Securities and Exchange Board of India (SEBI): K Saravanan, Adjudicating authority, imposed a penalty of Rs 2 crore on Reliance Industries Ltd. (RIL), while making the noticees responsible not only on their own behalf but also on behalf of the minor noticees, being their natural guardians.
The issue herein was that, 12 crore equity shares of Rs 10/- each were allotted by RIL to 38 allottee entities on January 07, 2000. The allotment was made consequent to the exercise of the option on warrants attached with 6,00,00,000 – 14% NCD of Rs. 50/- each aggregating to Rs. 300,00,00,000 (PPD IV) issued in the year 1994. Therefore, the allegation against the Noticees was to the effect that 6.83% shares that were acquired by RIL promoters together with Persons Acting in Concert (PACs) in exercise of option on warrants attached with Non-Convertible Secured Redeemable Debentures (NCD), which was in excess of ceiling of 5% prescribed in Regulation 11(1) of Takeover Regulations, without making any public announcement for acquiring shares. Moreover, since the promoters and PACs did not make any public announcement for acquiring shares, it was alleged that they had violated the provisions of regulation 11(1) of Takeover Regulations. Resultantly, adjudication proceedings were initiated under Section 15H of the SEBI Act, 1992 against 36 promoters and PACs, which includes the 34 Noticees and 2 other entities.
Subsequently, certain preliminary issues were made pertaining to the jurisdiction, power of SEBI, which the Noticees believed should be adjudicated upon. And the adjudicating authority dealt with all the preliminary issues substantively one by one. While dealing with one of the preliminary issue to initiate proceedings after an inordinate delay, it was of the opinion “…In any event, even the delay, as argued, is not relevant to the present proceeding as the violation is a substantive violation in the nature of an “economic offence”…”.
Issues
- Whether the Noticees have violated the provisions of Regulation 11(1) of Takeover Regulations?
- Does the violations, if established, attract monetary penalty under Section 15H of SEBI Act, 1992? If yes, then what would be the monetary penalty that can be imposed upon the Noticees, taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992 read with Rule 5(2) of the Rules?
The adjudicating authority while acting in affirmation stated, “Noticees have acquired 6.83% shares of RIL consequent to exercise of option on warrants attached with Non-Convertible Secured Redeemable Debentures (NCD), which was in excess of ceiling of 5% prescribed in Regulation 11(1) of Takeover Regulations, without making any public announcement for acquiring shares and, thus, have violated the provisions of Regulation 11(1) of Takeover Regulations. Further remarked, “…In the instant case, the violation was not one which was committed once and for all but that which continues till date. The violation is a disobedience…”.
The adjudicating authority while holding the RIL in default stated, “…I note that the Hon’ble Supreme Court of India in the matter of SEBI v. Shri Ram Mutual Fund (2006) 68 SCL 216 held that “once the violation of statutory regulations is established, imposition of penalty becomes sine qua non of violation and the intention of parties committing such violation becomes totally irrelevant. Once the contravention is established, then the penalty is to follow.” “…It is an admitted fact that the Noticees did not make the public announcement as per the mandatory requirement of Regulation 11 of the Takeover Regulations and the open offer being a consequential and necessary part thereof, which was absolute in nature. Such a failure is a continuing violation till discharge…”.
“…the warrants were issued in the year 1994 much before their coming into existence of the Takeover Regulations. At the same time, I note that the entire scheme of Takeover Regulations rest on the pedestal of ‘control’. “…In effect, I note that the Noticees have neither complied with in obtaining the approval of shareholders supplying them with the prescribed details nor have they come out with a public announcement till date. Thus, I note that the Noticees have been enjoying all rights attached to the impugned acquisition without complying with the relevant law…”.
Thus, the violation of Regulations 11(1) of the Takeover Regulations made the Noticees liable for penalty under Section 15H of the SEBI Act, 1992.
While deciding on the penalty, the adjudicating authority was of the opinion that, “…With regard to the above factors to be considered while determining the quantum of penalty, I note that no quantifiable figures or data are available on record to assess the disproportionate gain or unfair advantage and amount of loss caused to an investor or group of investors as a result of the default committed by the Noticee. However, the fact remains that the Noticees by their failure to make public announcement, deprived the shareholders of their statutory rights/ opportunity to exit from the company…”
Therefore imposed Rs 25,00,00,000 penalty, to be paid jointly and severally, under Section 15H of SEBI Act, 1992 for violation of Regulation 11(1) of Takeover Regulations.[Reliance Industries Ltd., In re, Order/KS/AE/2021-22/11266-11299, decided on 07-04-2021]
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Was SEBi sleeping all this time when the Transactions happened in 1994?