BEFORE
THE SECURITIES APPELLATE TRIBUNAL,MUMBAI.
APPEAL NO.60/2002
In the matter of :
Doogar & Associates Ltd.���������������������������������������� Appellant
Vs
Securities and Exchange Board of
APPEARANCE:
Shri Dinesh
Agnani���������������������������������������������������������������
Advocate������������������������������������������������������������������� for
Appellant
Shri Vinay
Chauhan
Legal Officer������������������������������������� ����� ����������������� for
Respondent
ORDER
����������� The Respondent, based on the
information in its possession decided to appoint an� Adjudicating Officer to inquire into and
adjudge under section 15A of the Securities and Exchange Board of India Act,
1992 (the SEBI Act) the alleged contravention of sub regulation (2) of
regulation 15 and sub regulation (3) of regulation 24 of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (the Takeover Regulations) by the Appellant with reference to
its role as the merchant banker� in the
context of the public offer made by Allianz International Pvt. Ltd., (the
Acquirer) on 27.8.2001 to acquire 2,00,000 shares representing 20% of the
equity share capital of a company viz. Adhbhut Industrial Resources Ltd.,(the
Target Company).� The Appellant was the
merchant banker appointed for the purpose of the said public offer.� The Respondent appointed an Adjudicating
Officer for the purpose vide its order dated 5.12.2001.� The Adjudicating Officer after inquiry viewed
that the Appellant had failed to comply with the requirements of regulation
15(2) read with regulation 24(3) of the Takeover Regulations in as much as a
copy of the public announcement was filed with the Respondent, after� the publication of the same, as against the
requirement of filing it atleast two days in advance of its publication.� In that context the Adjudicating Officer
imposed a penalty of fifty thousand rupees on the Appellant.� The Appellant claiming to be aggrieved by the
said order, preferred the present appeal.
����������� Shri Dinesh Agnani, learned Counsel appearing for the Appellant explained the factual matrix relating to the case.� He submitted that since the Acquirer had decided to acquire the shares of the Target Company and also the control over the company, in terms of regulation 10 read with regulation 12 of the Takeover Regulations, the acquirer was required to make a public announcement offering to purchase not less than 20% of the paid up capital of the Target Company and for that purpose, the Appellant, a Category I Merchant Banker, was appointed.� He submitted that in terms of regulation 15(2), a copy of the� public announcement is required� to be submitted to SEBI, atleast 2 working days before its issuance, that the public announcement in the instant case was made on 27.8.2001, that on 31.8.2001 the Respondent informed the Appellant that it had not received the copy of the announcement as required to be submitted to it vide regulation 15(2).� In that context the Appellant tried to find� out the cause as to why the copy of the announcement did not reach the Respondent, though steps had already been taken� to submit the same well in time.� He submitted that on making enquiries it was found that copies of public announcement which were to be sent to the office of the Respondent had been handed over by the Appellant to its receptionist Ms. Mona Bisht for being delivered to the office of the Respondent, that� Ms. Mona Bisht could not post it as her relative suddenly expired on that day and she went to the hospital where the said relative was admitted leaving� the office without giving instructions to anyone to post the same and thereafter she continued to remain absent.� It was only when a call was received from the office of the Respondent, the� Appellant came to know about not posting the copy of the public announcement and on realising the� lapse on the part of the official, immediately a copy of the public announcement was sent to the Respondent. Requesting� to condone the delay on humanitarian ground and as an exceptional case because it was� not the intention of the Appellant� not to submit the copy of the announcement in time, and the Appellant also assured that it would take extra precaution and care in future.� Learned Counsel submitted� that it is also a fact that after the receipt of the copy of the public announcement the Respondent did not point out any error or deficiency in the public announcement.
Learned Counsel submitted that the Appellant in its reply to the show cause notice had clearly explained the circumstances in which the copy of the public announcement did not reach the Respondent�s office in time but after a delay of 3 days,� and that the delay was caused due to unavoidable circumstances for the reasons explained therein.� The Respondent was also informed that the public announcement� made by the Appellant met all the requirements as required under law and from the observation letter dated 19.2.2001 sent by the Respondent�s office also it is clear as the same did not offer any comments thereon.� The Appellant was neither� asked to make any corrigendum to the public announcement nor any objection was raised during the currency of the offer.� The Appellant in its� reply had further stated that all the formalities regarding the offer in question� had been completed and the Appellant had successfully discharged all the obligations relating to� the said offer and no share holder was adversely affected due to the late submission of the copy of the announcement by 3 days.� Since there was no malafide involved and the delay was attributable to unavoidable circumstances, the Appellant once again requested the Respondent to condone the delay of 2 to 3 days involved, that in the said letter the Appellant had stated� the entire activity chart demonstrating meticulous compliance of the requirements of the regulations.�
The factual position made� it�
clear that there has been no default on the part of the Appellant and
all the regulations were duly complied with and functions discharged by the
Appellant and still the Respondent decided to penalise the Appellant purely on
technical grounds ignoring the factual position.
The Learned Counsel submitted that the Adjudicating Officer erred in imposing penalty on the ground that the Appellant� had failed to comply with the requirements under clause (a) of Section 15A whereas in fact, admittedly the Appellant had filed the necessary documents with slight delay as against the time specified �in the regulations.� Therefore� imposing the penalty as prescribed under clause(a) of Section 15A and not under clause (b) of Section 15B, has resulted in miscarriage of justice, that� the Adjudicating Officer got carried away by the earlier order passed by the Respondent� wherein the Appellant has been suspended for a period of two months in the matter of a public issue of M/s. Manu Finlease Ltd., without appreciating the fact that the said order had since been modified by the Appellate authority, and further more the Adjudicating Officer while adjudging the quantum of penalty under Section 15J also failed to appreciate that there has been no disproportionate gain or unfair advantage to the Appellant, no amount of loss has been caused to any investors or group of investors as a result of delay in submitting the copy of the� public announcement to SEBI.� He submitted that the matter involving Manu Finlease did not relate to� identical set of� facts, that in that case the matter related to public issue and not public offer� under the Takeover Regulations. Holding that the instant case amounts to repetitive default a penalty of Rs.50,000/- was imposed which� has resulted in grave miscarriage of justice. Learned Counsel submitted that the Adjudicating Officer has wrongly concluded� that non-filing of the copy of the� public announcement with the Respondent has obstructed discharge of its statutory duties, as the said� observations is without any basis and has been made for the reasons best known to the Adjudicating Officer.� The Adjudicating Officer has stated that the purpose of filing public announcement� in advance enables the Respondent� to examine the same and see that the same is in conformity with the said regulations and also enables it to take appropriate and timely steps in case of any non-compliance with the said regulation is observed, that thus it enables the Respondent� to protect the interest of investors/share holders by taking timely action in the matter before the public announcement is issued.�� Learned Counsel submitted that the Adjudicating Officer lost sight of the fact that in case there had been any discrepancy then it could have asked the Appellant to issue supplementary advertisement/public announcement, that admittedly there were no discrepancies and the public announcement was in confirmation with� the said regulations and� no prejudice was caused to� the interest of investors/share holders. Had there been any discrepancies in the public announcement the Respondent� would have called upon the Appellant to modify the public announcement and in that case it could have been viewed that the Appellant had obstructed the Respondent in discharge of its statutory duties by late filing of the public announcement.� By not appreciating the said fact and merely holding that the delay involved� on the part of the Appellant in filing the public announcement has obstructed the Respondent� in discharge of its statutory duty is without any basis. The purpose of filing the public announcement with� the Respondent� is to ensure that no mis-statement/wrong statement has been made in the said public offer so as to� cause prejudice to the shareholders/investors and in the event there are some mis-statement the same could be got rectified before the public announcements are published, that� there may be some occasions of delay on the part of SEBI to notify any mistake within the said period of 2 days and in that event the procedure which is valid is to ask the acquirer to issue a� corrigendum in furtherance to the original public announcement made, so that the shareholders/investors in the said company do not suffer any hardship or their interest is not adversely affected.
Learned
Counsel submitted that the requirement of filing advance copy of the public
announcement having found not of any use, the Respondent� by an amendment to the regulation 15(2) has
now done away with the said requirement and that if the compliance of the said
requirement had been of such importance, as the Adjudicating Officer has
attempted to project, the Respondent would not have deleted the said
regulation. He submitted that the requirement under regulation 15(2) was found
redundant and that is why the regulation was deleted and therefore, for non
compliance of such a redundant requirement strictly, imposition of penalty is
unwarranted.�� Learned Counsel reiterated
that the Respondent has simply invoked the penalty provisions without� application of mind, that the Respondent
itself had admitted that as a result of the failure to file the advance copy of
the public announcement, the interests of the investors have been not affected
in any manner.� He submitted that the
Adjudicating Officer has not taken into consideration the facts required to be
followed for the purpose of imposition of penalty as provided in section
15J.� He countered the Adjudicating
Officer�s contention that the Appellant is a repetitive defaulter, that
according to him if a person repeats the same default then only he can be
considered as repetitive defaulter, that the Appellant had not defaulted
repeatedly as alleged.� He submitted that
the Adjudicating Officer has totally ignored the fact that the failure to
submit the copy of the announcement was beyond the control of the Appellant,
that the Appellant had acted in atleast 100 public issues/offer as merchant
banker and in none of the cases it had failed to comply with the requirements
of regulation 15(2), that by not strictly complying with the said requirements
nobody has gained anything, that� the
public announcement appears in the press and that� the public offer document can not be issued
thereafter without submitting the same in advance to the Respondent and
incorporating modification if any suggested by it, is also a matter which can
not be ignored.� Shri Agnani in this
connection referred to this Tribunals decision in the case of Cabbot
International Capital Corporation V Adjudicating Officer (2001) 40 CLA 326
(Sat) wherein the Tribunal had held that the purpose of making disclosure is to
ensure transparency, and what is to be considered in the instant case is that
the said purpose has been achieved.� He
submitted that the Appellant in no way suppressed any information and there was
no transparency lacking to view the failure, which is� purely of technical nature, as one to warrant
penalty.� Learned Counsel in this context
referred further to the view held by the Tribunal in Cabbot�s case that
monetary penalty is not warranted in every case of failure that:
�On a perusal of section 15I it could be seen that
imposition of penalty is linked to the subjective satisfaction of the
Adjudicating Officer. The words in the section that �he may impose such
penalty� is� of considerable
significance, especially in view of the guidelines provided by the legislature
in section 15J. �The Adjudicating Officer shall have due regard to the factors�
stated in the section is a direction and not an option.� It�
is� not�� incumbent�
on the�� part of the Adjudicating
Officer, even if it is established that the person has failed to comply with the
provisions of any of the sections specified in sub section (1) of section 15I,
to impose penalty. It is left to the discretion of the Adjudicating Officer,
depending on the facts and circumstances of each case.
In this
context, it is relevant to have a look at the clear cut guidelines provided by
the Supreme Court in Hindustan Steel�s case (supra).
� Under the
Act penalty may be imposed for failure to register as a dealer: Section 9(1)
read with Section 25(1)(a) of the Act. But the liability to pay penalty does
not arise merely upon proof of default in registering as a dealer. 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 bonafide
belief that the offender is not liable�
to act in the manner prescribed by the statute�.
�����������
The back
ground of the said case leading to the above observation� by the Court is as follows:
�In proceedings for assessment of tax under the
Orissa Sales Tax Act, 1947, the Sales Tax Officer held that the Company was a
dealer in building material, and had sold the material to contractors and was
on that account liable to pay tax at the appropriate rates under the Orissa
Sales Tax Act. The Sales Tax Officer directed the Company to pay tax due for
ten quarters ending�
The� observation of the Court cited above� was in answer to the question �whether the
Tribunal is right� in holding that the
penalties under section 12(5) of the Act (Orissa Sales Tax Act, 1947) had been
rightly levied?�
The facts
of the present case are reasonably comparable with the case cited above.� In the light of the clear observation of the
Court� as to when� penalty for failure to carry out a statutory
obligation could be imposed, it is to be seen as to� whether the facts of the present case
warranted penalty. The facts to be considered are� whether there is anything to show�� that the Appellant acted deliberately in
defiance of law or was guilty of conduct contumacious� or�
dishonest or acted in conscious�
disregard of its obligation. It is also to be seen that whether the
breach flows from a bonafide belief of the Appellant that it was not liable to
act in the manner prescribed� by the
statute.
In this
context it is also relevant to know the significance of the expression �shall
be liable to a penalty� appearing in the section 15A. The Supreme Court in
Superintendent & Remembrancer� of
Legal Affairs to Govt. of West Bengal (supra) held that� �the expression �shall be liable to a
penalty� occurring in many statutes has been held as not conveying the sense of
an absolute obligation or penalty but merely importing a possibility of such
obligation or penalty�.
As already� stated� above, in terms of section 15I whether penalty should be imposed for failure�� to�� perform� the� statutory� obligation� is� a� matter� of� discretion left to�� the Adjudicating Officer and that discretion has to be� exercised judicially and on a consideration of all the relevant facts and circumstances. Further�� in case it is felt that penalty is warranted the quantum has to be decided taking into consideration the factors stated in section 15J. It is not that the penalty is attracted perse the violation. The Adjudicating Officer has to satisfy that the violation deserved punishment.
Supreme
Court decision in Additional Commissioner of Income tax (supra), which is� a reiteration of the ratio in the Gujarat
Travancore Agency case(supra) relied on�
by the Respondent to show that it is not necessary to prove� mens rea for imposing� penalty is not relevant�� to the present� case�
in view of the distinguishable�
nature of the� relevant
provisions� under the Income� Tax�
and� the SEBI Act.� These two�
decisions are with� specific reference
to provisions of section 271(I)(a) of the Income Tax Act. The said section 271
(1)(a) provides that a penalty may be imposed if the� Income Tax Officer is satisfied that any
person has without reasonable cause failed to furnish the return of
income. Thus the�� burden is ultimately
on the assessee to plead and prove the reasonable cause. Consequently no mens
rea could arise at all. On the contrary there is no such requirement in section
15A.The section� does not require
pre-existence of a guilty mind� to impose
penalty.� But the Act itself� circumscribes�
the powers� of the Adjudicating
Officer� in the field of imposition of
penalty.� The case law relied on by the
Respondent is of no help to�� the� Respondent to justify imposition of penalty� against the Appellant in view of the facts
and circumstances peculiar to this case, discussed� in detail above.
It is not� the case of the Respondent, that� the Appellant had �acted deliberately in defiance of law or was guilty of conduct contumacious� or dishonest or acted in conscious� disregard� of� its obligation�. On the contrary from the conduct of the company which is also a party to the preferential allotment, in furnishing information and making disclosures to the agencies� like stock exchange, Registrar of Companies, etc. it is impossible to conclude that reporting under regulation 3(4) was held back intentionally. There is no reason, in the absence of clinching evidence,� to disbelieve� the Appellant�s version that it was under genuine belief that regulation 3(4) was not applicable to the allotment. The breach flows from the bonafide belief that it was not liable to comply with the requirements� under rule 3(4) and this has to be viewed in the light of the Supreme Court�s observation in Jiwani�s case relied on� by the Appellant. In fact the Adjudicating Officer himself has admitted in� para 4.1.4 of the order that � this case however relates to a transitional period . The process of� acquisition� took place while the 1994 regulation� was in force. The actual allotment/acquisition took place while the 1997� Regulations came into force. In that process there was lack of clarity on the part of the acquirer as to the applicability of 1997 Regulations�.� Keeping all the factors in view , the benefit of doubt was given to the acquirer and no penalty was imposed in terms of section 15H(ii) of the Act.� In this context I am tempted to observe that� even otherwise regulation 11 will not be attracted� to the� company�s preferential allotment in view of the fact that the acquisition is� covered under regulation 3. Even though the Adjudicating�� Officer has� given the benefit of doubt to the Appellant in the matter of the alleged violation of regulation 11/ section 15(ii),� for the reasons best known to him he has not extended that benefit� as far as non� compliance of regulation 3(4) is concerned,� though the facts and circumstances applicable� are the same in both the cases. This differential treatment, in the absence of adequate explanation cannot stand. The observation made by the Adjudicating Officer based on his satisfaction, cannot be limited to applicability to regulation 11/section 15(ii) alone as the facts are common.� Further the Adjudicating Officer� has also clearly stated in the order �that the delay in filing of the report has not� resulted in any gain� to the Appellant. There is not even a� whisper in the impugned order� of any loss to anybody. There is nothing on record to show that the Appellant had a past record of default. None of the factors of section 15J is� attracted� in this case.� In the light of the totality of the facts and circumstances�� of the� case� and� in� view of� the Supreme Court�s�� guidelines� in the� Hindustan Steel�s case� imposition of monetary penalty on the Appellant in my view is unwarranted.�
Shri Agnani submitted that the Appellant�s case is in no way� different from the Cabbot�s case, that it had not acted deliberately in defiance of law or was� guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation and in the light of the facts and circumstances of the case, the alleged failure did not warrant imposition of monetary penalty.
Shri Vinay Chauhan, learned Representative of the Respondent submitted� that for the failure to submit the copy of the text of the public announcement, to SEBI whether clause (a) or clause (b) of section 15A is attracted is no longer an issue in the light of the decision of this Tribunal in Housing Development Finance Corporation Ltd., V Securities and Exchange Board of India (2000) 28 SCL 289 (SAT).� He referred to the following portion in the said decision:
�On a
careful reading, it is seen that section 15A has been drafted to meet different
situations, enumerated under clauses (a)(b) and (c). It is also pertinent to
note that the legislature, taking into consideration� the��
gravity of the� matter, i.e.
the� resultant consequences of the
default has decided to provide monetary penalties of different quantum. It
appears that failure under� clause (a)
i.e. failure to furnish returns, reports, etc. to the� Board, has been viewed� rather leniently as the maximum monetary
penalty leviable is limited to one lakh and fifty thousand rupees for each such
failure. But, under clause(b) the penalty in the event of failure to file
returns, furnish any information, books or other documents within the time
prescribed by regulation meets with a penalty upto five thousand rupees� for every day during which such failure
continues. It appears� from clause (c),
that failure to maintain the requisite books of account or records is viewed
more seriously as could be seen from the penal consequences, as the failure
attracts a maximum penalty of ten thousand rupees for every day during which
the failure continues.
It is also to be noted� that�
the� expressions� �document��
and�� �return� have been�� repeated��
in�� clause (b)�� also.��
If� expression� �information��
referred� to� in clause(b)�
can�� be in� a�
report� form,� as�
suggested�� by�� the Respondent,� all�
the requirements of (a) are covered under (b) also. If the legislative� intention had been to� include reporting to the Board also in� clause(b) specific provision under clause (a)
for the same� purpose with a different
quantum of penalty would� not have been
provided�� in�� the��
Act.� These�� two�
sub�� clauses�� are��
meant� to� meet�
different requirements.� It
is� clear that clause(a) takes care of
the matters to be� exclusively dealt with
the Board and clause(b)� is to the� exclusion�
of the Board.
The
argument that clause (a) does not prescribe any time limit for compliance is
incorrect. The opening words in the section that � if any person who is
required under the Act or any rules or regulations made thereunder�� should be read� in conjunction� with clause (a) and in that context it� could be seen that every requirement referred
in clause (a) is relatable to time limit. If the Respondent�s argument that
clause (a) does not prescribe any time limit is accepted, it would lead us to
an� absurd situation as there would be no
referral point of time to decide the occurrence�
of the default.� If the
requirement of reporting etc., under clause (a) is not relatable to a time
factor for compliance, no offence can be made out and� consequently no penalty also will� be leviable and thereby clause(a) would
become redundant.�
����������� Shri Chauhan Submitted that it is
not the Appellant�s contention that it had submitted the text of the public
announcement to the Respondent within the time stipulated in regulation 15(2)
that the Appellant has also� admitted
that there was delay on its part in submitting�
the text� to SEBI by 3 days.� It�s contention is that since the failure was
unintentional no penalty is warranted and it is�
in that context support has been sought from the decision of this
Tribunal in Cabbot�s case (supra).
Learned
Representative submitted that in a public offer,� merchant banker has a dominant role to play,
that the importance of his role has been recognised by the Regulations.� In this context he referred to the
requirement of regulation 13 whereunder before making any public announcement
of offer the acquirer is required to appoint a merchant banker in Category I,
who is not associate of or group of the acquirer or the target company, that
regulation 24 enumerates the general obligations of the merchant banker
appointed� for the purpose.� Shri Chauhan submitted that regulation 15(2)
as it stood at the relevant time required that:
�a copy of
the public announcement to be made under regulations 10,11 or 12 shall be
submitted to the Board through the merchant banker at least two working days
before its issuance�
Shri
Chauhan submitted that it is thus clear�
that submission of the copy of the public announcement is a pre
publication requirement, that such a requirement is to enable the Respondent to
examine the text of the announcement and�
decide as to whether the public announcement is in tune with the
requirements of the regulations and that whether any modification therein is
required to be made to enable the shareholders to take an informed decision on the public offer proposed to be
made.� Shri Chauhan, to emphasise the
important role of the merchant banker in a public offer referred to the
provisions of regulation 24 and in particular to the following sub regulations:
Regulation
24
1(d) Before
the public announcement of offer is made, the merchant banker shall ensure that
the public announcement of offer is made in terms of the regulations.
(3) The
merchant banker shall ensure that the draft public announcement and the letter
of offer is filed with the Board, target company and also sent to all the stock
exchanges on which the shares of the target company are listed� in accordance with the regulations;
(5) The
merchant banker shall ensure compliance of the regulations and any other laws
and rules as may be applicable in this regard
Learned
Representative submitted that as could be seen from the provisions of
regulation 24, it is the duty of the merchant banker to ensure that the draft
copy of the public announcement is filed with the concerned authorities and it
is also the merchant banker�s duty to ensure that the requirements of regulations
etc., are complied with and� that� being the case, failure on the part of the
Appellant in complying with the requirements of Regulation 15(2) can not be
viewed as a matter with which the merchant banker is not concerned.� Shri Chauhan submitted that the reason for
appointing a merchant banker for the purpose of public offer is that a merchant
banker is an expert body and therefore it will ensure regulatory� compliance with reference to the public
offer.� Learned Representative submitted
that the fact that the Appellant filed the text of the public announcement
within 3 or 4 days of the public announcement does� not absolve it from the failure, as the
requirement of regulation 15(2) is to submit the copy of the public announcement at least two days
before the issuance of the same, that in the instant case the public
announcement was made on 27.8.2001 and the copy of the same was filed on
4.9.2001, that once the public announcement is made,� copy of the announcement is available to
everybody including the Respondent and as such no purpose would be served by
the merchant banker also submitting a copy of the same which is otherwise
available for scrutiny purpose.� Shri
Chauhan submitted that if the merchant banker fails to submit the copy of the
text of the public announcements required under regulation 15(2), it has to be
viewed as a case of absolute failure and subsequent action can not lessen the
gravity of the failure.
Learned
Representative submitted that the Adjudicating Officer imposed only a sum of
fifty thousand rupees as penalty as
against a maximum of one lakh rupees leviable for the failure, and it is thus
clear that the Adjudicating Officer had taken into consideration the factors
required to be considered for the purpose of deciding the quantum of penalty as
required vide section 15J of the SEBI Act.��
In this context he referred to the detailed findings recorded by the
Adjudicating Officer in the order that
�For
arriving at the quantum of penalty which may be imposed, I take note of the
factors as laid down in section 15J of the said�
Act and sub rule (2) of rule 5 of the SEBI Rules, the facts and
circumstances of the case and the mitigating factors as submitted by Doogar
& Associates and discussed hereinbelow.
In this
regard, Doogar & Associates have submitted that a lenient view in the
matter may be taken and no penalty� may
be imposed in view of the following:
(a)
that the said delay has occurred for the reasons
beyond their control;
(b)
that there were no observations by SEBI on the public
announcement which goes to show that the delayed filing was not with the
intention of� hiding anything.
(c)
That all other regulations were duly complied and
functions discharged by them;
(d)
That such delayed filing of public announcement has
not affected the interest of investors in any manner;
(e)
That they have unblemished record in the past.
The rationale behind such requirement of advance filing of public announcement with SEBI has already been discussed in detail in the preceding paras.� That it was the duty of Doogar & Associates to ensure such filing within the stipulated time.� Such failure on the part of Doogar & Associates hindered SEBI in performing in its duty to monitor compliance with the regulations and thereby in performing its duty to safe-guard the� interest of investors/shareholders.
Further, so
far as the contention of Doogar & Associates that such non filing of Public
announcement has not affected the interest of investors and that there were no
observation from SEBI on the public announcement goes to show that such delayed
filing was not with the intention of hiding anything, is concerned, it may be
mentioned that the advance filing of public announcement enables SEBI to
examine the same and see that the same is in conformity with the said
Regulations.� Further, it also enables
SEBI to take appropriate and timely steps, in case any non compliance with the
said Regulations, is observed.� That
is,� it enables SEBI to protect the
interest of investors/ shareholders, by taking timely� action in the matter before the public
announcement is issued.� Such failure on
the part of Doogar & Associates has obstructed SEBI in discharge of its
statutory duty.� Therefore, the said
contention of Doogar & Associates cannot be accepted.
So far as
their contention that they have unblemished record� in the past, is concerned, it is observed
that the certificate of registration of Doogar & Associates as a merchant
banker was suspended for a period of two months by SEBI vide its order dated January
15, 2001 for its failure to exercise due diligence, proper care and independent
professional judgement and also for non compliance with its obligations, in the
matter of public issue of Manu finlease Ltd.�
Therefore , the said submission of Doogar & Associates that it has
an unblemished record in the past is not only factually incorrect but it is
also misleading.� Further, failure to
fulfill its obligation by Doogar & Associates in the instant case amounts
to repetitive default.
Thus, after taking into account the facts of the case, submissions written as well as oral made by Doogar & Associates & the provisions of the said Regulations, I am of the considered opinion that a penalty of Rs.50,000 shall be commensurate.�
Shri
Chauhan countering Shri Agnani�s statement that to be a repetitive defaulter
one should repeat the same default i.e. default under regulation 15(2) in the
instant case, submitted that the default is relatable to defaults under the
SEBI Act, rules and the regulations and not to the repeated failure to comply
with the one and the same provision only, and�
that if the view put forward by the Appellant is accepted that would
negate the whole objective of the imposition of penalty.
Learned
Representative submitted that the merchant banker being an expert body, and
entrusted with compliance of various regulations applicable to a public offer,
is expected to exercise utmost care in complying with the provisions of the
regulations and since the Appellant having failed in its duty, the Appellant�s
failure should� not be ignored so as not
to warrant penalty.� In this connection
Shri Chauhan submitted that the Tribunal in J.M. Financial Investment
Consultancy Services Ltd., V Ananta Barua (2001) 30 SCL 357 SAT) had viewed
that J.M. Financial Investment Consultancy Services Ltd. being category I
merchant banker cannot absolve it from its obligation for failure to make
reporting under the regulations.� He
referred to the Tribunal�s observation that :
�The Appellant�s contention that the delay in filing� the reports was not intentional but by over sight and that� on reporting the failure by its own internal audit� team, requirement was complied with, cannot in Appellant�s case help much. The Appellant being a Category I Merchant Banker since 1992 , is supposed to know the statutory requirements to be complied with in matters relating to public issue of shares, acquisition of shares etc. A Merchant Banker is� supposed to be diligent and expected to�� advise its clients about the statutory requirements. In fact the Regulation itself recognizes the expertise in the Merchant Bankers as could be seen from various regulations relating to public announcement, etc.� According to regulation 13, before making any public announcement of offer referred to in regulation 10, regulation 11 or regulation 12, the acquirer is required to appoint a merchant banker holding a Category I registration. The public announcement referred to in the Regulation is required to be made by the Merchant Banker and none else. Further, regulation 24 enumerates obligations of the Merchant Bankers appointed� under regulation 13 mentioned above. One of the obligations� enumerated thereunder is that � the merchant banker shall ensure compliance of the Regulations and any other laws or rules as may be applicable in this regard�. Since the merchant banker is loaded with the obligation to ensure compliance of the statutory requirements applicable to acquisition of shares by even others, it is difficult to� accept� the Appellant�s argument that the failure on its part was inadvertent� and need be condoned. There� is no� scope for seeking such a relief, by an expert agency� like a� Merchant Banker, that failure to comply with the statutory requirements� attendant to acquisition� of shares was� due to inadvertence, as the� Merchant Banker itself, by its very role, is required to be diligent� and not negligent. Appellant�s failure has to be viewed in the back ground that it is a Category I Merchant Banker fastened with the obligation of ensuring legal compliance by others.� A person entrusted with such a duty, himself failing to comply with the legal requirements in a matter directly concerning him,� cannot be� viewed lightly and the� Adjudicating Officer�s decision imposing monetary penalty on the Appellant� cannot be considered as unwarranted.�
Learned
Representative submitted that in the facts of the case the impugned order need
to be sustained.
I have
carefully considered the rival contentions and the material on record.
The
Appellant is Category I merchant banker holding a certificate of registration
granted� by the Respondent.� The Appellant was the merchant banker
appointed in terms regulation 13 of the Takeover Regulations in the matter of a
public offer made by the acquirer to acquire 20% of the shares of the Target
Company.
The Appellant�s
contention that the alleged failure is not one falling under clause (a) of
section 15A but under clause (b) of section 15A and as such the penalty of
fifty thousand rupees imposed is more than the penalty prescribed for the
offence is not correct.� The scope of
section 15A was examined by this Tribunal in the Housing Development Finance
Corporation case (supra) and the observation of this Tribunal have been stated
in the earlier part of this� order.� In the light of the same the Appellant�s
argument that the failure to submit the copy of the public announcement to SEBI
in terms of regulation 15(2)� attracts
clause (b) and not clause (a) of section 15A is untenable.� The issue for consideration in the present
appeal, in the light of facts and circumstances, is the� as to whether the Respondent has made out a
case warranting imposition of monetary penalty.�
The
Adjudicating Officer in the impugned order has recorded the following finding:
�It is seen
from the record that the public announcement in respect of the public offer
made by Allianz International Private Ltd., (acquirer) and Mr. K. T. James
(person acting in concert) to acquire 20% of the equity share capital of the
target company was submitted to SEBI by Doogar & Associates on September 4,
2001 i.e. subsequent to the issuance of public announcement in Financial
Express and Jansatta on August 27, 2001 and even after filing of draft letter
of offer, which was filed with the Board on august 30, 2001.� The public announcement was filed only after
the �matter was taken up with Doogar
& Associates.�� Therefore, it is
evident from the record as well as from the admission of Doogar &
Associates that they have failed to ensure filing of draft public announcement
with the SEBI in terms of sub regulation (2) of regulation 15.� Doogar & Associates have, therefore,
contravened provisions of sub regulation (2) of regulation 15 read with sub
regulation (3) of regulation 24 of the said Regulations.�
The only
allegation made against the Appellant is failure to comply with the
requirements of regulation 15(2).� The
said sub regulation (2) of regulation 15 and sub regulation (3) of regulation
24 relied on by the Adjudicating
Officer are as follows:
Regulation 15(2):
A copy of the public announcement to be made under regulation 10,11 or 12 shall be submitted to the Board through the merchant banker atleast two working days before its issue.
Regulation 24(3): ��������������������
The merchant banker shall ensure that the draft public
announcement and the letter of offer is filed with the Board, target company
and also sent to all the stock exchanges on which the shares of the target
company are listed� in accordance with
the regulations;
The factual position that the Appellant had failed to
comply� with the requirements of filing
the copy of the public announcement with the Respondent before the issuance of
the same is not in dispute.� The
Appellant has admitted the failure.� It
has also given the reason for the same which the Adjudicating Officer has also
recorded in the order that:
�Doogar
& Associates has admitted that the public announcement in the matter was
not� filed with the Board as required
under sub regulation (2) of regulation 15 i.e. 2 working days, before its
issuance.� However, the said lapse has
been explained by stating that � �The copy of the PA was given to the
receptionist � Ms. Mona Bisht in due time to despatch which could� not be posted by her as her relative expired
on the same day and she left the office without asking anyone to despatch the
same.� She could not come to the office
for one week and since the letter was signed and sent to despatch, during this
period the� undersigned was unaware of
the fact that the public announcement could not be despatched.� But as soon as a call was received from your
office, inquiring about the public announcement, the matter was immediately
looked into and a copy of the public announcement� and a letter explaining the circumstances
under which it took place (copy enclosed) was sent to your office��
I have
carefully perused the order.� But I find
that though the Adjudicating Officer having noted the reason given by the
Appellant for the failure to submit the copy of the public announcement to the
Respondent within the prescribed time, has not questioned the reliability of
the said reasoning.� The Adjudicating
Officer seems to have gone by the notion that since the Appellant has admitted
the failure, it was not necessary to go into the reason for such failure and
that failure to comply with the requirement of regulation 15(2) the same attracted
penalty, holding that �above said explanation does not in any manner lessen the
responsibility cast on Doogar & Associates�.� The Adjudicating Officer has also recorded
that �the irresponsible conduct on the part of the receptionist of the
Doogar & Associates Ltd., can not be a justification for not filing the
copy of the public announcement with SEBI in terms of regulation 15(2) of
the said Regulations.�� It is thus clear
that the Adjudicating Officer has also accepted the version given by the Appellant
for its failure to submit the copy of the public announcement in time � that it
had signed and sent the text to despatch and because of the unexpected
development the receptionist failure to despatch the same.� The Adjudicating Officer has also noted the
�irresponsible conduct on the part of the receptionist of the Doogar &
Associates.�� I agree that an employer
cannot escape from his obligation to comply with the statutory requirements on
the ground that his employee whom the task was entrusted� had failed to discharge his/her duties.� But then what is to be seen is that employer
had acted honestly and diligently and also whether the omission by the employee
could have been avoided.� The
Adjudicating Officer had� noted that the
text of the announcement was signed and sent to despatch, that the receptionist
on hearing the tragic death of her relative, left the task assigned to her
unfinished.� It is also noticed that it
was not a wilful or intentional act on the part of the Appellant, as could be
seen that the Appellant had submitted a copy of the letter� of offer to the Respondent 30.8.2001
itself.� The letter of offer contains
almost all the substantial details contained in the public announcement.� If the intention had been to deny information
to the Respondent by not filing the public announcement, the Appellant would
not have� promptly filed the draft letter
of offer within just 3 days of the issuance of the public announcement.� Further, it is also noted that by holding
back the public announcement copy from the Respondent, the Appellant would not
have achieved anything as the public announcement in terms of regulation 15(1)
is required to be made �in all editions of one English national daily with wide
circulation and one Hindi national daily with wide circulation and� a regional language daily with wide
circulation.� Such a widely published announcement cannot escape the attention
of the Respondent and in that context by not filing the copy with SEBI would not
have served any purpose.� The Adjudicating
Officer has attempted to highlight the failure by observing that �Such failure
on the part of Doogar & Associates hindered SEBI in performing its duty to
monitor compliance with the regulations and thereby in performing its duty to
safe guard the interest of investors/shareholders.�� But this statement remains
unsubstantiated.� The Adjudicating
Officer has also gone on record explaining the importance of complying with the
regulations 15(2) in the following words�that the advance filing of public
announcement enables SEBI to examine the same and see that the same is in
conformity with the said Regulations.�
Further, it also enables SEBI to take appropriate and timely steps, in
case any non compliance with the said Regulations, is observed.� That is, it enables SEBI to protect the� interest of investors/shareholders, by taking
timely action in the matter before the public announcement is issued.�� But the Adjudicating Officer�s said view is
contrary to the view held by the Respondent as could be noted that the
requirement of advance filing contemplated vide regulation 15(2) was done away
with by deleting the said regulation through an amendment effected to the
Takeover Regulations� in September 2002.� The amendment which was brought into force
with effect from 9.9.2002 was based on the recommendations of an expert
committee appointed by the Respondent for reviewing the Takeover
Regulations.� The Committee in its report
had observed (in para 14 of the report) that ���.the Regulatory requirement
cast on the acquirer to file a copy of the public announcement with SEBI, the
stock exchange and the target company two working days before its issuance to
the public might lead to opportunities for insider trading asymmetry of
information etc.�� In� that context the Committee recommended that
�there is� no need for the copy of the
public announcement to be submitted to anyone at all.� It would suffice if the public announcement
is given simultaneously in newspapers/stock exchanges/target company and
SEBI�.� The Respondent accepted the said
recommendation and amended the regulation substituting� sub regulation (2) by� the following new sub regulation:
(2)
Simultaneously with publication of the public announcement in the newspapers in
terms of sub regulation (1) a copy of the public announcement shall be :
(i)
submitted to the Board through the merchant banker
(ii)
sent to all the stock exchanges on which the shares of
the company are listed
(iii)
sent to the target company at its registered office
for being placed before the Board� of Directors
of the company.
Thus� the fact is that the regulation 15(2) as it
stood originally was found counter productive and that is why it was done away
with and in view thereof the Adjudicating Officer�s version that the Appellant
�hindered SEBI in performing its duty� to safeguard the interest of
shareholders/investors is difficult to accept.�
However, in this context I would like to make it clear that since the
regulation was found� subsequently not of
any use and that� it was therefore,
subsequently amended does not mean that for violation of the same when it was
in force, no action is called for.� As
stated earlier, the fact that the requirement of regulation 15(2) was not
complied with is an undisputed fact.� It
is also a fact that the Appellant had not intentionally violated the said
regulation, that the failure was because of certain unexpected developments on
which the Appellant had no control.� Ms.
Mona Bisht, the Appellant�s receptionist, to whom the signed forwarding letter
with copy of the public announcement was given to despatch the same to SEBI had
left �the office on knowing the sudden demise of one
of her relatives and one could imagine the state of mind of a human being at
that point of time to leave instructions behind.� It is also noted that, the Respondent had not
noted any erroneous or misleading information in the said public
announcement.� The failure on the part of
the Appellant, in the light of the material on record, appears to be unintentional.
����������� In this context it is to� be noted that the Hon�ble Supreme Court in
Hindustan Steel case (supra) has laid down
the principles to be followed in imposing penalty as follows:
����������� � Under the Act penalty may be
imposed for failure to register as a dealer: Section 9(1) read with Section
25(1)(a) of the Act. But the liability to pay penalty does not arise merely
upon proof of default in registering as a dealer. 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 bonafide
belief that the offender is not liable�
to act in the manner prescribed by the statute�.
�����������
The back
ground of the said case leading to the above observation� by the Court is as follows:
�In proceedings for assessment of tax under the Orissa Sales Tax Act, 1947, the Sales Tax Officer held that the Company was a dealer in building material, and had sold the material to contractors and was on that account liable to pay tax at the appropriate rates under the Orissa Sales Tax Act. The Sales Tax Officer directed the Company to pay tax due for ten quarters ending� December 31, 1958, and penalty in addition to the tax for failure to register itself as a dealer. The Appellate Assistant Commissioner confirmed the order of the Sales Tax officer. In second appeal the Tribunal agreed with the tax authorities and held that the Company was liable to pay tax on its turnover from bricks and cement and steel supplied to the contractors. The Tribunal however substantially reduced the penalty imposed upon the company�.
The� observation of the Court cited above� was in answer to the question �whether the
Tribunal is right� in holding that the
penalties under section 12(5) of the Act (Orissa Sales Tax Act, 1947) had been
rightly levied?� Applying the said principles to the facts of the case in my
view, there is little justification for imposition of penalty on the Appellant.
The reliance of the Respondent on
this Tribunal�s decision in J. M. Financial��
Investment Consultancy Services is misplaced, as in the said case there
was nothing to show that the failure was because of the circumstances beyond
the control of the said company.� The
facts specific to the present case show that the Appellant had acted bonafide,
and an� unexpected development was the
cause of failure.
����������� In the light of the above discussion
I am of the view that the Respondent has not made out a case warranting imposition of monetary penalty on the Appellant
and therefore the order is not to be sustained.
����������� For the reasons stated above the
Appeal is allowed.
����������������������������������������������� Sd/-
����������������������� ���� (C. ACHUTHAN)������������������������
PRESIDING OFFICER
Place: Mumbai
Date: September� 30, 2003