In the matter

Amol J Shah                                                          Appellant

Vs.

Securities and Exchange Board of India           Respondent
 

Appearance

Mr. V.R. Maniar
Advocate
I/b M/s Shiralkar & Co
 

Mr Amol J Shah                                               for Appellant
 

Mr Ananta Barua
Division Chief, SEBI
 

Ms. Babita Rayudu
Legal Officer, SEBI                                      for Respondent
 
 

Order dated 13.7.2000 made by the Adjudicating Officer, imposing monetary penalty of Rs 4 lakhs on the Appellant in the matter of acquisition of shares of MJ Pharmaceuticals Ltd. is under challenge in the present appeal.
 

The Respondent appointed one of its officers as Adjudicating Officer to inquire into the alleged contravention of Section 15Aof the Securities and Exchange Board of India, Act, 1992 (the Act) read with sub regulations 3 and 4 of regulation 3 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (the Regulation) by one shri Amol J Shah (Shri Shah) in the matter of acquisition of 437500 shares of M/s MJ Pharmaceuticals Ltd. (the company) from Geekay Exim (India) Ltd. (GEL). The Adjudicating Officer, after inquiry came to the conclusion that Shri Shah acquired 437500 shares constitution 5.8% of the company�s paid up capital from GEL on 10.06.1999. But he did not comply with the requirement of notifying the concerned stock exchanges the details of the proposed transactions as required under regulation 3(3) and also failed to report the acquisition to the Respondent as required under regulation 3(4), within the time prescribed and thereby invited the penalty provided under section 15A of the Act. Based on the conclusion so arrived at, the Adjudicating Officer imposed a sum of Rs 4 lakhs as monetary penalty against Shri Shah vide order dated 13.7.2000. The present appeal by Shri Shah is consequential to the said order.
 

The Appellant had raised several grounds in his appeal memorandum urging to set aside the impugned order. However, Shri Maniar the learned counsel appearing for the Appellant advanced only one ground at the time of argument that since the Adjudicating Officer had after enquiry concluded that the impugned acquisition was not a transaction between the promoters, there was no need for complying with the requirements of regulations 3(3) and 3(4) and as such imposition of penalty for the non compliance of the provisions of the said regulations cannot sustain. The learned counsel, categorically admitted that GEL is not a promoter and as such purchase of shares by the Appellant from the said GEL cannot be considered as a transfer among promoters falling under the exemption provided under regulation 3 of the regulations. Since, it was not a transaction among the promoters covered under regulation 3(1)(e)-sub regulation 3 and 4 were not attracted. In this context, the learned counsel referred to the reply to the appeal filed by the Respondent and submitted that since the Respondent itself had admitted that there was no violation of the regulation warranting imposition of penalty; the impugned order need to be set aside.
 

Shri Ananta Barua, representing the Respondent stuck to the submissions made in the reply filed by the Respondent. The Respondent filed a brief reply in 2 pages inter alia making the following submissions:
 

"The Adjudicating officer vide order dated July 13, 2000 while imposing a penalty of Rs 4 lakhs on the appellant for the non-filing of the information in advance with the stock exchanges as required under Regulation 3(3) of the said Regulations and for a delay of 200 days in the filing of the report under Regulation 3(4) of the said Regulations with the Board, observed that the seller could not be termed as a promoter in terms of the said Regulations.

It is submitted tat since as per the prima facie finding of the Adjudicating Officer that the seller cannot be termed as a promoter, the aforesaid transaction cannot become eligible for being granted exemption under the said Regulations and the issue of delay in filing of the report under regulation 3(4) of the said Regulations or question of penalty for violation thereof may not arise.
 

Therefore, a fresh order dated August 7, 2000 (hereby annexed as Annexure A) was issued by the Board appointing Shri P Sri Sai Ram as the Adjudicating Officer for inquiring into and adjudicating the alleged contravention of section 15H of the SEBI Act by the appellant, in respect of the acquisition of 437500 shares of M/s M J Pharmaceuticals Ltd. The appellant also vide letter dated July 22, 2000 sought for clarification of the impugned adjudication order. In view of the pendency of the present appeal, the adjudicating proceeding pursuant to the fresh adjudication order dated August 7, 2000 have been kept in abeyance."
 

In the said reply, the Respondent has prayed that the fresh adjudication proceedings initiated by order dated 7^th August 2000 may be allowed to be adjudicated upon /concluded and the present appeal may be disposed off.
 

It is seen from the impugned order that on the basis of information before the Adjudicating Officer, she had inferred that GEL, the transferor is not a promoter of the company and viewed that the impugned acquisition did not fall with the category of transfer interse promoters and as such exemption provided under regulation 3(1)(e)(iii) was not available to Shri Shah. However, having stated so, she proceeded with the enquiry to ascertain the extent of compliance of the requirements of sub regulations 3 and 4 of regulation 3 and found the Appellant guilty of default thereunder. It is obvious that Adjudicating Officer in this regard was guided by the Respondent�s order dated 18.02.2000 ordering here to conduct an inquiry into the alleged contravention of sub regulation 3 and 4 of regulation 3 of the Regulations read with section 15A of the Act. Even though, incidentally in the light of the information before her in the course of the inquiry, she had inferred that GEL is not a promoter and as such the impugned transaction was not a transaction interse promoters, apparently she did not go by the said interference, in view of the specific direction from the Respondent to inquire into the ocntravention of sub regulation 3 and 4. In compliance with the said specific order she proceeded with the inquiry. The Adjudicating Officer cannot be faulted for this as it was for the Respondent to ensure the accuracy of factual position as to whether the transaction was an exempted one or not before referring the matter to inquire into the violation of the specific regulations. Any how, since the Respondent having endorsed in its reply before the Tribunal the interference drawn by the Adjudicating Officer that the instant transaction is not interse promoters of the company, and that the learned Counsel for the Appellant, also having submitted categorically before the Tribunal that GEL is not a promoter of the company, the factual position so stated is accepted. I do not consider any further examination from the Tribunal�s side in this regard is necessary. Once the transaction is not interse promoters, there is little doubt about the non-applicability of the said sub-regulations. Since, the said sub-regulations were not applicable there was no requirement of reporting under the said regulations. Therefore, the Appellant cannot be considered in default to inflict penalty. Therefore, the impugned order, imposing penalty cannot survive and need to be set aside.
 

It is not clear as to why the Respondent is seeking this Tribunal�s permission to proceed with the adjudication ordered vide its letter dated 7^th August, 2000 and to conclude the same, as this Tribunal had at no point of time issued any injunction against the proceedings in the fresh adjudication order. In the absence of any reason justifying the need for seeking such an order, I am not prepared to consider the Respondent�s said prayer, which to me appears out of context.
 

For reasons discussed above the appeal is allowed and the impugned order is set aside.