In the matter of Rahul Holdings Pvt Limited

IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No: 122/2004

 

Date of Hearing		13/09/2004
Date of Decision		15/10/2004

 

In the matter of

  

Rahul Holdings Private Ltd.		Appellants – Represented by:
Kanchanshri Holdings Pvt. Ltd.		Mr. Shrinivas Deshmukh, Advocate
Versus
Securities & Exchange Board of India			Respondent- Represented by
		Mr. Charag Balsava, Advocate

 

 

CORAM

 

Justice Kumar Rajaratnam, Presiding Officer

Dr. B. Samal, Member

N.L. Lakhanpal, Member

 

 

Per: N.L. Lakhanpal, Member

  

 

1. The matter is taken up for final disposal with the consent of parties.

 

 

2. M/s. Jumbo Finance Limited was a company listed with the Bombay Stock Exchange having paid up share capital of 2,49,000/- equity shares of Rs. 10/- each. Pursuant to resolution passed by the Board of Directors of the Company, an Extraordinary General Meeting was convened to seek the approval of the General Body for allotment of 1,21,000/- equity shares of Rs. 10/- each on a premium of Rs. 20/- for an aggregate sum of Rs. 36,30,000/- to the appellants on preferential allotment basis. Out of this 1,21,000 equity shares, 89,000 shares were to be allotted to appellant No.1, Rahul Holdings Pvt. Ltd, and 32,000 shares to the appellant No.2, Kanchanshri Holdings Pvt. Ltd. It is common ground that the Bombay Stock Exchange was notified about this acquisition vide acquirer’s letter dated 02/09/2002 i.e., four days in advance in terms of Regulation 3(3) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In addition to this advance intimation to the Stock Exchange, an intimation was also required to be sent to SEBI within 21 days after the acquisition in terms of Regulation 3(4) of the SEBI (SAST) Regulations, 1997. It is also common ground that appellant No.1 had informed SEBI vide their letter dated 09/10/2002 that they had acquired 89000 shares of the target company constituting 24.05% of the voting rights on 06/09/2002. It seems the acquisition / allotment of 32,000 shares to the second appellant Kanchanshri Holdings Pvt. Ltd., was not mentioned in this letter to SEBI though it was intimated to BSE. The charge against the appellant is that this intimation to SEBI required under Regulation 3(4) was not in the prescribed format and was not accompanied by the requisite fee of Rs. 10,000/-. The adjudicating officer has held this charge as proved and has imposed a penalty of Rs. 8,00,000/- under Section 15A(a) of SEBI Act, 1992. Being aggrieved, the appellants have filed the present appeal.

 

 

3. The facts as outlined above are not in dispute. The appellants had pleaded before the Adjudicating and Enquiry Officer that they had no intention to hide any facts from SEBI or from the shareholders, and that the omission of not having sent the intimation in the prescribed form and not having enclosed a prescribed fee of Rs. 10,000/- be ignored since it was entirely unintentional. The respondent has taken note of these pleadings in the impugned order but has gone on to impose the penalty by citing the observations of the Hon’ble Supreme Court in the R.S. Joshi, STO Vs. Ajit Mills Ltd. AIR 1977 SC 2279 and Hindustan Steel Ltd. Vs. State of Orissa (1969) 2 SCC 627. The impugned order also relies on certain observations made by the Hon’ble Bombay High Court in SEBI Vs. Cabot International Ltd. as well as the observations of this Tribunal in Canbank Investment Mgnt Ltd. Vs. P, Sri Sai Ram. The sum and substance of the entire case law cited in the impugned order is that mens rea is not a necessary ingredient for imposition of penalties under Section 15 of SEBI Act, 1992 and that it is for the adjudicating officer to decide judicially as to whether a particular failure deserve to be punished by imposing monetary penalty. The impugned order thereafter goes on to observe that the acquisition of 32.5% of the paid up capital in one go is a material development in the economic life of the target company and that the acquirer should therefore have immediately filed a report with the Board under Regulation 3(4) of the SEBI (SAST) Regulations, 1997. At the time of hearing the learned counsel for the appellants Shri Shrinivas Deshmukh argued that the appellants had no earlier experience of the stock market but had nevertheless complied with Regulation 3(3) by informing the stock exchanges concerned so that the fact of the acquisition could be disseminated for the information of the investing public. According to the learned counsel, the text of Regulation 3(4) does not suggest any particular format for sending the necessary information to SEBI and that they had therefore sent the necessary information through a simple letter. However, as soon as their merchant bankers brought it to their notice that the intimation was required to be sent in a specified format along with a fee of Rs. 10,000/- they complied with the necessary requirements on their own volition. It has been argued by the appellants, that the penalty of Rs. 8,00,000/- for not having paid the prescribed fee of Rs. 10,000/- and not having used a specified format is grossly disproportionate showing total non-application of mind on the part of the respondent.

 

 

4. We have carefully gone into the facts and circumstances of this case as well as the reasoning advanced in the impugned order. Each of the cases cited in the impugned order in fact casts a responsibility on the respondent to exercise the discretion judicially on consideration of all relevant circumstances. In SEBI Vs. Cabot International Ltd.,  relied on by the respondent the Hon’ble Bombay High Court had indeed held that mens rea was not required to be alleged or proved for imposition of penalties under SEBI Act, 1992. But the Hon’ble High Court had also held that "merely because there was no report filed [under Section3(4)] that itself cannot be read as serious defect or non-compliance of the said provisions." The Hon’ble High Court was pleased to uphold the order by this Tribunal. Similarly, this Tribunal had occasion once again to consider the same issue in Samrat Holdings Vs. SEBI  and had reiterated the same position.

 

 

5. With the stock exchanges as well as SEBI having been duly informed of the acquisition, we are not unduly impressed with the argument about the acquisition being a material development in the economic life of the target company requiring immediate compliance with Regulation 3(4). This is particularly so because the acquisition was pursuant to a resolution passed in the General Body Meeting of the shareholders for preferential allotment of shares to the appellants. The charge that survives therefore is only of the appellants not having used a specified format and of not having enclosed a fee of Rs. 10,000/-. Even these deficiencies were remedied by the appellants themselves on their own though after a delay of 80 days as alleged. We are of the view that this is a condonable lapse particularly because none of the factors outlined in Section 15J of the SEBI Act, 1992 is attracted.

 

 

6. Accordingly the appeal is allowed and the impugned order is set aside. There shall be no order as to costs.

 

 

(Justice Kumar Rajaratnam)                                                 Presiding Officer
(Dr. B. Samal) Member		(N.L. Lakhanpal) Member

Place: Mumbai

Date: 15/10/2004

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