BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 26.11.2019 Appeal No. 450 of 2019

1. Shri Bakul Ramniklal Parekh Flat No. 7/B, 3rd Floor, Aashish Building, Plot No. 253, Sion Matunga Main Road, Sion, Mumbai – Maharashtra – 400 022.

2. Shri Milan Ramniklal Parekh 3B/191, Kalpataru Aura, LBS Road, Ghatkopar (West), ….. Appellants Mumbai – Maharashtra – 400 086.

Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051. … Respondent Ms. Poonam D. Gadkari, Advocate i/b Juris Matrix Partners LLP for Appellants. Mr. Kumar Desai, Advocate with Mr. Mihir Mody and Mr. Shehaab Roshan, Advocates i/b K. Ashar & Co. for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Dr. C.K.G. Nair, Member (Oral)

1. Aggrieved by the order dated May 15, 2019 passed by

the Adjudicating Officer (‘AO’ for short) of Securities and Exchange Board of India (‘SEBI’ for short), whereby a total penalty of Rs. 14 lakh has been imposed on the appellants this appeal has been filed. The said penalty has been imposed under Section 15A(b) of the SEBI Act, 1992 for non- disclosure of certain transactions under SEBI (Prohibition of Insider Trading) Regulations, 1992 (‘PIT Regulations’ for short) and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (‘SAST Regulations’ for short).

2. In short, the violations committed by the appellants and

the Regulations violated and the penalty imposed as in the impugned order are as follows:- Amount of Transactions Noticee Violations Penalty Conversion of Shri Bakul Regulation 13(4) Rs. 2,00,000/- Warrants dated Ramniklal Parekh read with 13(5) of (Rupees Two March 25, 2009 (Appellant No. 1) the PIT Lakh Only) Regulations Conversion of Shri Bakul Regulation 13(4) Rs. 3,00,000/- warrants dated Ramniklal Parekh read with 13(5) of (Rupees Three April 11, 2009 (Appellant No. 1) the PIT Lakh Only) Regulations Shri Bakul Ramniklal Parekh Rs. 5,00,000/- Regulation 13(4) Preferential (Appellant No. 1) (Rupees Five Lakh read with 13(5) of Allotment dated Only) the PIT October 13, 2010 Shri Milan Rs. 2,00,000/- Regulations Ramniklal Parekh (Rupees Two (Appellant No. 2) Lakh Only) Conversion of Shri Milan Regulation 13(4), Rs. 2,00,000/- warrants dated Ramniklal Parekh 13(4A) read with (Rupees Two January 30, 2012 (Appellant No. 2) 13(5) of the PIT Lakh Only) Regulations

3. As given in the above table there are four violations;

three relating to non-disclosure of conversion of warrants on different dates by the appellants and one relating to non- disclosure of preferential allotment by both the appellants. It was further held that though conversion of warrants on April 1, 2009 by Appellant No. 1 has violated both the PIT Regulations [Regulations 13(3), 13(4), 13(4A) read with 13(5)] as well as SAST Regulations [Regulation 7(1A) read with 9(2)]; since both these violations are basically of same nature they have been combined as single violation while imposing the penalty.

4. Appellants are promoters and directors (Appellant No.

1, Chairman and Appellant No. 2, Joint Managing Director) of a Company by the name Action Financial Services (India) Limited. During the quarter ended March 2009 Appellant No. 1 acquired 60,000 additional shares to the tune of 0.59% on March 25, 2009 and did not disclose the same either to the Company or to BSE Ltd. and thereby violated Regulation 13(4) read 13(5) of the PIT Regulations. Similarly, during the quarter ending June 2009 Appellant No. 1 acquired additional 3,60,000 shares (3.25%) on April 11, 2009 and did not disclose the same under both the PIT Regulations as well as under 7(1A) read 7(2) of the SAST Regulations. Similar non- disclosure violations are noted for during quarter ending December 2010, March 2012 and December 2012, which all together resulting in the following disclosure violations:- “a. Noticee No. 1 (Appellant No. 1) had failed to make disclosures to the Company and BSE under regulations 13(3), 13(4), 13(4A) read with 13(5) of PIT Regulations for transactions dated March 25, 2009, April 11, 2009, October 13, 2010 and December 04, 2012 and under regulations 7(1A) read with 7(2) of SAST Regulations for transactions dated April 11, 2009. b. Noticee No. 2 (Appellant No. 2) had failed to make disclosures to the Company and BSE under regulations 13(3), 13(4), 13(4A) read with 13(5) of PIT Regulations for transactions dated October 13, 2010, January 30, 2012 and December 04, 2012.”

5. The relevant regulatory provisions are reproduced for

convenience as follows:- “PIT Regulations, 1992 Continual Disclosure 13(3) Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form C the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such holdings from the last disclosure made under sub regulation (1) or under this sub- regulation; and such change exceeds 2% of total shareholding or voting rights in the company. (4) Any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such persons and his dependents (as defined by the company) from the last disclosure made under sub-regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. (4A) Any person who is a promoter or part of promoter group of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such persons from the last disclosure made under Listing Agreement or under sub-regulation (2A) or under this subregulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. (5) The disclosure mentioned in sub-regulations (3), (4) and (4A) shall be made within two working days of: (a) the receipts of intimation of allotment of shares, or (b) the acquisition or sale of shares or voting rights, as the case may be. SAST Regulations, 1997 Acquisition of 5 per cent and more shares or voting rights of a company. 7(1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, or under second proviso to subregulation (2) of regulation 11 shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. Explanation.—For the purposes of sub-regulations (1) and (1A), the term ‘acquirer’ shall include a pledgee, other than a bank or a financial institution and such pledgee shall make disclosure to the target company and the stock exchange within two days of creation of pledge. (2) The disclosures mentioned in sub-regulations (1) and (1A) shall be made within two days of,— (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be.”

6. It is the submission of the learned Counsel for

appellants Ms. Poonam D. Gadkari that disclosures have been made under Regulation 8 of the SAST Regulations as annual disclosures for the relevant year. Moreover, as far as the alleged SAST violation is concerned the appellants were not advised that on conversion of warrants and on allotment of shares on preferential basis such disclosures were required. There was such a bonafide belief and since it was disclosed under the annual reports there was no malafide intention behind the non-disclosure. Moreover, due to such non- disclosure no investor was affected.

7. We note that the acquisition through conversion of

warrants or preferential allotment etc. is only small percentage of the equity capital of the Company. Moreover, it is an admitted fact that the said transactions have been disclosed to the Stock Exchange through annual reports of the Company which though is not within the tight timelines specified under either the PIT Regulations or under the SAST Regulations. Therefore, we do not accept the argument that there was no violation or the submission that disclosures made through the annual reports is sufficient. Non-disclosure under these regulations is therefore an admitted fact. However, since disclosure in the annual report was made and the appellants did not derive any other advantages out of such non-disclosure we accept the submission that there was no malafide intention behind the non-disclosure.

8. For the reasons stated aforesaid, we find that on account

of the lapse on part of the appellants which had no malafide intentions the penalty imposed is excessive. Consequently, in the interest of justice, while upholding the impugned order we modify the penalty reducing it to a total of Rs. 7 lakh (Rs. 5 lakh on Appellant No. 1 and Rs. 2 lakh on Appellant No. 2) which shall be paid by the appellants within four weeks from today. The appeal is partly allowed. No orders on costs. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C.K.G. Nair Member Sd/- Justice M.T. Joshi Judicial Member 26.11.2019 Prepared and compared by:msb