BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.107/2002
Date of Hearing: 15th April, 2004
Date of decision:18th May, 2004.
In the matter of
- Shri Subhash A. Gandhi
- Smt. Mangala S. Gandhi Appellants – Represented by
Shri Subhash A. Gandhi ,
Versus
Securities and Exchange Board
of India Respondent – Represented by
Shri Kumar Desai, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Shri N. L. Lakhanpal, Member
Per : Dr. B. Samal, Member
This is an appeal against the order of Adjudicating Officer who was appointed under SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The appellants have been imposed a penalty of Rs.10,000/- each for delay in submitting certain information in the prescribed format as prescribed under Regulation 7(1) and (2) of SEBI (Substantial Acquisition of Shares & Takeovers ) Regulations, 1997.
The appellant submitted that he was holding 2,03,000 shares of the target company which constituted 4,58% of the paid up capital on 11/02/2002. On 12/2/2002 he purchased another 20,000 shares and thereby increased his aggregate shareholding to 2,23,000 which constituted 5.03% of the paid up capital of the company. The appellant informed the company about his shareholding exceeding the prescribed limit of 5% vide his letter dated 12th February, 2002 . The appellant submitted that there has been substantial compliance with Regulation 7(1) and (2) although he has not informed about the aggregate shareholding and the exact percentage of the shareholding of the company in the desired format. By acquiring additional 20,000 shares, his total shareholding constituted 5.03% of the paid up capital of the company. Subsequently on receiving letter from the company, he replied to the company immediately giving information about the number of shares purchased and the percentage of shares, which was received by the company on 3.4.2002. The appellant submitted that there are no malafide intentions or undue loss to any other investors. Moreover the scrip is not actively traded and there was no intention to substantially acquire the shares with a view to material control etc. and, therefore, the appellant has requested to take a lenient view.
The learned Counsel for the Respondent submitted that the appellants had acquired shares exceeding 5% and, therefore, they are required to make disclosure to the company in terms of sub regulation (1) and (2) of Regulation 7 of the Takeover Regulations. In the present case the appellant had admitted to acquiring shares of the target company beyond 5% and, therefore, he has violated the provisions of Regulation 7 of the Takeover Regulations. Therefore, the appellants are liable for penalty as prescribed under section 15A (b) of the Act. The object of Regulation 7 of the Takeover Regulations is to ensure transparency in the transactions and to assist the regulatory bodies to effectively monitor such transactions. When the company gets information of a substantial take over, it can if it feels threatened, start taking protective and pro active measures. The provisions help to safeguard interest of investors/existing shareholders of the company and for providing a shareholder an opportunity to exit at that stage, in case of change in shareholding pattern or control over the target company is not to the satisfaction of a shareholder. The Respondent did not agree that the default of the appellant was of a technical nature and did not necessitate penalty. It was further submitted by the Respondent that the penalty imposed by the Adjudicating Officer is justified. The Adjudicating Officer has taken into consideration all relevant facts before imposing the penalty of Rs.10,000/- although the penalty for such failure should have been Rs.5000/- per day.
With regard to the disclosure to the company by an acquirer who acquires 5% or more voting rights in the company, the Hon’ble Calcutta High Court in Writ Petition 331/2001 – Arun Kumar Bajoria V/s. SEBI has observed as under:
“the object of Regulation 7 of the said Regulations is two fold. Firstly as soon as a group of persons in league with each other acquires 5% shares in a company, they must disclose their identity to the company indicating how many shares of the company they have acquired (emphasis supplied)”
The Adjudicating & Enquiry Officer has taken the following factors into account while imposing the penalty:
“Although, a penalty of Rs.5000/- per day can be levied, taking into account the submissions made, the findings as arrived at in the preceding paragraphs, I, hereby impose a penalty of Rs.10,000/- each (Rupees Ten Thousand only) on Shri Subhash A. Gandhi and Smt. Mangala S. Gandhi under Section 15A(b) of SEBI Act, 1992 for the delay in complying with the disclosure requirements under Regulations 7(1) & (2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.”
We heard the learned Counsel for both parties. Since the appellant had complied with part of the requirement and he has exceeded the limit of 5% only by .03% we feel there is a case for taking a lenient view. The purpose will be served by imposing a penalty of Rs.1000/- each to Shri Subhash A. Gandhi and Smt. Mangala S. Gandhi. The impugned order of the Adjudicating Officer accordingly stands modified to that extent.
(Pronounced in Court)
Sd/-
Justice Kumar Rajaratnam
Presiding officer
Sd/- Sd/-
Dr. B. Samal, N. L. Lakhanpal,
Member Member
Place: Mumbai
Date: 18th May, 200