IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal
No: 138/2004
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In
the matter of
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Appellants � Represented by: |
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Contact
Consultancy Services Pvt. Ltd. |
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Pravara
Commercial Pvt. Ltd. |
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Poornima
Commercial Pvt. Ltd. |
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Relaxed
Packagers Pvt. Ltd. |
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Consistent
Packagers Pvt. Ltd. |
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Pleasant
Packaging Co. Pvt. Ltd. |
Mahendra Bhuta, |
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Timberhill
Engineers Pvt. Ltd. |
Company Secretary |
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Total
Network Solutions Ltd. |
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Blackmore
Investments & Trading Pvt. Ltd. |
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Sentosa
Investment & Trading C. P. Ltd. |
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Beach
Craft Investment & Trading Co. Pvt. Ltd. |
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Versus |
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Securities & Exchange
Board of |
Respondent- Represented by |
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Mr. Vivek Menon Advocate |
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CORAM
��������� Justice
Kumar Rajaratnam, Presiding Officer
��������� N.L.
Lakhanpal, Member
Per:��� N.L. Lakhanpal, Member
1.
The
appeal is taken up for final disposal with the consent of parties.
2.
The
appellants 1 to 11 had acquired 32,03,340 equity shares of BSEL Information
Systems Limited (now known as BSEL Infrastructure Realty Limited) constituting
31.56% of shares of paid up capital of the target company BSEL Information
Systems Limited during April, 1997. Due to this acquisition the shareholding of
the appellants in the target company increased from 30.04% to 61.6%.� Securities and Exchange Board of India (SEBI)
investigated these acquisitions and came to the conclusion that the acquisition
was in violation of Regulations 10 and 11 of Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and
directed the appellant acquirers to make an open offer vide SEBI�s order dated
3.
The
facts in this case as narrated above are uncontested. The only argument raised
in the memorandum of appeal and pressed at the time of the oral hearing of this
appeal is that the default of not having made a public announcement was due to
genuine belief that Regulation 10 and 11 would not be applicable since the
appellants were already holding more than 30% of the equity of the target
company and that since they had duly complied with the Chairman, SEBI�s order
relating to public offer, the additional penalty of Rs. 5 lakhs under Section
15H(ii) in separate adjudication proceedings would be extremely harsh. The
appellants have further argued that they were the promoters of the company and
the �acquisition made in April, 1997 was
in reality merely an infusion of additional capital in the interest of the
company and its shareholders and not for any personal gain of the acquirers.
According to them, this is evident from the fact that the appellant acquirers
are still holding those shares and have not disposed them off in the
market.� The appellants have also stated
that there is no change whatsoever in the management and control of the target
company as a result of the acquisition.
4.
We
have carefully gone into the facts of the case and we find ourselves completely
satisfied with the bonafides of the appellants. As promoters they had every
reason to believe that acquisition of further 31.5% shares over and above their
holding of 30.04% of was not going to materially affect the management and
control and voting rights in the company which were already overwhelming in
their favour. Yet, when it was pointed out to them that they were nevertheless
in breach of Regulations 10 and 11, they faithfully complied with the orders of
Chairman, SEBI dated October 23, 2002 directing them to make a public offer and
also to fix the offer price by adding interest @ 15% per annum� from April, 1997 onwards till the date of
actual payment of consideration to the shareholders. According to the
appellants the public offer with such a high rate of interest on the issue
price has cost them as much as Rs. 60 lakhs and this figure has not been
contested by the respondents.� The
Adjudication Officer has also treated this compliance by the appellants as a strong
mitigating factor.� In any case with the
compliance of this order, the interests of the investors have been fully taken
care of and the question that remains is only of imposition of a penalty for
default. The Adjudicating Officer has arrived at the figure of Rs. 5 lakhs in
the belief that any matter referred for adjudication must result in imposition
of some penalty.� This Tribunal has held
in a number of cases that this proposition is not correct. When a matter is
referred to adjudication, what is under adjudication is not only the quantum of
penalty but also the questions as to whether the penalty is leviable under the
law at all and even if it is leviable whether a penalty needs to be levied in
the facts and circumstances of a particular case. These questions have to be
determined by the Adjudicating Officer judicially with due application of mind.
This view of this Tribunal has also been upheld by the Hon�ble Bombay High
Court in Cabot International Capital Corporation Vs. SEBI, appeal No.
7/2001 in SEBI appeal No. 24/2000.� The
impugned order does not reveal that the appellants acted deliberately in defiance
of law or were guilty of conduct contumacious or dishonest or acted in
conscious disregard of their obligations.�
On the contrary the appellants have faithfully complied with the orders
directing them to make a public offer and have thus assisted the regulator in
safeguarding the investor interest at a considerable cost to themselves. Reference
was made during argument to the order of SEBI dated 31/03/2003 where a penalty
of Rs. 5 lakhs was imposed on M/s. VLS Finance Limited in lieu of requiring VLS
Finance Limited to make a public announcement under SEBI (SAST) Regulations,
1997. This order was confirmed by the Tribunal in Appeal 61/2003. There was
broad consensus during the hearing of Appeal 61/2003 �between the parties that SEBI should either
direct the party to go for a public announcement if the party is in violation
of Regulation 10 of SEBI (SAST) Regulations or proceed under Section 15H(2) of
the SEBI Act, 1992 for imposing a penalty. Rightly, SEBI in appeal No. 61/2003
took the stand that the ends of justice will be met if action is taken either
to make a public offer or to impose a penalty but not both.� This is in consonance with fair play, justice
and equity. We commend this approach of SEBI which is in keeping with the
spirit of Article 20 of the Constitution of India. The present case is not the
one warranting a departure from this salutary practice. In the circumstances we
have come to the conclusion that no specific penalty is called for under
Section 15H(2) of SEBI Act, 1992, in the facts and circumstances of this case since
the earlier order directing a public offer has been fully complied with thus
safeguarding the interests of the minority shareholders, which is the main
objective of SEBI (SAST) Regulations, 1997.
5.
Accordingly
the appeal is allowed and the impugned order is set aside. Any amount paid by
the appellants pursuant to the impugned order shall be refunded within four
weeks from the date of this order. There shall be no order as to costs.
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(N.L. Lakhanpal) Member |
(Justice Kumar Rajaratnam) Presiding Officer |
Place: Mumbai
Date:
*/as