Luharuka Commotrade Pvt. Ltd. vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 13.01.2016

Appeal No. 239 of 2014

Luharuka Commotrade Pvt. Ltd. A-301, Hetal Arch, Opp Natraj Market, S.V. Road, Malad (W), Mumbai- 400 064 ...Appellant

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. Anushak Dawar, Advocate with Ms. Harshada Nagare, Advocate /b Joby Mathew & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for the Respondent.

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

Per: Justice J.P. Devadhar (Oral)

1.

Appellant is aggrieved by the order passed by the Adjudicating

Officer ("AO" for short) of Securities and Exchange Board of India

("SEBI" for short) on March 20, 2014 whereby penalty of `10 lac is

imposed on the appellant under Section 15H(ii) of the Securities and

Exchange Board of India Act, 1992 ("SEBI Act" for short), on the

ground that the appellant has violated regulation 10 read with regulation

14(1) of the Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover

Regulations, 1997" for short).

2

2. On March 14, 2011 the appellant had acquired 36,68,500 equity

shares of M/s Comfort Fincap Ltd. ("CFL" for short) through preferential

allotment. The said acquisition led to increase into appellants

shareholding in CFL from 0% to 45.65%.

3. As the said acquisition was more than the threshold limited of 15%

prescribed under regulation 10 of the Takeover Regulations, 1997,

appellant was required to make a public announcement within 4 working

days of a said acquisition under regulation 10 read with regulation 14(1)

of Takeover Regulations, 1997 i.e. on or before March 18, 2011.

However, the public announcement was made belatedly by the appellant

on February 27, 2013.

4. In view of the delay in public announcement a show cause notice

was issued to the appellant on December 18, 2013 calling upon the

appellant to show cause as to why penalty should not be imposed under

Section 15H(ii) of the SEBI Act for violating regulation 10 read with

regulation 14(1) of Takeover Regulations, 1997.

5. In its reply, the appellant denied to have violated the provisions of

the Takeover Regulations, 1997 and further submitted that in any event,

since the delayed compliance of the said regulation has not caused any

loss, financial or economical to any of the shareholders no penalty be

imposed on the appellant. During the course of the personal hearing the

appellant reiterated the submissions made in the affidavit in reply.

Thereupon by the impugned order dated March 20, 2014 penalty of ` 10

lac is imposed on the appellant. Challenging the aforesaid order present

appeal is filed.

3

6. Mr. Anushak Dawar, learned counsel appearing on behalf of the

appellant submitted as follows:-

a) Appellant had acquired shares of CFL in question as a

person acting in concert with the promoter group of

CFL and not in its individual capacity and therefore

the provisions contained in regulation 10 read with

regulation 14(1) of Takeover Regulations, 1997 had

no application to the facts of the present case.

b) The allotment of 36,68,500 equity shares did not lead

to triggering of regulation 10 of Takeover

Regulations, 1997, because, the said acquisition by

the promoter group (through the appellant) did not

empower the promoter group to exercise additional

voting rights in the enhanced equity share capital as

there was dilution in the total shareholding of the

promoter group. The shareholding of the promoter

group had in fact declined to 52.41% from 73.82%,

whereas shareholding of the public increased to

47.59% from 26.18% after the allotment of the shares

in question. Thus, there being a decrease of 21.41%

shareholding by the promoter group post allotment of

shares on preferential basis as compared to the

shareholding prior to the preferential basis, the AO of

SEBI was not justified in holding that the appellant

had violated the provisions contained in the Takeover

Regulations.

4

c) The appellant had no intention to hide the acquisition

of shares in question nor did the appellant hide any

information from the investors. Appellant had made

consent application before SEBI and since there was

no response, the appellant had voluntarily made a

public announcement on February 27, 2013 to the

public shareholders of CFL.

d) Assuming that there is violation of Takeover

Regulations, 1997, the AO of SEBI has failed to

consider that the belated compliance of open offer had

occurred inadvertently and has not caused any loss to

any of the shareholders, especially when the appellant

had made the public announcement not only at a fair

price but had also offered interest at the rate of 10%.

7. We see no merit in the above contentions.

8. Basic argument of the appellant that the shares in question were

acquired by the appellant as a person acting in concert with the promoters

of CFL is falsified by the letter of offer made by the appellant to the

shareholders on February 27, 2013 wherein it is categorically stated that

the appellant is not acting as person acting in concert for the purposes of

open offer. As the shares were not acquired by the appellant as person

acting in concert, it is obvious that the appellant had acquired the shares

in question in its individual capacity and since the said acquisition was in

excess of 15% of the share capital of CFL, under regulation 10 read with

regulation 14(1) of the Takeover Regulations, 1997, appellant was 5

required to make public offer within 4 days from the said acquisition. In

these circumstances, where the shares of CFL were acquired by the

appellant in its individual capacity, fact that the promoters of CFL had

diluted their shareholding in CFL would have no bearing on the fact of

present case.

9. Similarly, argument of the appellant that the delayed compliance of

open offer has occurred inadvertently and since delayed compliance has

not caused any loss to the shareholders no penalty could be imposed is

without any merit. Under the Takeover Regulations, 1997 imposition of

penalty is not dependent on the loss caused to the shareholders on

account of the delay in making open offer and the penalty is imposable

when the regulations are violated even if such violation does not result in

any loss to the investors.

10. However, fact that no loss has caused to the investors on account

of violations committed being a mitigating factor, the AO after

considering that mitigating factor has imposed penalty of `10 lac under

Section 15H(ii) of SEBI Act. It is relevant to note that penalty imposable

under Section 15H(ii) of SEBI Act for failing to make public offer within

the time stipulated under the Takeover Regulations is ` 25 crore or three

times amount of profit made out of such failure whichever is higher. In

the present case, as against the penalty of ` 25 crore imposable under

Section 15H(ii) of SEBI Act, the AO after taking into consideration all

mitigating factors has imposed penalty of ` 10 lac which cannot be said

to be unreasonable or excessively harsh.

6

11. Reliance placed by the counsel for the appellant on the decision of

this Tribunal in case of Shri Sunil Krishna Khaitan & Ors. vs. SEBI

(Appeal No. 23 of 2013 decided on 19.06.2013) is misplaced. That

decision is distinguishable on facts, as in that case, the appellants therein

were promoters of the company whereas in the present case the appellant

is an independent entity who has acquired the shares of CFL in excess of

15% and therefore was required to make public offer as stipulated under

regulation 10 read with regulation 14(1) of the Takeover Regulations,

1997. In any event, for the failure to make public offer within the

stipulated time penalty of ` 25 lac has been imposed on the appellant

therein, whereas, for similar violation penalty of ` 10 lac is imposed on

the appellant herein. Thus, the decision of this Tribunal in case of Shri

Sunil Krishna Khaitan & Ors. (supra) does not support the case of the

appellant herein.

12. For all the aforesaid reasons, we see no merit in the appeal and

accordingly the appeal is dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member 13.01.2016 Prepared & Compared By: PK