M. T. Joshi, J
1. Aggrieved by the impugned directions of the Learned Adjudicating Officer (“AO†for convenience) of the respondent, Securities and
Exchange Board of India (“SEBI†for convenience) dated August 09, 2018 to pay penalty for various violations relating to the disclosures and one
regarding violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Regulations†for convenience) upon
failure to make open offer, the present appeals are preferred.
2. Cumulative penalty of Rs. 18 lakhs was imposed upon the present appellants for violation of Regulation 8(1) and 8(2) of the Takeover Regulations,
Rs. 3 crores for alleged violation of Regulation 11(1) read with Regulation 14 of the same Regulation for failure to make public announcement of open
offer, Rs. 6 lakhs for delay in making the disclosures under Regulation 3(3) and 3(4) of the same Regulations.
3. All the appellants were former promoters of Indian Infotech and Software Ltd. (target company) till 2010-11. One Jayanti Prime Software
Advisory Pvt. Ltd. took over this target company in 2010-2011. Necessary letter of offer in compliance with Regulation 10 and 12 of the Takeover
Regulations were filed before the SEBI. While scrutinizing those documents respondent SEBI observed that the target company and the erstwhile
promoters of the company namely; the present appellants had violated certain provisions of Takeover Regulations. In view of the same, the present
adjudicating proceeding was initiated under various regulations against the company as well as the present appellants. While the company was
absolved, the present appellants were found to be guilty of some of the violations as detailed (supra). Therefore, the Learned AO imposed the penalty.
4. So far as the disclosure violations under Regulation 8(1), 8(2), 3(3) and 3(4) of the Regulations are concerned, these relates to the regular periodic
disclosures and of changes and acquisitions made of the shares by them to be disclosed to the Company while they were the promoters of the target
company. Relevant regulations are as under :-
“Continual disclosures
8. (1) Every person, including a person mentioned in regulation 6 who holds more than [fifteen] per cent shares or voting rights in any company, shall,
within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March.
(2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record
date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by
persons acting in concert with him, in that company to the company.
(3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record
date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the
company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or
person(s) having control over the company as on 31st March.
“7(1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation
(1) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company,
and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate
shareholding after such acquisition or sale.
(2) The disclosures mentioned in sub-regulations
(1) [and (1A)] shall be made within four working days of,-
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
While the appellants claim that within the prescribed period of these Regulations they had made disclosures to the Company, the Learned AO held
that there is no proof of receipt of those disclosures by the Company. The order of the Learned AO would show that the AO had a serious doubt as
to whether the proof of making the disclosure is genuine. Further respondent SEBI post hearing of the matter filed brief written submissions and added
one another circumstance which may cast doubt on the genuineness of the disclosure documents. Be that as it may, the learned AO did not record the
finding that the documents submitted in proof of making disclosures are not genuine or were forged. What was concluded by AO was that there is no
proof that these disclosures were received by the Company.
5. The appellants case is that the target company is one of the group companies of the appellants, whose offices were situated in a single premise i.e.
Empire House, 3rd Floor, Fort, Mumbai. It has a common reception area for all the group companies. Therefore, all the necessary duly filled in
disclosure forms were received from time to time during the period from 09.11.1967 to 31.05.2006 by one employee Mr. Vishnu D. Dalvi, who was in
employment of one of the appellant namely; Tecil Chemicals & Hydropower Ltd. After receipt of any correspondence/ documents said Mr. Vishnu
D. Dalvi, used to forward the documents to the concerned Company of the group. In support of the same the copies of all the requisite disclosures
forms bearing the stamp of the appellant Tecil and the signatures of the said Mr. Vishnu D. Dalvi were placed on record before the Learned AO.
6. The Learned AO observed that while according to law these disclosures were required to be further made by the Company to stock exchanges, the
Company made those disclosures only after the takeover by the new promoters. It was found that the new company under the new management was
reluctant to certify that those disclosures were received in time by it. Further, the Learned AO took the note of the statement made in the letter of
offer made by Jayanti Prime Software Advisory Pvt. Ltd. that those disclosures were not available in the record of the Company. However, in the
proceedings before the AO the Company under the new management on the basis of copies of these disclosures/ documents confirmed the receipt of
the filing made by the present appellants. The Company however was not able to confirm whether the documents were filed within the stipulated time
or not. Thus according to AO though there is a proof of receipt of those disclosure documents by Mr. Vishnu Dalvi, who was the employee of one of
the appellants there is no proof that the target company had received the same and, therefore, the Learned AO did not believe the case of the
appellants of making disclosers.
In the written submissions filed by the respondent after the hearing in the present appeal was concluded another doubt has been expressed. In the
written submissions, it is submitted that the disclosure form of April 16, 1997, copy of which was filed by the appellants on the record of the Learned
AO showed that the disclosure was made by the appellant India Ener-Gen i.e.one of the appellant. However in fact at that time India Ener-Gen was
not in existence, this name was obtained by India Ener-Gen by converting Tecil Finance Limited on December 07, 1998 i.e. more than one and half
year from the alleged disclosure.
7. To this post hearing submissions, the appellant has replied by filing post hearing written submissions. It was submitted that since long the present
appellant as well as the Company was in the process of taking action of changing the name. In fact the Board of Directors of the Company had
considered the same in the year 1997 and even enabling Resolutions were passed by the Board on or about January 01, 1998. In the circumstances, in
the disputed disclosure form the name of the Company was shown as “M/s. Tecil Finance Limited (India Ener-Gen Limited)â€.
8. Upon hearing both the sides, in our view though the material placed by the appellant may cast some doubt, taking into consideration the fact that
there are acknowledgement of receipt of the disclosure by the employee of one of the appellant Company which also happened to be Member of the
group of the companies including the target company. All these companies were situated in one premises and therefore placing of one employee of the
reception desk for all the companies is not only probable but could be a practical approach. It is to be noted that the target company under the new
management had accepted the receipt of those disclosures. Considering the lapse of time from the year 1998 onwards, in our view in fact benefit of
doubt should go to the appellants in this case.
The issue of presumption regarding the receipt and as to when it arises would differ from facts to facts. It is no doubt true that there is a proof that the
disclosure form was received by the employee of one of the appellants employee and not by the target company. However, considering the fact that
all these companies formed one group and were situated in one of the premises, the explanation of the appellant is plausible.
Considering all these facts, in our view the order of the Learned AO imposing penalty on the appellants for violation of Regulation 8(1) and 8(2) so
also Regulation 3(3) and 3(4) cannot be sustained. The appeal would be allowed to that extent.
9. The appellants in Appeal no 403 of 2018 are alleged to have committed violation of Regulation 11 read with 14 of the SAST Regulations. The
provisions are as under:-
Consolidation of holdings.
11(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more
but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in
concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, with post acquisition shareholding or
voting rights not exceeding fifty five per cent in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire
shares in accordance with the regulations.
(2) No acquirer, who together with persons acting in concert with him holds, fifty-five per cent (55%) or more but less than seventy-five per cent
(75%) of the shares or voting rights in a target company, shall acquire either by himself or through or with persons acting in concert with him any
additional shares entitling him to exercise voting rights or voting rights therein, unless he makes a public announcement to acquire shares in accordance
with these Regulations:
Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent (10%) of issue size to
the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted
from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures ‘seventy-five per cent (75%)’, the words
and figures ‘ninety per cent (90%)’ were substituted.
Provided further that such acquirer may notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11, without
making a public announcement under these Regulations, acquire, either by himself or through or with persons acting in concert with him, additional
shares or voting rights entitling him upto five per cent. (5%) voting rights in the target company subject to the following:-
(i) the acquisition is made through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated
deal/ preferential allotment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buy back of shares by the target
company;
(ii) the post acquisition shareholding of the acquirer together with persons acting in concert with him shall not increase beyond seventy five per cent.
(75%).
Timing of the public announcement of offer.
14. (1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four working days
of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective
percentage specified therein:
Provided that in case of disinvestment of a Public Sector Undertaking, the public announcement shall be made by the merchant banker not later than 4
working days of the acquirer executing the Share Purchase Agreement or Shareholders Agreement with the Central Government [or the State
Government as the case may be,] for the acquisition of shares or voting rights exceeding the percentage of shareholding referred to in regulation 10 or
regulation 11 or the transfer of control over a target Public Sector Undertaking.
Applicability of the regulation.
Regulation 3(3) effective between 28.10.1998 and 09.09.2002
3(3) In respect of acquisitions under clauses (c) (e), (h) and (i) of sub-regulation (1), the stock exchanges where the shares of the company are listed
shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed
acquisition, in case of acquisition exceeding 5 per cent of the voting share capital of the company.
Regulation 3(3) w.e.f. 09.09.2002 3(3) In respect of acquisitions under clauses (e), (h),and(i) of sub-regulation (1), the stock exchanges where the
shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in
advance of the date of the proposed acquisition, in case of acquisition exceeding 5 per cent of the voting share capital of the company.
Regulation 3(4) w.e.f. 28.10.1998 and 09.09.2002
3(4) In respect of acquisitions under clauses (a), (b), (c),(e) and (i) of sub-regulation (1), the acquirer shall, within 21 days of the date of acquisition,
submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting
rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise 15 per cent or more of the voting rights in a
company.
Regulation 3(4) w.e.f. 09.09.2002
3(4) In respect of acquisitions under clauses (a), (b),(e) and (i) of sub-regulation (1), the acquirer shall, within 21 days of the date of acquisition, submit
a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if
any, held by him or by persons acting in concert with him) would entitle such person to exercise 15 per cent or more of the voting rights in a company.
Explanation.â€"For the purposes of sub-regulations (3) and (4), the relevant date in case of securities which are convertible into shares shall be the
date of conversion of such securities.â€
10. It is an admitted fact that the appellant Chemo Pharma Laboratories Ltd. off-market purchased 1 lakh shares in October 2010. This has increased
the shareholding of the promoter group from 53.17% to 55.28% i.e. above 55% which triggered the necessity of making open offer. The appellants
claim that since the seller was in dire need of money, appellant Chemo Pharma had bought those shares. It was further claimed that marginal increase
of 0.28% above prescribed limit of 55% had occurred. The appellant claims that there was gross delay in the matter. After this acquisition the
requisite disclosures under the provisions of insider trading regulations were made to the stock exchange. While the shares acquired in 2010 the show
cause notice issued on 2013 and impugned order was passed 2018 The violation, if any, was venial and marginal in nature and, therefore, imposition of
penalty of Rs. 3 crores on this ground by the Learned AO was unwarranted.
11. The order of the Learned AO would show that the delay in launching the proceedings has occurred since the information reached to the
respondent SEBI only at the time of receiving letter of offer by Jayanti Prime Software Advisory Pvt. Ltd. Further the delay has not caused any
prejudice to theses appellant in defending the case. In our view therefore the order of the AO holing that the violation has occurred can not be faulted
with.
12. While imposing the penalty of Rs. 3 cores the Learned AO remarked that in the case of M/s Nirvana Holdings Private Ltd. vs. SEBI (Appeal No.
31 of 2011 dated 08.09.2011) wherein this Tribunal observed that, whenever an acquirer violates Regulation 10, 11 or 12 of the takeover code by not
making a public announcement, he should be directed to comply with the provisions by making a public offer. However, in view of the subsequent
takeover by Jayanti Prime Software Advisory Pvt. Ltd., the Learned AO considered the certificate of the price of the shares of Microsec Capital
Limited which was placed along with the offer letter by the Jayanti Prime Software Advisory Pvt. Ltd. The Learned AO also appears to have called
trade log of the relevant period from Bombay Stock Exchange. Further AO considered off market share transfers of the said period and concluded
that loss caused to the shareholders would come to Rs. 94,09,632/-. Therefore, penalty of Rs. 3 crore was imposed on these grounds.
13. To arrive at the quantum of penalty though the AO relied on the certificate of Microsec Capital Ltd. and the trade log received from the Bombay
Stock Exchange in the order, this material was not confronted to the appellants. It is to be noted that the appellant Chemo Pharma had acquired 1 lakh
shares which had cross the threshold limited of 55% by 0.28%. In the case of M/s Nirvana Holdings Private Ltd., (cited supra) SEBI had imposed
penalty upon the appellant. This Tribunal held that the interest of the shareholders are required to be looked into and in that case directed that the
direction to make open offer should have been made. The Learned senior counsel for the respondent had pointed out that the Hon’ble Supreme
Court of India had granted stay to the said order in Civil Appeal No. 8223 of 2011. Be that as it may. In the present case, respondent SEBI itself had
imposed penalty for failure to make an open offer. Therefore, the issue is regarding the quantum of penalty only. As already pointed out the Learned
AO in the order took the support of the certificate of Microsec Capital Ltd placed in the letter of open offer and the trade logs called by the Learned
AO from Bombay Stock Exchange. These documents however were not confronted to the appellants.
14. In the circumstances while upholding the finding of the Learned AO that the appellants have violated the provisions of Regulation 11 (1) read with
14 of the Takeover Regulations to make public announcement of open offer and therefore are liable to pay penalty, the issue of quantum is required to
be remanded to the Learned AO. In this regard, the appellants are directed to appear before the Learned AO on November 08, 2021 whereupon the
Learned AO shall provide the copies of the documents on which reliance is placed in the impugned order for quantifying the penalty. The concerned
appellants would be at liberty to place their views/ explanation regarding the quantum of the penalty upon which the AO shall pass a fresh order as
regard the quantum of penalty for the violation the of regulation 11(1) read with regulation 14 of the Takeover Regulations, 1997 within the period of
four months from the date of the receipt of the views/ explanation from the appellants. Hence, the following order:
ORDER
The appeals are partly allowed, the directions of the AO to pay penalty for violations of regulation 8(1) and 8(2) as well as regulation 3(3) and 3(4) of
the Takeover Regulations is hereby set aside.
The order of the AO declaring that the appellants have committed violation of regulation 11(1) read with 14 of the Takeover Regulations is hereby
affirmed. The matter however is remitted to the AO for again determining the quantum of the penalty for violation of Regulation 11(1) read with 14 of
the Takeover Regulations as per the directions made in paragraph no. 14 above.
15. The present matters were heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order
nor a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on
behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally
signed copy sent by fax and/or email.
