Regulator cannot retroactively change Regulation 10 interpretations to create penalties; Appellate review cannot initiate Section 15-H penalty proceedings

SC dismissed the Board's appeals, upholding that the regulator cannot retroactively overturn its long-standing interpretation of Regulation 10 of the Takeover Regulations 1997 to create penal consequences and stressing predictability in regulation. The Court clarified that the Appellate Tribunal may examine, set aside, modify or substitute directions under Regulation 44 but cannot initiate or impose penalties under Chapter VI-A (Section 15-H) for the first time; initiation of penalty proceedings remains the adjudicating authority's function. A previously imposed monetary penalty that attained finality was not disturbed, and the Board was directed not to reopen proceedings under Chapter VI-A.

---

---

Issues Involved:
1. Interpretation of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Power and exercise of the power by the SEBI Board under Regulations 44 and 45 of the Takeover Regulations, 1997.
3. Power and jurisdiction of the Securities Appellate Tribunal under Section 15T of the SEBI Act, 1992.

Issue-wise Detailed Analysis:

1. Interpretation of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:

The primary question of law was the interpretation of Regulation 10. The judgment clarified that Regulation 10 applies when an "acquirer" (which includes any person acting in concert with the acquirer) acquires shares or voting rights that, together with shares or voting rights already held, entitle them to exercise 15% or more of the voting rights in a company. The term "acquirer" is broad and includes persons acting in concert, ensuring transparency and preventing circumvention of the regulations. The Appellate Tribunal's interpretation that Regulation 10 does not apply if the collective shareholding is already above 15% was upheld. The Supreme Court agreed that the term "acquirer" should not be restricted to individual shareholders but also include persons acting in concert, and Regulation 10 does not apply when the collective voting rights are already 15% or more.

2. Power and Exercise of the Power by the SEBI Board under Regulations 44 and 45 of the Takeover Regulations, 1997:

Regulation 44 allows SEBI to issue directions in the interest of the securities market or for the protection of investors, including making public announcements to acquire shares. However, the use of the word "may" indicates discretion, not a mandatory requirement. The Board must consider the interest of the securities market and investor protection when issuing such directions. The judgment emphasized that discretion should be exercised fairly and reasonably, considering the facts and circumstances of each case. The directions issued by SEBI in the Sunil Krishna Khaitan case were set aside by the Appellate Tribunal due to the inordinate delay and the lack of good grounds for such directions. The Supreme Court agreed that the directions were not automatic and should be justified and warranted based on the circumstances.

3. Power and Jurisdiction of the Securities Appellate Tribunal under Section 15T of the SEBI Act, 1992:

The Appellate Tribunal has the power to confirm, modify, or set aside the orders appealed against. It can exercise its jurisdiction to ensure the correctness and legality of the orders. However, in the Sunil Krishna Khaitan case, the Appellate Tribunal substituted the directions of SEBI with a monetary penalty, which was beyond its jurisdiction as the penalty proceedings under Section 15-H were not initiated by SEBI. The Supreme Court held that the Appellate Tribunal should not have imposed a penalty under Section 15-H without an order from the adjudicating authority. The appropriate course would have been to leave it open for SEBI to initiate penalty proceedings under Chapter VI-A of the Act. The Supreme Court clarified that the Appellate Tribunal could not initiate and impose penalties but could modify or set aside the directions issued by SEBI.

Conclusion:

The Supreme Court dismissed the appeals by SEBI, upholding the Appellate Tribunal's interpretation of Regulation 10 and setting aside the directions issued by SEBI under Regulation 44. The judgment clarified the scope and exercise of powers by SEBI and the Appellate Tribunal, emphasizing the need for fair and reasonable exercise of discretion and adherence to legal principles.

---