TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 93
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....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 total capital) iii) Appellant No. 3: 246600 shares (2.27% of the tota....
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....i, 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 was not justified in aggregating the sales of all the appellants who are independent acquirers. None of the appellants individually have sold more than 2% shares of the target com....
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....rt' 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 the stock exchanges. i) The target company had made numerous filings and disclosures to the stock exchanges including the quarterly filing of shareholding pattern with the stock exchanges and the publication of the q....
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.... 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 acting in concert with the promoters. Since the order impugned in the appeal is based on the facts admitted by the appellants, no fault can be found with the impugned order and it is not open to the appellants to put up a new case before this Tribunal. c) Obligation to make di....
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....tion 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 regulation 2(1) (h) includes 'promoters'. Similarly the word 'acquirer' defined under regulation 2(1) (b) would include acquires. This is evident from Section 13(2) of the General Clauses Act, 1852 which provides that the words in any Central Acts or Regulations would include the plural. Therefore, the obligation to ....
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....sed 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 such acquirer. Therefore, an acquirer together with persons acting in concert with him holding 15% or more but less than 55% shares or voting rights of the target company, when purchases or sells shares of the target company together with persons acting in concert with him, aggregating 2% or more of the share capital of the target company, would be obliged to m....
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....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 acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale.] [Explanat....
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....n 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 also amended with effect from 09.09.2002, thereby providing that the disclosures under regulation 7(1) & 7(1A) be made within two days of the events set out under regulation 7(2). 14. Argument of the appellants in nutshell is that firstly, the disclosure obligation under regulation 7(1A) arises only when purchase or sale of shares or voting rights effected by any individual acquirer exceeds the limit prescribed under regulation 7(1A) and in the cases in hand, since sale of shares effected by ....
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....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 as soon as sale of shares of the target company effected by the appellants as persons acting in concert exceeded 2% of the share capital of the target company disclosure was made by appellants to the target company as contemplated under regulation 7(1A) but no disclosure was made to the stock exchanges as required under regulation 7(1A). Having correctly understood the scope of the obligation under regulation 7(1A), appellants are not justified in taking a stand to the contrary by contending that t....
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....ion 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 person who has acquired shares or voting rights of the target company either by himself or with any person acting in concert with the acquirer then, that meaning has to be assigned to the expression 'acquirer' wherever used in the Takeover Regulation, 1997. Therefore, it would be just and proper to hold that the expression 'acquirer' in regulation 7(1A) is referable to a person who has acquired shares of the target company either by himself or with the persons acting in concert with him. Even after def....
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....mpany 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, because, as noted earlier, the expression 'acquirer' defined under regulation 2(1)(b) is referable to the shares or voting rights of the target company held by an acquirer alone or by an acquirer together with persons acting in concert with him and therefore, the information referred to in regulation 7(3) would be the information furnished by an acquirer under regulation 7(1) and 7(1A) in relation to the purchase or sale of shares by an acquirer together with persons acting in concert with him in excess of the li....
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....idered 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 intimation of allotment of shares or (b) acquisition of shares or voting rights as the case may be. Thus the obligation to make disclosure under regulation 7(1) was only in relation to acquisition of shares in excess of the limit set out therein and the said obligation had to be discharged within two days of the events specified under regulation 7(2). 26. By inserting regulation 7(1A) after regulation 7(1) in the Takeover Regulations, 1997 with effect from 09.09.2002, it is provided that where an acquirer who together wi....
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....(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 shares does not arise at all. 29. It is not even the case of SEBI, that regulation 7(1A) is self operative and that the obligation there under has to be discharged independent of regulation 7(2). In fact, in the impugned order, it is held by the AO that by failing to make disclosure to the stock exchanges regarding aggregate sale of shares or voting rights in excess of 2% of the share capital of the target company, the appellants are guilty of violating regulation 7(1A) read with regulation 7(2) of the Takeover Regulatio....