Allowed

Doogar and Associates Ltd.

SAT30 Sept 2003

Case brief

AI extract

What is this about?

The SAT allowed an appeal against a penalty of Rs. 50,000 imposed for late filing of a public announcement. The bench held that the breach resulted from unintentional circumstances rather than defiance of law, and following judicial guidelines, the penalty was unjustified in such a technical case.

What did the court decide?

The appeal was allowed and the impugned order imposing a penalty of Rs. 50,000 was set aside as the case for penalty was not made out.

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BEFORE THE SECURITIES APPELLATE TRIBUNAL,MUMBAI.

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APPEAL NO.60/2002

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In the matter of :
Doogar & Associates Ltd. Appellant
Vs
Securities and Exchange Board of India. Respondent
APPEARANCE:
Shri Dinesh Agnani
Advocate for Appellant
Shri Vinay Chauhan
Legal Officer for Respondent

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ORDER

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The Respondent, based on the information in its possession decided to appoint an Adjudicating Officer to inquire into and adjudge under section 15A of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) the alleged contravention of sub regulation (2) of regulation 15 and sub regulation (3) of regulation 24 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations) by the Appellant with reference to its role as the merchant banker in the context of the public offer made by Allianz International Pvt. Ltd., (the Acquirer) on 27.8.2001 to acquire 2,00,000 shares representing 20% of the equity share capital of a company viz. Adhbhut Industrial Resources Ltd.,(the Target Company). The Appellant was the merchant banker appointed for the purpose of the said public offer. The Respondent appointed an Adjudicating Officer for the purpose vide its order dated 5.12.2001. The Adjudicating Officer after inquiry viewed that the Appellant had failed to comply with the requirements of regulation 15(2) read with regulation 24(3) of the Takeover Regulations in as much as a copy of the public announcement was filed with the Respondent, after the publication of the same, as against the requirement of filing it atleast two days in advance of its publication. In that context the Adjudicating Officer imposed a penalty of fifty thousand rupees on the Appellant. The Appellant claiming to be aggrieved by the said order, preferred the present appeal.

Doogar and Associates Ltd. — Securities and Capital Markets | SAT (2003)

Allowed

Doogar and Associates Ltd.

SAT30 Sept 2003

Download

Case brief

AI extract

What is this about?

What did the court decide?

The appeal was allowed and the impugned order imposing a penalty of Rs. 50,000 was set aside as the case for penalty was not made out.

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL,MUMBAI.

¶2

APPEAL NO.60/2002

¶3

In the matter of :
Doogar & Associates Ltd. Appellant
Vs
Securities and Exchange Board of India. Respondent
APPEARANCE:
Shri Dinesh Agnani
Advocate for Appellant
Shri Vinay Chauhan
Legal Officer for Respondent

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ORDER

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further more the Adjudicating Officer while adjudging the quantum of penalty under Section 15J also failed to appreciate that there has been no disproportionate gain or unfair advantage to the Appellant, no amount of loss has been caused to any investors or group of investors as a result of delay in submitting the copy of the public announcement to SEBI. He submitted that the matter involving Manu Finlease did not relate to identical set of facts, that in that case the matter related to public issue and not public offer under the Takeover Regulations. Holding that the instant case amounts to repetitive default a penalty of Rs.50,000/- was imposed which has resulted in grave miscarriage of justice. Learned Counsel submitted that the Adjudicating Officer has wrongly concluded that non-filing of the copy of the public announcement with the Respondent has obstructed discharge of its statutory duties, as the said observations is without any basis and has been made for the reasons best known to the Adjudicating Officer. The Adjudicating Officer has stated that the purpose of filing public announcement in advance enables the Respondent to examine the same and see that the same is in conformity with the said regulations and also enables it to take appropriate and timely steps in case of any non-compliance with the said regulation is observed, that thus it enables the Respondent to protect the interest of investors/share holders by taking timely action in the matter before the public announcement is issued. Learned Counsel submitted that the Adjudicating Officer lost sight of the fact that in case there had been any discrepancy then it could have asked the Appellant to issue supplementary advertisement/public announcement, that admittedly there were no discrepancies and the public announcement was in confirmation with the said regulations and no prejudice was caused to the interest of investors/share holders. Had there been any discrepancies in the public announcement the Respondent would have called upon the Appellant to modify the public announcement and in that case it could have been viewed that the Appellant had obstructed the Respondent in discharge of its statutory duties by late filing of the public announcement. By not appreciating the said fact and merely holding that the delay involved on the part of the Appellant in filing the public announcement has obstructed the Respondent in discharge of its statutory duty is without any basis. The purpose of filing the public announcement with the Respondent is to ensure that no mis-

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absence of clinching evidence, to disbelieve the Appellant’s version that it was under genuine belief that regulation 3(4) was not applicable to the allotment. The breach flows from the bonafide belief that it was not liable to comply with the requirements under rule 3(4) and this has to be viewed in the light of the Supreme Court’s observation in Jiwani’s case relied on by the Appellant. In fact the Adjudicating Officer himself has admitted in para 4.1.4 of the order that “ this case however relates to a transitional period . The process of acquisition took place while the 1994 regulation was in force. The actual allotment/acquisition took place while the 1997 Regulations came into force. In that process there was lack of clarity on the part of the acquirer as to the applicability of 1997 Regulations”. Keeping all the factors in view , the benefit of doubt was given to the acquirer and no penalty was imposed in terms of section 15H(ii) of the Act. In this context I am tempted to observe that even otherwise regulation 11 will not be attracted to the company’s preferential allotment in view of the fact that the acquisition is covered under regulation 3. Even though the Adjudicating Officer has given the benefit of doubt to the Appellant in the matter of the alleged violation of regulation 11/ section 15(ii), for the reasons best known to him he has not extended that benefit as far as non compliance of regulation 3(4) is concerned, though the facts and circumstances applicable are the same in both the cases. This differential treatment, in the absence of adequate explanation cannot stand. The observation made by the Adjudicating Officer based on his satisfaction, cannot be limited to applicability to regulation 11/section 15(ii) alone as the facts are common. Further the Adjudicating Officer has also clearly stated in the order “that the delay in filing of the report has not resulted in any gain” to the Appellant. There is not even a whisper in the impugned order of any loss to anybody. There is nothing on record to show that the Appellant had a past record of default. None of the factors of section 15J is attracted in this case. In the light of the totality of the facts and circumstances of the case and in view of the Supreme Court’s guidelines in the Hindustan Steel’s case imposition of monetary penalty on the Appellant in my view is unwarranted.”

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“The Appellant’s contention that the delay in filing the reports was not intentional but by over sight and that on reporting the failure by its own internal audit team, requirement was complied with, cannot in Appellant’s case help much. The Appellant being a Category I Merchant Banker since 1992 , is supposed to know the statutory requirements to be complied with in matters relating to public issue of shares, acquisition of shares etc. A Merchant Banker is supposed to be diligent and expected to advise its clients about the statutory requirements. In fact the Regulation itself recognizes the expertise in the Merchant Bankers as could be seen from various regulations relating to public announcement, etc. According to regulation 13, before making any public announcement of offer referred to in regulation 10, regulation 11 or regulation 12, the acquirer is required to appoint a merchant banker holding a Category I registration. The public announcement referred to in the Regulation is required to be made by the Merchant Banker and none else. Further, regulation 24 enumerates obligations of the Merchant Bankers appointed under regulation 13 mentioned above. One of the obligations enumerated thereunder is that “ the merchant banker shall ensure compliance of the Regulations and any other laws or rules as may be applicable in this regard”. Since the merchant banker is loaded with the obligation to ensure compliance of the statutory requirements applicable to acquisition of shares by even others, it is difficult to accept the Appellant’s argument that the failure on its part was inadvertent and need be condoned. There is no scope for seeking such a relief, by an expert agency like a Merchant Banker, that failure to comply with the statutory requirements attendant to acquisition of shares was due to inadvertence, as the Merchant Banker itself, by its very role, is required to be diligent and not negligent. Appellant’s failure has to be viewed in the back ground that it is a Category I Merchant Banker fastened with the obligation of ensuring legal compliance by others. A person entrusted with such a duty, himself failing to comply with the legal requirements in a matter directly concerning him, cannot be viewed lightly and the Adjudicating Officer’s decision imposing monetary penalty on the Appellant cannot be considered as

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justification for not filing the copy of the public announcement with SEBI in terms of regulation 15(2) of the said Regulations.” It is thus clear that the Adjudicating Officer has also accepted the version given by the Appellant for its failure to submit the copy of the public announcement in time – that it had signed and sent the text to despatch and because of the unexpected development the receptionist failure to despatch the same. The Adjudicating Officer has also noted the “irresponsible conduct on the part of the receptionist of the Doogar & Associates.” I agree that an employer cannot escape from his obligation to comply with the statutory requirements on the ground that his employee whom the task was entrusted had failed to discharge his/her duties. But then what is to be seen is that employer had acted honestly and diligently and also whether the omission by the employee could have been avoided. The Adjudicating Officer had noted that the text of the announcement was signed and sent to despatch, that the receptionist on hearing the tragic death of her relative, left the task assigned to her unfinished. It is also noticed that it was not a wilful or intentional act on the part of the Appellant, as could be seen that the Appellant had submitted a copy of the letter of offer to the Respondent 30.8.2001 itself. The letter of offer contains almost all the substantial details contained in the public announcement. If the intention had been to deny information to the Respondent by not filing the public announcement, the Appellant would not have promptly filed the draft letter of offer within just 3 days of the issuance of the public announcement. Further, it is also noted that by holding back the public announcement copy from the Respondent, the Appellant would not have achieved anything as the public announcement in terms of regulation 15(1) is required to be made “in all editions of one English national daily with wide circulation and one Hindi national daily with wide circulation and a regional language daily with wide circulation.” Such a widely published announcement cannot escape the attention of the Respondent and in that context by not filing the copy with SEBI would not have served any purpose. The Adjudicating Officer has attempted to highlight the failure by observing that “Such failure on the part of Doogar & Associates hindered SEBI in performing its duty to monitor compliance with the regulations and thereby in performing its duty to safe guard the interest of investors/shareholders.” But this statement remains unsubstantiated. The

Doogar and Associates Ltd.

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Doogar and Associates Ltd.

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

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