Pledged shares retransfer still constitutes acquisition under SAST Regulations, Rs 10 lakh penalty upheld

Securities Appellate Tribunal, Mumbai dismissed an appeal challenging SEBI's order for violations of SAST and PIT Regulations. Appellants argued that retransfer of pledged shares would not constitute acquisition, attempting to circumvent takeover regulations. The Tribunal held that parties cannot create pledges contrary to SAST Regulations and that share transfers recorded in demat accounts constitute acquisition regardless of subsequent retransfer arrangements. Penalties of Rs. 10 lakh under various sections were upheld, with the Tribunal finding no grounds to interfere with SEBI's order despite delay arguments.

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Issues Involved:
1. Imposition of penalties under Section 15H of SEBI Act, Section 23H of SCRA, and Section 15A(b) of SEBI Act.
2. Alleged failure to make an open offer as per Regulation 3(2) of SAST Regulations 2011.
3. Off-market transactions and failure to pay consideration as per Section 2(i) of SCRA.
4. Violations of disclosure requirements under SAST Regulations and PIT Regulations 1992 and 2015.
5. Delay in launching proceedings by SEBI.

Issue-wise Detailed Analysis:

1. Imposition of Penalties:
The appellants were penalized under Section 15H of the SEBI Act, Section 23H of the SCRA, and Section 15A(b) of the SEBI Act, amounting to Rs. 40 lakhs. The penalties were imposed due to violations related to substantial acquisition of shares, off-market transactions without consideration, and failure to disclose transactions as required by the relevant regulations.

2. Failure to Make an Open Offer:
The appellants, as promoters of the Company, acquired more than 5% of the paid-up share capital in the financial year 2013-14. They were required to make an open offer under Regulation 3(2) of the SAST Regulations 2011, which they failed to do. SEBI initiated proceedings against them for this failure, which was admitted by the appellants.

3. Off-Market Transactions:
The appellants transferred shares through off-market transactions without paying consideration, violating Section 2(i) of the SCRA. Appellant no. 1 transferred shares to noticees Mr. Piyush Kothari and Mr. Mehul Modi, and Appellant no. 2 received shares from Mr. Nelesh Devendra Vora. These transactions were not regular sell and purchase transactions but were claimed to be for financial assistance, which the appellants argued did not constitute a sale or purchase of shares.

4. Violations of Disclosure Requirements:
The appellants failed to disclose the transactions as required under the SAST Regulations and the PIT Regulations of 1992 and 2015. This failure to disclose was a significant factor in the proceedings and penalties imposed by SEBI.

5. Delay in Launching Proceedings:
The appellants argued that there was a delay of six years in launching the proceedings, which should lead to the quashing of the proceedings. However, the tribunal found that the delay did not cause any prejudice to the appellants and thus did not quash the proceedings based on this argument.

Judgment:
The tribunal upheld the order of the Adjudicating Officer, finding that the appellants had indeed violated the relevant provisions by transferring shares without consideration and failing to disclose the transactions. The tribunal dismissed the appeal, stating that the penalties imposed were justified given the multiple violations. The argument of delay in proceedings was also dismissed as it did not cause any prejudice to the appellants. The appeal was dismissed with no order as to costs. The order was digitally signed due to the COVID-19 pandemic, and parties were directed to act on the digitally signed copy.

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