BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 190 of 2011
Date of Decision: 17.1.2012 Uttar Pradesh Trading Company Limited
9/1, R.N. Mukherjee Road,
5th Floor, Kolkata – 700 001.
…… 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. Janak Dwarkadas, Senior Advocate with Mr. Ankit Lohia, Advocate for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mobin Shaikh, Advocate for the
Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : P. K. Malhotra, Member
The appellant before us is aggrieved by the order dated August 29, 2011 passed by
the adjudicating officer of the Securities and Exchange Board of India holding the
appellant guilty of violating regulation 13(3) re ad with regulation 13(5) of the Securities
and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (the
regulations) and imposing a penalty of ` 1 lakh under section 15-I (2) of the Securities and
Exchange Board of India Act, 1992 (the Act).
- The facts of the case, in brief, are that the Board conducted an investigation in the
alleged irregularities in the scheme of amalgamation of Gobind Sugar Mills Ltd.
(hereinafter referred to as ‘the company’) wi th Zuari Industries Ltd. During the course of
investigations, it was noticed that M/s. Uttar Pradesh Trading Company Ltd., the appellant
before us was holding 3,20,000 shares of the company as on December 15, 2006
constituting ten per cent of the share capital of the company. The appellant sold 1,59,500
shares of the company on December 11, 2009. The balance 1,60,500 shares constituting
5.02 per cent of the share cap ital of the company were sold during the period from
February 4–11, 2010 in tranches. Conse quent upon the sale, the change in the
shareholding of the appellant was more than tw o per cent of the total shareholding. It is
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the case of the Board that the appellant was required to make disclosure to the company
under regulation 13(3) of the re gulations within the period prescribed under regulation
13(5) thereof. Since no such disclosure wa s made, the Board issued a show cause notice
dated May 10, 2011 asking the appellant to show cause as to why an enquiry should not be
held against it under the Securities and Exch ange Board of India (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and penalty imposed
under the provisions of the Act. The appellant filed its reply to the show cause notice
denying the allegations. After affording an opportunity of hearing, the adjudicating officer
passed the impugned order holding the appellant guilty of the said violations and imposing
a penalty of ` 1 lakh. Hence this appeal.
- We have heard learned senior counsel for the parties who have taken us through the
records. Mr. Janak Dwarkadas, learned senior counsel for the appellant submitted
before us that as on December 10, 2009, the appellant was holding 3,20,000 shares in the
company which constituted ten per cent of its share capital. On December 11, 2009 it sold
1,59,500 shares, constituting 4.98 per cent of the share capital of the company by way of
an off market transaction. The appellant duly made disclosure of the said sale of shares on
the same day to the company in the prescribed format. After the aforesaid sale, the
shareholding of the appellant in the company stood at 1,60,500 shares constituting 5.02 per
cent of its share capital. Be tween February 4 and Februa ry 8, 2010, the appellant sold
further 500 shares in three tranches and thereafter its shareholding stood at 1,60,000 shares
which is equal to exactly five per cent of the share capital of the company. It is the case of
the appellant that since the said sale of 500 shares in each of the three tranches was less
than the prescribed limit of two per cent, no disclosure under regulation 13(3) of the
regulations was required to be filed with the company. Furthe r, the shareholding of the
appellant in the company having been reduced to exactly five per cent of its total paid up
equity share capital, the obligation to make further disclosure under regulation 13(3) of the
regulations thereafter did not arise. According to learned senior counsel, the appellant has
all along proceeded on the understanding that regul ation 13(3) of the regulations sets up a
two pronged test to require a disclosure i.e. (1) the shar eholder requiring to make a
disclosure should hold more than five per cent of the shareholding of the company, and (2)
the quantum of the change in shareholding in the company should exceed two per cent. It
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was submitted by him that these tests were satisfied on December 11, 2009 as the
shareholding of the appellant in the co mpany was ten per cent and the change in
shareholding was more than two per cent. Therefore, the appe llant filed necessary
disclosure with the company under regulation 13(3) on that date. Thereafter, at no point of
time both these conditions were satisfied requiring a disclo sure under regulation 13(3) of
the regulations.
- On the other hand, Mr. Shiraz Rustomjee, learned senior counsel appearing for the
respondent Board supported the order passed by the adjudicating officer and submitted that
for the purpose of regulation 13(3) of the regulations, the sales made by the appellant have
to be reckoned from the date of last disclosure. The appellant was holding 5.02 per cent of
the shareholding of the company as on December 11, 2009. Therefore, when the
cumulative sales made by the appellant exceeded two per cent of it s shareholding it was
required to make disclosure to the company under the said regulations. The appellant
crossed the limit of two per cent on February 9, 2010 when the shareholding of the
appellant fell to 1.89 per cent of the paid-up capital of the company. Since the appellant
has not made the disclosures to the company, regulation 13(3) read with 13(5) of the
regulations was violated. Ther efore, the adjudicating officer was justified in imposing a
penalty of ` 1 lakh on the appellant for the said violation. - The admitted position is that the appellant was holding 3,20,000 shares in the
company since December 15, 2006. Thereafter , he started selling his holdings in
accordance with the details given in the ta ble under paragraph 5 of the appeal memo,
which is reproduced for ease of reference:
Date Particulars No. of
Shares
As a % of share
capital of GSML
10-Dec-09 Holding of the Appellant as on 10.12.2009 320000 10.00
11-Dec-09 Sale of Shares (off-market) 159500 4.98
11-Dec-09 Holding of the Appellant post sale 160500 5.02
4-Feb-10 Sale of Shares by the Appellant 200 0.01
5-Feb-10 Holding of the Appellant post sale 160300 5.01
5-Feb-10 Sale of Shares by the Appellant 200 0.01
5-Feb-10 Holding of the Appellant post sale 160100 5.00
8-Feb-10 Sale of Shares by the Appellant 100 0.00
9-Feb-10 Holding of the Appellant post sale 160000 5.00
9-Feb-10 Sale of Shares by the Appellant 99500 3.11
9-Feb-10 Holding of the Appellant post side 60500 1.89
10-Feb-10 Sale of Shares by the Appellant 60000 1.87
10-Feb-10 Holding of the Appellant post sale 500 0.02
10-Feb-10 Sale of Shares (Off Market) 500 0.02
10-Feb-10 Holding of the Appellant post all sales 0 0.00
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It is also not in dispute that when it sold 4.98 per cent of the share capital of the company
in off-market transaction on December 11, 2009, necessary disclosure under regulation
13(3) of the regulations was filed with the company. The only point of contention is
whether regulation 13(3) of the regulations sets up a two pronged test to require disclosure,
as contended by learned senior counsel for th e appellant or the appellant was required to
make disclosure under the said regulation as and when the cumulative sale exceeded two
per cent of the shareholding from the date of last disclosure.
- Regulation 13 of the regulations deals with disclosure of interest or holding by
directors and officers and substantial shareholders in a listed company and reads as under:
“Disclosure of interest or holding by directors and officers and
substantial shareholders in a listed companies – Initial Disclosure.
- (1) Any person who holds more than 5% shares or voting rights in any
listed company shall disclose to the company in Form A, the number of
shares or voting rights held by such person, on becoming such holder,
within 2 working days of :—
( a) the receipt of intimation of allotment of shares; or
( b) the acquisition of shares or voting rights, as the case may be.
(2) Any person who is a director or officer of a listed company shall
disclose to the company in Form B th e number of shares or voting rights
held and positions taken in derivatives by such person and his dependents
(as defined by the company), within two working days of becoming a
director or officer of the company.
Continual disclosure.
(3) Any person who holds more than 5% shares for voting rights in any
listed company shall disclose to th e company in Form C the number of
shares or voting rights held and cha nge in shareholding or voting rights,
even if such change results in shar eholding falling below 5%, if there has
been change in such holdings from the last disclosure made under sub-
regulation (1) or under this sub-regula tion; 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 stoc k 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 depe ndents (as defined by the company)
from the last disclosure made under sub-regulation (2) or under this sub-
regulation, 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-re gulations (3) and (4 ) 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.
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- Here we are not concerned with initial disc losure. Hence it is not necessary for us
to analyse or discuss the provisions of sub-regulations (1) and (2) of regulation 13. We are
concerned with continual disc losure, more particularly u nder sub-regulation (3) of the
regulation.
A bare reading of the aforesaid regulation makes it clear that as and when there is a
change in shareholding or voting rights of a person holding more than five per cent shares,
he should disclose such change to the comp any in the prescribed form if the change
exceeds two per cent of the total shareholding or voting rights in the company. This
disclosure is mandated even in a situation where such change results in shareholding
falling below five per cent from the date of last disclosure. The purpose of disclosure
under the regulations is to diss eminate information to the i nvestors regarding substantial
sale of shares with a view to bring transpar ency in the securities market. A substantial
shareholder cannot be allowed to circumvent the regulatory requirements by selling shares
in tranches. We are inclined to agree with learned senior counsel for the respondent Board
that whenever a substantial shareholder exceed s the limit of two percent in change of its
shareholding in the company from the date of last disclosure, whether in a single
transaction or in tranches, the provisions of regulation 13(3) of the regulations are
attracted. - It is settled law that where the intent ion of a statutory pr ovision is clear and
expressive, words cannot be interpolated. If the language is plain, clear and explicit, it
must be given effect and the question of in terpretation does not arise. If found ambiguous
or unintended, the court can at best iron out the creases. (See Indian Administrative
Services (SCS) Association, U.P. & Ors. vs . Union of India & Ors. 1993 Suppl.(1) SCC
730). - Going by the language of sub-regulation (3) of regulation 13 of the regulations it is
clear that if there is a change in the holding from the last disclosure either made under sub-
regulation (1) or sub-regulation (3) and the change exceeds two per cent of the total
shareholding or voting rights in the company, whether in one tr ansaction or in more than
one transaction, the provisions of sub-regulation (3) of regulation 13 will be attracted even
if the total shareholding falls below five per cent. We are not inclined to agree with the
learned senior counsel for the appellant that the said regulation sets up a two pronged test
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to require a disclosure i.e. he is holding more than five per cent of the shareholding and the
quantum of change in shareholding should exceed two per cent. If such an interpretation is
accepted, the persons covered by the said re gulation can avoid making of continuous
disclosure by disposing of shares in small tranches not exceeding two per cent thereby
defeating the very purpose of disclosures under the regulations. We, therefore, do not find
any justification for interfering in the order passed by the adjudicating officer.
In the result the appeal fails and is dismissed with no order as to costs.
Sd/- P.K. Malhotra
Member
Sd/- S.S.N. Moorthy
Member
17.1.2012
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