This regulation provides disclosure by the acquirer whenever its shareholding exceeds 5% in a target company and this regulation is reproduced below:
“7(1) Any acquirer who acquirers shares or voting rights which (taken together with shares or voting rights if any held by them) would entitle him to more than 5% shares or voting rights in a company, in any manner whatsoever disclose the aggregate of his share-holding or voting rights in the company to the company:
“(2) the disclosures mentioned in sub-regulation 1 shall be made within four working 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.”
4. It is common ground that in the normal course of business activities of the appellants, their consolidated shareholding in the equity capital of the target company BSL Ltd., exceeded 5% on two separate dates, namely, 27/11/1998 and 16/08/1999. Thereafter on 27/10/2000 the appellant No.1 transferred its entire shareholding of 4,64,300 shares to appellant No.2, its fully owned subsidiary. It is also common ground that the appellants were persons acting in concert and that on each of these dates, intimation was sent to the target company within the prescribed time. However, the impugned order has been passed on the ground that the disclosure though made on each occasion, was not in the prescribed form and that it was inadequate disclosure. As against this the learned counsel for the appellants argued before us that the prescribed format was introduced by the Securities and Exchange Board of India (SEBI) only on 01/04/1999 and that the disclosure on 27/11/1998 was, therefore, entirely outside its purview. The learned counsel for the appellant further argued that even in respect of the second occasion when its holding exceeded 5% on 16/08/1999, the prescribed format had been in existence only for four months and had therefore escaped the notice of the appellants particularly because the format had not been introduced through a proper notification or through formal amendment of regulation 7. Regarding the transfer of shares by appellant No.1 to its wholly owned subsidiary, namely, appellant No.2, it is also common ground and even the impugned order takes note of it that it was a transfer within the group not requiring any disclosure. Notwithstanding this position, however, the respondent has held in the impugned order that while disclosures in respect of acquisitions on 27/11/1998 and 16/08/1999 were inadequate disclosures in the sense that they did not communicate full information to the target company, the disclosure in respect of the transfer on 27/10/2000 was misleading in the sense that the letter dated 31/10/2000 conveyed to the target company that the appellants had purchased 4,64,300 equity shares on 27/10/2000 from a broker called “Indovision Stock Broking Services Pvt. Ltd.,” instead of conveying that it was a transfer from appellant No.1 to appellant No.2.
5. On going through all the facts on record and the pleadings on both sides we are of the view that there is no case whatsoever against the appellants in respect of the acquisition dated 27/11/1998 because the prescribed proforma was not in existence on the relevant date. The only requirement on the relevant date was disclosure of the acquisition whenever it exceeded 5% and this requirement was duly complied with by the appellants. Regarding the acquisition on 16/08/1999 we are of the view that there was a technical violation, which however, needs to be viewed leniently in view of the fact that the proforma had been prescribed by SEBI just four months earlier. Regarding the transfer of shares on 27/10/2000 it is common ground that this did not require any disclosure. The appellants’ letter dated 31/10/2000 can at best be considered written negligently rather than being misleading or dishonest. We also note that even though the impugned order contains a sentence to the effect that “this intimation is misleading” the action taken against the appellants is only for non-disclosure /inadequate disclosure and not for any malpractice as such. There is no finding to that effect. The appellant’s contention is that this letter was not at all required to be sent and that they sent it only by way of abundant caution to keep the target company informed.
6. While determining the quantum of penalty the respondent has totally avoided any discussion of the factors contained in Section 15J even though this section is mentioned in the operative part of the impugned order. There is no finding on the amount of disproportionate gain or unfair advantage having accrued to the appellants or any loss caused to any investor or group of investors or repetitive nature of the default. We are therefore of the view that the quantum of penalty imposed on the appellant is excessive. What is called for in the facts of the present case is a mere token penalty for the negligence displayed by them in not having used the prescribed format while disclosing their acquisition on 16/08/1999. This format had been prescribed only on 01/04/1999.
7. In view of these facts the impugned order is upheld but the amount of penalty in the facts and circumstances of the case and for reasons stated above is reduced to an amount of Rs. 10,000/-. We note that the appellants have already deposited an amount of Rs. 5 lakhs in compliance with the interim orders passed by us on June 18, 2004. We therefore direct that the balance amount of Rs. 4,90,000/- be refunded to the appellants within 4 weeks from the date of receipt of this order.
8. There shall be no order as to costs.
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(N.L. Lakhanpal)
Member
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(Justice Kumar Rajaratnam)
Presiding Officer
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Place: Mumbai
Date: 12/01/2005
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