Ajay Anand And Others vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 17.01.2020

Misc. Application No. 7 of 2020 And Appeal No. 501 of 2019

1.

Ajay Anand Flat No. 91/92, Ritu Apartment, Dongershi Road, Walkeshwar, Mumbai - 400 006.

2. Sanjay Anand Rishi Apartments, 4 Battery Lane, Rajpur Road, Civil Lines, New Delhi - 110 054.

3. Vishnu Anand Flat No. 91/92, Ritu Apartment, Dongershi Road, Walkeshwar, Mumbai - 400 006.

4. Rashmi Anand Flat No. 91/92, Ritu Apartment, Dongershi Road, Walkeshwar, Mumbai - 400 006.

5. Rohina Anand Flat No. 91/92, Ritu Apartment, Dongershi Road, Walkeshwar, Mumbai - 400 006.

6. Ajay Anand HUF Flat No. 91/92, Ritu Apartment, Dongershi Road, Walkeshwar, Mumbai - 400 006.

7. Instyle Investments Pvt. Ltd.

Rajul Apartment, Ground Floor, 9, Harkness Road, Mumbai - 400 006.

2

8. Mamata Finvest Private Limited Rajul Apartment, Ground Floor, 9, Harkness Road, Mumbai - 400 006.

9. Anadry Investments Private Limited 60/61, Floor Basement, Plot No. 424, B-National Storage, S.B. Marg, Mahim (W), Mumbai - 400 016. ..... 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. Ankit Madhwani and Mr. Ankit Parekh, Authorised Representative for Appellants.

Mr. Abhiraj Arora, Advocate i/b ELP for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1. The present appeal has been filed by the appellants

against the order dated July 10, 2019 passed by the

Adjudicating Officer ('AO' for short) of the Securities and

Exchange Board of India ('SEBI' for short) imposing a

penalty of Rs. 10 lakh under Section 15H(ii) of the SEBI Act,

1992 for not making a public announcement under Regulation

13(1) which triggered the acquisition under Regulation 3(2) 3

of the SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011 ('SAST Regulations, 2011' for

short)

2. The facts leading to the filing of the present appeal is,

that the appellants are the founder promoters and executive

directors of the Company known as Faze Three Ltd. The said

Company had issued Foreign Currency Convertible Bonds

(FCCBs) listed at Luxemburg stock exchange in December

2006 which were convertible into equity shares of the

Company on or before December 2011 at the option of the

bond holders. The said bonds were not converted till

December 2011 and, as a result of this default, certain FCCB

holders filed a winding up Petition against the Company

under Section 433 and 434 of the Companies Act, 1956

before the Board of Industrial and Financial Reconstructions

(BIFR). During the pendency of the winding up Petition the

Company filed a revival scheme before the BIFR which was

opposed by these FCCB holders. During the pendency of the

revival scheme the FCCB holders and the Company agreed to

settle the matter and executed a settlement agreement wherein

the Company agreed to redeem the FCCB holders for an

amount of USD 6.25 million before March 2017. 4

3. For the aforesaid purpose the Company allotted

81,00,000 shares to non-promoters and 30,11,203 warrants to

promoters / promoter group entities. In February 2017 the

warrants were converted into shares and these shares were

issued and allotted on February 15, 2017. As a result of this

allotment, the shareholding of the promoters increased from

32.66% to 41.33% which triggered the threshold limit of 5%

as prescribed under Regulation 3(2) of the SAST Regulations,

2011. Since no public announcement was made the

Regulation 3(2) of the SAST Regulations, 2011 was violated

and the penalty was imposed.

4. We have heard Shri Ankit Madhwani, authorized

representative of the appellant and Shri Abhiraj Arora, the

learned counsel for the respondent. The authorized

representative contended that admittedly no public

announcement was made and there was a violation of

Regulation 3(2) of the SAST Regulations, 2011. The

authorized representative however contended that there was

no intention of acquisition of the Company for which penalty

for the alleged violation could have been imposed but in the

instant case the threshold limit of 5% was triggered on

account of dilution of the warrants which was converted into

shares in order to pay the FCCB holders. It was further 5

contended that the Company was in distress and had become

sick and efforts were being made to infuse capital and revive

the Company. Consequently, the issuance of the equity shares

was made in order to pay off the FCCB holders. The

authorized representative contended that considering the

aforesaid circumstances the quantum of penalty was wholly

unwarranted and should be set aside.

5. Having heard the authorized representative for the

appellants and the learned counsel for the respondent we find

that admittedly no public announcement was made by the

appellants under Regulation 13(1) for the triggered

acquisition under Regulation 3(2) of the SAST Regulations,

2011. Therefore for such violation the penalty for non-

disclosure of acquisition of shares under Section 15H(ii)

becomes applicable.

6. The AO found that though the shareholding prescribed

in law was triggered by the conversion of the warrants into

shares there was no change in the control of the Company.

Further when the acquisition was triggered the Company was

going through restructuring of its capital and capital infusion

to address financial distress of the Company. These factors 6

were duly considered by the AO under 15J while considering

the quantum of penalty.

7. In the instant case a penalty of Rs. 10 lakh has been

imposed which is the minimum penalty prescribed under

Section 15 H. In our view the AO considered all the factors

and considering the financial distress of the Company etc. has

only imposed the minimum penalty which we do not find it

erroneous or excessive. Consequently, the appeal lacks merit

and is dismissed.

8. We direct the appellants to pay the entire amount within

six weeks from today. Any amount paid under protest shall be

adjusted.

9. In view of the disposal of the appeal, Misc. Application

No. 7 of 2020 seeking stay on recovery proceedings become

infructuous and is disposed of as such.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member 17.01.2020 Prepared and compared by:msb