BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Appeal No. 145 of 2012

Date of Decision : 20.12.2012

Shri R. Shankar
c/o P V Sundarakrishnan,
No. 9, Ramiah Road,
Flat No. 103, Divya Land mark,
Yashwantpuram,
Bangalore – 560022.

… 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. Rajeev Kumar, Advocate for the Appellant.

Dr. Mrs. Poornima Advani, Advocate with Mr. Ajay Khaire and Ms. Rachita Romani,
Advocate for the Respondent.

CORAM : P.K. Malhotra, Member & Presiding Officer ( Offg.)
S.S.N. Moorthy, Member

Per : P.K. Malhotra

This order will dispose of five Appeal nos. 145 to 149 of 2012. We find that a

common show cause notice was issued to nine entities and a common order has been

passed against all these entities out of which only five are in appeal before us.

Counsel for the parties agree that since these appeals arise out of common set of facts,

they can be disposed of by a common order and facts can be taken from Appeal no.

145 of 2012. When these appeals were fixed for hearing learned counsel for the

appellant has taken a preliminary objection with regard to appeal being heard by this

bench in the absence of a regular Presiding Officer. It was stated by him that a

Writ Petition No. 5847 of 2012, Sandeep Jain vs. Union of India has been filed in the

Bombay High Court challenging jurisdiction of the Tribunal to hear appeal in the

absence of a regular Presiding Officer. At the request of the learned counsel for the

appellant, the appeals were kept pending awaiting outcome of the writ petition.

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The gh ourt , by its order dated November 26, 2012, has dismissed the

writ petition holding that there is no impediment in the appeal being heard by the

appellate tribunal which presently consists of two members, one of whom is

authorized to preside over the sitting of the appellate tribunal.

2. With the consent of counsel for the parties, now we proceed to dispose of

these appeals. The appellants in these appeals are aggrieved by the order dated April

26, 2012 passed by the adjudicating officer of the Securities and Exchange Board

India (the Board ) against nine entities, including five appellants before us, holding

them guilty of violating regulations 7 and 10 of the Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short

takeover code) and imposing a penalty of ` 4 lacs each under section 15 A(b) and

15 H of the Securities and Exchange Board of India Act, 1992 (the Act).

3. The facts of the case, in brief, are that the Board carried out investigation in

the matter of Datasoft Application Software (India) Limited (the company) for the

period 2000-2001. At the relevant time the scrip of the company was listed on the

Bombay Stock Exchange and Ahmedabad Stock Exchange. The Board observed that

on January 28, 2000 the company made preferential allotment of 1,20,00,000 shares

for cash @ 10/- per share with a premium of ` 17/- per share. The share capital of the

company was 1,50,00,000 out of which 30,00,000 shares were fully paid up at ` 10/-

each and rest of 1,20,00,000 shares were partly paid up to the extent of 10%. The total

paid-up capital of the company amounted to ` 4,20,00,000/-. The details of the

preferential allotment to the nine entities, as stated in the impugned order, is as under:

No
.
Noticees. No. of
shares
allotted.

Total no.
of shares
allotted.

% of the
paid up
share
capital

1. Burlington Financial Services (P) Ltd. 7,45,000 66,56,000
   shares.
   15.85%
2. Dwarkadhish Import & Export (P) Ltd 7,43,000
3. R Shankar 7,45,000
4. GS Sridhar 4,46,000
5. PV Muralikrishna 7,40,000
6. A Rajendra Prasad 7,00,000
7. Hemdil Financial Services Ltd 7,40,000
8. Ekveera Computers (P) Ltd. 7,48,500
9. Prathakal Comm. & Ag. (P) Ltd. 7,48,500 3
10. It was observed by the Board that a total of 60,56,000 shares of the company

were allotted to nine entities / acquirers and this constituted 15.85% of the total

shareholding of the company. It was further observed by the Board that these nine

entities were known / connected to each other and were linked to the core group

consisting of Mr. Sridhar, Mr. Rajendra Prasad and Mr. Muralikrishna and their

companies known as Harsha Pranav Securities Pvt. Ltd., Narvin Finance and

Investments Ltd., Newfin Financial Services Ltd. and Vivenasri Financial Services

Ltd. The linkages / connection between the appellants and these companies are

discussed in detail in the impugned order. With the acquisition of these shares, the

provisions of regulation 7 and regulation 10 of the takeover code got triggered and the

acquirers were supposed to comply with the requirements laid down therein including

making of a public offer. Apparently, this was not done. A show cause notice dated

February 25, 2009 was issued asking the appellants to show cause as to why enquiry

should not be held against them and penalty imposed for violating the provisions of

the takeover code. The appellants denied the charges. The appellants replied to the

show cause notice, also appeared for personal hearing and made their submissions

before the adjudicating officer. After considering their reply, the adjudicating officer

of the Board found the appellants guilty of violating the provisions of the takeover

code and imposed the penalty as stated above. Hence, this appeal.

5. We have heard Mr. Rajeev Kumar, counsel for the appellant and Dr. (Mrs.)

Poornima Advani, counsel for the respondent Board, who have also taken us through

the record. Learned counsel for the appellant has also filed his written submissions. In

brief, challenge to the impugned order is on the grounds that the penalty imposed on

the appellants is based on conjectures and surmises and there is no proof of any

wrong doing on their part. He has also pleaded that the findings given by the

adjudicating officer are based on various documents, bank statements and oral

testimony of the directors of the company collected behind the back of the appellant

and, therefore, the adjudication order is passed without following principles of natural

justice. It was further submitted by him that the adjudicating officer has failed to

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apply her mind to the facts of the case and the provisions of the Act and regulations

made therein. He has also submitted that as per Board ’s on, all the nine

entities, including the five appellants, are acquirers and held them to be ‘ connected

entities ’ acting in concert. They have collectively acquired 15.85% shares of the

company. According to him, this may be a single violation and the maximum penalty

that could have been imposed under section 15H at the relevant time was only

5 lacs whereas a total penalty of 36 lacs has been imposed. It is submitted that the

penalty is highly excessive and grossly disproportionate to the acts allegedly done by

the appellants. He further submitted that while imposing the penalty, the adjudicating

officer has ignored the mandatory provisions of section 15 J of the Act.

6. Learned counsel for the respondent Board supported the order passed by the

adjudicating officer and stated that the adjudicating officer has clearly brought on

record the violation on the part of the appellant and also the connection / relation

between the entities who have collectively acquired 15.85% of the share capital of the

company. There has been no violation of the principles of natural justice as the

appellant was given opportunity of cross-examination of persons whose statements

have been relied upon. Copies of relevant documents were also made available. While

imposing the penalty, the adjudicating officer has also considered the provisions of

section 15 J of the Act and also imposed penalty under section 15 A(b) and section

15 H of the Act as they existed at the relevant time. Learned counsel for the Board,

therefore, submitted that no interference is called for by this Tribunal and findings

arrived at by the adjudicating officer needs to be upheld.

7. After considering the rival submissions and perusing the material available on

record, we are of the considered view that the findings arrived at by the adjudicating

officer with regard to violation of the provisions of takeover code calls for no

interference. The allotment of shares on preferential basis to the appellants before us

is not in dispute. The allotment of preferential shares was made to the connected

parties as concluded by the adjudicating officer in the impugned order. The

interconnection between them has also been clearly brought out by the adjudicating

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officer in the impugned order. The order itself records that the appellants were

granted an opportunity to cross-examine Mr. Ashok Sethi, Mr. Anil Doshi and

Mr. Mahesh Khandelwal. The allotment of shares to the appellants by the company is

also not in dispute. The provisions of regulation 7(1) of the takeover code specifically

provide that any acquirer, who acquires shares or voting rights which, taken together

with shares or voting rights, if any, held by him, would entitle him to more than five

percent shares or voting rights in a company, in any manner whatsoever, shall

disclose the aggregate of a shareholding or voting rights in that company, to the

company. Regulation 10 of the takeover code provides that no acquirer shall acquire

shares or voting rights which taken together with shares or voting rights, if any held

by him or by persons acting in concert with him, entitle such acquirer to exercise

fifteen per cent or more of the voting rights in a company, unless such acquirer makes

a public announcement to acquire shares of such company in accordance with the

regulations. Violation of these two provisions by the appellant before us it is writ

large on the face of it. We are also not inclined to agree with the learned counsel for

the appellant that the order has been passed merely on conjectures or surmises.

We are not inclined to agree with him that the adjudicating officer has relied on

documents or material collected behind the back of the appellant. As stated in the

impugned order itself, which is not disputed, the appellants were afforded opportunity

to cross-examine the persons whose statements were recorded and consequent to the

cross-examination, the appellants filed their reply. It is not clear what further

principles of natural justice were required to be complied with. We are also unable to

agree with the argument of learned counsel for the appellant that all the nine entities,

including the five appellants who acted in concert committed only one violation and

therefore a maximum penalty of ` 5 lacs could have been imposed on them under

section 15 H of the Act. We are of the view that each of the violator is liable to the

penalty in accordance with law and such penalty cannot be clubbed treating it as a

single violation. On merits we are, therefore, not inclined to interfere with the

findings arrived at by the adjudicating officer.

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8. However, we are constrained to note that in such a straight forward case

where alleged violation took place in the year 2000 and the Board started

investigation into the matter as early as in 2003, it issued the show cause notice to the

appellant only in February, 2009 and passed the impugned order only in April, 2012.

There is no justification available on record to explain this inordinate delay on the

part of the respondent Board. Expediency is one of the essential elements in a fast

moving economy to check and punish the wrongdoer in the market. The laxity on the

part of the Board to punish the guilty within reasonable time is not a good practice.

The very purpose of taking action gets defeated in case of inordinate delay especially

in matters where the facts are simple and investigation can be concluded within a

short time. We have not found any justification on record as to why the show cause

notice was issued after nine years of violation of the regulations and then taking

another three years to pass a final order. At the relevant time, the maximum penalty

that could have been imposed under the Act was ` 5 lacs for violation under section

15 H of the Act and ` 25,000/- under section 15 A(b) of the Act. Keeping in view the

penalty that could have been imposed at the relevant time and the inordinate delay in

finalization of the case; we are of the considered view that the ends of justice would

be met by reducing the penalty to ` 1 lac in respect of each of the appellant. We order

accordingly.

In the result, while upholding the findings of the adjudicating officer, the

penalty is reduced to ` 1 lac in respect of each of the appellants in these appeals.

No costs.

                        Sd/-  
      P.K. Malhotra  
                      Member &  

Presiding Officer ( Offg.)

                  Sd/-  
                     S.S.N. Moorthy   
                 Member  

20.12.2012
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