What can be action by SEBI for not making public announcement, after acquiring shares from capital market?

This is the issue many would have in mind, particularly in minds of promoters who are active in capital markets.

GMR Holdings Pvt Ltd (‘GMR’) is promoter of Parrys Sugar Industries Ltd (‘Parrys), whose shares are listed on stock exchange.

GMR along with person acting in concert (‘PAC’) acquired 2.58% of equity shares of Parrys between 6th May 2009 to 11th May 2009, through bulk deal (i.e. acquisition/sale of more than 0.5% of a target company’s share capital on a normal market segment on a single day per SEBI Circular of 14 January 2004). And from 29 April 2009 to 27 May 2009 it acquired 4.07% shares of Parrys. However no public announcement was made, as required under regulation 11(2) of the SEBI Takeover Regulations, 1997.

SEBI came to know about it from the shareholding pattern filed by several companies, including Parrys and certain observations made by the Bombay Stock Exchange. There upon SEBI conducted an examination of scrip of Parrys. Having found contravention of SEBI Takeover Regulations 1997, SEBI initiated adjudication under section 15H(ii) of the SEBI Act, 1992 by appointing adjudication officer (‘AO’) on 26 March 2014.

AO issued common show cause notice on 08 July 2014 against GMR and PAC for holding inquiry. After seeking several extension of time to reply, noticees filed reply with SEBI on 15 Sep. 2014.

AO granted opportunity of personal hearing to noticees on 14 December 2014, when Authorised Representative (‘AR’) of the noticees made representation before AO.

Broadly AR submitted that acquisition of 4.08% of shares of Parrys were within the limit of creeping acquisition of 5% permissible to it under the second proviso to Regulation 11(2) of the SEBI Takeover Regulations, 1997. And per SEBI Circular no. CFD/DCR/TO/Cir-1/2009 /06/08 dated 06 August 2009 acquirer who holds between 55% and 75% of the shares or voting rights may acquire additional shares/voting rights upto 5% in target company in one or more tranches, without restriction on time frame within which the same can be acquired. This circular, according to AR, permitted to acquire beyond 0.5% on a single day. AR also submitted that acquiring more than 0.5% on a single day was due to inadvertent calculations. And further, AR submitted that just because GMR and its Director were promoter of Parrys, they cannot be treated as PAC.

AO noted that though the acquisition of 4.08% was within the limit of acquisition of 5% under second proviso to Regulation 11(2), it does not exempt acquisition made through bulk deal/ block deal/ negotiated deal or preferential allotment, as stated in the said proviso. AO also did not agree with submission of AR on circular dated 06 August 2009 as the said circular stated “subject to the conditions as specified in this newly inserted proviso …” and observed that the conditions refers to no exemption if acquistion is made through bulk deal / block deal or negotiated deal or preferential allotment. AO also stated that promoter group is a homogenous class and therefore the entire group is considered to have acted together unless proved otherwise and relied upon decision of Hon’ble Securities Appellate Tribunal in the case of Rajesh Toshniwal v. SEBI & Ors dated 01 June 2012.

Finally considering judgement of Hon’ble Supreme Court of India in Swedish Match AB & Anr v SEBI dated 25 August 2004 – (2004) 11 SCC 641, that except in a situation which would bring the case within one or the other ‘exception cause’, the requirement of making public announcement under Regulations 10, 11 and 12 cannot be dispensed with. Thus, AO held that noticees were required to make public announcement in view of acquisition of shares of Parrys in bulk deal.

AO relying on Hon’ble Supreme Court of India’s decision in SEBI v. Shri Ram Mutual Fund (2006) 5 SCC 361 which held that intention of parties for non-compliance of statutory obligation under the SEBI Act and Regulations are not relevant and penalty is attracted as soon as the same are violated. AO imposed penalty of Rs.25 lakhs on noticees collectively.

However the AO despite observing the failure of noticees in making public announcement and loss of exit opportunity to the shareholders at the relevant time, did not mentioned / ordered about making public announcement with interest for the delayed period !