TaxTMI 
TaxTMI 
2023 (8) TMI 202
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....7th April, 2021 passed by the Adjudicating Officer imposing a penalty of Rs. 25 crores to be paid jointly and severally by the appellants under Section 15H of the Securities and Exchange Board of India Act 1992 (hereinafter referred to as the 'SEBI Act') for violation of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the 'SAST Regulations). 2. The facts leading to the filing of the present appeal is, that on 10th December, 1992 the shareholders of Reliance Industries Ltd. (hereinafter referred to as 'RIL') a listed public Company approved the issuance of Non-Convertible Secured Redeemable Debentures ('NCDs' for short) with warrants. On 12th January, 1994, Reliance allotted 6 crore NCDs of Rs. 50 each to 34 entities for Rs. 300 crores alongwith 3 crore detachable warrants. These allottees/34 entities/warrant holders were entitled to receive two equity shares of Reliance against each warrant upon payment of Rs.150 per equity shares within a period of six years. These warrants were tradeable on the stock exchange platform and were disclosed to the Stock Exchange in 1994. ....
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....hares, acquisition of 7.76% shares was exempt as it was acquired pursuant to a merger which was exempted under the 1997 SAST Regulations. 4.3 Notwithstanding the fact that the 1997 SAST Regulations were not in force when the Warrants were issued to the Noticees in January 1994, the Show Cause Notice alleges that the acquisition of 6.83% shares in RIL pursuant to exercise of Warrants ("Warrant Shares"), was in excess of the prescribed thresholds under Regulation 11(1) of the 1997 SAST Regulations, triggering a requirement for making a public announcement for the shares of RIL under the 1997 SAST Regulations. As the Noticees failed to make a public announcement, the Show Cause Notice alleges that the Noticees have contravened Regulation 11(1) of the 1997 SAST Regulations." 7. The Adjudicating Officer after considering the replies and the oral and written submissions and after considering the evidence that was brought on record passed the impugned order imposing a penalty of Rs. 25 crores upon the appellants for violation of Regulation 11(1) of the SAST Regulations. 8. The AO held that the promoters of Reliance and persons acting in concert acquired the shares and votin....
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....e not subject to delay and, therefore, delay if any on the part of SEBI was of no consequence where public interest outweighs the requirement of adjudication. On this basis, the AO rejected the plea of delay and laches raised by the appellants. 12. The AO further found that the appellants are not entitled for the exemption under Regulation 3(1)(c) from making a public announcement for an open offer since the procedure specified in Regulation 3(1)(c) was not followed nor complied by the appellants and, therefore, they are not entitled to avail the exemption for making a public announcement or an open offer under Regulation 11(1) of the SAST Regulations. 13. We have heard Mr. Harish Salve, Senior Advocate assisted by Mr. Somasekhar Sundaresan, Mr. Raghav Shankar, Mr. Ashwath Rau, Mr. Vivek Shetty, Ms. Ramya Suresh, Ms. Cheryl Fernandes, Ms. Praneeta Ragji and Mr. Dhaval Vora, Advocates and Mr. Amey Nabar, Advocate for the appellants and Mr. Arvind Datar, Senior Advocate assisted by Mr. Shiraz Rustomjee, Senior Advocate, Mr. Suraj Chaudhary, Mr. Prateek Pai, Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates for the respondent. 14. Shri Harish Salve, learned se....
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.... includes any security which would entitle the holder to receive shares with voting rights as defined under Regulation 2(1)(k). The learned senior counsel urged that there cannot be any dispute that warrant is a security which entitles the holder to receive shares with voting rights. According to Shri Salve, the 'warrant' is a share for the purpose of Regulation 11(1) of the SAST Regulations. The learned senior counsel further urged that under Regulation 11(1) of the SAST Regulations, an obligation to make an open offer is triggered at the time of acquisition of warrants since warrants is a security which entitles the holder to receive shares with voting rights entitling him to exercise voting rights on such shares. According to Shri Salve, the obligation would have triggered on 12th January, 1994 if the SAST Regulations as they existed on 7th January, 2000 were existing on 12th January, 1994. 18. The learned senior counsel thus contended that the plain language of Regulation 11 of the SAST Regulations makes it clear that it is not the acquisition of voting rights which triggers the obligation to make an open offer under Regulation 11(1) of the SAST Regulations and that the obli....
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....of such shares including warrants post 20th February, 1997. 22. Shri Salve contended that the AO has committed an error in not analyzing the term 'shares' as defined under Regulation 2(1)(k) of the SAST Regulations nor has considered the issue as to whether the SAST Regulations were applicable to the warrants acquired by the acquirers in January, 1994. It was urged that the right to receive the shares with voting rights with the conversion of warrants was crystallized on 12th January, 1994 at which point there was no SAST Regulations in force. These aspects has not been considered by the AO in the impugned order. 23. In support of his contention, the learned senior counsel relied upon a decision in Mr. M. Srinivasalu Reddy v. Kishore R. Chabbariya (1999) SCC Online Bom. 902 and contended that the said decision is squarely applicable on the facts and circumstances which arises in the present appeal. The Bombay High Court held that the obligation to make an open offer was not triggered at the time of conversion of the security. Relying upon the said decision the learned senior counsel contended that the SAST Regulations has no retrospective application and that the trigger to m....
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....of his submissions, the learned senior counsel placed reliance on the following judgments: 1. Ashok Shivlal Rupani v. SEBI, 2019 SCC OnLine SAT 169. 2. Sanjay Jethalal Soni v. SEBI, 2019 SCC OnLine SAT 247. 3. Rakesh Kathotia v. SEBI, 2019 SCC OnLine SAT 74. 4. Shriram Insight Share Brokers Ltd. v. SEBI, SAT order dated 04.01.2020 in Appeal No. 559 of 2020. 5. Ashlesh Gunwantbhai Shah v. SEBI, Appeal No. 169 of 2019 decided on 31.1.2020. 6. Anil Kumar Harchandani v. SEBI, Appeal No. 75 of 2019 decided on 5.12.2019. 7. ICICI Bank v. SEBI, Appeal No. 583 of 2019 decided on 8.7.2020. 8. Rajiv Banot v. SEBI, Appeal No. 369 of 2018 decided on 9.7.2021. 28. The learned senior counsel thus contended that the impugned order is manifestly erroneous in law and was liable to be set aside. 29. Shri Dattar, the learned senior counsel for the respondent submitted that the following issues arise for consideration, namely, (i) Whether the SAST Regulations are retrospective in their application? (ii) Whether the acquisition prior to the coming into force of the 1994 and SAST Regulations of warrants entit....
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....r voting rights entitling him to exercise more than 5% of the voting rights in any financial year ending on 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. It was urged that there is no dispute that the appellants, namely the promoters and the PACs were holding more than 15% and less than 55% in the Company in January, 2000 and that upon the conversion of the warrants into shares in January, 2000 the appellants acquired 6.83% voting rights. 34. It was contended that the issuance of detachable warrants in January, 1994 with an option to acquire shares within six years did not amount to acquisition of additional shares or acquisition of voting rights in 1994 and that the triggering event took place only in 2000 when the SAST Regulations was already in force. Consequently, when warrants were converted into shares in January, 2000, it triggered the obligation to make an open offer under Regulation 11(1) under the SAST Regulations. It was, thus, contended that the SAST Regulations was not being applied retrospectively. 35. Shri Dattar, learned senior counsel submitted that the SAST Regulations of 1994 applied to ac....
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.... therefore, the warrants is not an agreement to acquire shares. According to the learned counsel, an agreement to acquire shares is one when both the seller and the buyer have the obligation to deliver and purchase the shares respectively and, in the event of non-performance by either of them, the other parties can enforce a specific performance. 39. In view of the aforesaid, it was urged that Regulation 11(1) is not applicable to an option to acquire shares at a later date. Regulation 11(1) applies only when the acquirer has actually acquired the additional shares or voting rights which entitles him to exercise more than the prescribed percentage of votes. 40. It was, thus, urged that the exercise of option and the allotment of shares in January, 2000, was not a ministerial act. In support of his submission, the learned counsel placed reliance upon a decision in Jamal uddin Ahmad vs. Abu Saleh Najamuddin (2003) 4 SCC 257 which illustrated the essential features of a ministerial act as under: "A 'ministerial act', on the other hand, may be defined to be one, which a person performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a le....
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....v. SEBI, decided on 20.07.2022 (vii) Bhagwati Committee Report (1997) (viii) SEBI v Rahkumar Nagpal, 2022 SCC Online 1119 (ix) Kingfisher Airlines Limited v. Competition Commission, 2010 SCC Online Bom 2186 (para 10 and 12)." 45. Shri Dattar, learned senior counsel also argued that the conversion of warrants into shares in January, 2020 triggered the obligation to make an open offer. Since the open offer was not made the appellants violated Regulation 11(1) which will continue 'de die in diem'. 46. It was urged that since it was a continuing offence the penalty was rightly levied under the amended 15H of SEBI Act. In support of his submission, the learned counsel has placed reliance upon the following decisions. (i) "Bhagirath Kanoria v. State of M.P. (1984) 4 SCC 222, (ii) Adjudicating Officer, SEBI v. Bhavesh Pabari (2019) 5 SCC 90 (iii) Maya Rani Punj v. CIT (1986) 1 SCC 445 (iv) CWT v. Trustees of Sahebzadas of Saraf-E-Khas Trust (1997) 3 SCC 481 (v) Mohan Lal v. State of Rajasthan, (2015) 6 SCC 222 (vi) RIL v. SEBI, decided on 05.08.22 para 40" 47. Shri Dattar contended that there is no i....
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....curities or at the time of conversion of such convertible securities into shares carrying voting rights. (b) Whether the SAST Regulations will apply to warrants which have been acquired on January 12, 1994 and such warrants were converted into equity shares carrying voting rights on January 7, 2000. (c) Whether the acquisition of warrants by person acting in concert constitutes an agreement to acquire shares carrying voting rights. (d) Whether the obligation to make a public announcement for an open offer under Regulation 11(1) of the SAST Regulations is at the time of conversion of warrants into equity shares which warrants were acquired in January 1994 and is, therefore, a retrospective application or a retroactive application of the SAST Regulations. (e) Whether the impugned proceedings are barred by limitation, delay or laches. (f) Whether the violation of Regulation 11(1) is continuing violation and, therefore, monetary penalty under the amended Section 15H of the SEBI Act could be imposed. 51. Before we deal with the rival submissions, it would be appropriate to consider certain provisions of the SAST Regulations which are extra....
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....or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein: (2) In case of an acquirer acquiring securities, including Global Depositories Receipts or American Depository Receipts which, when taken together with the voting rights, if any already held by him or persons acting in concert with him, would entitle him to voting rights, exceeding the percentage specified in Regulation 10 or Regulation 11, the public announcement referred to in sub-regulation (1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be. (3) The public announcement referred to in Regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer." Section 2(h) of the SCRA "(h) "securities" include- (i) shares....
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....on as to whether the SAST Regulations has retrospective application to an acquisition of warrants on 12th January, 1994 and whether such requisition of warrant made in 1994 when converted on 7th January, 2000 triggers the requirement to make an open offer under Regulation 11(1), it is necessary to understand the purpose, objective, intent and scope of the SAST Regulations. 56. One of the functions of SEBI under Section 11(2)(h) is regulating substantial acquisition of shares and takeover of companies. For this purpose, SEBI has notified the SAST Regulations. These Regulations provide certain ground rules to be followed by the parties in matters relating to substantial acquisition of shares and takeovers of the companies. The objective of the Regulations is to provide an orderly framework within which the process of substantial acquisition of shares could be conducted. The Bhagwati Commission report clearly stated that the Regulations for substantial acquisition of shares and takeover should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeover and that the Regulations should ensure that such proce....
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.... the obligation for an acquirer to make a public announcement for an open offer. 62. Regulation 2(1)(k) defines 'shares' which includes any security which would entitle the holder to receive shares with voting rights. Section 2(h) of SCRA Act defines "securities" which amongst others includes debenture warrants. Thus, shares includes warrants. 63. Regulation 11(1) contemplates acquisition of shares or voting rights. It does not contemplate shares and voting rights. Therefore there can be a situation where an acquirer acquires shares or agrees to acquire shares which includes bonds, warrants, etc., and which may or may not carry voting rights. Thus, if the acquirer acquires shares which includes warrants beyond a percentage specified in Regulation 11, then it triggers an obligation to make an open offer. The contention that acquisition of warrants does not trigger the obligation to make an open offer under Regulation 11 as the warrants does not carry any voting rights is misconceived. Further, the contention that such obligation is triggered only when the warrants are converted into equity shares carrying voting rights is also erroneous. A plain reading of Regulation 2(1)(k) m....
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....erpreted on that premise. The maxim "ut res magis valeat quam pereat" is wholly applicable, namely, that it is a cardinal principle rule of construction that normally no word or provision should be considered redundant or superfluous while interpreting the provisions of the statute. Thus, the contention of the respondent that the words "includes any security which would entitle the holder to receive shares with voting rights" as provided in the definition of the word "shares" cannot be accepted. 69. For the same reasons, the contention of the respondent that the words "entitling him to exercise more than 5% of the voting rights" means security which is acquired should carry voting rights which upon acquiring should immediately entitle the acquirer to exercise voting rights is erroneous. The contention that mere acquisition of securities which would confer voting rights at a later date cannot trigger the requirement to make a public announcement at the point of acquisition is erroneous and is against a bare reading of Regulation 2(1)(k) read with Regulation 2(1)(b) and Regulation 11(1). The contention that the SAST Regulations would be attracted only at the point when voting righ....
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.... make an open offer upon the acquisition or agreement to acquire shares carrying voting rights or securities which entitles the holder to receive shares with voting rights such as warrants and other convertible debentures or voting rights. Regulation 14 prescribes the timing of the open offer so triggered by Regulation 11(1). Regulation 14(1) prescribes that the open offer should be made within four working days of the agreement to acquire shares or decision to acquire shares carrying voting rights or securities which would entitle the holder to receive shares with voting rights such as warrants etc. or voting rights alone. 74. On the other hand, Regulation 14(2) starts with the words 'in the case of an acquirer acquiring securities...........". Regulation 14(2), thus, carves out an exception to Regulation 14(1). Regulation 14(2) contains the words "the public announcement referred to in sub-regulation (1)". Regulation 14(1) refers to the public announcement referred to in Regulation 11. Accordingly, the public announcement referred to in Regulation 14(2) is the one triggered under Regulation 11(1) and, therefore, there can be no other meaning attached to it. Regulation 14(2) pr....
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....i Committee report is misplaced. In our opinion, the recommendation of the Bhagwati Committee report was not incorporated in the SAST Regulations. In fact, the Bhagwati Committee report was implemented only in the 2011 SAST Regulations. The term 'shares' as defined under Regulation 2(v) of 2011 SAST Regulations is as under: "2(v) 'shares' means shares in the equity share capital of a target company carrying voting rights, and includes any security which entitles the holder thereof to exercise voting rights; Explanation.-For the purpose of this clause shares will include all depository receipts carrying an entitlement to exercise voting rights in the target company;" 79. Regulations 3(2) of the 2011 SAST Regulations is also extracted hereunder: Substantial acquisition of shares or voting rights. "3(2) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire wi....
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....egulation and, consequently, there was an obligation to make a public announcement. On the other hand, the 2011 SAST Regulations defines 'shares' to mean only securities carrying voting rights and, therefore, the obligation to make a public announcement is triggered only when voting rights are acquired or agreed to be acquired. The comparison between the SAST Regulations and the 2011 SAST Regulations is only to drive home the point that what was contemplated in the Bhagwati Committee report, namely, that in the case of convertible debentures, open offer should only be triggered at the time of conversion was only implemented in the 2011 SAST Regulations. The triggering of the public announcement to make an open offer is distinct and different under the SAST Regulations and in the 2011 Regulations. The contention of the respondent that under the SAST Regulations and the 2011 Regulations the obligation to make the open offer is triggered only at the time of acquisition of securities carrying voting rights is incorrect and cannot be accepted. 82. Words in a statute as defined should be used to interpret the Act unless such interpretation results in an absurdity. The Supreme Court in....
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.... nonetheless, the open offer was triggered. Before the Supreme Court, SEBI sought to apply the principle of individual shareholding breaching the threshold as a trigger for the open offer in a case under Regulation 10 under the SAST Regulations though this provision, namely, Regulation 3(3) of the 2011 SAST Regulations was absent in the SAST Regulations. SEBI nonetheless attempted to do this by contending that the term 'acquirer' used in Regulation 10 should be read not as defined under Regulation 2(1)(b) but to mean only an 'individual'. This contention of SEBI, namely, that what was implemented in the SAST Regulations was made explicit in 2011 SAST Regulations was squarely rejected by the Supreme Court. 85. Similarly SEBI is contending in the instant appeal that the term 'shares' in Regulation 11(1) should be considered in the ordinary sense and not as per the term 'shares' defined under Regulation 2(1)(k). The contention of SEBI that the obligation to make an open offer is triggered at the time of acquisition of voting rights under SAST Regulations as well as under the 2011 SAST Regulations is patently erroneous. It is only the 2011 SAST Regulations which has shifted the trig....
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....as issued on 14th March, 2000 to this effect. This offer was subject to various conditions. Castrol India Ltd., was a subsidiary of Burmah Castrol Plc. The acquisition of Burmah Castrol Plc. by BP Amoco Plc would result in BP Amoco Plc. acquiring control over Castrol India Ltd. in terms of Regulation 12 of the SAST Regulations. BP Amoco Plc. completed the acquisition of Burmah Castrol Plc. on 7th July, 2000. The question which arose for consideration was whether 14th March, 2000 or 7th July, 2000 triggered the date for the public announcement to the shareholders of Castrol India Ltd. 89. The contention of BP Amoco Plc., was that there was no agreement to acquire the shares of Castrol India Ltd. on 14th March, 2000 and that only an offer to the shareholders were made on that date and that there was no express decision to acquire Burmah Castrol Plc. The said contention was rejected by this Tribunal holding that the announcement made by BP Amoco Plc. on 14th March, 2000 was a decision to acquire Burmah Castrol Plc. and hence the trigger for public announcement arose on 14th March, 2000. This Tribunal held: "On a perusal of regulation 14 it is clear that a public announceme....
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....by SEBI in the case of B.P. Jhunjhunwala and Ors., (2019) SCC Online SEBI 338, in the matter of requisition of shares of First Financial Services Ltd., holding that the agreement/decision/intention to acquire shares and control of the target company by the acquirers triggers the open offer requirement under Regulations 10 and 12 of the SAST Regulations respectively. We are of the view that it is no longer open for the respondent to take inconsistent stand. 93. We are further of the view that the whole idea under the SAST Regulations is to provide an exit opportunity at the earliest point of time to the shareholders which is what is in the interest of the shareholders. If two views are possible on the interpretation of Regulation 11, then the regulator should take a view which is in the interest of the shareholders. Take an example, that if an acquirer acquires 15% of the warrants and converts 5% of the warrants into shares with voting rights in each financial year, then the acquirer would be escaping from making an open offer under Regulation 11 since the conversion of warrants into shares with voting rights would be less than the prescribed limit as prescribed under Regulation ....
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....ts. If according to the respondent the open offer is triggered in the case of ADR/GDR under Regulation 11(1) read with Regulation 14(2) only at the time of acquisition of voting rights then where was the need for the amendment to be made in the year 2009. Thus, we are of the view that in the case of convertible securities like warrants, the obligation to make an open offer under Regulation 11(1) is triggered at the time of acquisition. 96. The respondent has relied upon the decision in Sohel Malik vs. SEBI & Anr., (2008) SCC Online SAT 174. The facts are that on 16th December, 2006, the Board of the target Company authorized the issuance of 35,30,000 warrants on a preferential basis to the appellant who was the promoter of the target Company. On 15th January, 2007, the shareholders approved the preferential issue of warrants to the appellant under Section 81(1A) of the Companies Act, 1956. The preferential allotment of warrants was made to the appellant on 27th January, 2007. The said appellant converted 5,75,000 warrants into equity shares on 30th March, 2007 and the remaining 29,55,000 warrants were converted in June, 2008 and the shares against these warrants were allotted on....
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....ce by the respondent of the decision in Ch. Kiron Margadarsi Financiers vs. AO, SEBI (2001) SCC Online SAT 25, is erroneous. In this case, the said appellant pledged 7,67,580 shares constituting 16.24% of Aurobindo Pharma Ltd. against the loan given by the appellant to the directors of Aurobindo Pharma Ltd. 3,32,540 shares constituting 7.037% were transferred in the name of the appellant but continued as security with the pledgee to be returned to the pledgor as and when the loan was repaid. The remaining 4,35,040 shares constituting 9.207% through share certificates were handed over along with blank transfer deeds which continued to remain in the name of the pledgor in the register of members of Aurobindo Pharma Ltd. The loan was repaid on 25th September, 1998 and the shares received as security were returned to the pledgor. The question which arose for consideration was whether the pledgee had acquired 16.24% of the shares of Aurobindo Pharma Ltd., thereby triggering the requirement to make a public announcement under Regulation 10. This Tribunal rejected the contention of SEBI that the pledge agreement amounted to an "agreement to acquire" by the pledgee. The Tribunal held that ....
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.....38% to 44.03% and the voting rights increased from 50.23% to 62.92%. 103. In view of the aforesaid, a question arose whether the promoters were liable to make a public announcement under Regulation 3(2) of the 2011 SAST Regulations. This Tribunal held that the appellants were required to make an open offer in terms of Regulation 3(2) of the SAST Regulations relying upon the decisions in Sohel Malik and Eight Capital Master Fund Ltd. 104. We are of the opinion that the Tribunal failed to consider the definition of the term 'shares' as contemplated in the SAST Regulations as well as in the 2011 SAST Regulations. The Tribunal only followed the decision in Sohel Malik and Eight Master Capital Fund which as we have pointed out is distinguishable on facts as well as on law. In any case, it was not a case involving warrants. Further, in our view, the obligation cast on the appellants to make an open offer which was triggered under the SAST Regulations had to be made under the 2011 SAST Regulations since the SAST Regulations had been repealed. Consequently, for the same reasons the decision in M/s. Surya Pharmaceuticals Ltd. vs. SEBI, Appeal No.174 of 2009 decided on 22nd December, ....
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....AST Regulations in force. The Bombay High Court held that the plaintiff was making a grievance with respect to a breach of 1994 SAST Regulation and that the grievance of the plaintiff cannot be stretched to a point prior to the 1994 SAST Regulations coming into force and, therefore, the Bombay High Court declined to grant an injunction on the exercise of voting rights by the defendants on such 3,75,000 shares. The Bombay High Court held that no public announcement was required to be made under Regulation 9(3) of the 1994 SAST Regulations when fully convertible debentures were converted into equity shares. 108. We are of the view that the aforesaid decision of the Bombay High Court is squarely applicable in the instant case. The ratio of this judgment is that a person who has acquired securities convertible into equity shares carrying voting rights prior to the coming into force of the 1994 SAST Regulations is not an 'acquirer' under the 1994 SAST Regulations and that the conversion of such securities into shares carrying voting rights is not an acquisition triggering a public announcement under the 1994 SAST Regulations. 109. In the matter of acquisition by Ramco Industries L....
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....gulations in as much as there is no acquisition under the SAST Regulations. The right to obtain shares was vested in the appellants in 1994 when detachable warrants were issued. Such vested rights cannot be rendered nugatory on the enactment of the SAST Regulations. (iv) We further hold that the appellants who acquired the warrants on 12th January, 1994 were not "acquirer" within the meaning of Regulation 2(1)(b) of the SAST Regulations and that there is no acquisition by them under the SAST Regulations and, consequently, the provision of the SAST Regulations cannot be applied to the warrants allotted to them on 12^th January, 1994. The detachable warrants that was acquired prior to the coming into force of the SAST Regulations were not governed by any of the provisions of the SAST Regulations. 112. In view of the aforesaid findings given by us it is not necessary for us to dwell on the other issues raised by the parties. However, since long drawn arguments were made we find it fit to dwell on these issues in brief. 113. We are of the opinion that the warrants that were acquired by the appellants in January, 1994 amounts to 'agreeing to acquire shares carrying voting....
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....e application of the SAST Regulations. Admittedly, the SAST Regulations is not retrospective in their application and there is nothing in the Regulations suggesting its application prior to its enforcement i.e. prior to 20th February, 1997. In our view, "retrospective application" or "retroactive application" of the SAST Regulations is not relevant. 116. In exercise of the statutory powers vested under Section 81(1A) of the Companies Act, 1956, the issue of warrants was approved with the right to convert them into equity shares. The warrant holders was given the right to receive the shares carrying voting rights upon conversion of warrants without the burden of making an open offer which is a right vested on the appellant in terms of the Companies Act, 1956 which was governing statute prevailing at that point of time. The Companies Act gave the warrant holders the right to receive shares carrying voting rights upon conversion of warrants without any obligation attached to such warrants. The obligation to make an open offer is a substantive obligation under the SAST Regulations and if the legislature decided to impose an obligation on warrants and other convertible instruments ou....
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....reme Court in Sunil Krishna Khaitan (supra) has categorically held that in the absence of express statutory authorization, delegated legislation in the form of rules or regulations cannot operate retrospectively. (iii) In Cabot International Capital Corporation Ltd. vs. AO, SEBI, (2001) SCC Online SAT 34, we find that the case is not relevant to the issue at hand since the case was only concerning filing of post-acquisition report with respect to acquisition of shares carrying voting rights in April, 1997 under Regulation 3(4) of the SAST Regulations. Reliance by the respondent on certain portions of the judgment of this Tribunal to underscore the point that the obligation to make an open offer is triggered under Regulation 11(1) at the time of allotment of the shares is erroneous, in as much as the correct position is that the open offer is triggered and public announcement is required to be made within four working days on an 'agreement to acquire' or 'decision to acquire' the shares. The Cabot case did not consider as to whether the obligation to make an open offer was triggered at the time of agreeing to acquire in January, 1994, when the 1994 SAST Regulations was in f....
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.... accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 118. We are also of the view that proceedings in the instant case were initiated belatedly. There was undue delay not only in the initiation of the proceedings but also in the disposal of the proceedings. To recapitulate the warrants were issued in 1994. 6.83% of the equity shares were allotted on 7th January, 2000 and the disclosures under Regulation 8(3) of the SAST Regulations was made before the appropriate stock exchange on 28th April, 2000. The disclosures indicated that 6.83% of the equity shares were allotted to the persons acting in concer....
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....be pleaded. These cases do not apply as the appellants have specifically pleaded prejudice caused due to delay. 122. The learned counsel for the respondent contended that failure to make the public announcement and the open offer was a continuing violation till it was discharged. The appellant by not making a public announcement has continued to violate the provisions of Regulation 11(1) of the SAST Regulations. It was urged that so long as the acquirer holds such acquired shares without making a public announcement and keeps on holding such shares, it is a continuing violation. Hence there is no delay in the initiation of the proceedings. In support of his submissions, the respondent has relied upon various decisions, namely: (a) Adjudicating Officer, SEBI vs. Bhavesh Pabari, (2019) 5 SCC 90 (b) Bhagirath Kanoria vs. State of M.P., (1984) 4 SCC 222 (c) Maya Rani Punj vs. CIT, (1986) 1 SCC 445 (d) CWT vs. Trustees of Sahebzadas of Sarad-E-Khas-Trust (e) Mohan Lal vs. State of Rajasthan, (2015) 6 SCC 222 (f) Gokak Patel Volkart Ltd. vs. Dundayya G. Hiremak and others, (1991) 2 SCC 141, and (g) Samarpan Agro and Livest....
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....uently, there is no 'de die in diem' as urged by Shri Dattar. The contention that violation of Regulation 11(1) is a continuing violation cannot be accepted and is also untenable. If the shares are acquired without making a public announcement, there is injury to the public shareholders, but the injury is once and for all. Only if there is a continuous acquisition of shares, the injury continues. 127. Thus, the contention that the proceedings are not barred by limitation because it is a continuing violation cannot be accepted and is rejected. 128. It is a settled principle of law that when no limitation period is prescribed, in that event, proceedings should be initiated within a reasonable time. What would be the reasonable time could depend on the facts and circumstance of each case, nature of default, prejudice caused etc. The Supreme Court in Sunil Krishna Khatian (supra) have held and reconfirmed the settled law that in the absence of limitation prescribed by an enactment the authority has to exercise the power within a reasonable time and that this would depend upon the facts of each case and whether the violation was hidden and camouflaged or whether the authority had ....
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....of the proceedings by issuance of the show cause notice, the penalty order was quashed. 133. In the light of the aforesaid, we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and the Regulations for issuance of a show cause notice and for completion of the adjudication proceedings, nonetheless, the authorities are required to exercise its powers within a reasonable period. In AO, SEBI vs Bhavesh Pabari, 2019 SCC OnLine SC 294 the Supreme Court held that an authority is required to exercise its powers within a reasonable period. 134. Admittedly, it took 11 years from the date of the commission of the alleged violation in January, 2000 to issue a show cause notice. 135. Further, it took SEBI 9 long years to decide the consent application. The impugned order has come after 21 years of the alleged violation. We find that the delay has caused serious prejudice to the appellant. There is an inordinate delay in the initiation of the proceedings but also in the disposal of the proceedings. The impugned order, thus, is liable to be set aside also on this ground. ....
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....s to,- (i) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or (ii) make a public announcement to acquire shares at a minimum price; or (iii) make a public offer by sending letter of offer to the shareholders of the concerned company; or (iv) make payment of consideration to the shareholders who sold their shares pursuant to letter of offer, he shall be liable to a penalty not exceeding twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher." 140. In our view, the provision 15H existing as on January, 2000, would apply which at that point was a maximum penalty of Rs. 5 lakh, Thus, in our opinion, a penalty of Rs. 25 crores could not have been imposed and even assuming that the violation had occurred, a maximum penalty of Rs.5 lakhs could be imposed. 141. Let us take a situation where Section 15H was omitted by an amendment on or before the passing of the impugned order. If the contention of the respondent is accepted then the violation committed in the year 2000 could not be penalized at the time of passing of ....