BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 136 of 2012

 Date of decision: 12.09.2012   

Mercury Fund Management Co. Ltd.
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,
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 registered under the Companies Act, 1956
and is engaged in investing in shares of listed and unlisted companies and in
miscellaneous financial activities. The company is aggrieved by the order passed by the
adjudicating officer of the Securities and Ex change Board of Indi a (the Board) on
October 21, 2011 whereby it has been found guilty of violating certain provisions of the
regulations issued by the Board and a penalty of ` 27 lac has been imposed as under:

Sr.
No.
Provision of Act/Regulation
violated

Section of SEBI Act
under which penalty
imposed

Amt. of Penalty

1. Regulation 10 of the Takeover
   Code. Sections 15H(ii) ` 10,00,000
2. Section 11C(2) & 11C(3) of the
   SEBI Act. Section 15A(a) ` 2,00,000
3. Regulation 7(1) of Takeover Code
   and Regulations 13(1) and 13(3) of
   Insider Trading Regulations.

Section 15A(b) read
with Section 15H(i) ` 5,00,000

4. 
   Section 12A(a), (b) & (c) of the
   SEBI Act read with Regulation 3 of
   FUTP Regulations.

Section 15HA of
SEBI Act ` 10,00,000

Total Penalty ` 27,00,000

2

2. The facts of the case, in brief, are that the Board carried out investigation in the
   dealings of shares of M/s. Gennex Laboratories Ltd. (the company) 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 we re violated. It noticed that during the
   period April 2007 to December 2007, sharehol ding of promoters group changed from
   53.62 per cent to 24.72 per cent of the paid up capital resulting in change of
   shareholding to the extent of 28.90 per cent. It happened because all the promoters
   except Vinod Baid, L. Lalitha, L. Vithal Rao and Prudential Investments Ltd. had sold
   or transferred their shares. The appellant before us is one of the major promoter entities
   who sold its shares. The appellant also received 2,95,300 shares in off market from
   Prudential Stock and Securities, out of which it sold 34,700 shares in the market during
   November 12-29, 2007 and balance 2,60,600 shares were transferred to another entity.
   The appellant also received 9,60,000 shares in of f market on July 4, 2007 from
   Mr. Vinod Baid, chairman of the company. Th e appellant was, therefore, required to
   make disclosures under regula tion 7(1) of Securities a nd Exchange Board of India
   (Substantial Acquisition of Shares and Take overs) Regulations, 1997 (for short the
   takeover code) as well as regu lation 13(1) read with regulation 13(5) of Securities and
   Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992(for short
   the insider trading re gulations). The appellant made only one disclosure under the
   takeover code to the stock exchange but no disclosures were made under the insider
   trading regulations. It was further noticed by the Board that during the quarter ending
   March, 2007, the appellant was holding 16,36, 036 (16.12%) equity capital which was
   reduced to 1,19,086 (1.17%) for the quarter ending June, 2007. This change in the
   shareholding was required to be disclosed to the stock exchanges under regulation 13(3)
   read with regulation 13(5) of the insider trading regulations, but no such disclosure was
   made. For the lapses committed by the appellant in reporting these transactions to the
   stock exchanges, a show cause notice date d May 23, 2011 was issued to the appellant
   asking it to show cause as to why penalty as provided under the Act should not be
   imposed upon it. After affording an opportun ity of hearing to the appellant, the 3
   adjudicating officer found the appellant guilty of the aforesaid violations and imposed a
   total penalty of ` 27 lac as stated above. Hence, this appeal.
3. We have heard learned counsel for th e parties who have taken us through the
   record. Mr. Vinay Chauhan, learned couns el for the appellant, has not seriously
   disputed that the disclosures/intimations required to be made under the takeover code
   and the inside trading regulations were not made. He has also not disputed that the
   appellant failed to comply with the summons which resulted in violation of the
   provisions of section 11C of the Act. No material has been placed on record by the
   appellant either in response to the show cause notice or before the adjudicating authority
   or before this Tribunal, th at it has complied with the statutory requirements under the
   takeover code or insider trading regulations while acquiring or disposing of the shares
   beyond the threshold limit. Similarly, no ev idence has been placed on record with
   regard to compliance with the summonses issued under Section 11C of the Act.
   Therefore, no fault can be found with re gard to the findings arrived at by the
   adjudicating officer with regard to violations noted in th e table at sr.nos. 1, 2 and 3
   above.
4. The only grievance made by learned counsel for the appe llant is with regard to
   the findings of the adjudi cating officer in para 31 of the impugned order. The
   adjudicating officer has come to a finding th at the company had planted false positive
   announcement to facilitate the off loading of the shares by its promoter Vinod Baid
   through the appellant, and the appellant has facilitated Vinod Baid in off loading the
   shares of the company in the market. Accord ing to the adjudicating officer, this act of
   the company, Vinod Baid and the appellant, is an artifice/device to defraud the investors
   in the market by presenting the company as a lucrative investing option. Therefore, the
   appellant acted as a facilita tor and together with Vinod Baid and company played a
   fraud upon innocent investors and thereby violated the provisi ons of section 12 of the
   Act read with regulation 3 of the Securities and Exchange Board of India (Prohibition of
   Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003
   (FUTP regulations). The grievance of the appellant is that a penalty of ` 10 lac has 4
   been imposed on the appellant for the aforesaid violation whereas no action has so far
   been taken against the company or Vinod Bai d, whom the appellant is said to have
   helped in their alleged fraudulent activities.
5. We directed the respondent Board to file an affidavit stating as to what action
   has been taken against the company and its promoter/director Vinod Baid in respect of
   the aforesaid violations. The Board has f iled an affidavit dated August 28, 2012 stating
   that the Board has already passed order ag ainst the company and Vinod Baid for non-
   compliance of summons issued by the Board and a penalty of 10 lac and 3 lac
   respectively has been imposed upon them. It is further stated that the show cause
   notices dated May 9, 2012 have been issued to these entities under section 11 and 11B
   of the Act read with regulation 11 of the FU TP regulations to which these entities have
   filed their replies and the proceedings are s till continuing. On a query raised by the
   bench as to whether any action is being taken against the company and Vinod Baid
   under chapter VIA of the Act as was done in the case of appellant, learned counsel for
   the Board responded that instead of adjudication proceedings under chapter VIA, the
   Board has decided to proceed against the company and Vinod Baid under section 11
   and 11B of the Act.
6. After hearing learned couns el for the parties and perusi ng the record, we find it
   anomalous to note that the appellant who is alleged to have facilitated the company and
   its director Vinod Baid in offl oading their shares in the market has been punished but
   action is yet to be taken against the comp any and its director Vinod Baid who are the
   main culprits and alleged to have violated section 12 of the Act and regulation 3 of the
   FUTP regulations. The appropria te course for the Board woul d have been to initiate
   proceedings simultaneously against all the entities, which has not been done in this case.
   It may be possible that in the proceedings which have been initiated against the
   company and its director Vinod Baid under s ection 11 and 11B of the Act, the Board
   may come to a conclusion that it does not call for any penalty or these entities may be
   let off with a lower punishment like warning, but the appellant who is alleged to have 5
   facilitated them has already been imposed a penalty of ` 10 lac in the adjudication
   proceedings initiated against it.
7. In the fact and circumstances of this case, we are of the considered view that the
   Board may, at the first instance, complete the proceedings against the company and its
   director Vinod Baid for the alleged violations of FUTP regulations and only then take a
   decision relating to acts of commission or omission on the part of the appellant.
8. We, therefore, set aside the penalty of ` 10 lac imposed on the appellant under
   section 15HA of the Act for alleged violation of sections 12A(a), (b) and (c) of the Act
   read with regulation 3 of the FUTP regulations with liberty to the Board to initiate fresh
   proceedings against the appellant, if cons idered necessary, in case the company and
   Vinod Baid are ultimately found guilty of violating the afor esaid provisions of the Act
   and the FUTP regulations.
   The appeal is partly allowed as above with no order as to costs.
   Sd/-
   P. K. Malhotra
   Member &
   Presiding Officer ( Offg.)
   Sd/-
   S.S.N. Moorthy
   Member
   12/9/0212
   Prepared & compared by ddg