2023 (8) TMI 202 - AT - SEBI

Tribunal Clarifies SAST Regulations Application; Emphasizes Timely Action

Reliance Industries Holding Private Limited, Mr. Mukesh D. Ambani, Mr. Anil Ambani, Mrs. Kokilaben D. Ambani, Ms. Dipti D. Salgaocar, Ms. Nina B. Kothari, Reliance Realty Ltd., Kankhal Trading LLP and Other Versus The Securities and Exchange Board of India

Reliance Industries Holding Private Limited, Mr. Mukesh D. Ambani, Mr. Anil Ambani, Mrs. Kokilaben D. Ambani, Ms. Dipti D. Salgaocar, Ms. Nina B. Kothari, ... Issues Involved:1. Whether the SAST Regulations apply retrospectively.2. Whether the acquisition of warrants prior to the SAST Regulations triggers obligations under Regulation 11(1) upon conversion.3. Whether the proceedings are barred by limitation, delay, or laches.4. Whether the violation is a continuing one, justifying the application of the amended Section 15H of the SEBI Act.Summary:1. Retrospective Application of SAST Regulations:The Tribunal held that the SAST Regulations are prospective in nature, effective from 20th February 1997. The acquisition of warrants in 1994, prior to the SAST Regulations, does not trigger the obligation to make a public announcement under Regulation 11(1) upon their conversion into equity shares in 2000. The Tribunal emphasized that the SAST Regulations cannot be applied retrospectively or retroactively to transactions that occurred before their enactment.2. Triggering Event for Public Announcement:The Tribunal clarified that the obligation to make a public announcement for an open offer is triggered at the time of acquisition of convertible securities (warrants) and not at the time of their conversion into shares carrying voting rights. The definition of 'shares' under Regulation 2(1)(k) includes any security entitling the holder to receive shares with voting rights, thereby encompassing warrants. The Tribunal rejected the respondent's contention that the obligation is triggered only upon conversion.3. Limitation and Delay:The Tribunal found an inordinate delay in the initiation and disposal of proceedings. The show cause notice was issued 11 years after the alleged violation, and the consent application remained pending for 9 years. This delay caused serious prejudice to the appellants. The Tribunal held that proceedings must be initiated within a reasonable time, and the delay in this case was unjustifiable.4. Continuing Violation:The Tribunal rejected the argument that the violation was a continuing one. It held that the act of acquisition without making a public announcement is complete once and for all at the time of acquisition. The continuing nature of holding shares does not constitute a continuing violation under Regulation 11(1). Consequently, the amended Section 15H of the SEBI Act, which prescribes a higher penalty, cannot be applied retrospectively to impose a penalty for the alleged violation.Conclusion:The Tribunal set aside the impugned order, quashing the penalty imposed on the appellants. It directed the respondent to refund the penalty amount deposited by the appellants under protest. The appeal was allowed, and all miscellaneous applications were disposed of accordingly.