IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 Appeal No.98/2005

 

Date of Hearing	05.09.2005
Date of Decision	08.09.2005

 

In the matter of:

 

Dhaval Shah	Appellant – Represented by
	Mr. K. S. Menon, Advocate
Versus
Adjudicating & Enquiry Officer, Securities & Exchange Board	Respondent – Represented by Mr. Ravi Hegde and Paras
of India	Parekh,  Advocates

 

 

 

Coram:

          Justice Kumar Rajaratnam, Presiding Officer

          C. Bhattacharya, Member

          R. N. Bhardwaj, Member

 

 

Per:    Justice Kumar Rajaratnam, Presiding Officer

 

 

1.       Appeal is taken up for disposal with consent of both parties.

 

 

2.       The appellant being aggrieved by the  order of the Adjudicating Officer of  the Respondent has preferred this appeal.  

 

3.       The respondent by an order dated  December 30^th, 2004 imposed a penalty of Rs.1 lakh against the appellant for violating regulations 7(1) and (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “the Regulations”).  This appeal did not detain us for too long although various submissions have been made by the appellant. 

 

4.       As per the Regulations, there is a duty cast on the acquirer to inform  the target company whenever an acquirer purchases more than 5% of the shares or voting rights in the target company.  This must be done within 4 working days as required under regulation 7(2).  In this case the target company was ETP Corporation Ltd., The appellant had crossed the threshold limit of 5% on June 22, 2002 and it failed to inform the company within 4 working days of receipt of the allotment of shares.  It is also not in doubt that the target company however, belatedly informed the Stock Exchanges as required under the Regulations.  The learned counsel for the appellant vehemently submitted that no show cause notice was served on the appellant and the entire adjudication proceedings proceeded without the appellant participating in it. 

 

5.       It was  however,  not denied  that the appellant had crossed the threshold limit of 5%  on June 22, 2002 and it was brought  below the threshold limit of   5%  and his shareholding continued to remain below 5% even on this day.  It is,  in these circumstances, felt that  no useful purpose will be served in remanding the matter to SEBI since it is the admitted position that there was a lapse on the part of the appellant in not informing the target company. 

 

6.       On the quantum of penalty, it was rightly submitted by the learned counsel for  the appellant that non intimation although was an error  which require some sort of imposition of penalty it can not be said by any stretch of  imagination that it was  deliberate and that the appellant had in fact intended to defy the regulations.

7.       Reliance was placed on the Judgement of the Tribunal dated 31/8/2004 in Reliance Industries Ltd., Vs. SEBI wherein this Tribunal almost in similar circumstances held that if the breach was out of a bona fide belief that since the acquirer had brought down the threshold limit below 5% subsequently, he was  under the impression that he need not  inform the target company, then a lenient view should be taken. 

 

8.       The Tribunal also held that the ignorance of law is no excuse but an erroneous interpretation of the law is a mitigating factor especially if such interpretation is honest and bona fide to the knowledge of the appellant.  The appellant also relied on the Judgement of Cabbot International Capital corporation vs. Adjudicating Officer, SEBI where this Tribunal took the same view, 

 

9.       There is no hard and fast rule  on these matters.  The Supreme Court in Hindustan Steel Limited vs. State of Orissa AIR 1970 SC 253 has pronounced as under:

 

“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

The Adjudicating Officer makes a passing reference to 15J without  regard to facts of the case while imposing penalty.  The adjudicating Officer has to be extremely careful in assessing the quantum of penalty with strict reference to 15J. While imposing penalty  under Section 15J, the adjudicating officer shall have due regard to the following factors namely:

(a)    the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default,

(b)   the amount of loss caused to an investor or group of investors as a result of the default.

          (c ) The repetitive nature of the default.

 

10.     Here obviously the appellant had exceeded the threshold limit of 5% from June, 2002  to October, 2002 and had brought it down by October, 2002.  Taking all these factors into account and the precedents on the subject, we feel it appropriate to reduce the penalty from Rs.1 lakh to Rs.25,000/-.  Accordingly we uphold the impugned order and modify the penalty to Rs.25,000/- and direct the appellant to deposit the amount, if not already deposited, within 8 weeks from the date of receipt of this order.  

 

          Appeal disposed of accordingly.

 

          No order as to costs.

 

 Sd/-

 

 

Place: Mumbai

Date:  08 09.2005

Smn/6/9