BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal No.411 to 416/2004
Date of Hearing : 22.3.05
Date of Decision ; 23.3.05
In the matter of:
Appellants : 1. Madhu Fantasy Land Pvt. Ltd., Mumbai (411/04)
2. J.B. Marzban Company Pvt. Ltd.,Mumbai (412/04)
3. J.B. Marzban Trust, Mumbai (413/04)
4. Usha Holdings Pvt. Ltd., Mumbai (414/04)
5. Vakharia Estate & Investments Pvt. Ltd., Mumbai
(415/04)
6. Pearl Cosmetics & Chemicals Pvt. Ltd., Mumbai
(416/04
Respondent : The Adjudicating & Enquiry Officer, Securities &
Exchange Board of India, Mumbai
Appellants by : Shri M.B. Vakharia, Director of
appellants
Respondent by : Shri Vivek Menon, Advocate
Coram:
Justice Kumar Rajaratnam, Presiding Officer
Per: Justice Kumar Rajaratnam, Presiding Officer
All the appeals are taken up together since they arise out of single impugned order and a common order is passed by consent for parties.
2. The appellants challenge the impugned order passed by SEBI dated 1st of November 2004 whereby a penalty of Rs.1,00,000/- was collectively imposed on the appellants for non-compliance of Regulation 6(1), 6(3), 8(1) and 8(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “the Regulations”).
3. Facts with regard to the acquisition of shares and the obligation on the part of the appellants for disclosure of shareholdings in the target company are not in dispute. The only question was whether there was violation of regulation 6(1) and 6(3). The occurrence is alleged to have taken place in the year 1997-1998. The show cause notice was issued on 21st of August 2002 for violation of the regulations.
4. Regulation 6(1) and 6(3) read as follows:
“6. (1) Any person, who hold more than five per cent shares or voting rights in any company, shall within two months of notification of these regulations disclose his aggregate shareholding in that company, to the company.”
“6. (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.”
5. The appellants, admittedly, had acquired 20% voting rights of the total paid up capital of a company known as Best Eastern Hotels Ltd. (hereinafter referred to as ‘the target company”).
6. The contention of the appellants was that they had complied with the requirements of the Regulations and informed the target company of the shareholdings in the target company within the stipulated time of two months. Reference was made by the appellants to the reply stating that all disclosures have been made within the stipulated time.
7. The learned representative of the appellants also made a reference to a letter dated 23rd of January 2003 addressed to the Adjudicating Officer by the target company, which stated that disclosures have been made, although the copies of the disclosures were not immediately available. In the letter addressed to the Adjudicating Officer by the target company, the target company stated as follows:
“Further, in response to Observations issued by SEBI vide its letter no.FITTC/TO/NB/29246/01 dated May 24, 2001 on the draft of the Letter of Offer, we had issued a certificate dated May 30, 2001 regarding compliance of various regulations under chapter II of SEBI (SAST) regulations by the Acquirer and persons acting in concert with him. At that time, we did not trace the copies of the said disclosures made by the acquirer and persons acting in concert with him under Chapter II of the SEBI (SAST) Regulations. Subsequently, we found the said documents of disclosures and the copies furnished to the Acquirer and persons acting in concert with him.
We once again state and confirm that the Acquirer and persons acting in concert with him have complied with the provisions of chapter II of SEBI (SAST) regulations from time to time.”
(Italics by Court)
It was submitted that there has been no reference to this letter in the impugned order and this admission by the target company would indicate that the appellants have made necessary disclosure.
8. No explanation was also forthcoming from the respondent as for the delay in appointing the Adjudicating Officer on 21st of august 2002 with respect to an alleged violation of the year 1997.
9. The entire basis of the case of the respondent was the alleged information provided by the merchant bankers of the target company vide letter dated 30th of May 2001.
10. There is an element of latches in the order passed by the respondent. The matter relates to the year 1997 and the letter of the merchant bankers is in the year 2001, after a considerable period of four years, and the entire case is built on the statement of the merchant bankers. No statement was recorded from the management of the target company. Indeed, the management of the target company by letter dated 23rd of January 2003 has clearly stated that they did not find copies of the disclosures made by the acquirer and persons acting in concert with him under Chapter II of SEBI (SAST) Regulations. They also stated that subsequently they found the said documents of disclosures and the copies furnished to the acquirer and persons acting in concert with him.
(Italics by Court)
11. It is clear that there was no application of mind by the respondent on the admission made by the target company and for the fault of the target company, the appellant cannot be faulted. It is equally curious that the enquiry was completed in October 2002 and no action was taken by the respondent till 2004.
12. It is also submitted by the appellants that they have exited from the target company and the delay in passing the impugned order has greatly handicapped them. It cannot be forgotten that the year of the incident was 1997 and the impugned order was passed after a lapse of nearly seven years in November 2004. It is not practical for anybody to have kept the acknowledgement of the disclosure sent to the target company when show cause notices are issued after a lapse of three or four years.
13. The learned representative for the appellants relied on the Division Bench judgment of the High Court of Bombay in SEBI vs. Cabot International Capital Corporation, (2004) 51 SCL 307 (BOM.). The High Court pronounced that if there is a bona fide belief that there has been compliance and that even assuming that there was non-filing of the disclosure to the target company, if the Court held that it was a technical and minor defect based on a bona fide belief, then penalty by the adjudicating authority is not called for.
14. Taking into account the delay in the enquiry and also taking into account the fact that at the earliest opportunity the target company has informed that the disclosure has been made would indicate that the case of the appellants would clearly fall under the principles laid down in the case of Cabot (supra). In that view of the matter, the impugned order is set aside.
15. No order as to costs.
16. We place on record the assistance rendered to the Court in a fair manner by the counsel for the respondent, Mr. Vivek Menon. We also place on record the fairness and lucidity with which SEBI has presented the case before the Tribunal by producing all the materials before the Court.
Sd/-
Justice Kumar Rajaratnam
Presiding Officer
Place: Mumbai
Date: 23rd March 2005
Avm
After the pronouncement, the appellants have also placed on record an affidavit with enclosures, which reflect that disclosures were made to the target company, which has been acknowledged by the target company. These enclosures and affidavit had been served on SEBI.
Justice Kumar Rajaratnam
Presiding Officer