Premier Capital Services Ltd. & Ors. vs Sebi

Order Reserved On: 10.10.2019 Date of Decision : 17.10.2019

Appeal No. 325 of 2017

1.

Premier Capital Services Ltd.

4, Bhima Vaitarana Complex, Sir Pochkhawala Road, Worli, Mumbai, MH- 400 030

2. R G Agrawal 7-A, Shrinagar Annex, Indore- 452 001

3. R G Agrawal HUF 7-A, Shrinagar Annex, Indore- 452 001

4. R K Agrawal HUF 7-A, Shrinagar Annex, Indore- 452 001

5. Rajesh Agrawal 7-A, Shrinagar Annex, Indore- 452 001

6. Bimla Agrawal 7-A, Shrinagar Annex, Indore- 452 001

7. Sangeeta Agrawal 7-A, Shrinagar Annex, Indore- 452 001

8. G L Agrawal HUF 7-A, Shrinagar Annex, Indore- 452 001

9. Yukti Investment Private Limited 23 Shrinagar Annex, Indore- 452 001 2

10. Vertex Investment Private Limited 23 Shrinagar Annex, Indore- 452 001

11. Vastu Commodities Private Limited 23 Shrinagar Annex, Indore- 452 001

12. Suman Agrawal 7-A, Shrinagar Annex, Indore- 452 001

13. Premier Protein Limited 47/48-B Industrial Area No. 1, Agra Bombay Road Dewas, (M.P.)- 455 001 ...Appellants

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. Somasekhar Sundaresan, Advocate with Mr. Abhishek Venkatraman and Mrs. Poonam D. Gadkari, Advocates i/b Juris Matrix Partners LLP for Appellants.

Mr. Vishal Kanade, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member

Per: Justice Tarun Agarwala

1. The appellants have filed the present appeal against the

imposition of penalty by the Adjudicating Officer ("AO" for

convenience) of Securities and Exchange Board of India 3

("SEBI" for convenience) for violation of Regulation 7(1A),

8(3) and 10 & 11 of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers), Regulations,

1997 ("SAST Regulations" for short) as well as Regulations

13(3) and 13(4) of the SEBI (Prohibition of Insider Trading)

Regulations, 1992 ("PIT Regulations" for short).

2. The facts leading to the filing of the appeal is, that the

Appellant No. 1 is a public limited company known as Premier

Capital Services Limited ("PCSL"/ "Appellant No. 1 Company"

for convenience). Appellant Nos. 2 to 7 and 10 to 13 were the

erstwhile promoters of the Appellant No. 1. The Appellant No.

1 Company remained suspended since September 30, 2005 on

account of non-compliance of certain clauses of the Listing

Agreement. In 2010 the Company complied with all the

requirements of the Listing Agreement and thereafter the

suspension in the equity shares was revoked and trading in the

securities of the Company resumed thereafter. In July 2010

Appellant Nos. 2 to 7 and 10 to 13 entered into a Share

Purchase Agreement with third parties and pursuant thereto the

appellants were required to make a public announcement. It

was then noticed that the appellants had not complied with the

SAST Regulations. Accordingly, necessary disclosures and 4

compliances were made belatedly. It is also noticed that the

appellants also moved an application for settlement. However,

noticing the irregularities, SEBI issued a show cause notice for

violation of various provisions of the SAST Regulations. After

hearing all the appellants and after considering their replies, the

impugned order was passed imposing penalties on each of the

appellants to pay individually for violation of different

provisions of SAST Regulations. By the same order, for

violation of Regulation 11(1) of the SAST Regulations the

penalty imposed was required to be paid by all the appellants

jointly and severally. The appellants being aggrieved by the

aforesaid order has filed the present appeal.

3. We have heard the learned counsel Shri Somasekhar

Sundaresan for the appellants and the learned counsel

Shri Vishal Kanade for the respondent.

4. Penalty of various amounts has been imposed upon the

appellants individually for violation of Regulation 7(1A) of the

SAST Regulations. According to the AO the appellants sold

their shares aggregating to 45.41% of the paid up capital of the

Company to Tekriwal and Hisaria Group which resulted in a

decrease in the shareholding of the promoters from 68.68% to 5

23.27% of the paid up capital of the Company. The AO found

that necessary disclosures were required to be made under

Regulation 7(1A) o the SAST Regulations which was made

belatedly by 424 days accordingly imposed a penalty of various

amounts upon the appellants.

5. In our opinion, no penalty could be imposed for violation

of Regulation 7(1A) of the SAST Regulations, in view of the

decision of this Tribunal in Ravi Mohan and Others vs. SEBI

in Appeal No. 97 of 2014 decided on 16.12.2015 and in Rakesh

Kathotia and Others vs. SEBI in Appeal No. 7 of 2016 decided

on 27.05.2019. It was observed in the decision of Rakesh

Kathotia that the decision in Ravi Mohan's case has not been

questioned by the SEBI before a superior forum and that SEBI

has accepted the decision of the Tribunal. Since the benefit of

the decision in Ravi Mohan has being given to other persons the

same benefit is also being given to the appellant. Consequently,

in the light of the decision of this Tribunal in Ravi Mohan and

Rakesh Kathotia's case (Supra) no penalty under Regulation

7(1A) of the SAST Regulations could be imposed. The order of

the AO to that effect cannot be sustained. 6

6. The AO has imposed a penalty upon the Company for

violation of Regulation 8(3) of the SAST Regulations. It was

urged by the learned counsel for the appellant that between

1997 to 2007 the collective holding of the group remained

unchanged and therefore there was no requirement for the

appellant to make continuous disclosure under Regulations 8(3)

of the SAST Regulations. It was contended that Regulation 8(3)

of the SAST Regulations requires disclosure of annual holding

of the promoters group only when there is a change in the

collective holding. It was thus contended that no penalty could

be imposed under this Regulation.

7. In this regard, it would be appropriate to refer Regulation

8(3) of the SAST Regulations which is extracted hereunder:

"8(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."

7

8. A perusal of the aforesaid provision indicates that every

company whose shares are listed on a stock exchange is

required to make yearly disclosure within 30 days from the

financial year ending 31st March to the stock exchange where

the shares of the Company are listed. In Inland Printers

Limited vs. SEBI Appeal No. 199 of 2014 decided on

20.10.2015, this Tribunal held that the obligation of the

Company is to make yearly disclosures is a continual obligation

and not a conditional obligation and even if there is no change

in the shareholding, one is still required to make a disclosure.

9. We are in complete agreement with the said decision. We

are of the opinion that there is an obligation cast upon the

Company to make a disclosure to the stock exchange under

Regulation 8(3) of the SAST Regulations. The yearly

disclosure is required to be made within 30 days of each

financial year ending on 31st March. Further, the disclosure to

be made at each record date fixed by the Company for the

purposes of dividend. The very fact that multiple disclosures

are required to be made shows the obligation of the Company to

make disclosures under Regulation 8(3) irrespective whether

there is a change in the shareholding or not. We are further of

the opinion, that Regulation 8(3) mandates continual obligation 8

on the Company to make yearly disclosures and is not a

conditional obligation. Whether there are changes in the

shareholding or not the company is still required to make

disclosure under Regulation 8(3) of the SAST Regulations.

Thus, the contention of the appellant that the Company was not

required to make disclosures under Regulation 8(3) since there

was no change in the shareholding is misconceived and cannot

be accepted. The penalty imposed on the appellant under

Regulation 8(3) is perfectly justified and no interference is

called for.

10. Appellant Nos. 10 and 11 have been penalized for

violation of Regulation 10 of the SAST Regulations. The

argument of the leaned counsel is, that the counter party

namely, Tekriwal and Hisaria Group who holds the shares were

also imposed a penalty under the same provision by a different

AO imposing lesser quantum of penalty. In the case of

Tekriwal and Hisaria Group a sum of ` 5 lakh each was

imposed whereas, in the instant case, Appellant Nos. 10 and 11

have been imposed a penalty of ` 10 lakh each. The fact that

lesser quantum of penalty for the same violation of the

provision has been imposed upon Tekriwal and Hisaria Group

for the same transactions has not been disputed by the 9

respondent. In the light of the aforesaid, we are of the view that

there should be consistency in the imposition of penalty for

violation of the same provision of the Regulations for the same

set of transactions. We consequently reduce the penalty of

` 10 lakh each imposed upon the Appellant Nos. 10 and 11

under Regulation 10 to ` 5 lakh each.

11. In so far as violation of Regulation 11(1) is concerned, the

learned counsel contended that Regulations 10 and 11 can never

be applied to the same transactions as they operate in different

spheres. In order to substantiate this submission, the learned

counsel for the appellants also relied on the order of Supreme

Court in the matter of Swedish Match AB and Anr. vs. SEBI

and Anr. (2004) 11 SCC 641.

12. For facility Regulation 10 and Regulation 11(1) of the

SAST Regulations, 1997 is reproduced below:-

Acquisition of fifteen per cent or more of the shares or voting rights of any company.

10. No acquirer shall acquire shares or voting rights which taken together with shares or voting rights, if any, held by him or by persons acting in concert with him, entitle such acquirer to exercise fifteen per cent 10

or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.

Consolidation of holdings.

11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.

13. Regulation 11(1) categorically states that no acquirer who,

together with persons acting in concert has acquired 15% or

more but less than 55% shall acquire either by himself or with

persons acting in concert with additional shares or voting rights

entitled him to exercise more than 5% of the voting rights, in 11

any financial year ending on March 31, unless such acquirer

makes a public announcement. Therefore, even any acquirer

already holding more than 15% individually or along with

persons acting in concert with while acquiring more than 5%

under Regulation 11(1) have to make a public announcement in

accordance with regulations. In the facts of the case, on

15.05.2009 the appellants acquired an additional 15.39% and

12.01.% on 30.06.2009 and hence they were mandated to make

public announcements.

14. The learned counsel for the appellants contended that

Regulations 10 and 11 of the SAST Regulations cannot be

pursued simultaneously since these regulations operate at

different spheres. The former is dealing with substantial

acquisition and the later deals with additional/ creeping

acquisition; therefore there cannot be any overlap and either or

would apply. We do not agree with this contention. Reliance

on Swedish Match (Supra) is not tenable as the said order states

of normally no overlap between Regulations 11 and 12; not

between 10 and 11 of SAST Regulations, though, the order

considers all the three Regulations 10, 11 and 12. Moreover, in

paragraph 81 the said order states " we may, however, hasten to

add that there may be a situation where Regulations 11 and 12 12

may overlap with each other, in which event, it would be open

to the acquirer to issue a combined notice fulfilling the

requirement of both Regulations 11 and 12". Therefore, the

Apex Court is conscious of possibilities of overlap between

these two Regulations. Moreover, in the absence of an explicit

statement on Regulations 10 and 11 that they cannot overlap in

any situation the benefit of the ratio cannot be applied in the

present matter. Regulation 11(1) of the SAST Regulations deals

with acquisition of additional shares or voting rights exceeding

5% in a financial year. However, in the facts of the present

matter the acquisition was of a substantial nature of more than

15% and 12% and hence application of Regulations 10 and 11

simultaneously cannot be faulted, as it is an exceptional

situation as stated in Swedish Match (Supra) in respect of

Regulations 11 and 12. In any case, since the impugned order

has only directed payment of a penalty of ` 20 lakhs jointly and

severally on eleven Appellants for violation of Regulation 11(1)

of the SAST Regulations, we are of the view that the impugned

order has considered the mitigating circumstances while passing

the order, since normally for such violations a direction to make

a public announcement for open offer would be made.

Therefore, in the facts of the present matter the mitigating 13

circumstances have been considered and only an appropriate

amount of penalty has been imposed for these violations.

15. In the light of the aforesaid, the appeal is partly allowed.

The AO is directed to recalculate the penalty in the light of the

observation made above and communicate the amount payable

by the appellants which amount shall be paid within 30 days

from the date of such communication. In view of the partial

success, parties shall bear their own costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 17.10.2019 Prepared & Compared By: PK