SATYADEVA PRAKASH SINHA Vs. SECURITIES & EXCHANGE BOARD OF INDIA
LAWS(SB)-2003-4-7
SECURITIES APPELLATE TRIBUNAL
Decided on April 01,2003

Appellant
VERSUS
Respondents

JUDGEMENT

C.Achuthan, - (1.) THE Respondent vide its order dated 31-5-2002 appointed an adjudicating officer for holding an enquiry into the alleged violation of the provisions of Regulation 3(3) and 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations) read with Section 15A(a) and 15A(b) of the Securities and Exchange Board of India Act, 1992 (the Act) with reference to acquisition of shares of Jenson & Nicholson India Ltd. (the company) by the Appellants. On 31-5-2000. THE company issued Optionally Convertible Debentures (OCDs) on preferential allotment basis to the promoters. THE terms of issue of OCDs provided that 50% of the OCDs were compulsorily convertible into equity shares at the end of 18 months and the balance 50% at the end of 18 months at the exercise of the option by the investors. THE OCDs allotted to the Appellants were converted into equity shares on 15-2-2001. As a result of the conversion the Appellants acquired 71,56,345 equity shares of Rs. 2 each in the company. Consequently the shareholding of the Appellants - i.e. the promoter group - in the company's paid-up capital increased from 34.99% to 44.8496. THE said acquisition, being by way of preferential allotment made in terms of Section 81(1A) of the Companies Act, 1956, enjoyed exemption from complying with the requirements under Chapter III of the Takeover Regulations by virtue of the provisions of Regulation 3(1)(c). However, according to the Respondent, the Appellants failed to report the details of the acquisition to the concerned stock exchange and the Respondent as required in terms of Sub-regulations (3) and (4) of Regulation 3, respectively. It was in the said context the Respondent decided to adjudicate the matter and for the purpose appointed an adjudicating officer.
(2.) The adjudicating officer after conducting enquiry, viewed that the Appellants had failed to comply with the requirement of Regulation 3(3) and 3(4) of the Takeover Regulations read with Section 15A(a) and (b) of the Act. He imposed a sum of Rs. 2,43,000 and Rs. 1,00,000 as penalty for violation of Regulation 3(3) and 3(4) respectively, The adjudicating officer's order dated 13-8-2002 holding the Appellants guilty of violating Regulation 3(3) and Regulation 3(4) and his order imposing monetary penalty is under challenge in the present appeal. Shri Bharat Merchant, learned Counsel appearing for the Appellants submitted that the Appellants are the promoters of the company and they are also managing it. He submitted that they were holding about 35% of the paid-up capital of the company even before they converted the OCDs, that on acquiring shares after conversion of the OCDs their holding in the company's capital increased to 44.84%. Shri Merchant submitted that as per Regulation 3(1)(c) preferential allotment made in terms of Section 81(1A) of the Companies Act is an exempted acquisition from the purview of Regulations 10, 11 and 12, that the instant acquisition being by way of preferential allotment made by the company, the same enjoyed exemption in terms of Regulation 3(1)(c), from complying with the requirements of Regulations 10, 11 and 12. He referred to Regulation 3(1)(c) and submitted that as required by the said regulation the Board of Directors of the company in their meeting held on 28-1-2000, passed a resolution for issue of the OCDs on preferential basis, that the shareholders in their extraordinary general meeting held on 1-3-2000 approved the proposal for issue of the OCDs, on 29-5-2000 the OCDs were allotted, on 15-2-2001 the Appellants opted for full conversion of the OCDs allotted to them, they were allotted 71,56,345 shares of Rs. 2 each. Consequently the Appellants' holding in the company's paid-up capital increased from 34.99% to 44.8496. He submitted that the requisite report with details under Regulation 3(4) was submitted to the Respondent on 11-12-2001.
(3.) LEARNED Counsel submitted that it is an admitted fact that the acquisition in question is exempted in terms of Regulation 3(1)(c) being preferential allotment. He submitted that the exemption is available to preferential allotment, made in pursuance of a resolution passed under Section 81 (1A) of the Companies Act and subject to the compliance of the requirement stipulated in the proviso to the regulation that :-- "(i) board resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board; (ii) full disclosures of the identity of the class of the proposed allottee(s) is made, and if any of the proposed allottee(s) is to be allotted such number of shares as would increase his holding to 5 per cent or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the general meeting called for the purpose of consideration of the preferential allotment;".;


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