Inland Printers Limited vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 20.10.2015

Appeal No. 199 of 2014

Inland Printers Limited 800, Sangita Ellipse Sahakar Road, Vile Parle (East), Mumbai 400057. ...... Appellant

Versus

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

Mr. Sanjay Shringarpure, Company Secretary for the Appellant.

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

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

Per: Justice J.P. Devadhar

1.

Appellant is aggrieved by the order passed by the Adjudicating Officer of

Securities and Exchange Board of India (SEBI for short) on April 30, 2014

whereby penalty of Rs.5 lakh is imposed on the appellant under section 15A(b) of

SEBI Act for failing to make annual disclosures under Regulation 8(3) of the

Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeover) Regulations, 1997 ('Takeover Regulations, 1997' for short) during the

financial years ended March 31, 2002 to 31st March, 2011.

2. Facts relevant for the present appeal are as follows:

(a) Appellant is a company listed on various stock exchanges. Trading

in the shares of the said company were suspended by the Bombay

Stock Exchange (BSE for short) on January 7, 2002 due to non 2

compliance of various clauses in the Listing Agreement and for non-

payment of listing fees.

(b) On April 10, 2012 the appellant made disclosures under

Regulation 8(3) of the Takeover Regulations, 1997 for the financial

years ended 31.3.1998 to 31.3.2011 and also complied with various

requirements of listing agreement.

(c) In view of the appellant company complying with all the

requirements of the listing Agreements and also the requirements of

Takeover Regulations (though belatedly) the suspension in the trading

of the securities of the appellant company was revoked by the BSE on

November 21, 2012.

(d) On March 11, 2013, Tigerstone Trading Private Limited (acquirer

for short) entered into a share purchase agreement with the promoters

of the appellant company for acquiring the shares of the appellant

company. Since the shares sought to be acquired by the acquirer were

in excess of the threshold limit, public announcement for the open offer

were made as contemplated in the Takeover Regulations, 2011. On

successful completion of the open offer the shares were transferred to

the acquirer.

(e) On 27th January, 2014 a show cause notice was issued by SEBI

calling upon the appellant to show cause as to why enquiry should not

be held against the appellant for not making disclosures within the

stipulated time under Regulation 8(3) of the Takeover Regulations,

1997. On receiving reply, personal hearing was granted to the

appellant and by the impugned order dated 30th April, 2014, the

Adjudicating Officer of SEBI has imposed penalty of Rs.5 lac under

section 15A(b) of the SEBI Act for failing to make disclosures under

Regulations 8(3) of the Takeover Regulations, 1997 for financial years 3

ending 31st March, 2002 to 31st March, 2011. Challenging the

aforesaid order present appeal is filed.

3. Mr. Shringarpure authorized representative of the appellant submitted as

follows:-

(a) Obligation to make disclosures under Regulation 8(3) of the Takeover

Regulations, 1997 arises only when there is change in the shareholding of

the promoter/promoter group of the target company. The words "changes

if any" and the words "in respect of" appearing in Regulation 8(3) clearly

indicate that the obligation to make disclosures therein is only when there

is change in shareholding of the promoter/promoters group of the target

company. In the present case, during the relevant years, neither there was

any change in the shareholding of the promoter and promoter group nor the

promoter/promoter group had made disclosures under Regulation 8(2) of

the Takeover Regulations, 1997 and therefore the appellants were not

obliged to make disclosures to the stock exchanges under Regulation 8(3)

of the Takeover Regulations, 1997.

(b) From the format prescribed for making disclosures under Regulation

8(3) of the Takeover Regulations, 1997 it becomes clear that the object of

making disclosures under Regulation 8(3) is to bring to the notice of the

investors through the stock exchanges, any change in the shareholding of

promoter/promoter group of the appellant company. Since there were no

changes in the shareholding of promoter/promoter group in the years in

question, appellant was not obliged to make disclosures under Regulation

8(3) of the Takeover Regulations, 1997.

(c) Object of the Takeover Regulations is to bring about transparency in

the dealings of the securities and also to enable the existing shareholders to

take an informed decision on the basis of the disclosure filed by the target

company and/or the promoter of the target company. In the absence of any 4

change in the shareholding, appellant was not obliged to make disclosures

under Regulation 8(3) of Takeover Regulations, 1997.

(d) Obligation to make disclosure under Regulation 8(3) and obligation to

maintain a register in the specified format under Regulation 8(4) of the

Takeover Regulation, 1997 are obligations consequential to Regulation

8(1) and 8(2). It is only when information is received under Regulation

8(1) and 8(2), obligation is cast on the target company to make disclosures

under Regulation 8(3). Since no information was received, there was no

obligation cast on the appellant to make disclosures under Regulation 8(3)

of Takeover Regulations, 1997.

(e) Relying on a decision of the Apex Court in the case of Reserve Bank of

India vs. Peerless General Finance and Investment Company Ltd. reported

in AIR 1987 SC 1023 it is submitted on behalf of the appellant that

regulation 8(3) must be construed on the basis of the words used in that

Regulation and it would be impermissible to construe that regulation by

adding or omitting any words used in that regulation. It is submitted that

plain reading of regulation 8(3) would mean that if there is no change in the

shareholding of promoter/promoter group, then, there is no obligation cast

on the target company to make annual disclosures under Regulations 8(3)

of the Takeover Regulations,1997.

(f) Alternatively, it is submitted that the delay in making disclosures is not

deliberate or in defiance of law. The breach flows from a bonafide belief

that the target company is required to comply with Regulation 8(3) only

when there is a change in the shareholding of the promoters. Admittedly

no disclosures were received from the promoters of the company under

Regulation 8(2) of the Takeover Regulations, 1997 during the relevant

years and therefore, no fault could be found with the appellant under

Regulation 8(3).

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(g) The Adjudicating Officer of SEBI has not considered all mitigating

factors as contemplated under Section 15J of the SEBI Act.

(h) Relying on a decision of Apex Court in case of Hindustan Steel Ltd.

vs. The State of Orissa reported in AIR 1970 sc 253 it is submitted that the

breach if any, in the present case is a technical or venial breach and the

breach flows from a bonafide belief that the appellant is liable to disclose

under Regulation 8(3) only when information regarding change in

shareholding is received under Regulations 8(1) and 8(2) of the Takeover

Regulations, 1997. Therefore, the Adjudicating Officer was not justified in

imposing penalty on the appellant.

4. We see no merit in the above contentions.

5. Before dealing with the rival contentions, it would be appropriate to quote

Regulation 8 of the Takeover Regulations, 1997 which reads thus:-

"Continual disclosures

8. (1) Every person, including a person mentioned in Regulation 6 who holds more than fifteen percent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March.

(2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March31, 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.

(3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-

regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March.

(4) Every company whose shares are listed on a stock exchange shall maintain a register in the specified format to record the information received under sub- regulation(3) of Regulation 6, sub-regulation (1) of Regulation 7 and sub- regulation (2) of Regulation 8".

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6. Regulation 8(1) and 8(2) deal with the obligation cast on the persons

holding shares of the Target company in excess of the prescribed limits and by

promoters/persons holding control over the company to make annual disclosures

regarding their shareholding in the Target Company to the Target Company

within the time stipulated therein. Regulation 8(3) deals with the obligation cast

on the Target Company to make annual disclosures to all the stock exchanges in

which the shares are listed within the time stipulated therein.

7. Obligation cast on the listed company to make disclosure to the stock

exchange under Regulation 8(3) is firstly, the yearly disclosure to be made within

30 days of each financial year ended on 31st March and secondly, disclosure to be

made at each record date fixed by the company for the purposes of dividend.

Very fact that multiple disclosures are required to be made especially by dividend

paying listed companies under Regulation 8(3) clearly shows that the obligation to

make disclosure under Regulation 8(3) is not dependent on the yearly disclosures

to be made by the shareholders/promoters under Regulations 8(1) and 8(2) to the

company. In other words, while the shareholders/promoters of the company are

obliged to make annual disclosures to the Company under Regulations 8(1) and

8(2) of the Takeover Regulations, 1997, the company is obliged to make annual

disclosures to the stock exchanges under Regulation 8(3) of the Takeover

Regulations, 1997. To put it simply, if the shareholders/promoters fail to make

annual disclosures under Regulations 8(1) and 8(2) they are liable for penal action

under Section 15A(b) of SEBI Act and if the Company fails to make annual

disclosures to the stock exchanges within the time stipulated under Regulation

8(3), the Company is liable for penal action under Section 15A(b) of the SEBI

Act.

8. Above reasoning is further fortified from the format prescribed for making

disclosures under Regulation 8(3). As per the prescribed format, a listed company

is required to give details of shareholding/voting rights (in number and 7

percentage) as on 31st March of the financial year in question, as on 31st March of

the previous financial year and the changes if any, between the above two

financial years. From the format it becomes abundantly clear that every listed

company is required to make yearly disclosures to the stock exchanges disclosing

the shareholding of the persons/promoters referred to in Regulations 8(1) and 8(2)

as also the changes if any, in the shareholding of those persons/promoters. In

other words, where there is no change in the shareholding of the

persons/promoters referred to in Regulations 8(1) and 8(2), the company is

required to make annual disclosures to the stock exchanges by disclosing the

existing shareholding as per the format. When Regulation 8(3) specifically

requires that yearly disclosures should be made by the company to the stock

exchanges, it would not be proper to hold that under Regulation 8(3) disclosures

have to be made only if there are changes in the shareholding of the

persons/promoters set out under Regulations 8(1) and 8(2). Accepting such a

contention advanced on behalf of the appellant would be contrary to the words

expressly used under Regulation 8(3).

9. It is relevant to note that the obligation to make yearly disclosures is a

continual obligation and not a conditional obligation. Regulation 8(3) provides

that every listed company shall make yearly disclosures to all the stock exchanges

on which the shares of the company are listed and thereafter uses the words 'the

changes, if any' which obviously means that not merely the shareholding as on the

last day of current financial year but also the difference between the shareholding

as on the last day of the previous financial year and as on the last day of the

current financial year has to be disclosed to the stock exchanges so that the

investors are made aware about the change in the shareholding of the company, if

any. Fact that there are no changes in the shareholding cannot be a ground for the

Company not to make disclosures under Regulation 8(3). Therefore, the

expression 'the changes, if any' in Regulation 8(3) simply means that not merely 8

the shareholding as on the last day of the financial year but also the changes if any

between the current and previous financial year has to be disclosed. Therefore,

the argument of the appellant that the disclosure under Regulation 8(3) has to be

made only if there is change in the shareholding cannot be accepted.

10. Reliance placed by the representative of the appellant on the decision of the

Apex Court in case of RBI (supra) is misplaced because as noted above, without

adding any word and without omitting any word if Regulation 8(3) is read, it

would mean that every listed company has to make yearly disclosures to the stock

exchanges disclosing the shares held by the persons/promoters set out under

Regulations 8(1) and 8(2) as on the last day of the financial year including the

change in the shareholding, if any, compared to the shareholding on the last day of

the previous financial year. In other words whether there is any change in the

shareholding or not, the listed company is obliged to make disclosures under

Regulation 8(3) and cannot avoid such obligation on ground that there is no

change in the shareholding of the persons/promoters set out under Regulations

8(1) and 8(2) of Takeover Regulations, 1997.

11. Various alternative contentions raised by the appellant for the delay in making

disclosures under Regulations 8(3) as also various mitigating factors pointed out

on behalf of the appellant do not exonerate the appellant from the obligation to

make disclosures under Regulation 8(3), because the obligation under Regulation

8(3) is mandatory and the company failing to discharge that obligation is

statutorily liable to pay penalty under section 15A(b) of SEBI Act. The penalty

imposable under section 15A(b) of the SEBI Act for violating Regulation 8(3) at

the relevant time was Rs. One Lakh for each day during which such failure

continues or One Crore rupees whichever is less. In the present case, penalty

imposable for failure to make yearly disclosures for the financial years ended

March 31, 2002 to March 31, 2011 at the rate of Rs. One Lakh per day would run

into several crores of rupees. However, after taking into consideration all the 9

mitigating factors set out under Section 15J of SEBI Act, the Adjudicating Officer

of SEBI has imposed penalty of Rs.5 Lakh which cannot be said to be

unreasonable or excessively harsh.

12. In these circumstances, we see no merit in the appeal and the same is

hereby dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

20.10.2015 Prepared and compared by RHN