Khyati Realities Ltd. vs Sebi

Date of decision : 15/06/2015

Appeal No.358 of 2014

Khyati Realities Ltd. 99, Chinubhai Towers, Opp. Handloom House, Ashram Road, Ahmedabad - 380 009, Gujarat. ... Appellant

Versus

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

WITH

Appeal No.359 of 2014

Khyati Multimedia Entertainment 100, Chinubhai Towers, Opp. Handloom House, Ashram Road, Ahmedabad - 380 009, Gujarat. ... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. ... Respondent -2-

WITH Appeal No.360 of 2014

Kartikbhai Patel, HUF Shantam, 19, Ajanta Park Soc, Opp St. Xaviers Loyola School, Memnagar Road, Ahmedabad - 380 052 ,Gujarat. ... Appellant

Versus

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

WITH Appeal No.361 of 2014

Radheshyam Lodh 15, Cantonment, Shahibaug, Ahmedabad - 380 052, Gujarat. ... Appellant

Versus

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

WITH Appeal No.362 of 2014

Kamalkant R. Rao B-13, F.F. Ravpura Chst, Near St. Xaviers Loyola School, Memnagar Road, Ahmedabad - 380 052, Gujarat. ... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. ... Respondent -3-

Mr. Dakshesh Vyas, Advocate i/b Lex Firmus for Appellants.

Mr. Kumar Desai a/w Mr. Manish Acharya, Advocates i/b Vigil Juris for the Respondent.

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

Per : Justice J.P. Devadhar (Oral)

1.

Appellants in all these Appeals are aggrieved by the common

adjudication order passed by the Adjudicating Officer of Securities and

Exchange Board of India ("SEBI" for short) on 22nd July, 2014. Hence, all

theses Appeals are heard and disposed of by this common decision.

2. By the aforesaid common order it is held that the Appellants fall

within the category of deemed Persons Acting in Concert (PAC) and as

deemed PAC they have acquired shares of Kanel Oil and Exports Industries

Limited ("target company" for short). It is further held that on acquisition of

450,000 shares of target company by Kartikbhai J. Patel, HUF on April 11,

2012, the collective shareholding of the PACs did increase by more than 5%

which required them to make necessary disclosures as prescribed under

Regulation 29(1) read with Regulation 29(3) of Securities and Exchange Board

of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

("SAST Regulations, 2011" for short). Similarly, on account of further

acquisition of shares by Appellants in Appeal Nos. 358 & 359 of 2014 as more

particularly set out in para 11 of the impugned order, the Appellants as

deemed PAC were required to make disclosures under Regulation 29(2) read

with Regulation 29(3) of SAST Regulations, 2011. Since Appellants failed to

make disclosures under the aforesaid provisions, penalty of Rs.8 lac is -4-

imposed on Appellants under Section 15A(b) of Securities and Exchange

Board of India Act, 1992 to be paid by them jointly and severally.

Challenging that order, the above Appeals are filed.

2. Mr. Dakshesh Vyas, learned counsel appearing on behalf of all the

Appellants submitted that in the impugned order it is erroneously held that

the Appellants in Appeal Nos. 358 & 359 of 2014 have common address,

when, in fact, they are operating from two different premises in the same

building. Fact that the two premises are adjacent to each other cannot be a

ground to hold that both the Appellants have common address.

3. Counsel for Appellants further submitted that in the impugned order

it is erroneously held that the Appellants in Appeal Nos. 358 & 359 of 2014

have common email id, when, in fact, email id of Appellant in Appeal No.358

of 2014 is khyatimulti@yahoo.com and email id of Appellant in Appeal

No.359 of 2014 is info@khyatirealities.com.

4. Counsel for Appellants further submitted that merely because

Kartikbhai J. Patel, karta of Kartikbhai Patel, HUF was a director in both the

companies, SEBI is not justified in holding that Kartikbhai J. Patel HUF was

related to the two companies and consequently hold that purchase of shares

of the target company by Kartikbhai J. Patel HUF was as a deemed PAC

under SAST Regulations, 2011. Counsel for Appellants submitted that

Kartikbhai J. Patel and Kartikbhai J. Patel HUF are two different entities and

therefore Kartikbhai J. Patel HUF could not be said to be related to the two

companies as Kartikbhai J. Patel HUF was not a director of the two

companies. It is further submitted that since no unfair advantage is shown to -5-

have been accrued to the Appellants and no loss is shown to have been

suffered by the investors on account of alleged defaults in the facts of present

case, penalty imposed against Appellants be quashed and set aside.

5. We see no merit in the above contentions.

6. Although in the impugned order, it is stated that there is common

address and common email id between the Appellants in Appeal Nos.358

and 359 of 2014, in para 19 of the impugned order it is categorically recorded

that the Appellants are held to be deemed PACs mainly on account of the fact

that they are connected to each other. Admittedly, Kartikbhai J. Patel, karta

of Kartikbhai J. Patel HUF (Appellant in Appeal No.360 of 2014) and

Kamalkant R. Rao (Appellant in Appeal No.362 of 2014) are directors in the

two companies (Appellants in Appeal Nos. 358 & 359 of 2014). Admittedly,

Radheshyam R. Lodh (Appellant in Appeal No.361 of 2014) is a director in

one company i.e. Appellant in Appeal No.358 of 2014. If the directors of a

company take a decision to acquire shares of a target company on behalf of

the company in which they are directors and also decide to acquire shares of

the target company in their individual name, then it would be reasonable to

hold that there was a common intention in acquiring the shares of the target

company and in such a case, they would constitute 'persons acting in concert'

as defined under the SAST Regulations, 2011.

7. It is contended on behalf of the Appellant that Kartikbhai J. Patel HUF

is not a director in any of the above two companies and therefore, on

acquisition of shares of the target company by Kartikbhai J. Patel HUF, which

is not connected with the Appellant companies, it could not be said that -6-

Kartikbhai J. Patel HUF constituted deemed PAC under the SAST

Regulations, 2011. Admittedly, Kartikbhai J. Patel, karta of the HUF is a

director in the two Appellant companies and as a karta of HUF, he had dual

role to play i.e., one on behalf of HUF and another in his individual capacity.

Kartikbhai J. Patel in his individual capacity decided to acquire the shares of

the target company in the name of HUF and in his capacity as a director

decided along with other directors to acquire shares of the target company,

on behalf of two companies who are Appellants in Appeal Nos. 358 & 359 of

2014. Since the shares of the target company are acquired by all the

Appellants pursuant to the decision taken by the directors in their capacity as

directors and also in their individual capacity (except in case of director

Kartikbhai J. Patel who chose to acquire shares in the name of HUF in which

he was a karta), it is evident that there was a common intention between the

parties to acquire the shares of the target company. Since acquisition of

shares of the target company by all the Appellants is on account of the

decision taken by the directors of the two Appellant companies, it is apparent

that they were 'persons acting in concert' as defined under Regulation

2(1)(q)(1) of SAST Regulations, 2011.

8. Moreover, Regulation 2(1)(q)(2) of SAST Regulations, 2011 provides

that without prejudice to the generality of the provisions contained in

Regulation 2(1)(q)(1), where a company, its directors and associates of such

directors acquire shares or voting rights of the target company, then the said

company and its directors shall be deemed to be persons acting in concert

with other persons within the same category, unless contrary is established.

In the present case, the directors of the two Appellant-companies decided to -7-

acquire shares of the target company in the name of the two companies and

also decided to acquire shares of the target company in their individual

names except in one case where the director chose to purchase shares in the

name of an HUF of which he was the karta. In such a case, where the shares

of the target company are acquired by the company, its directors and person

associated with their director would squarely fall within category of 'deemed

persons acting in concert' as defined under Regulation 2(1)(q)(2) of SAST

Regulations, 2011. Nothing is brought on record to suggest that there was a

contrary intention between the parties. Since acquisition of shares of the

target company by the Appellants was in excess of the limits prescribed

under Regulation 29(1) and 29(2) read with Regulation 29(3) of SAST

Regulations, 2011, they were liable to make disclosures within the time

stipulated therein. Since the Appellants have failed to make disclosures, SEBI

is justified in penalizing the Appellants for such failure.

9. Under Section 15A(b) of SEBI Act as it stood at the relevant time,

penalty imposable for failure to make disclosure within the time stipulated

under the regulations framed by SEBI was Rs One lac for each day during

which such failure continued or Rs.One crore whichever was less. Since

disclosures have not been made by the Appellants till date, the penalty

imposable would be Rs.One crore. As against the penalty of Rs.One crore

imposable, the A.O. after considering all mitigating factors has imposed

penalty of Rs.8 lac which cannot be said to be unreasonable or excessive.

10. Argument of the Appellants that no penalty is imposable as no unfair

advantage has accrued to the Appellants and no loss is caused to the

investors on account of non disclosure has no merit, because, liability to pay -8-

penalty for failure to make disclosure is not dependent on the question as to

whether or not unfair advantage has accrued or loss is caused to the investors

or not. However, those factors being mitigating factors, the Adjudicating

Officer after considering those mitigating factors, has imposed penalty of

Rs.8 lac and directed that the said penalty be paid by the Appellants jointly

and severally as against the imposable penalty of Rs.One crore. The

discretion exercised by the Adjudicating Officer in evaluating the mitigating

factors cannot be faulted.

11. For all the aforesaid reasons, we find no merit in these Appeals.

12. Accordingly, all the Appeals are dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

15/06/2015 Prepared & compared by-ddg