SEBI: The statutory timeline stipulated in regulation 29(3) of the SAST Regulations are Mandatory, Failure of which imposes penalty

SEBI: The statutory timeline stipulated in regulation 29(3) of the SAST Regulations are Mandatory, Failure of which imposes penalty

The Adjudicating Officer(AO) of the Securities and Exchange Board of India (SEBI) has imposed a monetary penalty of Rs. One Lakh upon the Noticee viz. Mr. Aaditya Tikmani under section15A(b)of the SEBI Act as the Noticee failed to make the required disclosures in terms of the provisions of regulation 29(2)read with regulation 29(3) of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 (SAST Regulations).

In this case, UV Boards Limited(UVBL) had informed SEBI that during the course of analysis in the scrip of UVBL for the period of February 12, 2015 to March 09, 2016, it was observed that there was a decrease in the shareholding of the Noticee, who was a public shareholder ,which required disclosures under regulation 29(2) read with regulation 29(3) of the SAST Regulations.

During the examination SEBI observed that the Noticee was holding 8.82% shares of UVBL on January 29, 2016. On February 08, 2016, pursuant to sale of shares of UVBL by the Noticee on various dates, the shareholding of the Noticee in UVBL decreased from 8.82% to 6.38% (i.e. more than 2%). Pursuant to above selling of shares of UVBL, the Noticee was under obligation to make requisite disclosure in terms of regulation 29(2) read with regulation 29(3) of the SAST Regulations to the BSE and UVBL, respectively.

SEBI prima faciefelt satisfied that there were sufficient grounds to inquire and adjudicate upon the aforesaid violation of provisions of the regulation 29(2)read with regulation 29(3) of the SAST Regulation by the Noticee.

The Noticee had made oral submission that the violation was unintentional and it was his first time violation. The Noticee also submitted that there was no loss caused to the investors due to the violation. It was also requested by the Noticee that a lenient view may be taken in the matter.

The AO observed that the Noticee had admitted his sale of shares as impugned in this case. It was also an admitted position that the disclosure obligations in this case was triggered on account of change in shareholding of the Noticee in the UVBL on February 08, 2016.

The only question in this case was whether the Noticee made disclosures in terms of the provisions of regulation 29(2)read with regulation 29(3) of the SAST Regulations.

It was elucidated by the AO that the disclosures requirements under the respective regulations serve very important purposes. The stock exchange is informed so that the investing public will come to know of the position enabling them to stick on with or exit from the company. Timely disclosures of the details of the shareholding of the persons acquiring/transferring substantial stake is of significant importance as such disclosures also enable the regulators to monitor such acquisitions.

The judgement of the Hon'ble SAT in the matter of Coimbatore Flavors& Fragrances Ltd. Vs SEBI was also referred to wherein it was held that the purpose of these disclosures is to bring about more transparency in the affairs of the companies. True and timely disclosures by a company or its promoters are very essential from two angles. Firstly; investors can take a more informed decision to invest or not to invest in a particular scrip secondly; the Regulator can properly monitor the transactions in the capital market to effectively regulate the same.

Reference was also made to the judgement of Milan Mahendra Securities Pvt. Ltd. vs. SEBI wherein the Hon'ble SAT, had held that the purpose of these disclosures is to bring about transparency in the transactions and assist the Regulator to effectively monitor the transactions in the market.

Lastly, the AO observed that in the facts and circumstances of this case, the failure to make disclosure as found in this case would defeat the purpose of the provisions of Regulation 29(2) read with 29(3) of the SAST Regulations. The statutory timeline stipulated in regulation 29(3) of the SAST Regulations was mandatory and failure to make disclosures led to the imposition of monetary penalty upon the Noticee.