BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 203 of 2011
Date of Decision:15.02.2012
- Mr. Ashwani Dewan
T-3, Green Park Extension,
New Delhi – 110016. - Mr. Anuj Dewan
T-3, Green Park Extension,
New Delhi – 110016. - M/s. Six Sigma Realty Private Limited
(formerly Competent Surveyors Pvt. Ltd.)
531L, Model Town, Karnal, Haryana. - M/s. Lee Infratech Private Limited
(formerly Lee Hotels Pvt. Ltd.)
P-10 (Basement), Green Park Extension,
New Delhi – 110016. - Mrs. Sunita Dewan
T-3, Green Park Extension,
New Delhi – 110016. - Mr. Anuj Dewan representing M/s. ADB
Trade Services Pvt. Ltd., T-3, Green Park
Extension, New Delhi – 110016. - M/s. Conchem Construction Pvt. Ltd.
P-10 (Basement), Green Park Extension,
New Delhi – 110016. - M/s. Jas Expoship (P) Ltd.
P-7B (Basement), Green Park Extension,
New Delhi – 110016.…… Appellants
Versus
Securities and Exchange Board of India
Mittal Court, ‘B’ Wing, 224, First Floor,
Nariman Point, Mumbai – 400 021. ……Respondent
Mr. Rajesh Ranjan, Advocate for the Appellants.
Mr. Shiraz Rustomjee, Advocate with Mr. Mihir Mody and Mr. Mobin Shaikh,
Advocates for the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
This appeal is directed against imposition of a penalty of 18 lacs on the appellants under section 15A(b) and 15H(ii) of the Securities and Exchange Board of India Act, 1992 for violating the provisions of regulations 7 and 11 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the SAST Regulations). The appellants are promoters of M/s. A.V. Cottex Limited (the company). During examination of the offer document concerning open offer made by Mr. Sudhir M. Naheta and Mrs. Rajkumari S. Naheta in terms of regulations 10 and 12 of the SAST Regulation, it came to light that the appellants failed to comply with the SAST Regulations in respect of disclosures laid down under regulations 7 and 11 of the SAST Regulations. A show cause notice dated 11 th March, 2010 was issued to the appellants. The appellants filed a common reply to the show cause notice which was also followed up by a personal hearing to the representatives of the appellants. The adjudicating officer, after due consideration of the replies filed, concluded that the appellants had violated regulations 7 and 11 of the SAST Regulations and so penalty was called for. Accordingly, a penalty of 18 lacs, as mentioned above, was imposed.
2.In the grounds of appeal a prayer is made out for setting aside the adjudication order on various grounds. However, during the hearing of the appeal, the appellants’ learned counsel fairly conceded to the fact of non-compliance with the impugned regulations and a strong plea was made for reduction in the quantum of penalty.
3.We have heard the learned counsel for the parties who took us through the submissions made before the adjudicating officer and the records of the case. It is noteworthy that the principal arguments before the adjudicating officer were the following:
(a) The non-compliance of the impugned regulations was only technical in nature.
(b) The company was going through a financial crisis during the relevant period
and had applied for restructuring under the provisions of BIFR.
(c) The irregularities did not harm the interest of any investors nor did it result in any unfair advantage to the promoters.
(d) The appellants had no malafide intention to suppress any information or violate any provision of law.
During the hearing of the appeal also the appellants’ learned counsel would admit that the impugned non compliance was only a technical default which had no serious consequences on the functioning of the capital market. With reference to the transactions under consideration, it is observed by the appellants’ learned counsel that out of eight persons impugned in the order two had not acquired any shares during the relevant period and to that extent the harshness of the non compliance stands reduced. It is also pointed out that out of 41 per cent of the shareholding which was subject to the impugned transactions, 17 per cent related to persons within the group and so the provisions of regulation 11(2) of the SAST Regulations may not be strictly applicable to those transactions. It is also contended that the transaction was a single one in the sense that all the appellants, except two, indulged in a one time transaction and so the allegation of repetitive violation is baseless. On the whole, the appellants’ learned counsel would lay emphasis on his plea that the penalty imposed is grossly disproportionate to the nature of violations detected.
3.The learned senior counsel for the respondent drew our attention to the reply filed by the appellant to the show cause notice wherein the irregularities have been fairly admitted by the appellants. He observed that the transactions spanned over a considerable period of time from April to November, 2006 and this cannot be brushed aside as casual or unintentional. He highlighted the fact that the trigger for the impugned action arose
out of the intimation provided by the merchant banker regarding non disclosure of the transactions and this also would throw some light on the fact that the appellants were acting deliberately and in concert. He would also lay emphasis on the fact that the violation was of a repetitive nature in as much as it continued for a considerable period of time in respect of each of the appellants and the modus was the same.
4.We have considered the rival contentions. Regulations 7 and 11 of the SAST Regulations lay down mandatory requirements of disclosure by an acquirer. There is no dispute regarding the fact that the appellants did not comply with regulations 7 & 11 of the SAST Regulations and it is writ large in the very admission of the appellants before the adjudicating officer. But for the information provided by the merchant banker and
the timely action thereon by the respondent, the non compliance by the appellant could have gone unnoticed. Therefore, the factum of non compliance of the impugned regulations cannot be ignored or taken lightly by any amount of arguments. However, it has to be noted that the appellants have admitted to the wrongdoing and the prayer is confined to reduction in the quantum of penalty. On a consideration of the facts on record, it is seen that two out of eight persons namely Mr. Ashwani Dewan and Ms. Sunita Dewan have not acquired any shares during the period under consideration and so there was no liability for disclosure in their case. This is contained in the reply filed by the appellants to the show cause notice and it is not disputed. So also out of the total
shares transacted, 17 per cent moved within the promoter group inter se. These two mitigating factors have to be given due weightage while considering the consequences of the non compliance of the appellants. It is also worthy of note that the company was in financial crisis and the shares were not traded for a considerable period of time between 2000 and 2007. In the background of the above facts, the penalty of 18 lacs is excessive in the case. Having regard to the facts of the case we hold that a composite penalty of 10 lacs would be just and reasonable. In this view of the matter, the penalty is reduced from 18 lacs to 10 lacs. The order stands modified as above. No order as to costs.
Sd/-
P.K. Malhotra
Member Sd/- S.S.N. Moorthy
Member
15.02.2012
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