Decided on January 29,2003



C.Achuthan, - (1.) APPELLANT No. 1 and APPELLANT No. 2 are companies incorporated under the Indian companies Act, 1913. APPELLANT No. 3 is a company incorporated under the laws of the State of Michigan, USA with its registered office in Ohio, USA. The APPELLANTs are the major shareholders in an Indian company viz. Axles India Ltd. (the target company). They are also the promoters of the target company. The target company decided to issue 61,20,000 equity shares of Rs.10/- each at par for cash on Rights basis to its equity shareholders as on 18.1.2001. The aforesaid issue opened on 29.1.2001 and closed on 27.2.2001. Pursuant to the said Rights offer the APPELLANTs applied for and were allotted shares of their full entitlement. The remaining shareholders did not apply for their full entitlement and the APPELLANTs acquired the unsubscribed portion of the Rights issue, as per the disclosure made in the Letter of Offer. As a result of acquisition of shares in the Rights issue, the promoters holding in the target company increased from 83.63% to 90.96% and the public shareholding came down to 9.04% from 16.37%. The acquisition is stated to be exempted in terms of regulation 3(1) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations) from the compliance of the requirements under Chapter III of the said Regulations. However, they failed to file the report under regulation 3(4) with the Respondent within the 21 days' time limit prescribed in the regulation. The report was filed only on 22.11.2001. The Respondent, on coming to know of the said failure on the part of the APPELLANTs decided to adjudicate the matter and for the purpose an adjudicating officer was appointed. The adjudicating officer, after enquiry confirmed the failure and imposed one lakh rupees as monetary penalty on the APPELLANTs. The order passed by the adjudicating officer on 21.5.2002 imposing the monetary penalty is under challenge in the present appeal.
(2.) Shri P. N. Kapadia, learned Counsel appearing for the Appellants explained the factual background of the case. He referred to the dates and events culminating in the issuance of the impugned order and the circumstances in which the shares were acquired by the Appellants in the Rights issue resulting in the increase of their total share holding from 83.63% to 90.96%. He submitted that it is an admitted fact that the acquisition of shares by the Appellants enjoyed exemption in terms of regulation 3(1)(b) and as such the requirement of making public announcement was not attracted. Learned Counsel submitted that the report required under regulation 3(4) was not filed with the Respondent as the Appellants were advised by the Lead Manager/legal adviser that filing of report under regulation 3 (4) was not required in view of the fact that at the time of acquisition of the Rights shares by them they were already holding more than 15% equity shares in the target company. In this context he referred to the requirement of the said regulation and stated that reporting was necessary only if the acquisition would entitle the acquirer to exercise 15% or more of the voting rights in the target company. He submitted that it was in the context of the process of public announcement that was to be made by the Appellants to acquire the remaining 9.04% shares from the public in terms of the requirement of the listing agreement, the requirement of reporting under regulation 3(4) brought to the notice of the Appellants by the Respondent, and thereupon immediately filed the report. Learned Counsel submitted that the acquisition of the shares was not done in any surreptitious manner. He submitted that the Appellants being the existing share holders were entitled to participate in the right issue, that the intention of the promoters to subscribe to the shares left unsubscribed by the public shareholders was disclosed in the Letter of Offer. He further submitted that since the response to the Rights issue was poor, as per the terms of the letter of offer, 747947 shares left unsubscribed by the public were also subscribed by the promoters, in addition to their rights entitlement of 51,17,887 shares. Learned Counsel submitted that on 7.11.2000 the Board of Directors of the target company passed a resolution to issue 6120000 shares on Rights basis that on 31.10.2000, i.e. prior to the said Board meeting the target company had intimated the Madras and Banglore Stock Exchanges about the said meeting and the proposed rights offer, that again immediately after the said Board meeting, the target company by its letter dated 7.11.2000 intimated the said two stock exchanges about the decision to issue 6120000 equity shares of Rs.10/- each at par on Rights basis to the existing shareholders of the company in the ratio of three new equity shares for every two equity shares held on the record date to be determined in consultation with the Stock Exchange. Learned Counsel submitted that before dispatching the letter of offer to its share holders in respect of the said Rights issue, the target company submitted a draft letter of offer in respect of the Rights issue to the Respondent in compliance with the SEBI (Disclosure and Investor Protection) Guidelines, that in the said letter of offer it was disclosed that "The promoters intend to subscribe to their rights entitlement in full. In the event of under subscription such unsubscribed portion will be subscribed by Spicer, SFL, WIL in the ratio of 2:1:1. Subscription beyond their entitlement is exempt under Regulation 3 (1)(b) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997."
(3.) LEARNED Counsel submitted that the draft letter of offer submitted to the Respondent and the Madras and Banglore Stock Exchanges and the final letter of offer dated 30.12.2000 contained substantially the disclosures required to be made in the report under regulation 3(4). He submitted that from the factual position relatable to the matter it is clear that the Appellants had no intention to suppress any material information from the Respondent that the detailed information relating to the acquisition of the shares by the Appellants in the Rights issue made by the target company was well within the knowledge of the Respondent, the stock exchanges and the share holders of the target company, that the unintentional delay involved in filing the report in terms of regulation 3(4) has not affected anybody's interest.;

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