2015 (6) TMI 294 - AT - Companies Law

Penalty reduced for late share transaction disclosure under SEBI Act. Mitigating factors considered.

The case involved the imposition of a penalty under the SEBI Act for the appellant's violation of SAST Regulations and PIT Regulations due to a delay in ... Delay in disclosure of sale of shares in excess of 2% of the share capital to the stock exchanges - Delay in disclosure of change in shareholding having more than 5% shares - Penalty for violation of Regulation 29(2) r/w 29(3) of SEBI(SAST) Regulation, 2011 and Regulation 13(3) r/w Regulation 13(5) of SEBI (PIT) Regulations, 1992 - Held that:- It may be pointed out that Regulation 29(3) of SAST Regulations is not in consonance with Regulation 29(2), since Regulation 29(2) requires intimation for every acquisition or disposal, but Regulation 29(3) requires such disclosure “to be made within two days of receipt of intimation of allotment of shares or the acquisition of shares or voting rights in the target company” and there is no time limit for disclosure of disposal of shares or voting rights, although there is a requirement under Regulation 29(2). - In the present case, intimation of disposal of shares or voting rights in target company was required to be intimated under Regulation 29(2) read with Regulation 29(3) of SEBI (SAST) Regulations to stock exchanges and target company by acquirer i.e. Vizwise Commerce Private Limited, but in absence of any time limit for same, no violation as such can be attributed since the intimation was provided. However, under Regulation 13(3) r/w Regulation 13(5) of SEBI (PIT) Regulations, it is seen that sale of shares or voting rights was required to be made to the company, if “for” in Reg.13(3) is read as “or”, then the person concerned i.e. Vizwise Commerce Pvt. Limited, did not make the requisite disclosure to target company i.e. Seasons Textiles Limited, within 2 days of sale of 2,50,000 shares, representing 3.34% of share capital of Seasons Textiles on 18/6/2013 and as such can be held violative of provisions of Regulation 13(3) r/w Regulation 13(5) of SEBI (PIT) Regulations, 1992. It is also point out that these requirements are of intimation i.e. putting down the same in requisite form and posting the same within 2 days and not for reaching the company/stock exchange within 2 days of occurrence - for which additional time, over and above 2 days, for reaching the intimation by post to target company or stock exchange, as the case may, is permitted. It was also submitted by Ld. Counsel that promoter/director of Appellant was hospitalized during the time when sale took place and requirement of those disclosures arose and ultimately breathed his last on 22/7/2013 and hence keeping this in view and also the fact that delay in disclosure under Regulation 13(3) read with Regulation 13(5) of SEBI (PIT) Regulations was only 6 days, the penalty imposed by Ld. A.O. is reduced to ₹ 2,00,000/-. - Decided partly in favour of appellant. Issues:1. Penalty imposed under SEBI Act for violation of SAST Regulations and PIT Regulations.2. Delay in disclosure of share transactions by the appellant.3. Interpretation of disclosure requirements under SAST Regulations and PIT Regulations.4. Mitigating factors considered for reducing the penalty.Analysis:1. The judgment involves the imposition of a penalty under the SEBI Act for the appellant's violation of SAST Regulations and PIT Regulations. The appellant failed to disclose share transactions within the stipulated time frame, leading to the penalty imposition of Rs. 4 lac by the Adjudicating Officer of SEBI. The appellant sold shares exceeding 2% of the target company's capital on two separate dates, triggering the disclosure obligations under the regulations.2. The primary issue addressed was the delay in making disclosures by the appellant regarding the share transactions. Despite sending intimation to the exchange and the target company after six days of the first transaction, the appellant was found in violation. The Adjudicating Officer imposed the penalty considering all factors, including the delay in disclosure.3. The judgment delves into the interpretation of disclosure requirements under SAST Regulations and PIT Regulations. The Tribunal noted discrepancies between Regulation 29(2) and 29(3) of SAST Regulations, highlighting the absence of a specific time limit for disclosure of share disposal. However, under PIT Regulations, the appellant was required to disclose changes in shareholding within two working days, which was not promptly done in this case.4. Mitigating circumstances were considered by the Tribunal in reducing the penalty from Rs. 4 lac to Rs. 2 lac. The appellant's whole-time director, responsible for compliance, was suffering from cancer at the relevant time and passed away shortly after. This factor, along with the slight delay of six days in disclosure, led to the Tribunal's decision to lessen the financial penalty imposed on the appellant.In conclusion, the judgment partially allowed the appeal by reducing the penalty and directed the appellant to pay Rs. 2 lac within a specified period. The decision highlighted the importance of timely disclosure under securities regulations while taking into account mitigating circumstances affecting compliance.