Professional Documents
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HOLDING
INQUIRY
AND
IMPOSING
PENALTIES
BY
PAN
Order No.
Not Available
ASK/AO-93/2014-15
Not Available
ASK/AO-94/2014-15
Not Available
ASK/AO-95/2014-15
Not Available
ASK/AO-96/2014-15
In the matter of
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Company at a price of ` 10/- per share payable in cash. The shares of the
AAL are listed at BSE.
2. Securities and Exchange Board of India (hereinafter referred to as SEBI)
examined the draft Letter of Offer filed pursuant to the afore-mentioned
public announcement and observed that during the year 2009 Mr. Vaman
Madhav Apte, Mrs. Devaki Laxman Apte, Mr. Vikram Vaman Apte and
Mrs. Mithila Vaman Apte (hereinafter individually referred to by their name
and collectively referred to as "Noticees"), who were promoters of AAL
during the relevant period, had made certain transactions and thereby
acquired shares of AAL. The details of the transactions made by the
Noticees is given below in the tabular form:
Name of
noticee
the Noticee's
preholding
(%)
Qty
of Date
and Noticee's
shares
mode
of postacquired
transaction
holding
(%)
Vaman M Apte
8.09
30
Vaman M Apte
8.09
28270
Devaki L Apte
0.51
3590
Vaman M Apte
Devaki L Apte
Mithila V Apte
Vaman M Apte
9.54
0.70
0.14
8.96
5,000
1,500
1,500
7,250
Vikram V Apte
0.50
30
Vikram V Apte
0.50
1,500
13/01/09
(Off-market)
14/01/09
(Off-market)
8.09
Pretransaction
Promoter's
shareholding
(%)
59.13
Posttransaction
Promoter's
shareholding
(%)
59.13
9.54
59.13
60.76
9.79
0.77
0.22
9.33
60.76
61.17
61.17
61.54
0.50
61.49
61.49
0.57
61.49
61.57
0.70
24/02/09
(Off-market)
03/07/09
(Off-market)
25/09/09
(Off-market)
02/12/09
(Off-market)
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the threshold limit of 55% as prescribed under regulation 11(2) of the SAST
Regulations 1997 and as such for acquisition of any additional shares by the
noticees entitling them to exercise voting rights, the respective noticees were
required to make public announcement as stipulated in the afore-mentioned
regulation. However, it was observed that no such public announcement was
made by the Noticees.
APPOINTMENT OF ADJUDICATING OFFICER
4. The undersigned was appointed as Adjudicating Officer under section 15I of
the Securities and Exchange Board of India Act, 1992 (hereinafter referred
to as SEBI Act) read with rule 3 of SEBI (Procedure for Holding Inquiry
and Imposing Penalty by Adjudicating Officer) Rules, 1995 (hereinafter
referred to as the Rules) to inquire into and adjudge under section 15H(ii)
of the SEBI Act, the alleged violations of provisions of regulation 11(2) of
SAST Regulations, 1997 read with Regulation 35 of SAST Regulations,
2011 by the Noticees.
SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
5. Show Cause Notice dated May 06, 2014 (hereinafter referred to as SCN)
was issued to the Noticees under rule 4 of the Rules to show cause as to why
an inquiry should not be initiated and penalty be not imposed under section
15H(ii) of the SEBI Act for the alleged violation specified in the SCN. It was
alleged in the SCN the Noticees have violated the provisions of regulations
11(2) of the SAST Regulations, 1997 read with Regulation 35 of the SAST
Regulations, 2011. The copies of the documents relied upon in the SCN
were provided to the Noticees along with the SCN.
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6. Vide separate similarly worded letters dated July 28, 2014 noticees filed
their reply to the SCN. The main submissions of the noticees with respect to
specific charges alleged in the SCN are as follows:
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hearing on August 06, 2014 vide Notice of Inquiry dated July 17, 2014. On
the scheduled date of hearing, Mr. Vinay Chauhan, Advocate and Mr. K. C.
Jacob, Advocate, appeared as Authorized Representatives on behalf of the
noticee and reiterated the submissions made in their reply to SCN. ARs
submitted that they would be submitting the PAN of the noticees within a
week's time, however, the same was never submitted.
CONSIDERATION OF ISSUES AND FINDINGS
8. I have carefully perused the written submissions of the Noticee and the
documents available on record. The issues that arise for consideration in the
present case are :
a. Whether the Noticees had violated the provisions of regulation 11(2) of
SAST Regulations, 1997?
b. Does the violation, if any, attract monetary penalty under section
15H(ii) of SEBI Act?
c. If so, what would be the monetary penalty that can be imposed taking
into consideration the factors mentioned in section 15J of SEBI Act?
9. Before moving forward, it is pertinent to refer to the relevant provisions of
SAST Regulations, 1997 which at the time of the alleged violations read as
under:SAST 1997
Consolidation of holdings.
11. (1) ...................
(2) No acquirer, who together with persons acting in concert with him holds,
fifty-five per cent (55%) or more but less than seventy-five per cent (75%) of
the shares or voting rights in a target company, shall acquire either by
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himself or through 1[or with] persons acting in concert with him any
additional shares entitling him to exercise voting rights or voting rights
therein, unless he makes a public announcement to acquire shares in
accordance with these Regulations:
Provided that in a case where the target company had obtained listing of its
shares by making an offer of at least ten per cent (10%) of issue size to the
public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities
Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted
from strict enforcement of the said rule, this sub-regulation shall apply as if
for the words and figures seventy-five per cent (75%), the words and
figures ninety per cent (90%) were substituted.
Provided further that such acquirer may, 2[notwithstanding the acquisition
made under regulation 10 or sub-regulation (1) of regulation 11,] without
making a public announcement under these Regulations, acquire, either by
himself or through or with persons acting in concert with him, additional
shares or voting rights entitling him upto five per cent. (5%) voting rights in
the target company subject to the following:- (i) the acquisition is made
through open market purchase in normal segment on the stock exchange but
not through bulk deal /block deal/ negotiated deal/ preferential allotment; or
the increase in the shareholding or voting rights of the acquirer is pursuant
to a buy back of shares by the target company; (ii) the post acquisition
shareholding of the acquirer together with persons acting in concert with
him shall not increase beyond seventy five per cent.(75%).
Finding
The issues for examination in this case and the findings thereon are as follows:
Issue - (I) - Whether the Noticee had violated the provisions of regulation
11(2) of SAST Regulations, 1997?
10.
that admittedly the noticees were promoters of AAL and they were acting in
concert when respective noticees acquired the shares of AAL on various dates
1
Inserted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment)
Regulations, 2009, w.e.f. 6-11-2009.
2
Inserted, ibid
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as mentioned in the table at page 2. Further it is also not in dispute that at the
time of such acquisitions the shareholding of the promoter group was more than
the threshold limit of 55% as prescribed under regulation 11(2) of the SAST
Regulations 1997. It is also an admitted position that for such acquisition no
public announcement has been made by the noticees as stipulated in the aforementioned regulation.
11.
12.
more but less than 75% shares or voting rights in target company could acquire
any additional shares or voting rights therein only by way of an open offer by
making a public announcement in accordance with the Takeover Regulations,
1997. However, the second proviso to the afore-mentioned regulation provides
that an acquirer holding 55% or more but less than 75% of shares or voting
right in a target company could acquire additional shares or voting rights upto
5% without making a public announcement. However, this acquisition is
allowed subject to the two conditions that - (a) the acquisition should be made
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through open market purchase in normal segment on the stock exchange but not
through bulk deal /block deal/ negotiated deal/ preferential allotment; or it is
pursuant to buy back of shares by the target company; and (b) the post
acquisition shareholding of the acquirer should not increase beyond 75%.
13.
In the present case, there is no dispute that the acquisitions have been
made by the respective noticees in off market and not through open market
purchase in normal segment on the stock exchange as mandated under second
proviso to Regulation 11(2) of SAST 1997. Noticees have submitted that the
trading in the scrip of AAL had remained suspended from September 10, 2001
to May 25, 2010. Here, I note from the letter of offer that BSE had suspended the
trading in the shares of the company with effect from 10th September, 2001 on
account of non-compliance of the listing agreement and non payment of the
listing fees. It is evident that lack of trading in the shares of the company is
directly attributable to the non-compliances by the Noticees who were
admittedly in control of the company during the relevant period. The Noticees,
therefore, cannot claim relief on this count. Since the mandatory conditions of
acquisition of shares through open market purchase in normal segment on the
stock exchange was not met by the noticees, the exemption from making public
announcement is not available to them.
14.
In view of the above, I hold that the Noticees have violated regulation
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15.
comply with their statutory obligation. The Honble Supreme Court of India in
the matter of Chairman, SEBI v.. Shriram Mutual Fund {[2006] 5 SCC 361}
held that "In our view, the penalty is attracted as soon as contravention of the
statutory obligations as contemplated by the Act is established and, therefore,
the intention of the parties committing such violation becomes immaterial.
. Hence, we are of the view that once the contravention is established,
then the penalty has to follow and only the quantum of penalty is
discretionary............
16.
therefore suffer from vice of laches and despite SEBI being aware of the
alleged violations in the year 2010, there is nothing on record to indicate the
reason for the unexplained and unnatural delay in initiating the proceedings,
which has caused prejudice to them and has also resulted in gross violation of
principles of natural justice. I note that in the instant matter the default under
the Act being a continuing one, a fresh cause of action arises under the said
provisions for each day during which the failure continued. Since the violation
of Regulation 11(2) by the noticees has been clearly established in the
preceding paragraphs, the noticees cannot escape liability simply because it
relates the period of 2009. In any case delay in initiating the proceedings itself
cannot be a ground for exonerating the Noticee, it can at best be treated as a
mitigating factor in the facts and circumstances of the case.
17.
SAST Regulations, 1997 has been established, I hold that the Noticees are
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liable for monetary penalty under section 15H(ii) of SEBI Act, 1992 which at
the time of violation read as follows:
Penalty for non-disclosure of acquisition of shares and takeovers.
15H. If any person, who is required under this Act or any rules or regulations made
thereunder, fails to,
(i)
(ii) make a public announcement to acquire shares at a minimum price; or
(iii).
(iv)..
he shall be liable to a penalty of twenty-five crore rupees or three times the amount
of profits made out of such failure, whichever is higher.
Issue - (III) - If so, what would be the monetary penalty that can be
imposed taking into consideration the factors mentioned in section 15J of
SEBI Act?
18.
the disproportionate gains or unfair advantage enjoyed by the Noticees and the
consequent losses suffered to the investors, due to not making public
announcement of offer. I find that in the instant case noticees, while admittedly
acting in concert, have committed the default on nine occasions which indicates
repetitive nature of the default. I note that the noticees acquired 28,300 shares on
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January 13 / 14, 2009 whereby they triggered the Takeover code and ought to have
made open offer giving exit opportunity to other public shareholders. They failed
to do so. On the other hand, they continued to acquire shares on 7 other occasions
which on each occasions triggered the code. Noticees have submitted that the
shares were acquired by them from certain investors/employees who wanted to exit
but could not exit because the trading in the scrip was suspended. This, in my view,
tantamount to providing exit opportunity to only selective investors depriving other
public shareholders of their statutory right to exit. I also note at the relevant point
of time the public shareholders were holding more than 35 % of the total capital of
the company who were deprived of the benefit of the exit opportunity and to this
extent, there was loss to the shareholders. The matter, therefore, deserves to be
viewed seriously.
ORDER
20.
15I of the SEBI Act read with Rule 5 of the Adjudication Rules, I hereby
impose a penalty of ` 25,00,000/- (Rupees Twenty Five Lakh only) on all the
Noticees i.e. Mr. Vaman Madhav Apte, Mrs. Devaki Laxman Apte, Mr. Vikram
Vaman Apte and Mrs. Mithila Vaman Apte under Section 15H(ii) of SEBI Act
for the violation of regulation 11(2) of SAST Regulations, 1997 read with
Regulation 35 of SAST Regulations, 2011. I am of the view that the said
penalty is commensurate with the violation committed by the Noticees. The
Noticees shall be jointly and severally liable to pay the said monetary penalty.
21.
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22.
In terms of rule 6 of the Rules, copies of this order are sent to the
A. Sunil Kumar
Adjudicating Officer
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