BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No.271 of 2014 Shri Ashlesh Gunvantbhai Shah Date of decision : 08/10/2014 … Appellant … Respondent 16, Vasupujyakrupa Society, Ambawadi, Ahmedabad – 380 015 Versus Securities & Exchange Board of India SEBI Bhavan, C‐4A, G‐Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051. Ms. Rinku Valanju, Advocate with Mr. J.J. Bhatt and Mr. Pratham Masurekar, Advocates for the Appellant. Mr. Kumar Desai, Advocate with Mr. Manish Acharya, Advocate for the Respondent. CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member A. S. Lamba, Member Per : Justice J.P. Devadhar (Oral) 1. This appeal is filed to challenge order passed by the Adjudicating Officer of Securities and Exchange Board of India (SEBI) on 30th May, 2014 whereby penalty of Rs.5 lac is imposed upon the appellant under Section 15A(b) of Securities and Exchange Board of India Act, 1992 (“SEBI Act, 1992” -2- for short) for violating regulation 13(3) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (“PIT Regulations, 1992” for short) and regulation 29(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 (“SAST Regulations, 2011” for short). 2. Facts relevant for the present appeal are that the appellant had disposed 74,547 shares of Parichay Investments Limited (“the target company” for convenience) on 2nd May, 2013 which represented 6.2% of the total shareholding of the target company. Since that disposal of shares was in excess of the limit prescribed under regulation 13(3) of PIT Regulations, 1992 and regulation 29(2) of SAST Regulations, 2011, it was obligatory on part of the appellant to make disclosures of sale to the target company. Since disclosures were not made, show‐cause notice was issued, and by the impugned order dated 30th May, 2014, penalty of Rs.5 lac is imposed upon the appellant. Challenging that order, present appeal is filed. 3. Ms. Valanju, learned counsel appearing on behalf of the appellant, submitted that penalty imposed upon appellant is exorbitant, unreasonable and is liable to be quashed and set aside for the following reasons: (a) Sale of shares effected by the appellant on May 2, 2013 were reported on Bombay Stock Exchange (BSE)’s website in the bulk deal data and therefore failure on part of the appellant to make disclosures being technical violation, penalty of Rs.5 lac ought not to have been imposed upon appellant. -3- (b) In fact, target company had also made shareholding pattern related disclosures under the Listing Agreement to BSE which was also publicly available on BSE website. (c) Appellant being a lay investor was not aware of the obligation to make disclosures. (d) No loss, harm or injury was caused to any investor on account of non‐disclosure on part of appellant. (e) In any event, immediately on receipt of show‐cause notice, appellant made disclosures on 26th February, 2014. Therefore, delay in making disclosures being unintentional, technical and inadvertent, SEBI is not justified in imposing exorbitant penalty of Rs.5 lac on the appellant. Accordingly, counsel for appellant submitted that in the facts of the present case, exorbitant penalty imposed against the appellant be quashed and set aside. 4. Mr. Desai, learned counsel appearing on behalf of respondent on the other hand, supported the impugned order and submitted that obligation to make disclosures under respective regulations is mandatory and penalty for each days delay under Section 15A(b) of SEBI Act, 1992 is Rs.1 lac per day. In the present case, penalty for the delay comes to more than Rs.1 crore, however, taking into consideration all mitigating factors, the Adjudicating Officer has imposed penalty of Rs.5 lac which cannot be said to be unreasonable or excessive. Accordingly, counsel for the respondent submitted that the appeal is without any merit and the same is liable to be dismissed. -4- 5. We have heard rival submissions made by counsel for respective parties. 6. It is not in dispute that the shares sold by the appellant on 2nd May, 2013 constituted 6.2% of the total issued share capital of the target company. In such a case, as per regulation 13(3) of PIT Regulations, 1992 and regulation 29(2) of SAST Regulations, 2011, it was mandatory on part of the appellant to make disclosures which the appellant failed to do. It is only after issuance of show‐cause notice, disclosures were made. Penalty under Section 15(b) of SEBI Act, 1992 for such violations is Rs.1 lac per day or Rs.1 crore, whichever is lower. In the present case, penalty computed at the rate of Rs.1 lac per day from the due date till the date of disclosures made on 26th February, 2014 comes to more than Rs.1 crore. However, taking into consideration all mitigating factors, the Adjudicating Officer has imposed a nominal penalty of Rs.5 lac which cannot be said to be unreasonable or excessively high. 7. Fact that the sale of shares in question were reported on BSE’s website in bulk deal data, does not absolve the appellant from making disclosures under the respective regulations. Similarly, fact that the company had made disclosures under the Listing Agreement to BSE would also not absolve the appellant from making disclosures under the respective regulations. In other words, irrespective of such disclosures, obligation on part of appellant to make disclosures under the respective regulations being mandatory, appellant cannot escape penal liability on account of failure to make requisite disclosures under the SAST Regulations, 2011 and PIT Regulations, 1992 on ground that the failure was unintentional, technical and inadvertent. -5- Appellant being a person dealing in securities ought to have known his rights and obligations. Therefore, in the facts of present case, no fault can be found with the decision of SEBI in imposing nominal penalty upon the appellant. 8. For all aforesaid reasons, we see no merit in the appeal and the same is hereby dismissed with no order as to costs. Sd/‐ Justice J.P. Devadhar Presiding Officer Sd/‐ Jog Singh Member Sd/‐ A.S. Lamba Member 08/10/2014 Prepared & compared by‐ddg