Sudarshan Walia And Others vs Sebi

DATE : 14.10.2016

Appeal No. 470 of 2015 1.

Sudarshan Walia

2. Rachna Uppal

3. Shobhit Uppal

4. Vikas Ahluwalia

5. Pradeep A. G.

6. Mukta Ahluwalia

7. Ahluwalia Contract India Ltd.

8. M K G Pillai

9. Geeta Gopal Krishnan

10. Sangeeta Krishna Kumar

11. M P Vaidya

12. Ram Piari

13. Pushpa Rani

14. Raman Pal ..... 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

With Appeal No. 471 of 2015 Rohini Ahluwalia 4, Community Centre, Saket, New Delhi - 110017. ..... 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

With Appeal No. 472 of 2015 Capricon Industrials Ltd.

4, Community Centre, Saket, New Delhi - 110017. ..... Appellant

Versus 2

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

Appeal No. 474 of 2015 Tidal Securities Pvt. Ltd.

4, Community Centre, Saket, New Delhi - 110017 .... 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

With Appeal No. 475 of 2015 Ahluwalia Builders & Development Group (Private) Ltd.

4, Community Centre, Saket, New Delhi - 110017. ..... 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

With Appeal No. 476 of 2015

1. Bikramjit Ahluwalia

2. Sudarshan Walia

3. Rohini Walia

4. Rachna Uppal

5. Ahluwalia Builders and Development Group Pvt. Ltd.

6. Tidal Securities Pvt. Ltd.

7. Shobhit Uppal

8. Vikas Ahluwalia

9. Mukta Ahluwalia 4, Community Centre, Saket, New Delhi - 110017.

10. M. K. G. Pillai 3

K 34 C, Kailash Colony, New Delhi 110048. ..... 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

With Appeal No. 477 of 2015 Capricon Industrials Ltd.

4, Community Centre, Saket, New Delhi - 110017. ..... 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

With Appeal No. 478 of 2015

1. Rohini Ahluwalia

2. Ahluwalia Builders and Development Group Pvt. Ltd.

3. Capricon Industries Ltd.

4. Shobhit Uppal

5. Vikas Ahluwalia

6. Rachna Uppal

7. Sudarshan Ahluwalia

8. Mukta Ahluwalia

4, Community Centre, Saket, New Delhi - 100 017. ..... 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

With Appeal No. 479 of 2015 4

Bikramjit Ahluwalia 4, Community Centre, Saket, New Delhi - 110017. ..... 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

With Appeal No. 481 of 2015 Tidal Securities Pvt. Ltd.

4, Community Centre, Saket, New Delhi - 110017. ..... 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

With Appeal No. 482 of 2015 Pushpa Rani A 78 / 1, SFS Flats, Saket, New Delhi - 17. ..... 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

With Appeal No. 483 of 2015 Raman Pal 16 A, Qutub Enclave, Phase - T, MIG Flats, New Delhi - 17. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, 5

Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

With Appeal No. 484 of 2015

1. Ram Piari Flat No. 702, Ahlcon Apts, Sector 3, Vaishali, Ghaziabad, UP.

2. Pushpa Rani A 78/ 1, SFS Flat, Saket, New Delhi - 17.

3. Raman Pal 16 A, Qutub Enclave, Phase - T, MIG Flats, New Delhi - 17.

4. Rohini Ahluwalia 4, Community Centre, Saket, New Delhi - 110017.

5. Ahluwalia Builders And Development Group Pvt. Ltd.

4, Community Centre, Saket, New Delhi - 110017.

6. Capricon Industrials Ltd.

4, Community Centre, Saket, New Delhi - 110017.

7. Tidal Securities Pvt. Ltd.

4, Community Centre, Saket, New Delhi - 110017.

8. Shobhit Uppal 4, Community Centre, Saket, New Delhi - 110017.

9. Vikas Ahluwalia 4, Community Centre, Saket, New Delhi - 110017.

10. Rachna Uppal 4, Community Centre, Saket, New Delhi - 110017.

11. Sudarshan Walia 4, Community Centre, Saket, New Delhi - 110017.

12. Mukta Ahluwalia 4, Community Centre, Saket, 6

New Delhi - 110017. ..... 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

With Appeal No. 485 of 2015 Bikramjit Ahluwalia B-10, Saket, New Delhi - 110017. ..... 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. Neeraj Matta, Advocate with Mr. R. Ranjan, Advocate for the Appellants.

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

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

Per : Jog Singh (Oral)

1. In this bunch of 14 appeals, we are concerned with three impugned

orders which contain a common question of law viz. the acquisition of

shares without making the required public announcement in violation of the

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

("SAST Regulations"). A brief description of the three impugned orders,

along with the Appeals against each of the three, is given hereinbelow: 7

• Impugned order dated September 30, 2014 bearing

Adjudication Order No. CFD/APIL/AO/DRK/AKS/EAD3-

619-643/163-188/214 imposing penalty of ` 15 lac under

Section 15H(ii) of SEBI Act, 1992 for failure to comply with

Regulations 11(1) read with Regulation 14(1) of the SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997. It covers appeal Nos. 470, 471, 475,

477, 481, 485 of 2015 i.e. 6 appeals in all. It involves 25

entities and the acquisition period in all appeals is 2000-2001.

Regulation 11(1) of the SAST Regulations lays down that

any person who already owns 15% or more shareholding in a

company, but less than 75%, must make a public

announcement if it intends to purchase new shares amounting

to more than 5% shareholding in a particular year.

• Impugned order dated September 30, 2014 bearing

Adjudication order No. CFD/APIL/AO/DRK-AKS/EAD3-

605-618/149-162/2014 imposing penalty of ` 15 lac under

Section 15H(ii) of SEBI Act, 1992 for failure to comply with

Regulations 11(2) read with Regulation 14(1) of the SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997. It covers appeal Nos. 472 and 476 of

2015 i.e. 2 appeals. It involves 14 entities and they acquired

shares on September 15, 2005. Regulation 11(2) of the SAST

Regulations lays down that any person who already owns

55% or more shareholding in a company, but less than 75%,

must make a public announcement if it intends to purchase 8

new shares amounting to more than 5% shareholding in a

particular year.

• Impugned order dated October 1, 2014 bearing Adjudication

Order No. CFD/APIL/AO/DRK-AKS/EAD3-643-660/189-

206-2014 imposing penalty of ` 20 lac under Section

15H(ii) of SEBI Act, 1992 for failure to comply with

Regulations 11(2) read with Regulation 14(1) of the SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997. It covers appeal Nos. 474, 478, 479, 482,

483, 484 of 2015 i.e. 6 appeals in all. It involves 18 entities

and the acquisition period is from March 4, 2010 to March

23, 2010.

2. Since a common question of law and facts is involved in all the

14 appeals, with the exception of different acquisition periods, with the

consent of the parties involved, we have taken up these appeals together

and are consequently disposing them off by this common order.

3. As mentioned above the facts in all 14 appeals are similar, we are,

therefore, taking facts of Appeal No. 470 of 2015 as the lead case for the

purposes of the present order. The facts in brief are that certain

irregularities were noticed by SEBI while examining the letter of offer filed

by B. Braun Singapore Pte. Ltd. along with B. Braun Melsungen AG to

acquire 26% of the shareholding of Ahlcon Parenterals (India) Ltd.

("APIL"). In the year 2000-2001, Mr. Bikramjit Ahluwalia made an

acquisition of 2,49,000 shares amounting to the 3.45% of the total

shareholding of APIL. Further, 2.01% shareholding was purchased by other

persons acting in concert. As a result of the two acquisitions, the 9

shareholding of the Appellants went beyond the 5% threshold and no

consequent public announcement was made in accordance with Regulation

11(1) read with Regulation 14(1). The said regulations read as follows:

"11(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15% or more but not more than 75% 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 period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.

14(1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than 4 working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein:"

5. Show Cause Notice dated June 26, 2014 ("SCN") was issued by the

Respondent - Securities and Exchange Board of India ("SEBI") to the

Appellants asking them to show cause as to why action should not be taken

against them for the violation of Regulation 11(1) read with Regulation

14(1) of the SAST Regulations. Opportunity of personal hearing was

granted and availed of by the Appellants on September 4, 2014. Reply to

the SCN was filed by the Appellants on September 15, 2014. After

considering all the material on record, SEBI issued impugned order dated

September 30, 2014 levying a penalty of ` 15 lac on the Appellants for

violating Regulation 11(1) read with Regulation 14(1) of the SAST

Regulations.

6. The case of the Appellants is that the SCN at the outset failed to

establish any misconduct on the Appellants' part. Specifically, it failed to

establish that the promoters who purchased shares of APIL were persons

acting in concert. The Appellants submit that the concept of 'persons acting 10

in concert' has been misapplied in the instant matter. Nothing in the

impugned order indicates any intention of the Appellants who are all

promoters of the same company to act in concert to acquire shares. There is

no mention of the common intention/objective in the impugned order in

pursuance of which the acquisition of shares is said to have occurred.

7. It is submitted by the Appellants that a person classified under

'Promoter Group' for the purposes of clause 35 of the Listing Agreement

has no duty to adhere to the SAST Regulations unless that person is either

proved to be an acquirer or a person acting in concert with the acquirer. It is

also put forth by ld. Counsel on behalf of the Appellants that SEBI has been

unable to satisfy the ingredients of Regulation 11(1) and prove that the

Appellants were holding 15% of the shareholding of APIL in the first place

and that they actually acquired more than 5% shareholding subsequently.

8. The Appellants further submit that the Impugned Order is based on

surmises and conjectures with nothing to prove the Respondents allegations

regarding persons acting in concert. It is submitted by the Appellants that it

has been incorrectly assumed by the Respondent that if certain persons

have acted in concert once, they will always act in concert with respect to

any transaction in the future. Moreover, the Respondent has incorrectly

applied Regulation 22(19) of the SAST Regulations which states that the

acquirer and the persons acting in concert will be jointly and severally

liable for fulfillment of obligations under the SAST Regulations. The

Appellants contend that even if it is assumed that the acquirer herein

violated the SAST Regulations, only the acquirer ought to have been

punished instead of the penalty being imposed on all Appellants under the

pretext of Regulation 22(19).

11

9. It is also pertinent to note the submission of the Appellants that at the

relevant time i.e 2000-2001, the maximum penalty prescribed in Section

15H(ii) was ` 5 lac. The law was later amended and the penalty increased

to ` 15 lac. The Appellants therefore submit, without prejudice to their

other submissions, that the penalty prescribed at the relevant time alone

shall be applicable in this case. Further, it took the Respondent 14 years to

penalize the Appellants for the alleged misconduct. The Appellants submit

that such an unwarranted delay ought not to be condoned by this Tribunal.

10. Turning to the case of the Respondent, it is submitted before this

Tribunal that Regulation 11(1) read with Regulation 14(1) of the SAST

Regulations makes it abundantly clear that in case of an acquirer who

already owns 15% shareholding or more of the target company, but less

than 75% shareholding of the same, such an acquirer on purchase of

additional shareholding amounting to more than 5% in a period of 12

months, must make a public announcement within four days of such

acquisition.

11. In the present case, the Respondent submits that it has been

accepted by the Appellants at the stage of the personal hearing in response

to the SCN itself that the Appellants had in fact acquired 5.0346%

additional shareholding in the year 2000-2001. Even I this submission of

the Appellants is accepted, the fact remains that 0.0346% shareholding in

excess of the prescribed limit was in fact made without making the

necessary public announcement. It is therefore submitted by the

Respondent that considering the fact that the SAST Regulations were in

fact violated, the penalty of Rs. 15,00,000 is just and acceptable. 12

12. We have heard the learned counsel for both parties at length and

perused the Appeal and all documents attached therewith, along with the

reply to the same.

13. An analysis of Regulation 11(1) of the erstwhile SAST Regulations

reveals that if any person intending to acquire shares in a company already

owns more than 15% of the shareholding of that company, but less than

75% shareholding, he must mandatorily make a public announcement if the

new acquisition in a given year is going beyond 5%.

14. In the instant matter, the issue which presents itself for our

consideration is whether the Appellants ought to have made a public

announcement when their new acquisition went beyond the creeping

acquisition limit of 5%.

15. It is an undisputed fact that in the year 2000-2001, the Appellants

cumulatively acquired 5.0346% of the shareholding of APIL. This fact has

indeed been admitted by the Appellants as far back as the personal hearing

conducted before the Ld. Adjudicating Officer. At the personal hearing, the

Appellants admitted that inadvertently they had not made a public

announcement when their newly acquired shareholding went beyond the

limit of 5% as prescribed in Regulation 11(1).

16. In light of the aforesaid categorical admission by the Appellants it

is evident that the Appellants understand the import and underlying

philosophy of Regulation 11(1). Participants in the securities market are

allowed to actively indulge in trading and other related activities because

SEBI as the market regulator is given assurances by these market players

that they understand the law and regulations as laid down by the Legislature 13

and SEBI respectively. If the Legislature and SEBI, acting on such

assurances, give companies and other market participants the right to

execute their business decisions in the manner these entities deem fit, it

goes without saying that there is a corresponding duty placed on the market

participants to ensure that such mistakes as acquiring more than the

creeping acquisition limit of 5% without making the necessary public

announcement are not made.

17. Various decisions have been cited by learned counsel for the

appellants in support of his contention that in view of delay in initiating

proceedings, penalty cannot be imposed against the appellants and that the

appellants are not estopped from taking a stand contrary to the stand taken

before the learned A.O. We see no merit in the above contentions. As

such, there is no provision in the SEBI Act, which may have the effect of

prohibiting SEBI from taking action beyond a particular period of time in a

given case. However, it goes without saying that the regulator should

always make an endeavor to take prompt action against the defaulting

companies to render speedy and timely justice. In the present case,

however, action was taken immediately after SEBI came to know about the

violations. Therefore, delay, in itself, cannot defeat the ends of justice in

the facts and circumstances of the case in hand. Moreover, there is nothing

on record to suggest that the admission made by the appellants before the

A.O. that the acquisition made by them exceeded the prescribed limit was

erroneous. In these circumstances, no fault can be found with decision of

the A.O. in holding that the appellants are guilty of violating the Takeover

Regulations and, accordingly, imposing penalty on the appellants. 14

18. However, it has been rightly brought to our notice by the Appellants

that at the time the misconduct was committed and the shares acquired by

the Appellants, the maximum penalty for the default of acquiring more than

the prescribed limit of shareholding without making the required public

announcement was Rs. 5 lac. The penalty of Rs. 15 lac was introduced later

when the Act was amended. SEBI cannot be allowed to retrospectively

apply the law in this situation.

19. Therefore, in our considered opinion the penalty of ` 15 lac imposed

by SEBI in one of the orders dated September 30, 2014 covering Appeal

Nos. 470, 471, 475, 477, 481, 485 of 2015, is more than what was

applicable in 2000-2001 and is therefore reduced to Rs. 5 lac. Adjudication

Order No. CFD/APIL/AO/DRK/AKS/EAD3-619-643/163-188/214

therefore stands modified to the above-said extent and the corresponding

Appeals stand partly allowed.

20. However, the second impugned order dated September 30, 2014

covering appeals 472 and 476 of 2015 relates to acquisition done in 2005.

Section 15H was amended in 2002 and the penalty for the misconduct

committed in the instant cases was increased to a minimum of ` 10 lac and

a maximum of Rs. Twenty-Five crore or three times the amount of profits

made out of the violation in question. In our considered view, the penalty of

` 15 lac imposed vide the second impugned order dated September 30,

2014 is completely justified in view of the facts and circumstances of the

situation and is not liable to be interfered with by this Tribunal.

Adjudication order No. CFD/APIL/AO/DRK-AKS/EAD3-605-618/149-

162/2014 is, therefore, upheld in its entirety and the corresponding Appeals

are hereby dismissed.

15

2 1. Similarly, impugned order dated October 1, 2014, imposing a

penalty of ` 20 lac relates to violation committed in the year 2010. The said

penalty being appropriate for the violation of Regulation 11(2) read with

Regulation 14(1) of the erstwhile SAST Regulations need not be interfered

with by this Tribunal. Adjudication Order No. CFD/APIL/AO/DRK-

AKS/EAD3-643-660/189-206-2014 is, therefore, upheld and the

corresponding Appeals being Appeal nos. 474, 478, 479, 482, 483, 484 of

2015 are hereby dismissed. No order as to costs.

Sd/-

Justice J. P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C. K.G. Nair Member 14.10.2016 Prepared & Compared by PTM