BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on: 6.11.2019 Date of Decision: 26.11.2019 Appeal No.185 of 2018

1. Bharat J. Patel 2, Divya Darshan, N.S. Road No.5, JVPD Scheme, Vile Parle, Mumbai-400058.

2. Minal Bharat Patel 2, Divya Darshan, N.S. Road No.5, JVPD Scheme, Vile Parle, Mumbai-400058.

3. Pat Financial Consultants Private Ltd. 3-3A, Churchgate House, 1st Floor, 32/34, Veer Nariman Road, Fort, Mumbai – 400 001. ….. Appellants

Versus Securities & Exchange Board of India Plot No.C4-A, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400051. …… Respondent Mr. Neville Lashkari, Advocate with Ms. Purva V. Buch, Advocates i/b. M&M Legal Ventures for the Appellant. Mr. Vishal Kanade, Advocate with Mr. Anubhav Ghosh and and Ms. Rashi Dalmia, Advocates i/b. The Law Point for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice M.T. Joshi

1. All the present appellants were penalized in the

amount of Rs.2 lakhs each for violation of the provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as ‘PIT Regulations’) and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘SAST Regulations’).

2. Admittedly, there had been various transfers of shares

of Jyoti Ltd. between the present three appellants during the period from 1st October, 2011 to 2nd August, 2013. According to the respondent Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) the disclosures of the same were required to be made as mandated by the following provisions which are as under:- Regulation 13 (1) of PIT Regulations Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form A, the number of shares or voting rights held by such person, on becoming such holder, within 2 working 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. Regulation 13 (3) of SEBI (PIT) Regulations, 1992 Any person who holds more than 5% shares for 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 subregulation (1) or under this sub-regulation; and such change exceeds 2% of total shareholding or voting rights in the company. Regulation 13 (4) of PIT Regulations 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 person 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 “5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. Regulation 13 (5) of SEBI (PIT) Regulations, 1992 The disclosures mentioned in sub-regulations (3), (4) and (4A) shall be made within two working days of (a) the receipt of intimation of allotment of shares or (b) the acquisition or sale of shares or voting rights, as the case may be. Regulation 29 (1) of SAST Regulations, 2011 Any acquirer who acquires shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, aggregating to five per cent or more of the shares of such target company, shall disclose their aggregate shareholding and voting rights in such target company in such form as may be specified. Regulation 29 (2) of SEBI (SAST) Regulations, 2011 Any person, who together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, 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 two per cent of total shareholding or voting rights in the target company, in such form as may be Specified.

3. The appellants’ reason that all the transfers were

between the group i.e. the husband and wife i.e Appellant no.1 and 2 and their private limited Company i.e. Appellant no.3. Further, those were in the nature of borrowing and lending of the shares, making certain adjustments or transfer of the shares to the broker as a collateral and, therefore, those are beyond the scope of the above regulations and some of them are exempted in terms of Regulation 10 of the SAST Regulations. Respondent SEBI however did not agree with the same. Hence the present appeal.

4. The details of the transfer are as under:-

During the relevant period, appellant Bharat Patel was the director of the Company Jyoti Ltd. On April 1, 2013 appellant Bharat Patel was holding 1,21,074 shares. On 17th April, 2017 from the joint account of Minal Patel as the first holder and Bharat Patel as the second holder 13,35,834 shares were transferred to the individual account of appellant Bharat Patel. By virtue of this transfer the holding of appellant Bharat Patel reached 8.51% of the shareholding of the Company. This transfer according to SEBI triggered the disclosure requirement under Regulation 13(4) and 13(1) of the PIT Regulations and Regulation 29(1) of SAST Regulations.

5. On 2nd August, 2013, appellant Bharat Patel

transferred back 13,35,834 shares from his account to the above referred joint demat account. This decreased the holding of appellant Bharat Patel which caused change in the shareholding to the extent of 7.80% of the total shareholding. This again has triggered disclosure requirements from appellant Bharat Patel under Regulation 13(4) and 13(3) of the PIT Regulations and Regulation 29(2) of SAST Regulations.

6. Transfer of 13,35,834 shares and re-transfer of the

same as detailed supra has caused necessity of disclosure by Minal Patel as the first holder under Regulation 13(3) of the PIT Regulations and Regulation 29(2) of SAST Regulations as well as disclosure requirement under Regulation 13(1) of the PIT Regulations and Regulation 29(1) of SAST Regulations. Besides this, on January 31, 2012 appellant Minal Patel acquired 13,30,000 shares which triggered the disclosure requirement under Regulation 13(1) of the PIT Regulations and Regulation 29(1) of the SAST Regulations.

7. So far as appellant PAT Financial Consultants Ltd is

concerned, on 2nd August, 2013 it received 13,35,834 shares from joint account of Minal Patel and Bharat Patel. It triggered the disclosure requirement under Regulation 13(1) of the PIT Regulations and Regulation 29(1) of SAST Regulations. Further, the appellant PAT Financial Consultants Ltd transferred 7,60,000 shares on 5th August, 2013 to a different entity which transaction triggered disclosure requirement under Regulation 13(3) of the PIT Regulations and Regulation 29(2) of SAST Regulations. Lastly, this appellant PAT Financial Consultants Ltd. again acquired 7,60,000 shares on August 7, 2013 which resulted into the requirement of disclosure under Regulation 13(1) of the PIT Regulations and Regulation 29(1) of SAST Regulations.

8. All the present appellants submitted that all the three

accounts are of the same family. Therefore they should be considered as a group of persons acting in concert. The total holding had not undergone any change in order to attract the provisions of the Regulations. The consolidated holding of the group remained intact. The transfer and re-transfer of 13,35,834 shares between the account of appellant Bharat Patel and joint account of Minal Patel and Bharat Patel was by way of temporary loan. These transfers are exempted vide Regulation 10 of SAST Regulations. So far as transfer of 13,30,000 shares by appellant Minal Patel is concerned those were infact transfer of shares to Finquest Securities Pvt. Ltd. as a margin for the purpose of carrying other trades. After the transactions, the shares were re-transferred to Minal Patel’s account. As regard the transfer of 7,60,000 shares by appellant PAT Financial Consultants Pvt. Ltd., it was submitted that the same was towards early pay-in of expected in lieu of margin payment and, therefore, all the appellants wanted that they should be exonerated from the same.

9. The Adjudicating Office however held that so far as

the case of loan of share is concerned it was a pledge which required disclosure. Further, the defense that the transfers are exempted by Regulation 10 of SAST Regulation was not accepted. In the circumstances relying on the observation of this Tribunal in order dated 30th September, 2014 between Akriti Global Traders Ltd. vs. SEBI, Appeal no.78 of 2014 it was held that the appellant failed to make the disclosure under the regulations. Therefore, holding that the effect of non disclosure cannot be quantified in terms of disproportionate gain or unfair advantage by the appellant or the loss suffered by the investors, penalty of Rs.2 lakhs each was imposed though according to Section 15A of the Securities and Exchange Board of India Act, 1992 the penalty may extend to Rs.1 lakh for each day of failure subject to a maximum of Rs.1 crore.

10. Upon hearing both sides, in our view, the order of the

Adjudicating Officer cannot be faulted with. Regulation 10 of the SAST Regulations on which the appellants placed reliance, provide for general exemptions. The relevant provisions reads as under:- General exemptions. 10.(1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor,— (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,— (i) immediate relatives; (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing regulations or as the case may be, the listing agreement or these regulations for not less than three years prior to the proposed acquisition; (iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than fifty per cent of the equity shares of such company, other companies in which such persons hold not less than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons; Explanation: For the purpose of this subclause, the company shall include a body corporate, whether Indian or foreign; (iv) persons acting in concert for not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing regulations or as the case may be, the listing agreement; (v) shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing regulations or as the case may be, the listing agreement, and any company in which the entire equity share capital is owned by such shareholders in the same proportion as their holdings in the target company without any differential entitlement to exercise voting rights in such company: ………………………….”

11. It could thus be seen that what is exempted under this

regulation is the obligation to make an open offer. The disclosure requirement is not exempted by this Regulation.

12. It is to be noted that while appellant Bharat Patel holds

an independent account. So far as another account is concerned appellant Minal Patel is the first holder of the same alongwith Bharat Patel. The next of the account is of appellant PAT Financial Consultants Pvt. Ltd. which is a private limited Company. As per the reply submitted to SEBI, appellant PAT Financial Consultants Ltd had various shareholders like son and daughter of appellant Bharat Patel and Minal Patel besides themselves. The term ‘persons acting in concert’ has nothing to do with the disclosure requirement. The same is to be applied in case of requirement of open offer to be made under the regulations. It is an admitted fact that the beneficial ownership in the shares was transferred at the various points of time which required to be disclosed by the appellant either to the Company or to the stock exchanges as per the regulations. Having failed in this, they would be liable for penalty.

13. The order of the Adjudicating Officer would show that

a lenient view is already taken on the imposition of penalty as described supra. In the result, the following order. The appeal is hereby dismissed. 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 RHN