Dr. Kailash S. Choudhari And Others vs Sebi

Order Reserved On: 02.12.2015 Date of Decision : 16.12.2015

Appeal No. 97 of 2014

1.

Mr. Ravi Mohan 7, Joy Palasia, Indore-452 001 Madhya Pradesh

2. Ms. Gopali Chandra Mohan Raja Gokuldas Palace, Jabalpur-482 002

3. Ms. Indumati R. Maheshwari 7, Joy Palasia, Indore-452 001 Madhya Pradesh

4. Vishwa Securities & Finance Pvt. Ltd.

Raja Gokuldas Palace, Hanu Market, Jabalpur-482 002, Madhya Pradesh ...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. P. N. Modi, Senior Advocate with Mr. Neville P. Lashkari, Advocate and Mr. Pranav Arora, Advocate i/b Crawford Bayley & Co. for Appellants.

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

WITH Appeal No. 99 of 2014

1. Mr. Ravi Mohan 7, Joy Palasia, Indore-452 001 Madhya Pradesh 2

2. Mr. Shrigopal Dhoot C/o. Ramnath Dhoot & Co.

Ganganagar Gin Compound, Station Road, Ahmednagar-414 001

3. Ms. Pratibha Dhoot C/o. Ramnath Dhoot & Co.

Ganganagar Gin Compound, Station Road, Ahmednagar-414 001

4. Ms. Gopali Chandra Mohan Raja Gokuldas Palace, Jabalpur-482 002 Madhya Pradesh

5. Vishwa Mohan (HUF) Raja Gokuldas Palace, Jabalpur-482 002 Madhya Pradesh

6. Ms. Indumati R. Maheshwari 7, Joy Palasia, Indore-452 001 Madhya Pradesh

7. Golkunda Commercial Pvt. Ltd.

1A/8A, Industrial Area, A. B. Road, Dewas-455 001 Madhya Pradesh ...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. P. N. Modi, Senior Advocate with Mr. Neville P. Lashkari, Advocate and Mr. Pranav Arora, Advocate i/b Crawford Bayley & Co. for Appellants.

Mr. Kumar Desai, Advocate with Mr. Mihir Mody and Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent. 3

AND Appeal No. 311 of 2014

1. Dr. Kailash S. Choudhari, Unit 3314, The Address Hotel, Dubai Mall, UAE-31166

2. Mrs. Seema Choudhari A-12, First Floor, Geetanjali Enclave, New Delhi-110 017

3. Rohan Choudhari, A-12, First Floor, Geetanjali Enclave, New Delhi-110 017

4. Rashi Choudhari A-12, First Floor, Geetanjali Enclave, New Delhi-110 017

5. Mrs. Bharti Shailesh, Flat No. 1201, Jahangir Towers, Setalwad Lane, Nepean Sea Road, Mumbai- 400 026

6. Mr. Shailesh Popatlal Sundesha, Flat No. 1201, Jahangir Towers, Setalwad Lane, Nepean Sea Road, Mumbai- 400 026

7. Mrs. Sharda Popatlal, Flat No. 1201, Jahangir Towers, Setalwad Lane, Nepean Sea Road, Mumbai- 400 026

8. Mr. Popatlal Fulchand Sundesha, Flat No. 1201, Jahangir Towers, Setalwad Lane, Nepean Sea Road, Mumbai- 400 026

9. Ganpat Singh Bhandari, C-54, Lal Kothi Scheme, Jaipur- 302 015 ...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 4

Mr. Sanjay Israni, Advocate for Appellants.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate i/b Economic Laws Practice for the Respondent.

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

Per: Justice J.P. Devadhar

1. Appellants in all these appeals are aggrieved by the orders passed

by the Adjudicating Officers of Securities and Exchange Board of India

("SEBI" for short) whereby appellants in the respective appeals are held

liable to pay penalty under section 15A(b) of the Securities and Exchange

Board of India Act, 1992 ("SEBI Act" for short) jointly and severally for

failing to make disclosure to the stock exchanges as contemplated under

regulation 7(1A) read with regulation 7(2) of Securities and Exchange

Board of India (Substantial Acquisition of Shares and Takeovers)

Regulations, 1997 ("Takeover Regulations, 1997" for short). Since the

issue involved in these appeals is common, all these appeals are heard

together and disposed of by this common decision.

2. Although facts of each case have very little relevance in resolving

the controversy raised in these appeals, for better appreciation of the

controversy, few facts in Appeal No. 97 of 2014 are set out herein

below:-

a) Appellants in Appeal No. 97 of 2014 together with

several others were the original promoters of Hind

Syntex Ltd. ("Target Company" for convenience) a 5

company incorporated under the Companies Act,

1956 on 03.12.1980. The shares of the said company

were listed on the Bombay Stock Exchange Ltd.

("BSE" for short) and National Stock Exchange Ltd.

("NSE" for short).

b) As on 31.12.2004, four out of several promoters, who

are appellants in Appeal No. 97 of 2014 held shares of

the target company as follows:-

i) Appellant No. 1: 231400 shares (2.13%

of the total capital)

ii) Appellant No. 2: 9786 shares (0.09% of

the total capital)

iii) Appellant No. 3: 246600 shares (2.27%

of the total capital)

iv) Appellant No. 4: 10100 shares (0.09% of

the total capital)

c) Between 03.01.2005 and 04.02.2005 each of the

appellants sold following shares of the target

company:-

i) Appellant No. 1: 70600 shares (0.65% of

the total capital)

ii) Appellant No. 2: 3895 shares (0.04% of

the total capital) 6

iii) Appellant No. 3: 148445 shares (1.36%

of the total capital)

iv) Appellant No. 4: 3600 shares (0.03% of

the total capital)

d) Since aggregate sale of shares of the target company

effected by four appellants during the aforesaid period

exceeded 2% on 04.02.2005, the Appellant No. 1 on

05.02.2005 made disclosure of above sale to the target

company but failed to make disclosure to the stock

exchanges as contemplated under regulation 7(1A) of

the Takeover Regulations, 1997.

e) Some time in February 2013, a third party sought to

make an open offer, with a view to acquire shares of

the target company from the appellants. In the Draft

Letter of Offer filed before SEBI, the lead Manager

had observed that in the year 2005 the appellants had

failed to comply with regulation 7(1A) of the

Takeover Regulations, 1997.

f) On the basis of above observation, show cause notice

was issued by SEBI on November 28, 2013 calling

upon the appellants to show cause as to why action

should not be taken against the appellants for failing

to make disclosure to the stock exchanges, in the year

2005 regarding sale of more than two per cent shares 7

of the target company as contemplated under

regulation 7(1A) of the Takeover Regulations, 1997.

g) In the meantime, on 03.04.2013, appellants as and by

way of abundant caution had made disclosures to the

BSE and NSE as required under regulation 7(1A) of

the Takeover Regulations, 1997 and intimated the

same to SEBI.

h) On receiving reply to the show cause notice, SEBI

granted personal hearing to the appellants and by the

impugned order dated 18.02.2014 imposed penalty of

` 6 lac on the appellants for violating regulation 7(1A)

and directed the appellants to pay the said penalty

jointly and severally. Challenging the impugned

order, appellants have filed Appeal No. 97 of 2014.

i) It is not in dispute that the facts in other cases are

similar to the facts in Appeal No. 97 of 2014.

3. Mr. Modi, learned Senior Advocate appearing on behalf of

appellants in Appeal No. 97 of 2014 and Appeal No. 99 of 2014 and

Mr. Sanjay Israni, learned counsel appearing on behalf of appellants in

Appeal No. 311 of 2014 have submitted as follows:-

a) The expression 'Any acquirer' under regulation 7(1A)

of the Takeover Regulations, 1997 is relatable to a 8

single acquirer and not to a group of acquirers and

therefore, even if the promoter group of the appellants

held 39% shares of the target company, regulation

7(1A) of the Takeover Regulations, 1997 would get

triggered only when each acquirer acquires or sells

2% or more shares of the target company individually

and not collectively along with other co-acquirers.

b) Obligation to make disclosure under regulation 7(1A)

of the Takeover Regulations, 1997 arises only when

the acquirer covered under regulation 11(1),

individually purchases or sells shares of the target

company aggregating to 2% or more of the share

capital of the target company. Since purchase or sale

aggregating to 2% or more in regulation 7(1A) is

referable to aggregate purchase or sale effected by

each acquirer, the AO of SEBI was not justified in

aggregating the sales of all the appellants who are

independent acquirers. None of the appellants

individually have sold more than 2% shares of the

target company and therefore, regulation 7(1A) being

not attracted, none of the appellants were required to

make disclosure under 7(1A) of the Takeover

Regulations, 1997. When in law the appellants were

not required to make disclosure under regulation

7(1A), mere fact that the appellants erroneously made 9

disclosure to the target company and belatedly to the

stock exchanges, cannot be a ground to hold that the

appellants have violated regulation 7(1A) by failing to

make disclosure to the stock exchanges under

regulation 7(1A).

c) Appellants were the original promoters of the target

company and therefore, appellants could not be said to

have acquired shares under regulation 11(1) as

contemplated under regulation 7(1A) of the Takeover

Regulations, 1997 and consequently regulation 7(1A)

would not apply to the case of the appellants.

d) Relying on a decision of this Tribunal in case of HB

Stockholdings Ltd. v/s SEBI (Appeal No. 114 of 2012

decided on 27.08.2013) it is submitted that in the

present case, alleged disclosure was required to be

made in February 2005, whereas, show cause notice

has been issued to the appellants in November 2013,

that is after delay of more than 8 years and hence the

impugned order is liable to be quashed and set aside.

e) Regulation 7(3) of the Takeover Regulations, 1997

provides that every target company whose shares are

acquired in the manner referred to in regulation 7(1)

& 7(1A) of the Takeover Regulations, 1997 to make

disclosure to the stock exchanges the aggregate 10

number of shares held by 'each of such persons'

within the time stipulated therein, which obviously

means that the obligation to make disclosure to the

target company under regulation 7(1A) is on

individual acquirer and not collectively along with

other co-acquirers.

f) Under regulation 8(2) of the Takeover Regulations,

1997, a promoter is required to disclose the number

and percentage of shares in the target company held

by him and by persons acting in concert with him. In

regulation 7(1A) of the Takeover Regulations, 1997

reference to 'persons acting in concert' is

conspicuously absent. Therefore, disclosure obligation

under regulation 7(1A) is relatable to the shareholding

of each acquirer individually and not collectively with

other co-acquirers or persons acting in concert with

the acquirer.

g) Expression 'acquirer' as also the expression 'persons

acting in concert' defined under regulation 2(1)(b) &

2(1)(e) of the Takeover Regulations, 1997

respectively refer to acquisition of shares of the target

company and not to the sale of shares. Therefore,

definition of those words cannot be applied to sale of 11

shares referred to under regulation 7(1A) of the

Takeover Regulations, 1997.

h) In para 9 of the impugned order (in Appeal No. 97 of

2014) it is recorded that the target company has been

disclosing to the stock exchanges the shareholding of

the appellants under the category of promoters. Inspite

of above findings recorded in para 9, a contradictory

finding is recorded in para 11 of the impugned order

(in Appeal No. 97 of 2014) to the effect that 'it is only

through the mechanism of stock exchanges

dissemination of information takes place for the

benefit of the public/investors at large' and hence the

disclosures made to the company would not suffice

nor would act as a substitute to the disclosure to be

made by the acquirer to the stock exchanges.

i) The target company had made numerous filings and

disclosures to the stock exchanges including the

quarterly filing of shareholding pattern with the stock

exchanges and the publication of the quarterly

accounts which showed reduction in the promoters

shareholding. Therefore, all the relevant and correct

information was in fact in the public domain and was

made available to investors and public shareholders. 12

j) Regulation 7(2) of the Takeover Regulations, 1997

apply only to allotment/ acquisition of shares and not

to the sale of shares and hence regulation 7(2) is not

applicable to the present case. However, in the

impugned order it is erroneously held that the

appellants have breached regulation 7(2) of the

Takeover Regulations, 1997.

k) In the impugned order (in Appeal No. 97 of 2014) it is

recorded that on account of sale, the shareholding of

the promoter group went down from 39.68% to

37.60%. The said small sale of shares did not at all

affect the significant shareholding of the promoter

group and there was no change of control or

management.

l) The aggregate quantity of shares sold by all the

appellants together was in excess of 2% only to the

extent of 0.08%, that is, a mere 8703 shares of

which the sale value was a mere ` 1,18,573, yet a

completely disproportionate penalty of ` 6 lac has

been imposed on the appellants in Appeal No. 97 of

2014.

m) It is well established in law that the power to levy

penalty is a discretionary power and the levy of

penalty is not mandatory only because it is lawful to 13

do so. In the present case, no investor has made any

complaint. There are no allegations of any price or

volume manipulations or any other form of mischief.

Therefore, the breach or violation, if any, being

technical and/or venial, the same ought to have been

excused with a warning at the highest, instead of

imposing heavy monetary penalty on the appellants.

n) As the AO could not ascertain or quantify any

disproportionate gain to the appellants or any loss to

the investors on account of the alleged non-disclosure,

the penalty of ` 6 lac imposed on appellants in Appeal

No. 97 of 2014 deserves to be deleted. For the same

reason, it is submitted that the penalty imposed on

appellants in other appeals also deserve to be deleted.

4. Mr. Kumar Desai, learned counsel appearing on behalf of SEBI on

the other hand submitted as follows:-

a) Appellants (in Appeal No. 97 of 2014) in their

common reply to the show cause notice had stated that

they were part of the promoter group and on sale of

shares in excess of 2% the appellants had made

required disclosures under regulation 7(1A) to the

company but not to the BSE and NSE due to bonafide

oversight on part of the promoter group. It was further 14

stated in the said reply that belatedly on 02.04.2013

that is approximate delay of about 8 years, disclosure

under regulation 7(1A) has been made to the BSE and

NSE. Therefore, having accepted that the appellants

were obliged to make disclosure under regulation

7(1A) to the stock exchanges and that the failure to

make such disclosure was due to bonafide oversight, it

is not open to the appellants now to turn-a-round and

contend before this Tribunal that they were not

obliged to make disclosures either to the target

company or to the stock exchanges under regulation

7(1A) of the Takeover Regulations, 1997.

b) In the disclosure made to the stock exchanges on

02.04.2013 appellants (in Appeal No. 97 of 2014) had

shown themselves as promoters and persons acting in

concert with the promoters. Since the order impugned

in the appeal is based on the facts admitted by the

appellants, no fault can be found with the impugned

order and it is not open to the appellants to put up a

new case before this Tribunal.

c) Obligation to make disclosures under Chapter II and

Chapter III of the Takeover Regulations, 1997 are

separate and distinct. Disclosure obligation under

Chapter II are to be complied with by every person set 15

out therein and the disclosure obligation under

Chapter III is a joint and several obligation of the

persons required to make the open offer as acquirers,

that is, the acquirers and persons acting in concert

with them for the purpose of substantial acquisition of

shares or acquisition of control as set out therein.

d) Regulation 7(1A) was inserted to the Takeover

Regulations, 1997 with effect from 09.09.2002 as

recommended in the report submitted by the

Committee constituted under Chairmanship of Justice

P. N. Bhagwati. In the said report it was

recommended that acquirers holding 15% and above

should disclose purchases or sales at every 2% level.

Since acquisition of 15% and more shares is directly

linked to the control over the company, it is apparent

that acquisition of shares by an acquirer under

regulation 7(1A) would be acquisition of shares by the

acquirer himself together with the persons acting in

concert with the acquirer.

e) On harmonious/purposive reading of regulation 7(1A)

with regulation 11(1) of the Takeover Regulations,

1997, it becomes clear that any acquirer(s) together

with persons acting in concert with him/them who

have acquired shares or voting rights under regulation 16

11(1) of the Takeover Regulations, 1997, that is,

holding 15% or more but less than 55% of the shares

or voting rights shall be obliged to make disclosure of

purchase or sale aggregating to 2% or more of the

share capital of the target company, to the target

company and to the stock exchange within two days

of such purchase or sale along with the aggregate

shareholding after such acquisition or sale. Acquirer/s

holding shares or voting rights between 15% to 55%,

apart from making disclosures when the purchase or

sale exceeds 2% are required to make an open offer if

the aggregate limit of 5% is crossed in any financial

year ending 31st March.

f) Since the object of regulation 7(1A) as per the

recommendations of the Bhagwati Committee report

2002 is to make it mandatory for acquirers holding

(together with persons acting in concert) shares

between 15% to 55% to disclose purchase or sale of

those shares in excess of 2%, it must be held that the

obligation to make disclosure under regulation 7(1A)

arises when the aggregate purchase or sale of shares

held by the acquirer together with persons acting in

concert with him exceeds 2%. In support of the above

contention reliance is placed on a decision of the 17

Bombay High Court in case of Anand Rathi vs SEBI

reported in (2002) 1 Mh. L.J. 522.

g) Fact that the appellants in each appeal constitute

respective promoter group and combined sale of the

appellants in the respective appeals exceed 2% is not

in dispute. Therefore, the appellants in each appeal

having effected sales in excess of 2% in concert with

each other and having made disclosure to the target

company under regulation 7(1A) are not justified in

contending that the obligation to make disclosure to

the stock exchange under regulation 7(1A) arises only

when the sale of shares by individual acquirer exceeds

2%.

h) The word 'promoter' defined under regulation 2(1) (h)

includes 'promoters'. Similarly the word 'acquirer'

defined under regulation 2(1) (b) would include

acquires. This is evident from Section 13(2) of the

General Clauses Act, 1852 which provides that the

words in any Central Acts or Regulations would

include the plural. Therefore, the obligation to make

disclosure under regulation 7(1A) arises when the

aggregate sale of shares by the acquirer together with

persons acting in concert with him exceeds 2%. 18

i) The word 'any acquirer' in regulation 7(1A) refers to

an acquirer under regulation 11(1). Since the

shareholding of the acquirer under regulation 11(1) is

the referable to the shareholding of the acquirer

together with the persons acting in concert with him,

it is apparent that the purchase and sale of shares by

the acquirer referred to in regulation 7(1A) is

referable to the purchase or sale of shares by the

acquirer together with the persons acting in concert

with him.

j) Since regulation 7(1A) contemplates disclosure of

purchase or sale of shares aggregating to 2% or more

to the target company and to the stock exchanges

within 2 days of such purchase or sale, the word

'acquirer' in regulation 7(1A) would have to be

purposively interpreted to include purchase or sale of

shares by the acquirer together with the persons acting

in concert with the acquirer.

k) Fact that the word 'acquirer' and the word 'persons

acting in concert' are separately defined under the

Takeover Regulations, 1997 does not affect the

interpretation of the word 'acquirer' in regulation

7(1A) put forth by SEBI, because, the expression

'acquirer' as defined under regulation 2(1) (b) refers 19

to acquisition of shares by the acquirer himself or with

any person acting in concert with the acquirer.

Therefore, for the purposes of regulation 7(1A) the

purchase or sale of shares by an acquirer would be

purchase or sale by an acquirer together with the

persons acting in concert with such acquirer.

l) Appellants who had made timely disclosure to the

target company under regulation 7(1A) but failed to

make timely disclosure to the stock exchange under

regulation 7(1A) have clearly violated the mandate of

the Takeover Regulations, 1997.

m) Fact that the disclosure made by the appellants under

regulation 7(1A) to the target company have been

transmitted by the target company to the stock

exchanges under regulation 7(3) does not absolve the

appellants of their obligation to make disclosure to the

stock exchanges under regulation 7(1A). In any

event, taking all mitigating factors, nominal penalty of

` 6 lac is imposed on appellants (in Appeal No. 97 of

2014) as against the imposable penalty of ` 1 crore

and therefore, the penalty imposed cannot be said to

be unreasonable or excessive.

n) Relying on the decisions of the Apex Court in case of

Swedish Match vs. SEBI reported in (2004) 11 SCC 20

641 and in case of Chairman SEBI vs. Shriram

Mutual Fund reported in (2006) 5 SCC 361 it is

submitted that the appellants who have violated

regulation 7(1A) of the Takeover Regulations, 1997

cannot escape penalty irrespective of the fact that

there was mens-rea is committing the violations or

not.

o) Relying on a decision of this Tribunal in case of

Radheshyam Tulsian & Ors v/s SEBI (Appeal No.

106 of 2005 decided on 26.04.2006) it is submitted

that in view of the expression 'acquirer' being defined

under regulation 2(1)(b), the expression 'acquirer' in

regulation 7(1A) would be referable to shares held by

an acquirer together with all persons acting in concert

with such acquirer. Therefore, an acquirer together

with persons acting in concert with him holding 15%

or more but less than 55% shares or voting rights of

the target company, when purchases or sells shares of

the target company together with persons acting in

concert with him, aggregating 2% or more of the

share capital of the target company, would be obliged

to make disclosure to the target company under

regulation 7(1A) of the Takeover Regulations, 1997. 21

Accordingly, it is submitted by counsel for SEBI that since the appellants

in all these appeals have failed to make disclosure to the stock exchanges

as contemplated under regulation 7(1A), no fault can be found with the

decision in imposing penalty against the appellants and hence, all these

appeals are liable to be dismissed with costs.

5. We have carefully considered the rival submissions.

6. Short question that falls for consideration in these appeals is,

whether the obligation to make disclosure under regulation 7(1A) read

with regulation 7(2) of the Takeover Regulations, relates to purchase or

sale of shares or voting rights aggregating 2% or more of the share capital

of the target company effected by an acquirer individually or by the

individual acquirer together with the persons acting in concert with that

acquirer.

7. Regulation 7(1A) was inserted to the Takeover Regulations, 1997

with effect from 09.09.2002. For better appreciation of the dispute raised

in these appeals, it would be appropriate to quote regulation 7 of the

Takeover Regulations, 1997, as it stood prior to insertion of regulation

7(1A) and subsequent to insertion of regulation 7(1A).

8. Regulation 7 of the Takeover Regulations, 1997 as it stood prior to

insertion of regulation 7(1A) on 09.09.2002 reads thus:-

"7. Acquisition of 5% and more shares or voting rights of a company.--

(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or 22

voting rights, if any, held by him) would entitle him to more than five per cent shares or voting rights in a company, in any manner whatsoever shall disclose the aggregate of his shareholding or voting rights in that company, to the company.

(2) The disclosures mentioned in sub-regulation (1) shall be made within four working days of -

(a) the receipt of intimation of allotment of shares; or

(b) the acquisition of shares or voting rights, as the case may be.

(3) Every company, whose shares are acquired in a manner referred to in sub-regulation (1), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulation (1)."

9. Regulation 7 of the Takeover Regulations, 1997 (as substituted by

SEBI) (Substantial Acquisition of Shares and Takeovers) (Second

Amendment) Regulations, 2002, ('2002 amendment' for short) with

effect from 9.9.2002 reads thus:-

"Acquisition of 5 per cent and more shares or voting rights of a company.

7. [(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five 23

per cent or ten per cent or fourteen per cent shares or voting rights in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed.]

[(1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale.]

[Explanation--For the purposes of sub-regulations (1) and (1A), the term 'acquirer' shall include a pledge, other than a bank or a financial institution and such pledgee shall make disclosure to the target company and the stock exchange within two days of creation of pledge.]

(2) The disclosures mentioned in [sub-regulations (1) and (1A)] shall be made within [two days] of,--

(a) the receipt of intimation of allotment of shares; or

(b) the acquisition of shares or voting rights, as the case may be.

[(2A) The stock exchange shall immediately display the information received from the acquirer under sub- 24

regulations (1) and (1A) on the trading screen, the notice board and also on its website.]

(3) Every company, whose shares are acquired in a manner referred to in [sub-regulations (1) and (1A)], shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under [sub-regulations (1) and (1A)]."

10. At this stage, we may also quote regulation 2(1)(b) which defines

the expression 'acquirer' for the purposes of Takeover Regulations, 1997

as follows:-

"Definitions--

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

(a)....

(b) "acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer;"

11. Regulation 7 is contained in Chapter II of the Takeover

Regulations, 1997. Chapter II consists of regulations 6 to 9, under the

heading 'Disclosures of shareholding and control in a listed company'.

As per Chapter II, disclosures have to be made by the entities specified

therein at various stages as more particularly set out therein. 25

12. Regulation 6 in Chapter II of the Takeover Regulations, 1997

provides for disclosure by the entities specified therein on the basis of

their shareholding as on the date of the said regulation came into force.

Regulation 7 provides for disclosure by the entities specified therein,

after the Takeover Regulations, 1997 came into force.

13. Prior to insertion of regulation 7(1A), disclosure obligation under

regulation 7(1) was only in relation to acquisition of shares or voting

rights in excess of the limits prescribed in regulation 7(1) and the said

disclosure obligation was required to be discharged within two days of

the events specified under regulation 7(2). By 2002 amendment,

regulation 7(1A) was inserted with effect from 09.09.2002. As per

regulation 7(1A) any acquirer who has acquired shares or voting rights of

a company under regulation 11(1) was required to disclose purchase or

sale of the shares or voting rights of the target company aggregating 2%

or more of the share capital of the target company to the target company

and to the stock exchanges within two days of such purchase or sale. By

the said 2002 amendment regulation 7(2) was also amended with effect

from 09.09.2002, thereby providing that the disclosures under regulation

7(1) & 7(1A) be made within two days of the events set out under

regulation 7(2).

14. Argument of the appellants in nutshell is that firstly, the disclosure

obligation under regulation 7(1A) arises only when purchase or sale of

shares or voting rights effected by any individual acquirer exceeds the

limit prescribed under regulation 7(1A) and in the cases in hand, since 26

sale of shares effected by appellants as individual acquirers being less

than 2%, it could not be said that the appellants have violated regulation

7(1A). Secondly, assuming, disclosure obligation under regulation 7(1A)

arises when purchase or sale of shares or voting rights by an acquirer

together with persons acting in concert with him exceeds 2% of the share

capital and that obligation has to be discharged within two days of the

events specified under regulation 7(2), since regulation 7(2) does not

contemplate disclosure of sale of shares or voting rights covered under

regulation 7(1A), appellants cannot be penalized for failing to disclose to

the stock exchanges, within the time stipulated under regulation 7(1A)

read with regulation 7(2).

15. First contention of the appellants is that regulation 7(1A) refers to

the obligation of 'Any acquirer', and therefore, it must be held that

regulation 7(1A) gets triggered only when purchase or sale of shares or

voting rights of the target company aggregating 2% or more of the share

capital of the target company is effected by any individual acquirer.

Since sales of shares effected by the individual appellant acquirer in all

the appeals do not exceed 2% of the share capital of the target company

regulation 7(1A) does not get triggered and therefore the appellants

cannot be held guilty of violating regulation 7(1A).

16. There is no merit in the above contention, because, expression

'acquirer' defined under regulation 2(1)(e) stipulates that wherever the

expression 'acquirer' is used in the Takeover Regulations, 1997 it shall

be referable to a person who acquires shares or voting rights in the target 27

company either by himself or with any person acting in concert with the

acquirer. Therefore, purchase or sale of shares by 'Any acquirer' under

regulation 7(1A) would be referable to purchase or sale of shares effected

by the acquirer either by himself or with persons acting in concert with

the acquirer and would not be relatable to purchase or sale of shares by

the acquirer alone as contended by the appellants. Since aggregate sale of

shares effected by the appellants as 'persons acting in concert' has

exceeded 2% of the share capital of the target company, the appellants

were obliged to disclose the said sale to the target company and to the

stock exchange within the time stipulated under regulation 7(1A) read

with regulation 7(2). Admittedly, the appellants had acquired shares of

the target company as promoter group with the common object of

controlling the target company. Under regulation 2(1)(e) of the Takeover

Regulations 1997, when persons acquire shares or voting rights with the

common object of controlling the target company, then the said persons

are said to be 'persons acting in concert'. Therefore, the appellants as

persons acting in concert having acquired shares of the target company to

the extent specified under regulation 11(1) were obliged under regulation

7(1A) to make disclosure when they as persons acting in concert sold

shares exceeding 2% of the share capital of the target company. It is not

in dispute that as soon as sale of shares of the target company effected by

the appellants as persons acting in concert exceeded 2% of the share

capital of the target company disclosure was made by appellants to the

target company as contemplated under regulation 7(1A) but no disclosure

was made to the stock exchanges as required under regulation 7(1A). 28

Having correctly understood the scope of the obligation under regulation

7(1A), appellants are not justified in taking a stand to the contrary by

contending that the disclosure obligation under 7(1A) arises only when

purchase or sale of shares by an acquirer individually exceeds 2% of the

share capital of the target company.

17. It is relevant to note that regulation 7(1A) is applicable to an

acquirer who has acquired shares or voting rights of a company under

regulation 11(1), that is, an acquirer who, together with persons acting in

concert with him, has acquired in accordance with the provisions of law,

15% or more but less than 55% of the shares or voting rights in the target

company. Admittedly, the appellants as persons acting in concert had

acquired 39.68% shares of the target company and therefore, appellants

were 'acquirer' covered under regulation 11(1). When appellants as

persons acting in concert sold shares of the target company in excess of

2% of the share capital of the target company, appellants were obliged to

make disclosure to the target company and to the stock exchanges under

regulation 7(1A). Thus, regulation 7(1A) refers to the shares held by an

acquirer together with persons acting in concert with him, and that

acquirer together with persons acting in concert with him, when

purchases or sells shares or voting rights of the target company in excess

of the limits prescribed under regulation 7(1A), is required to make

disclosure to the target company and to the stock exchanges. In other

words, regulation 7(1A) provides that an acquirer who has acquired

shares with persons acting in concert, when acquires additional shares or

sells existing shares with persons acting in concert with him must make 29

disclosure. Therefore, argument that regulation 7(1A) refers to purchase

or sale of shares by an individual acquirer cannot be accepted.

18. Appellants contend that in regulation 11(1), 11(2) and 11(2A) of

the Takeover Regulations, 1997 reference is made to the shareholding of

an acquirer together with persons acting in concert with him, whereas, in

regulation 7(1A) reference is made to the shareholding of the acquirer

alone, and therefore, it must be held that regulation 7(1A) refers to the

shareholding of an individual acquirer and not to the shareholding of an

acquirer together with persons acting in concert with him. Submission is

that wherever, the regulation intended to refer to the shareholding of an

acquirer together with the persons acting in concert, it has specifically

stated so in the regulation itself. Since, regulation 7(1A) refers to the

shareholding of the acquirer alone it would be just and proper to hold that

regulation 7(1A) gets triggered when purchase or sale of shares or voting

rights effected by the acquirer alone exceeds the limits prescribed under

regulation 7(1A). Similar argument is also advanced on behalf of the

appellants by referring to regulation 8(2) of the Takeover Regulations,

1997 wherein reference is made to the shareholding of a promoter

together with persons acting in concert with him.

19. We see no merit in the above contention. Once the regulation

defines the expression 'acquirer' under regulation 2(1)(b) of the Takeover

Regulations to mean a person who has acquired shares or voting rights of

the target company either by himself or with any person acting in concert

with the acquirer then, that meaning has to be assigned to the expression 30

'acquirer' wherever used in the Takeover Regulation, 1997. Therefore, it

would be just and proper to hold that the expression 'acquirer' in

regulation 7(1A) is referable to a person who has acquired shares of the

target company either by himself or with the persons acting in concert

with him. Even after defining the expression 'acquirer', fact that in some

regulations the expression 'acquirer' is used and in some regulations the

expression 'acquirer' together with persons acting in concert' is used, it

cannot be presumed that in regulation 7(1A) the expression 'acquirer' is

referable to a person holding shares of the target company individually.

In other words, whether the expression 'acquirer' is followed by the

words 'together with persons acting in concert' or not, the said

expression used in regulation 7(1A), would be referable to purchase or

sale of shares by the acquirer either by himself or with persons acting in

concert with the acquirer. In the present case, aggregate sale of shares of

the target company by the appellants (acquirers) as persons acting in

concert when exceeded 2% of the share capital of the target company,

appellants were obliged to make disclosure to the target company and to

the stock exchanges and since appellants failed to make disclosure to the

stock exchanges the appellants have violated regulation 7(1A).

20. Argument of the appellants that they have not acquired shares of

the target company under regulation 11(1) and hence regulation 7(1A) is

not attracted is without any merit, because, regulation 11(1) does not

prescribe any particular mode of acquiring shares but merely refers to

acquisition of 15% or more but less than 55% of the shares by an acquirer

together with persons acting in concert with him in accordance with the 31

provisions of law. By referring to an 'acquirer' covered under regulation

11(1) in regulation 7(1A), it is made clear that an acquirer covered under

regulation 11(1) i.e. an acquirer (either by himself or together with

persons acting in concert with him) holding 15% or more but less than

55% shares of the target company when either by himself or together

with persons acting in concert with him purchases or sells shares of the

target company aggregating 2% or more of the share capital of the target

company, then such acquirer shall make disclosure as provided under

regulation 7(1A). Fact that the appellants in all these appeals held shares

of the target company more than 15% but less than 55% in accordance

with law as stipulated under regulation 11(1) is not in dispute. Therefore,

appellants holding shares of the target company to the extent specified

under regulation 11(1), when sold shares of the target company as

persons acting in concert in excess of 2% of the share capital of the target

company, were obliged to make disclosure under regulation 7(1A).

21. Relying on regulation 7(3) of the Takeover Regulations, 1997

which refers to the information received from 'each person' referred to in

regulation 7(1) and 7(1A), it is contended on behalf of the appellants that

the information by way of disclosure to be made by an acquirer under

regulation 7(1A) is relatable to the shareholding of an acquirer alone and

is not relatable to the shareholding of the acquirer together with persons

acting in concert with the acquirer. This argument of the appellant is also

without any merit, because, as noted earlier, the expression 'acquirer'

defined under regulation 2(1)(b) is referable to the shares or voting rights

of the target company held by an acquirer alone or by an acquirer 32

together with persons acting in concert with him and therefore, the

information referred to in regulation 7(3) would be the information

furnished by an acquirer under regulation 7(1) and 7(1A) in relation to

the purchase or sale of shares by an acquirer together with persons acting

in concert with him in excess of the limits prescribed under regulation

7(1) and 7(1A).

22. Based on decision of this Tribunal in case of HB Stockholdings

Ltd. vs. SEBI (Appeal no. 114 of 2012 decided on 27.08.2013) it is

contended on behalf of the appellants that in view of the delay of more

than 8 years in issuing the show cause notice, the impugned order is

liable to be quashed and set aside. There is no merit in this contention,

because, this Tribunal while setting aside the decision of SEBI on merits

has clearly held in para 20 of the order, that delay itself may not be fatal

in each and every case. Moreover, the Apex Court in case of Collector of

Central Excise, New Delhi vs. Bhagsons Paint Industry (India) reported

in 2003 (158) ELT 129 (S.C) has held that if there no statutory bar for

adjudicating the matter beyond a particular date, the Tribunal cannot set

aside the adjudication order merely on the ground that the adjudication

order is passed after a lapse of several years from the date of issuing

notice. In the Takeover Regulations, 1997 there is no time limit

prescribed either for issuing show cause notice or for adjudicating the

show cause notice. Therefore, argument of the appellants that in view of

the delay in issuing the show cause notice the impugned order must be

quashed cannot be accepted. However, we make it clear that in the

absence of time limit prescribed for issuing show cause notice or for 33

completing the adjudication proceedings, SEBI cannot arbitrarily delay

the proceedings and must take all reasonable steps to initiate and

complete the proceedings in accordance with law as expeditiously as

possible. In the facts of present case (Appeal No. 97 of 2014) it is not in

dispute that sometime in February 2013 SEBI came to know that the

appellants had failed to comply with regulation 7(1A) in the year 2005

and immediately thereafter, show cause notice was issued in November

2013. Therefore, in the facts of present case, no fault can be found with

SEBI in initiating proceedings against the appellants in November 2013.

23. For all the aforesaid reasons we hold that the obligation to make

disclosure under regulation 7(1A) arises when an acquirer covered under

regulation 11(1) purchase or sells shares of the target company together

with persons acting in concert with that acquirer, aggregating to 2% or

more of the share capital of the target company.

24. Question then to be considered is, whether the AO is justified in

imposing penalty on the appellants on the ground that by failing to make

disclosure of sale of shares aggregating to 2% or more of the share capital

of the target company to the stock exchanges, within the stipulated time

the appellants have violated regulation 7(1A) read with regulation 7(2) of

the Takeover Regulations, 1997?

25. It is relevant to note that the disclosure obligation under regulation

7 as originally introduced was only in relation to acquisition of shares in

excess of the limits prescribed under regulation 7(1) and that obligation 34

had to be discharged under regulation 7(2) within two days of (a)

receiving intimation of allotment of shares or (b) acquisition of shares or

voting rights as the case may be. Thus the obligation to make disclosure

under regulation 7(1) was only in relation to acquisition of shares in

excess of the limit set out therein and the said obligation had to be

discharged within two days of the events specified under regulation 7(2).

26. By inserting regulation 7(1A) after regulation 7(1) in the Takeover

Regulations, 1997 with effect from 09.09.2002, it is provided that where

an acquirer who together with persons acting in concert with him has

acquired 15% or more but less than 55% shares or voting rights of the

target company and that acquirer either by himself or together with

persons acting in concert with him, purchases or sells shares or voting

rights aggregating to 2% or more of the share capital of the target

company, then such acquirer shall make disclosure of such purchase or

sale to the target company and to the stock exchanges within two days of

such purchase or sale.

27. It is relevant to note that while inserting regulation 7(1A), SEBI

has deemed it proper to amend regulation 7(2) with effect from

09.09.2002 by providing that the disclosure obligation under regulation

7(1) and 7(1A) shall be discharged within two days of the events

specified under regulation 7(2). Thus, as a result of insertion of

regulation 7(1A) and amendment of regulation 7(2), the disclosure

obligation in relation to purchase or sale of shares referred to in

regulation 7(1A) has to be made within two days of the events specified 35

in regulation 7(2). On perusal of regulation 7(2) it is seen that the events

enumerated therein relate only to acquisition of shares and do not relate

to sale of shares or voting rights in excess of the limits prescribed under

regulation 7(1A). As a result, even though regulation 7(1A) contemplates

that an acquirer together with persons acting in concert with him when

sell shares of the target company in excess of the limits prescribed under

regulation 7(1A) must make disclosure within two days of such sale, in

view of the amendment to regulation 7(2), the disclosure obligation under

regulation 7(1A) has to be discharged within two days of the events

specified under regulation 7(2). Since regulation 7(2) as amended does

not contemplate any obligation to disclose sale of shares by an acquirer

covered under regulation 7(1A), the question of discharging that

obligation arising under regulation 7(1A) read with regulation 7(2) does

not arise at all.

28. It was open to SEBI to make newly inserted regulation 7(1A) self

operative, because regulation 7(1A) itself provides that the obligation set

out therein has to be discharged within two days of purchase or sale

specified therein. However, SEBI in its wisdom deemed it fit to amend

regulation 7(2) with effect from 09.09.2002 by providing that the

disclosure obligation specified under regulation 7(1) and 7(1A) has to be

discharged within two days of the events specified under regulation 7(2).

Thus, by 2002 amendment it is made clear that although disclosure of

purchase or sale referred to under regulation 7(1A) has to discharged

within two days of purchase or sale, of shares referred to therein, by 36

amending regulation 7(2) it is provided that two days time to make

disclosure under regulation 7(1A) shall commence on the happening of

events specified under regulation 7(2). Since regulation 7(2) (as

amended) does not set out any event relating to sale of shares specified

under regulation 7(1A), the question of complying with regulation 7(1A)

within two days of sale of shares does not arise at all.

29. It is not even the case of SEBI, that regulation 7(1A) is self

operative and that the obligation there under has to be discharged

independent of regulation 7(2). In fact, in the impugned order, it is held

by the AO that by failing to make disclosure to the stock exchanges

regarding aggregate sale of shares or voting rights in excess of 2% of the

share capital of the target company, the appellants are guilty of violating

regulation 7(1A) read with regulation 7(2) of the Takeover Regulations,

1997. Therefore, when the Takeover Regulations, 1997 provides that the

disclosure obligation specified under regulation 7(1A) has to be

discharged in the manner specified under regulation 7(1A) read with

regulation 7(2) and regulation 7(2) does not provide for disclosure in

relation to sale of shares in excess of the limits prescribed under

regulation 7(1A), SEBI is not justified in holding that the appellants by

failing to make disclosure of sales covered under regulation 7(1A) within

the stipulated time, have violated regulation 7(1A) read with regulation

7(2) of the Takeover Regulations, 1997. Consequently, SEBI is not

justified in imposing penalty on the appellants. 37

30. It is apparent that after having specified two days time for

complying with the obligation specified under regulation 7(1A), there

was no need for SEBI to amend regulation 7(2) in relation to the

disclosure obligation under regulation 7(1A). In any event, having

deemed it fit to amend regulation 7(2), SEBI ought to have ensured that

regulation 7(2) as amended contains a clause relating to disclosure of sale

of shares or voting rights specified under regulation 7(1A). However,

SEBI has failed to do so.

31. It is relevant to note that Takeover Regulations, 1997 have been

replaced by Takeover Regulations, 2011. In the Takeover Regulations,

2011, SEBI has taken care to ensure that the disputes raised herein do not

arise in those regulations. Since Takeover Regulations, 1997 is replaced

by Takeover Regulations 2011, there is no need to issue any direction for

taking remedial steps in the matter.

32. Reliance placed by counsel for SEBI on a Division Bench decision

of the Bombay High Court in case of Anand Rathi & Ors. vs. SEBI

reported in 2002 (1) Mh. L. J. 522 is misplaced. In that case the dispute

that fell for consideration of the High Court was, whether pending

investigation, SEBI has the authority of law under Section 11, 11B of the

SEBI Act to order suspension as an interim measure. In that context

quoting the words of Denning J. in Seaford Court Estates Ltd. vs. Asher

reported in (1949) 2 All.E.R. 155 it was held that in order to protect the

interest of the investors and for the orderly and healthy growth of

securities market if vide powers are conferred on SEBI by the Parliament, 38

then that intention of the Parliament has to be implemented. That

decision cannot be applied to the present case, because, under the

Takeover Regulations, 1997 disclosure obligation arising under

regulation 7(1A) of the Takeover Regulation, 1997 has to be discharged

under regulation 7(1A) read with regulation 7(2) and as noted above,

regulation 7(2) does not provide for disclosure obligation arising from

sale of shares or voting rights specified under regulation 7(1A). In such a

case, there being no obligation under regulation 7(2) to make disclosure

of sale of shares specified under regulation 7(1A), appellants cannot be

held guilty of failing to make disclosure under regulation 7(1A) read with

regulation 7(2) of the Takeover Regulations, 1997. In these

circumstances, reliance placed by counsel for appellants on the decision

of the Bombay High Court in case of Anand Rathi (Supra) is misplaced.

33. For all the aforesaid reasons, the issues raised in these appeals are

answered as follows:-

a) Under regulation 7(1A) of the Takeover Regulations,

1997, an acquirer who, together with persons acting in

concert with him has acquired 15% or more but less

than 55% shares of the target company when

purchases or sells shares of the target company

together with the persons acting in concert with the

acquirer, aggregating 2% or more of the share capital

of the target company, then the said acquirer is

required to make disclosure of such purchase or sale 39

within two days of purchase or sale under regulation

7(1A) read with regulation 7(2) of the Takeover

Regulations, 1997.

b) Disclosure obligation under regulation 7(1A) has to be

discharged in accordance with regulation 7(1A) read

with regulation 7(2). Since regulation 7(2) does not

contemplate for disclosure relating to sale of shares in

excess of the limits set out under regulation 7(1A),

appellants herein cannot be said to have failed to

comply with regulation 7(1A) within the time

stipulated under regulation 7(1A) read with regulation

7(2). Consequently penalty imposed on the appellants

cannot be sustained.

34. 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 16.12.2015 Prepared & Compared By: PK