TaxTMI 
TaxTMI 
2016 (3) TMI 93
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....ulation 7(1A) read with regulation 7(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Regulations, 1997" for short). Since the issue involved in these appeals is common, all these appeals are heard together and disposed of by this common decision. 2. Although facts of each case have very little relevance in resolving the controversy raised in these appeals, for better appreciation of the controversy, few facts in Appeal No. 97 of 2014 are set out herein below:- a) Appellants in Appeal No. 97 of 2014 together with several others were the original promoters of Hind Syntex Ltd. ("Target Company" for convenience) a company incorporated under the Companies Act, 1956 on 03.12.1980. The shares of the said company were listed on the Bombay Stock Exchange Ltd. ("BSE" for short) and National Stock Exchange Ltd. ("NSE" for short). b) As on 31.12.2004, four out of several promoters, who are appellants in Appeal No. 97 of 2014 held shares of the target company as follows:- i) Appellant No. 1: 231400 shares (2.13% of the total capital) ii) Appellant No. 2: 9786 shares (0.09% of the t....
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....l No. 97 of 2014. 3. Mr. Modi, learned Senior Advocate appearing on behalf of appellants in Appeal No. 97 of 2014 and Appeal No. 99 of 2014 and Mr. Sanjay Israni, learned counsel appearing on behalf of appellants in Appeal No. 311 of 2014 have submitted as follows:- a) The expression 'Any acquirer' under regulation 7(1A) of the Takeover Regulations, 1997 is relatable to a single acquirer and not to a group of acquirers and therefore, even if the promoter group of the appellants held 39% shares of the target company, regulation 7(1A) of the Takeover Regulations, 1997 would get triggered only when each acquirer acquires or sells 2% or more shares of the target company individually and not collectively along with other co-acquirers. b) Obligation to make disclosure under regulation 7(1A) of the Takeover Regulations, 1997 arises only when the acquirer covered under regulation 11(1), individually purchases or sells shares of the target company aggregating to 2% or more of the share capital of the target company. Since purchase or sale aggregating to 2% or more in regulation 7(1A) is referable to aggregate purchase or sale effected by each acquirer, the AO of SEBI wa....
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....holding of each acquirer individually and not collectively with other co-acquirers or persons acting in concert with the acquirer. g) Expression 'acquirer' as also the expression 'persons acting in concert' defined under regulation 2(1)(b) & 2(1)(e) of the Takeover Regulations, 1997 respectively refer to acquisition of shares of the target company and not to the sale of shares. Therefore, definition of those words cannot be applied to sale of shares referred to under regulation 7(1A) of the Takeover Regulations, 1997. h) In para 9 of the impugned order (in Appeal No. 97 of 2014) it is recorded that the target company has been disclosing to the stock exchanges the shareholding of the appellants under the category of promoters. Inspite of above findings recorded in para 9, a contradictory finding is recorded in para 11 of the impugned order (in Appeal No. 97 of 2014) to the effect that 'it is only through the mechanism of stock exchanges dissemination of information takes place for the benefit of the public/investors at large' and hence the disclosures made to the company would not suffice nor would act as a substitute to the disclosure to be made by the acquirer to....
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....on behalf of SEBI on the other hand submitted as follows:- a) Appellants (in Appeal No. 97 of 2014) in their common reply to the show cause notice had stated that they were part of the promoter group and on sale of shares in excess of 2% the appellants had made required disclosures under regulation 7(1A) to the company but not to the BSE and NSE due to bonafide oversight on part of the promoter group. It was further stated in the said reply that belatedly on 02.04.2013 that is approximate delay of about 8 years, disclosure under regulation 7(1A) has been made to the BSE and NSE. Therefore, having accepted that the appellants were obliged to make disclosure under regulation 7(1A) to the stock exchanges and that the failure to make such disclosure was due to bonafide oversight, it is not open to the appellants now to turn-a-round and contend before this Tribunal that they were not obliged to make disclosures either to the target company or to the stock exchanges under regulation 7(1A) of the Takeover Regulations, 1997. b) In the disclosure made to the stock exchanges on 02.04.2013 appellants (in Appeal No. 97 of 2014) had shown themselves as promoters and persons ac....
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....per the recommendations of the Bhagwati Committee report 2002 is to make it mandatory for acquirers holding (together with persons acting in concert) shares between 15% to 55% to disclose purchase or sale of those shares in excess of 2%, it must be held that the obligation to make disclosure under regulation 7(1A) arises when the aggregate purchase or sale of shares held by the acquirer together with persons acting in concert with him exceeds 2%. In support of the above contention reliance is placed on a decision of the Bombay High Court in case of Anand Rathi vs SEBI reported in (2002) 1 Mh. L.J. 522. g) Fact that the appellants in each appeal constitute respective promoter group and combined sale of the appellants in the respective appeals exceed 2% is not in dispute. Therefore, the appellants in each appeal having effected sales in excess of 2% in concert with each other and having made disclosure to the target company under regulation 7(1A) are not justified in contending that the obligation to make disclosure to the stock exchange under regulation 7(1A) arises only when the sale of shares by individual acquirer exceeds 2%. h) The word 'promoter' defined under....
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....s under regulation 7(3) does not absolve the appellants of their obligation to make disclosure to the stock exchanges under regulation 7(1A). In any event, taking all mitigating factors, nominal penalty of Rs. 6 lac is imposed on appellants (in Appeal No. 97 of 2014) as against the imposable penalty of Rs. 1 crore and therefore, the penalty imposed cannot be said to be unreasonable or excessive. n) Relying on the decisions of the Apex Court in case of Swedish Match vs. SEBI reported in (2004) 11 SCC 641 and in case of Chairman SEBI vs. Shriram Mutual Fund reported in (2006) 5 SCC 361 it is submitted that the appellants who have violated regulation 7(1A) of the Takeover Regulations, 1997 cannot escape penalty irrespective of the fact that there was mens-rea is committing the violations or not. o) Relying on a decision of this Tribunal in case of Radheshyam Tulsian & Ors v/s SEBI (Appeal No. 106 of 2005 decided on 26.04.2006) it is submitted that in view of the expression 'acquirer' being defined under regulation 2(1)(b), the expression 'acquirer' in regulation 7(1A) would be referable to shares held by an acquirer together with all persons acting in concert with su....
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....f shares or voting rights, as the case may be. (3) Every company, whose shares are acquired in a manner referred to in sub-regulation (1), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulation (1)." 9. Regulation 7 of the Takeover Regulations, 1997 (as substituted by SEBI) (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002, ('2002 amendment' for short) with effect from 9.9.2002 reads thus:- "Acquisition of 5 per cent and more shares or voting rights of a company. 7. [(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent shares or voting rights in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed.] [(1A) Any acq....
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....articularly set out therein. 12. Regulation 6 in Chapter II of the Takeover Regulations, 1997 provides for disclosure by the entities specified therein on the basis of their shareholding as on the date of the said regulation came into force. Regulation 7 provides for disclosure by the entities specified therein, after the Takeover Regulations, 1997 came into force. 13. Prior to insertion of regulation 7(1A), disclosure obligation under regulation 7(1) was only in relation to acquisition of shares or voting rights in excess of the limits prescribed in regulation 7(1) and the said disclosure obligation was required to be discharged within two days of the events specified under regulation 7(2). By 2002 amendment, regulation 7(1A) was inserted with effect from 09.09.2002. As per regulation 7(1A) any acquirer who has acquired shares or voting rights of a company under regulation 11(1) was required to disclose purchase or sale of the shares or voting rights of the target company aggregating 2% or more of the share capital of the target company to the target company and to the stock exchanges within two days of such purchase or sale. By the said 2002 amendment regulation 7(2) was al....
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....r with persons acting in concert with the acquirer and would not be relatable to purchase or sale of shares by the acquirer alone as contended by the appellants. Since aggregate sale of shares effected by the appellants as 'persons acting in concert' has exceeded 2% of the share capital of the target company, the appellants were obliged to disclose the said sale to the target company and to the stock exchange within the time stipulated under regulation 7(1A) read with regulation 7(2). Admittedly, the appellants had acquired shares of the target company as promoter group with the common object of controlling the target company. Under regulation 2(1)(e) of the Takeover Regulations 1997, when persons acquire shares or voting rights with the common object of controlling the target company, then the said persons are said to be 'persons acting in concert'. Therefore, the appellants as persons acting in concert having acquired shares of the target company to the extent specified under regulation 11(1) were obliged under regulation 7(1A) to make disclosure when they as persons acting in concert sold shares exceeding 2% of the share capital of the target company. It is not in dispute that a....
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....ns acting in concert with him, whereas, in regulation 7(1A) reference is made to the shareholding of the acquirer alone, and therefore, it must be held that regulation 7(1A) refers to the shareholding of an individual acquirer and not to the shareholding of an acquirer together with persons acting in concert with him. Submission is that wherever, the regulation intended to refer to the shareholding of an acquirer together with the persons acting in concert, it has specifically stated so in the regulation itself. Since, regulation 7(1A) refers to the shareholding of the acquirer alone it would be just and proper to hold that regulation 7(1A) gets triggered when purchase or sale of shares or voting rights effected by the acquirer alone exceeds the limits prescribed under regulation 7(1A). Similar argument is also advanced on behalf of the appellants by referring to regulation 8(2) of the Takeover Regulations, 1997 wherein reference is made to the shareholding of a promoter together with persons acting in concert with him. 19. We see no merit in the above contention. Once the regulation defines the expression 'acquirer' under regulation 2(1)(b) of the Takeover Regulations to mean a....
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....sells shares of the target company aggregating 2% or more of the share capital of the target company, then such acquirer shall make disclosure as provided under regulation 7(1A). Fact that the appellants in all these appeals held shares of the target company more than 15% but less than 55% in accordance with law as stipulated under regulation 11(1) is not in dispute. Therefore, appellants holding shares of the target company to the extent specified under regulation 11(1), when sold shares of the target company as persons acting in concert in excess of 2% of the share capital of the target company, were obliged to make disclosure under regulation 7(1A). 21. Relying on regulation 7(3) of the Takeover Regulations, 1997 which refers to the information received from 'each person' referred to in regulation 7(1) and 7(1A), it is contended on behalf of the appellants that the information by way of disclosure to be made by an acquirer under regulation 7(1A) is relatable to the shareholding of an acquirer alone and is not relatable to the shareholding of the acquirer together with persons acting in concert with the acquirer. This argument of the appellant is also without any merit, becaus....
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....r 2013. Therefore, in the facts of present case, no fault can be found with SEBI in initiating proceedings against the appellants in November 2013. 23. For all the aforesaid reasons we hold that the obligation to make disclosure under regulation 7(1A) arises when an acquirer covered under regulation 11(1) purchase or sells shares of the target company together with persons acting in concert with that acquirer, aggregating to 2% or more of the share capital of the target company. 24. Question then to be considered is, whether the AO is justified in imposing penalty on the appellants on the ground that by failing to make disclosure of sale of shares aggregating to 2% or more of the share capital of the target company to the stock exchanges, within the stipulated time the appellants have violated regulation 7(1A) read with regulation 7(2) of the Takeover Regulations, 1997? 25. It is relevant to note that the disclosure obligation under regulation 7 as originally introduced was only in relation to acquisition of shares in excess of the limits prescribed under regulation 7(1) and that obligation had to be discharged under regulation 7(2) within two days of (a) receiving intimat....
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....on of discharging that obligation arising under regulation 7(1A) read with regulation 7(2) does not arise at all. 28. It was open to SEBI to make newly inserted regulation 7(1A) self operative, because regulation 7(1A) itself provides that the obligation set out therein has to be discharged within two days of purchase or sale specified therein. However, SEBI in its wisdom deemed it fit to amend regulation 7(2) with effect from 09.09.2002 by providing that the disclosure obligation specified under regulation 7(1) and 7(1A) has to be discharged within two days of the events specified under regulation 7(2). Thus, by 2002 amendment it is made clear that although disclosure of purchase or sale referred to under regulation 7(1A) has to discharged within two days of purchase or sale, of shares referred to therein, by amending regulation 7(2) it is provided that two days time to make disclosure under regulation 7(1A) shall commence on the happening of events specified under regulation 7(2). Since regulation 7(2) (as amended) does not set out any event relating to sale of shares specified under regulation 7(1A), the question of complying with regulation 7(1A) within two days of sale of s....
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....g investigation, SEBI has the authority of law under Section 11, 11B of the SEBI Act to order suspension as an interim measure. In that context quoting the words of Denning J. in Seaford Court Estates Ltd. vs. Asher reported in (1949) 2 All.E.R. 155 it was held that in order to protect the interest of the investors and for the orderly and healthy growth of securities market if vide powers are conferred on SEBI by the Parliament, then that intention of the Parliament has to be implemented. That decision cannot be applied to the present case, because, under the Takeover Regulations, 1997 disclosure obligation arising under regulation 7(1A) of the Takeover Regulation, 1997 has to be discharged under regulation 7(1A) read with regulation 7(2) and as noted above, regulation 7(2) does not provide for disclosure obligation arising from sale of shares or voting rights specified under regulation 7(1A). In such a case, there being no obligation under regulation 7(2) to make disclosure of sale of shares specified under regulation 7(1A), appellants cannot be held guilty of failing to make disclosure under regulation 7(1A) read with regulation 7(2) of the Takeover Regulations, 1997. In these ci....