1. This is an appeal against the order dated 4th February, 2002 passed by the Adjudicating Officer, by which a penalty of Rs.3 lacs has been imposed on the Appellant.
2. M/s. Hinditron Informatics Ltd, is a company incorporated under the Companies Act 1956 (the Company). The Appellant together with other members of the Karta's family (Sonawala group) originally held 34.55% of the paid up share capital of the company, and other promoters viz Gandhi group, Sanghivi group, and Shah group held 4.77%, 4.63% and 4.93% respectively. By 8.10.1997 the Appellant acquired 2,90,607 shares of the company from the Shah group. As a result, shareholding of the Shah group in the company dropped from 4.93% to 0.46%.
3. According to the Respondent's perception, the said acquisition by the Appellant was in excess of the limit of 2% prescribed in Regulation 11 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (the 1997 Regulations) and required public announcement for acquisition of shares from other shareholders. As the Appellant had failed to comply with the said requirements the Respondent decided to adjudicate the matter. For the purpose on 22.3.2000 an Adjudicating Officer was appointed (Shri P. Sri Sairam). Since he could not complete the adjudication, in his place another Adjudicating Officer (Ms. Poonam Bamba) was appointed. She was appointed on 15.11.2000. The Adjudicating Officer, after enquiry, viewed that the Appellant had failed to comply with the requirements of the Regulations, and based on that finding imposed a monetary penalty of Rs.3 lacs. Claiming to be aggrieved by the said order the Appellant has filed the present appeal.
4. Shri D.J. Kambatta, learned Counsel appeared for the Appellant. The Respondent was represented by Shri Ananta Barua, an Officer of the Respondent. They made oral submissions. They filed written submissions as well. The gist of the submissions made by them is as follows: On 20th August 1997, the Sonawala family purchased the shareholdings of the members of the Gandhi family and Sanghvi family (in the aggregate 9.40%). A report dated 5th September 1997 was made by the Appellant and Mr. Saurabh H. Sonawala in this regard to the Securities & Exchange Board of India ("SEBI"). SEBI took note of the contents of the said Report but did not take any other action with regard to the aforesaid acquisition. A copy of the said report was placed before the Adjudicating Officer (Shri Sai Ram) in the adjudication proceedings.
5. The Appellant vide letter dated 29/9/1997 intimated the Stock Exchange his intention to acquire a total of 2,90,607 equity shares (4.47%) from the Shah family, thereby reducing the total holding of the Shah family to 0.46% i.e.30,000 Shares and increasing the aggregate shareholdings of the Sonawala family from 45.32% to 49.812%. The Stock Exchange Mumbai was intimated on 29.9.1997 in terms of Regulation 3(3) of the 1997 Regulations. A formal Report dated 27th October 1997 was filed by the Appellant with SEBI in accordance with Regulation 3(4) of the 1997 Regulations.
6. By its letters dated 31st December 1997 and 22nd May 1998 SEBI sought clarifications from the Appellant in respect of the aforesaid acquisition. By its replies dated 23rd January 1998 and 9th June 1998, the Appellant furnished the required clarifications. The company also addressed a letter dated 28th June 1999 to SEBI furnishing certain information as required by SEBI.7. A show-cause notice dated 19th May 2000 ("the first show cause notice") was issued by Shri P. Sri Sai Ram the Adjudicating Officer appointed for the purpose of inquiring into the alleged contravention of Section 15H(ii) of the SEBI Act read with the proviso to Regulation 3(1)(e)(iii) (b) and Regulation 10 of the 1997 Regulations in respect of the aforesaid acquisition of shares. The Appellant responded to the show cause notice by making detailed submissions as to why there was no contravention as alleged.
8. Thereafter, for a long period of time there was silence and the Appellant believed that the Board being satisfied with the Appellant's replies had closed the matter. However, the Appellant received another show cause notice dated 28th June 2001 ("the second show cause notice") from another Adjudicating Officer, Ms. Poonam A. Bamba ("the second Adjudicating Officer"). The said notice referred to the First Show-Cause Notice and to the proceedings before the first Adjudicating Officer. Though the Appellant had by its reply dated 28th June 2000 brought to the attention of the Adjudicating Officer that Regulation 10 had no application to the facts of the case since the holding of the Appellant and all persons deemed to be acting in concert with the Appellant was far in excess of 10% (it was approximately 45.342%), the second Show-Cause Notice nevertheless continued to persist with the allegation that there had been a contravention of Regulation 10.
Additionally, the second Show-Cause Notice also alleged contravention of Regulations 6,7 and 8 of the Takeover Code.
9. By its letters dated 31st August 2001 and 28th December 2001 the Appellant again made its submissions and placed facts on record to establish that the alleged contraventions had, in fact, not taken place. These submissions were also made at a hearing held on 18th December 2001 granted by the Second Adjudicating Officer. Certain explanations and clarifications sought by the Second Adjudicating Officer at the said hearing were furnished vide letter dated 28th December 2001. The Respondent has confirmed at the hearing before the Appellate Tribunal that the order appointing the Second Adjudicating Officer was limited to the same inquiry for which the First Adjudicating Officer had been appointed.
10. The Adjudicating Officer vide her order dated 4th February 2002 has held the Appellant guilty of a contravention of Regulations 6(3) and 11(1) of the 1997 Regulations and imposed a penalty of Rs.3 lacs. The Appellant was found not guilty of Regulation 10. The impugned Order held that "in view of the acquirer along with persons acting in concert already holding more than 10% of the Shares/voting rights of HIL, the impugned acquisition by the acquirer, does not attract Regulation 10".
Moreover, the Impugned Order also held that the Appellant had complied with the provisions of Regulations 7 and 8. The contraventions found by the Impugned Order are of alleged non compliance with Regulation 6(3) and Regulation 11(1).
11. The Appellant submitted that Regulation 11 of the Takeover Code has no application for the following reasons: (i) Regulation 3(1)(e)(iii)(b) grants exemption from the applicability of Regulations 10,11 and 12 of the 1997 Regulations, to inter se, transfers of shares amongst "promoters". This is subject to two conditions being complied with and which are contained in the proviso to the aforesaid provisions; (ii) The provisions of Regulation 3(1)(e)(iii) are as follows:- "Regulation 3(1) - Nothing contained in Regulation 10,11 and 12 of these Regulations shall apply to:- Provided that the transferor(s) as well as the transferee(s) in sub-clauses (a) and (b) have been holding individually or collectively not less than 5 per cent shares in the target company for a period of at least three years prior to the proposed acquisition; Explanation:- The benefit of availing of exemption from applicability of Regulations for increasing shareholding or interse transfer of shareholding among.... promoters shall be subject to such .... Promoters filing statements concerning group and individual shareholding as required under Regulations 6,7, and 8; 12. The language of the proviso to Regulation 3(1)(e)(iii) is unambiguous. As per its plain grammatical meaning, inter se transfers of Shares amongst "promoters" are exempt provided the transferor(s) as well as the transferee(s) have been holding individually or collectively not less than 5% for a period of 3 years prior to acquisition. The word "have been holding" signify the plural and therefore qualify the Shareholding of both the transferor as well as the transferee, who between them "individually or collectively" must hold not less than 5%. The reference to "holding" being in the plural necessarily applies to both the transferor as well as the transferee.
This plain language is made clear by the addition of the word (presumably by way of abundant caution) "individually or collectively".
The use of the word "or" clearly signifies that the word individually and the word collectively are to be read disjunctively i.e. either the transferor individually or the transferee individually or both collectively must hold at least 5%. It is well settled that when the language used in a statute is unambiguous and on a plain grammatical meaning being given to the words in the statute, the end result is neither arbitrary, irrational or contrary to the object of the statute, then it is the duty of the Court to give effect to the words used in the statute, disclosing the intention of the law making authority.
(J.C. Patnaik Vs. State of Orissa, 1998, 4SCC 456 at para 24). It is also well settled that the word "or" is normally disjunctive and the word "and" is normally conjunctive. The reading of "or" as "and" is not to be resorted to unless some other part of the same statute or the clear intention of it requires that to be done. (Delhi Municipality vs.
Tekchand, AIR 1980-SC 360 para 11).
13. Far from the other provisions of the 1997 Regulations requiring the substitution of "or" with "and" in the fact, they bear out that the word "or" must be given a disjunctive effect. For example, Regulation 3(3) provides as under; "(3) In respect of acquisitions under clauses (c), (e), (h) and (i) of sub-regulation (1), the stock exchanges where the shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed acquisition, incase of acquisition exceeding 5 per cent or more of the voting rights of the company." 14. In case of the acquisition exceeding 5% of the Voting Share Capital of the Company", if the word "or" was to be read as "and" and therefore if the minimum 5% mentioned in the proviso was to apply to both the transferor and the transferee respectively, then all acquisition under Regulation 3(1) (e) (iii) would necessarily exceed 5% of the Voting Share Capital of the Company (since the transferor would have to be transferring at least 5%). In such case the requirements under Regulation 3(3) would apply to all acquisitions and it would be unintelligible why the said provision only purports to apply to such acquisitions under sub-clause (e) that exceeds 5%. This would only be so if the proviso is given its plain meaning and read as requiring the "minimum" of 5% to be taken for both the transferor and transferee together. It is only if such plain meaning is given that would make it possible that the acquisition from the transferor may be of Shares that are less than 5%. In such case Regulation 3(3) would not require intimation to the Stock Exchanges.
15. If SEBI had intended to apply the minimum requirement of 5% to the transferor and to the transferee respectively it could easily have said so by use of appropriate language. For example, the proviso could have read "..... both the transferor(s) (individually or collectively) and the transferee(s) (individually or collectively) should respectively hold not less than 5% Shares ........". SEBI has not done this and clearly did not intend to do so.
16. If a purposive interpretation is adopted, it would be clear that the true meaning of the proviso is to limit the exemption to cases where "genuine" promoters make, inter se, transfers of Shares amongst themselves. The object and reasons for the promulgation of the 1997 Regulation was set out in a circular issued by the Department of Economic Affairs, Ministry of Finance dated 4th November 1994, the relevant portion of which is extracted below:- "In the case of an open market takeover, the Regulations similarly provide that an acquirer shall not acquire an aggregate Shareholdings of more than 10% of the company's shares unless he makes a public announcement of his intention to acquire at least another 20% Shares in the company at a price not lower than the highest open market price paid by the acquirer or the average market price in the preceding six months. Such offer would provide an option to the existing Shareholders to sell their Shares if they do not have confidence in the likely new management of the company." 17. Even the Bhagwati Committee Report dated 18th January 1997 recognises that whilst takeovers of companies are a well accepted and established strategy for corporate growth and that free competition should thrive without government intervention, such critical processes should take place within an orderly framework of Regulations that provide fairness, transparency and protect the rights of Shareholder, inter alia, by providing an exit route option to them in cases where the management of a company is threatened to be changed by reason of substantial acquisition of Shares.
2. A relative of the "promoter" within the meaning of Section 6 of the Companies Act, 1956 (1 of 1956); and (ii) any company in which the "promoter" holds 10% or more of the Equity Capital or which holds 10% or more of the Equity Capital of the "promoter" or (iii) any corporate body in which a group of individuals or corporate bodies or combination thereof who hold 20% or more of the Equity Capital in that company also hold 90% or more of the Equity Capital of the "promoter" and (i) any company in which 10% or more of the Share Capital is held by the "promoter" or a relative of the "promoter" or a firm or Hindu Undivided Family in which the 'promoter" or his relative is a partner or co-parcener or a combination thereof; (ii) any company in which a company specified in (i) above, holds 10% or more of the Share Capital or (iii) any Hindu Undivided Family or firm in which the aggregate share of the "promoter" and his relatives is equal to or more than 10% of the total." A promoter could also be a person named in any offer document. The exemption granted under Regulation 3(1)(e)(iii)(b) is to all promoters not only promoters in control. Thus the Regulations deem promoters, whether in control or named in the offer document, who also hold shares of the minimum percentage of 5% to be "genuine" promoters. Obviously, a transfer, inter se, between them, would not affect the overall Shareholdings of the promoters even if it affects the holding of shares by any individual or group of transferors who may wish to exit since both the transfer as well as transferee would still be part of the "promoters".
19. The object and purpose of the 1997 Regulations and of grant of such exemptions is not sub-served by differentiating between individuals or constituents comprised in the promoters. The minimum requirement of 5% therefore attaches to the entire promoter group (in this case originally comprised of the Sonawala, Gandhi, Sanghvi and Shah families). It makes little difference to other Shareholders that the promoters, in all holding approximately 48% as aforesaid are now comprised of members of only the Sonawala family rather than also of the Sanghvi/Gandhi/Shah families or vice versa. That it is not the object of the 1997 Regulations to regulate shifts of control within promoters is borne out by the provisions of Regulation 12.
20. Two examples help illustrate the error of the interpretation placed by the Adjudicating Officer in the Impugned Order and that it does not sub-serve the purpose of the 1997 Regulations in any manner:- 21. Upon the interpretation placed by the Adjudicating Officer if a transferee promoter holding only 5.1% of the Issued Capital buys out a transferor promoter holding 9.9%, the acquisition would stand exempted under Regulation 3(1)(e)(iii)(b). However if a transferee promoter already holding 14.9% of the Equity Share Capital of a company (and thereby a more "genuine" promoter than the 5.1% transferee promoter) buys out a co-promoter (transferor promoter) holding 0.1% of the Equity Share Capital, such an acquisition would not be exempted. Such an example (albeit assuming extreme percentages) helps to illustrate that the interpretation advanced by the Adjudicating Officer is erroneous.
In the first case the transferee promoter was less "genuine" and had less control i.e. only 5.1% and was acquiring much more shareholding/control i.e. 9.9% in the second case the transferee promoter effectively already had control with 14.9% about as "genuine" a promoter as could be. Yet acquisition of a minuscule 0.1% of the Share Capital already held by a co-promoter, would, according to the Adjudicating Officer trigger Regulations 10, 11 and 12. It is not seen how such interpretation advances the intent and purpose of the Regulations.
22. Another example is in fact what has happened in the present case.
If the Sonawala family (holding 34.55% on 20th August 1997 i.e. more than 5%) had acquired the Shareholding of all the other three co-promoter families at the same time, it would have acquired in all approximately 14.33%. Thus the transferors would have held over 5% and the transferees would have also held over 5%. In such a case even on the interpretation placed by the Adjudicating Officer, the acquisition would have been exempt. However merely because this acquisition was in two parts, the first on 20th August 1997 and the second on 8th October 1997, the second part has been held not to be exempt. Again, how this sub-serves the object of the Regulations or protects small Shareholders is unintelligible.
23. The very test enunciated by the Adjudicating Officer herself in the Impugned Order is satisfied with greater vigour by the second case in example above, but which on an application of the impugned Order would not be exempt. The test laid down is that "In case there is a single transferor/transferee, then the single transferor/transferee should hold not less than 5% in the target company for a period of at least 3 years. In case of more than one transferor/transferee then they may individually or collectively hold not less than 5% shares in the target company for a period of at least 3 years prior to the proposed acquisition. The rationale behind this requirement is that, only the genuine person promoter who is holding a minimum stake in the company for a minimum period of time, is exempted in case, the acquisition involves only inter se transfer of shares amongst promoter. This condition of minimum stake of 5% was put in place to see that the person merely named as promoter and having a negligible shareholding in the company may not get the exemption and acquire substantial Shareholding/control over the company by buying the stake of other promoters without making an offer to exiting Shareholder. Thus, it is clear that both the transferor/s (individually or collectively) and transferee/s (individually or collectively) should be holding not less than 5% Shares in the target company for a period of at least 3 years, prior to proposed acquisition, to entitle the acquirer to avail of exemption as provided under Regulation 3(1)(e)(iii)(b)." 24. Since violation of the Regulations is a penal offence (as per Regulation 45(1) read with Section 24 of the SEBI Act) as per well settled principles any benefit of doubt in construction must go in favour of the party accused of the contravention. (Nambiar vs. state of Kerala AIR 1963 SC 1116).
25. In support of its interpretation, SEBI has relied upon the decision of this Tribunal in the case of Shin-Ho Petrochemical Co. Ltd . v. SEBI (2001) 31 SC L 29 (SAT -Mumbai) which ought not to be applied Shin-Ho to the present case as (i) Shin-Ho covered a case under Regulation 3(i)(e)(iii)(a) i.e. between two distinct classes recognized by the 1997 Regulations viz., Indian Promoters (Selling 4.86%) and a foreign collaborator (which held 51%). The Regulation did not require the foreign collaboration to also be a promoter. It was not a case under Regulation 3(i)(e)(iii)(b), such as the present, which concerns only one class i.e. "Promoters". Hence the terms " transferor(s)" and "transferee(s)" appearing in the proviso could have been applied to each of the two classes. Shin-Ho ought, to be restricted to such cases; (ii) Alternatively, that the reasoning in the decision in Shin-Ho be reconsidered by the Hon'ble Tribunal in the light of the submissions advanced on behalf of the Appellant that the Tribunal did not, whilst dealing Shin-Ho, have the benefit of considering the submissions made hereinabove. The submissions in Shin-Ho was limited.
26. The finding of violation of Regulation 11 is beyond the scope of the inquiry, and is also in breach of natural justice and without jurisdiction. The Second Show-Cause notice dated 28th June 2001 which culminated in the impugned Order, is issued in respect of alleged contravention of Regulation 6, 7, 8 and 10 of the 1997 Regulations. It has now been clarified that the order appointing the Second Adjudicating Officer was restricted to an inquiry of an alleged contravention under Regulation 10. The Adjudicating Officer had no jurisdiction or authority of law to pass any order on a finding of violation of any Regulation other than Regulation 10.
27. Furthermore the scope of the inquiry of the Second Show-Cause Notice (as indeed of the First Show-Cause Notice and the first inquiry) was limited to Regulation 10 and could not have traversed beyond that.
The Appellant was called upon to meet only a case under Regulation 10.
The replies filed by the Appellant and the submissions made were directed to answering a case of breach of Regulation 10. It is well settled that there would be a failure of natural justice if the enquiry and or the order went beyond the scope of or was based on grounds different to those stated in the Show-Cause Notice and traversed into areas beyond the parameters of the Show-Cause Notice (Tarlochan Dev Sharma v. state of Punjab (2001) 6 SCC 260.
28. This is all the more so since after the First show-Cause Notice alleging a violation or Regulation 10, the Appellant by its reply dated 28th June 2001 had expressly contended that Regulation 10 had no application. (A contention ultimately upheld in the impugned order).
Yet and with full knowledge of such contention the Second Adjudicating officer nevertheless persisted in issuing the Second Show-Cause Notice also under Regulation 10 and not under Regulation 11. In these circumstances it was beyond the authority of the Adjudicating Officer and contrary to natural justice to have come to any finding under Regulation 11 and such inquiry finding and order are without jurisdiction, null and void and nonest.
29. The contention of the Adjudicating Officer, that this was akin to mere mention of the wrong provision of law and that where there was power and authority such erroneous mention should not invalidate the order, is misconceived. It is not a case akin to the erroneous mentioning of an empowering section; it is a case where the very parameters and authority of the inquiry had been set by the order appointing the Adjudicating Officer and the Show-Cause Notices which were issued. Thus the decisions of the Hon'ble Supreme Court relied by the Adjudicating Officer in this regard are inapplicable and of no avail. The contention that no breach was caused to the Appellant by the order under Regulation 11 since, according to the Adjudicating Officer, nothing more would have been submitted by the Appellate in response to a show cause notice under Regulation 11 is untenable in law, apart from being speculative and unfounded. The very failure to direct the Show-Cause Notice and inquiry to Regulation 11 itself causes breach in law. Moreover it would be speculative and unfair to assume that the Appellant could not have made any further submissions with regard to Regulation 11. Such a violation of natural justice cannot be cured even at the Appellate stage. In any event and apart from the failure of natural justice, the issue is one of jurisdiction of the Adjudicating Officer and her authority, inter alia, to make any inquiry for violation of Regulation 11.
30. Admittedly, the disclosure under Regulation 6(3) was made by the Appellant's letter dated 18th September 1997 (page 84 of the Appeal) when it ought to have been made within two months from 20th February 1997, in other words, by about 20th April, 1997. However, the delay by a few months has not caused any loss to any person including the Shareholders of the Company and no such breach or loss is even alleged in the Show-Cause Notice. The Appellant sought condonation of such delay that such condonation ought to have been allowed in the circumstances of the case. The Appellant had in any event substantially complied with the disclosure requirements and the lapse/delay was inadvertent and not malafide. It was well known that the present promoters including the Appellant were in control of the Company.
31. The imposition of any penalty under Section 15J of the SEBI Act read with Rule 5(2) of the Securities and Exchange Board of India (Procedure for holding inquiry and imposing penalty by Adjudicating Officer) Rules 1995 ("the Penalties Rules") are not satisfied in the present case. According to Section 15J:- "While adjudicating quantum of penalty under Section 15-I, the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; "(2While adjudicating the quantum of penalty under Section 15-J, the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain of unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; 33. Neither the Show-Cause Notice nor the impugned order alleges or refers to any material on which it is possible to allege that the aforesaid requirements are satisfied in the present case.
34. In any event it is well settled that the imposition of any penalty in law including under the SEBI Act, requires it to be established that there was a "willful default" or "deliberate defiance" of the provisions to commit the offence. The principles enunciated by the Hon'ble Supreme Court in the case of Hindustan Steels AIR 1970, SC 253 (at para 7) and this Tribunal decision in (a) Cabot International Vs.
Adjudicating Officer 2001 CLC 549 (SAT) and (b) Samrat Holdings (2001) 2CLC,1046 (SAT) has been ignored by the Respondent.
35. These decisions have recognised the distinction between the ingredients for commission of the offence under SEBI Act. (which in certain cases is not required to include any mens rea) and the imposition of penalty which, with or without the requirement of mens rea, requires a "wilful default" or "deliberate defiance". In the present case, therefore, the imposition of penalty in any event is unjustified and ought to be set aside.Director of Enforcement v. MCTM Corporation Pvt. Ltd. (AIR 1996 SC 1100) which was cited by SEBI recognizes this distinction though under the Foreign Exchange Regulation Act 1973 ("FERA") mens rea was not an essential ingredient, it was nevertheless accepted (in Para 7 and 8) that "blameworthy conduct" on the part of the delinquent had to be established before penalty could be imposed. "Blameworthy Conduct" would be established if there was "wilful contravention" of the provisions of FERA , in other words "Wilful default"- the same test prescribed by the Hon'be Supreme Court in Hindustan Steel.
37. In the circumstances and for the reasons heretofore mentioned the impugned order dated 4th February 2002 be set aside.
In Regulation 3(1)(e)(iii)(b) of the 1997 Regulations, the words "transferor as well as transferee" have been used in order to indicate that in case of inter se transfer of shares amongst the promotes both the transferor-promoters and the transferee-promoters should have been holding individually not less than 5% in the target company for a period of at least 3 years. The words "'transferor' as well as 'transferee'" confirm that the transferor-promoters as well as the transferee-promoters should hold individually 5% of the shares in the target company. The interpretation as suggested by the Appellant will render the words "as well as" infructuous and otiose. Such interpretation which render any word otiose cannot be accepted.
In the Regulations, the transferor as well as transferee have been stated as transferor(s) as well as the transferee(s). The use of the bracket is very significant. The Regulation emphasises the words "transferor (s) as well as the transferee(s)" which indicate that the transferor(s) and the transferee(s) should separately hold at least 5% of the shares of the target company. The Regulations also seeks to cover the scenario or situation where there is more than one in any category, say more than one transferor, by using the word "individually or collectively". If there is more than one transferor or the transferee in such cases the transferor(s) and transferee(s) have to collectively hold 5% each separately for at least 3 years. The purpose of the Regulation is to permit exemption only to such promoters who have significant stake and has been promoters for a significant number of years. In terms of the Regulation, a person can be a promoter even if he has been shown as a promoter in the offer document without holding any stake in the target company. Exemptions cannot be given in such cases where the promoters are not holding any substantial stake.
This interpretation is also in line with the decision of the SAT in Shin-Ho Petrochemical Co. Ltd. vs. SEBI (2001) 31 SCL 29 (SAT-Mumbai).
The contention of the Appellant that Shin-Ho case is not applicable in the present case on the ground that it is applicable in case of transfer of shares amongst the Indian promoter and foreign collaborator cannot be accepted. The proviso to Regulation in 3(1)(e)(iii) covers both the situation in case of inter se transfer of shares amongst the Indian promoters and foreign collaborators as contained in sub-clause (a) as also to promoters in sub-clause (b). The proviso states that the transferor(s) as well as transferee(s) in sub-clauses (a) & (b) have been holding, individually or collectively, not less than 5% shares in the target company. Thus, the proviso qualifies both sub-clause (a) and sub-clause (b) and, therefore, the decision of the Hon'ble Tribunal will be squarely applicable in case of inter se transfer of shares amongst the promoters. If the interpretation of the Appellant is accepted, in such cases, the transferee(s) may acquire shares exceeding the creeping limit under Regulation 11 without compliance with Regulation 3(1)(ii)(iii)(b) of the Takeover Code thereby rendering Regulation 11 ineffective. Therefore, such interpretation cannot be accepted. If the interpretation of the Appellant is accepted, it may lead to acquisition of shares by person who is not holding any stake in the company but merely has been shown as a promoter. That may be detrimental to the interests of the investors as a person without any stake in the target company will be able to acquire the shares of the target company beyond the threshold limit without making a public offer.
38. The Adjudicating Officer was appointed to enquire into and adjudicate the alleged contravention of Regulation 3(1)(e)(iii)(b) read with Regulation 10 and Regulations 6,7 and 8 read with sub-section (ii) of section 15H of the SEBI Act, 1992 in the matter of acquisition of 2,90,607 shares by Shri Hemant S. Sonawala on October 8,1997. In this case, the acquisition of shares has led to alleged contravention of Regulation 3(1)(e)(iii)(b) and Regulation 11 and the section 15H(ii) of the SEBI Act, 1992. Whether the acquisition is under Regulation 10 or 11, it has led to violation of Regulation 3(1)(e)(iii)(b) and Section 15H of the SEBI Act, 1992, and, therefore, mere non mentioning of Regulation 11 of takeover Code will not be fatal as the same is covered under Section 15H of the SEBI Act. No prejudice has been caused to the Appellant by non-mentioning of Regulation 11. The reply / submissions made by the Appellant in respect of the applicability of Regulation 3(1)(e)(iii)(b) is equally applicable to Regulation 11. The reply of the Appellant would not have been different even if the Regulation 11 would have been expressly mentioned. The reply of Appellant in respect of breach of Section 15H of the SEBI Act and the applicability of Regulation 3(1)(e)(iii)(b) by the Appellant would have been same whether it is an acquisition existing under Regulation 10 or 11, that the whole proceeding should not be set aside on the technical ground.
More over no prejudice is caused to the Appellant. The well-established principle in law is that so long as any power is traceable to the statute concerned, the mere omissions or error in reciting the correct provision of law does not denude the power of the authority from the statutory action so long as its action is legitimately traceable to a statutory power governing such action. In this case, the power is traceable under Section 15H of the SEBI Act and Regulation 11 and therefore, non-mentioning of Regulation is not fatal. In this case, the following cases are relied upon in support of the above proposition (BSE Brokers' Forum, Bombay & ors. vs. SEBI - 2001(3) SC pg.482 - relying para 22); Peerless General Finance & Investments Co. Limited vs. RBI 1992) 2 SC pg.343; Union of India vs. Tulsiram Patel (1985) - 3 SC Cases - pg.398. Collector of Central Excise, Calcutta vs. Pradyumna Steels LtdMunicipal Corporation of City of Ahmedabad vs. Hiraben Manilal 39. As regard the violation of Regulation 6(3) there was delay of 4 months and 28 days in submitting the report to the target company by the Appellant. Thus, the investors have been deprived of timely information in respect of who were the promoters and what was their holdings in the target company. Thus, the investors have been deprived of timely information for taking timely investment or disinvestment decision in the target company and great loss has been caused to the investors. For delay in filing returns, mens rea need not be proved before the imposition of penalty under Section 15H of the SEBI Act, 1992 and in support of the above proposition, the following cases were relied:-(1) Directorate of Enforcement vs. MCTM Corporation Private Limited (AIRIncome Tax Commissioner, Gujarat vs.
I.N. Patel (AIR 1992 SC 762). In view of the above, the order of SEBI may be upheld and the appeal be dismissed.
40. According to the Respondent, the order is to be sustained for the above reasons.
I have carefully considered the submissions of the parties and material available on record. Even though the show cause notice issued to the Appellant had alleged violation of the provisions of Regulation 6,7,8 and 10, the Adjudicating Officer has held the Appellant guilty of violating the provisions of Regulation 6 and 11. Thus, out of the 4 charges levelled against the Appellant in the Show Cause Notice, only one charge i.e. failure to comply with the requirements of Regulation 6 has been held against the Appellant. However, in the impugned order the Adjudicating Officer has held the Appellant guilty of a new charge i.e.
violation of Regulation 11.
41. Regulation 6 is a transitional provision incorporated in the context of the notification of the 1997 Regulations repealing the 1994 Regulations. According to the said Regulation (1) Any person, who holds more than five per cent shares or voting rights in any company, shall within two months of notification of these Regulations disclose his aggregate shareholding in that company, to the company.
(2) Every company whose shares are held by the persons referred to in sub-regulation (1) shall, within three months from the date of notification of these Regulations, disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person.
(3) A promoter or any person having control over a company shall within two months of notification of these Regulations disclose the number and percentage of shares or voting rights held by him and by person (s) acting in concert with him in that company, to the company.
(4) Every company, whose shares are listed on a stock exchange, shall within three months of notification of these Regulations, disclose to all the stock exchanges on which the shares of the company are listed, the names and addresses of promoters and, or person(s) having control over the company, and number and percentage of shares or voting rights held by each such person.
42. The Adjudicating Officer in her order, with reference to the compliance of Regulation 6 by the Appellant has made the following observation: "(a) the acquirer's share holding in HIL on the date of regulations came into force, was 0.34% of the equity share capital of HIL. As discussed in para 2.1.1 above, Regulation 6 (a transitional provision) required any person, a promoter and a company who holds more than 5% of shares or voting rights or having control over the company or a company whose shares are so held, to inform the company and the stock exchange respectively, his aggregate shareholding/percentage of shares or voting rights, as the case may be within 2 months of the notification of the said Regulations (February 20, 1997) i.e. by April 20, 1997. The acquirer's shareholding being less than 5% of the share capital of HIL, they were therefore, not required to make any disclosures under sub regulation (1) of Regulation 6 of the said regulations.
(b) So far as compliance of sub regulation (3) of Regulation 6 is concerned, it is seen that the acquirer vide its letter dated 18.9.97 informed the company about the details of number and percentage of shares / voting rights held by the promoters or persons having control over the company. It is noted that in terms of Regulation 6(3), this information was required to be disclosed to the company by April 20, 1997, whereas, the same was submitted to the company vide their letter dated September 18, 1997. Therefore there was a delay of almost 5 months in making the requisite disclosure to the company. The acquirer, on being confronted with this fact during the personal hearing, sought some time to explain the said delay. Subsequently, vide their letter dated December 28, 2001 they submitted that the acquirer being one of the promoters of the company, its shareholding together with the persons acting in concert with them was known to the company and as such there was substantial compliance with the spirit of the said regulation.
Further submitted that in compliance with the provisions of the law in that behalf they had filed particulars relating to "relatives" with the company and as such the company was in the know of persons who were the acquirer's relatives and that such persons are deemed to be acting in concert with them. They further mentioned that all other requisite disclosures in term of the takeover code were duly filed by them with the concerned persons / authorities on or before the prescribed due date in that behalf and as such there was no malafide or dishonest intention behind the late filing of requisite particulars under Regulation 6(3). The same was never with a view to deny any information to any person entitled to receive the same or to cause any harm or prejudice to other shareholders. In the end, they also prayed that such delay be condoned and no penalty be imposed upon them in this regard. Admittedly, the acquirer has not filed the requisite statement under sub -regulation (3) of Regulation 6 with the company within the time specified therefore.
That is, the acquirer has failed to comply with sub regulation (3) of Regulation 6. So far as the acquirer's request for condonation of delay in furnishing the requisite information to the company is concerned, it may be mentioned that there is no provision under the said regulations to consider any such request. However, in any view of the matter, the acquirer is not eligible for exemption under item (b) of sub clause (iii) of clause (e) of sub Regulation (1) of Regulation 3, having not complied with the condition as contained in proviso to the Regulation 3(1)(e)(iii)(b)." 43. The Appellant has not disputed the Respondent's finding that it had failed to comply with the requirements of Regulation 6(3). The Appellant's contention is that the delay in making the said disclosure to the company was inadvertent and unintentional. The learned Counsel had submitted that since the Appellant is one of the promoters of the company and the shareholding of the Appellant was known to the company and as such there was substantial compliance with the spirit of the said regulation and particulars as required in terms of Regulation 6(3) was made known to the company. He had also submitted that the Appellant had made all other requisite disclosures including prior and post acquisition in terms of the 1997 Regulations to the concerned authorities by the prescribed time and as such there was no malafide or dishonest intention behind the late filing of requisite particulars under Regulation 6(3).
44. The Appellant's contention that the Appellant being a promoter of the company, its holding was in the knowledge of the company and as such there was substantial compliance is not acceptable. In this context it is to be noted that the Regulation itself requires the promoter to furnish the information. If the company of its own was to cull out the information from its records and report to the concerned stock exchange in terms of Regulation 6(4), the Regulation would not have required the promoter to furnish the information to the company.
Further, I do not see any "substantial compliance" by the promoter in this regard as the compliance was to be made within 2 months, but complied with belatedly. The 1997 Regulation was notified on 20.2.1997 and, therefore, compliance was to be made by 20.4.1997, but actually complied by 18.9.97. However, from the factual information furnished by the Appellant, it is evident that the delay was unintentional, and the Appellant of its own complied with the requirements. According to the Appellant the requirements of reporting under Regulation had been done.
It is also to be noted that the reporting was a transitional provision required to be complied with, by April 1997. The Appellant belatedly complied with the requirement - i.e. by September 1997. The Respondent has chosen to impose monetary penalty for the said failure almost after 5 years thereafter. Shri Khambatta has submitted that in the light of the facts specific to the case and following the principles laid down by the Hon'ble Supreme Court in Hindustan Ltd. penalty is not warranted for the failure. He had cited from Hindustan Steel that "An Order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation, is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." He had also cited the decision of this Tribunal in Cabot International (supra) and Samrat Holding. However, I do consider it necessary to examine the case laws cited by the parties on the imposition of the penalty. On a perusal of the order it appears that the Adjudicating Officer had decided to impose penalty only for violation of Regulation 11(1) and not for Regulation 6(3). It is evident from the following paras in the order: "Therefore, I proceed to refer to the contentions made by acquirer, the specific circumstances of this case and other factors in order to arrive at the quantum of penalty which may be imposed. The acquirer has strongly pleaded that their case is eligible for exemption and there has been no violations of the said Regulations by them and requested for dropping of the enquiry proceedings.
However, only in respect of delay in filing the requisite information under sub regulation (3) of Regulation 6 the acquirer has requested for condonation of delay in filing the same and has prayed for non imposition of any penalty in that regard pleading that there was no dishonest intention behind the late filing of the requisite particulars and was never with the view to deny any information to any person entitled to receive the same nor did it cause any harm, damage, injustice or prejudice to the other shareholders of the company." 45. It could be thus seen that she has not discarded the said submission or made any justification to impose penalty for violation of Regulation 6(3) as has been done with reference to violation of Regulation 11(1). In para 6.7 of the order violation of Regulation 11 has been explained and in para 6.8 the consequences of the failure and the penalty for the said failure has been quantified as Rs.3 lacs.
Relevant paras 6.7 and 6.8 from the order reads as follows: "It may be mentioned that the objectives of the said Regulations, inter alia, are equality of treatment and opportunity to all the shareholders and protection of the interest of shareholder etc.
Regulation 11 was put in place duly taking into account the fact that it may become necessary for the person(s) who already hold more than 10% of the voting rights of the company to consolidate their holdings. It was also recognised that there is a need to harmonise the consolidation of holdings by persons already holding substantial shares with the need to protect the interest of shareholders in a competitive free market environment. Thus, it was keeping in mind the need of such consolidation of holdings, Regulation 11 permitted the persons already holding shares above the threshold limit of 10%, to acquire additional shares or voting rights entitling him to exercise upto 2% of the voting rights in any 12 month period. Any such person acquiring more than 2% of the voting rights, shall attract the provisions of Regulation 11. In that case, the acquirer shall have to make public announcement to acquire such shares. The said requirement of making offer to the shareholders is to provide them an exit opportunity in case they choose not to continue with the company in view of the said acquisition of shares/ control by the acquirer. It would not be out of place to mention here that in the instant case, the acquirer himself is very mindful of these objectives as is indicated from their own submissions reproduced above in para 4(iv).
By not making public announcement for the impugned acquisition, the acquirer has deprived the shareholders of HIL of an opportunity to exit in case they wished to do so, in view of change in shareholding/control of HIL, taking into account the impugned acquisition by the acquirer. Thus, the shareholders/investors of HIL have been deprived of an opportunity and the acquirer has gained increased voting powers/control over HIL. Thus, in view of the findings made above, I am of the opinion that a penalty of Rs.3 lacs is commensurate in the facts of the instant case." 46. It thus appears that the total penalty imposed is only for the failure to comply with the requirements of Regulation 11(1) and the adjudicating Officer has not imposed any penalty for the failure to comply with Regulation 6(3). By an explanation in its reply the Respondent cannot supplement the order.
47. The Appellant's contention that he enjoys exemption under Regulation 3(1)(e)(iii)(b), in my view is not tenable. Regulation (3) provides exemption to certain acquisitions from the scope of Regulation 10, 11 and 12. One of such exemptions is provided in Regulation 2(1)(e). These are inter se transfer of shares amongst:- "(i) group companies, coming within the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (25 of 1969); (ii) relatives within the meaning of section 6 of the Companies Act, 1956 (I of 1956) (iii) (a) Indian promoters and foreign collaborators who are shareholders; Provided that the transferor(s) as well as the transferee(s) in sub-clauses (a) and (b) have been holding individually or collectively not less than 5% shares in the target company for a period of at least three years prior to the proposed acquisition.
Explanation.-The benefit of availing of exemption from applicability of Regulations for increasing shareholding or inter se transfer of shareholding among group companies, relatives and promoters shall be subject to such group companies or relatives or promoters filing statements concerning group and individual shareholding as required under Regulation 6,7 and 8." 48. It is seen that the Appellant had acquired 2,90,607 shares of the company from a co promoter i.e. the Shah group. The pre acquisition share holding of the Shah group (transferors) was 4.93 of the voting capital of the company i.e. less than 5% of the prescribed holding in the Regulation. I have very carefully considered the lengthy arguments in this regard advanced by the learned Counsel. The scope of Regulation 3(1)(e)(iii) was considered by this Tribunal in Shin-Ho Petro Chemicals Co. Ltd. V. Securities and Exchange Board of India (2001) 31 SCL 29 (Sat). Facts of the said case are that: "Shin-Ho a Corporation of South Korea was the foreign collaborator and joint venture partner in the company's business. The said Korean Company was holding about 13% of the paid up capital of the company.
In 1995-96, the said Korean company was taken over by Shin-Ho group, also of South Korea, and the name of the Korean company was changed to Shin-Ho Petrochemical Company Limited. As a result of the preferential issue of shares made by the company the foreign collaborator's holding in the company's capital increased to 51%.
Subsequently Government approval was obtained by the company to allot upto 74% of its capital to the said Shin-Ho Petrochemical Company Ltd., (the Appellant) . In 1997, the Appellant acquired 5,75,200 shares (accounting for 4.86% of the capital) from 26 Indian shareholders. The acquisition was reported to the Respondent by the company vide its letter dated 27.10.1997. In the said letter it was also stated that the transaction is exempted from the requirement of Regulation 11 etc., as it is covered under Regulation 3(1)(e)(iii) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ( the Regulations). However, the Respondent did not view that it was a transaction between the promoters and foreign collaborator entitling exemption and decided to enquire into the matter. Accordingly an Adjudicating Officer was appointed by the Respondent vide its order dated 4.8.2000 "to enquire into and adjudge contravention of sub section (ii) of Section 15H of the Securities and Exchange Board of India Act, 1992 (the Act) read with sub clause (iii)(a) of clause (e) of sub regulation (1) of Regulation 3 read with sub regulation (2) of Regulation 11 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997(the Regulations) by Shin-Ho Petrochemicals Co. Ltd., Korea, in the matter of acquisition of shares of Shin-Ho Petrochemicals (India)Ltd". "The Adjudicating Officer after inquiry came to the conclusion that the acquisition did not come under the purview of Regulation 3(1)(e)(iii) for availing the benefit of exemption from complying with the requirements of Regulation 11 and imposed a sum of Rs.5 lakhs as monetary penalty for violating the provisions of the said Regulation vide order dated 9.10.2000. The Appellant has challenged the said order in the present appeal.
The Tribunal considering the arguments put forward by the parties observed: As could be seen from the text of Regulation 3(1)(e)(iii) extracted above that to avail exemption under sub clause (iii) " the transferor(s) as well as the transferee(s) in sub clause (a) and (b) have been holding individually or collectively not less than 5% shares in the target company for a period of at least three years prior to the proposed acquisition". Even if it is assumed for argument sake that the transferors are promoters, that by itself is not enough to avail exemption. Size of their pre-acquisition holding is also relevant. The Appellant's submission that since the promoters and foreign collaborators were holding 24.58% and 51% of the share capital of the company respectively before the transfer, the requirement is fully met with, is difficult to accept. The proviso refers to the holding of shares by the actual transferor(s) and transferee(s) and not the total holding of the promoter group to which the transferors stated to belong, as well as the total holding of the foreign collaborators as a whole. It is evident from the factual position made available in the proceedings, that even though the promoter group as a whole was holding 24.58% of the share capital, the holding of the transferors was just 4.86% which is less than the minimum of 5% shareholding stipulated in the regulation.
Since the benefit of exemption under Regulation 3(1)(e)(iii) is available only on fulfillment of the requirement of the stipulated 5% pre acquisition holding by the transferor(s) as well as the transferee(s) and that in the instant case the transferors' holding was short of the said minimum, the acquisition fails to get the benefit of exemption available under Regulation 3(1)(e).
Consequently the exemption from complying with the requirements of Regulation 11 is also not available to the Appellant. In any case for want of adequate shareholding by the transferors, as stipulated in the proviso to the Regulation 3(1)(e)(iii), exemption is not available to the acquisition, I do not consider it necessary to look for a definite answer to the question as to whether the transferors are promoters or not, for the purpose of disposing the present appeal. Even if it is established that they are promoters, still the exemption would not be available to the transaction for the reason stated above." 49. Shri Khambatta's argument that the said decision was in the context of transfer of shares inter se Indian promoters and foreign collaborators and not interse the promoters as in the present case. In this context it is to be noted that in the proviso it has been stated that "the transferor(s) as well as the transferee(s) in sub clause (a) and (b) have been holding individually or collectively not less than 5 percent shares in the target company for a period of at least three years prior to the proposed acquisition" making clear that the requirement is applicable to interse transfer of shares amongst (a) the Indian promoters and foreign collaborators who are share holders and (b) promoters. Learned Counsel had also submitted that the argument advanced by him were not available to the Tribunal when Shin-Ho was decided, therefore, the decision need be considered. I have carefully considered the submission made by the learned Counsel. I do not find any support from the learned Counsel's arguments to reconsider the Tribunal's decision in Shin-Ho.
50. The whole thrust of the learned Counsel's argument on availability of exemption provided under Regulation 3(1)(iii)(b) was to avail of exemption from complying with the requirements of public announcement to acquire shares from the other shareholders of the company. However, the exemption provided under Regulation 3(1)(e) is available not merely on satisfying the condition of the minimum shareholding of 5% stipulated in the proviso, but also subject to compliance of the requirement of Regulations 6,7 and 8. Since it is an admitted fact that the Appellant had not complied with requirement of Regulation 6, the exemption is not available to the acquisition. In this context it is to be noted that in terms of the explanation to Regulation 3(1)(e)-"The benefit of availing of exemption from applicability of Regulations for increasing shareholding or inter se transfer of shareholding among group companies, relatives and promoters shall be subject to such group companies or relatives or promoters filing statements concerning group and individual shareholding as required under Regulation 6,7 and 8." Therefore, the statement has to be filed as required under the concerned regulation. As per Regulation 6(3) " A promoter or any person having control over a company shall within two months of notification of these Regulations disclose the number of percentage of shares or voting rights held by him .............." So the requirement is to disclose the information within two months of the notification of the Regulation and since the Appellant had admittedly failed to fulfill the said condition exemption even if otherwise available would not be available and, therefore, the Appellant is required to comply with the requirements of Regulation 10, 11, 12, as the case may.
51. It is seen that in the first show cause notice and in the second notice, one of the charges was non-compliance of the requirement of Regulation 10. The Adjudicating Officer has absolved the Appellant of the charge of violating Regulation 10 by observing that "it is seen that Regulation 10 mandates public announcement to acquire shares, in case the acquirer proposes to acquire such number of shares or voting rights which taking together the shareholding / voting rights of persons acting in concert with him, shall entitle the acquirer to exercise 10% or more of the voting rights in the target company.
Regulation 10, therefore, requires public announcement in cases where the acquirer is reaching / crossing the threshold limit of 10% of shares / voting rights in the company. It is observed from the record that the acquirer / transferee alongwith persons acting in concert (Ms Rekha S. Sonawala (wife), Paula S. Sonawala (daughter & others) was holding about 40% of the shares / voting rights of HIL on the date of impugned acquisition, In view of the acquirer alongwith persons acting in concert already holding more than 10% of the shares / voting rights of HIL, the impugned acquisition by the acquirer does not attract Regulation 10." So the Appellant was discharged on the count.
52. But, the Adjudicating Officer has held the Appellant guilty of violating Regulation 11(1). It is seen that not only violation of Regulation 11(1) was put in the show cause notice, but even in the enquiry proceedings also this was not pointed out to the Appellant. The Adjudicating Officer has observed in the order "Rather, the said acquisition of 4.47% of the shares / voting rights of HIL by the acquirer, attracted the provisions of sub regulation (1) of Regulation 11, which reads as under:- "No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, not less than 10% but more than 51% of the share or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional share or voting rights entitling him to exercise more than 2% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations" "Thus, the acquirer already holding not less than 10% but more than 51%, having acquired additional 2,90,607 shares entitling him to exercise 4.47% i.e. more than 2%, of the voting rights, attracted the provisions of sub regulation (1) of Regulation 11. As can be seen from sub regulation (1) of Regulation 11, to acquire such further percentage of shareholding, the acquirer was required to make a public announcement as mandated therein.
It is noted that SEBI has made a reference to a wrong provision i.e.
Regulation 10 whereas, the acquirer has violated sub regulation (1) of Regulation 11. The impugned acquisition by the transferee falls within sub regulation (1) of Regulation 11 and the same is also evident from the acquirer's own submission that - "....the pre-acquisition shareholding of Hemant Sonawala HUF together with persons acting in concert was already in excess of 10% of stipulated in Regulation 10(1)...." It is also noted that the acquirer itself approached SEBI vide its letter dated October 27, 1997 (referred to above in para 5.1.2) reporting to SEBI about the impugned acquisition and mentioning that ".....aforesaid acquisition is exempted from SEBI regulations being inter se transfer of shares amongst the promoters .. aforesaid acquisition was made under clause (e)(iii)(b) of sub regulation (1) of Regulation 3 of the aforesaid regulations....." "It may be mentioned that Regulation 3 carves out exemption from making public announcement as required under Regulations 10,11 and 12. Regulation 3(1)(e)(iii) as reproduced above lays down that - nothing contained in Regulations 10, 11 and 12 of these Regulations shall apply to inter se transfer of shares amongst promoters, subject to the conditions as contained in the proviso and explanation to Regulation 3(1)(e)(iii). From the fact that the acquirer itself sought exemption under the said provision, it can be inferred that they were aware that the impugned acquisition by them has triggered the said regulations and they are required to make public announcement for the same unless exempted under Regulation 3(1)(e)(iii)(b) of the said regulations. I also observe that both, Regulation 10 and Regulation 11(1), require making of public announcement and non compliance thereof attracts penalty under clause (ii) of Section 15H. That is, the penalty for violation of both the provisions is the same. It is also seen that the Supreme Court in the case of Municipal Corporation of the City of Ahmedabad vs. Ben Hiraben Manilal (AIR 1983 SC 537), where the show cause notice was issued under a different provision, held that the exercise of a statutory power will assume validity under a proper provision under jurisdiction even if a different or wrong provision is referred to. The same view has been upheld by the Supreme Court in a subsequent case of Collector of Central Excise, Calcutta vs.
Pradyumnna Steel Ltd.,(1996(82) E.L.T. 441 (S.C.) where the court observed that mere mention of wrong provision of law when power exercised is available even though under a different provision, is by itself not sufficient to invalidate exercise of that power.
In view of the above, though the Board has referred to Regulation 10 instead of sub regulation (1) of Regulation 11 and accordingly show cause notice issued to the acquirer also referred to Regulation 10, I feel that the same does not vitiate the present proceedings.
The acquirer, as found above, was required to make public announcement under sub regulation (1) of Regulation 11. Having failed to make the public announcement for impugned acquisition of 2,90,607 shares of HIL, the acquirer is liable to penalty as prescribed under clause (ii) of Section 15H of the said Act. Section 15H (ii) prescribes a maximum penalty of Rs.5 lacs for the said violation." 53. In this context it is considered necessary to have a look at regulation 10, 11 and section 15H of the Act.
Regulation 10. 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.
Regulation 11-(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15% or more but less than 75% of the share 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% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.
(2), No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 75% of the shares or voting rights in a company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights, unless such acquirer makes a public announcement to acquire shares in accordance with regulations." Section 15H. Penalty for non-disclosure of acquisition of shares and takeovers.
54. If any person, who is required under this Act or any rules or regulations made there under, fails to - (i) disclose the aggregate of his share holding in the body corporate before he acquires any shares of that body corporate; or (ii) make a public announcement to acquire shares at a minimum price, he shall be liable to a penalty not exceeding five lakh rupees." 55. I have perused the case law cited by the Respondent in this regard, and I find the same of little help to the Respondent to support its contention.
56. It is true that Section 15H (ii) provides penalty for failure to make a public announcement to acquire shares at a minimum price. The said penalty is common to failure to comply with the requirements of Regulation 10, 11 and 12. But then it has to be noted that even though the penal section as applicable to Regulation 10, 11 and 12, is common, the ingredients of these three Regulations are not common. The facts which the Adjudicating Officer has to take into consideration while examining the compliance of these regulations are different in respect each of the said three Regulations. Regulation 10 is on substantial acquisition of shares. Regulation 11 is on consolidation of holdings or on creeping acquisition as commonly described and Regulation 12 is on acquisition of control. Therefore, during the course of the enquiry, if the Adjudicating Officer felt that the Appellant had not violated the provisions of Regulation 10, but the material information collected during the enquiry indicated violation of Regulation 11, the proper course would have been, following the procedure, to issue a notice to the Appellant seeking explanation regarding violation of Regulation 11, and come to the conclusion after considering the Appellant's submission in that regard. The stand taken by the Adjudicating Officer that Regulations 10 and 11(1) require making of public announcement and non compliance thereof attracts penalty under clause (ii) of Section 15H and, therefore, penalty for violation of Regulation 11 can be imposed, though show cause notice did not mention violation of Regulation 11, is untenable. It is not a mere mention of wrong provision of law. The nature of charge itself is distinct. The contention that "by not putting the Appellant on notice regarding violation of Regulation 11, principles of natural justice have not been failed as nothing more would have been submitted by the Appellant in response to a show cause notice under Regulation 11," is a presumption. The Adjudicating Officer can not prejudge the issue. The Adjudicating Offices finding that Regulation 11(1) has been violated is an exparte decision.
57. The finding of violation of Regulation 11 in the present adjudication proceedings is beyond the scope of the show cause notice and can not be sustained. In case the Respondent wants to proceed against the Appellant for the alleged violation of Regulation 11 they are at liberty to take fresh proceedings for the same in accordance with law.