Vivek Bajoria And Others vs Sebi

5. Shivanghi Bajoria 4, Turf Road, Flat No.2A/B, ..... Appellants Kolkata-700025.

Versus The General Manager & 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. Amit Nikam, Advocate i/b. Gopal Pahari for the Appellant.

Mr. Karan Bhosale, Advocate with Ms. Eram Quraishi, Advocate i/b. MDP & Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member 2

Per : Justice M.T. Joshi (Oral)

1. Aggrieved by the order of the Adjudicating Officer

dated 19th December, 2018 directing the present appellant to

jointly and severally pay a penalty of Rs.2,00,000/- for

violation of sub-Regulation 16 of Regulation 22 of the

Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997

(hereinafter referred to as 'SAST Regulations') the present

appeal is preferred.

2. The submission from both the sides would show that

the present appellants were earlier promoter of Tirrihannah

Company Limited (hereinafter referred to as the 'Company').

On 7th November, 2007 a Share Purchase Agreement

(hereinafter referred to as 'Agreement') was executed by the

appellant in favour of one Mr. Ghanshyam Das Kankani and

his associates to sell 3,68,740 shares of the Company. Those

shares comprises of 26.42% of the share capital of the

Company. In this agreement there is no clause to the effect

that in case of non compliance of any of the provisions of the

SAST Regulations the agreement shall not be acted upon by

the seller or the acquirer. There is no denial that the transfer

of 26.42% of the share capital required compliance of the 3

provisions of the SAST Regulations. In such situation, it is

necessary to advert to the sub-regulation 16 of the SAST

Regulations.

SAST Regulations

General Obligation of the acquirer

22. (16) If the acquirer, in pursuance of an agreement, acquires shares which along with his existing holding, if any, increases his shareholding beyond 15 per cent, then such agreement for sale of shares shall contain a clause to the effect that in case of non-compliance of any provisions of this Regulation, the agreement for such sale shall not be acted upon by the seller or the acquirer.

3. Finding that the clause as stipulated in the sub-

regulation is not incorporated in the agreement the

proceedings were launched against the present appellant.

The appellant before SEBI explained as under:-

That the present appellants who are the members of

Bajoria family were the promoters of the Company. In the

Terai region of West Bengal the Company owns two tea

gardens. Prior to 2007 due to adverse market condition in the

tea trade all over India, the said Company suffered acute

financial crunch and incurred heavy losses for the years

2006-07. In the circumstances, Mr. Ghanshyamdas Kanakani

was introduced to Bajoria family and more particularly

appellant Vivek Bajoria. Mr. Kankani assured to organize 4

funds to overcome the financial crisis. The appellant's shares

were pledged with the Allahabad Bank. Mr. Kankani showed

interest in acquiring the shares of the Company. Thereafter

however Memorandum of Understanding was executed on

19th February, 2007 and merely some paltry sum was paid. A

limited Company of Mr. Kankani became partnership in

equal share. The appellants came under the fiduciary

obligation of Mr. Kankani. Mr. Kankani and his group made

certain investment in the tea garden. The appellants were in

a financial crisis and were unable to take any decision with

regard to the business. Mr. Kankani however took unfair

advantage of the same. In the circumstances, on 7 th

November, 2007 Mr. Kankani along with his henchmen

visited appellant Vivek Bajoria at his house. They had

already prepared certain agreements. Vivek Bajoria was

compelled to sign the documents by putting the date as 7th

November, 2019 under threat and coercion. In view of the

aforesaid fact a civil suit bearing no.115 of 2010 is filed by

the appellant in the High Court of Calcutta seeking various

reliefs for declaration of MOU as well as the agreements as

null and void. The suit is pending. The appellant had no

control in execution of the agreement in the situation as 5

detailed supra therefore they wanted that the proceedings be

dropped.

4. During hearing the appellants also sent one email dated

10th August, 2018 wherein inter alia they adverted the

attention of the Adjudicating Officer to take action against

Mr. Kankani and his group who admitted non compliance

with the requisite SEBI rules and norms. The Adjudicating

Officer reasoned that the Share Purchase Agreement

admittedly did not contain the clause as mandated by sub-

regulation 16 of Regulation 22 as detailed above. He further

observed in para no.14 that the present appellants should not

have acted upon the agreement as they were aware that the

acquisition of the Company calls for certain compliance

under SAST Regulations. It was further found by the

Adjudicating Officer that in a separate proceeding against

Mr. Kankani and his associates separate order dated 8 th

February, 2018 is passed. It was further observed that the

violation of the provisions is not disputed and hence the

penalty as imposed.

5. As regards the quantum of penalty the Adjudicating

Officer observed that once there is contravention of the

statutory obligation is established then the penalty has to 6

follow and only the quantum of penalty is discretionary. In

the circumstances, a penalty of Rs.2 lakhs as detailed supra

was imposed.

6. Heard Mr. Amit Nikam, learned counsel for the

appellant and Mr. Karan Bhosale, learned counsel for the

respondent.

Upon hearing both the sides in our view the order of the

Adjudicating Officer cannot be sustained. It is to be noted

that according to the appellant that they had not entered into

an agreement but the appellants were forced to put signature

over the agreement. They themselves did not transfer the

shares. However, as the shares were pledged with the bank

the custody of the same was taken by Bajoria and group

directors. Sub-regulation 16 of Regulation 22 provides that

the agreement shall contain a clause to the effect that in case

of non compliance of any provisions of any regulations the

agreement shall not be acted upon by the seller or the

acquirer. The appellants did not intend to act upon the said

agreement as detailed supra. The Adjudicating Officer

wrongly in para 14 of the order observed that "the Noticees

should not have acted upon SPA (the agreement) as they 7

were aware that the acquisition of Target Company calls for

certain compliance under SAST Regulations."

7. It is to be noted that the shares were directly transferred

from the Bank. Mr. Kankani and his group is already

penalized by SEBI for the act. The sub regulation merely

provides that the agreement shall contain the clause. As the

purchaser Mr. Kankani is already penalized for not

incorporating the sub clause, taking into consideration the

overall facts as detailed supra the order of the Adjudicating

Officer cannot be sustained.

8. The impugned order passed by the Adjudicating Officer

of SEBI is quashed and set aside. Appeal is allowed with no

order as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

26.11.2019 Prepared and compared by RHN