TaxTMI 
TaxTMI 
TaxTMI 
2003 (1) TMI 738
X X X X Extracts X X X X
X X X X Extracts X X X X
....offer the Appellants applied for and were allotted shares of their full entitlement. The remaining shareholders did not apply for their full entitlement and the Appellants acquired the unsubscribed portion of the Rights issue, as per the disclosure made in the Letter of Offer. As a result of acquisition of shares in the Rights issue, the promoters holding in the target company increased from 83.63% to 90.96% and the public shareholding came down to 9.04% from 16.37%. The acquisition is stated to be exempted in terms of regulation 3(1) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations) from the compliance of the requirements under Chapter III of the said Regulations. However, they failed to file the report under regulation 3(4) with the Respondent within the 21 days' time limit prescribed in the regulation. The report was filed only on 22.11.2001. The Respondent, on coming to know of the said failure on the part of the Appellants decided to adjudicate the matter and for the purpose an adjudicating officer was appointed. The adjudicating officer, after enquiry confirmed the failure and impos....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 3. Learned Counsel submitted that on 7.11.2000 the Board of Directors of the target company passed a resolution to issue 6120000 shares on Rights basis that on 31.10.2000, i.e. prior to the said Board meeting the target company had intimated the Madras and Bangalore Stock Exchanges about the said meeting and the proposed rights offer, that again immediately after the said Board meeting, the target company by its letter dated 7.11.2000 intimated the said two stock exchanges about the decision to issue 6120000 equity shares of ₹ 10/- each at par on Rights basis to the existing shareholders of the company in the ratio of three new equity shares for every two equity shares held on the record date to be determined in consultation with the Stock Exchange. Learned Counsel submitted that before dispatching the letter of offer to its share holders in respect of the said Rights issue, the target company submitted a draft letter of offer in respect of the Rights issue to the Respondent in compliance with the SEBI (Disclosure and Investor Protection) Guidelines, that in the said letter of offer it was disclosed that "The promoters intend to subscribe to their rights entitlement i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e dated 10.4.2002 issued to the Appellants by the Adjudicating Officer also Section 15A (b) was relied on for the purpose of imposition of penalty, that it is thus clear that the Respondent and the adjudicating officer had decided to proceed against the Appellants intentionally under Section 15A(b). He submitted that reliance on the said section was not a wrong citation of the section is evidenced from the fact that the text of the said section has been extracted and explained in the impugned order. He further submitted that that sub section (b) of section 15A is not attracted in respect of documents or reports which were required to be filed with the Respondent. In this context he cited this Tribunal's decision in Housing Development Finance Corporation Ltd., V. Securities and Exchange Board of India (2000) 28 SCL 289 and submitted that the facts of the said case is almost identical to the Appellants' case, that in both the cases the exemption from making public offer was available and the question was belated filing of report under regulation 3(4), that in fact the delay involved in filing the report by the Housing Development Finance Corporation was 286 days and in that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficult to maintain that they are used in the same sense." He also referred to the State of Gujarat V Dilipbhai Nathjibhai Patel (JT 1998 (2) SC 253 that "in interpreting a statute the Court can not aid the legislature's defective phrasing of an Act nor can add or amend and, by construction make up deficiencies which are left there." Then the Hon'ble Court cited the following observation in Union of India V Deoki Nandan Aggarwal (JT 1991 (3) Sc 608) "It is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The court can not re write, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the courts. The court can not add words to a statute or read words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature the Court could not go to its aid to correct or make up the deficiency. Court shall decide what the law is and not what it should be. The Court of course adopts a construction which will carry o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stated that in the said case also the issue involved was filing of report with the Respondent under regulation 3 (4) involving a delay of 243 days, that in the light of the facts of the said case the Tribunal held that non compliance remained in effect only a technical formality and following the ratio in Cabbot International Corpn. V Adjudicating Officer SEBI (2001) 29 SC (Sat) 399, the penalty imposed by the adjudicating officer was set aside. Learned Counsel submitted that the facts of the said case are comparable to the facts of the present case and ratio in those cases is therefore, applicable to the instant case. In this context learned Counsel submitted that the adjudicating officer has ignored the views taken by the Tribunal though binding on him, and passed the order, that in the impugned order it has been stated that "the acquirers have contended the delay in filing was unintentional and they also contended that the violation is purely technical in nature and of no consequences to anybody. It is immaterial whether the delay in intentional or not. Such contention is not sustainable in view of the specific requirement prescribed under sub regulation 4 of regulation 3 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he promoters subscribing to the entire unsubscribed portion, the promoters holding will increase to 95,31,924 shares representing 93.45% of the post issue paid up capital" that in note (j) it was stated that "the Promoters intend to subscribe to their rights entitlement in full. In the event of under subscription such unsubscribed portion will be subscribed by Spicer, SFL, WIL in the ratio of 2:1:1. Subscription beyond their entitlement is exempt under regulation 3(1)(b)......" 12. Learned Representative submitted that reporting under regulation 3(4) is a post acquisition requirement, that it can not be said that the Appellants were unaware of the requirements of the said regulations as is evident from the fact that they have quoted the provisions of the regulations in the letter of offer. She submitted that the Appellants' submission that they filed report on their own is not a matter that would absolve the Appellants of the requirement of compliance of regulation 3(4) that in fact they filed the report as there was no escape in the context of the requirement of acquiring the shares from the public as the public holding had come down to less than 10% by making ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t;It is well settled that the exercise of power, if there is indeed a power, will be referable to a jurisdiction, when the validity of the exercise of that power is in issue, which confers validity upon it and not to a jurisdiction under which it would be nugatory, though the section was not referred, and a different or a wrong section of different provision was mentioned....that a wrong reference to the power under which action was taken by the Government would not per se vitiate the action if it could be justified under some other power under which government could lawfully do that act." She also referred to the State of Karnataka V Muniyalla (1985) 1 SCC 196 therein the Hon'ble Supreme Court had reiterated the view held in Ahmedabad Municipal Corporation that ... merely because an order is purported to be made under a wrong provision of law, it does not become invalid so long as there is some other provision of law under which the order could be validly made. Mere recital of a wrong provision of law does not have the effect of invalidating an order which is otherwise within the power of the authority making it." She cited two more decision of the Hon'ble Suprem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n order was not in harmony with the findings recorded by the adjudicating officer. 15. I have carefully considered the submissions made on behalf of the parties and the material placed before me. The fact that the report under regulation 3(4) was filed with the Respondent involving a delay of 245 days is not in dispute. It is also not in dispute that the acquisition of shares by the Appellants in the Rights issue made by the target company enjoyed exemption in terms of regulation 3(1)(b) and as such in terms of chapter III of the Regulations, the Appellants were not required to make any public announcement offering to purchase shares from the public share holders and that the share holders' interest has not been adversely affected as a result of the belated filing of the report with the Respondent. It is also on record that the concerned stock exchanges and the Respondent were aware of the Rights issue and the fact that in the event of the failure on the part of the public share holders, the Appellants would be acquiring those shares. The Appellants have submitted that they were under the bonafide belief, based on the advice given to them by their Lead Managers/ legal adviser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al capital. The Appellants' version that they had acted on the basis of the advice given by the Lead Managers/legal adviser, remains unrebutted. Lead Manager is supposed to be an expert in the matters requiring compliance under the 1997 Regulations, and if the Appellants had gone by the advice given by the expert Lead Manager, they can not be blamed entirely. It is also noted that as a result of the acquisition of that portion of the shares which the other share holders did not opt to subscribe, there was no change in control or management of the target company. 17. Regulation 3(4) which the Appellants failed to comply with in the prescribed time limit is as follows: 3 (4) In respect of acquisition under clauses (a), (b), (c) (e) and (i) of sub section (1) the acquirer shall, within 21 days of the date of acquisition, submit a report along with supporting documents to the Board giving all details, in respect of acquisitions which (taken together with shares or voting rights if any, held by him or persons acting in concert with him) would entitle such person to exercise 15% or more of the voting rights in a company." 18. The acquisition of shares by the Appellants in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... within the time specified therefore in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues." (c) to maintain books of accounts or records, fails to maintain the same, he shall be liable to a penalty not exceeding ten thousand rupees for every day during which the failure continues. 21. On a perusal of the section it is clear that the legislature has identified distinct offences in the three sub clauses and different quantum of penalty for each such offence has also been prescribed. 22. As Shri Kapadia pointed out, the power to adjudicate flows in terms of the order passed by the Respondent for the purpose under section 15I. The adjudicating officer is not empowered to go beyond what he has been asked to adjudicate. In the instant case, it is noted from the order dated 20.3.2002 of the Respondent that "the adjudicating officer was appointed to inquire into and adjudge under clause (b) of section 15A of the Act the alleged contravention of sub-regulation 4 of regulation 3 of the 1997 Regulations." It is noted that the Board has the power to appoint adjudicating officer to adjudge th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under section 15A(a) but wrongly section 15A(b) was mentioned in the order. In my view it is not a case of wrong citation of the section, but a case of wrong reliance on an inapplicable provision. In fact this Tribunal in its order dated 10.11.2000 in HDFC's case had held that non compliance of regulation 3(4) attracts section 15A(a) and not section 15A(b) that for the reasons best known to the Respondent, it has opted to go contrary to the view held by the Tribunal in the said order, despite that the Tribunal's order is binding on the Respondent till such time the order is stayed or reversed by an Appellate Court. The facts in HDFC case have been stated in the said order. HDFC acquired 47,50,000 equity shares of ₹ 10 each at a price of ₹ 25/- per share, of one of its associate companies namely Hindustan Oil Exploration Company Limited ( the company). Since 47,50,000 shares constituted 10.92% of the paid capital of the company, in terms of regulation 3(4) of the 1997 Regulations. the said company was required to submit a report alongwith supporting documents to the Respondent within 21 days of the date of acquisition of shares. The report was inadvertently not s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... day during which failure to submit report continues". 26. In para 7.1 also the Adjudicating Officer has referred to section 15A(b) and stated that " As mentioned above, taking into consideration the above said factors and circumstances, the provisions of sections 15A(b) and 15I of the Securities and Exchange Board of India Act, 1992 I levy a total penalty of ₹ 1,50,000 on M/s. Housing Development Finance Corporation Ltd.,". 27. It is seen from the Respondent's reply to the appeal that it had re-iterated section 15A(b) as the penal provision applicable to the default under section 3(4) of the Regulations. In para 2 under "preliminary submissions" and paras 2,4 and 5 under the heading "Facts of the Case and Grounds of Appeal" of the reply, the Respondent had attempted to justify imposition of penalty provided under section 15A(b) of the Act. 28. Since the charge against the Appellant is its failure to comply with the requirements of regulation 3(4) and the penalty is imposed under section 15A(b) it is felt necessary to consider the legal provisions of the said regulation and the section. Regulation (3) enumerates certain acquisitions....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the then prevailing bench mark. 32. It is seen from the order mandating adjudication, the show cause notice issued to the Appellant in the adjudication, the observations/finding of the Adjudicating Officer and also from the reply filed by the Respondent that they had consciously and deliberately resorted to the provisions of clause(b) of section 15A. It was not a wrong labeling or mentioning of the wrong section. During the course of the arguments, I had asked the learned Representative of the Respondent to explain the reason for resorting to the provisions of clause(b) of section 15A, inspite of the clear provision under clause(a) providing penalty specifically for failure to submit report to the Board, in the context of the charge that the Appellant had failed to comply with the requirement of submitting the requisite report to the Board within the stipulated time as provided under sub regulation(4) of regulation 3. Learned Representative submitted that the default is covered under clause(b) and not under clause(a). Mr. Barua, explained that the expression " information" contained in clause(b) need be interpreted to include report as well because the report is also in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e been repeated in clause (b) also. If expression "information" referred to in clause(b) can be in a report form, as suggested by the Respondent, all the requirements of (a) are covered under (b) also. If the legislative intention had been to include reporting to the Board also in clause(b) specific provision under clause (a) for the same purpose with a different quantum of penalty would not have been provided in the Act. These two sub clauses are meant to meet different requirements. It is clear that clause(a) takes care of the matters to be exclusively dealt with the Board and clause(b) is to the exclusion of the Board. 35. The argument that clause (a) does not prescribe any time limit for compliance is incorrect. The opening words in the section that " if any person who is required under the Act or any rules or regulations made thereunder" should be read in conjunction with clause (a) and in that context it could be seen that every requirement referred in clause (a) is relatable to time limit. If the Respondent's argument that clause (a) does not prescribe any time limit is accepted, it would lead us to an absurd situation as there would be no referral p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the learned Representative, that it was a deliberate and conscious decision based on the Respondent's interpretation of the scope of the legal provision, clause (b) of section 15A of the Act was invoked instead of clause (a). 39. In the light of the legal position stated above, imposition of penalty on the Appellant under section 15A(b) is not legally tenable." 40. Since the Appellants' case is in no way materially different from the HDFC's case the view taken therein by this Tribunal is in equal force applicable to the present case. Imposition of penalty on the Appellants under section 15A(b) is not legally tenable in the instant case also. 41. On the question of imposition of penalty also this Tribunal had considered the legal position in several cases. Samrat Holdings' (supra) case is one among them. The facts of the said Samrat Holdings' case are as under: "Samrat Holdings Pvt. Ltd. a wholly owned subsidiary of another private limited company namely RDI Print & Publishing Pvt. Ltd.(RDI). RDI is a group company of Titan Industries Ltd (TIL). TIL and its associate companies held 1,15,00,000 equity shares accounting for 28.75% of the paid up cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 3 of the Regulations. One such exempted type of acquisitions is inter se transfer of shares amongst group companies. Even though the acquisitions exempted under regulation 3 are exempted from the purview of the substantive provisions like making public offer, etc. in the Regulations, the acquirer is required to inform the concerned stock exchange details of the proposed acquisition at least 4 working days in advance of the proposed acquisition in terms of regulation 3(3). In terms of regulation 3(4) the acquirer is also required within 21 days of the date of acquisition, submit a report alongwith supporting documents to the Board giving all details in respect of acquisition which would entitle him to exercise 10% or more of the voting rights in the target company. Object of these two sub-regulations are different. While reporting to the concerned stock exchanges under regulation 3(3) is meant to enlighten the investing public in their investment decision in the shares of the company, requirement under regulation 3(4) is meant to serve as an input to enable SEBI to ensure whether the acquisition is one enjoying exemption and if not, to follow up further course of action in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n factors to be taken into account by the Adjudicating Officer reads as under: " 15J .While adjudging quantum of penalty under section 15I, the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default". 46. In the case of Cabot International Capital Corporation Vs. Adjudicating Officer, SEBI (Appeal No. 24/2000 decided on 25.1.2001) this Tribunal considered the scope of section 15I and 15J in the context of unintentional failure on the part of the Appellant to comply with the requirement of regulation 3(4) and held: "On a perusal of section 15I it could be seen that imposition of penalty is linked to the subjective satisfaction of the Adjudicating Officer. The words in the section that "he may impose such penalty" is of considerable significance, especially in view of the guidelines provided by the legislature in section 15J. "The Adjudicating Officer shall have due regard....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... register itself as a dealer. The Appellate Assistant Commissioner confirmed the order of the Sales Tax officer. In second appeal the Tribunal agreed with the tax authorities and held that the Company was liable to pay tax on its turnover from bricks and cement and steel supplied to the contractors. The Tribunal however substantially reduced the penalty imposed upon the company". 49. The observation of the Court cited above was in answer to the question "whether the Tribunal is right in holding that the penalties under section 12(5) of the Act (Orissa Sales Tax Act, 1947) had been rightly levied?" 50. The facts of the present case are reasonably comparable with the case cited above. In the light of the clear observation of the Court as to when penalty for failure to carry out a statutory obligation could be imposed, it is to be seen as to whether the facts of the present case warranted penalty. The facts to be considered are whether there is anything to show that the Appellant acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. It is also to be seen that whether the breach flow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y against the Appellant in view of the facts and circumstances peculiar to this case, discussed in detail above. 54. It is not the case of the Respondent, that the Appellant had "acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation". 55. On the contrary, as the acquisition was reported to the stock exchanges and thereby the transparency requirement was fully met with, it is difficult to reasonably conclude that the Appellant had deliberately held back reporting under regulation 3(4). There is no reason to disbelieve , in the absence of clinching evidence to show otherwise, the Appellant's version that failure was a genuine lapse, as is evident from its conduct of submitting the report suo moto. Belated reporting has neither resulted in any gain to the Appellant nor caused any loss to anybody. The Adjudicating Officer has also endorsed the same view as is evident from his own words. 56. He has stated in para 6.4.5.3 as under: 6.4.5.3: "................................ The fact of non submission of a report/return within the specified time period, irrespective of Mens rea o....