Change in shareholding beyond threshold requires timely disclosure: SEBI (SAST) Regulations

Change in shareholding beyond threshold requires timely disclosure: SEBI (SAST) Regulations

The Noticee allegedly violated the provisions of Regulation 29 (2) read with Regulation 29 (3) of the SEBI (SAST) Regulations, 2011.

The Adjudicating Officer(AO) of SEBI has imposed a penalty of Rupees Two lakhon the Noticee i.e., Maxworth Investment Ltd., for violation of the provisions of Regulation 29 (2) read with Regulation 29 (3) of SEBI (Substantial Acquisition of Shares & Takeovers), 2011 (SAST Regulations).

In this matter, SEBI had observed from the quarterly shareholding pattern of Karuturi Global Ltd.,( Target Company/ KGL), a Company listed at the National Stock Exchange (NSE), for the quarter ending period June 2015 and September 2015,that the shareholding of Maxworth Investment Ltd., (Noticee) which held 4,10,00,000 shares of KGL constituting 5.06% of the share capital of KGL as at the quarter ending period June 2015, had decreased to 1,18,75,000 shares i.e., 1.16% of the share capital of KGL as at the quarter ending period September 2015.

It was observed that the Noticee failed to make the requisite disclosures under SEBI (SAST) Regulations to the Stock Exchange where the shares of the target company are listed i.e. NSE and to the target company. Therefore, it was alleged that the Noticee had violated the provisions of Regulation 29 (2) read with Regulation 29 (3)of the SEBI (SAST) Regulations, 2011.

It was noted that the Noticee, even after due service of Notices, had neither provided any reply to the allegations made in the Show Cause Notice (SCN) nor availed the opportunity of personal hearing to advance its submissions.

It was observed by the AO that it is obligatory on the part of any person who holds more than 5% of shareholding, to make the requisite disclosure to the Stock Exchange and to the Company, in case of any change in shareholding in excess of 2% or more within 2 working days.

As per the AO, the Noticee is a shareholder of KGL holding 4,10,00,000shares representing 5.06% of the shareholding of KGL as at the quarter ending period June 2015. The shareholding of the Noticee decreased to 1,18,75,000 shares representing 1.16% of the shareholding of KGL as at the quarter ending period September 2015. The total change in the shareholding of the Noticee was 3.9%.

Pursuant to change in shareholding in excess of 2% or more, the Noticee is obligated to make the requisite disclosures in terms of Regulation 29 (2) of SEBI (SAST) Regulations to the NSE and to the target company.

The AO affirmed that no disclosures were received by NSE & KGL from the Noticee pursuant to its change in shareholding in excess of more than 2%in the target company. There was no material even to indicate any subsequent disclosures about the transaction in reasonable time. Thus, this was a case of complete failure on the part of the Noticee who is the public shareholder in KGL.

The judgment of the Hon'ble SAT in the matter of Akriti Global Traders Ltd. Vs SEBI was also referred to wherein it was observed that obligation to make disclosures under the provisions contained in SAST Regulations, 2011 as also under PIT Regulations, 1992 would arise as soon as there is acquisition of shares by a person in excess of the limits prescribed under the respective regulations and it is immaterial as to how the shares are acquired.

Therein it was also held that irrespective of the fact as to whether the shares were purchased from open market or shares were received on account of amalgamation or by way of bonus shares, if, as a result of such acquisition/ receipt, percentage of shares held by that person exceeds the limits prescribed under the respective regulations, then, it is mandatory to make disclosures under those regulations.

The Noticee by not making the requisite disclosures upon change in more than 2% shareholding in the target company violated the provisions of Regulation 29 (2) read with Regulation 29 (3) of SEBI (SAST) Regulations.