Tribunal Upheld Violation of Takeover Code Regulations, Reducing Penalty Imposed

The Tribunal upheld the violation of Regulation 11(1) and 14(1) of the Takeover Code, requiring an open offer due to the appellant's increase in shareholding triggering the regulations. The penalty imposed under Section 15H of the Act was reduced from Rs. 1.87 crore to Rs. 10 lakh, considering mitigating factors and the absence of actual loss to investors.

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Issues Involved:
1. Violation of regulation 11(1) read with regulation 14(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Justification of the penalty of Rs. 1.87 crore imposed u/s 15H of the Securities and Exchange Board of India Act, 1992.

Summary:

Issue 1: Violation of Regulation 11(1) and 14(1) of the Takeover Code

The appellant, a company engaged in the business of builders and developers, was allotted 28,25,000 shares on a preferential basis, increasing its shareholding in the target company from 36.62% to 42.87%. This increase of 6.25% triggered regulation 11(1) of the takeover code, requiring an open offer within four working days as per regulation 14(1). The appellant argued that the overall promoter group shareholding increased by only 4.97%, thus not triggering regulation 11(1). However, the Board contended that the individual increase of more than 5% necessitated compliance with regulation 11(1) and 14(1). The Tribunal upheld the Board's view, referencing the Supreme Court's interpretation in Swedish Match AB vs. SEBI, which mandates a public announcement if an acquirer's voting rights increase by more than 5%, regardless of the total promoter group's shareholding.

Issue 2: Justification of the Penalty Imposed u/s 15H of the Act

The appellant argued that the penalty of Rs. 1.87 crore was excessive and not in line with Section 15H(ii) of the Act, especially since no unfair gain was made, and the loss to investors was notional. The Board maintained that the penalty was calculated based on the notional loss to investors. The Tribunal acknowledged the violation but considered mitigating factors, such as the appellant's bona fide actions based on previous Board interpretations and the lack of actual loss to investors. Consequently, the penalty was reduced to Rs. 10 lakh, emphasizing that while regulatory violations must be penalized, the quantum should reflect the specific circumstances and mitigating factors.

Conclusion:

The Tribunal upheld the finding of violation of regulation 11(1) read with regulation 14(1) of the takeover code but reduced the penalty from Rs. 1.87 crore to Rs. 10 lakh, considering the mitigating factors and the absence of actual unfair gain or loss to investors.

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