IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.3 of 2003
Date of Decision : 14.11.2006
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Panther Fincap and Management Services Ltd.
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...... Appellant
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Versus
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Securities and Exchange Board of India
Mr. S.V. Krishna Mohan
Adjudicating Officer
Securities and Exchange Board of India
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..…Respondents
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Shri Zal T. Andhyarujina, Advocate alongwith Ms. Ruchira Gupta, Advocate for the Appellant
Shri Kumar Desai, Advocate alongwith Ms. Daya Gupta, Advocate for the Respondent
CORAM
Justice N.K. Sodhi, Presiding Officer
C. Bhattacharya, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
This order will dispose of two Appeals nos. 3 and 4 of 2003 in which common questions of law and fact arise. It is alleged that the appellants in both the appeals while acting in concert had acquired 25% of the shareholding of DSQ Industries Ltd. (for short ‘DSQ’) without disclosing the aggregate of their shareholding in that company to the company and without making a public announcement thereby violating Regulations 7 and 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called the ‘Regulations’). Learned counsel for the parties are agreed that the order in Appeal no.3 of 2003 which alone has been argued before us will govern the other case as well. Facts giving rise to these appeals lie in a narrow compass and these may first be noticed.
Panther Fincap and Management Services Ltd and Classic Credit Ltd. (for short Panther and Classic respectively) are the two appellants in these appeals. They both acquired 25 lac shares each of DSQ. These shares were transferred to their demat account on 1.3.2001. It is common ground between the parties that 50 lac shares acquired by both the appellants constituted 25% of the total shareholding of the appellants in DSQ and that the acquisition of 25 lac shares by each of the appellants constituted more than 5% of the issued and paid up share capital of DSQ. Regulation 7 of the Regulations provides that any acquirer who acquires shares or voting rights which taken together with the shares or voting rights already held by him would entitle him to more than five percent shares or voting rights in a company, in any manner whatsoever, shall disclose the aggregate of his shareholding or voting rights in that company to that company. Regulation 10 mandates that no acquirer shall acquire shares or voting rights which taken together with shares or voting rights already held by him or by persons acting in concert with him entitle him to exercise fifteen percent or more of the voting rights in a company unless he makes a public announcement to acquire shares of such company in accordance with the Regulations. Section 15A of the Securities and Exchange Board of India Act, 1992 (for short ‘the Act’) as it then stood provided a penalty for those who fail to furnish any information within the time specified therefor in the Regulations and such a person was liable to a penalty not exceeding five thousand rupees for every day during which such failure continued. Section 15H(ii) provides for a penalty where a person who is required under the Act or any Rules or Regulations made thereunder fails to make a public announcement to acquire shares at a minimum price. The appellants received a show cause notice dated April 5, 2002 alleging therein that they had both while acting in concert with each other had acquired 25% of the shareholding of DSQ without disclosing the same to that company and without making a public announcement thereby violating Regulations 7 & 10 of the Regulations. They were called upon to show cause why penalty be not imposed on them under section 15A for not making a public announcement. They filed their reply denying the allegations. An adjudicating officer was appointed by the Securities and Exchange Board of India (for short ‘the Board’) to hold an enquiry to find out whether the appellants had violated Regulations 7 and 10 of the Regulations. The adjudicating officer held an enquiry in accordance with the provisions of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and came to the conclusion that the appellants had violated Regulations 7 & 10 of the Regulations. Accordingly, by his order dated October 31, 2002 imposed a penalty of Rs.1,50,000/- under section 15A(b) of the Act and another sum of Rs.5 lacs under section 15H(ii) on each of the appellants. It is against this order that these two appeals have been filed.
We have heard the learned counsel for the parties. The learned counsel for the appellants contends that the appellants did not acquire shares as alleged by the adjudicating officer and that each of them took a loan of 25 lac shares from M/s. Greenfield Investments Ltd. and Overseas Corporate Body (OCB) having its office in Port Louis, Mauritius and therefore the question of the violating the Regulations did not arise. In support of this contention he referred the letter dated February 27, 2001 written by the OCB to the appellants confirming the agreement arrived at with their Mr. Ketan Parekh for the short term loan of 25 lac shares of DSQ and containing the terms and conditions of the loan. We cannot accept this contention. There is no gainsaying the fact that 25 lac shares were transferred by OCB in the demat account of each of the appellants and this credit was made in their accounts on 1.3.2001. Once the shares stood transferred in the demat accounts of the appellants they will be deemed to their beneficial owners. This is the mandate of section 2(1)(a) of the Depositories Act, 1996 which defines a ‘beneficial owner’ to mean a person whose name is recorded as such with a depository. It is not in dispute that the shares that were transferred stood in the name of the appellants in the records of the depository as beneficial owners. We have therefore to proceed on the assumption that the appellants were beneficial owners of these shares. No doubt the letter dated February 27, 2001 written by the OCB refers to the discussions which it had with Mr. Ketan Parekh on behalf of the appellants and also recorded terms and conditions upon which a loan of 25 lac shares of DSQ was given to the appellants but this letter in our view cannot be taken note of in view of the provisions of the Securities Lending Scheme, 1997 framed by the Board with a view to regulate the securities market in regard to the lending and borrowing of securities. This scheme provides that the lender shall enter into an agreement with an approved intermediary for depositing the securities for the purpose of lending through an approved intermediary and the borrower shall also enter into an agreement with an approved intermediary for the purpose of borrowing securities and that there shall be no direct agreement between the lender and the borrower for the lending or borrowing of the securities. Admittedly, there is no approved intermediary with which the lender or borrower has entered into an agreement. According to the appellants’ own case they have entered into an agreement with the intermediary directly which is contrary to the scheme. The learned counsel for the appellants urged before us that the scheme does not have a statutory force and therefore the same ought to be ignored and that the agreement referred to in the letter dated February 27, 2001 should be relied upon. The argument is fallacious and cannot be accepted. The Board is a statutory regulator and a duty has been cast upon it by Section 11 of the Act to protect the interest of investors in securities and also to protect and to regulate the securities market by such measures as it thinks fit. The Board, in its wisdom, has framed the scheme for lending and borrowing of securities in the market. This scheme has been framed by the Board while performing its statutory duty and therefore it would have a statutory force and it is not open to any market player to contend that the scheme be ignored or that they could borrow or lend securities in a manner different from the one provided in the scheme. In this view of the matter, it has to be held that each of the appellants acquired 25 lac shares of DSQ on March 1, 2001 when the shares were credited to their demat account.
It is then contended by the learned counsel for the appellants that the two appellants did not act in concert with each other and that the shares acquired by them could not be clubbed for the purpose of determining whether the limit prescribed by Regulation 10 had been crossed or not. It is urged that there is no material on record to show that the two appellants had acted in concert with each other and, therefore, the provisions of Regulation 10 had not been violated and that the appellants were not required to come out with a public announcement. We cannot accept this argument either. When we look at the letter dated February 27, 2001 on which great reliance is placed by the appellants themselves, it would be clear that the so called agreement arrived at between the OCB and the appellant was with Mr. Ketan Parekh. It was Mr.Ketan Parekh who had acted on behalf of both the appellants when the OCB agreed to give a loan of 25 lac shares to each of the appellants. It is thus clear that both the appellants were acting in concert with each other through Mr. Ketan Parekh with whom the so called agreement was arrived with OCB. We have already held that this was an acquisition made by the appellants and the plea that the shares were taken on loan could not be accepted. We are, therefore, satisfied that the two appellants were acting in concert with each other. This apart, the Board by its order dated 12.12.2003 passed by the then chairman had held that Panther and Classic were both entities governed and controlled by Mr. Ketan Parekh and that the buy and sell orders on behalf of these two companies were being placed by Mr. Ketan Parekh. The findings of the Board have been affirmed by this tribunal in Appeal no.4 of 2004 decided on 14th July, 2006. It follows that all the buy and sell orders on behalf of Panther and Classic were being placed by Mr. Ketan Parekh. This further supports the findings that the two companies were acting in concert with each other and had a common objective and purpose of acquiring the shares of DSQ.
The next argument of the learned counsel for the appellants is that the adjudicating officer could not levy penalty under section 15H of the Act as the said section was not made a subject matter of the charge in the show cause notice. This argument is being noticed only to be rejected. A reading of the show cause notice makes it clear that what was alleged therein was that the appellants had contravened section 15A of the Act and Regulations 7 and 10 of the Regulations. Section 15H of the Act provides for penalty for violating Regulations 7 and 10 of the Regulations. Merely because the adjudicating officer did not mention section 15H in the last paragraph of the show cause notice does not mean that violation of Regulations 7 & 10 had not been alleged and the non mention of Section 15H would make no difference. When we read the whole of the show cause notice it is clear that that section 15H has been mentioned therein and that penalty was to be imposed under that provision. We have, therefore, no hesitation to hold that the adjudicating officer could levy a penalty under section 15H for the violation of Regulations 7 and 10. We have already held in the earlier part of the order that these Regulations had been violated by the appellants.
It was then urged that the penalty could not be imposed both under section 15H and section 15A(b) of the Act. The argument of the learned counsel for the appellant is that section 15H is a specific provision providing for penalty where the Regulations stand violated and therefore the general provisions in section 15A(b) could not be resorted to for levying a penalty thereunder. We are unable to accept this contention as well. The appellants have violated Regulations 7 and 10. Regulation 7 was violated when they acquired 25 lac shares each on 1.3.2001 and did not disclose their shareholding to the company (DSQ). Regulation 10 was violated when both the appellants acting in concert acquired a total of 25% of the shareholding of DSQ and did not make a public announcement to acquire further shares of that company in accordance with the Regulations. For their failure to make a public announcement, a penalty has been imposed under section 15H(ii) of the Act and for their failure to disclose their shareholding to the company (DSQ) on acquiring more than 5% shares therein they have been penalised under section 15A(b) in as much as they failed to furnish the information within the time specified in Regulation 7. Section 15H(ii) applies where an acquirer fails to make a public announcement when he is required to make one and Section 15A(b) applies when an acquirer fails to disclose his acquisition to the company within the time allowed by the Regulations. It is, thus, clear that section 15H(ii) and 15A(b) deal with different situations and that the adjudicating officer was justified in levying penalities under both the provisions.
No other point has been raised.
In the result, the appeal fails and the same stands dismissed with no order as to cost.
The appellant should pay the penalty amount within 45 days from today.
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Justice N.K. Sodhi
Presiding Officer
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R.N.Bhardwaj
Member
RRN
14.11.06