MUMBAI
APPEAL NOS. 17/2000 AND 18/2000
In the matter of:
Mrs. Sangeeta J Valia Appellant
Vs.
Adjudicating
Officer
Securities
& Exchange Board of India
Respondent
APPEARANCES
Mr.
Yogesh P Yagnik
Advocate
for Appellant
Mr.
Ananta Barua
Division
Chief, SEBI
Ms
Babita Rayudu
Legal
Officer, SEBI
for Respondent
ORDER
Present
appeals are directed against two separate orders, both dated 24.7.2000,
made by the Adjudicating Officer against the Appellant. The Adjudicating
Officer, based on his findings in the inquiry held the Appellant guilty
of violating the provisions of sub regulation (4) of regulation 3 of the
Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 (the Regulations) and consequently imposed
a penalty of Rs.1, 50,000 in each case. The Appellant is aggrieved by these
orders.
But for
the quantum and class of shares involved in the two transactions, the impugned
orders are identical in every respect. The substance of the orders, grounds
of appeals and the replies by the Respondent are all found materially identical.
Appeal No.17/2000 against the order dated 24.7.2000 relates to acquisition
of 6, 98, 500 equity shares of Vasparr Fischer Limited by the Appellant.
Appeal No.18/2000 is against another order dated 24.7.2000 made by the
same Adjudicating Officer relating to acquisition of 11, 76, 895 cumulative
convertible preference shares of the same company. Both these transactions
were made on the same date i.e. 6.1.1999 and the transactions were made
among the promoters inter se.
It is
seen from the impugned orders that Chairman, SEBI had issued two separate
orders, both dated 4th January, 2000 appointing Shri P.Sri Sai
Ram as the Adjudicating Officer to conduct an enquiry into the alleged
contravention of regulation 3(4) of the Regulations read with clause (b)
of section 15A of the Securities and Exchange Board of India Act, 1992
(the Act) by the Appellant in the matter of the acquisition of shares stated
above.
The Adjudicating
Officer made parallel inquiries by issuing two separate show cause notices
to the Appellant on 25.1.2000 with reference to acquisition of each class
of shares i.e. equity shares and cumulative convertible preference shares
(CCP shares). On completion of the enquiry, he made two separate orders
both on 24.7.2000, imposing monetary penalty of Rs.1, 50, 000 in each adjudication.
The Appellant
has filed two separate set of appeals, both dated 16.8.2000. Both these
appeals are verbatim the same. The Respondent also filed two separate replies,
both dated 29.9.2000. Both these replies are identical in substance. The
Appellant has filed identical rejoinder in both the appeals.
In view
of the commonality of the appeals, I propose to dispose of the same by
a common order. The appeals were heard together.
It is
an admitted fact that the Appellant had purchased 6, 98, 500 equity shares
and 11, 76, 985 CCP shares of Vasparr Fischer Ltd., (the company) on 6.01.1999
through interse transfer from the promoters. The thrust of the Appellant�s
submission is that the transactions, being interse promoters, have no adverse
consequence on anybody, that she is a house wife and not conversant with
the complicated regulations, that the omission to report the matter to
the Respondent was an unintentional error and in any case the omission
did not warrant harsh treatment in the hands of the Respondent. According
to the Appellant imposition of penalty, in the facts and circumstances
of the case, is unwarranted.
The Respondent
on the other hand would urge that contravention of law need be dealt with
in the manner provided in the law. According to the Respondent the Appellant
had acquired shares of the company over and above the limit prescribed
in sub regulation (4) of regulation (3) and as such she was bound to submit
the requisite report to the Board within 21 days of the acquisition. She
failed to do so. Report was filed after a delay of 328 days. Therefore,
clause (b) of section 15A of the Act attracted. The Adjudicating Officer
imposed only a token penalty of Rs. 1, 50, 000 worked out on the basis
of Rs. 5, 00/- for each day of delay, though the section provides for a
maximum penalty of Rs. 5, 000/- for every day of default. According to
the Respondent mensrea is not an ingredient to be considered while imposing
monetary penalty for violation of the provisions of regulation 3(4) and
ignorance of law should not be an excuse.
I have
very carefully considered the rival contentions putforth by the parties
in their pleadings and oral submissions.
It is
seen from the information placed before me by the Respondent at the time
of hearing that the Appellant�s holding in the company after acquisition
of the shares stated above reached 17.41% in the equity share capital and
29.08% in the CCP share capital. Since the Appellant�s share holding exceeded
the bench mark of 15% provided in the sub regulation, it was incumbent
on the part of the Appellant to submit the requisite report to the Respondent
within 21 days from the date of acquisition i.e. 6.1.1999.
In this context it is considered necessary to have a close look at the provisions of sub regulation 4 of regulation 3 of the Regulations. Regulation 3 exempts certain types of acquisitions from the purview of regulations 10, 11 and 12. Interse transfer of shares amongst promoters is one of the categories enjoying exemption in terms of the said regulation 3. However, the acquisitions covered under this category require reporting to the concerned stock exchange and the Securities and Exchange Board of India, as per sub regulations (3) and (4) respectively. In the instant case the charge against the Appellant is non-reporting of acquisition to the Board in terms of sub-regulation (4). The said sub regulation is extracted below:
It is
seen from the impugned order that the Respondent through its Chairman,
vide order dated 4th January, 2000 had appointed an Adjudicating
Officer "to conduct an inquiry into the alleged contravention of sub regulation
(4) of Regulation 3 of the Securities and Exchange Board of India (Substantial
Acquisition of shares and Takeovers) Regulations, 1997 read with clause
(b) of section 15A of Securities and Exchange Board of India Act, 1992,
by Mrs. Sangeeta Valia, the acquirer in the matter of acquisition of 6,98,500
equity shares of Vasparr Fischer Ltd (VFL). (In appeal No.18/2000 the number
of shares referred to is 11, 76, 895 Cumulative Convertible Preference
Shares).
It is understood that in the show cause notices issued, on 25.1.2000 the Appellant was asked to explain as to why penal provision available under section 15A(b) of the Act should not be taken against her for default under regulation 3(4). Relevant portion from the impugned order relating to acquisition of equity shares is extracted below:
You are
hereby asked to show cause, by giving a written reply, including evidence,
if any, (along with a floppy in MS Word � Windows 95- version 7.0) within
15 days from the date of receipt of this Notice as to why action should
not be taken against you by way of levy of penalty in accordance with section
15A(b) of Securities and Exchange Board of India Act, 1992 (Penalty for
failure to furnish information, return, etc.) read with Sub Regulation
4 of Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulation, 1997. You may also indicate your preference in your reply to
appear before the undersigned for a personal hearing".
In para
6.6 of the order the Adjudicating Officer has again stated that "In the
light of what is stated above, it may be seen that section 15A, ibid without
any pre-condition prescribed a penalty for the delay @ Rs.5, 000 for every
day during which failure to submit report continues". He has further stated
in the same para that "Taking the circumstances of the case and the plea
of the Acquirer into account, I propose to levy a minimum penalty of Rs.
5, 00/- for each day of delay with an upper ceiling of Rs.1, 50, 000/-".
Obviously the reference here is to sub section (b) as that section provides
for penalty of Rs.5000/- for every day of default.
In para
7.1 also the Adjudicating Officer has referred to section 15A(b) and stated
that "Taking into consideration the above said factors and circumstances,
the provisions of sections 15A(b) and 15I of the Securities and Exchange
Board of India Act, 1992 I levy a total penalty of Rs.1, 50, 000 on Mrs.
Sangeeta J Valia".
It is
seen from the Respondent�s reply to the appeal that it had re-iterated
section 15A(b) as the penal provision applicable to the default under section
3(4) of the Regulations. In paras 2, 3, and 5 under "preliminary submissions"
and paras 3 and 4 under the heading "Facts of the Case and Grounds of Appeal"
of the reply, the Respondent had attempted to justify imposition of penalty
provided under section 15A(b) of the Act But for slight change in para
numbers the same submissions have been made in appeal No.18/2000 also.
Since
the charge against the Appellant is her failure to comply with the requirements
of regulation 3(4) and the penalty is imposed under section 15A(b) it is
felt necessary to consider the legal provisions of the said regulation
and the section. Regulation (3) as mentioned above, enumerates certain
acquisitions enjoying exemptions from the scope of regulations 10,11 and
12. One of such exempted acquisitions in terms of regulation 3(1)(e) is
acquisition of shares made by interse transfer of shares amongst promoters.
However, in terms of sub regulation (4) of regulation 3 in respect of acquisition
under 3(1)(e) � the acquirer is required to report the details of acquisition
to the Board, within 21 days of the date of acquisition, if the acquisition
would entitle the acquirer to exercise 15% more of the voting rights in
a company. Penalty for non-compliance of this requirement has been provided
in section 15A of the Act.
In this context it is felt necessary to have a look at the said section 15A of the Act as a whole, as it contains the applicable penal provisions. Section 15A reads as under:
15A. If
any person, who is required under this Act or any rules or regulations
made thereunder: -
(b) to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues;
(c) to maintain books of account or records, fails to maintain the same; he shall be liable to a penalty not exceeding ten thousand rupees for every day during which the failure continues".
This Tribunal in the case of Housing Development Finance Corporation Ltd. Vs. Securities & Exchange Board of India (Appeal No.21/2000 decided on 10.11.2000) had examined the very same issue. In the said case also the charge against HDFC was non-reporting of acquisition of shares covered under an exempted category to the Board in terms of regulation 3(4) within the stipulated time and the penalty was imposed by the Adjudicating Officer under clause (b) of section 15A. In the said appeal the tribunal had held as under:
I am not impressed by the argument put forth by the learned Representative justifying the reason for invoking the penal provisions available under clause (b) over the provisions of clause (a) in the instant case. 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!
The learned Representative�s submission that since information includes report as well, failure to file the same can be brought under clause (b) is not tenable. Even if it is admitted that in a generic sense information includes report as well, it is of no help to the Respondent in view of the clear provisions of the law. Sub regulation (4) of regulation 3 specifically requires the acquirer to "submit a report alongwith supporting documents to the Board giving all details in respect of the acquisition�" So it is very clear that what is basically required to be submitted is a report and that report is required to be submitted to the Board. Clause (a) of section 15A is specific on the said requirement as it inter-alia refers clearly to the requirement of furnishing report to the Board. Since there is a specific provision in clause (a) of section 15A of the Act providing penalty for failure to furnish any report to the Board, as required under the Act, rules or regulations made thereunder, the Respondent�s action in terms of clause (b) of the said section 15A in the instant case cannot be considered legally in order. It is to be noted that clause (a) is with reference to submission of reports, etc. with the Board and in that sense its scope is narrow. Scope of clause (b) is wide to include agencies such as stock exchanges, companies in certain circumstances, inspection/investigation officers appointed by the Respondent, etc. The Board (the Respondent) is not an entity covered under clause (b) as the requirement of reporting to the Board is specifically covered in clause (a).
I am well aware of the views expressed by the Supreme Court in several cases that if source of power exists non-mentioning of it or wrong labeling of it would not invalidate exercise of such powers. But the said principle is not applicable to the present case for the reason that it is not a case of mere mentioning of a wrong provision of law. It is seen from the order of adjudication, show cause notice, impugned order, the reply of the Respondent and the argument put forth by the learned Representative, that it was a deliberate and conscious decision based on the Respondent�s interpretation of the scope of the legal provision, clause (b) of section 15A of the Act was invoked instead of clause (a).
In the
light of the legal position stated above, imposition of penalty on the
Appellant under section 15A(b) is not legally tenable".
In the
light of the above decision I do not consider it necessary to examine other
related issues such as the legality of imposing two sets of penalties for
failure in reporting two transactions taken place on the same date, in
terms of sub regulation (4) of regulation 3 of the Regulations or the exact
point of time requiring compliance of requisite reporting under the sub
regulation in the case of acquisition of cumulative convertible preference
shares.
For the
reasons stated above, the appeals are allowed and the impugned orders are
set aside.
PRESIDING OFFICER
Date: 30th November 2000