BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

Order Reserved on: 11.1.2017

Date of Decision : 24.1.2017

Appeal No.28 of 2016

1.Dr. Sunil Gupta,

2.Mrs. Rupal Gupta

3.Dr. Sunil Gupta (HUF)
No.9, Sector III, Kalhaar Bungalows,
Beyond Shilaj Village, Bopal Post,
Ahmedabad – 3800058. …Appellants

Versus

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

Mr. Somasekhar Sunderasan, Advocate with Ms. Harshada Nagare and Mr. Shanti Bhushan Nirmal, Advocates i/b. Joby Mathew & Associates for the Appellants.

Mr. Kumar Desai, Advocate with Mr. Rakesh Puri and Mr. Chirag Bhavsar, Advocate i/b. MDP & Partners for the Respondent.

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

Per : Dr. C.K.G. Nair

1.Appellants are aggrieved by the adjudication order of Securities and Exchange Board of India (‘SEBI’ for short) dated November 30, 2015. By the said order it was held that nine entities, including the appellants herein, have violated certain provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (referred to hereinafter as ‘Takeover Regulations’) and therefore directed them to pay a penalty of Rs.20 lacs jointly and severally under Section 15H (ii) of SEBI Act as it then stood prior to 29.10.2002.

2.Three out of the nine entities have preferred this appeal. Appellant Nos. 1 & 2 are the Promoters and Directors of a company known as Bloom Dekor Limited and Appellant No.3 is a Hindu Undivided Family (HUF) promoter and shareholder. In September 30, 2011 the company made a public announcement to acquire 20 per cent of the equity share capital of the company at Rs.15.82 per share. While perusing the papers thereon SEBI noticed that the promoters had purchased shares in excess of two per cent 4 times during 1997-1999 without making any public announcement and thereby violated the Takeover Regulations, 1997. SEBI noticed that 10.85% was acquired on April 20, 1997, 2.14% in 1997-1998, 7.12% in 1998 and 12.54% during 1998-1999. Accordingly, it is held that the appellants have violated Regulation 11(1) read with Regulation 14(1) of the Takeover Regulations four times during this period and penalty of Rs.5 lac on each such violation has been imposed jointly and severally for these violations.

3.Shri Somasekhar Sundaresan, learned counsel for the appellants argued that this is an unique case where the show cause notice was issued after a period of 16 years in 2013 for the alleged violation in 1997. Accordingly, the allegations as well defense are done without adequate records because of the lapse of time. In some instances, for example, the exact date of acquisition is given while in other it is a period of time that is indicated. Accordingly, it is difficult to ascertain the exact number of shares and/or percentage of shares acquired during a block of 12 months. Without ascertaining specific blocks of 12 months during which the alleged violations have been committed four penalties imposed against the appellants cannot be justified.

4.It was further argued by the learned counsel for the appellant that even if the alleged offences have been committed this is not a fit case for imposing the maximum penalty of Rs.5 lac imposable under the Takeover Regulations during the relevant time. The appellants did not have the benefits of informed officials; take over regulations were new which the appellants were not fully aware of; the acquisition was not made with the intention of committing any fraud; one of the entities from whom acquisition was made was subsequently registered as a venture capital fund (and acquisition from venture capital funds was exempted under the Takeover Regulations on 30.12.2000) though it is subsequent to the alleged offence; Takeover Regulations have been amended over time thereby changing the basic trigger and subsequent creeping triggers; the company suo motto made an open offer in September, 2011 and offered an exit option to the investors at a price of Rs.15.82 which was substantially higher than what was offered during 1997-1999. This should serve the purpose of equity. There was no change of control. Given all these reasons the learned counsel for the appellants pleaded that it is not an appropriate case for imposing the maximum penalty and these mitigating factors though presented before the Adjudicating Officer was not given any due consideration while passing the impugned order.

Before proceeding further section 11(1) and 14(1) of Takeover Regulations, 1997 are reproduced below for ready reference Regulation 11(1) of Takeover Regulation before amendment dated 28.10.1998 “Consolidation of holdings.

(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, not less than 10% but not more than 51% of the shares or voting rights in a 4 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 2% 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.

Regulation 11(1) of Takeover Regulation after amendment dated 28.10.1998 , but, before amendment dated 24.10.2001

(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 75 per cent 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.

Timing of the public announcement of offer

(1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four 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”

We do not agree with the contention by the counsel for the appellant that each time an acquisition has been made a block of 12 months is to be decided to conclude whether there is a violation or not. Since each acquisition is independent, the block of 12 months become relevant only if each acquisition is less than 2 per cent before the amendment to the Takeover Regulation on 28.10.1998 or 5% after this date. In the instant matter, as fairly pointed out by the counsel for the respondent each acquisition is more distinguishable and more than 2 per cent or 5 per cent. The moment an acquisition exceeds 2 per cent or 5 per cent of additional shares or voting rights immediately the open offer triggers and it is incumbent on the acquirer to make a public announcement accordingly. Therefore given the facts of the case there is no need to determine a block of 12 months.

We now turn to the mitigating factors pleaded by the counsel for the appellant. We note that the impugned order has dealt with the arguments in this regard made by the appellant before the Adjudicating Officer. The impugned order has stated that no quantifiable figures are available to access the disproportionate gain or advantage made as a result of the non compliance by the appellants. Absence of professionally qualified personnel cannot make the appellant absolved of the offences. However, after having noted the mitigating factors and pleadings by the appellants thereon no consideration of these mitigating factors has been given by the Adjudicating Officer.

7.We note that the total acquisition made on the four occasions combined is to the tune of 10,26,710 shares at a consideration ranging from Rs.7 to Rs.10 per share. The total value of this acquisition comes to less than Rs.1 crore only (exact amount cannot be worked out since all the acquisition price are not available on record). We also note that the Takeover Regulations were amended on 28.10.1998. By this amendment the threshold for application of creeping acquisition was increased from 10% – 51% to 15% -75% and the creeping acquisition trigger from over 2% to over 5%. In this context it is also difficult to determine whether the acquisition of 64,210 shares made through multiple transactions and which comes to 2.14% of the total paid up capital of the company was fully made before the amendment date as the acquisition is recorded to be made during 1997-1998 without giving the exact date(s).

Given the fact that the volume and value of the total transaction was less than Rs.1 crore, amendments relating to Takeover Regulations raising the creeping acquisition trigger from 2% to 5% was made in October 1998 and the circumstantial factors pleaded by the appellant we do not find that this is a fit case for imposing the maximum penalty. However, since violations have been admitted and proved and are repetitive in nature the appellants do not deserve any leniency. Taking all these factors and a balanced view, a consolidated penalty of Rs.10 lac would serve the purpose of justice in the instant case. Accordingly, while sustaining the impugned order on merit we reduce the total amount of penalty from Rs.20 lac to Rs.10 lac. Appellants are directed to pay the amount of penalty of Rs. 10 lac within a period of 45 days failing which SEBI is at liberty to recover the said penalty amount of Rs. 10 lac along with interest at the rate of 12 percent per annum from the date of the impugned order till the date of payment.

Appeal is disposed of in the above terms with no order as to costs.

Sd/-
Justice J.P. Devadhar
Presiding Officer

Sd/- Jog Singh
Member

Sd/- Dr. C.K.G.Nair
Member

24.1.2017
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