2020 (7) TMI 238 - AT - SEBI

Appellants penalized for share acquisition violations under SAST Regulations; penalty reduced on appeal.

The appellants were found to have violated Regulation 3(1) and Regulation 3(2) of the SAST Regulations by acquiring shares without making required public ... Persons acting in concert - inter se transfer exemption - disclosure under Chapter V - two working days rule - obligation to make public announcement on acquisition exceeding five per cent - quantification of penalty for technical breachPersons acting in concert - Promoters who transferred shares to the appellant were not persons acting in concert with the appellant for the purpose of the SAST Regulations, 2011. - HELD THAT: - The definition of persons acting in concert requires a common objective or purpose of acquisition of shares or exercising control. The factual finding records that the two transferor promoters intended to dispose of their shares while the appellant intended to acquire them. This absence of a common objective or common purpose meant there was no concerted action between the transferors and the appellant; the mere continuity of promoter-group aggregate holding was irrelevant to establishing concerted intent. The Tribunal sustained the Adjudicating Officer's conclusion that the transferors could not be treated as persons acting in concert with the appellant. [Paras 11]No persons acting in concert existed between the appellant and the two transferor promoters; the AO's finding on this point is upheld.Inter se transfer exemption - disclosure under Chapter V - two working days rule - The appellants were not entitled to the inter se transfer exemption because the statutory disclosure requirement under Regulation 29(3) was not complied with within two working days. - HELD THAT: - Regulation 10 provides an exemption for certain inter se transfers subject to fulfillment of conditions, including compliance with disclosure requirements in Chapter V. Regulation 29(3) mandates disclosures to stock exchanges and the target company within two working days of acquisition. The appellants admitted that disclosures were made on the seventh day (i.e., after five days), and therefore the condition precedent for claiming the inter se transfer exemption was not satisfied. This constituted a technical breach of the regulations, and the Adjudicating Officer's conclusion that the exemption could not be availed of was affirmed. [Paras 12, 13]Because disclosures were not made within two working days, the inter se transfer exemption under Regulation 10 is inapplicable and the appellants were in breach of the disclosure requirements.Quantification of penalty for technical breach - The penalty imposed for the disclosure breach was excessive and was reduced on account of the breach being technical and mitigatory factors. - HELD THAT: - While the AO imposed a penalty of Rs. 15 lacs having regard to Section 15J factors, the Tribunal noted that the appellants had in fact made the requisite disclosures belatedly (after five days) and that shareholders' interests were not jeopardized. Treating the failure as a technical breach, the Tribunal exercised its revisional jurisdiction to moderate the quantum, observing that a lesser penalty would be just and sufficient in the circumstances. [Paras 14, 15, 16]The AO's quantum of penalty is set aside and substituted: the appellants are directed to pay a reduced penalty of Rs. 5 lacs.Final Conclusion: The Tribunal upheld the AO's finding that the transferors were not persons acting in concert with the appellant and that the inter se transfer exemption was unavailable because disclosures under Regulation 29(3) were not made within two working days; however, treating the breach as technical and having regard to mitigating circumstances, the Tribunal reduced the penalty from Rs. 15 lacs to Rs. 5 lacs. Issues Involved:1. Violation of Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011.2. Violation of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011.3. Applicability of exemption under Regulation 10 of the SAST Regulations, 2011.4. Quantum of penalty imposed by the Adjudicating Officer.Detailed Analysis:1. Violation of Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011:The appellant No. 1 acquired 31,680 shares of the company, increasing his shareholding from 0.35% to 31.68%. This acquisition was made without making the required public announcement, thereby violating Regulation 3(1) read with Regulation 13(1) of the SAST Regulations, 2011. A penalty of Rs. 15 lacs was imposed on appellant No. 1, which he challenged but later withdrew the appeal with permission to pay the penalty.2. Violation of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011:The acquisition by appellant No. 1 also increased the collective shareholding of all the appellants from 29.42% to 61.10%, exceeding the threshold limit of 5%. This required a public announcement under Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011. However, no public announcement was made, leading to an additional violation. The AO imposed a penalty of Rs. 15 lacs for this violation as well, which was challenged by the appellants and remanded for a fresh order.3. Applicability of exemption under Regulation 10 of the SAST Regulations, 2011:The appellants contended that the acquisition was exempt from making a public announcement as it was an inter se transfer between promoters, as provided by Regulation 10 of the SAST Regulations. However, the AO rejected this contention, stating that the two entities who transferred the shares to appellant No. 1 were not 'persons acting in concert' as their objectives differed. Additionally, the AO noted that the required disclosures were made on the 7th day instead of within two working days as mandated, thereby disqualifying the appellants from the exemption.4. Quantum of penalty imposed by the Adjudicating Officer:The AO considered Section 15J of the SEBI Act, 1992, which includes factors like disproportionate gain, loss to investors, and repetitive nature of the default. The AO acknowledged that the shareholders' interests were not jeopardized and imposed a penalty of Rs. 15 lacs. However, the Tribunal noted that the appellants made the disclosures, albeit late by five days, and considered it a technical breach. Consequently, the Tribunal reduced the penalty to Rs. 5 lacs, deeming it just and sufficient.Order:1. The appeal is partly allowed.2. The order of the AO regarding the quantum of penalty is set aside.3. The appellants are directed to pay a penalty of Rs. 5 lacs as per the revised order.