1. Acquisition of shares through warrant conversion — Alleged violation of Regulation 10 and 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 — Challenge to SAT orders. (Para 3 , 4 , 5 , 6 , 7 , 8 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 )
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2022 Supreme(SC) 582
SUPREME COURT OF INDIA
SANJIV KHANNA, BELA M. TRIVEDI, JJ.
Securities And Exchange Board Of India - Appellant
Versus
Sunil Krishna Khaitan And Others - Respondents
Civil Appeal No. 8249 of 2013, 1762 of 2014
Decided on : 11-07-2022
Advocates:
Advocate Appeared:
For the Appellant : Mr. Bhargava V. Desai, AOR
For the Respondent: Mr. Somasekhar Sundaresan, Adv. Mr. Divyam Agarwal, Adv. Mr. Pulkit Sukramani, Adv. Ms. Vidhi Jhawar, Adv. Mr. Abhishek, Adv. Mr. Dheeraj Nair, AOR Dr. Sumant Bharadwaj, Adv. Mr. Vedant Bhardwaj, Adv. Ms. Mridula Ray Bharadwaj, AOR
Advocate Appeared:
For the Appellant : Mr. Bhargava V. Desai, AOR
For the Respondent: Mr. Somasekhar Sundaresan, Adv. Mr. Divyam Agarwal, Adv. Mr. Pulkit Sukramani, Adv. Ms. Vidhi Jhawar, Adv. Mr. Abhishek, Adv. Mr. Dheeraj Nair, AOR Dr. Sumant Bharadwaj, Adv. Mr. Vedant Bhardwaj, Adv. Ms. Mridula Ray Bharadwaj, AOR
Regulation 10 of the Takeover Regulations 1997 is triggered only when the combined holding of an acquirer and persons acting in concert crosses 15%. Furthermore, the Appellate Tribunal cannot substitute discretionary directions under Regulation 44 with monetary penalties under Section 15H if such proceedings were not initiated.
Headnote:(A) Securities and Exchange Board of India Act, 1992 - Sections 11, 11B, and 15T - SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - Regulations 10, 11(1), 44, and 45 - The court interpreted Regulation 10 regarding when a public announcement for share acquisition is required, and noted violations by the respondents in relation to public announcements and the issuance of penalties by the Board. The Appellate Tribunal upheld some penalties but disagreed with SEBI’s direction for public announcements as too delayed. (Paras 24, 30, 60, and 76)
(B) Regulation Interpretation - The court emphasized the need for clarity and the power of discretion in regulatory actions, affirming the role of the Appellate Tribunal in interpreting the application of regulations. (Paras 85 and 92)
(C) Delay and Laches in Enforcement - The court expressed concern about significant delays in issuing show-cause notices and the implications of such delays on regulatory enforcement. (Paras 80 and 91)
Facts of the case:
The appeals stem from alleged violations of securities regulations by respondents in share acquisitions without timely public announcements, leading to penalties imposed by SEBI. The controversies involved delays and interpretations of regulatory provisions, particularly concerning public offers and penalties.
Findings of Court:
The Appellate Tribunal’s modifications were upheld in terms of penalties for the violations, but the obligation to issue public announcements was deemed inappropriate given the delays involved.
Issues: The main issues included the interpretation of regulators’ powers under securities laws, the necessity of public announcements following acquisitions, and appropriate penalties for violations.
Ratio Decidendi: The court ruled that the Appellate Tribunal has broad powers to interpret and modify regulatory directives to ensure adherence to investor protection, emphasizing the importance of timely regulatory action to maintain market integrity.
Result: Appeals dismissed with clarity given on the future regulatory approach.
Legal Category Hierarchy
- securities law
- administrative law
- practice and procedure
- statutory interpretation
Table of Contents
2. Whether Regulation 10 applies to individual shareholding increases when collective group holding exceeds 15% — Scope of Appellate Tribunal's power to substitute directions with monetary penalties. (Para 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 )
3. Interpretation of acquirer as including persons acting in concert — Impact of inordinate delay on remedial directions — Application of legitimate expectation and doubtful penalisation principles. (Para 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 69 , 70 , 71 , 72 , 75 , 76 , 79 , 80 , 81 , 82 , 83 )
4. Regulation 10 is triggered only when combined holding of acquirer and persons acting in concert crosses 15% — Appellate Tribunal cannot initiate penalty proceedings under Section 15-H. (Para 44 , 46 , 48 , 90 , 91 )
5. Appeals dismissed — SAT orders upheld with clarification that the Appellate Tribunal cannot substitute regulatory directions with statutory penalties not initiated by the Board. (Para 92 , 93 )
6. Does Regulation 10 of the Takeover Regulations 1997 apply if an individual's shareholding crosses 15% while the collective group holding is already above 15%?
No. Regulation 10 applies only when the combined holding of the acquirer and persons acting in concert crosses the 15% threshold. If the combined holding is already 15% or more, Regulation 10 is not triggered; instead, Regulation 11(1) regarding creeping acquisitions may apply. (Para 44 , 46 , 48 )
7. Does Regulation 3(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 apply retrospectively to acquisitions made under the 1997 Regulations?
No. The court held that Regulation 3(3) of the 2011 Regulations, which mandates an open offer when an individual's shareholding exceeds thresholds regardless of aggregate group holding, is not clarificatory or declaratory and cannot operate retrospectively. (Para 61 , 62 , 63 )
8. Does an inordinate delay in issuing a show-cause notice exonerate a party from statutory violations?
While delay alone may not exonerate a defaulter, it can render specific remedial directions, such as making a belated public announcement and open offer, unsustainable and iniquitous, especially when the delay is inordinate and no market manipulation is proven. (Para 79 , 80 , 81 , 82 , 83 )
9. Can the Securities Appellate Tribunal substitute a Board's regulatory direction with a monetary penalty under Section 15-H of the SEBI Act?
No. The Appellate Tribunal cannot initiate penalty proceedings under Section 15-H or impose such penalties if the Board did not initiate them through an adjudicating officer. It can only uphold, set aside, or modify existing directions or penalties. (Para 89 , 90 , 91 )
10. How is the principle of doubtful penalisation applied to the interpretation of penal or detrimental statutory provisions?
If two reasonable constructions of a penal provision are possible, the court must lean toward the construction that exempts the subject from penalty rather than the one that imposes it, ensuring persons are not penalised except under clear law. (Para 55 , 56 , 57 )
JUDGMENT :
SANJIV KHANNA, J.
This common judgment would decide the aforesaid two appeals preferred by the Securities and Exchange Board of India1[The ‘Board’, for short.], whereby it has challenged the order of the Securities Appellate Tribunal2[The ‘Appellate Tribunal’, for short.] dated 19th June 2013 in Appeal No. 23 of 2013 titled ‘ Sunil Krishna Khaitan and Others v. Securities and Exchange Board of India ’; and the order dated 31st October 2013 in Appeal No. 2 of 2013 titled ‘ Smt. Madhuri S. Pitti and Others v. Securities and Exchange Board of India ’.
2. Primary questions of law raised in these appeals relates to the interpretation of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; 3[Hereinafter referred to as ‘Takeover Regulations 1997’.] the power and exercise of the power by the Board under Regulations 44 read with 45 of the Takeover Regulations, 1997; and the power and jurisdiction of the Appellate Tribunal under Section 15T of the Securities and Exchange Board of India Act, 1992. 4[For short, the ‘Act’.]
A. Background facts:
I) Appeal No. 23 of 2013 (Sunil Krishna Khaitan’s case)
3. Khaitan Electrical Limited, 5[For short, ‘KEL’.] a company incorporated in 1975, listed on BSE Limited and National Stock Exchange Limited, is engaged in the business of manufacturing and marketing of electrical goods.
4. KEL was founded by late Shri Krishna Khaitan (R12 in the appeal), who had passed away on 04th November 2012 and is represented by his legal representatives. The promoter group consists of his family member/relative and associate entities, which include other respondents in the appeal, namely Sunil Krishna Khaitan, M/s. Khaitan Lefin Limited and M/s. The Oriental Mercantile Company Limited (R11st, R13rd and R14th respectively).
5. In the Extraordinary General Meeting held on 23rd March 2006, the shareholders of KEL had approved issuance of 10,00,000 equity share warrants with the face value of Rs. 10/- each at a premium of Rs. 50/- each on preferential basis to the respondents. The warrants were to be converted into equity shares within a period of eighteen months from the date of allotment.
6. In the Extraordinary General Meeting held on 29th November 2006, the shareholders had approved issuance of 10,00,000 warrants with face value of Rs. 10/- each with premium of Rs. 121/- each on preferential basis to M/s. Khaitan Lefin Limited (R13), 6[For short, ‘KLL’.] an identified member of the promoter group, to be converted into equity shares within a period of eighteen months. This Extraordinary General Meeting had also approved issuance of 25,00,000 equity shares of face value of Rs. 10/- each at a premium of Rs. 125/- each on preferential basis to strategic investors. However, in this appeal, we are not concerned with the issue of shares to the strategic investors.
7. On 12th March 2007, the respondents acquired 13,00,000 shares in KEL in two tranches i.e., 5,00,000 in one transaction and 8,00,000 shares in the other. Upon receipt of the full consideration in terms of the warrants, KEL had issued shares to the respondents consequent to which the shareholdings of the respondents and the promoter group underwent a change, which are required to be noted and are reproduced :
8. The respondents were served with the show-cause notice dated 26th March 2012 issued by the Board with respect to violation of Regulations 10 and 11(1) of the Takeover Regulations 1997, calling upon them to show cause why suitable directions under Sections 11 and 11B of the Act and Regulations 44 and 45 of the Takeover Regulations 1997 read with corresponding provisions of Regulations 33 and 35 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 20117[Hereinafter referred to as the ‘Takeover Regulations 2011’.] should not be issued against them. Violation of Regulation 10 was predicated on the ground that on 12th March 2007, shareholding of KLL (R13) had individually increased from 10.52% to
