Difference between revisions of "Kosha investment Ltd vs security exchange board of India"

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(Created page with "IN THE SUPREME COURT OF INDIA Civil Appeal Nos. 3219 of 2006 and 2132 of 2007 Decided On: 18.09.2015 Citation- 2015 (9) SCALE 820 Facts of case : Appellant acquired shares of...")
 
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Citation- 2015 (9) SCALE 820
 
Citation- 2015 (9) SCALE 820
  
Facts of case :
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Facts of casehttps://indiankanoon.org/doc/168136230/ :                                                             
 
Appellant acquired shares of another company, Snowcem India Ltd. (SIL), from one of the original promoters of SIL and thus itself became one of the promoters. In the period June 99 to August 1999 there was an initial upward movement in the price of shares of SIL and also substantial increase in the volume of their trade. Appellant faced charges in another proceeding under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and was also served with a show cause notice for alleged breach of provisions of Regulation 44 and 45(6) of the Regulations, 1997. The proposed action was based upon report of investigation showing that Appellant had consistently bought and sold shares of SIL prior to June 1999 and also after August 1999.  
 
Appellant acquired shares of another company, Snowcem India Ltd. (SIL), from one of the original promoters of SIL and thus itself became one of the promoters. In the period June 99 to August 1999 there was an initial upward movement in the price of shares of SIL and also substantial increase in the volume of their trade. Appellant faced charges in another proceeding under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and was also served with a show cause notice for alleged breach of provisions of Regulation 44 and 45(6) of the Regulations, 1997. The proposed action was based upon report of investigation showing that Appellant had consistently bought and sold shares of SIL prior to June 1999 and also after August 1999.  
  
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Decision
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Decisionhttps://www1.nseindia.com/content/circulars/ingr4699.htm
 
Held, dismissing the appeals
 
Held, dismissing the appeals
 
The provision in Regulation 11 of the Regulations, 1997 mandating a public announcement will kick in at any stage whence the shareholding of the said entity in the target company would exceed 25 per cent. Under Regulations, 1997 the public announcement should not be delayed beyond four working days of the agreement or decision to acquire the requisite number of shares or voting rights. Accepting the plea of the Appellant will mean an acquirer can keep on violating Regulation 11(1) of the Regulations, 1997 on as many occasions as it wants and avoid letting the public have the required knowledge through public announcements by simply making subsequent sale or transfer to another entity so as to reduce the so-called net acquisition in a financial year to within 5 per cent. The concept of permitting creeping acquisitions by permitting not more than 5 per cent of the shares or voting rights in a company limits the period for such acquisition to a financial year ending by 31st March.
 
The provision in Regulation 11 of the Regulations, 1997 mandating a public announcement will kick in at any stage whence the shareholding of the said entity in the target company would exceed 25 per cent. Under Regulations, 1997 the public announcement should not be delayed beyond four working days of the agreement or decision to acquire the requisite number of shares or voting rights. Accepting the plea of the Appellant will mean an acquirer can keep on violating Regulation 11(1) of the Regulations, 1997 on as many occasions as it wants and avoid letting the public have the required knowledge through public announcements by simply making subsequent sale or transfer to another entity so as to reduce the so-called net acquisition in a financial year to within 5 per cent. The concept of permitting creeping acquisitions by permitting not more than 5 per cent of the shares or voting rights in a company limits the period for such acquisition to a financial year ending by 31st March.

Revision as of 19:38, 23 May 2020

IN THE SUPREME COURT OF INDIA Civil Appeal Nos. 3219 of 2006 and 2132 of 2007 Decided On: 18.09.2015 Citation- 2015 (9) SCALE 820

Facts of casehttps://indiankanoon.org/doc/168136230/ : Appellant acquired shares of another company, Snowcem India Ltd. (SIL), from one of the original promoters of SIL and thus itself became one of the promoters. In the period June 99 to August 1999 there was an initial upward movement in the price of shares of SIL and also substantial increase in the volume of their trade. Appellant faced charges in another proceeding under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and was also served with a show cause notice for alleged breach of provisions of Regulation 44 and 45(6) of the Regulations, 1997. The proposed action was based upon report of investigation showing that Appellant had consistently bought and sold shares of SIL prior to June 1999 and also after August 1999.


It held 21,32,900 shares of SIL, constituting 20.29 per cent of total paid up capital of SIL and made additional purchase of shares amounting to 10.81 per cent of the paid up capital of SIL in violation of Regulation 11 (1) of the Regulations, 1997 as it failed to make the required public announcement in terms of the Regulations, 1997.


SEBI determined that on 31.03.1999 Appellant held only 21,32,900 shares and not 31,84,228 shares, which was claimed by the Appellant on the ground that it had already pledged its shares to lenders who had lent money to SIL. The plea of pledge raised by the Appellant was found without any substance, hence, SEBI concluded that Appellant was already holding between 15% to 75% shares of SIL and it could acquire additional shares of the company through creeping acquisition mode, without public nnouncement only up to 5 per cent of its paid up capital during the period of 12 months ending on 31.03.2000.


However, by acquiring 11,36,700 shares of SIL during June 1999 to August 1999 it acquired shares constituting more than 5 per cent of the paid up capital of SIL. For making such acquisition, the Appellant was liable to make public announcement as required by Regulation 11(1) of the Regulations, 1997. The Appellant failed to do so and SEBI, holding it guilty, passed an order directing it to make the public announcement, payment of interest to shareholders and restrained from trading in securities. On appeal, the Tribunal accepted SEBI's arguments that even during the period June 1999 to August 1999 the Appellant had acquired 6,61,800 shares which constituted 6.29 per cent of the paid up capital of SIL which was beyond the permissible limit of 5 per cent and hence the requirement of making public announcement in terms of Regulation 11(1) of the Regulations, 1997 had to be met by the he Regulations, 1997 had to be met by the Appellant failed to do. Hence, the present appeals.


ISSUES Whether Tribunal erred in accepting that Appellant owned shares above the permissible limit of five per cent in the company? Whether Appellant could postpone the time for public announcement on acquisition of voting rights till purchased securities are actually converted under Regulation 14(2) of the Regulations, 1997?


Decisionhttps://www1.nseindia.com/content/circulars/ingr4699.htm Held, dismissing the appeals The provision in Regulation 11 of the Regulations, 1997 mandating a public announcement will kick in at any stage whence the shareholding of the said entity in the target company would exceed 25 per cent. Under Regulations, 1997 the public announcement should not be delayed beyond four working days of the agreement or decision to acquire the requisite number of shares or voting rights. Accepting the plea of the Appellant will mean an acquirer can keep on violating Regulation 11(1) of the Regulations, 1997 on as many occasions as it wants and avoid letting the public have the required knowledge through public announcements by simply making subsequent sale or transfer to another entity so as to reduce the so-called net acquisition in a financial year to within 5 per cent. The concept of permitting creeping acquisitions by permitting not more than 5 per cent of the shares or voting rights in a company limits the period for such acquisition to a financial year ending by 31st March.


Such concept does not dilute the requirement of making a public announcement within the time mentioned in Regulation 14(1) of the Regulations, 1997 if the acquisition even if only once made and divested, is of more than 5 per cent of shares or voting rights in the target company. Even if such acquisition is followed by sale in the same financial year, the liability of making the public announcement would remain unaffected and shall attract action, as in this case. In case of acquisition of shares or voting rights the applicable provision is Regulation 14(1) and not Regulation 14(2) of the Regulations, 1997 which applies only when the acquisition is of other securities including Global Depository Receipts, American Depository Receipts. It ionly such securities which require conversion or exercise of option, which is contemplated by Regulation 14(2) of the Regulations, 1997. No such plea was raised before the SEBI or the Tribunal and in the present case only Regulation 14(1) of the Regulations, 1997 is applicable as it covers acquisition of either the shares or the voting rights or both which are the subject matter of regulation 11 (1) of regulation 1997.