Pearl Organics Limited Vs. Securities and Exchange Board of India - Court Judgment

Excerpt:
2. the respondent adjudicating and enquiry officer, securities and exchange board of india, vide impugned order dated may 12, 2004 has imposed a penalty of rs. 1,75,000/- against the appellant company pearl organics limited on the charge of violation of regulations 6(4) and 8(3) of sebi (substantial acquisition of shares and takeover) regulations, 1997. regulation 6 of these regulations deals with transitional provisions while regulation 8 deals with continual disclosures. these regulations are reproduced below: "6(1) any person who holds more than 5% shares or voting rights in any company shall within 2 months of notification of these regulations disclose his aggregate shareholding in that company to the company "6(2) every company whose shares are held by the persons referred to in sub-regulations (1) shall within 3 months from the date of notification of these regulations, disclose to al the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person. "6(4) every company, whose shares are listed on a stock exchange shall within 3 months of notification of these regulations, disclose to all the stock exchange on which the shares of the company are listed, the names and addresses of the promoters and/or person/s having control over the company and the number and percentage of shares or voting rights held by each such person." "8(1) every person including a person mentioned in regulation 6 who holds more than 15% shares or voting rights in any company shall within 21 days from the financial year ending 31st march make yearly disclosures to the company in respect of his holdings as on 31st march. "8(3) every company whose shares are listed on a stock exchange shall within 30 days from the financial year ending march 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st march." 3. the fact of violation of these regulations is not in dispute. the appellant has however, argued that the violation of regulation 6(4) was unintentional while the violation of regulation 8(3) was in the bonafide belief that the information contemplated in regulation 8(3) was not required to be submitted in the facts and circumstances of the case. these submissions were made by the appellant before the adjudicating officer as well and these have been duly taken note of in the impugned order. the adjudicating officer, however, has held that intention is not a relevant factor in matters of this nature and has thus proceeded to impose a penalty of rs. 1,75,000/- on the appellant company.4. we have carefully gone into the facts of the case. the appellant has argued during the hearing of the appeal that he had been regularly submitting the distribution schedule giving particulars of the members of the company holding more than 1% voting rights or equity shares of the company which would go to show that he had no intention whatsoever of concealing any facts from the investing public. we are inclined to agree with the appellant that there was no willful violation of the regulation in question but no such willful violation was ever alleged against them by sebi. if the information is required to be sent under regulation 6 or regulation 8 of the sebi (substantial acquisition of shares and takeover) regulations, 1997 it must be sent and filing of a distribution schedule in lieu thereof cannot be a legitimate defense.the appellant further argued during the hearing that the respondent has not taken due note of the factors outlined in section 15j of the sebi act while determining the quantum of penalty. on a perusal of the impugned order we find that although the adjudicating officer has mentioned section 15j in the operative part of the impugned order he has not discussed any of the factors outlined in section 15j which have to be mandatorily considered while adjudging the quantum of penalty.section 15j of the sebi act reads as under: "15j while adjudging 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; 5. it is obvious that none of these factors are applicable in the facts and circumstances of the present case. the fact of violation of regulation 6 and regulation 8, however, remains. the adjudicating officer's suggestion in the impugned order about having based his determination of the quantum of penalty which the appellant would have paid under sebi's regularisation scheme, 2002, is not legally sustainable because while passing the adjudication orders the adjudicating officer is obliged to follow the discipline of section 15j. the regularization scheme is not before us and we are not aware of what went into the framing of that scheme or the parameters of limitation thereof. it cannot, therefore, serve as a benchmark for determining the quantum of penalty where there are mandatory guidelines in section 15j. besides we have also noticed that while submission of information under regulation 6(4) was only a one time requirement the furnishing of information under regulation 8(3) is an annual requirement and the adjudication officer has therefore treated violation of regulation 8(3) as six annual violations for the period 1999-2000 to 2003-2004. in the facts and circumstances of the present case we regard this as a rather harsh calculation. we therefore pass the following order.6. the appeal is dismissed and the impugned order is upheld with the modification that the quantum of penalty is hereby reduced from rs. 1,75,000/- to rs. 50,000/-. the appellant seems to have already paid an amount of rs. 25,000/- in compliance with our interim orders. the balance amount of rs. 25,000/- shall be deposited by the appellant with sebi within a period of four weeks from the date of this order.

Judgment:
2. The respondent Adjudicating and Enquiry Officer, Securities and Exchange Board of India, vide impugned order dated May 12, 2004 has imposed a penalty of Rs. 1,75,000/- against the appellant company Pearl Organics Limited on the charge of violation of Regulations 6(4) and 8(3) of SEBI (Substantial Acquisition of shares and Takeover) Regulations, 1997. Regulation 6 of these regulations deals with transitional provisions while Regulation 8 deals with continual disclosures. These regulations are reproduced below: "6(1) Any person who holds more than 5% shares or voting rights in any company shall within 2 months of notification of these Regulations disclose his aggregate shareholding in that company to the company "6(2) Every company whose shares are held by the persons referred to in Sub-Regulations (1) shall within 3 months from the date of notification of these Regulations, disclose to al the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person.

"6(4) Every company, whose shares are listed on a stock exchange shall within 3 months of notification of these Regulations, disclose to all the stock exchange on which the shares of the company are listed, the names and addresses of the promoters and/or person/s having control over the company and the number and percentage of shares or voting rights held by each such person." "8(1) Every person including a person mentioned in Regulation 6 who holds more than 15% shares or voting rights in any company shall within 21 days from the financial year ending 31st March make yearly disclosures to the company in respect of his holdings as on 31st March.

"8(3) Every company whose shares are listed on a stock exchange shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March." 3. The fact of violation of these regulations is not in dispute. The appellant has however, argued that the violation of Regulation 6(4) was unintentional while the violation of Regulation 8(3) was in the bonafide belief that the information contemplated in Regulation 8(3) was not required to be submitted in the facts and circumstances of the case. These submissions were made by the appellant before the adjudicating officer as well and these have been duly taken note of in the impugned order. The adjudicating officer, however, has held that intention is not a relevant factor in matters of this nature and has thus proceeded to impose a penalty of Rs. 1,75,000/- on the appellant company.

4. We have carefully gone into the facts of the case. The appellant has argued during the hearing of the appeal that he had been regularly submitting the distribution schedule giving particulars of the members of the company holding more than 1% voting rights or equity shares of the company which would go to show that he had no intention whatsoever of concealing any facts from the investing public. We are inclined to agree with the appellant that there was no willful violation of the regulation in question but no such willful violation was ever alleged against them by SEBI. If the information is required to be sent under Regulation 6 or Regulation 8 of the SEBI (Substantial Acquisition of shares and Takeover) Regulations, 1997 it must be sent and filing of a distribution schedule in lieu thereof cannot be a legitimate defense.

The appellant further argued during the hearing that the respondent has not taken due note of the factors outlined in Section 15J of the SEBI Act while determining the quantum of penalty. On a perusal of the impugned order we find that although the adjudicating officer has mentioned Section 15J in the operative part of the impugned order he has not discussed any of the factors outlined in Section 15J which have to be mandatorily considered while adjudging the quantum of penalty.

Section 15J of the SEBI Act reads as under: "15J While adjudging 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; 5. It is obvious that none of these factors are applicable in the facts and circumstances of the present case. The fact of violation of Regulation 6 and Regulation 8, however, remains. The adjudicating officer's suggestion in the impugned order about having based his determination of the quantum of penalty which the appellant would have paid under SEBI's Regularisation Scheme, 2002, is not legally sustainable because while passing the adjudication orders the adjudicating officer is obliged to follow the discipline of Section 15J. The regularization scheme is not before us and we are not aware of what went into the framing of that scheme or the parameters of limitation thereof. It cannot, therefore, serve as a benchmark for determining the quantum of penalty where there are mandatory guidelines in Section 15J. Besides we have also noticed that while submission of information under Regulation 6(4) was only a one time requirement the furnishing of information under Regulation 8(3) is an annual requirement and the adjudication officer has therefore treated violation of Regulation 8(3) as six annual violations for the period 1999-2000 to 2003-2004. In the facts and circumstances of the present case we regard this as a rather harsh calculation. We therefore pass the following order.

6. The appeal is dismissed and the impugned order is upheld with the modification that the quantum of penalty is hereby reduced from Rs. 1,75,000/- to Rs. 50,000/-. The appellant seems to have already paid an amount of Rs. 25,000/- in compliance with our interim orders. The balance amount of Rs. 25,000/- shall be deposited by the appellant with SEBI within a period of four weeks from the date of this order.