IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No. 108 of 2003

 Date of Decision   8.11.2006

Present :  Mr.  Zal T. Andhyarujina & Ms. Ruchira Gupta, Advocates for     the appellant

               Mr. Kumar Desai & Ms. Daya Gupta, Advocates for the             respondent    

Coram:

     Justice N.K. Sodhi, Presiding Officer

      C. Bhattacharya, Member

Per:  Justice N.K. Sodhi, Presiding Officer (oral)

      This appeal under Section 15T of the Securities and Exchange Board of India Act, 1992 is directed against the order dated 1.7.2003 passed by the adjudicating officer imposing in all a penalty of Rs. 6,50,000/- on the appellant for having violated Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called the Regulations) on 22.5.2000, 17.7.2000, 29.11.2000, 1.12.2000, 7.12.2000, 11.12.2000, 15.1.2001 and 19.1.2001.   The appellant is an investment company and is dealing amongst others in the sale and purchase of shares of Aftek Infosys Ltd. (for short the target company).

      2.          Regulation 7 of the Regulations provides that any acquirer who acquires shares in any manner whatsoever, which taken together with the shares already held by him would entitle him to more than 5% shares in a company, shall disclose the aggregate of his shareholding or voting rights in that company to the company.  It is not disputed that the appellant before us had acquired 50,000 shares of the target company on 17.7.2000.  These shares together with the shares already held by him came to 3,77,928 shares of the target company which amounts to 6.30% of the total issued capital of the target company.  It is thus clear that the appellant had exceeded  the limit of 5% of the shares and in terms of Regulation 7 it was required to disclose to the target company its shareholding.  It did not do so.  Regulation 7 was clearly violated when the acquisition was made on 17.7.2000.  Similarly, on 22.5.2000 the appellant acquired 1,37,000 shares which taken together with the shares already held by it came to 4,00,018 shares amounting to 6.67% of the issued capital of the target company.  On this day also the appellant had crossed the limit of 5% and had not disclosed to the target company its shareholding. For not making the necessary disclosures the adjudicating officer by the impugned order has imposed a penalty of Rs. 50,000/- on the appellant.  No fault can be found with this part of the order.

      3.          The adjudicating officer has also observed in the impugned order that the appellant violated the provisions of Regulation 7 by not disclosing its shareholding to the company on 29.11.2000 and on various other dates mentioned hereinabove.  Let us examine whether the appellant had crossed the limit of 5% while acquiring shares of the target company on 29.11.2000.  The details of the acquisition made on 29.11.2000 are mentioned in chart enumerated in the show cause notice dated 13.3.2003.  The appellant is alleged to have acquired 95000 shares by way of pledge closure on that date which figure was credited to its demat account raising its total shareholding of the target company to 5.77%.  The details of this acquisition are mentioned in Exhibit C which is an annexure to the show cause notice.  A mere look at the chart contained in Annexure C would show that the appellant had pledged 95000 shares with ICICI Ltd. on 24.11.2000 and accordingly its beneficiary account was debited to that extent. On the same day its pledge account was credited by the depository participant.  It is on 29.11.2000 that the pledged shares were released and the beneficiary account was credited with 95000 shares.  The error committed by the system was that simultaneously these 95000 shares were not debited to the pledge account of the appellant.  This debit entry was made on the same date but after some other transactions had been executed.  This made all the difference and therefore the percentage of the shareholding of the target company held by the appellant exceeded 5%.  If the debit entry had been made simultaneously the total shareholding of the appellant in the target company on 29.11.2000 would not have exceeded 5%. We are therefore satisfied that on 29.11.2000 total acquisition of the appellant did not exceed the limit of 5% prescribed by Regulation 7.  There was thus no violation on that date.  Similar is the position with regard to the other dates on which the adjudicating officer found that the appellant had exceeded the 5% limit thereby violating Regulation 7.  We have therefore no hesitation in holding that the appellant did not cross the 5% limit on 29.11.2000, 1.12.2000, 7.12.2000, 11.12.2000, 15.1.2001, and 19.1.2001.  The adjudicating officer has imposed a penalty of Rs. 1 lakh for each of these violations.  The imposition of this penalty to the tune of Rs. 6 lacs cannot, therefore, be sustained. 

      4.          In the result, the appeal is partly allowed and the impugned order modified.  The penalty imposed by the adjudicating officer is reduced to Rs. 50,000/- only.  Let this amount be deposited within 45 days from today.  There is no order as to costs.

Sd/-

Justice N.K. Sodhi
Presiding Officer

Sd/-

R.N.Bhardwaj
Member

8.11.2006