Decided on January 29,2003



C.Achuthan, - (1.) THE Respondent's order dated 19.8.2002 holding the Appellant guilty of not complying with the reporting requirements under certain provisions of chapter II of the Securities and Exchange Board of India ( Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations) and the consequential imposition of monetary penalty is under challenge in the present appeal.
(2.) The Securities and Exchange Board of India, (SEBI) on noticing that the Appellant had failed to comply with the reporting requirements under regulations 6(2), 6(4) and 8(3) of the 1997 Regulations decided to refer the matter for adjudication and for the purpose an Adjudicating Officer was appointed vide order dated 17.6.2002. The said Adjudicating Officer issued show cause notice to the Appellant and carried out necessary enquiries and concluded that the Appellant had failed to comply with the requirements of regulations 6(2), 6(4) and 8(3) and in that context imposed a penalty of five lakh rupees on the Appellant. Shri R. Sethuraman, authorized Representative of the Appellant submitted that the Appellant had not intentionally suppressed any material information, which was to be disclosed under the regulations that the Appellant on its own had disclosed the belated reporting in the letter of offer issued by it in the context of the public offer made by it relating to the acquisition of shares in ETC Networks Ltd., that a copy of the same was filed with SEBI and it was on the basis of the self disclosure made therein by the Appellant adjudication was ordered by the Respondent. He submitted that the fact that the Appellant itself had disclosed voluntarily the default, goes to prove the bonafides of the Appellant, that if it had not so disclosed, perhaps SEBI would have never noticed the failure and proceeded against for such failure. Shri Sethuraman submitted that the delay in reporting was because of the reason that the 1997 Regulations was new and that it took some time for the Appellant to set up the system to regularize and ensure filing of the return within the time specified and that it was not a wilful default. He submitted that the failure to comply with the reporting requirement was common and the Respondent also knew about the magnitude of such failures and that is why it took a pragmatic view and offered a regularization scheme to enable the defaulting entities to make good the defaults by filing the reports by paying a nominal amount of ten thousand rupees that the Appellant is also entitled to the said relief.
(3.) LEARNED Representative read out extensively from the text of the "SEBI Regularization Scheme, 2002" (the Scheme) permitting the entities who had not made disclosures or had made belated disclosures enabling them to make disclosures/get the delay condoned by paying the lumpsum amount specified in the Scheme, that the amount specified is Rs.10,000 per each failure irrespective of the extent of the delay involved. He submitted that the Scheme provides benefit to those who failed to report in terms of regulations 6(2), 6(4) and 8(3) though for which penalty has been provided under section 15 A(b) of the Securities and Exchange Board of India, Act, 1992 (SEBI Act): Shri Sethuraman submitted that since the Appellant had not acted wilfully the Respondent should not have imposed any penalty. In this context he referred to this Tribunal's decision in Cabot International Capital Corporation V. Securities and Exchange Board of India [(2001) 29 SCL 399] and submitted that the Respondent has ignored the ratio in the said case while imposing the monetary penalty. He also referred to the principle laid down by the Hon'ble Supreme Court in Hindustan Steel ltd V. State of Orissa (AIR 1970 SC 253) as relied on by the Tribunal in Cabbot's case and submitted that the principle laid therein that penalty is not leviable for an omission or commission not done wilfully, has been ignored by the Respondent, despite the finding by the Respondent that there was no mensrea on the part of the Appellant. He further submitted that neither the Appellant, nor its promoters secured any disproportionate gain or unfair advantage that the belated reporting has not resulted in wrongful loss to any investor, and the delay in reporting was an isolated one and was not of repetitive nature, that these aspects have not been considered by the Respondent while imposing the monetary penalty, despite the specific requirement to consider such factors under section 15J of the Act. He submitted that the Respondent has not refuted the Appellant's submission that the default was not wilful, that it was an isolated one and the default has not adversally affected anybody's interest and that the Appellant has not benefited in any manner by reporting belatedly. He further submitted, that without taking into consideration the submissions made by the Appellant and the mandatory requirement under section 15J, the Respondent proceeded mechanically and imposed the penalty. LEARNED Representative, submitted that the Hon'ble Supreme Court's decision in R.S.Joshi V. Ajit Mills (1977) 4 SCC 98, has been wrongly relied on by the Respondent as the factual and legal position based on which the Hon'ble Court had made the observation that it is not necessary to establish mensrea for the purpose of imposing penalty is not comparable in the present case. He submitted that the said decision was in the case of Sales Tax laws, where the law provided the authority with absolute discretion, infact obligation, to levy fine in certain circumstances of default; that it is not so under the SEBI Act that section 15J mandales the Adjudicating Officer to take into consideration the factors stated there under and it was obligatory on the part of the Respondent to establish mensrea on the part of the Appellant before levying penalty. LEARNED Representative submitted that the Respondent has levied maximum penalty leviable under the Act in total disregard of the provisions of Section 15J. He referred to section 15H and submitted that the gravity of the offence for imposition of penalty under section 15H is more as the failure to make public offer has a direct bearing on the interest of investors, and still the maximum penalty provided there under for such a serious offence is only five lakh rupees, and therefore for an unintentional technical failure to report the shareholding, under regulations 6 and 8 with no significant consequences cannot be met with such a heavy penalty of Rs. 5 lakhs.;

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