BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No. 185 of 2011 Date of decision: 11.1.2012 O. P. Gulati D-300, Anand Vihar, Delhi 110 092. 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. Sajeve Deora, Chartered Accountant for the Appellant. Mr. Prateek Seksaria, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent. CORAM : P. K. Malhotra, Member S. S. N. Moorthy, Member Per : P. K. Malhotra, Member This order will dispose of two appeals no. 165 and 185 of 2011 which arise out of the common order dated July 26, 2011 passed by the adjudicating officer of the Securities and Exchange Board of India (the Board) imposing a penalty of ` 1 lac each on the two appellants under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 (the Act) for failure to make disclosures under the provisions of regulation 7(1A) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code).
2. The facts of the case, in brief, are that while examining the offer document of M/s. Deora Associates Pvt. Ltd. to acquire the shares of M/s. Integrated Capital Services Limited (target company), the Board observed non compliance of certain provisions of the takeover code by the erstwhile promoters of the target company who are the two appellants before us. It was noted by the Board that these promoters acquired shares of the target company as under:- 65,000 shares (2%) during the period ended March 31, 1998 1,62,400 shares (5%) during the period ended March 31, 2000 1,62,000 shares (4.98%) during the period ended March 31, 2001 3,17,600 shares (9.77%) during the period ended March 31, 2002 1,57,000 shares (4.83%) during the period ended March 31, 2003 1,11,000 shares (3.42%) during the period ended March 31, 2004 In accordance with the requirements of regulation 7(1A) of the takeover code, the acquirers were required to disclose purchase of these shares to the target company and the stock exchanges where the shares of the target company are listed within two days of such purchase. Since this requirement was not complied with, enquiry proceedings were initiated against the appellants under the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by the Adjudicating Officer) Regulations, 1995 and a show cause notice dated March 03, 2011 was issued to the appellants asking them as to why enquiry should not be held against them and penalties imposed in accordance with the provisions of the Act. Both the appellants filed a common reply dated June 20, 2011 giving clarification on year wise disclosures and stating that there was no violation of regulation 7(1A) of the takeover code in respect of the acquisitions of shares during the period March 1998 to March 2001 as the provision of regulation 7(1A) of the takeover code itself came into existence with effect from October 24, 2001. With regard to acquisition of shares thereafter, the appellants denied that there was any violation of regulation 7(1A) of the takeover code and, in any case, with regard to the period ending March 2004 the disclosures were made by O. P. Gulati (appellant in Appeal no. 185 of 2011). These disclosures were made with bonafide intention and there was no suppression of fact. It was further stated that there was no intentional violation on the part of the appellants and the purpose of disclosure was duly served by filing disclosures, though belatedly. Default, if any, is purely technical in nature and deserves to be accepted as a bonafide inadvertent mistake. The adjudicating officer afforded an opportunity of hearing to the appellants and thereafter passed the impugned order. In the impugned order, he exonerated the appellants of violating the provisions of regulation 7(1A) of the takeover code in respect of acquisitions made during the periods ending March 31, 1998, March 31, 2000 and March 31, 2001. However, he held the appellants guilty of violating the provisions of regulation 7(1A) in respect of the remaining three transactions and imposed a penalty of ` 1 lac each under Section 15A(b) of the Act. Hence these appeals.
3. We have heard the learned counsel for the parties who have taken us through the records. Mr. S. Deora, Chartered Accountant, appearing for the appellants, submitted that Indra Gulati (appellant in Appeal no. 165 of 2011) never acquired the shares in question and she could not, therefore, be deemed to have committed any default of the provision of regulation 7(1A) of the takeover code. The shares in question were acquired by O. P. Gulati (appellant in Appeal no. 185 of 2011) and it was for him to make declaration to the company as well as to the stock exchanges. Adjudicating officer has not identified any purchases made by Indra Gulati and, therefore, she cannot be held to be acquirer of the shares in question. According to the authorised representative of the appellant, the requirement of making a declaration to the company and to the stock exchanges under regulation 7(1A) of the takeover code is of the acquirer who acquires the shares and not of all the acquirers within the meaning of regulation 2(b) of the takeover code. On the other hand, Mr. Prateek Seksaria learned counsel for the Board supported the order passed by the adjudicating officer stating that any acquirer, whether he has acquired the shares or voting rights of the company or not, if he falls within the definition of the acquirer under regulation 2(b) of the takeover code or is a person acting in concert within the meaning of regulation 2(e), is required to file a declaration under regulation 7(1A) of the takeover code. Indra Gulati, being wife of O. P. Gulati and also a promoter of the company, falls within the definition of person acting in concert and hence an acquirer within the meaning of regulation 2(b) of the takeover code. Therefore, the adjudicating officer has rightly held her guilty of violating the provision of regulation 7(1A) of the takeover code.
4. With a view to examine the arguments advanced before us, it is necessary to have a look at the relevant provisions of the takeover code. Regulation 2(b) of the takeover code defines acquirer as under:- 2(b) acquirer means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. Regulation 2(e) defines person acting in concert and its relevant portion reads as under:- 2(e) Person acting in concert comprises,- (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company, (2) without prejudice to the generality of this definition, the following persons will be deemed to be person acting in concert with other persons in the same category, unless the contrary is established :
(i) to (ii) .
(iii) directors of companies referred to in sub-clause (i) of clause(2) and their associates;
(iv) to (x) . Note : For the purposes of this clause associate means, - (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families; Regulation 7(1A) of the takeover code, as it stood at the relevant time, reads as under:- 7(1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. Regulation 11(1) of the takeover code reads as under:- 11(1) No acquirer who, together with persons acting in concert with him, has acquired in accordance with the provisions of law,
15 per cent or more but less than fifty five per cent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 per cent of the voting rights with post acquisition shareholding or voting rights not exceeding fifty five per cent in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.
5. It will be seen that the definition of acquirer as given in clause (b) of regulation 2 is wide enough to take within its fold even a person who indirectly acquires or agrees to acquire shares or voting rights in the target company either himself or with any person acting in concert with the acquirer. The definition of person acting in concert as provided in clause (e) of regulation 2 of the takeover code is also wide enough to include even an associate of the director of a company. The term associate in the said clause means any relative of the director. Admittedly, the two appellants in the appeal before us are husband and wife and also the promoters/directors of the target company. When we read the definition of acquirer and the definition of term person acting in concert together, it will bring Indra Gulati also within the definition of acquirer even if she has not acquired a single share. The next question that arises is whether it casts an obligation on her to make a disclosure under regulation 7(1A) of the takeover code. Does the said regulation require each and every acquirer within the meaning of the takeover code to make a declaration to the stock exchanges is the moot question. We are of the view that it is not so. The said regulation casts an obligation to disclose purchase or sale of the share capital of the target company to the target company and to the stock exchanges within two days of such purchase or sale if:
1) person is an acquirer;
2) that person has acquired shares or voting rights;
3) such acquisition is under sub-regulation (1) to regulation 11; and
4) purchase or sale aggregates two per cent or more of the share capital of the target company. To attract the provisions of regulation 7(1A), it is necessary that all the four conditions stipulated above are satisfied. We are unable to agree with arguments of the learned counsel for the respondent that all those persons who fall within the definition of acquirer, even if they have not acquired any share or are not person acting in concert, should also file declaration in terms of regulation 7(1A) of the takeover code. The purpose of declaration to the target company and to the stock exchanges where shares of the target company are listed is well served by the disclosure to be made by the acquirer who acquires the shares of the target company. A person who may fall within the definition of acquirer under the takeover code but has not acquired the shares and is not a person acting in concert with the person acquiring the shares is not obliged to make disclosure under regulation 7(1A) of the takeover code. In a given case, suppose there are 20 persons in a target company who may fall within the definition of acquirer under the takeover code and say only two of them have purchased or sold shares aggregating two per cent or more of the share capital of the target company and these two persons are not acting in concert with any of the other eighteen persons. If the argument of learned counsel for the respondent Board is accepted then all the twenty persons who fall within the definition of acquirer are required to make disclosure to the company as well as to the concerned stock exchanges. Such additional disclosure by eighteen persons who have neither purchased nor sold shares, nor are persons acting in concert with the two acquirers, serves no purpose. It is settled legal principle that a court should adopt that interpretation which is just, reasonable and sensible rather than that which is none of those things. A construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in the system which the statute purports to regulate has to be rejected and preference should be given to that construction which avoids such results. (Principles of Statutory Interpretation by G. P. Singh, 12th Edition 2010, pg.131- 132). A reasonable construction agreeable to justice and reasons is to be preferred to an irrational construction. The statutory provision is to be read in a manner so as to do justice to all the parties. Any construction leading to confusion and absurdity must be avoided. The construction that results in hardship, serious inconvenience or anomaly or gives unworkable and impracticable results, should be avoided [vide Corporation Bank v/s Saraswati Abharansala (2009) 1 SCC 540 and Sonic Surgical vs. National Insurance Co. Ltd. (2010) 1 SCC 135]. The fact that Indra Gulati did not acquire any share of the target company during the period in question is not in dispute. The adjudicating officer has not recorded any finding that there was any understanding or agreement, direct or indirect between O. P. Gulati and Indra Gulati to acquire the shares of the target company. In the absence of any such finding or material on record, we are of the view that the adjudicating officer erred in holding Indra Gulati guilty of violating regulation 7(1A) of the takeover code.
6. Now, coming to the case of O. P. Gulati, it was very fairly conceded by the authorised representative of the appellant that the said disclosure in respect of the three transactions about which the adjudicating officer has held him guilty were not made within the stipulated period. As stated above, his argument was that it is only a technical breach and no undue gain or undue advantage was taken either by the management of the target company or by the appellant and it has not caused any undue loss to the investors. Therefore, penalty imposed is not called for. We are unable to agree with this submission. In case there is a statutory requirement and there is non compliance of such requirements, the penalty must follow. Section 15A(b) of the Act provides that if any person, who is required under the Act or any rules or regulations made thereunder to file any return or furnish any information within the time specified fails to do so, he shall be liable to a penalty of ` 1 lac for each day during which such failure continues or ` 1 crore, whichever is less. In this case, minimum penalty of ` 1 lac has been imposed by the adjudicating officer. We do not find any fault with the same. In the result, appeal no. 165 of 2011 is allowed and appeal no. 185 of 2011 is dismissed with no order as to costs. Sd/- P. K. Malhotra Member Sd/- S. S. N. Moorthy Member 11.1.2012 Prepared & Compared by