IN THE SECURITIES APPELLATE TRIBUNAL
Appeal No:�������� 33/2003
Appeal No:�������� 34/2003
Appeal No:�������� 35/2003
Appeal No:�������� 36/2003
Appeal No:�������� 37/2003
Appeal No:�������� 38/2003
Appeal No:�������� 39/2003
Appeal No:�������� 40/2003
Appeal No:�������� 41/2003
Appeal No:�������� 42/2003
Appeal No:�������� 43/2003
Appeal No:�������� 44/2003
Appeal No:�������� 45/2003
Appeal No:�������� 46/2003
Appeal No:�������� 47/2003
��������� Justice Shri Kumar Rajaratnam, Presiding Officer
��������� Dr. B. Samal, Member
��������� Shri N.L. Lakhanpal, Member
Per:��� Shri N.L. Lakhanpal, Member
1. These 15 appeals are being taken up together for hearing and disposal with the consent of parties.� This is because the facts are common in all these appeals and almost the same order has been passed by the respondents, SEBI, in all these appeals with requisite changes in names and dates in different orders.� All the appellants in these 15 appeals had acquired shares in excess of 15% in different, though seemingly related, targeted companies, through preferential allotment.� The charge against almost all of them is violation of or inadequate compliance with Regulation 3(1)(c)(ii) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as �the Regulations�). The penalty of Rs. 5 lakhs has been imposed against each of the appellants for this violation.� Another common feature of these 15 matters under appeal is that shares in each of the four target companies, namely, Mantra Online Limited, Herald Commerce Limited, Arihant Limited and Twenty First Century India Limited were acquired by the same set of entities in different combinations and in some cases the target companies also became part acquirers of same other companies in the same group. By way of illustration, shares in Herald Commerce Limited were acquired by Silicon Valley Infotech Limited, CMS Infotech Limited, Mantra Online Limited and ATN International Limited, but Herald Commerce Limited itself acquired shares in Twenty First Century India Limited and Mantra Online Limited itself become a target company for acquisition by Silicon Valley Infotech Limited, Twenty First Century India Limited, Arihant Limited and ATN International Limited.� Although nothing is known on record but it seems that all these are group companies related somehow or the other to each other and these acquisitions happened by way of some restructuring plan.� For all these reasons we have decided to pass a single order instead of repeating the same order 15 times by changing names and dates. The parties to these appeals have also urged and agreed to this course of action. It needs to be added here that there is no allegation by the Respondents that any of these entities acted in concert for these acquisitions and that is not the issue before us for determination.
2. Regulation 10 of the Regulations forbids acquisition of shares or voting rights in excess of 15% except by making a public announcement.� This regulation reads as under:
�10.���� No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.�
3. However, Regulation 3(1)(c), at the relevant time exempted acquisitions made by way of preferential allotment from the requirements of Regulation 10. Regulation 3(1)(c) reads as under:
�3.(1)� Nothing contained in regulations 10,11, and 12 of these regulations shall apply to:
(c)������ preferential allotment, made in pursuance of a resolution passed under section 81(1A) of the Companies Act, 1956 (1 of 1956):
����������� Provided that,-
����������� (i)� board resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board;
����������� (ii) full disclosures of the identity of the class of the proposed allottees(s) is made, and if any of the proposed allottee(s) is to be allotted such number of shares as would increase his holding to 5 per cent or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the general meeting called for the purpose of consideration of the preferential allotment;�
4. It is common ground that this exemption was available to the appellant acquirers at the relevant time subject to the satisfaction of conditions stipulated in Regulations 3(1)(c). It is also common ground that the requisite resolutions under Section 18(1)(a) of the Companies Act, 1956 were duly passed by the respective General Meetings in respect of all these acquisitions. These resolutions were also sent to the respective Stock Exchanges. The Respondents have also not alleged any violation of Regulation 3(1)(c)(i). However, in respect of Regulation 3(1)(c)(ii) above relating to specific disclosures in the notice of the General Meeting called for the purpose of consideration of the preferential allotment, the identity of the persons to whom the allotment was to be made was not disclosed with their names and addresses, and they were described only as �promoters, their friends, associates or associated companies or any other entity belonging to the promoters�. This was therefore treated by the Respondent SEBI as non-disclosure of vital information which could have affected the ability of the shareholders to take informed decisions. The matter was therefore referred to the adjudicating officer who has passed the impugned order imposing penalty of Rs. 5 lakhs on each of the appellants.� The learned adjudicating officer has relied on the definition of the term identity in the Dorling Kindersley Illustrated Oxford Dictionary as �the quality or condition of being a specified person or thing� and has come to the conclusion that mere description of the acquirers as promoters, etc., without mentioning their names and addresses is tantamount to non-compliance with the vital disclosure requirement.
5. At the time of hearing of the appeal the learned Counsel for the appellants argued that the sequence of events showed that the appellants had never sought to hide anything from the shareholders or from the stock exchanges or from the Respondents SEBI. It was his argument that the only lapse, if at all, was in the case of the notice for the General Meeting, over which the acquirers had no control because it was the target company which was supposed to send these notices for the meeting.� The learned Counsel further argued that even if the appellants were finally determined in the appeal to have failed to fulfill the requirement regarding mention of names and addresses, this was a fit case for showing leniency in determining the quantum of penalty because the appellants had acted in the genuine belief that describing the acquirers as promoters and further saying that there would be no change in control or voting rights amounted to full and adequate compliance with the Regulations. As against this the learned Counsel for the Respondents argued that the exemption under Regulation 3 was available subject to full compliance with the stipulations contained in Regulation 3(1)(c)(i) and (ii) and that the adjudicating officer had therefore rightly adjudged the issue.
6. We have carefully gone into the records of all the appeals, the orders passed by the adjudicating officer as well as the arguments of the learned counsel on both sides. We are inclined to agree with the learned Counsel for the appellants that the omission has taken place purely due to misreading of the requirements of Regulation 3(1)(c)(ii) and that the penalty of Rs. 5 lakhs on each of the acquirers as adjudged by the adjudicating officer is grossly disproportionate to the irregularity / violation of the regulation. Accordingly we uphold the order of the adjudicating authority but modify the amount of penalty to Rs. 10,000/- (Rupees Ten Thousand only) on each of the 15 appellants. These appeals are disposed of accordingly.� There shall be no order as to cost.