2015 (6) TMI 792 - AT - Companies Law

Tribunal upholds SEBI penalty for share transfer violation despite lack of awareness

Mrs. Komal Nahata Versus Securities and Exchange Board of India, Mumbai

The appeal was dismissed by the tribunal, upholding the penalty imposed under the SEBI Act on the appellant for violating regulations related to share ... Penalty under Section 15A(b) of the SEBI Act, 1992 - Violation of regulation 7(1) & 7(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (SAST) and regulation 13(1) & 13(3) read with 13(5) of SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT) - Held that:- Argument that appellant being house wife, she was not aware of the consequences of erroneous transfer of shares cannot be accepted because admittedly appellant is a post graduate in commerce and apart from carrying on the profession of consultancy appellant has been advancing short term loans to various companies. It is only after appellant agreed to advance loan, ACL transferred shares to the demat account of appellant. Unless appellant had furnished her demat account number, ACL could not have transferred shares. Assuming that shares were erroneously transferred no explanation is given as to how the shares remained in the demat account of the appellant for 43 days. Argument that no investor has suffered on account of non disclosure and that the AO has not considered the mitigating factors set out under Section 15J of SEBI Act, 1992 is without any merit because firstly penalty for non compliance of SAST Regulations, 1997 and PIT Regulations, 1992 is not dependent upon the investors actually suffering on account of such non disclosure. Secondly, penalty under Section 15A(b) for non compliance of the regulation framed by SEBI is ₹ 1 lac for each day during which such failure continues or 1 crore rupees whichever is less. Argument that erroneous transfer was without consideration and did not constitute trade is also without any merit because, for purposes of SAST Regulations what is relevant is acquisition of shares and once acquisition of shares exceeds the limits prescribed therein, provisions of SAST Regulations are triggered. - Decided against the appellants. Issues:1. Condonation of delay in filing the appeal.2. Justification of penalty imposed under SEBI Act for violation of regulations.3. Interpretation of the circumstances of the case regarding share transfer and non-disclosure.4. Consideration of mitigating factors in penalty imposition.Analysis:1. The judgment begins with the condonation of a 3-day delay in filing the appeal, which is allowed due to reasons stated in the application, and the Miscellaneous Application is disposed of accordingly.2. The main issue revolves around whether the Adjudication Officer of SEBI was justified in imposing a penalty under Section 15A(b) of the SEBI Act on the appellant for violating specific regulations. The appellant's argument is based on the erroneous transfer of shares without consideration, claiming no actual acquisition of shares. However, the tribunal finds the appellant in violation of the SAST Regulations and PIT Regulations due to the transfer and non-disclosure of shares within the stipulated time frames.3. The appellant's circumstances as a housewife and consultant, involved in loan transactions, are considered. The tribunal notes the transfer of shares to the appellant's demat account, the failure to disclose, and the subsequent retransfer to the original owner. Despite arguments of lack of awareness and no actual acquisition, the tribunal emphasizes the violation of disclosure regulations and the significance of timely compliance.4. The appellant's plea for considering mitigating factors under Section 15J of the SEBI Act is rejected. The tribunal highlights the strict liability nature of the penalty provisions, emphasizing the calculation based on the number of days the shares remained undisclosed in the demat account. The nominal penalty imposed is deemed reasonable considering the circumstances and the appellant's failure to provide a satisfactory explanation.In conclusion, the tribunal dismisses the appeal, finding no merit in the arguments presented and imposes no order as to costs.