2. The appeal is against the impugned order dated June 8th, 2004 passed by the Adjudicating Officer, SEBI under section 15T of the SEBI Act, 1992. The order dated June 8th, 2004 of the Adjudicating Officer, SEBI passed against the appellant inter alia read as under: " I hereby impose a penalty of Rs.4.00 lacs on the acquirer for violation of Regulation 7(1) read with Clause (b) of Section 15A of the Securities and Exchange Board of India Act, 1992. The acquirer i.e. NNV Finance Ltd., shall pay this amount of penalty of Rs.4.00 lacs (Rupees four lakh only) by way of Demand Draft drawn in favour of 'SEBI - Penalties Remittable to Govt. of India', payable at Mumbai, immediately on receipt of this order.." 3. On December 3, 2003, SEBI issued a show cause notice to the appellant as to why action under section 15A(b) of the SEBI Act should not be taken against them for violation of the provisions of Regulation 7(1) of the Takeover Regulations. The appellants replied to the said show cause notice vide their letter dated December 15, 2003.
4. SEBI granted a personal hearing to the appellants and after granting extension sought by the appellant the personal hearing was held on January 22, 2004 wherein the appellant made submissions to the effect that they have not violated any provisions of the Takeover Code.
5. The brief facts of the case is that the appellant is a company incorporated under the provisions of Companies Act, 1956. The appellant acquired 7,35,000 equity shares of the target company namely M/s.
Deversa Gaschem Ltd., in the following manner: a) 5,35,500 equity shares transferred on December 2, 2002, constituting 10.2% of the target company's paid up equity and voting share capital.
b) 1,99,500 equity shares transferred on December 18, 2002, constituting 3.8% of the target company's paid up equity and voting share capital.
According to the provisions of Regulation 7(1) of the SEBI Takeover Regulations, whenever the acquirer acquires shares or voting rights which would entitle him to more than 5% or 10% or 15% shares or voting rights in a company then the acquirer shall disclose at every stage the aggregate of the shareholding or voting rights in that company to that company as well to the Stock Exchanges where the shares of the target company are listed. According to the Respondent the appellant has not adhered to the above regulations and as a result attracted a penalty under the relevant provisions.
It is admitted that the appellant had acquired 7,35,000 shares representing 14% of paid up equity and voting share capital of the target company in two phases as mentioned above. In the first instance it acquired 5,35,500 equity shares transferred on December 2, 2002, constituting 10.2% of the target company's paid up equity and voting share capital and again on December 18, 2002,it acquired 1,99,500 equity shares constituting 3.8% of the paid up equity and voting share capital of the target company. Under Regulation 7(1) the appellant has to make disclosures to the stock exchanges where the shares of the target company are listed when they acquire shares that would entitle them to more than 5% or 10% or 14% shares or voting rights in a target company further requires the acquirers to disclose it at every stage.
As the acquirer acquired 5,35,500 shares of the target company on 2nd December, 2002 and the said acquisition constitutes 10.2% of the paid up equity and voting share capital of the target company thereby exceeded the bench mark limit of 10% as specified in regulation 7(1) on 2nd December, 2002. On acquisition of additional 1,99,500 shares on 18th December, 2002 the shareholding of the acquirer has gone up from 10.2% to 14%. The requirement as per section 7(1) is that the acquirer has to make necessary disclosures at each stage whenever the acquisition resulted in its shareholding exceeding the limits of 5%, 10% and 14%. The second acquisition of 1,99,500 shares on 18th December, 2002 by the acquirer does not entitle the acquirer to more than 14% shares or voting rights in the target company and accordingly on 18th December, 2002 when the acquirer acquired additional 1,99,500 shares regulation 7(1) was not attracted.
6. The target company is listed on the Stock Exchanges of Mumbai, Ahmedabad and Jaipur. The acquirer attracted the provisions of regulation 7(1) and ought to have made disclosures to the target company and also the stock exchanges at Mumbai, Ahmedabad and Jaipur.
7. The acquirer has submitted that the necessary intimation was sent to the Stock Exchange Mumbai vide their letter dated 4/12/2002 by fax with a copy marked to the company. They have produced copy of the Official Bulletin of exchange which however, did not bear any certification of the exchange. Subsequently the acquirer produced copy of letter dated February 3, 2004 of the Stock Exchange, Mumbai wherein exchange confirmed receipt of letter from the acquirer dated 4/12/2002 on the same day informing that the acquirer company had acquired 5,35,500 equity shares of the target company on 2/12/2002 which is equivalent to 10.2% of equity share capital of the target company.
8. With regard to submission of disclosures to other 2 stock exchanges namely Ahmedabad and Jaipur the appellant submitted during the personal hearing that the letters were faxed to the said exchanges and did not furnish any evidence thereof to the Respondent. The appellant subsequently vide their letter dated January 31, 2002 furnished copies of letters dated 4/12/2002 stated to have been sent to these two stock exchanges and also copy of proof of dispatch of the said letters to the exchanges. The Respondent has found on perusal of the copy of proof of dispatch submitted by the appellant that the said letter was sent under certificate of posting. The respondent in this context cited the Supreme Court in Gadakh Yashwantrao v. E. V. Alias Bala Saheb Vakil (1994) 1 SCC 682 wherein it has been observed that "the certificate of posting being easily obtainable cannot be relied upon". The appellants in this regard submitted that this was not the ratio decidendi of the said case and was only obiter dicta and as such will not apply to the appellants. In the light of the above Judgement and in the absence of any further evidence the Respondent found it difficult to accept the contention of the appellant that they have made necessary disclosures to the said two exchanges as required under regulation 7(1).
9. The appellant has submitted to the respondent that no trading has been taking place in Ahmedabad and Jaipur stock exchanges since a long time.
10. The respondent has stated that from the point of view of the outside shareholders, acquisition of shares by the appellants making them one of the major shareholders in the company, is a very important information as it would have prompted them to sell or buy shares activating trading. It is difficult to come to a firm conclusion as to how the general shareholders would have reacted on knowing the acquirer becoming one of the major shareholders in the company. The fact remains that the outside shareholders were deprived of the important information at the relevant point of time. Hence the appellant has failed to comply with the requirement of notifying to the stock exchanges under regulation 7(1).
11. Heard both parties. This Tribunal in Cabbot International v. SEBI held that where the violation is of technical nature and due to bonafide error the Tribunal should not consider imposing heavy penalty and should help in pointing out the defect to the appellant so that it does not recur again and the Tribunal declined to impose any penalty in that case as there was substantial compliance. This order of this Tribunal was confirmed by the Bombay High Court.
13. Referring to the Supreme Court Judgement, we find that Supreme Court has not stated that the Certificate of Posting should be disbelieved in every case. In the present case the Certificate of Posting is of the same date to all the stock exchanges. Therefore, when one stock exchange viz. Mumbai stock exchange has admitted having received the communication, there is a strong presumption that the other two exchanges viz. Ahmedabad and Jaipur should have received it.
In any case the Respondent has not produced any evidence to counter this presumption. The impugned order does not mention that enquiries have been made by the Respondent with Ahmedabad and Jaipur Stock Exchanges or that these two exchanges have denied having received the intimation.
14. The adjudicating officer has imposed a total penalty of Rs.4,00,000/-. Taking into consideration the totality of the facts and circumstances of the case and taking all facts under section 15J of the Act into consideration, we are of the view that no case is made out against the Appellant. The appeal is, therefore, allowed and the impugned order dated June 8, 2004 is set aside. If any amount is paid, the said amount be refunded by the Respondent as expeditious as possible. No order as to costs.