Dr. Sunil Gupta And Others vs Sebi

Order Reserved on: 11.1.2017 Date of Decision : 24.1.2017

Appeal No.28 of 2016

1.

Dr. Sunil Gupta,

2. Mrs. Rupal Gupta

3. Dr. Sunil Gupta (HUF) No.9, Sector III, Kalhaar Bungalows, Beyond Shilaj Village, Bopal Post, Ahmedabad - 3800058. ...Appellants

Versus

The 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 Sunderasan, Advocate with Ms. Harshada Nagare and Mr. Shanti Bhushan Nirmal, Advocates i/b. Joby Mathew & Associates for the Appellants.

Mr. Kumar Desai, Advocate with Mr. Rakesh Puri and Mr. Chirag Bhavsar, Advocate i/b. MDP & Partners for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair

1. Appellants are aggrieved by the adjudication order of Securities and

Exchange Board of India ('SEBI' for short) dated November 30, 2015. By

the said order it was held that nine entities, including the appellants herein,

have violated certain provisions of the Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeover) Regulations, 1997

(referred to hereinafter as 'Takeover Regulations') and therefore directed 2

them to pay a penalty of Rs.20 lacs jointly and severally under Section 15H

(ii) of SEBI Act as it then stood prior to 29.10.2002.

2. Three out of the nine entities have preferred this appeal. Appellant

Nos. 1 & 2 are the Promoters and Directors of a company known as Bloom

Dekor Limited and Appellant No.3 is a Hindu Undivided Family (HUF)

promoter and shareholder. In September 30, 2011 the company made a

public announcement to acquire 20 per cent of the equity share capital of the

company at Rs.15.82 per share. While perusing the papers thereon SEBI

noticed that the promoters had purchased shares in excess of two per cent 4

times during 1997-1999 without making any public announcement and

thereby violated the Takeover Regulations, 1997. SEBI noticed that 10.85%

was acquired on April 20, 1997, 2.14% in 1997-1998, 7.12% in 1998 and

12.54% during 1998-1999. Accordingly, it is held that the appellants have

violated Regulation 11(1) read with Regulation 14(1) of the Takeover

Regulations four times during this period and penalty of Rs.5 lac on each

such violation has been imposed jointly and severally for these violations.

3. Shri Somasekhar Sundaresan, learned counsel for the appellants

argued that this is an unique case where the show cause notice was issued

after a period of 16 years in 2013 for the alleged violation in 1997.

Accordingly, the allegations as well defense are done without adequate

records because of the lapse of time. In some instances, for example, the

exact date of acquisition is given while in other it is a period of time that is

indicated. Accordingly, it is difficult to ascertain the exact number of shares

and/or percentage of shares acquired during a block of 12 months. Without

ascertaining specific blocks of 12 months during which the alleged

violations have been committed four penalties imposed against the

appellants cannot be justified.

3

4. It was further argued by the learned counsel for the appellant that even

if the alleged offences have been committed this is not a fit case for

imposing the maximum penalty of Rs.5 lac imposable under the Takeover

Regulations during the relevant time. The appellants did not have the

benefits of informed officials; take over regulations were new which the

appellants were not fully aware of; the acquisition was not made with the

intention of committing any fraud; one of the entities from whom

acquisition was made was subsequently registered as a venture capital fund

(and acquisition from venture capital funds was exempted under the

Takeover Regulations on 30.12.2000) though it is subsequent to the alleged

offence; Takeover Regulations have been amended over time thereby

changing the basic trigger and subsequent creeping triggers; the company

suo motto made an open offer in September, 2011 and offered an exit option

to the investors at a price of Rs.15.82 which was substantially higher than

what was offered during 1997-1999. This should serve the purpose of

equity. There was no change of control. Given all these reasons the learned

counsel for the appellants pleaded that it is not an appropriate case for

imposing the maximum penalty and these mitigating factors though

presented before the Adjudicating Officer was not given any due

consideration while passing the impugned order.

5. Before proceeding further section 11(1) and 14(1) of Takeover

Regulations, 1997 are reproduced below for ready reference

Regulation 11(1) of Takeover Regulation before amendment dated

28.10.1998

"Consolidation of holdings.

11. (1) No acquirer who, together with persons acting in concert with

him, has acquired, in accordance with the provisions of law, not less

than 10% but not more than 51% of the shares or voting rights in a 4

company, shall acquire, either by himself or through or with persons

acting in concert with him, additional shares or voting rights entitling

him to exercise more than 2% of the voting rights, in any period of 12

months unless such acquirer makes a public announcement to acquire

shares in accordance with the regulations.

Regulation 11(1) of Takeover Regulation after amendment dated

28.10.1998, but, before amendment dated 24.10.2001

11. (1) No acquirer who, together with persons acting in concert with

him, has acquired, in accordance with the provisions of law, 15 per

cent or more but less than 75 per cent of the shares or voting rights in a

company, shall acquire, either by himself or through or with persons

acting in concert with him, additional shares or voting rights entitling

him to exercise more than 5% of the voting rights, in any period of 12

months unless such acquirer makes a public announcement to acquire

shares in accordance with the regulations.

Timing of the public announcement of offer

14. (1) The public announcement referred to in regulation 10 or

regulation 11 shall be made by the merchant banker not later than four

working days of entering into an agreement for acquisition of shares or

voting rights or deciding to acquire shares or voting rights exceeding

the respective percentage specified therein"

6. We do not agree with the contention by the counsel for the appellant

that each time an acquisition has been made a block of 12 months is to be

decided to conclude whether there is a violation or not. Since each

acquisition is independent, the block of 12 months become relevant only if

each acquisition is less than 2 per cent before the amendment to the

Takeover Regulation on 28.10.1998 or 5% after this date. In the instant

matter, as fairly pointed out by the counsel for the respondent each 5

acquisition is more distinguishable and more than 2 per cent or 5 per cent.

The moment an acquisition exceeds 2 per cent or 5 per cent of additional

shares or voting rights immediately the open offer triggers and it is

incumbent on the acquirer to make a public announcement accordingly.

Therefore given the facts of the case there is no need to determine a block of

12 months.

7. We now turn to the mitigating factors pleaded by the counsel for the

appellant. We note that the impugned order has dealt with the arguments in

this regard made by the appellant before the Adjudicating Officer. The

impugned order has stated that no quantifiable figures are available to access

the disproportionate gain or advantage made as a result of the non

compliance by the appellants. Absence of professionally qualified

personnel cannot make the appellant absolved of the offences. However,

after having noted the mitigating factors and pleadings by the appellants

thereon no consideration of these mitigating factors has been given by the

Adjudicating Officer.

8. We note that the total acquisition made on the four occasions

combined is to the tune of 10,26,710 shares at a consideration ranging from

Rs.7 to Rs.10 per share. The total value of this acquisition comes to less

than Rs.1 crore only (exact amount cannot be worked out since all the

acquisition price are not available on record). We also note that the

Takeover Regulations were amended on 28.10.1998. By this amendment

the threshold for application of creeping acquisition was increased from

10% - 51% to 15% -75% and the creeping acquisition trigger from over 2%

to over 5%. In this context it is also difficult to determine whether the

acquisition of 64,210 shares made through multiple transactions and which

comes to 2.14% of the total paid up capital of the company was fully made 6

before the amendment date as the acquisition is recorded to be made during

1997-1998 without giving the exact date(s).

9. Given the fact that the volume and value of the total transaction was

less than Rs.1 crore, amendments relating to Takeover Regulations raising

the creeping acquisition trigger from 2% to 5% was made in October 1998

and the circumstantial factors pleaded by the appellant we do not find that

this is a fit case for imposing the maximum penalty. However, since

violations have been admitted and proved and are repetitive in nature the

appellants do not deserve any leniency. Taking all these factors and a

balanced view, a consolidated penalty of Rs.10 lac would serve the purpose

of justice in the instant case. Accordingly, while sustaining the impugned

order on merit we reduce the total amount of penalty from Rs.20 lac to

Rs.10 lac. Appellants are directed to pay the amount of penalty of Rs. 10

lac within a period of 45 days failing which SEBI is at liberty to recover the

said penalty amount of Rs. 10 lac along with interest at the rate of 12

percent per annum from the date of the impugned order till the date of

payment.

Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G.Nair Member

24.1.2017 Prepared and compared by RHN