Justice J.P. Devadhar (Oral)

1. Appellant is aggrieved by the order passed by the Adjudicating Officer ( AO for short) of Securities and Exchange Board of India ( SEBI for short) on August 31, 2015. By the said order penalty of ` 13 lac is imposed on the appellant under Section 15A(b) of the Securities and Exchange Board of India Act, 1992 ( SEBI Act for short), out of which penalty of ` 6,50,000 is imposed for violating regulation 7(1) read with regulation 7(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ( SAST Regulations, 1997 for short) & regulation 13(1) of the 2 Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992 ( PIT Regulations for short) and penalty of ` 6,50,0000 is imposed for violating regulation 13(3) read with Regulation 13(5) of the PIT Regulations.

2. In the impugned order, penalty is imposed on the appellant basically on ground that the appellant had acquired and sold shares of Fact Enterprise Limited ( Target Company for convenience) in the year 2008 & 2010 respectively which were in excess of the limits prescribed under regulation 7(1) read with regulation 7(2) of the SAST Regulations, 1997/ regulation 13(1) of PIT Regulations, as a result whereof disclosure provisions contained in the said regulations got triggered. Since the appellant failed to make disclosures as contemplated under those provisions and also the appellant failed to make disclosures as contemplated under regulation 13(3) read with regulation 13(5) of the PIT Regulations, proceedings were initiated against the appellant and by the impugned order penalty of ` 13 lac is imposed on the appellant.

3. Counsel for the appellant fairly stated that the acquisition/ sale of shares of the Target Company by the appellant were in excess of the limits prescribed under regulation 7(1) of the SAST Regulations, 1997/ regulation 13(1) read with 13(3) of the PIT Regulations and that the appellant has not made disclosures as contemplated under those provisions. It is also admitted by the counsel for the appellant that no disclosures have been made by the appellant as contemplated under regulation 13(3) read with regulation 13(5) of the PIT Regulations. 3

4. Inspite of the fact that there is violation of the provisions contained in the SAST Regulations, 1997 and PIT Regulations, counsel for the appellant submitted that the penalty imposed on the appellant by the impugned order cannot be sustained for the following reasons:- a) Impugned violation took place in the year 2008/2010 whereas show cause notice was issued belatedly on February 28, 2014 and the impugned order is passed belatedly on August 31, 2015 and hence, in view of inordinate delay in initiating proceedings against the appellant, the penalty imposed against the appellant deserves to be deleted. b) Substantial shares of the Target Company acquired by the appellant were by way of pledge and pledged shares do not trigger the disclosure requirements. c) Alternatively, it is submitted that penalty imposed on the appellant is exorbitant, excessively high and the said penalty has been imposed without considering the mitigating factors set out under Section 15J of the SEBI Act.

5. We see no merit in the aforesaid contentions. 4

6. It is not in dispute that acquisition and sale of shares of the Target Company were in excess of the limits prescribed under regulation 7(1) of the SAST Regulations, 1997 and regulation 13(1) of the PIT Regulations and hence disclosure obligations specified under those regulations got triggered. Admittedly, the appellant has failed to make disclosures as stipulated under those provisions. It is also admitted that the appellant has failed to make disclosures as contemplated under regulation 13(3) read with regulation 13(5) of the PIT Regulations. Where a person violates the provisions contained in the Regulations framed by SEBI then that person is inter-alia liable for monetary penalty as stipulated under SEBI Act.

7. Argument of the appellant that inspite of the violations committed by the appellant, no penalty could be imposed on the appellant, because the proceedings have been initiated after several years from the date on which violations took place is without any merit. Neither the SEBI Act nor the Regulations framed thereunder stipulate that proceedings for imposing penalty must be initiated within a specified time from the date on which violations are committed. It is not the case of the appellant that in the present case, SEBI was aware of the violations committed by the appellant long back and inspite of the knowledge above violations, SEBI initiated penalty proceedings belated on February 28, 2014. In these circumstances, argument of the appellant that the proceedings have been initiated belatedly and, therefore, penalty deserves to be deleted cannot be sustained. 5

8. Argument advanced on behalf of the appellant that substantial shares of the Target Company were acquired by the appellant under a pledge and disclosure provisions would not apply to the pledged shares is equally without any merit. Findings recorded in the impugned order is that the appellant had not acquired the shares under a pledge by following the procedure prescribed under regulation 58 of the SEBI (Depositories and Participants) Regulations, 1996 ( DP Regulations for short) and in fact the pledged shares were transferred to the demat account of the appellant. Once the shares are transferred to the demat account of the appellant, the appellant becomes absolute owner of the said shares with all the benefits attached to those shares. In such a case, appellant is bound and liable to make disclosures especially when such acquisitions are in excess of the limits prescribed under the respective regulations. Since the appellant has failed to make disclosures, appellant cannot escape penal liability.

9. Argument of the appellant that the penalty imposed against the appellant is exorbitant and excessively high and that the said penalty has been imposed without considering the mitigating factors set out under Section 15J of the SEBI Act is also without any merit. Penalty imposable for violating regulation 7(1) read with regulation 7(2) of the SAST Regulations, 1997/ regulation 13(1) of the PIT Regulation, under Section 15H(ii) of the SEBI Act is ` 1 lac per day up to a maximum of ` 1 crore. Similarly for failure to comply with regulation 13(3) read with regulation 13(5) of the PIT Regulations the penalty imposable is ` 1 lac per day up to maximum of ` 1 crore. In the present case, since the disclosures were 6 not made the penalty imposable for violating regulation 7(1) read with 7(2) of the SAST Regulations, 1997/ regulation 13(1) of the PIT Regulations would be ` 1 crore and for violating regulation 13(3) read with regulation 13(5) of the PIT Regulations the penalty imposable would be ` 1 crore. Thus, as against the penalty of ` 2 crore imposable against the appellant, the AO of SEBI after taking into consideration all mitigating factors has imposed penalty of `13 lac which cannot be said to be excessively high or exorbitant.

10. For all the 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/- Dr. C.K.G. Nair Member 28.09.2016 Prepared & Compared By: PK