Mooldhan Advisory Systems Private ... vs Sebi

Date of Decision: 30.05.2018

Misc. Application No. 127 of 2018 And Appeal No. 170 of 2018

1.

Mooldhan Advisory Systems Private Limited 145, Rash Bihari Avenue, 4th Floor, Kolkata - 700 029.

2. Acme Consultants Private Limited 145, Rash Bihari Avenue, 4th Floor, Kolkata - 700 029.

3. Namokar Vinimay Private Limited 145, Rash Bihari Avenue, 4th Floor, Kolkata - 700 029. .....Appellants

Versus

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

Mr. Saugadh Pakale, Advocate with Mr. Yash Mehta, Advocate for Appellants.

Mr. Gaurav Joshi, Senior Advocate with Mr. Santanu Mitra and Mr. Anubhav Ghosh, Advocates i/b Desai & Diwanji for the Respondent.

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

Per : Justice J.P. Devadhar (Oral)

Misc. Application No. 127 of 2018:-

Not on Board. Taken up for hearing by consent of the parties. 2

By this Misc. Application appellant seeks condonation of 108 days

delay in filing Appeal No. 170 of 2018. For the reasons stated in the Misc.

Application, the delay is condoned. Accordingly, Misc. Application is

disposed of with no order as to costs.

Appeal No. 170 of 2018:-

1. Not on Board. Taken up for hearing by consent of the parties.

2. This appeal is filed to challenge the order passed by the Adjudicating

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

for short) on December 12, 2017. By that order penalty of Rs. 25 lakh is

imposed on the appellant under section 15H(ii) and penalty of Rs. 5 lakh is

passed under section 15A(b) of SEBI Act, 1992 for violating Regulation 10

read with Regulation 14 of SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 1997 ('SAST Regulations 1997' for short)and also

violation of Regulation 7(1) of the SAST Regulations 1997.

3. Learned counsel for appellants fairly states that the appellants are not

disputing the violations said to have been committed by the appellants,

however, he submits that the penalty imposed is unreasonable, exorbitant

and unsustainable for the following reasons:-

(a) Failure to comply with the SAST Regulations 1997 was not a

deliberate act to defy the law but was an unintentional error;

(b) The violations took place on account of bonafide belief that

the appellants were exempt from making open offer under

Regulation 3 of SAST Regulations 1997;

3

(c) Failure to comply with the provisions contained in the SAST

Regulations 1997 has not resulted any unlawful gain to the

appellants;

(d) The unintended violation took place on account of the wrong

advice given by the company secretary of the appellants;

(e) In the light of the decision of this Tribunal in the case of

Samrat Holdings Limited vs Securities and Exchange Board of

India reported in 2001 SCC OnLine SAT 2 and decision of

this Tribunal in the case of Blue Blends Finance Limited &

Ors vs. Securities and Exchange Board of India reported in

2008 SCC OnLine SAT 73, it is submitted that the penalty

imposed against the appellants be quashed and set aside.

4. We see no merit in the above contentions.

5. It is not in dispute that on acquisition of shares of Juggilal Kamlapat

Jute Mills Company Limited (Target Company) appellants were required to

make public announcement of open offer and by failing to make public

announcement appellants have violated Regulation 10 read with Regulation

14 of SAST Regulations 1997. Similarly, by failing to make necessary

disclosures on acquisition of shares of the Target Company appellants have

violated Regulation 7(1) of the SAST Regulations 1997 is also not in

dispute.

6. Penalty imposable under section 15H(ii) of SEBI Act for failing to

make public announcement of an open offer is not less than Rs. 10 lakh but

may extend upto to Rs. 25 crore or 3 times the amount of profits made out

of such failure, whichever is higher. Similarly, penalty imposable under 4 section 15A(b) of SEBI Act or failing to make disclosures in violation of

Regulation 7(1) of the SAST Regulations 1997 is not less than one lakh

rupees but which may extend to one lakh rupees for each day during which

such failure continues subject to a maximum of one crore rupees.

7. Thus, in the fact of the present case, as against the maximum penalty

of one crore rupees imposable under section 15A(b) of SEBI Act the AO

has imposed penalty of Rs. 5 lakh and as against the penalty of Rs. 25 crore

imposable under section 15H(ii) of SEBI Act the AO imposed penalty of

Rs. 25 lakh, which cannot be said to be unreasonable, excessive or arbitrary.

8. Argument of the appellants that the failure to comply with the

provisions contained in the SAST Regulations 1997 was unintentional /

bonafide error / wrong advise given by the company secretary and that the

appellant has not made any unlawful gain on account of unintentional error

is without any merit, because, imposition of penalty under section 15A(b)

and 15H(ii) of SEBI Act is not subject to fulfilling the aforesaid factors.

However, those factors being mitigating factors, the AO after considering

the aforesaid factors has imposed penalty of Rs. 5 lakh as against the

imposable penalty of Rs. 1 crore under section 15A(b) and penalty of Rs. 25

lakh as against the imposable penalty of Rs. 25 crore under section 15H(ii)

of SEBI Act, which cannot be said to be unreasonable, excessive or

arbitrary.

9. Strong reliance was placed by counsel for the appellants on the

decisions of this Tribunal in the case of Samrat Holdings Limited (supra)

and Blue Blends Finance Limited (supra). Aforesaid decisions cannot be

said to lay down a general proposition of law that in case of unintentional 5

error penalty ought not to be imposed or only a nominal penalty is liable to

be imposed.

10. In view of the decision of the Apex Court in the case of Chairman,

SEBI vs Shriram Mutual Fund reported in (2006) 5 SCC 361 and in case of

N. Narayanan vs SEBI reported in (2013) 12 SCC 152, it is abundantly clear

that where 'market abuse' is committed by acquiring shares of a company in

violation of the Takeover Regulations it is necessary to take stern action to

curb such practice, failing which the object and purpose with which SEBI

Act is enacted would be defeated. In the present case, as against the penalty

of Rs. 26 crore imposable against the appellants for the two violations

committed, the AO has imposed penalty of Rs. 30 lakh which cannot be said

to be unreasonable, excessive or arbitrary.

11. In the result, we see no merit in the appeal and same is hereby

dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

30.05.2018 Prepared and compared by:msb