Ashok Shivlal Rupani vs Sebi

Date of Decision: 22.08.2019

Appeal No. 417 of 2018

1.

Ashok Shivlal Rupani 3/4/5, Nanabhai Mansion, 61, Sir P.M. Road, Fort, Mumbai- 400 001

2. Naresh Shivlal Rupani B-142/3, Chinar, 14th Floor, Rafi Ahmed Kidwai 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

WITH Appeal No. 440 of 2018

1. Ashok Shivlal Rupani 3/4/5, Nanabhai Mansion, 61, Sir P.M. Road, Fort, Mumbai- 400 001

2. Naresh Shivlal Rupani B-142/3, Chinar, 14th Floor, Rafi Ahmed Kidwai Road, Wadala, Mumbai- 400 031

3. Uttam Ravji Gada 401, Nalin Apartment, J.P. Road, Andheri (W), Mumbai- 400 058 ...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 2

Mr. Yuvraj Choksy, Advocate i/b Ganesh & Co. for the Appellants.

Mr. Karan Bhosale, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice Tarun Agarwala (Oral)

1. Certain irregularities in the scrip of Oregon Commercial

Limited now known as Saianand Commercial Limited was

observed between January 04, 2010 to January 10, 2011 based

on which a show cause notice was issued to the appellants who

are directors in the company to show cause as to why an inquiry

should not be held and penalty should not be imposed under the

Securities and Exchange Board of India Act, 1992 ("SEBI Act"

for convenience) for the alleged violations.

2. The violations were that the appellants Ashok Shivlal

Rupani and Naresh Rupani as directors had sold shares during

the investigation period that is on January 04, 2010 to January

10, 2011 and they failed to file necessary disclosures under

Regulation 13(4) and 13(5) of the Securities and Exchange

Board of India (Prohibition of Insider Trading Regulations,

1992 ("PIT Regulations, 1992" for convenience). The second 3

violation alleged was that the Board of Directors of the

company in its meeting held on July 22, 2010 recommended for

a change in the management of the company in accordance with

the provisions of Regulation 12 of SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997

("SAST Regulations" for convenience) which proposal for

change in management of the company was moved through

postal ballot for approval of members on July 22, 2010 but no

corporate announcement was made to the Exchange regarding

the Board Meeting and thus, the directors violated Regulation

30(4) of SEBI (Listing and Disclosures Requirements)

Regulations, 2015 ("LODR Regulations, 2015") read with

clause 36 of the Listing Agreement.

3. The appellants filed the replies and the Adjudicating

Officer ("AO" for convenience) passed two separate orders on

the aforesaid two violations. By an order dated August 29, 2018

the AO imposed a penalty of ` 2 lakh each on two directors for

violation of Regulation 13(4) read with Regulation 13(5) of the

PIT Regulations, 1992 for failure to make the necessary

disclosures. It was found that the two directors had sold their

shares which were more than 1% of the total paid up capital of

the company and thus necessary disclosures were required to be

made under Regulation 13(4) read with Regulation 13(5) of the 4

PIT Regulations, 1992 which the directors failed to do so. By

the second order dated September 06, 2018 the same AO passed

an order imposing a penalty of ` 2 lakh each on the three

directors for violation for violation of the LODR Regulations

and the Listing Agreement.

4. The directors of the company being aggrieved by the two

orders have filed Appeal Nos. 417 of 2018 and 440 of 2018.

Since the issue involves a common ground, both the appeals are

being decided together.

5. We have heard the learned counsel for the parties. It was

contended that there was an inordinate delay in the issuance of

the show cause notice for violation of provisions of PIT

Regulations or of the LODR Regulations and therefore on the

ground of inordinate delay the proceeding should have been

dropped and no penalty could have been imposed. It was

contended that the alleged violation occurred in the year 2010

whereas the show cause notice was issued in the year 2018 after

eight years for which no explanation has been given.

6. Having considering the matter, we are of the view that

there has been an inordinate delay on the part of the respondent

in initiating proceedings against the appellants for alleged 5

violations. Much water has flown since the alleged violations

and at this belated stage the appellants cannot be penalized. It is

alleged that disclosure under PIT Regulations was not made but

similar disclosure was made by the appellant under SAST

Regulations. Therefore, information was available on the Stock

Exchange and therefore it cannot be said that the respondents

were unaware of the alleged violations. Further, the purpose of

disclosure was to make the market aware of the change of

shareholding of the shareholders. When a disclosure was made

by the company under SAST Regulations the investors became

aware of the change in the shareholding. The non-compliance

of Regulation 13 if any becomes technical in nature.

7. In Mr. Rakesh Kathotia & Ors. vs. SEBI (Appeal No. 07

of 2016 decided by this Tribunal on 27.05.2019) proceedings

were quashed on account of inordinate delay. The said decision

is squarely applicable to the instant case. For facility, the

relevant paragraph of the order is extracted hereunder:

"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [AIR 6

(1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held:

"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."

8. In the light of the aforesaid, we are of the opinion that

there has been an inordinate delay in the issuance of the show 7

cause notice and for completion of the adjudication proceedings.

Since the power to adjudicate has not been exercised within a

reasonable period no penalty could have been imposed for the

alleged violations.

9. As a result, without going into the merits of the case, we

are of the opinion that on account of inordinate delay the

initiation of proceedings by issuance of the show cause notice

which culminated into a penalty order cannot be sustained. The

show cause notice and the impugned orders passed by the AO

are quashed. Both the appeals are allowed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 22.08.2019 Prepared & Compared By: PK