Tribunal Reduces Penalty for Takeover Code Violation, Emphasizes Discretionary Nature of Imposition

The Tribunal upheld the adjudicating officer's findings of a violation of the takeover code by the appellants but reduced the penalty from Rs. 50 lacs to Rs. 10 lacs due to mitigating factors. The appellants were found guilty of making preferential share allotments without a public announcement, leading to a direction to delist shares. The Tribunal emphasized the discretionary nature of penalty imposition and considered the lack of trading in the company's shares and no adverse impact on investors. The appeal was disposed of with no order as to costs.

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Issues Involved:
The judgment involves the violation of Regulation 14(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, and the imposition of a penalty under Section 15H(ii) of the Securities and Exchange Board of India Act, 1992.

Violation of Takeover Code:
The appellants, a public limited company, its promoter, and managing director were found guilty of violating Regulations 10 and 11 of the takeover code by making preferential allotments of shares in the target company without making a public announcement of open offer as required by Regulation 14(2). Despite a belated public announcement, the Securities and Exchange Board of India (SEBI) directed the withdrawal of the announcement and issuance of a delisting offer to provide an exit opportunity to shareholders.

Adjudication Proceedings:
SEBI issued a show cause notice to the appellants, initiating adjudication proceedings for the violation of the takeover code. After considering the reply and holding a hearing, the adjudicating officer found the appellants guilty and imposed a penalty of Rs. 50 lacs. The appellants appealed against this decision.

Arguments and Rulings:
The appellants argued that the scrip of the target company was not actively traded, and compliance with the takeover code was not necessary. They also cited a previous Tribunal order to support their position. However, the Board contended that the violation was clear, and the direction to delist shares did not absolve the appellants of penalty. The Tribunal agreed with the Board, emphasizing that contravention of statutory obligations attracts penalty regardless of intent.

Penalty Imposition:
The Tribunal acknowledged the repetitive nature of the violation but reduced the penalty from Rs. 50 lacs to Rs. 10 lacs considering mitigating factors such as the lack of trading in the company's shares since 1998 and no adverse impact on investors. The Tribunal highlighted the discretionary nature of penalty imposition under the Act and aimed to balance the severity of the penalty with the circumstances of the case.

Conclusion:
The Tribunal upheld the findings of the adjudicating officer regarding the violation of the takeover code but reduced the penalty imposed on the appellants to Rs. 10 lacs, emphasizing the importance of considering mitigating factors in determining penalties. The appeal was disposed of with no order as to costs.

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