2011 (3) TMI 1796 - AT - SEBI

Tribunal upholds violations for undisclosed shares & failure to announce exceeding limit. Fines imposed.

Liquid Holdings Private Limited Versus The Securities and Exchange Board of India, Mumbai.

The Tribunal upheld the adjudicating officer's findings that the appellants violated Regulation 7 by failing to disclose reacquired shares and Regulation ... - Issues Involved:1. Violation of Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.2. Violation of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.Summary:Issue 1: Violation of Regulation 7 of the Takeover CodeThe appellants, promoters of Blue Coasts Hotels Limited, had pledged their shares as collateral security for loans taken by Morepen Laboratories Limited. Upon default, the banks invoked the pledges and transferred the shares to their demat accounts, becoming the beneficial owners. The Securities and Exchange Board of India (SEBI) contended that the appellants, upon reacquiring the shares after settling the loans, failed to disclose the acquisition as required by Regulation 7 of the takeover code. The adjudicating officer concluded that the appellants were under obligation to make the required disclosures to the company and stock exchanges, which they failed to do, thus violating Regulation 7(1) read with 7(2) of the takeover code.Issue 2: Violation of Regulation 11(1) of the Takeover CodeThe adjudicating officer also found that the appellants, upon reacquiring the shares from the banks, exceeded the threshold limit prescribed by Regulation 11(1) of the takeover code. This required them to make a public announcement to acquire further shares of the target company, which they did not do. The officer concluded that the appellants violated Regulation 11(1) by failing to make a public announcement in accordance with the regulations. Consequently, a monetary penalty of Rs. 3 lacs was imposed on each appellant, with Rs. 2 lacs for violating Regulation 11(1) and Rs. 1 lac for violating Regulation 7.Conclusion:The Tribunal upheld the adjudicating officer's findings, stating that the banks became beneficial owners upon invoking the pledge, and the appellants acquired the shares upon their transfer back, triggering the requirements of Regulations 7 and 11(1). The argument that the shares remained collateral security throughout was rejected, as it would circumvent the statutory provisions. The appeals were dismissed with no order as to costs.