BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 135 of 2012
Date of decision: 04.09.2012 Prudential Stock & Securities Limited
C/o. Newman Business Centre, 3,
Old Court House Street,
Kolkata – 700 009.
……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. Vinay Chauhan, Advocate with Mr. Deepak Dhane, Advocate for the
Appellant.
Mr. Prateek Seksaria, Advocate with Ms. Harshada Nagare, Advocate for the
Respondent.
CORAM : P. K. Malhotra, Member & Presiding Officer ( Offg .)
S. S. N. Moorthy, Member
Per : P. K. Malhotra
The appellant before us is a company engaged in the business of investing
in shares of listed and unlisted companies. It is also registered with the Securities
and Exchange Board of India (the Board).
- The Board carried out investigation in the d ealings of shares of
M/s. Gennex Laboratories Ltd. (the compa ny) to ascertain whether any provision
of the Securities and Exchange Board of India Act, 1992 (the Act) or the rules and
the regulations made thereunder were violat ed. It noticed that during the period
April 2007 to December 2007, shareholding of promoters changed from 53.62 per
cent to 24.72 per cent of the paid up capital resulting in change of shareholding to 2
the extent of 28.90 per cent. It happened because all the promoters except Vinod
Baid, L. Lalitha, L. Vithal Rao and Pr udential Investments Ltd. had sold or
transferred their shares. The major selli ng promoter entities were Mercury Fund
Management Company Ltd. and Roopshri Fi nvest. The appellant, who is not a
promoter entity of the company, had sold 9,336 shares on June 7, 2006 and
20,02,700 shares on June 14, 2006 in off mark et to Mercury Fund Management
Co. Ltd. Prior to this, the appellant had received 20,00,000 shares of the company
from M/s. Global Telenet Ltd. on May 3, 2006 in off market transaction. As the
appellant was not a promoter group en tity, the benefit of exemption under
regulation 3(1)(e) of the Securities a nd Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 was not available to him.
Therefore, while acquiring 20,00,000 shar es on May 3, 2006, which is 19.70 per
cent of the capital of the company, the appe llant was required to make disclosure
under regulation 7(1) of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Re gulations, 1997 (for short the takeover
code) and regulation 13(1) of the Secu rities and Exchange Board of India
(Prohibition of Insider Trading) Regulations, 1992 (for short insider regulations).
It was also required to make open offer under regulation 10 of the takeover code.
When it transferred 20,02,700 shares to Mercury Fund Management Co. Ltd. on
June 14, 2006, it again failed to make di sclosure under regulat ion 13(3) of the
insider trading regulations. Therefore, it is alleged that the appellant violated the
provisions of regulation 7(1) and 10 of the takeover code and regulations 13(1)
and 13(3) of the insider regulations. The appellant is also alleged to have violated
Section 11C(2), 11C(3) read with Section 11(6) of the Act and Section 13 of the
Securities Contracts (Regulation) Act, 1956 as it failed to respond to the summons
and provide details of the acquisition a nd transfer of shares in off market
transactions. - A show cause notice under regulation 4(1) of the Securities and Exchange
Board of India (Procedure for Holdi ng Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 was issued to the appellant on May 23, 2011. 3
A cryptic reply dated June 13, 2011 was filed by the appell ant stating that
information has been provided to the Boar d and further information required will
be provided. On affording opportunities of personal hearing granted to the
appellant, the representative of the appe llant appeared before the adjudicating
officer and stated that he had nothing to add to the submissions made earlier.
After considering the material available on record, the adjudicating officer passed
an order on October 21, 2011 holding the appellant guilty of violating the
provisions of the Act and regulations and imposed penalty as under:
Sr.
No.
Provision of Act/Regulation
violated
Section under
which penalty
imposed
Amt. of Penalty
- Regulation 10 of Takeover Code 15H(ii) of SEBI
Act 10,00,000 - Section 11C(2), 11C(3) read
with 11(6) of SEBI Act
15A(a) of SEBI
Act 2,00,000
Regulation 7(1) of Takeover
Code and Regulations 13(1) and
13(3) of Insider Trading
Regulation
15A(b) read with
15H(i) of SEBI
Act
3,00,000
- Section 13 of Securities
Contracts (Regulation) Act
Section 23H of
SC(R) Act 2,00,000 Total Penalty
17,00,000 - We have heard Mr. Vinay Chauhan, learned counsel for the appellant and
Mr. Prateek Seksaria, learned counsel fo r the respondent Board who have also
taken us through the record. After heari ng the counsel and perusing the records,
we find that the appellant has not denied the acquisition and disposal of shares as
stated above. It is also a matter of record that the appellant is not a member of the
promoter group of the company and hence not covered under the exempted
category under regulation 3(1) of the takeove r code. It was, therefore, obligatory
on its part to make necessary disclosures and make open offer to the shareholders
as envisaged under the takeover code and the insider regulations. There is no
material on record to show that on receipt of summons from the Board, the
appellant provided the desired information. Therefore, we cannot find any fault
with the conclusions arrived at by the adjudicating officer in the impugned order. 4 - Learned counsel for the appellant rais ed two other issues. One relates to
the procedural aspect. It was pointed out by him that the show cause notice as
well as the impugned order talks about th e inquiry held under Rule 5 of the
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Office r) Rules, 1995. U nder these rules,
inquiry can be held in respect of violations alleged to have been committed either
of the provisions of the SE BI Act or the regulations made thereunder. However,
while holding inquiry under these rules, th e Board has also held him guilty of
violating Section 13 of the Securities Contracts (Regulation) Act, 1956 also for
which separate rules are in existence. The case of the appellant is that if violation
of Section 13 of Securities Contracts (Re gulation) Act is also alleged, the Board
should have instituted separate inquiry proceedings under the Securities Contracts
(Regulation) (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 2005. A ccording to learned counsel for the
appellant, holding of inquiry under the inquiry procedure of 1995 under the SEBI
Act in respect of violati ons alleged to have been committed under Securities
Contracts (Regulation) Act has vitiated the proceedings. Technically, learned
counsel for the appellant may be right. However, we are of the view that this fact
alone will not vitiate the proceedings in the case under consideration. It is not his
case that either in the show cause notice or in the impugned order, the appellant
was not informed about the charges under the Securities Contracts (Regulation)
Act. Further, he has not taken any objection to conduct the inquiry in accordance
with the procedure laid dow n under the inquiry procedur e of 1995 rules. In any
case, this is only a procedural aspect and the inquiry procedure as laid down in the
rules of 1995 under the SEBI Act and under rules of 2005 of Securities Contracts
(Regulation) Act is the same. No prej udice has been caused to the appellant by
not mentioning the Rules of 2005 either in the show cause notice or in the
impugned order. Full opportunity was given to the appellant to present his case in 5
respect of violations alleged under the Securities Contract (Regulation) Act. The
appellant, therefore, does not deserve any relief on this count. - The other issue raised by learned counsel for the appellant was that
keeping in view the violations alleged, the penalty is on the higher side. Since the
alleged violations have not impacted the market and interest of share holders is
not affected, a lenient view may be taken and the penalty amount may be reduced.
We are not convinced with this argument either. While deciding the quantum of
penalty, the adjudicating officer has gi ven due consideration to the factors
stipulated in Section 15J of the Act and has imposed penalty within the limits
prescribed under the relevant sections which prescribe penalty. We also notice
that the appellant has not been cooperative. Neither it submitted a proper reply to
the show cause notice nor did it respond to the summons issued by the Board. In
the facts and circumstances of the case, no interference is called for even on the
quantum of penalty imposed by the adjudicating officer.
In the result, we uphold the order passed by the adjudicating officer and
dismiss the appeal with no order as to costs.
Sd/-
P. K. Malhotra
Member &
Presiding Officer ( Offg .)
Sd/-
S. S. N. Moorthy
Member
04.09.2012
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