Smt. Chanchal Kumar And Others vs Sebi

Order Reserved On: 30.11.2016 Date of Decision : 15.12.2016

Appeal No. 102 of 2014

1.

Sanjay Dalmia 9, Tees January Marg, New Delhi- 110 001

2. Anurag Dalmia 9, Tees January Marg, New Delhi- 110 001

3. Jyoti Prakash Khetan 802, Joy Sapphire, 8th Floor, Plot No. 22 N. S. Road, N-6, JVPD Scheme, Vile Parle (West), Mumbai- 400 056

4. Ashok Kumar Joshi Vaishali, Flat No. 101, 1st Floor, Janki Kutir, Juhu Church Road, Juhu, Mumbai- 400 049 ...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. Iqbal Chagla, Senior Advocate with Ms. Rajas Kasbekar, Advocate i/b Little & Co. for Appellants.

Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Mr. Vivek Rana, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 101 of 2014

1. Smt. Chanchal Kumar B-703, Uttpal Park, 7th Floor, Temple Road, Mahim, Mumbai-400 016 2

2. Shri Bharat Merchant Bachubhai 8-A, Land's End, 8th Floor, 29-D, Doongersey Road, Malber Hill, Mumbai- 400 006

3. Shri Rishabh Jain 16/77-A Civil Lines, Kanpur- 208 001

4. Shri Vijay Kumar Bhandari 1704- Wallance Apartment, 17th Floor, Sleater Road, Grant Road (West), Mumbai- 400 007 ...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. Vicky Singh, Advocate with Ms. Rajas Kasbekar, Advocate i/b Little & Co. for Appellants.

Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Mr. Saurabh Bachhawat and Mr. Vivek Rana, Advocates i/b K. Ashar & Co. for the Respondent.

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

Per: Justice J.P. Devadhar

1. Appellants in these two appeals are aggrieved by the order passed

by the Adjudicating Officer ("AO" for short) of the Securities and

Exchange Board of India ("SEBI" for short) on February 14, 2014. By

the said order penalty of ` 1 crore is imposed on the appellants under

Section 15HB of the Securities and Exchange Board of India Act, 1992

(for short "SEBI Act") on the ground that the appellants have violated

regulation 23(1) of the Securities and Exchange Board of India 3

(Substantial Acquisition of Shares and Takeovers) Regulations, 1997

("Takeover Regulations, 1997" for short). Since the appellants in these

two appeals have challenged the common order passed by the AO on

February 14, 2014, both these appeals are heard together and disposed of

by this decision.

2. Facts set out in these two appeals and also revealed during the

course of arguments are as follows:

a) Appellants at the material time were the Executive

Directors/ Non-Executive Directors of Golden

Tobacco Limited ("Company" for convenience).

Appellant No. 1 in Appeal No. 101 of 2014 is the

legal heir of the original Appellant No. 1 Shri

Raghunath Kumar, who has died during the pendency

of the appeal.

b) In the year 1997 company faced unexpected losses

due to the devolvement of statutory liabilities and

ongoing litigation as a result of which the company

was referred to the Board of Industrial and Financial

Reconstruction ("BIFR" for convenience). On April

03, 1997 the BIFR declared the company to be a sick

undertaking. On December 16, 2002 the BIFR

sanctioned a Rehabilitation Scheme for the company

from April 01, 2003 which was to remain in operation

for a period of 8 years ending on March 31, 2011. 4

c) Pursuant to the implementation of the Rehabilitation

Scheme, the net worth of the company turned positive

in the financial year ending March 31, 2007.

Consequently on June 29, 2007 BIFR passed an order

discharging the company from the purview of BIFR.

However, while discharging the company, BIFR

directed that implementation of the pending

provisions of the sanctioned scheme be continued.

d) Due to increase in the excise duty on cigarettes

announced by the Central Government in the Budget

announced for 2008-2009, the company's turnover

fell sharply and the company began to incur losses.

Therefore, the Board of Directors ("BoD" for short) of

the company in the meeting held on September 24,

2008 authorized the Managing Director and Director,

finance to explore the possibility of making

alternative use of the company's property located at

Marol (West) Mumbai and Vile Parle (West)

Mumbai.

e) On September 29, 2008 Mr. Pramod Jain, through his

company Pranidhi Holdings Pvt. Ltd ("Pranidhi

Holdings" for short) made an offer to the company for

the joint development of the company's property 5

situated at Vile Parle (West) Mumbai, by offering

` 150 crore + sharing profit in the ratio of 50:50.

f) In the meeting held on January 17, 2009, the Board of

Directors of the company approved the proposal to

raise finances for the company's real estate business.

Accordingly, the company engaged the services of

Ernst & Young (E&Y) to invite bids from renowned

builders and shortlist the most suitable bidder.

g) On November 12, 2009 Mr. Pramod Jain and two

Others made public announcement under the

Takeover Regulations, 1997 disclosing their intention

to acquire 44,02,201 equity shares (25%) of the

company at a price of ` 101/- per share. On

November 26, 2009 Mr. Pramod Jain and Others filed

draft letter of offer seeking approval of SEBI for

acquiring 25% shares of the company from the

shareholders.

h) On December 21, 2009 a resolution was passed by the

BoD of the company inter alia to develop the

company's property at Vile Parle (West) Mumbai

subject to the approval of the shareholders as

contemplated under regulation 23(1) of the Takeover

Regulations, 1997.

6

i) On December 21, 2009 itself a notice was addressed

to the shareholders of the company convening an

Extra Ordinary General Meeting ("EOGM") on

January 18, 2010 at 11:00 a.m. to seek their approval

under regulation 23(1) of the Takeover Regulations,

1997 for joint development of the Vile -Parle (West)

property.

j) On December 26, 2009 a Memorandum of

Understanding ("MoU" for short) was entered into by

the company with Sheth Developers and Suraksha

Realty Ltd. ("developers") for joint development of

the Vile-Parle (West) Mumbai property inter alia for a

consideration of ` 542 crore. As per the terms of

MoU, amount of ` 35 crore was to be paid to the

company on or before execution of the MoU and

within 48 hours of the execution of the MoU title

deeds in respect of the Vile-Parle (West) Mumbai

property were to be kept in ESCROW with the

company's Solicitors to be released only on execution

of the Joint Development Agreement. The amount of

` 35 crore was accepted by the company for the

purpose of discharging the company's liabilities.

k) Challenging the MoU dated December 26, 2009,

Mr. Pramod Jain and Pranidhi Holdings filed

Company Petition No. 3 of 2010 under Section 397 7

and 398 of the Company's Act, 1956 before the

Company Law Board ("CLB" for short).

l) At the EOGM held on January 18, 2010, the

shareholders gave their consent to the company to

take necessary steps inter alia for joint development of

the company's property at Vile-Parle (West) Mumbai.

It also authorized execution of Joint Development

Agreement in respect of the Vile-Parle (West)

Mumbai property.

m) Vide interim order dated January 19, 2010 the CLB

restrained the company and its promoters from

implementing the resolution passed in the EOGM on

January 18, 2010. Thereafter on, February 9, 2010 the

CLB passed an order by consent of parties recording

that Mr. Pramod Jain and Others had amicably settled

the matter with the company and its promoters and

permitted Mr. Pramod Jain to withdraw the Company

Petition No. 3 of 2010.

n) On February 16, 2010, the BoD of the company

resolved to convert the cost of the land at Vile-Parle

(West) held as capital asset into stock in trade at cost.

o) On May 26, 2010 company decided to shift the plant

and machinery from the company's premises at Vile 8

Parle (West) to Vadodara. In the Annual General

Meeting ("AGM" for short) held on September 18,

2010 it was resolved that the registered office of the

company be moved from Maharashtra to Gujarat.

p) On March 22, 2011 shareholders resolution was

passed through postal ballot wherein the Board was

authorized to enter into an agreement with Sheth

Developers Pvt. Ltd. and Suraksha Realty Ltd. for the

joint development of the Vile Parle (West) property of

the company.

q) By a show cause notice dated September 19, 2013,

SEBI called upon the appellants to show cause as to

why entering into the MoU on December 26, 2009

during the period when the public offer made by

Mr. Pramod Jain and Others was pending, should not

be held to be in violation of regulation 23(1) of the

Takeover Regulations, 1997.

r) Appellants in their reply to the show cause notice

denied to have violated the Takeover Regulations,

1997. Thereafter, an opportunity of hearing was given

to the appellants and by the impugned order dated

February 14, 2014 penalty of ` 1 crore is imposed on

the appellants in both the appeals on the ground that

the appellants have violated regulation 23(1) of the 9

Takeover Regulations, 1997 and directed the

appellants in both the appeals to pay the aforesaid

penalty of ` 1 crore jointly and severally. Challenging

the aforesaid decision these two appeals are filed.

3. Mr. Chagla, learned Senior Advocate appearing on behalf of the

appellants in Appeal No. 102 of 2014 and Mr. V. M. Singh, learned

Advocate appearing on behalf of the appellants in Appeal No. 101 of

2014 submitted as follows:-

a) The MoU executed by the company with the

developers on December 26, 2009 specifically records

that the said MoU was subject to approval from the

shareholders and that formal Joint Development

Agreement in favour of developers would be executed

within a period of one month from the date of the

company getting necessary resolution passed at its

shareholders meeting. The MoU further records that

if the shareholders reject the Joint Development

Proposal, then, the MoU shall come to an end and the

advance amount received by the company under the

MoU shall be returned with 18% interest. Thus, the

MoU was in the nature of an agreement to agree and

was not a binding contract. In such a case, the AO

could not have held that by executing the MoU, the

BoD of the company had created third party rights on

the assets of the company to the detriment of the 10

acquirers under the open offer. Since no rights flowed

under the MoU and the MoU was not a legally

enforceable contract, the AO of SEBI is not justified

in holding that by executing the MoU without the

approval of shareholders, the appellants have violated

regulation 23(1) of the Takeover Regulations, 1997.

b) Under Section 31 to Section 35 of the Contract Act

1872, execution of contingent contracts is permitted

and those contracts become enforceable only on the

contingent event happening. In the present case, the

MoU dated December 26 2009 which was neither

registered nor properly stamped was not intended to

create any right in favour of the developers and was to

be operative only if the shareholders of the company

approved the proposal and thereafter a formal Joint

Development Agreement was executed. Thus, in the

facts of present case, at least till the shareholders gave

approval for joint development of the Vile Parle

(West) property it could not be said that by executing

the MoU, the BoD had encumbered the Vile Parle

(West) property in violation of regulation 23(1) of the

Takeover Regulation, 1997, because, the MoU did not

create any encumbrance or created any third party

right on the Vile-Parle (West) property in favour of

the developers till the contingent event happened in 11

the general body meeting scheduled on January 18,

2010. In support of the above contention reliance is

placed on a decision of the Apex Court in case of Mrs.

Saradamani Kandappan v/s Mrs. S. Rajalakshmi and

Ors. reported in AIR 2011 SC 3234.

c) Alleging that execution of the MoU dated December

26, 2009 amounts to encumbering the Vile Parle

(West) property, Mr. Pramod Jain and Ors. (acquirers)

had sought to withdraw from the open offer. That

contention of Mr. Pramod Jain was rejected by SEBI

and the said decision of SEBI was upheld by this

Tribunal and also by the Apex Court. Once the plea

of Mr. Pramod Jain that by entering into an MoU on

December 26, 2009 the company had encumbered or

created third party rights over the Vile-Parle (West)

property of the company is rejected by SEBI and

upheld by this Tribunal and also by the Apex Court, it

is not open to SEBI to take a contrary view in case of

the appellants. Fact that this Tribunal while upholding

the order passed by SEBI in the case of Mr. Pramod

Jain, had recorded a finding that the MoU executed on

December 26, 2009 was in violation of regulation 23

of the Takeover Regulations, 1997 would not bind the

appellants, because, the appellants were not party to

the said proceedings. Accordingly, it is submitted that 12

the appellants are entitled to agitate before this

Tribunal that entering into an MoU subject to the

approval by the shareholders in the EOGM was

permissible in law and the said MoU did not violate

regulation 23(1)(a) of the Takeover Regulations,

1997.

d) Regulation 23(1)(a) of the Takeover Regulations,

1997 provides that during the offer period, the BoD of

the company, without the approval of the general

body of shareholders shall not sell, transfer, encumber

or otherwise dispose of the assets of the company.

Entering into an MoU subject to approval from the

shareholders would not amount to selling,

transferring, encumbering or otherwise disposing of

the assets of the company. Even the amount of ` 35

crore received under the MoU was liable to be

refunded with interest in the event of the shareholders

rejecting the proposal. Therefore, in the facts of

present case it could not be said that the appellants

had violated regulation 23 of the Takeover

Regulations, 1997.

e) Assuming for the sake of argument that there is any

technical breach of the Takeover Regulations, 1997

committed by the appellants, imposing maximum

penalty of ` 1 crore is highly arbitrary 13

disproportionate and excessive high, especially when

the shareholders have in fact approved the MoU in the

EOGM held on January 18, 2010.

f) On behalf of the appellants in Appeal No. 101 of 2014

it is submitted that the said appellants were

Independent Directors and were not involved in the

execution of the MoU and therefore imposing penalty

on the said appellants is unjustified.

4. Mr. Rustomjee, learned Senior Advocate appearing on behalf of

SEBI supported the order passed by the AO and submitted that the terms

of the MoU dated December 26, 2009 as also the conduct of the

appellants subsequent thereto leave no manner of doubt that the said

MoU was entered into in gross violation of the provisions contained in

the Takeover Regulations, 1997 and hence there is no merit in these two

appeals.

5. We have carefully considered rival submissions.

6. Before dealing with the rival contentions, it would be appropriate

to quote regulation 23(1) of the Takeover Regulations, 1997 which reads

thus:-

"General obligations of the board of directors of the target

company.

23. (1) Unless the approval of the general body of

shareholders is obtained after the date of the public 14

announcement of offer, the board of directors of the target

company shall not, during the offer period,-

(a) sell, transfer, encumber or otherwise dispose of or enter

into an agreement for sale, transfer, encumbrance or for

disposal of assets otherwise, not being sale or disposal of

assets in the ordinary course of business, of the company or

its subsidiaries; or

(b) issue 2 [or allot] any authorised but unissued securities

carrying voting rights during the offer period; or

(c) enter into any material contracts.

Explanation.-Restriction on issue of securities under clause

(b) of subregulation (1) shall not affect-

(i) the right of the target company to issue or allot shares

carrying voting rights upon conversion of debentures

already issued or upon exercise of option against warrants,

as per pre-determined terms of conversion or exercise of

option; (ii) issue or allotment of shares pursuant to public

or rights issue in respect of which the offer document has

already been filed with the Registrar of Companies or Stock

Exchanges, as the case may be.

7. Regulation 23(1) of the Takeover Regulations, 1997 expressly

provides that during the public offer period without obtaining prior

approval of the general body of shareholders, the BoD of a company

shall neither sell, transfer, encumber or otherwise dispose of the assets of

the company nor the BoD of the company shall enter into any agreement 15

for sale, transfer, encumbrance or disposal of the assets of the company.

In other words, regulation 23(1) of the Takeover Regulations 1997, not

only makes it mandatory for the BoD of a company to first seek approval

of the general body of shareholders before selling, transferring,

encumbering or otherwise disposing of the assets of the company but also

before entering into an agreement for selling, transferring, encumbering

or disposing of the assets of the company. Object of the above provision

is to ensure that during the offer period, the assets of the company are not

dealt with in any manner whatsoever without the approval of the general

body of shareholders, because dealing with the assets of the company

would have direct bearing on the shareholders decision either to

participate in the open offer or not.

8. In the present case, it is not in dispute that on the date of entering

into an MoU on December 26, 2009, the public offer made by

Mr. Pramod Jain and Others was subsisting. Question, therefore to be

considered is, whether entering into an MoU on December 26, 2009,

during the offer period for development of the Vile-Parle (West) property

jointly with the Developers subject to the approval of general body of

shareholders amounts to violating regulation 23 of the Takeover

Regulations, 1997.

9. In view of the prohibition contained in regulation 23 of the

Takeover Regulations 1997, in our opinion, the BoD of the company

could not have entered into an MoU on December 26, 2009 for joint

development of the Vile-Parle (West) property with the Developers.

Regulation 23 contemplates that without the approval of the general body 16

of shareholders, the BoD of a company cannot enter into any form of

agreement for selling, transferring or encumbering the assets of the

company. To hold that the expression 'agreement' used in regulation 23

would not apply to an 'MoU' would amount to defeating the object with

which regulation 23 has been framed. Therefore, in the facts of present

case, entering into an MoU on December 26, 2009 for joint development

of the Vile-Parle (West) property subject to approval of the shareholders

was in gross violation of regulation 23 of the Takeover Regulations,

1997.

10. Apart from the above, as rightly contended by the counsel for

SEBI, it is apparent that by executing the MoU on December 26, 2009

the BoD of the company sought to encumber the Vile-Parle (West)

property in violation of regulation 23 is established as can be seen from

the following:-

a) The notice issued by the company to the

shareholders on December 21, 2009 specifically

records that the company intends to enter into a

material contract inter alia for joint development

of the Vile-Parle (West) property and since

regulation 23 of the Takeover Regulations, 1997

prohibits the BoD to take any steps in that behalf

without the approval of the general body of

shareholders, EOGM is convened on January 18,

2010 at 11:00 AM seeking approval of the

shareholders, inter alia, for joint development of 17

the Vile Parle (West) property. Having convened

the EOGM on January 18, 2010, the BoD of the

company could not have bypassed the general

body of shareholders and enter into an MoU on

December 26, 2009. Fact that the appellants

instead of entering into an 'agreement' have

entered into an 'MoU' does not entitle the

appellants to violate regulation 23 of the

Takeover Regulations, 1997.

b) Apart from the above, perusal of the terms set out

in the MoU reveal that the BoD of the company

had not only finalized the terms for joint

development of the Vile-Parle (West) property at

` 542 crore but also in implementation of the

MoU, the company had received ` 35 crore from

the developers as part payment. Moreover, the

MoU records that within 48 hours of the

execution of MoU, the title deeds of the Vile-

Parle (West) property be kept in ESCROW with

the Company's Solicitors. Thus, on execution of

the MoU, the title deeds of the Vile-Parle (West)

property were encumbered in violation of

regulation 23.

c) It is interesting to note that clause 9.1 of the MoU

records that if the company is unable to obtain 18

approval of the shareholders, then the developers

will have an option to terminate the MoU by

giving two days notice and upon such

termination the company shall refund the

amounts paid by the developers with 18%

interest. Clause 9.2 of the MoU records the

undertaking given by the company that in the

event of termination of the MoU by the

developers, the company shall not enter into any

transaction for disposal or alienation of the Vile-

Parle (West) property till the amounts payable by

the company to the developers have been paid

and discharged. These two clauses in the MoU

unequivocally establish that in the event of the

shareholders rejecting the joint development

proposal, the MoU was not to come to an end and

it was open to the developers to seek

enforcement of the MoU even if the shareholders

rejected the proposal for joint development of the

Vile-Parle (West) property. In other words, the

MoU was binding on the company and inspite of

the developers opting for termination of the

MoU, the Vile-Parle (West) property of the

company was to remain encumbered till the

amounts received by the company under MoU

were refunded with interest by the company to 19

the developers. Thus, the terms of the MoU

establish beyond any doubt that on execution of

the MoU the Vile-Parle (West) property of the

company was encumbered by the BoD in gross

violation of regulation 23 of the Takeover

Regulations, 1997.

11. Argument advanced on behalf of the appellants that the MoU was

not a legally enforceable contract and that the Vile-Parle (West) property

was not encumbered under the MoU is without any merit, because, the

MoU specifically provides that the developers could seek joint

development of the Vile-Parle (West) property even if the proposal was

rejected by the general body of shareholders and in the event of

developers opting to terminate the MoU, then the said property was to

remain encumbered till entire amount received by the company under the

MoU was refunded with interest to the developers. It is not in dispute

that even after the general body of shareholders approved the joint

development of the Vile-Parle (West) property the company has decided

not to proceed with the joint development of the said property as per the

MoU dated December 26, 2009 and in view of the dispute between the

parties, the company has not refunded the amount received from the

developers. As a result, under the terms of the MoU dated December 26,

2009, the Vile-Parle (West) property continues to be encumbered.

12. Strong reliance was placed by counsel on behalf of the appellants

on Section 30 to Section 35 of the Indian Contract Act, 1872. Fact that

the Indian Contract Act permits execution of contingent contracts and

such contingent contracts become enforceable depending upon the 20

contingent event taking place or not, would have no bearing on the facts

of present case because, regulation 23 of the Takeover Regulations, 1997

specifically provides that during the offer period, the BoD of a company

shall not enter into any agreement in respect of any assets of the company

without prior approval of general body of shareholders. Therefore, in

view of specific bar contained in regulation 23 of the Takeover

Regulation, 1997, appellants without the prior approval of the general

body of shareholders could neither have entered into an agreement nor

could have entered into an MoU for joint development of the Vile-Parle

(West) property. Hence, appellants are not justified in relying on the

provisions contained in the Indian Contract Act.

13. Strong reliance was placed by the counsel for the appellants on a

decision of the Apex Court in case of Saradamani Kandappan (Supra).

That decision has no bearing on the facts of present case, because, in that

case the issue related to the provisions contained under the Indian

Contract Act, whereas, in the present case, we are concerned with the

obligation cast on the BoD of a company under the Takeover

Regulations, 1997. Since regulation 23 prohibits execution of agreement

in any form which would inter alia encumber the assets of the company

without the approval of the general body of shareholders, the appellants

are not justified in relying on the Apex Court decision in the case of

Saradamani Kandappan (Supra) in which the Apex Court had considered

the provisions contained in the Indian Contract Act and not the

provisions contained in the Takeover Regulations, 1997. 21

14. Relying on a decision of the Apex Court in case of Mr. Pramod

Jain and Ors. v/s SEBI (Civil Appeal No. 9103 of 2014 decided on

07.11.2016) it is contended on behalf of the appellants that once the plea

of Mr. Pramod Jain and Others that the MoU dated December 26, 2009

was in violation of regulation 23 of the Takeover Regulations, 1997 has

been rejected by the Apex Court, the AO of SEBI could not have held

that the appellants have violated regulation 23 of the Takeover

Regulations, 1997. We see no merit in the above contentions. In the

case of Mr. Pramod Jain, the Apex Court has considered the issue as to

whether an acquirer can be permitted to withdraw the open offer when

the public offer is capable of being carried out and has not become

impossible to perform. In fact, in para 27 of the order passed in the case

of Mr. Pramod Jain, the Apex Court has specifically kept open the issue

relating to violation of regulation 23 by the BoD of the company.

Nowhere in the case of Mr. Pramod Jain, the Apex Court has held that

the BoD of the company had not violated regulation 23 of the Takeover

Regulations, 1997. Thus, the decision of the Apex Court in the case of

Mr. Pramod Jain and Others (Supra) does not support the case of the

appellants.

15. Argument of the appellants in Appeal No. 101 of 2014 that the

appellants therein were independent directors and were not involved in

the execution of the MoU is without any merit. Admittedly the BoD of

the company had passed a resolution on September 24, 2008 authorizing

the Managing Director and Director Finance to explore the possibilities

of making alternate use of the Vile-Parle (West) property of the 22

company. Admittedly, notices were sent to the shareholders on

December 21, 2009 convening EOGM of the company on January 18,

2010 to seek approval of the general body of shareholders for joint

development of the Vile-Parle (West) property in terms of regulation 23

of the Takeover Regulations, 1997. However, the MoU was executed on

December 26, 2009, even before the EOGM scheduled on January 18,

2010. Moreover, the MoU dated December 26, 2009 specifically records

that the MoU be placed before the EOGM on January 18, 2010.

Admittedly, the shareholders in the EOGM held on January 18, 2010

have approved the proposal contained in the MoU for joint development

of the Vile-Parle (West) property. In these circumstances, the

independent directors of the company cannot be said to be unaware of the

MoU executed on December 26, 2009. Moreover, it is not the case of the

appellants in Appeal No. 101 of 2014 that the MoU was executed on

December 26, 2009 without their consent or that they had opposed

execution of the MoU on December 26, 2009. Hence the appellants in

Appeal No. 101 of 2014 being part of the BoD of the company cannot

escape penal liability for executing the MoU on December 26, 2009

without the prior approval of the general body of shareholders in

violation of regulation 23 of the Takeover Regulations, 1997.

16. Argument of the appellants that the AO is not justified in imposing

the maximum penalty of ` 1 crore is also without any merit. In the

present case the appellants as BoD of the company knew very well that

prior approval of the general body of shareholders was necessary before

entering into any document for encumbering the assets of the company 23

and accordingly the appellants as BoD of the company had convened

EOGM on January 18, 2010. Even after knowing their obligation under

regulation 23, the appellants ought not to have indulged in encumbering

the Vile-Parle (West) property of the company in gross violation of

regulation 23 of the Takeover Regulations, 1997. In the absence of any

compelling reason for entering into the MoU on December 26, 2009,

before the EOGM scheduled on January 18, 2010 the appellants who

have grossly violated regulation 23 of the Takeover Regulations, 1997,

deserve harsh punishment.

17. In these circumstances, we see no reason to interfere with the

penalty of ` 1 crore imposed on the eight appellants which is directed to

be paid jointly and severally.

18. For all the aforesaid reasons, both the appeals are dismissed with

no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 15.12.2016 Prepared & Compared By: PK