2016 (10) TMI 1305 - AT - SEBI

Appellants Penalized for SEBI Violations: Shares Acquisition Sans Public Announcements

The tribunal found the appellants guilty of violating SEBI regulations by acquiring shares without making required public announcements. Penalties were ... Acquisition of shares without making the required public announcement - new acquisition went beyond the creeping acquisition limit of 5% - violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“SAST Regulations”) - HELD THAT:- It is an undisputed fact that in the year 2000-2001, the Appellants cumulatively acquired 5.0346% of the shareholding of APIL. This fact has indeed been admitted by the Appellants as far back as the personal hearing conducted before the Ld. Adjudicating Officer. At the personal hearing, the Appellants admitted that inadvertently they had not made a public announcement when their newly acquired shareholding went beyond the limit of 5% as prescribed in Regulation 11(1). Categorical admission by the Appellants it is evident that the Appellants understand the import and underlying philosophy of Regulation 11(1). Participants in the securities market are allowed to actively indulge in trading and other related activities because SEBI as the market regulator is given assurances by these market players that they understand the law and regulations as laid down by the Legislature and SEBI respectively. If the Legislature and SEBI, acting on such assurances, give companies and other market participants the right to execute their business decisions in the manner these entities deem fit, it goes without saying that there is a corresponding duty placed on the market participants to ensure that such mistakes as acquiring more than the creeping acquisition limit of 5% without making the necessary public announcement are not made. There is no provision in the SEBI Act, which may have the effect of prohibiting SEBI from taking action beyond a particular period of time in a given case. However, it goes without saying that the regulator should always make an endeavor to take prompt action against the defaulting companies to render speedy and timely justice. In the present case, however, action was taken immediately after SEBI came to know about the violations. Therefore, delay, in itself, cannot defeat the ends of justice in the facts and circumstances of the case in hand. Moreover, there is nothing on record to suggest that the admission made by the appellants before the A.O. that the acquisition made by them exceeded the prescribed limit was erroneous. In these circumstances, no fault can be found with decision of the A.O. in holding that the appellants are guilty of violating the Takeover Regulations and, accordingly, imposing penalty on the appellants. As rightly brought to our notice by the Appellants that at the time the misconduct was committed and the shares acquired by the Appellants, the maximum penalty for the default of acquiring more than the prescribed limit of shareholding without making the required public announcement was ₹ 5 lac. The penalty of ₹ 15 lac was introduced later when the Act was amended. SEBI cannot be allowed to retrospectively apply the law in this situation. In our considered opinion the penalty of ₹ 15 lac imposed by SEBI in one of the orders is more than what was applicable in 2000-2001 and is therefore reduced to ₹ 5 lac. Issues Involved:1. Acquisition of shares without making the required public announcement in violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.2. Determination of penalties under Section 15H(ii) of SEBI Act, 1992.3. Applicability of penalties based on the time of acquisition.4. Delay in initiating proceedings by SEBI.Issue-wise Detailed Analysis:1. Acquisition of shares without making the required public announcement in violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:The core issue in these appeals revolves around the acquisition of shares without making the necessary public announcements as mandated by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ('SAST Regulations'). Regulation 11(1) stipulates that any person who already owns 15% or more but less than 75% of a company's shareholding must make a public announcement if they intend to purchase additional shares exceeding 5% in a year. The appellants admitted to acquiring 5.0346% of the shareholding in 2000-2001, which exceeded the 5% threshold without making a public announcement, thus violating Regulation 11(1) read with Regulation 14(1).2. Determination of penalties under Section 15H(ii) of SEBI Act, 1992:The penalties imposed for the violations were as follows:- Impugned order dated September 30, 2014: Rs. 15 lac penalty for violations in 2000-2001 (Appeal Nos. 470, 471, 475, 477, 481, 485 of 2015).- Impugned order dated September 30, 2014: Rs. 15 lac penalty for violations in 2005 (Appeal Nos. 472 and 476 of 2015).- Impugned order dated October 1, 2014: Rs. 20 lac penalty for violations in 2010 (Appeal Nos. 474, 478, 479, 482, 483, 484 of 2015).3. Applicability of penalties based on the time of acquisition:The appellants argued that the penalty of Rs. 15 lac imposed for the 2000-2001 violation was excessive, as the maximum penalty at that time was Rs. 5 lac. The tribunal agreed, stating that SEBI cannot retrospectively apply the amended penalty of Rs. 15 lac. Hence, the penalty for the 2000-2001 violation was reduced to Rs. 5 lac. However, for the 2005 and 2010 violations, the penalties of Rs. 15 lac and Rs. 20 lac respectively were upheld as they were in line with the amended provisions of Section 15H(ii).4. Delay in initiating proceedings by SEBI:The appellants contended that the delay of 14 years in initiating proceedings should negate the penalties. The tribunal dismissed this argument, stating that there is no provision in the SEBI Act prohibiting action beyond a specific period. The tribunal emphasized that SEBI acted promptly upon discovering the violations, and the delay did not defeat the ends of justice.Judgment Summary:- The penalty of Rs. 15 lac imposed for the 2000-2001 violation was reduced to Rs. 5 lac (Appeal Nos. 470, 471, 475, 477, 481, 485 of 2015).- The penalty of Rs. 15 lac for the 2005 violation was upheld (Appeal Nos. 472 and 476 of 2015).- The penalty of Rs. 20 lac for the 2010 violation was upheld (Appeal Nos. 474, 478, 479, 482, 483, 484 of 2015).The tribunal concluded that the appellants were guilty of violating the SAST Regulations and imposed penalties accordingly, while ensuring that the penalties were in line with the applicable laws at the time of the violations.