A. J. Patel Huf vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved On : 20.10.2015 Date of Decision : 20.11.2015

Appeal No. 281 of 2014

1.

Mr. Gopalakrishnan Raman

2. Ms. Shanti Gopalakrishnan

3. M/s. Inland Dataforms Pvt. Ltd.

4. M/s. Insight Management Services Pvt. Ltd.

3/150, Ram Chaya, Major Parameshwar Road, Wadala, Mumbai- 400 031 ...Appellants

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Somasekhar Sundaresan, Advocate with Ms. Rinku Valanju, Mr. Abishek Venkataraman and Mr. Dhaval Kothari, Advocates for Appellants.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 280 of 2014

Ms. Indumati Raman B- 201, Kshitij, Great Eastern Links Ram Mandir Road, Goregaon (W) Mumbai- 400 104 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent 2

Mr. J. J. Bhatt, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 212 of 2014

A. J. Patel HUF 32, Summerville, Bhulabhai Desai Road, Mumbai- 400 026 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 213 of 2014

Ms. Pragna S. Patel ...Appellant 604, Siyble Apartment 65 Worli Hill Road, Mumbai 400 018

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

3

WITH Appeal No. 214 of 2014

Shree A J Patel Charitable Trust Churchgate House, 4th Floor, 32-34, Veer Nariman Road, Mumbai- 400 001 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 215 of 2014

Mr. Ashok J. Patel GMM Pfaudler Limited 1001, Peninsula Towers, G. K. Marg, Lower Patel Mumbai- 400 013 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent. 4

WITH Appeal No. 216 of 2014 Millars Machinery Company Pvt. Ltd.

Churchgate House, 4th Floor, 32-34 Veer Nariman Road, Fort, Mumbai- 400 001 ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 217 of 2014

Ms. Panna S. Patel 32, Pentacle, Sophia College Lane Mumbai- 400 026 ...Appellant Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant. Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 218 of 2014 Ms. Palomita S. Patel 32, Pentacle, Sophia College Lane Mumbai- 400 026 ...Appellant Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent 5

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 219 of 2014

M/s. Skyline Millars Ltd.

Skyline Oasis Gate No. 2 C/2, 412-413, Skyline Wealthspace, Premier Road, Vidyavihar (West), Mumbai- 400 086 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 220 of 2014

Mr. Tarak A. Patel GMM Pfauldler Limited 1001, Peninsula Tower, G.K. Marg, Lower Parel, Mumbai- 400 013 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

6

WITH Appeal No. 221 of 2014 Ms. Urmi Ashok Patel 32, Summerville, Bhulabhai Desai Road, Mumbai- 400 026 ...Appellant Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant. Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 222 of 2014 Ms. Uttara Patel 32, Summerville, Bhulabhai Desai Road, Mumbai- 400 026 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 223 of 2014

Uttarak Enterprises Pvt. Ltd.

Churchgate House, 4th Floor, 32-34, Veer Nariman Road, Fort, Mumbai- 400 001 ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent 7

Mr. Mustafa Doctor, Senior Advocate with Mr. Akshay Doctor, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Mihir Mody, Advocate with Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 385 of 2014

1. Gopichand Idandas 4, Gee Gee Villa, Kasturi Renga Road, IInd Street, Alwarpet, Chennai-600 086

2. Sunil G. Duseja 4, Kasturi Estate, IInd Street, Cathedral Road, Chennai-600 086

3. Heeral Constructions Pvt. Ltd.

23, College Road, Nungambakkam, Chennai- 600 086

4. Sushil G. Duseja 23, College Road, Nungambakkam, Chennai- 600 086

5. Aanchal S. Duseja 23, College Road, Nungambakkam, Chennai-600 086 ...Appellants

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. J. J. Bhatt, Advocate with Ms. Rinku Valanju, Advocate for Appellants.

Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate i/b Vigil Juris for the Respondent.

WITH Appeal No. 80 of 2015

1. Shri Gopal Krishan Somani 21-B, Meher Apt, Altamount Rd.

Mumbai- 400 026 8

2. Gopal Krishan Somani (HUF) 21, Meher Apt, Altamount Rd.

Mumbai- 400 026

3. Shri Sanjay Somani 21-B, Meher Apt, Altamount Rd.

Mumbai- 400 026

4. Sanjay Somani (HUF) 21-B, Meher Apt, Altamount Rd.

Mumbai- 400 026

5. Ms. Shruti Somani 21-B, Meher Apt, Altamount Rd.

Mumbai- 400 026

6. M/s Alok Wires Pvt. Ltd.

154-A, Mittal Court, Nariman Point, Mumbai- 400 021

7. Mebags Investment Services P. Ltd.

154-A, Mittal Court, Nariman Point, Mumbai- 400 021 ...Appellants

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. J. J. Bhatt, Advocate with Ms. Rinku Valanju, Advocate for the Appellants.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Saurabh Bacchawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

AND Appeal No. 325 of 2015

1. Amul Sumatichandra Mehta

2. Yugesh Sumatichandra Mehta

3. Akul Yugesh Mehta

4. Jayendra Yugesh Mehta

5. Mrudula Amul Mehta

6. Maitri Amul Mehta

7. Rachna Amul Mehta 9

8. Sunali Yugesh Mehta

9. M/s Senator Investment Private Limited

10. M/s Touristor Investments Private Limited (Now known as Touristor Premises Private Limited)

11. M/s Yug Investment Private Limited

12. Amul Sumatichandra Mehta-HUF

Address for Appellant Nos. 1, 5, 6, 7, 10, 12:-

71 Iona, 35/C2 Azad Road, Juhu Mumbai- 400 049

Address for Appellant Nos. 2, 3, 4, 8, 11:-

201, Riveria, Gandhigram Road, Juhu, Mumbai- 400 049

Address for Appellant No. 9:-

101, Riveria, Gandhigram Road, Juhu, Mumbai- 400 049 ...Appellants

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Nimay Dave, Advocate with Mr. Abhishek Borgikar, Advocate i/b Alliance Corporate Lawyers for Appellants.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per: Justice J.P. Devadhar

1. Dispute in all these appeals relate to the obligation cast on the

promoter/promoter group to make yearly disclosure under Regulation

8(2) of Securities and Exchange Board of India (Substantial Acquisition 10

of Shares and Takeovers) Regulations, 1997 ("Takeover Regulations

1997" for short) and regulation 30(2) of Securities and Exchange Board

of India (Substantial Acquisition of Shares and Takeovers) Regulations,

2011 ("Takeover Regulations 2011" for short). Hence all these appeals

are heard together and disposed of by this common decision.

2. In all these appeals, except in Appeal No. 385 of 2014, various

Adjudicating Officers ("AO" for short) of Securities and Exchange Board

of India ("SEBI" for short) have held that the obligation to make yearly

disclosure under regulation 8(2)/30(2) as the case may be, is on each and

every promoter and not on the promoter group and in case of failure to

make such disclosure, each and every promoter is liable to pay penalty.

However, in Appeal No. 385 of 2014 (Gopichand Idandas & Ors. vs.

SEBI) it is held by the AO that where the shares are held by the promoter

group, the obligation to make disclosure is on the promoter group and in

case of failure to discharge that obligation, penalty is imposable on the

promoter group and is recoverable from the promoters in the promoter

group jointly and severally. It is not in dispute that in several other cases

also, the AO's of SEBI have held that under regulation 8(2)/30(2) as the

case may be, the obligation to make yearly disclosure is on the promoter

group and not on the individual promoter in the promoter group.

3. Since there is no uniformity amongst the AO's of SEBI in

determining the obligation to make yearly disclosure under the

regulations in question, we called upon counsel for SEBI, to inform us as

according to SEBI, the obligation to make yearly disclosure under the 11

regulations in question, in case of a promoter group is on the promoter

group or on each promoter in the promoter group. However, to our

surprise, counsel for SEBI, on instruction informed us that since the

matters are pending before this Tribunal, instead of SEBI taking a

definite stand, it would be in the interest of justice that this Tribunal

resolves the issue by taking a view as it deems fit and proper. Thus,

inspite of the fact that there are conflicting views taken by the AO's of

SEBI, neither SEBI on its own has taken any steps to resolve the conflict

nor SEBI is willing to clarify its stand while arguing before this Tribunal.

It is improper on part of SEBI to take such indifferent attitude. Since the

regulations in question are framed by SEBI, it is the duty of SEBI to

ensure that there is consistency in implementing the regulations framed

by it and that there is no uncertainty. It is unfortunate that SEBI wants

that the orders passed by its AO's be upheld even though the said orders

are mutually contradictory.

4. Although for deciding these appeals, it is not necessary to narrate

facts of each case, for better appreciation of rival contentions, few facts

in Appeal No. 281 of 2014 (Mr. Gopalkrishnan Raman & Ors. vs. SEBI)

are set out herein below:-

a) In the year 1952 Mr. P.A. Raman started a printing

press under a partnership firm known as Inland

Printers. In the year 1978 the said partnership firm

was converted into a Private Limited Company and

the shares of that company were held by Mr. P. A. 12

Raman, his two sons and wives of two sons and two

family owned companies.

b) Sometime in October 1993, the aforesaid Private

Limited Company was converted into a Limited

Company in the name of Inland Printers Limited.

c) In April 1995, Inland Printers Limited came out with

a public issue and thereafter, the shares of the said

company were listed on the stock exchanges.

d) In the year 2000, due to financial crunch and various

other problems the operations of the company were

closed. Moreover, due to non-compliance of the

listing agreement, Takeover Regulations and non-

payment of listing fees, the trading in the shares of the

company were suspended in the year 2002. The shares

of the company were reinstated for trading in

November 2012 after the company complied with all

the clauses of listing agreement.

e) After the Takeover Regulations, 1997 came into force,

it was obligatory on part of promoters/promoter group

to make annual disclosures under regulation 8(2) of

Takeover Regulations, 1997 disclosing their

shareholding in the company within the stipulated

time. However, such disclosures were not made

under the Takeover Regulations, 1997. Even after the 13

Takeover Regulations 1997 were repealed and

replaced by Takeover Regulations 2011, no

disclosures were made under the Takeover

Regulations, 2011 for the financial year ending on

March 31, 2012 within the time stipulated therein.

f) It is only when Tigerstone Trading Pvt. Ltd. evinced

interest in acquiring shares of Inland Printers Ltd.

from the promoter/promoter group it was realized that

the appellants as promoters/promoter group of Inland

Printers have not made yearly disclosures as provided

under the 1997/2011 Regulations. Immediately

thereupon, the appellants as the promoter group filed

their disclosure of shareholding on April 10, 2012 in

terms of regulation 8(2) of Takeover Regulations,

1997 for the years ended March 31, 1998 to March

31, 2011. Similarly, disclosures under regulation

30(1)&(2) read with 30(3) of the Takeover

Regulations for the year ended March 31, 2012 was

made on April 16, 2012 (delayed by 7 days).

g) Thereafter, on March 1, 2013 appellants along with

other shareholders entered into a Memorandum of

Understanding (MOU) with Tigerstone Trading Pvt.

Ltd. for sale of the shares held by them in Inland

Printers Ltd. In accordance with the regulations

framed by SEBI, a letter of offer was also made by 14

Tigerstone Trading Pvt. Ltd. for acquiring shares of

Inland Printers Ltd.

h) While examining the said letter of offer it was noticed

by SEBI that the appellants as also Inland Printers had

failed to comply with the requirements contained in

the Takeover Regulations, 1997 and Takeover

Regulations, 2011 within the time stipulated therein.

Hence show cause notices were issued to the

appellants and after giving opportunity of hearing

impugned order was passed imposing penalty of ` 5

lac on each of the appellants under Section 15A(b) of

SEBI Act. Challenging the aforesaid order appellants

have filed the present appeal.

5. Mr. Somasekhar Sundaresan, Mr. Mustafa Doctor, Senior

Advocate, Mr. Nimay Dave and Mr. Rajesh Khandelwal, learned counsel

appearing on behalf of respective appellants have advanced oral

arguments and also have tendered written submissions. Their argument in

nutshell is as follows:-

a) Object of the Takeover Regulations is to intimate to

the public the aggregate shareholding of the promoters

or persons in control of a listed company, alongwith

the shareholdings of the persons acting in concert with

them respectively. Since SEBI accepts that disclosures

made by any one of the promoters within the 15

promoters group amounts to discharging the

obligation of the promoter group under regulation 8(2)

and regulation 30(2) of 1997 & 2011 Regulations

respectively, it must be held that the obligation to

make disclosure under the respective regulation is a

single obligation and consequently, failure to

discharge that obligation would constitute a single

offence. In such a case, penalty that could be imposed

for violating a single offence is on the promoter group

and penalty cannot be imposed depending on the

number of constituents in the promoter group. In other

words, it is submitted that the unitary penalty for the

unitary obligation cannot be divided across the

constituents of the promoter group.

b) If the contention of SEBI that each and every

individual, body corporate or other entity falling

within the definition of "promoter" is obliged to make

disclosures under the Takeover Regulations is

accepted, then, it would lead to absurd consequences,

because, once a declaration in relation to a promoter

group is made by a constituent of the promoter group,

then requiring each member of the promoter group to

make same disclosures, independently, would serve

no purpose but only multiply the disclosures inspite of 16

the fact that the said disclosures are already made by

one of the promoters in the promoter group.

c) Alternatively it is submitted that the term "promoter"

defined under regulation 2(1)(h) of the Takeover

Regulations, 1997 includes the promoter group as

mentioned in Explanation-I to regulation 2(1)(h).

Since the expression 'promoter' includes a 'promoter

group', obligation to make disclosures under

regulation 8(2)/30(2) as the case may be is on the

promoter group and not on each promoter in the

promoter group. Therefore, if the promoter group fails

to make disclosures under regulation 8(2)/30(2) then,

penalty is imposable on the promoter group as a

whole and not on each and every promoter of the

promoter group. In other words, it is submitted that

since the obligation to make disclosure under

regulation 8(2)/30(2) is on the promoter group,

penalty that could be imposed is on the promoter

group and to be recovered jointly and severally and

therefore, the AO is not justified in imposing penalty

on each promoter in the promoter group. As the AO of

SEBI has failed to construe regulation 8(2)/30(2) in

the proper perspective, the impugned orders are liable

to be quashed and set aside.

17

d) Relying on various provisions contained in the

Takeover Regulations it is submitted that the entire

scheme of the Takeover Regulations is to treat every

group of 'persons acting in concert' as one collective

whole for every single purpose, save and except when

persons hitherto acting in concert part ways and cease

to act in concert. Since regulation 8(2) and 30(2) in

the respective Takeover Regulations treat every group

of 'persons acting in concert' as one collective whole

for every single purpose, AO is not justified in

imposing penalty on every promoter in the promoter

group.

e) Contrary to the view taken in these appeals (except in

Appeal No. 385 of 2014) in several cases the AO's of

SEBI have taken diametrically opposite view and held

that the penalty is imposable on the promoter group

and has to be recovered jointly and severally from the

promoters of the promoter group and not individually

as has been done in the cases in hand.

6. Mr. J. J. Bhatt, learned counsel appearing on behalf of appellants

in Appeal No. 385 of 2014 submitted as follows:-

a) Dispute in Appeal No. 385 of 2014 relates to the

penalty imposed on the promoter/promoter group for

failing to make disclosures under regulation 30(2) of 18

the Takeover Regulations, 2011 for the financial year

ended on March 31, 2012 belatedly by 110 days.

b) In Appeal No. 385 of 2014, amongst the promoters,

there were several sub groups and the five appellants

in Appeal No. 385 of 2014 had formed an

independent promoter group. This is evident from the

fact that other promoters had filed complaints against

the appellants in Appeal no. 385 of 2014, in the year

2013 when the appellants as an independent promoter

group had sought to sell the shares of the company

held by them.

c) Appellants in Appeal No. 385 o 2014, in reply to the

show cause notice, had individually replied that they

formed an independent promoter group. However,

without considering that plea, penalty of ` 15 lac is

imposed on all the promoters (including the

appellants) with a direction that the said penalty be

recovered jointly and severally. Thus SEBI has

considered all the promoters of the company as one

promoter group, even though the appellants in Appeal

No. 385 of 2014 had specifically pleaded that they

form a separate promoter group. As a result,

appellants in Appeal No. 385 of 2014 are required to

pay penalty imposed on all the promoter/ promoter 19

group, even though the appellants herein form an

independent promoter group.

d) Since the AO has failed to consider the plea that the

appellants formed an independent promoter group, it

is submitted that the order impugned in Appeal No.

385 of 2014 be quashed and set aside with a direction

to SEBI to impose such penalty as it deems fit on each

promoter group independently.

7. Mr. Desai learned Advocate appearing on behalf of SEBI, on the

other hand submitted as follows:-

a) The obligation to make disclosures by the promoters

of a company under Chapter-II of the Takeover

Regulations, 1997 and Chapter-V of the Takeover

Regulations, 2011 are irrespective of triggering

regulations 10, 11, 12 of the Takeover Regulations,

1997 or regulation 3 & 4 of the Takeover Regulations,

2011 on account of acquisition of shares or voting

rights by the promoters of the company. In other

words, whether regulation 10, 11, 12 of Takeover

Regulations 1997, or regulation 3 & 4 of Takeover

Regulations, 2011, are triggered or not the promoters

of a company are required to make annual disclosures

under regulation 8(2)/30(2) of the aforesaid

Regulations respectively.

20

b) The obligation to make yearly disclosure under

regulation 8(2) of the Takeover Regulations, 1997 is

on every promoter or every person having control

over the company but not on persons acting in concert

with the promoter or every person having control over

the company because, that obligation of the persons

acting in concert has to be discharged by the

respective promoter/person having control over the

company. Since every promoter of a company was

obliged to make yearly disclosures of shareholding to

the company under the Takeover Regulations, penalty

is imposable on each promoter if there is failure to

comply with those obligations and hence no fault can

be found with the decision of SEBI in imposing

penalty on every promoter of the respective

companies.

c) The obligation to make a disclosure and ministerial

act of filing the declaration on behalf of the persons

obliged to make a declaration is not to be confused

with the obligation to make a disclosure. The form

provided by SEBI for making the disclosures

postulates that the disclosure could be made by any of

the authorized signatory to the person required to

make disclosure. The form and content cannot govern 21

the substantive provisions of the regulations or the

interpretation of the regulations.

d) The expression 'promoter' defined under the

regulations framed by SEBI do not include the

'promoter group'. The definition of 'promoter'

separately provides as to who would be included

within the meaning of the expression 'promoter

group' in cases where the promoter is a corporate

entity and where the promoter is an individual.

e) The expression 'promoter' defined under the

regulations framed by SEBI, does not include PAC

within the meaning of promoter and the shareholding

of a PAC who is not a promoter has to be disclosed

alongwith the shareholding of the promoter.

f) Under the regulations framed by SEBI, if the

obligation to make disclosure is on the individual,

then, the liability to pay the penalty for non-disclosure

would be on the individual. If the obligation to make

disclosure is joint then the liability to pay the penalty

would be joint. If the obligation to make disclosure is

joint and several, then the liability to pay penalty

would be joint and several. Thus, the question as to

whether the liability to make disclosure is individual 22

or joint or joint and several depends on facts of each

case.

g) Under regulation 8(2) of Takeover Regulations, 1997

a promoter or every person having control over a

company (who may be a promoter or a person other

than a promoter for example CEO, COO, CFO etc.) is

required to disclose the number and percentage of

shares or voting rights held by him and by persons

acting in concert with him in the company, to the

company within 21 days from the financial year

ending 31st March every year. The said declaration is

also required to be made by the said persons within 21

days of the record date of the company for purpose of

declaration of dividend.

h) Under Section 13(2) of the General Clauses Act,

1857, words in any Central Act or Regulation shall

include their plural and vice versa. Thus, the word

'promoter' in regulation 8(2) would include

promoters. Therefore, the obligation to make yearly

disclosure would be on each and every promoter of

the company. In support of the above contention

reliance is placed on the decision of the Apex Court in

case of Collector of Customs v/s M/s United 23

Electrical Industries Ltd. reported in AIR 1999 SC

3796.

i) When, the regulations in question specifically use the

word 'promoter', appellants are not justified in

reading that expression as 'promoter group'. In

interpreting a statutory provision it is not permissible

to add words to the statute unless without such

addition the provision of statute to be interpreted is

rendered meaningless. In support of the above

contention reliance is placed on decisions of the Apex

Court in case of State of Maharashtra v/s Nanded-

Parbhani Z.L.B. M.V. Operator Sangh reported in

(2000) 2 SCC 69 and in case of Kanai Lal Sur v/s

Paramnidhi Sadhukhan reported in AIR 1957 S.C.

907.

j) Fact that the prescribed form permits an Authorized

Representative to file a declaration for and on behalf

of the person/s on whom the obligation is cast to make

such disclosure does not mean that the obligation to

make the declaration is on the Authorized

Representative. The form cannot govern the operative

part of the rule, regulation or section and in case of

any conflict, rule, regulation or the section shall

prevail. In support of the above contention reliance is

placed on the decision of the Apex Court in case of 24 Aphali Pharmaceuticals Ltd. v/s State of Maharashtra

reported in (1989) 4 SCC 378.

k) In the declaration made in Appeal No. 280 & 281 of

2014, the persons mentioned therein are not only

promoters but also persons having control over the

company and are persons acting in concert with each

other. Therefore, each of the promoters had an

independent obligation to make disclosures within the

time prescribed and for failure to do so, the AO has

imposed nominal penalty which cannot be faulted.

l) In a given case it is possible that all promoters and

persons acting in concert have authorized one

individual who may be one of the promoters to act as

their authorized signatory to file the necessary

declarations under Regulation 8(2) of Takeover

Regulations, 1997 on their behalf. In such a case the

said authorized signatory would be required to make

declaration after obtaining the information from each

of the promoter as to the number and percentage of

their respective shareholdings as on the relevant date.

For example, in case of a company having four

promoters, out of which two promoters are directors

of the company and each promoter is acting in concert

and/or is deemed to be acting in concert with his wife 25

and children who are also shareholders of the

company along with others, then, each promoter

would be required to give a declaration giving the

number and percentage of shares or voting rights held

by each promoter (that will include his wife and

children) along with the names of the other persons

acting in concert with him within 21 days from the

financial year ending on 31st March of every year.

m) The obligation to make disclosures under Chapter II

of the Takeover Regulations, 1997 and the obligation

to make an open offer under Chapter III of the

Takeover Regulations, 1997 are separate and distinct.

The obligation to make disclosures under Chapter II

are to be complied with by every person who is

required to make the disclosure, where as the

obligation to make an open offer under Chapter III is

a joint and several obligation of the persons required

to make the open offer. Therefore, the obligation to

make disclosure cannot be compared with the

obligation to make open offer under the Takeover

Regulations.

n) The definition of promoter does not include PAC with

the promoter. The definition of the word 'acquirer',

however, includes persons acting in concert and the 26

definition of person acting in concert includes persons

deemed to be acting in concert. Therefore, the

obligation to make yearly disclosure by every

promoter under the Takeover Regulations has to be

discharged by each and every individual promoter of

the company.

o) Obligation to make a declaration under regulation 8(2)

of Takeover Regulations, 1997 is cast on the promoter

individually, whereas, obligation to make an open

offer under regulation 10, 11, 12 of the Takeover

Regulations, 1997 are on the acquirer and the persons

acting in concert with him jointly and/ or severally as

specified under regulation 22(19) of Takeover

Regulations, 1997. Therefore, the obligation under

Chapter II cannot be compared with the obligation

under Chapter III of the Takeover Regulations.

p) Regulation 28(1) of Takeover Regulations, 2011

provides that the declaration to be made under

Chapter V shall be aggregate shareholding/voting

rights of the acquirer or promoter of the Target

Company or every person acting in concert with him.

Regulation 28(1) does not deal with or provide as to

whether the obligation to make the necessary 27

disclosure is on every acquirer or promoter or PAC

individually or jointly or jointly and severally.

q) Obligation to make a public announcement and to

make an open offer under Chapter III of Takeover

Regulations, 1997 ought not to be confused with the

obligation to make disclosures under Chapter II of

Takeover Regulations, 1997. Similarly, making a

public announcement under Chapter II of Takeover

Regulations, 2011 ought not to be confused with the

obligation to make disclosure under Chapter V of

Takeover Regulations, 2011.

r) Under regulation 30(2) of Takeover Regulations,

2011, the obligation is on each promoter to make a

disclosure of the shares and voting rights together

with PAC with him. Therefore, it is the individual

liability of each promoter and not joint and several as

sought to be contended by the appellants.

s) Intention, motive, mens-rea are irrelevant for the

purpose of considering penalty to be levied for breach

of disclosure requirement. Relying on the decision of

the Apex Court in case of Swedish Match v/s SEBI

reported in (2004) 11 SCC 641 and in case of

Chairman SEBI v/s Shriram Mutual Fund reported in

(2006) 5 SCC 361 it is submitted that penalty is 28

attracted as soon as there is contravention of the

regulations framed by SEBI.

t) There is material difference between regulation 8(2)

of Takeover Regulations, 1997 and regulation 30(2)

of Takeover Regulations, 2011. Under regulation 8(2),

a promoter or every person having control over a

company is required to make disclosure whereas,

under regulation 30(2) the promoter together with

persons acting in concert with him is required to make

disclosure. Under regulation 8(2) what is to be

disclosed by the promoter is the number and

percentage of shares or voting rights held by him and

by person acting in concert with him, whereas, under

regulation 30(2) what is to be disclosed is the

aggregate shareholding and voting rights. Under

regulation 8(2) disclosure is to be made within 21

days from the end of each financial year, whereas,

under regulation 30(2) disclosure is to be made within

7 days from the end of each financial year. Under

regulation 8(2) disclosure is to be made to the

company, whereas, under regulation 30(2) read with

regulation 30(3), the disclosure is to be made to every

stock exchange where the shares of the Target

Company are listed and at the registered officer of the

Target Company.

29

u) In these group of matters, some appellants had made

declarations individually and other appellants had

made declarations as promoter group. Therefore, in

some cases penalty has been imposed individually and

in some cases penalty is imposed on the promoter

group jointly and severally and hence no fault can be

found with the decisions impugned in these appeals.

v) Penalty imposed in all these cases is nominal

compared to the delay in making disclosures and

hence no interference is called for.

Accordingly, it is submitted that all the appeals deserve to be dismissed

with costs.

8. We have carefully considered the rival submissions.

9. Basic dispute in all these appeals is, where the promoters of a

listed company includes a promoter group, whether under regulation 8(2)

and regulation 30(2) of the 1997/2011 Takeover Regulations

respectively, the obligation to make yearly disclosure is on the promoter

group or the obligation is on every promoter covered under the promoter

group.

10. Regulation 8(2) of the Takeover Regulations, 1997 provides that

'A promoter' shall make yearly disclosure to the company within the

time stipulated therein. Regulation 30(2) read with regulation 30(3) of 30

the Takeover Regulations, 2011 provide that 'The promoter' shall make

yearly disclosure to the company and to the stock exchange within the

time stipulated therein. As per regulation 2(1)(h), the expression

'promoter' in the Takeover Regulations, 1997 means and includes any

person belonging to the promoter group specified in Explanation-I

thereto. Similarly, Takeover Regulations, 2011, defines the expression

'promoter' to have the same meaning assigned to it under the Securities

and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009 ('ICDR Regulations, 2009' for short)

and includes a member of the promoter group. Thus, both under the

Takeover Regulations, 1997 and under the Takeover Regulations, 2011,

wherever the expression 'promoter' is used, that expression would

include any person/member belonging to the promoter group.

11. Since regulation 8(2) of the Takeover Regulations, 1997 and

regulation 30(2) & 30(3) of the Takeover Regulations, 2011, use the

expression 'promoter', we quote those regulations which read thus:-

8(2) A promoter or every person having control over

a company shall, within 21 days from the

financial year ending March 31, as well as the

record date of the company for the purposes of

declaration of dividend, disclose the number

and percentage of shares or voting rights held

by him and by persons acting in concert with

him, in that company to the company.

31

30(2) The promoter of every target company shall

together with persons acting in concert with

him, disclose their aggregate shareholding and

voting rights as of the thirty-first day of March,

in such target company in such form as may be

specified.

30(3) The disclosures required under sub-regulation

(1) and sub-regulation (2) shall be made within

seven working days from the end of each

financial year to,-

a) every stock exchange where the shares of

the target company are listed; and

b) the target company at its registered

office.

12. Dispute in all these appeals is, whether the expression 'A

promoter' or 'The promoter' used under the respective regulations, would

require every promoter of the listed company to make yearly disclosure

or whether the disclosure in case of a promoter group could be made by

any promoter covered under the promoter group.

13. Since the expression 'promoter' used under the Takeover

Regulations includes the 'promoter group', the obligation to make yearly

disclosure cast on the 'promoter' under regulation 8(2) and under

regulation 30(2) of the respective Takeover Regulations would 32

necessarily mean that the promoter group is also obliged to make yearly

disclosure under the aforesaid regulations. In other words, the obligation

to be discharged by the promoter would also have to be discharged by the

promoter group. To illustrate, if there are five promoters in a listed

company and three of them fall within the promoter group, then as per

the Takeover Regulations, the obligation to make yearly disclosure would

be on the two individual promoters as well as the promoter group

consisting of three promoters.

14. Argument of SEBI is that in view of the General Clauses Act the

word 'promoter' in the Takeover Regulations would include 'promoters'

and therefore, the obligation to make yearly disclosure under the

Takeover Regulations is on the individual promoter including the

promoters included in the promoter group. In other words, the submission

is that in case of a promoter group, the obligation to make yearly

disclosure is not on the promoter group but on every promoter in the

promoter group. There is no merit in the above contention, because, by

defining the expression 'promoter' in the Takeover Regulations, it is

expressly made clear that any obligation cast on the promoter would also

be the obligation cast on the promoter group. Therefore, when the

Takeover Regulations expressly provide that the expression 'promoter'

shall include the 'promoter group', SEBI is not justified in contending

that in view of the provisions contained in the General Clauses Act, the

obligation to make yearly disclosure is on every promoter in the promoter

group and not on the promoter group.

33

15. In this context it would be relevant to refer to regulation 2(1)(h) of

the Takeover Regulations, 1997 which defines the expression 'promoter'.

The said definition to the extent relevant reads thus:-

"Definitions

2(1) In these regulations, unless the context otherwise requires:-

a to g....

(h) "Promoter" means -

(a) any person who is in control of the target company;

(b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later;

and includes any person belonging to the promoter group as mentioned in Explanation I:

Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity.

Explanation I: For the purpose of this clause, "promoter group" shall include:

(a) in case promoter is a body corporate -

(i) a subsidiary or holding company of that body corporate;

(ii) any company in which the promoter holds 10 percent or more of the equity capital or which holds 10 percent or more of the equity capital of the promoter;

(iii) any company in which a group of individuals or companies or combinations thereof who holds 20 percent or more of the equity capital in that company also holds 20 percent or more of the equity capital of the target company; and 34

(b) in case the promoter is an individual -

(i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse;

(ii) any company in which 10 percent or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member;

(iii) any company in which a company specified in

(i) above, holds 10 percent or more, of the share capital; and

(iv) any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10 percent of the total."

16. If the argument of SEBI that under the Takeover Regulations,

every promoter of a listed company is obliged to make yearly disclosure

is accepted then it would mean that every person/member included within

the meaning of 'promoter' would be required to make yearly disclosure.

In that event, it would mean that where the promoter is a body corporate,

then, the subsidiary or holding company of that body corporate as well as

other entities which are brought within the meaning of 'promoter' would

be required to make yearly disclosure even if such subsidiary or holding

company or other entities do not hold any shares of the Target Company.

Similarly, accepting the argument of SEBI would mean that where the

promoter is an individual, then, the spouse of that person or any parent,

brother, sister or child of that person or of his spouse who are brought

within the meaning of the word 'promoter' would also be required to

make yearly disclosure even if they do not hold shares of the Target

Company. Object of requiring the promoters of a listed company to make

yearly disclosures is to inform the investors, the number and percentage 35

of shares or voting rights held by the promoter/promoter group along

with the PAC's at the end of each financial year and also at the record

date of the company for declaration of dividend and it is not intended that

every entity included within the meaning of 'promoter' should make

yearly disclosure. If the argument of SEBI is accepted it would mean that

every entity which is considered to be a promoter under the Takeover

Regulations would be required to make yearly disclosure even if that

entity does not hold any shares of the Target Company. Therefore, such

an argument of SEBI which leads to absurd consequences cannot be

accepted.

17. Under the Takeover Regulations if it was intended that every

promoter of a listed company must make yearly disclosure, then,

regulation 8(2) or regulation 30(2) would have commenced with the

words 'Each promoter' or with the words 'Every promoter'. It is relevant

to note that in case of a person having control over the company,

regulation 8(2) specifically provides that 'every' person having control

over the company shall make yearly disclosure. Very fact that the word

'every promoter' is not used in case of a promoter and the fact that the

expression 'promoter' is defined to include 'promoter group', it becomes

clear that the obligation to make yearly disclosure under the Takeover

Regulations is on the promoter/promoter group and not on every

promoter in the promoter group of the listed company. Therefore, the

argument of SEBI that every promoter must make yearly disclosure

under the Takeover Regulations being contrary to the plain language used

in the Takeover Regulations, cannot be accepted. 36

18. Under the Takeover Regulations since the 'promoter' is required to

disclose the number and percentage of shares or voting rights held by him

and by person acting in concert with him, it is apparent that even in case

of a promoter group, the promoter group has to disclose the number and

percentage of shares held by each promoter in the promoter group as also

the number and percentage of shares held by the PAC of each promoter

in the promoter group. Argument of SEBI that the expression 'promoter

group' cannot read into the expression 'promoter' is ex-facie untenable in

view of the fact that the expression 'promoter' defined under the

respective Takeover Regulations includes the 'promoter group'.

19. Fact that regulation 8(2), used the word 'him', it cannot be inferred

that the obligation to make yearly disclosure is on every promoter

individually. As the said regulation commences with the word 'A

promoter', it would be grammatically correct to use the word 'him' in

relation to the obligation to be discharged by a promoter. Since the

expression 'promoter' in the Takeover Regulations includes the promoter

group, it would have to be held that in case of a 'promoter group' the

obligation to make yearly disclosure is on the promoter group and not on

each promoter in the promoter group.

20. Apprehension of SEBI that for any one promoter in the promoter

group to know the shareholding of other promoters in the promoter group

as also the shares held by the PAC's of respective promoter in the

promoter group would be difficult and therefore, every promoter must be 37

held liable to make yearly disclosure is without any merit, because,

firstly, use of the word 'A promoter' instead of the word 'every

promoter' clearly indicates that the disclosure could be made not only by

promoter but also by a promoter group. Secondly, by including every

person/member in the promoter group within the meaning of 'promoter'

it is made clear that the obligation cast on the promoter has also to be

discharged by the promoter group. Thirdly, all the entities covered under

the promoter group though treated as 'promoter', every such entity may

not be holding shares of the Target Company and in that case, if

contention of SEBI is accepted it would mean the every promoter

covered under the Takeover Regulations must make yearly disclosure

even though some of the promoters never held any shares of the Target

Company. Having included persons/members of the promoter group

within the meaning of 'promoter' under the Takeover Regulations, SEBI

cannot now contend that it would be difficult for a promoter in the

promoter group to know the shares held by other promoters in the

promoter group and their PAC before making disclosure and therefore,

every promoter must be directed to make yearly disclosure. Therefore, it

is just and reasonable to hold that under the Takeover Regulations the

obligation to make yearly disclosure is on the promoter or the promoter

group as the case may be.

21. Various decisions relied on by counsel for SEBI in support of

contention that the regulations in question have to be read as it is and not

by adding words to it have no relevance to the facts of present case,

because, in the Takeover Regulations the expression 'promoter' includes 38

the 'promoter group' and consequently there is no question of adding

'promoter group' into the word 'promoter' because it is already included.

Similarly, various other decisions relied by the counsel for SEBI have no

relevance in the facts of present case, because, on a plain reading of the

regulations in question, it is evident that in case of a listed company if the

shares are held by a promoter group, then yearly disclosure has to be

made by the promoter group in the manner set out under the respective

Takeover Regulations.

22. It is true that the language used in that regulation 8(2) of the

Takeover Regulations, 1997 differs from the language used in regulation

30(2) of the Takeover Regulations, 2011. However, under both the

regulations the basic object is to ensure that at the end of every financial

year, the investors in the Target Company are informed about the number

and percentage of shares or voting rights held by the promoter/promoter

group and the object is not to make it mandatory for every promoter in

the promoter group to make individual yearly disclosure even if that

promoter neither held nor holds any shares of the Target Company.

23. To sum up, the obligation to make yearly disclosure under

regulation 8(2) and regulation 30(2) of the Takeover Regulations framed

by SEBI in the year 1997 & 2011 respectively is on the promoter/

promoter group. If the promoters of a listed company are individual

promoters then the obligation is on the individual promoters and in case

there is a 'promoter group' then the promoter group is required to make

yearly disclosure. If the promoter group fails to disclose the shares or 39

voting rights held by the promoters in the promoter group as also their

PAC's within the time stipulated under the Takeover Regulations, then,

penalty is imposable on the promoter group and the said penalty would

be recoverable jointly and severally from the promoters in the promoter

group who held shares or voting rights in the Target Company with their

PAC's. In all these appeals the AO's of SEBI have not considered the

question as to whether the appellants are individual promoters or they

constitute 'promoter group' under the respective Takeover Regulations.

Even in Appeal No. 385 of 2014 the AO of SEBI has not verified the

correctness of the argument advanced by the appellant to the effect that

they form an independent promoter group.

24. In these circumstances, we set aside the orders passed by the AO

of SEBI and restore the appeals to the file of SEBI for passing fresh order

on merits and in accordance with law.

25. All the appeals are disposed of in the above terms with no order as

to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member 20.11.2015 Prepared & Compared By: PK