27 January 2014

Penalty for non-disclosure of share-holding pattern

Penalty for non-disclosure of share-holding pattern was at the center of disputes this month before the Securities Appellate Tribunal (SAT). While penalty in one of the disputes was upheld for non-disclosure under one provision even when there was disclosure under another set of provisions, the same was substantially reduced, in another case, when the company whose shares were acquired had disclosed the share-holding pattern.


Disclosure under one provision is not disclosure under another

Imposition of penalty under Section 15A(b) of Securities and Exchange Board of India Act, 1992 for non-disclosure of change in share-holding pattern under SEBI (Prohibition of Insider Trading) Regulations, 1992 though the same was disclosed to the stock exchanges and the SEBI under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, was upheld by the Appellate Tribunal on 7-1-2014. The SAT, deciding Appeal No. 188 of 2013, rejected the contentions that requirement of disclosure under the former Regulations were also met when the disclosures were made under the latter Regulations.

It was observed that even if disclosure under the 2011 Regulations were to be treated as disclosure under the 1992 Regulations, these earlier regulations stood violated as disclosure was not made in 2 days, as required. Absence of provisions like Regulation 29(4) of SAST Regulations, 2011 in the Insider Trading Regulations, cited as reason for non-disclosure, was also rejected noting Regulation 13 read with Form D of the 2011 Regulations.

The matter involved non-disclosure of sale of pledged shares after the non-payment of loans by the company where appellant acted as promoter director.


Non-disclosure and public knowledge

Penalty for non-disclosure was though upheld, but substantially reduced, by the Appellate Tribunal in another case, decided on 15-1-2014. The appellant, in Appeal No. 201 of 2013, had failed to inform the stock exchanges about its acquisition of shares to the tune of 5.22 per cent instead of 5%. The Tribunal in this case noted that the disclosure was made by the company whose shares were acquired and hence the public at large had knowledge of acquisition.

It was observed that the information to the stock exchanges, by the other company, duly included the exact percentage of decrease in promoter’s shareholding and the corresponding increase in the public shareholding and hence no one was deprived of this important information.


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