BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 12.06.2019
Date of Decision
: 28.06.2019
Appeal No. 102 of 2018
Capetown Trading Company Private Limited
Boomerang, Ground Floor, B-1-04/05,
Chandivali Farm Road, Andheri (East),
Mumbai – 400 072.

…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. K.C. Jacob, Advocate i/b
Corporate Law Chambers India for the Appellant.
Mr. Anubhav Ghosh, Advocate with Ms. Rashi Dalmia, Advocate
i/b The Law Point for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
Per : Dr. C.K.G. Nair, Member
1.

This appeal has been filed challenging the order of the
Adjudicating Officer (‘AO’ for short) of Securities and Exchange
2
Board of India (‘SEBI’ for short) dated September 29, 2017. By
that order a penalty of Rs. 50 Lakh has been imposed on the
appellant under Section 15H(ii) of the SEBI Act, 1992 for
violation of Regulation 12 read with Regulation 14 of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations,
1997 (‘Takeover Regulations, 1997’ for short) for failure to make
an open offer in the year 2006.

2.

Learned counsel Shri Vinay Chauhan appearing on behalf of
the appellant fairly submitted that the appellant admits the failure
and therefore seeks only mitigation of the amount of penalty
imposed in view of the specific facts and circumstances of the
matter. Accordingly, we do not propose to go into the details of
the matter. However, for facility the relevant background of the
matter in brief is as follows: Certain entities filed an offer letter
with SEBI for acquiring 20% of the equity capital of Innoventive
Venture Limited (formerly known as Platinum Ocean Energy Ltd.
– Target Company) in terms of Regulation 10 and 12 of the
Takeover Regulations, 1997 in the year 2011. A public
announcement for the same was made on August 9, 2011. While
examining this letter of offer SEBI noticed that M/s. Capetown
Trading Company Ltd., the appellant herein, had acquired 30,000
shares constituting 4.08% of the shares of the target company on
3
March 31, 2006. The appellant was also shown as the promoter of
the target company in the offer letter. By the said acquisition of
4.08% of the equity share capital, the appellant came to control
the target company. Despite this, the appellant failed to make
necessary public announcement and open offer for acquiring
minimum of 20% of the shares of the target company.

3.

Learned counsel for the appellant also submitted that though
the appellant did in fact come to control the target company in
March 2006 this was under special circumstances. There was no
identified promoter of the company at that point in time. The share
capital of the company was rather limited: only 7,35,000 equity
shares and the appellant was holding only 30,000 shares
constituting 4.08%. There were a number of other shareholders,
two of which had holding of 14.29% each. The appellant bought
30,000 shares at Rs. 5.50 per share on March 31, 2006 at a total
investment of Rs. 1,65,000/-. The appellant sold these shares in
the open offer made on August 9, 2011 at a price of Rs. 10 per
share and made a gain of only about Rs. 1,35,000/-. Even if the
appellant had to make an open offer in the year 2006 soon after
acquiring 4.08% share capital the total cost of the same would
have been only about Rs. 12.67 Lakh at a price of Rs. 8.62 per
share. Therefore, even if the most demanding direction relating to
4
violation of Takeover Regulations, that is, direction to make an
open offer was made by SEBI in this matter would have cost the
appellant only Rs. 12.67 Lakh. However, penalty of Rs. 50 Lakhs
has been imposed. Accordingly, the counsel for the appellant
submitted
that
the
penalty
imposed
is
too
harsh
and
disproportionate considering the facts of the matter.
4.

For convenience the relevant provisions of the Takeover
Regulations, 1997 are reproduced as under:“Acquisition of control over a company.
12. Irrespective of whether or not there has been any
acquisition of shares or voting rights in a company, no
acquirer shall acquire control over the target company,
unless such person makes a public announcement to
acquire shares and acquires such shares in accordance
with the regulations:
Provided that nothing contained herein shall apply to
any change in control which takes place in pursuance
to a [special resolution] passed by the shareholders in
a general meeting:
Provided further that for passing of the special
resolution facility of voting through postal ballot as
specified under the Companies (Passing of the
Resolutions by Postal Ballot) Rules, 2001 shall also be
provided.
Explanation.—For the purposes of this regulation,
acquisition shall include direct or indirect acquisition
of control of target company by virtue of acquisition of
companies, whether listed or unlisted and whether in
India or abroad.

5
Timing of the public announcement of offer.
14. (1) ………………
(2) ………………
(3) The public announcement referred to in
regulation 12 shall be made by the merchant banker
not later than four working days after any such
change or changes are decided to be made as would
result in the acquisition of control over the target
company by the acquirer.”
5.

Since violation of the aforesaid Regulations is admitted the
only relevant question to be considered by us is whether the
penalty of Rs. 50 Lakhs imposed on the appellant under Section
15H(ii) i.e. failure to make a public announcement to acquire
shares at a minimum price is proportionate or not. We note that
penalty imposable for violation of Regulation 15H(ii) at the
relevant time was Rs. 25 Crore or three times the amount of
profits made out of such failure, whichever is higher. In the instant
matter, this provision would imply a penalty of Rs. 25 Crore. We
also note that this provision has been amended with effect from
September 8, 2014 which reads as follows:“The penalty shall not be less than 10 Lakh rupees but
which may extend to 25 Crore rupees or 3 times the
amount of profits made out of such violation, whichever
is higher.”
6
6.

Though the penalty provisions in the Takeover Regulations
state the aforesaid it is not that the maximum penalty is always
imposed, mitigating factors as provided under Section 15J of the
SEBI Act 1992 as well as any other mitigating factors have to be
considered while imposing the penalty. Further, since SEBI Act,
Rules and Regulations are basically for protecting the interests of
investors and enable orderly development of the securities market,
the impact of a violation in terms of its implications on the market
and investors need to be factored in. Impact of a particular action /
violation on the securities market needs to be interpreted in two
ways because every violation of securities laws need not have a
market-wide impact meaning a visible impact on a large number
of investors or in terms of moving the securities market indices,
such as NIFTY or SENSEX. At the same time we cannot take the
view that violations that do not lead to a visible impact or impact
on NIFTY / SENSEX are not violations punishable with penalty.
Therefore, a violation needs to be analyzed in terms of its marketwide implications or in terms of its implications on the security of
the company concerned and the investors therein, such as in the
present matter. In short, there can be a market-wide impact or
impact on a particular company and its securities and therefore
only its investors. The penalty provisions are incorporated to
7
address all these situations: micro impact as well as a macro or
market-wide impact of violations. Otherwise if such a distinction
is not made penalty provisions under Section 15H(ii) of SEBI Act
would invariably lead to a minimum penalty of Rs. 25 Crore as it
existed prior to September 8, 2014. Amendment made on this date
itself clearly shows that was not the intention of law. It is also
clear from the penalty imposed in the instant matter at Rs. 50
Lakhs that even under the earlier provisions the penalty provision
was not interpreted purely in terms of the letters but also by taking
mitigating factors into account.

7.

Given the aforesaid state of the law, the question before us is
whether there is ground for reducing the penalty from Rs. 50
Lakhs imposed by the AO of SEBI through the impugned order in
the facts of the matter. Here we are told that the profit made by the
appellant in terms of the impugned acquisition of 4.08% of the
equity share capital of the target company was only Rs. 1.35
Lakh; the total investment was only Rs. 1.65 Lakh; the total
amount saved (or profits made) through avoiding an open offer to
minimum of 20% of the equity shareholders was only Rs. 12.67
Lakh. These calculations are not disputed. Further, we note that
for takeover violations by substantial acquisition of shares or
through acquisition of control different directions are provided
8
under Regulation 44 of the Takeover Regulations, 1997, the most
demanding of which is that of directing an open offer at a
minimum price, along with interest. In the instant matter by taking
control of the company in March 2006 in terms of the impugned
acquisition directing an open offer could have been the normal
direction. Such a direction is, however, dispensed with because by
the time SEBI came to know the violations in 2011 ownership and
control of the company had moved hands and the appellant herein
also sold off the shares acquired in 2006. Hence, only the
monetary penalty of Rs. 50 Lakh has been imposed.

8.

On the question of reduction of the amount of penalty the
learned counsel for the appellant sought a substantial reduction, to
a maximum of Rs. 12.67 Lakh, the amount that was required for
making the open offer for a minimum of 20% of the equity capital
of the target company in 2006.

9.

However, learned counsel Shri Anubhav Ghosh appearing
on behalf of the respondent SEBI submitted that the amount of
Rs. 50 Lakh imposed is fully justified in view of the fact that the
penalty provision at the relevant time was three times the profit
made or Rs. 25 Crore whichever is higher. He further submitted
that more than 95% of the equity share capital was held by others,
9
about 30 shareholders, who were denied an exit option at the
relevant point of time which was also a factor leading to no
trading in the shares of the company and the company potentially
becoming sick consequently.

10. While we agree that the AO had factored in some mitigating
aspects while deciding the penalty, given the aforesaid
calculations of the investment, profits made or loss avoided and in
terms of the magnitude of the variables such as number of shares
acquired by the appellant, total share capital of the company etc.
there is still ground for some more mitigation. We are also of the
view that the amount of penalty imposed should have some corelation with the most penalizing of the directions on takeover
violations i.e. cost of making an open offer. In the instant case that
cost is estimated to be Rs. 12.67 Lakh at the relevant time. Further
considering interest / time factor into account this amount should
be adjusted. Accordingly, taking all factors into account we are of
the considered view that an amount of Rs. 20 Lakh would serve
the interests of justice.

11. Accordingly, while upholding the impugned order on merit
we reduce the amount of penalty from Rs. 50 Lakh to Rs. 20
10
Lakh. Appellant is directed to pay this amount to SEBI within a
period of 30 days from the date of this order.
12. Appeal is partly allowed in above terms. No orders on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M.T. Joshi
Judicial Member
28.06.2019
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