TaxTMI 
TaxTMI 
2001 (8) TMI 1447
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.... the first time in the year 1997. In the light of the said information, the SEBI decided to enquire into the matter, mainly with a view to ascertain the extent of compliance of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Regulations) by the appellant. 3. As per further details collected by the SEBI, it was noticed that as on 20-1-1997 the appellant acquired 3,87,540 shares by way of pledge from the borrower. 3,87,540 shares constitute 8.2 per cent of the paid up capital of APL. Subsequently on 14-5-1997 the appellant acquired 3,80,040 shares more, again by way of pledge. As a result thereof total holding of the appellant rose to 7,67,580 shares in APL (16.24 per cent of the paid up capital). In this context the SEBI prima facie felt that the said acquisition of shares attracted the provisions of regulation 10 and decided to appoint an Adjudicating Officer to enquire into the alleged contravention of the regulation read with section 15H of the Securities and Exchange Board of India Act, 1992 ('the Act') and impose monetary penalty if considered necessary. 4. The Adjudicating Offic....
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....ot provide for vesting the legal ownership of the property in the pledgee, it is considered only as a security for payment of debt and the ownership of the goods pledged continue to remain with the debtor and the loan agreements in the instant case provide only for the acquisition of shares for recovery of loan in the event of the borrower committing default. According to him acquisition of shares is therefore, contingent upon default and this contingency is entirely outside the control of the appellant. For an agreement to acquire shares to fall within the meaning of regulation 2(1)(b) it is necessary for the acquirer to have the unfettered right to acquire the shares and such right exercisable at his option. In a pledge, as in the instant case, the acquisition, if any, can only occur if the appellant chooses to exercise its option to acquire shares on the happening of default and takes necessary steps for such acquisition. In this context the learned representative cited the following cases: (1) Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp. Cas. 563 (SC), therein the Supreme Court had held that the pledgee cannot be treated as the holder of the shares pledged in his f....
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....ompliance of the requirements stipulated therein. 10. Shri Cidambi countered the respondent's version that all those pledges which are not exempted vide regulation 3(1)(f)(iv) are covered under regulation 10, stating that in view of section 172 of the Indian Contract Act, the same being the substantive law governing pledge, no specific exemption is required to keep pledge of shares out of the purview of regulation 10 etc. He said in certain cases even in a pledge the shares held by the pledgee may be registered in its name if the agreement between the parties provides for the same and regulation 3(1)(f)(iv) is meant to take care of such extraordinary cases. 11. Referring to the respondent's version that the appellant had not filed any statement in terms of 187C of the Act, in respect of the shares held by it, Shri Cidambi submitted that the said section is applicable to benami holding and the appellant being not a benamidar there was no need to file any returns under the said section. 12. The learned representative submitted that the appellant has not violated the provisions of regulation 10 and that in any case imposition of penalty was not warranted in this case,....
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.... later date. 15. The learned representative stated that as per the clear provisions of the regulation it can be safely concluded that the instant transaction was an acquisition. He stated that regulation 3(1)(f) expressly excludes acquisition of shares in the ordinary course by banks and public financial institutions as pledgees, that this limited exclusion clearly confirms that acquisition of shares by way of pledge by persons other than banks and public financial institutions is to be considered as acquisition for the purpose of the regulation, that if transferor pledged shares, as a class was to be excluded or exempt from the purview of the regulations, no exemption would have been specifically carved out for banks and public financial institutions. According to him the limited exclusion in regulation 3(1)(f) therefore clearly confirms that acquisition of shares by way of pledge by persons other than banks and public financial institutions will come under the purview of the regulation. Shri Barua submitted that if the appellant's version that transfer of shares during the subsistence of pledge should not be treated as acquisition for the purpose of the regulation is accep....
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....y is against the maximum penalty of Rs. 5 lakhs provided in section 15H(ii) that the Adjudicating Officer has viewed the matter leniently and arrived at a lesser amount, after taking into consideration all the relevant factors. He submitted that therefore, there was no need to reduce the quantum of penalty. 19. I find that the facts are not in dispute in this case. The appellant had received 7,67,580 shares of APL (16.24 per cent) by pledge against loan given by it to the directors of the said company. Out of the said shares, 3,32,540 (7.037 per cent) shares were transferred in the name of the appellant and the remaining 4,35,040 (9.207 per cent) shares though handed over to the appellant, continued to remain in the name of the borrowers on the register of members of APL. It is also seen that the entire shares so received as security against the loan were returned to the borrowers by 25-9-1998 on repayment of the loan amount. 20. In the context of the admitted fact that the acquisition was in the context of shares pledged with the appellant and that total shares involved constituted 16.24 per cent of the paid up capital of APL, the only question that is to be considered is th....
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....with the Regulations'. [Emphasis supplied] 23. On a perusal of regulation 2(1)(6) it is clear that a person is an acquirer who acquires or agrees to acquire shares or voting rights/control in the target company. The mode of acquisition of shares or the purpose of acquisition is of not much significance to identify the acquirer. As has been held in the case of Joshi Jayantilal v. State of Gujarat AIR 1962 Guj, 297 and as per the Blacks Law Dictionary acquisition is the act of becoming the owner of certain property, the act by which one acquires or procures the property in any thing. In this context it is to be noted that the act of acquisition of shares or voting rights by itself will not attract the provisions of regulation 10, though the person who acquired the shares or voting rights may fall within the definition of the expression 'acquirer'. Each and every acquisition by an acquirer need not necessarily attract the provisions of regulation 10. What attracts the regulation is the acquisition of shares/voting rights which will entitle the person acquiring the shares to exercise voting rights beyond certain limits specifically provided in the regulation, say ten ....
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....saction still remains a transaction of pledge. Mere receipt of share certificates alongwith blank transfer forms will not give to the pledgee any right, title or interest in the shares. The right, title and interest and ownership of the shares will continue in the pledger. The only right which the pledgee will have will be on non-payment to have the shares sold after notice. Such sale can only take place after a notice to the pledger. This is one instance where, even though blank transfer forms have been handed over alongwith share certificates, there is still no transfer of ownership. Another instance may be where the shares alongwith blank transfer forms are kept as security towards repayment of a debt. If they are merely kept as security, then again by such deposit no right is created in favour of the creditor. It is only after the agreed time of repayment is over that the security can be enforced and it is only at that stage that the creditor gets a right to fill in his name in the transfer forms and get his name transposed in the records of the company. 27. In the instant case it is seen that 3,32,540 shares (7.04 per cent) were transferred in the name of the appellant and ....
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....en percent or more of the voting rights in a company, then only the regulation would be attracted. It is not the manner in which the shares are acquired. It is the effect that triggers action. If the acquisition has no impact on the voting rights, regulation is not attracted. In the light of the factual position discussed above, the appellant had not become entitled to exercise voting rights in the company over and above the said limit for the reason that its holding of 4,35,040 shares was not registered in the company's register of members in its name. Therefore, the regulation cannot be said to attract in this case. The respondent's apprehension that if 'pledge' is not treated as acquisition, it would negate the purpose of the regulation is baseless as a 'mere pledge' as such does not affect the management or control of the company. It will not even affect the market quotation as the pledged shares are kept on hold and not traded in the market. Change in possession of share certificates by itself, without transferring attendant rights, will not affect the ownership or management control of a company. The moment those shares are registered in the company....