BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 203 of 2011

Date of Decision:15.02.2012

1. Mr. Ashwani Dewan
   T-3, Green Park Extension,
   New Delhi – 110016.
2. Mr. Anuj Dewan
   T-3, Green Park Extension,
   New Delhi – 110016.
3. M/s. Six Sigma Realty Private Limited
   (formerly Competent Surveyors Pvt. Ltd.)
   531L, Model Town, Karnal, Haryana.
4. M/s. Lee Infratech Private Limited
   (formerly Lee Hotels Pvt. Ltd.)
   P-10 (Basement), Green Park Extension,
   New Delhi – 110016.
5. Mrs. Sunita Dewan
   T-3, Green Park Extension,
   New Delhi – 110016.
6. Mr. Anuj Dewan representing M/s. ADB
   Trade Services Pvt. Ltd., T-3, Green Park
   Extension, New Delhi – 110016.
7. M/s. Conchem Construction Pvt. Ltd.
   P-10 (Basement), Green Park Extension,
   New Delhi – 110016.
8. 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. 3
   (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.
4. 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.
5. 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 4
   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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