2018 (4) TMI 1798 - AT - SEBI

Tribunal upholds penalty for breach of SEBI Act

The tribunal upheld the penalty imposed on the appellants under Section 15H(ii) of the SEBI Act for breaching regulations on substantial acquisition of ... Violation of open offer obligations contained in the Takeover Regulations, 1997 - Failure on part of the appellants to make an open offer on acquisition of 43,600 shares - Penalty imposed - HELD THAT:- Fact that the appellants by failing to make open offer within the stipulated time have violated regulation 11(2) read with regulation 14(1) of the Takeover Regulations, 1997 is not in dispute. Obligation cast on the appellants to make open offer was not dependent on SEBI acquiring knowledge about the violation or dependent on SEBI initiating action against the appellants for non- compliance of the open offer obligations. In other words, delay on part of SEBI in initiating action did not absolve appellants from their obligation to make open offer. Therefore, the appellants who are guilty of violating the open offer obligations contained in the Takeover Regulations, 1997 cannot escape penal liability by alleging that there is delay on part of SEBI in initiating action against the appellants for non- compliance of their open offer obligations. Argument of the appellants that the penalty imposed is exorbitant or excessive is also without any merit. Penalty imposable under Section 15H(ii) of SEBI Act for violating the open offer obligations contained in Takeover Regulations, 1997 is up to ₹ 25 crore, however, the AO after taking into consideration all mitigating factors has imposed penalty of ₹ 7 lac and directed that the said penalty be paid by the appellants and other two PACs jointly and severally, which cannot be said to be unreasonable or excessive. Issues:1. Imposition of penalty under Section 15H(ii) of the SEBI Act for violating regulations.2. Failure to make open offer within stipulated time triggering penalty proceedings.3. Delay in issuing show cause notice and challenge to penalty imposition.4. Justification of penalty amount and liability of the appellants.Analysis:1. The judgment deals with the imposition of a penalty under Section 15H(ii) of the SEBI Act for violating regulations related to substantial acquisition of shares and takeovers. The appellants, along with other persons, were penalized for crossing the threshold limit of shareholding without making a public announcement of open offer as required by the regulations.2. The failure to make the open offer within the stipulated time resulted in penalty proceedings being initiated against the appellants. The penalty was imposed by the Adjudicating Officer of SEBI for non-compliance with the open offer obligations specified in the Takeover Regulations, 1997. The appellants challenged this order through the present appeal.3. The appellants raised concerns regarding the delay in issuing the show cause notice, arguing that it was issued after a significant period from the date SEBI became aware of the violations. They contended that the penalty of Rs. 7 lac was unjustified, citing reasons such as lack of grievances from investors, their disassociation from the company, and reliance on a previous tribunal decision for setting aside the penalty.4. The tribunal dismissed the appellants' contentions, emphasizing that the obligation to make the open offer was independent of SEBI's knowledge or actions. The delay in SEBI initiating action did not absolve the appellants from their obligation. The tribunal also clarified that the penalty amount imposed was not excessive, considering the provisions of the SEBI Act and the mitigating factors taken into account. Ultimately, the appeal was dismissed, upholding the penalty and joint liability of the appellants and other related persons.