Mr. Shashwat Agarwal vs Sebi

Date of Decision : 27.06.2018

Appeal No. 92 of 2018

Mr. Shashwat Agarwal L-1/4 First Floor, Houz Khas Enclave, New Delhi - 110 016. .....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. Pulkit Sharma, Advocate with Mr. Saurabh Bachhawat, Advocate i/b Manoj Jain, CA for the Appellant.

Mr. Sumit Rai, Advocate with Mr. Chirag Bhavsar, Advocate i/b MDP & Partners for the Respondent.

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

Per : Dr. C.K.G. Nair, Member (Oral)

1.

The appellant is aggrieved by the order of the Adjudicating Officer

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

short) dated January 31, 2018. By the said order penalty of Rs. 2.5 lakh each

has been imposed under Section 15A(b) of the SEBI Act, 1992 for violation

of Regulation 13(3), 13(4) and 13(4A) read with 13(5) of the SEBI

(Prohibition of Insider Trading) Regulations, 1992 ('PIT Regulations 1992'

for short) and for violation of Regulation 29(2) read with 29(3) of the SEBI

(Substantial Acquisition of Shares and Takeovers) Regulations, 2011

('SAST Regulations 2011' for short).

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2. Appellant was the Chairman and Managing Director (CMD) of the

company, namely, Rich Universe Network Limited and was also belonging

to the category of promoter and promoter group. He transferred 496603

shares constituting 6.85% of the shares of the said company on September

26, 2014. This was an off market transfer and the transfer was effected in

the demat account of the appellant on the same day itself. On October 13,

2014 the appellant made disclosure to the stock exchange regarding the

above transfer. Accordingly, as held in the impugned order there was a

delay of 6 days in disclosing the said transfer of shares by the appellant and

therefore it is held that appellant has violated Regulation 13(3), 13(4) and

13(4A) read with 13(5) of the PIT Regulations 1992 and Regulation 29(2)

read with 29(3) of the SAST Regulations 2011.

3. The text of the relevant Regulations is reproduced below for ready

reference:-

PIT Regulations:

13. Disclosure of interest or holding [in listed companies by certain persons]

(3) Any person who holds more than 5% shares for voting rights in any listed company shall disclose to the company in Form C the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in the company.

(4) Any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure made under sub-regulation (2) or under this subregulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.

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(4A). Any person who is a promoter or part of promoter group of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person from the last disclosure made under Listing Agreement or under sub-regulation (2A) or under this subregulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower;

(5). The disclosure mentioned in sub-regulations (3), (4) and (4A) shall be made within two working days of:

(a) the receipts of intimation of allotment of shares, or

(b) the acquisition or sale of shares or voting rights, as the case may be.

SAST Regulations:

29. Disclosure of acquisition and disposal

(2) Any person, who together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, if there has been change in such holdings from the last disclosure made under sub-regulation (1) or under this subregulation; and such change exceed s two per cent of total shareholding or voting rights in the target company, in such form as may be specified.

(3). The disclosures required under sub-regulation (1) and sub-

regulation (2) shall be made within two working days of the receipt of intimation of allotment of shares, or the acquisition of shares or voting rights in the target company to,--

(a) every stock exchange where the shares of the target company are listed; and

(b) the target company at its registered office

4. Shri Pulkit Sharma, Learned Counsel appearing on behalf of the

appellant submitted that the appellant had given 496603 shares of the

company to its stock broker, namely, Horizon Portfolio Ltd. on September

26, 2014 and received back the same shares on March 13, 2015. There was

neither any sale nor any consideration was received but shares were given

for margin requirement arising out of future obligations. Since there was no 4

sale of shares there was no requirement of disclosure either under PIT

Regulations 1992 or under SAST Regulations 2011. Though it was not

mandated still disclosure was made on October 13, 2014 on wrong advice,

specifically clarifying that the appellant had transferred the shares for future

obligations and no consideration for sale was received.

5. We find no merit in the submissions made by the Counsel for the

appellant. Transfer of 6.85% of the shares held by the appellant, who was a

promoter of the company, is not disputed. What is disputed is only why it

was transferred. Irrespective of that, given the fact that NSDL has confirmed

that share transfer from the client Id did take place on September 26, 2014

and the consideration value was Rs. 1.78 crore, the promoter holding of

6.85% which was transferred was liable to be disclosed to the stock

exchange both under the PIT Regulations 1992 and under SAST

Regulations 2011. In the instant case it is an admitted fact that it was

disclosed only on October 13, 2014 and as such a normal reading of the

relevant regulations itself makes it clear that the appellant has violated the

provisions of PIT Regulations 1992 and SAST Regulations 2011 by

delaying the disclosures. Still, we have further examined the matter as to

whether the ratio of this Appellate Tribunal's order in respect of Mr. Ravi

Mohan & Ors. vs. SEBI (Appeal No. 97 of 2014 decided on December 16,

2015) is available to the appellant. We note that the same is not available

since sub-regulation 29(2) and 29(3) of SAST Regulations 2011 require

disclosure of changes in holding, not only acquisition. Accordingly, finding

in the impugned order that there was delay of 6 days in disclosing the said

transfer of shares by the appellant cannot be disputed.

6. The penalty imposable under section 15A(b) is a minimum of Rs. 1

lakh with Rs. 1 lakh for each day of violation which could go up to a 5

maximum of Rs. 1 crore per violation. In the instant case, the appellant has

delayed disclosure by 6 days under the provisions of both PIT Regulations

1992 and SAST Regulations 2011. As such, the penalty of Rs. 2.5 lakh

imposed for violation of each of these regulations cannot be considered as

harsh or disproportionate.

7. In the result, appeal is dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 27.06.2018 Prepared and compared by:msb