TaxTMI 
TaxTMI 
2016 (11) TMI 1643
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.... window of its scrip closed during the period when UPSI was in force and whether this enabled some of the PromoterDirectors and some other entities to share the UPSI with other entities and/or trade in the shares of Shelter Infra Projects Ltd. ('Shelter Infra' for short) thereby violating relevant provisions of securities laws. 2. Through these 5 Appeals, 4 adjudication orders, all of them dated 7th March, 2014, issued by the Adjudicating Officer ("AO" for short) of Securities and Exchange Board of India ("SEBI" for short) are impugned before us. Appeal No.121 of 2014 is filed challenging the adjudication order passed against the company - Shelter Infra, whereby it was held that the appellant had violated clause 22(d) of the Listing Agreement and Regulation 12(2) read with Clause 2.1 of Schedule II of the PIT Regulations. Accordingly, penalty of Rs. 50 lakh under Section 15HB of the Securities and Exchange Board of India Act, 1992 (for short "SEBI Act") and penalty of Rs. 50 lakh under Section 23A(a) of SCRA for violation of the Listing Agreement has been imposed. 3. Appeal Nos. 120 & 128 of 2014 are filed against the order of the AO of SEBI passed against 8 entities for violat....
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....st 20% of the shares from public shareholders. 8. The investigation further found that the appellant company did not close the trading window during the period when the SPA was being negotiated. This enabled some of the promoter directors and other entities to trade in the scrip during the UPSI period taking advantage of the UPSI. It was also held that one of the Directors of Shelter Infra shared the UPSI with certain other entities who traded in the scrip while possessing the UPSI. 9. The SPA was placed before the meeting of the board of directors held on 30.07.2009 and signed on 31.07.2009. The information that the board approved the SPA had to be disclosed to the stock exchange within 15 minutes of the conclusion of the board meeting and the announcement relating to the public offer had to be made within 4 working days of signing the SPA. The investigation found that the disclosure to the stock exchange has never been made while the public announcement was made one day beyond the permissible limit of 4 days. 10. It is on record that the former promoters of Shelter Infra namely Shri Chirantan Mukherji, Shri Asamanja Mitra and Shri Mahiruha Mukherji had resigned from Shelter....
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.... wherein maximum of Rs. 1 crore is imposable for late disclosure of the board's decision, Rs. 50 lakh has been imposed which is very high because there is only one day's delay. Similarly, under Section 23A(a) of the Securities Contracts (Regulation) Act, 1956 ('SCRA' for short), the penalty for delay of everyday is only Rs. 1 lakh while the maximum is Rs. 1 crore and in the instant matter the delay was only 7 days and as such penalty should have been only Rs. 7 lakh instead of Rs. 50 lakh imposed. The learned Counsel for the appellant relied on certain other orders such as M/s. Oregon Commercial Ltd. (SEBI order dated 30.08.2011), Order dated 20.03.2013 passed by this Tribunal in the matter of Sunday Exports Ltd. vs SEBI, SEBI order dated 26.09.2014 in respect of M/s. Surana Industries Ltd. and SEBI order dated 03.10.2016 in the case of Piramal Enterprises Ltd. and cited that in similar situations the penalty imposed has been much lower than imposed by the impugned order in the instant matter. 14. Shri Shyam Mehta, learned Senior Counsel for the Respondent argued that the period of existence of UPSI is much longer. Taking into account the replies given by various entities befor....
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....pellant being "an insider" attracts provisions of the PIT Regulations that during the existence of UPSI no insider can deal in the securities of the company. 18. Mr. P.N. Modi, the learned Senior Counsel for the appellant extensively argued the matter. It was argued that the appellant is a senior citizen even during the investigation period and has never traded in the securities market on her own. Whatever trading in her name was being done by her husband and in the instant case it is admitted that 5000 shares of "Shelter Infra" was bought in the appellant's name. It is, however, argued that she was not privy to insider information nor any existence of UPSI nor traded on her behalf. It is also on record that 5000 shares bought in the name of the appellant was not sold during the period of the public offer or even thereafter and as such even if there was UPSI in existence, there was no motive to take advantage of that information and profiteering during the public offer period (when shares were bought at Rs. 80/-). Since the appellant never sold off her shares, she did not benefit in any manner. 19. It is not in dispute that the appellant is connected to the Chairman and Promote....
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....e. the husband of the appellant could not join the investigation to prove their innocence. As the appellant's husband was a cancer patient, his replies were also not made with complete focus of mind and he had to take the help of the former Compliance Officer who left the company several years ago. 21. It was further argued that the crux of the question is the trigger date of the UPSI. In the impugned order, the AO of SEBI has erred completely and came to an arbitrary date of 21st May 2009 while no Noticee from the target company's side has given any such date during their evidence before the respondent-SEBI. It is only from the email dated 22nd March, 2012 from Mr. Baid sent to SEBI, while responding to the information sought by SEBI, it was stated that the first draft of the SPA was forwarded by him to the acquirer group on or around 28th May, 2009 but even here it was stated that the draft SPA was sent to the acquirer group only. This was also not fully corroborated by the submission made by the RPL before SEBI that they asked Mr. Baid to prepare the draft SPA only in June, 2009. Therefore, even the date indicated by Mr. Baid in his submission to SEBI is not exactly correct. I....
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....nalty of Rs. 1 crore has been imposed against the appellant under Section 15G of the SEBI Act for violating Regulations 3(i), 3(ii) and 4 of the PIT Regulations. The impugned order held that the appellant as Director of Shelter Infra and a close associate of the Parekh Group (7 others held guilty by the said impugned order) was privy to the UPSI relating to Shelter Infra and passed on the same to the Parekh group entities. It is on record that the appellant had been a Director of Shelter Infra from February, 2008 to August, 2012 and a Director of RPL from July, 2009 to June, 2014; the target company and acquirer company, respectively. 24. It was argued by Shri Deepak Dhane, learned Counsel for the appellant that the appellant was not present in the board meetings of Shelter Infra when the SPA was discussed and since the notice of the meeting did not even indicate SPA as an agenda item, he was not aware of any SPA (it was taken up under "other items"). It was further argued that he had only business dealings with Parekh family just like his business dealings with several others and since he has not disclosed this information to anybody else there was no reason for him to disclose ....
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....ed through totality of circumstantial evidences. In the present case the appellant was a close business associate of Parekh Group entities for several years, he was in the board of the target company as well as acquiring company, he cannot be claiming ignorance about the existence of the SPA and the consequent UPSI just by claiming that he did not attend the meeting of the board of directors of the target company. All these altogether prove that he was aware of the UPSI and provided that information to be used by Parekh Group entities to trade in and benefit from UPSI. APPEAL NO.120 OF 2014 26. 7 appellants in this appeal are investors (together called the Parekh Group) who traded in the scrip of Shelter Infra during the investigation period. The impugned order dated 7th March, 2014 held that they have violated Regulation 3(ii) of the PIT Regulations since they were privy to the UPSI relating to the scrip of Shelter Infra passed on by another noticee in the same impugned order (Shanti Ranjan Paul - Appellant in Appeal No.128 of 2014)) and imposed a penalty of Rs. 2 Crore jointly and severally under Section 15G of the SEBI Act. 27. Mr. S.K. Jain, learned Counsel for the appell....
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....n Paul and Parekh Group entities became insider under Regulation 2(e)(ii) because of all the evidences taken together. APPEAL NO.143 OF 2014 30. Appellant No.1 in this appeal had been a whole time director of Shelter Infra during the investigation period and appellant no.2 is his son, as such admittedly both are insiders. Admittedly, both have traded during the period of UPSI. Accordingly vide the impugned order dated 7th March, 2014 a penalty of Rs. 10 lakh under Section 15HB of the SEBI Act andRs. 20 lakh under Section 15 G of SEBI Act has been imposed on appellant no.1 and a penalty of Rs. 20 lakh under Section 15G of SEBI Act was imposed on appellant no.2. 31. The learned Counsel for the appellant, Mr. Santanu, argued that the appellants were never in possession of the UPSI and in their statement they expressed their ignorance stating that the UPSI could be in existence only 2-3 days prior to the signing of the SPA. Appellant no.1 though a whole time director of Shelter Infra was not involved in any negotiation on the SPA issue, rather he had authorized the Chairman of Shelter Infra to negotiate on any matter regarding sale of shares he held in Shelter Infra. The appellan....
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....ch he held since April, 2009 during the open offer. Therefore, he sold more shares in the open offer and benefitted from the UPSI than the quantity he bought and sold in July, 2009 prior to the open offer. All these evidence point out that appellant no.1 as a whole time director of Shelter Infra has indulged in insider trading and abetted such trading of his son who is appellant no.2. Therefore, the penalty imposed to the tune of Rs. 30 lakh on appellant no.1 for two violations and Rs. 20 lakh on appellant no.2 for one violation cannot be faulted. 33. Having heard all the Counsel for both sides, we do not find merit in the contentions of the learned Counsel for appellants that the UPSI came into existence only on 30th July, 2009 when board meeting was held or 2-3 days prior thereto. Although the AO of SEBI has held that the UPSI came into existence on 21st May, 2009 based on email dated 22/3/2012, it is on record that a draft of the SPA was prepared and shared with the director of the target company by the consultant - Mr. Baid - on June 20, 2009. In the said letter, it is specifically recorded that in the meeting held on 19/6/2009, Mr. Chirantan Mukherji desired that the takeove....
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....liable. We see no merit in the above contention. It is the overall responsibility of the company and the board of directors to ensure that the Code of Conduct is followed in letter and spirit. In our opinion, the AO was not justified in holding the Compliance Officer alone was responsible for closing the trading window and disclosing the Board resolution to the Stock Exchange. Therefore, fact that the AO has erroneously held that the directors are not liable cannot be a ground to hold that the company must also escape penal liability for failing to close the trading window during the existence of UPSI and failing to make disclosures to the Stock Exchange within the stipulated time. 35. However, argument of the Counsel for the company that penalty of Rs. 50 lakh imposed under Section 23A(a) of SCRA is unreasonably excessive deserves acceptance. According to the Counsel for the appellant, there was only delay of 7 days i.e. from 30th July, 2009 to 7th August, 2009 when public announcement relating to the public offer was made. Though, the learned Senior Counsel for the respondent has stated that the public announcement cannot be treated as disclosure, in the peculiar facts of prese....
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....s the acquirer company, the appellant cannot take shelter by alleging ignorance that just because he did not attend the two meetings of the Board of the target company held prior to the signing of the SPA, he was not privy to the information. Not attending the two meetings of the board of directors of the target company when rules permitted him to attend the same, without assigning any reason itself shows that the appellant was privy to the UPSI and therefore the appellant chose not to attend the meetings. It is also on record that in the summary of responses to the show-cause notice, the appellant had stated that April/May, 2009 as the period when the deal was finalized and that no advance payments were made. The appellant's close association with the Parekh Group is established in the impugned order by recording that the appellant was a business partner and having other financial dealings with the Parekh Group and that the said group entered into trading in the scrip of Shelter Infra for the first time during the prevalence of the UPSI are all sufficient circumstantial evidence to prove that the appellant in Appeal No.128 of 2014 was privy to the UPSI and had shared the same with....