IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No. 24/2005

Date of Decision

17.1.2006

 

 

In the matter of:

 

Upendra C. Shah	Appellants – Represented by
Nilam U. Shah	Mr. Chetan Kapadia, & Ms. Poorvi Sanjanwala, Advocates
Versus
Securities & Exchange Board	Respondent –Represented by
of India	Mr. Ravi Hegde & Mr. Paras Parekh, Advocates

 

Coram:

          Justice N.K. Sodhi, Presiding Officer

          C. Bhattacharya, Member

          R. N. Bhardwaj, Member

 

Per:  Justice N.K. Sodhi, Presiding Officer

 

 

   1.            Whether the appellants have violated the provisions of sub-regulations (1) and (3) of Regulation 6 (for the year 1997) and sub-regulations (1) and (2) of Regulation 8 (for the years 1997 to 2000) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (for short “the Regulations”) and if so, what penalty should be imposed on them under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 (hereinafter called “the Act”) is the short question which arises for consideration in this appeal filed under Section 15T of the Act challenging the order passed by the adjudicating officer levying a penalty of Rs. 50,000/- collectively on the appellants who are the past promoters of a company called Star Leasing Ltd. (hereinafter referred to as “the Company”).

   2.            Facts giving rise to the appeal may first be noticed. 

   3.            Mir Ahmed Ali Khan and Mir Hussain Ali Khan (hereinafter collectively referred to as “the acquirers”) were desirous of purchasing 48,000 fully paid up equity shares of Rs. 10/- each at a price of Rs. 15/- per share representing 20% of the subscribed and paid up share capital of the Company.  Accordingly, they made a public announcement in accordance with the Regulations to acquire the shares in the Company and made an open offer to its shareholders.  M/s.  Ashika Credit Capital Ltd., a merchant banker acting on behalf of the acquirers addressed a letter dated March 22, 2001 to the Securities and Exchange Board of India (for short “the Board”) informing the latter about the public announcement made by the acquirers.  On receipt of this letter, the Board by its letter dated 12.4.2001 while advising the merchant banker to carry out some changes in the letter of offer also called upon it to confirm and disclose as to whether the applicable provisions of the Regulations had been complied with by the past promoters (appellants) or not.  In reply thereto, the merchant banker by its letter dated 18.4.2001 informed the Board that the past promoters had not complied with the provisions of Chapter II of the Regulations.  A notice dated 10.7.2001 was then issued to the past promoters (appellants) in terms of Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules, 1995 calling upon them to show cause why enquiry proceedings should not be held against them for alleged violation of the provisions of sub-regulations (1) and (3) of Regulation 6 and sub-regulations (1) and (2) of Regulation 8 of the Regulations.  The appellants by their letter dated 7.8.2001 denied non-compliance of the Regulations as alleged and stated that on April 19, 1997 they had made the necessary disclosures to the company under Regulation 8(2) of the Regulations which would also cover the disclosure to be made under Regulation 6(3) and therefore there was no violation of Regulation 6(3).  They also pleaded that disclosures in compliance with Regulation 8(1) of the Regulations had also been made but due to the change in management of the company, they were unable to provide the necessary documentary proof to substantiate their claim of compliance.

   4.            While the proceedings were pending before the adjudicating officer, the Board introduced the Securities and Exchange Board of India (Regularisation) Scheme, 2002 (hereinafter called “the Regularisation Scheme”) which was in force from October 1, 2002 to January 31, 2003 for listed companies which had failed to comply with the requirements of Regulations 6 and 8 of the Regulations.  For persons (individuals) who had failed to comply with Regulations 6 and 8, the Regularisation Scheme was in force from October 1, 2002 to December 31, 2002.  This scheme provided an opportunity to both the companies and the persons in control/promoters for regularising the non-compliance with Regulations 6 and 8 of the Regulations.  Despite an opportunity having been granted, the appellants did not participate in the Regularisation Scheme.

   5.            The adjudicating officer took into account the facts and circumstances of the case and on the basis of the material available with him on the record including the reply furnished by the appellants, passed an order dated November 11, 2004 holding that the appellants who were under an obligation to comply with the provisions of Regulations 6 and 8 of the Regulations had failed to do so and levied a penalty of Rs.50,000/- on them collectively.  It is against this order that the present appeal has been filed.

   6.            We have heard the learned counsel for the parties at length.  In order to find out whether the appellants had violated the provisions of Regulations 6 and 8 of the Regulations, it is necessary to refer to the relevant provisions of those Regulations which read as under:

“6.(1) Any person, who holds more than five per cent shares or voting rights in any company, shall within two months of     notification of this regulations disclose his aggregate       shareholding in that company, to the company.

          (2) Every company whose shares are held by the persons           referred to in sub-regulations (1) shall, within three months     from the date of notification of these regulations, disclose to      all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each          person.

          (3) A promoter or any person having control over a company     shall within two months of notification of these regulations disclose the number and percentage of shares or voting rights           held by him and by person(s) acting in concert with him in         that company, to the company.

          (4) …………………………………………………………………”

          8. (1) Every person, including a person mentioned in        regulation 6 who holds more than fifteen per cent shares or voting rights in any company, shall, within 21 days from the       financial year ending March 31, make yearly disclosures to the       company, in respect of his holdings as on 31^st March.

          (2) A promoter or every person having control over a       company shall, within 21 days from the financial year ending   March 31 as well as the record date of the company for the        purposes of declaration of dividend, disclose the number and          percentage of shares or voting rights held by him and by       persons acting in concert with him, in that company to the          company.

          (3)……………………………………………………………………..

          (4)……………………………………………………………………”

A reading of the aforesaid provisions make it clear that a person who holds more than 5% shares in any company is required to disclose his aggregate shareholding in that company to the company within two months of the coming into force of the Regulations.  A promoter or any person having control over a company has to disclose the number and percentage of shares held by him and by persons acting in concert with him in that company to the company.  These are transitional provisions which require one time compliance.  Regulation 8 however, requires that every person including the one referred to in Regulation 6 who holds more than 15% shares in any company is required to make yearly disclosures to the company in respect of his holdings as on March 31.  This disclosure is required to be made within 21 days from the end of the financial year.  A promoter or a person having control over the company is to disclose the number and percentage of shares held by him and by persons acting in concert with him in that company to the company.  This compliance is also to be made within 21 days from the end of the financial year on March 31.

   7.            The Regulations came into force on 20.2.1997 and the appellants remained promoters of the company till March 12, 2001.  They were, thus, under an obligation to comply with Regulations 6(1) and 6(3) of the Regulations for the year 1997 and Regulations 8(1) and 8(2) of the Regulations for the years 1997 to 2000.  The appellants as the past promoters of the company had disclosed on 19.4.1997 their aggregate shareholding in the Company to the Company.  The appellants did not make any further yearly disclosures to the Company even though they held more than 15% of its shares.   This is clear from the letter dated March 27, 2001 sent by the merchant banker to the Board.  The appellants had declared their shareholding in the Company but did not satisfy the provisions of Regulation 8(2) even for the year 1997 because they had not disclosed the number and percentage of shares held by persons acting in concert with them.  They had, thus, violated Regulation 8(1) for the years 1998 up to the year 2000 and Regulation 8(2) had never been complied with.  When they declared their aggregate shareholding in the Company which was more than 15% shares in the Company within two months of the notification of the Regulations, they complied with Regulation 8(1) for the year 1997 and Regulation 6(1) as well.  Since they did not disclose the number and percentage of shares held by the persons acting in concert with them in the Company, the provisions of Regulation 6(3) stood violated.  It is on record that the appellants and persons acting in concert with them were holding more than 78% equity shares in the Company.  The adjudicating officer was therefore right in holding that Regulation 6(3) and Regulations 8(1) and 8(2) stood violated.    These provisions are mandatory and their non-compliance will attract the provisions of sub-section (b) of section 15A of the Act.

   8.            While adjudging the quantum of penalty, the adjudicating officer is required to have due regard to the factors mentioned in section 15J of the Act, viz., the amount of disproportionate gain or unfair advantage, if any, made as a result of the default and also the amount of loss, if any, caused to an investor or group of investors as a result of the default.  He shall also consider whether the default was repetitive in nature.  The quantum of penalty is no doubt a matter of discretion but the same has to be exercised judiciously depending upon the facts and circumstances of each case.  The adjudicating officer, in the instant case, took into account all the relevant factors including the failure on the part of the appellants to perform their statutory obligations and has taken a lenient view in levying a penalty of Rs.50,000/- collectively on both of them and this is despite the fact that they did not take benefit of  the Regularisation Scheme.  In the circumstances, we are not inclined to interfere with the order in this regard and the same does not warrant any inference in appeal. 

   9.            For the reasons recorded above, we find no merit in the appeal and the same stands dismissed with no order as to costs.

 

 

 

 

 

 

 

 

 

Place: Mumbai

Date: January 17, 2006.