# SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL KRISHNA KHAITAN AND OTHERS

- **Citation:** [2022] 18 S.C.R. 987
- **Court:** Supreme Court of India
- **Decided:** 2022-07-11
- **Case number:** Civil Appeal No. 8249 of 2013
- **Bench:** Sanjiv Khanna, Bela M. Trivedi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/securities-and-exchange-board-of-india-v-sunil-krishna-khaitan-and-others-36190
- **Pages:** 66

## Headnote

SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 -Regulation 10 - Interpretation of Regulation
10 of the SEBI Regulations, 1997 - Held: Regulation 10 states that
no 'acquirer' shall acquire voting rights, which taken together with
the shares or voting rights held by him or by a 'person acting in
concert' would entitle the 'acquirer' to exercise 15% or more of the
voting rights in the company, unless such 'acquirer' makes public
announcement to acquire shares in accordance with the regulations
-The word 'acquirer' used in Regulation 10 takes its meaning from
the definition clause (b) to Regulation 2(1), which refers to the
shareholder as an individual and also 'person acting in concert'
with the him, which expression has been very widely defined vide
clause (e) to Regulation 2(1) of the Takeover Regulations 1997 -
Regulation 10 does not apply when the 'acquirer' already holds
more than 15% shares or voting rights in the target company - The
'acquirer', for the purpose of the said Regulation, not only means
the individual person but also the 'person acting in concert' with
the individual person.
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 -Regulation 44 and 45 -Regulation 11 and the
penalty under regulations 44 and 45 of the Takeover Regulations
1997 - Held:Use of the word 'may' and not 'shall' in Regulation 44
is significant - It is not mandatory that in case of every violation
and breach of Regulations 10, 11 and 12, direction under Regulation
44 shall be issued - The Board, therefore, when it decides to exercise
its power under Regulation 44 and issues directions under the said
Regulation has to keep the two facets in mind, namely, (i) interest of
the securities market; and (ii) protection of interest of the investorsRegulation 44 is not a strict liablity provision -Nowhere, Regulation
45 stipulates that in case of violation of Regulations 10, 11 or 12 of
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the Takeover Regulations 1997, the Board must initiate action and
issue directions in terms of Regulation 44.
Securities and Exchange Board of India Act, 1992 (SEBI Act)
- S. 15T - Power of Appellate Tribunal - The Appellate Tribunal
does not have the power for the first time to initiate and thereupon,
impose penalty for non-compliance of the provisions of the
Regulations under Chapter VI-A of the Act while deciding an appeal
against directions issued under Regulation 44 of the Takeover
Regulations, 1997 - That power is vested with the authority specified
in the Act or the Regulations - The Appellate Tribunal is an appellate
forum and not the authority empowered to initiate penalty
proceedings under Section 15-H or suo moto issue directions under
Section 11, 11B or 11(4)(d) of the Act - It can uphold or set aside
the direction issued, or modify and substitute the direction issued
under Regulation 44 of the Takeover Regulations 1997 read with
Sections 11, 11B and 11(4)(d) of the Act.
Words and Phrases - Acquirer - discussed and explained.
Doctrines/Principles - Principle of doubtful penalisation.
Dismissing the appeals by the Board, the Court
HELD: (Interpretation of Regulation 10 of the Takeover
Regulations)
1.1 Regulation 10 states that no 'acquirer' shall acquire
voting rights, which taken together with the shares or voting
rights held by him or by a 'person acting in concert' would entitle
the 'acquirer' to exercise 15% or more of the voting rights in
the company, unless such 'acquirer' makes public announcement
to acquire shares in accordance with the regulations. The word
'acquirer' used in Regulation 10 takes its meaning from the
definition clause (b) to Regulation 2(1), which refers to the
shareholder as an individual and also 'person acting in concert'
with the him, which expression has been very widely defined vide
clause (e) to Regulation 2(1) of the Takeover Regulations 1997.
The Appellate Tribunal has, therefore, rightly held that the word
'acquirer',

## Text

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987
SECURITIES AND EXCHANGE BOARD OF INDIA
v.
SUNIL KRISHNA KHAITAN AND OTHERS
(Civil Appeal No. 8249 of 2013)
JULY 11, 2022
[SANJIV KHANNA AND BELA M. TRIVEDI, JJ.]
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 -Regulation 10 - Interpretation of Regulation
10 of the SEBI Regulations, 1997 - Held: Regulation 10 states that
no 'acquirer' shall acquire voting rights, which taken together with
the shares or voting rights held by him or by a 'person acting in
concert' would entitle the 'acquirer' to exercise 15% or more of the
voting rights in the company, unless such 'acquirer' makes public
announcement to acquire shares in accordance with the regulations
-The word 'acquirer' used in Regulation 10 takes its meaning from
the definition clause (b) to Regulation 2(1), which refers to the
shareholder as an individual and also 'person acting in concert'
with the him, which expression has been very widely defined vide
clause (e) to Regulation 2(1) of the Takeover Regulations 1997 -
Regulation 10 does not apply when the 'acquirer' already holds
more than 15% shares or voting rights in the target company - The
'acquirer', for the purpose of the said Regulation, not only means
the individual person but also the 'person acting in concert' with
the individual person.
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 -Regulation 44 and 45 -Regulation 11 and the
penalty under regulations 44 and 45 of the Takeover Regulations
1997 - Held:Use of the word 'may' and not 'shall' in Regulation 44
is significant - It is not mandatory that in case of every violation
and breach of Regulations 10, 11 and 12, direction under Regulation
44 shall be issued - The Board, therefore, when it decides to exercise
its power under Regulation 44 and issues directions under the said
Regulation has to keep the two facets in mind, namely, (i) interest of
the securities market; and (ii) protection of interest of the investorsRegulation 44 is not a strict liablity provision -Nowhere, Regulation
45 stipulates that in case of violation of Regulations 10, 11 or 12 of
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the Takeover Regulations 1997, the Board must initiate action and
issue directions in terms of Regulation 44.
Securities and Exchange Board of India Act, 1992 (SEBI Act)
- S. 15T - Power of Appellate Tribunal - The Appellate Tribunal
does not have the power for the first time to initiate and thereupon,
impose penalty for non-compliance of the provisions of the
Regulations under Chapter VI-A of the Act while deciding an appeal
against directions issued under Regulation 44 of the Takeover
Regulations, 1997 - That power is vested with the authority specified
in the Act or the Regulations - The Appellate Tribunal is an appellate
forum and not the authority empowered to initiate penalty
proceedings under Section 15-H or suo moto issue directions under
Section 11, 11B or 11(4)(d) of the Act - It can uphold or set aside
the direction issued, or modify and substitute the direction issued
under Regulation 44 of the Takeover Regulations 1997 read with
Sections 11, 11B and 11(4)(d) of the Act.
Words and Phrases - Acquirer - discussed and explained.
Doctrines/Principles - Principle of doubtful penalisation.
Dismissing the appeals by the Board, the Court
HELD: (Interpretation of Regulation 10 of the Takeover
Regulations)
1.1 Regulation 10 states that no 'acquirer' shall acquire
voting rights, which taken together with the shares or voting
rights held by him or by a 'person acting in concert' would entitle
the 'acquirer' to exercise 15% or more of the voting rights in
the company, unless such 'acquirer' makes public announcement
to acquire shares in accordance with the regulations. The word
'acquirer' used in Regulation 10 takes its meaning from the
definition clause (b) to Regulation 2(1), which refers to the
shareholder as an individual and also 'person acting in concert'
with the him, which expression has been very widely defined vide
clause (e) to Regulation 2(1) of the Takeover Regulations 1997.
The Appellate Tribunal has, therefore, rightly held that the word
'acquirer', which is a term of art,25 should not be restricted to
shares or voting rights of the individual shareholder as the term
as defined includes the 'person acting in concert' with the
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shareholder. The shareholding/voting rights of the 'acquirer', that
is the individual shareholder together with the 'person acting in
concert' decides whether the 'acquirer' is required to make a
public offer/announcement in terms of Regulation 10, which
applies when the voting rights of the 'acquirer' before acquisition
were less than 15 %, but on fresh acquisition exceed 15% of the
voting rights in the company. Regulation 10 does not apply when
the collective voting rights of the individual shareholder and the
'person acting in concert', taken together is 15% or more on the
date when fresh shares or voting rights are acquired. The
bracketed portion of Regulation 10, namely "taken together with
shares or voting rights, if any, held by him or by persons acting in
concert with him" affirms and endorses this interpretation. [Para
44][1017-F-H; 1018-A-C]
1.2 In the context of Regulation 10, this Court does not
think that the draftsmen had committed a mistake or had forgotten
the definition clauses while wording Regulation 10, wherein they
have consciously used the expression 'acquirer', after having
defined the same, instead of the word a 'person', which word has
been used in Regulations 6 and 8 of the Takeover Regulations
1997. To accept the interpretation given by the Board, we would
have to stretch the language of Regulation 10 and not read it as it
reads, by assuming that the intent is to apply Regulation 10 in
two situations (i) when the acquirer as a single entity, without
taking into consideration the shareholding or voting rights of the
person(s) acting in concert; as well as (ii) when the single entity
together with the person(s) acting in concert, acquire voting
rights, and in either case to cross the stipulation of 15% of the
voting rights. But this would require us to ignore or rewrite the
word 'acquirer' which as defined includes the 'person(s) acting
in concert'. It defeats the object and purpose behind the 'term of
art' definition. Regulation 10 applies to the 'acquirer' acquiring
voting rights, with reference to the existing holding as a person
and in concert with other persons, because the acquisition is to
be "taken together with shares or voting rights held by the
acquirer himself or by person acting in concert with him". The
combined holding of the person and the 'person acting in concert'
determines application of Regulation 10. If an 'acquirer' already
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holds more than 15 % shares or voting rights in concert with
other persons, such holding is not be fragmented to calculate the
shares or voting rights of the 'acquirer' in his personal capacity
under Regulation 10.[Para 46][1018-G; 1019-A-E]
1.3 Regulation 10 does not apply when the 'acquirer'
already holds more than 15% shares or voting rights in the target
company. The 'acquirer', for the purpose of the said Regulation,
not only means the individual person but also the 'person acting
in concert' with the individual person. In such cases, Regulation
11(1) may apply when the 'acquirer' who hold between 15% to
55% of shares or voting rights, post the acquisition of the
additional shares or voting rights is entitled to exercise more
than 5% of the voting rights. It is accepted by the Board that
they had read the expression 'acquirer' in Regulation 10 to mean
and include the shareholder along with 'person acting in concert'.
Meaning thereby, there would not be any violation of Regulation
10 if the 'acquirer', which would include the 'person acting in
concert', acquires new shares or voting rights when he
individually or along with the 'person in concert', already hold
more than 15% shares in the target company. This interpretation
was accepted and even communicated by the Board to third
parties. Adjudicating Officer(s) have accepted this interpretation
and dropped penalty proceedings, which orders have attained
finality and accepted by the Board. [Paras 48 and 50][1019-G-H;
1020-G; 1021-A]
1.4 The Board as well as the Adjudicating Officer have
treated the expression 'acquirer', for the purpose of Regulation
10, to include a 'person acting in concert' and the combined
shareholding were taken into consideration for deciding whether
there was a breach of Regulation 10. Where the 'acquirer',
including the 'person acting in concert', already had shares or
voting rights in excess of the prescribed limit, they were not
held guilty of violating Regulation 10.[Para 51][1022-F-G]
1.5 Contention of the Board that there is no estoppel against
law is well known, but the said principle is not applicable for several
reasons. First, the interpretation accepted by the Appellate
Tribunal is not only plausible but more acceptable than the
interpretation propounded by the Board. Secondly, the Board,
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which has the power to enact the Regulations, interpret and apply
them, adjudicate and also pass a penalty order in case of violation
for good and substantial reasons had interpreted regulations in
the same manner in earlier instances as interpreted by the
Appellate Tribunal. Thirdly, the adjudication orders in the present
case were passed well after the Takeover Regulations 1997 were
repealed with the enactment and enforcement of the Takeover
Regulations 2011. In the present case, therefore, we are dealing
with a legacy issue. Regulation 10 of the Takeover Regulations
1997, as interpreted and applied by the Board for over ten years,
is sought to be overturned by the Board, thereby, creating penal
consequences. This should not be permitted and is hardly
acceptable when we apply the principle of good governance and
regulation.[Para 60][1029-B-E]
1.6 On the enforcement of Takeover Regulations 2011, it
is clear that Regulation 10 will apply on an acquirer who crosses
the threshold of 15%, which under the Takeover Regulations
2011, has been increased to 25%. Further, Regulation 10 would
apply both when an individual acquirer or an acquirer in concert
with others acquires shares or voting rights beyond the threshold
level and such an acquirer would have to comply with the
applicable regulation. Takeover Regulations 1997 and Takeover
Regulations 2011, therefore, postulate different preconditions and
thresholds. Reliance placed upon the Takeover Regulatory
Advisory Committee Report would show that there was a
rethought and re-examination of Regulation 10 pursuant to which
Regulation 3(3) was enacted and made a part of the regulatory
mechanism under the Takeover Regulations 2011. It is a general
rule of law of interpretation that unless explicitly mentioned, a
law cannot be presumed to be retrospective. Further, in the
absence of express statutory authorisation, delegated legislation
in the form of rules or regulations, cannot operate retrospectively.
Certainly, Regulation 3(3) in the Takeover Regulations 2011
clarified and possibly removed the shortcoming of the 1997
Regulations.[Para 62 and 63][1030-C-F; 1031-E]
Regulation 11 and the penalty under Regulations 44 and
45 of the Takeover Regulations 1997
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2.1 The impugned order dismisses the appeal preferred by
the respondents and thereby affirms the order holding the
respondents guilty of violation of Regulation 11(1) of the Takeover
Regulations 1997. The respondents have not filed appeals or cross
objections challenging the said finding of the Appellate Tribunal.
Hence, we are not required to and would not comment on the
findings recorded by the Appellate Tribunal on violation of
Regulation 11(1) of the Takeover Regulations 1997. We proceed
on the basis that the respondents are guilty and have failed to
make public announcement within stipulated timeline as per the
Takeover Regulations 1997. The contention of the Board is that
the Appellate Tribunal should not have modified the direction
given by the Whole Time Member obligating public announcement
with the monetary penalty of Rs. 25,00,000/-. [Para 64 and
65][1032-A-D]
2.2 Discretion is an effective and an important tool which
the legislature confers and vests with the executive for effective
and good governance, administration, and in the present case -
regulation, of the securities market which has complex
commercial and economic facets. Therefore, the law provides an
option to the Board and the authorities to adopt one or the other
alternatives. However, this does not mean that the Board or the
authorities enjoy unfettered and unchecked discretionary
jurisdiction to act according to private or personal opinion in a
vague and fanciful manner. Discretion, when of wide amplitude,
and when it can have civil and penal consequences, must be
exercised in a legal and regular manner. In the context of
Regulations 44 and 45, it implies that the Board has the power to
make a choice between different courses of action or inaction.
This choice is not unfettered but is always held subject to implied
limitations inherent in every statute, limitations set by the common
law and the constitutional mandate of rule of law. Regulation 44
differs from Section 15-H, which is somewhat a strict liability
provision that applies if a person fails to comply with the clauses
(i) to (iv). The phase 'profits made out of such failure' in Section
15-H indicates that while imposing quantum of penalty the
authority should consider the profit made by the acquirer on
account of failure to comply with the requirements mentioned in
clauses (i) to (iv) of Section 15-H. Reliance placed by the Board
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on the judgments which relate to and arise from the orders passed
by the adjudicating officer under Chapter VI-A of the Act are of
no relevance, as Regulation 44 is a discretionary power and not
mandatory in nature. Not only this, the directions under
Regulation 44 are required to beissued considering relevant
factors, including, interest of the securities market and protection
of the investors in mind. Regulation 44 is not a strict liablity
provision. [Para 71, 72, 73 and 75][1037-F-H; 1038-A]
2.3 We entirely agree with the reasoning given by the
Appellate Tribunal for setting aside the directions given in the
penultimate paragraph of the orders passed by the Whole Time
Member. As noticed above, the violation alleged in Appeal No.
23 of 2013 in the case of Sunil Krishna Khaitan relates to the
years 2006-2007. The order issuing the directions was passed
on 31st December 2012, nearly eight years after the alleged
violation. The direction given is that the shareholders should be
given an option to sell the shares held by them on 16th June
2007 by directing the respondents to make a public announcement
to acquire the shares. Direction has also been given to pay
interest @ 10% per annum from 16th June 2007 till shares have
been accepted in the open offer. The dividend paid, if any, would
be adjusted. We are not stating that this direction can never be
issued, but the exercise of discretion to issue the said directions
has to be predicated and based upon good grounds and reasons.
The directions of this nature are not automatic and are to be
issued only when they are warranted and justified. The
incongruities and absurdities of the directions issued have been
highlighted and noticed in the order passed by the Appellate
Tribunal. [Para 79][1044-B-D]
Power of the Appellate Tribunal under section 15T of the
Act
3.1 An order in the form of directions under Regulation 44
of the Takeover Regulations 1997 was issued. It was this order
which was made subject matter of challenge before the Appellate
Tribunal.Thus we do not accept the contention of the Board that
the Appellate Tribunal while exercising appellate power could
not have set aside and quashed the directions given in the appeal.
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In the present case, proceedings under Section 15-H for levy of
penalty were not initiated and no order of penalty under 15-H
was passed by the adjudicating authority. The Appellate Tribunal,
therefore, was not hearing an appeal against imposition of penalty
under Section 15-H of the Act. Further, an order under Section
15-H of the Act is passed by an adjudicating authority which, while
imposing penalty, is required to take into consideration the factors
mentioned in Section 15-J.[Paras 88 and 89][1050-D-G]
3.2 The Appellate Tribunal does not have the power for
the first time to initiate and thereupon, impose penalty for noncompliance of the provisions of the Regulations under Chapter
VI-A of the Act while deciding an appeal against directions issued
under Regulation 44 of the Takeover Regulations, 1997. That
power is vested with the authority specified in the Act or the
Regulations. The Appellate Tribunal is an appellate forum and
not the authority empowered to initiate penalty proceedings
under Section 15-H or suo moto issue directions under Section
11, 11B or 11(4)(d) of the Act. It can uphold or set aside the
direction issued, or modify and substitute the direction issued
under Regulation 44 of the Takeover Regulations 1997 read with
Sections 11, 11B and 11(4)(d) of the Act. Similarly, Appellate
Tribunal can uphold, set aside, modify and even substitute the
order of penalty under Chapter VI-A of the Act. The power to
initiate and levy penalty in terms of Section 15-I is vested with an
officer to be appointed by the Board, not below the rank of
Divisional Commissioner, to act as an adjudicating officer. [Para
90][1051-A-D]
3.3 Thus, the Appellate Tribunal in appeal no.23 of 2013
could not have substituted the penalty imposed by the Board
under Regulation 44 with that of penalty under Section 15-H. An
appropriate view would be that when the Appellate Tribunal holds
that the order passed by the Whole Time member on violation of
Regulations 10, 11 and 12 is sustainable, but the directions given
in the order under Regulation 44 are not sustainable, it should
leave it open to the Board to initiate proceedings and pass an
order under Chapter VI-A of the Act.[Para 91][1052-B-D]
Commissioner of Income Tax, (Central) -I, New Delhi v.
Vatika Township Private Ltd. (2015) 1 SCC 1 : [2014]
12 SCR 1037 - followed.
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Punjab Communications Ltd. v. Union of India and
Others (1999) 4 SCC 727 : [1999] 2 SCR 1033;
Tolaram Relumal and Another v. State of Bombay [1955]
1 SCR 158; Bipinchandra Parshottamdas Patel (Vakil)
v. State of Gujarat and Others (2003) 4 SCC 642 :
[2003] 3 SCR 533; Swedish Match AB and Another v.
Securities & Exchange Board of India and Another
(2004) 11 SCC 641 : [2004] 3 Suppl. SCR 745; Official
Liquidator v. Dharti Dhan (P) Ltd. (1977) 2 SCC 166 :
[1977] 2 SCR 964; Dinesh Chandra Pandey v. High
Court of Madhya Pradesh and Another (2010) 11 SCC
500 : [2010] 8 SCR 37; Clariant International Ltd. and
Another v. Securities and Exchange Board of India
(2004) 8 SCC 524 : [2004] 3 Suppl. SCR 843; Banglore
Medical Trust v. B.S. Muddappa and Others (1991) 4
SCC 54 : [1991] 3 SCR 102; Adjudicating Officer,
Securities and Exchange Board of India v. Bhavesh
Pabari (2019) 5 SCC 90; State of Gujarat v. Patil
Raghav Natha and Others (1969) 2 SCC 187 : [1970]
1 SCR 335; State of Punjab and Others v. Bhatinda
District Coop. Milk Producers Union Ltd. (2007) 11
SCC 363 : [2007] 11 SCR 14; Commissioner of Income
Tax, U.P., Lucknow v. Kanpur Coal Syndicate, Kanpur
AIR 1965 SC 325 : [1964] SCR 85; Commissioner of
Income Tax, M.P., Bhopal v. Nirbheram Dalura (1997)
10 SCC 373- relied on.
Sanjiv Coke Manufacturing Company v. M/s. Bharat
Coking Coal Limited and Another (1983) 1 SCC 147 :
[1983] 1 SCR 1000; Prakash Gupta v. Securities &
Exchange Board of India 2021 SCC OnLine SC 485;
Zile Singh v. State of Haryana and Others (2004) 8 SCC
1 : [2004] 5 Suppl. SCR 272; Chairman, SEBI v. Shriram
Mutual Funds and Another (2006) 5 SCC 361 : [2006]
2 Suppl. SCR 833; Securities and Exchange Board of
India v. Saikala Associates Limited (2009) 7 SCC 432 :
[2009] 6 SCR 798; - referred to.
SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL
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Case Law Reference
[1983] 1 SCR 1000
referred to
Para 28
[2004] 5 Suppl. SCR 272
referred to
Para 31
[2006] 2 Suppl. SCR 833
referred to
Para 31
[2009] 6 SCR 798
referred to
Para 31
[1999] 2 SCR 1033
relied on
Para 53
[1955] 1 SCR 158
relied on
Para 55
[2003] 3 SCR 533
relied on
Para 55
[2004] 3 Suppl. SCR 745
relied on
Para 24
[2014] 12 SCR 1037
relied on
Para 63
[1977] 2 SCR 964
relied on
Para 69
[2010] 8 SCR 37
relied on
Para 69
[2004] 3 Suppl. SCR 843
relied on
Para 71
[1991] 3 SCR 102
relied on
Para 71
(2019) 5 SCC 90
relied on
Para 33
[1970] 1 SCR 335
relied on
Para 82
[2007] 11 SCR 14
relied on
Para 82
[1964] SCR 85
relied on
Para 87
(1997) 10 SCC 373
relied on
Para 87
CIVIL APPELLATE JURISDICTION : Civil Appeal No.8249
of 2013.
From the Judgment and Order dated 19.06.2013 of the Securities
Appellate Tribunal Mumbai in Appeal No.23 of 2013.
With
Civil Appeal No.1762 of 2014.
C. U. Singh, Niranjan Reddy, Sr. Advs., Bhargava V. Desai,
Shivam Jasra, Abhishek Sharma, Sahil Ravin, Advs. for the Appellant.
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Somasekhar Sundaresan, Divyam Agarwal, Pulkit Sukhramani,
Ms. Vidhi Jhawar, Abhishek, Aditya Narayan Dass, Dheeraj Nair, Ms.
Mridula Ray Bharadwaj, Advs. for the Respondents.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
This common judgment would decide the aforesaid two appeals
preferred by the Securities and Exchange Board of India1, whereby it
has challenged the order of the Securities Appellate Tribunal2 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;3the power and exercise of
the power by the Board under Regulations 44 readwith 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
A. Background facts:
I) Appeal No. 23 of 2013 (Sunil Krishna Khaitan's case)
3. Khaitan Electrical Limited,5 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. KhaitanLefin Limited
and M/s. The Oriental Mercantile Company Limited (R11st, R13rd and
R14th respectively).
1 The 'Board', for short.
2 The 'Appellate Tribunal', for short.
3 Hereinafter referred to as 'Takeover Regulations 1997'.
4 For short, the 'Act'.
5 For short, 'KEL'.
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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 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
6 For short, 'KLL'.
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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
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 17.16% and thereby it
was mandatory for KLL to make a public announcement in accordance
with the provisions of Regulation 10 read with Regulation 14(1) of the
Takeover Regulations 1997 within four working days from 12th March
2007. Further, on 12th March 2007, the collective shareholding of the
promoter group, including the acquirers, had increased from 25.83% to
34.21% and, therefore, the acquirers collectively were required to make
a public announcement in accordance with the provisions of Regulation
11(1) read with Regulations 14(1) of the Takeover Regulations 1997
within four working days from 12th March 2007.
9. The respondents contested the show-cause notice on various
grounds, which we will be canvassing subsequently.
10. The Whole Time Member8 of the Board did not agree with
the submissions made by the respondents and vide his order dated 31st
December 2012 held that there was violation of Regulations 10 and
11(1) of the Takeover Regulations 1997 and, therefore, the respondents
shall make a combined public announcement to acquire shares of the
target company,9 namely KEL, in terms of Regulations 10 and 11(1) of
the Takeover Regulations 1997 within forty-five days of the order. Further
the respondent, along with the consideration amount, shall pay interest
@ 10% per annum from 16th June 2007 till the date of payment to the
shareholders who were holding shares in KEL on the date of violation,
and whose shares shall be accepted in the open offer, albeit after
adjustment of dividend, if any, paid. The effect of the aforesaid direction
in the order dated 31st December 2012 would be examined by us
subsequently.
7 Hereinafter referred to as the 'Takeover Regulations 2011'.
8 See Section 4(1)(d) of the Act:
"The Board shall consist of the following members, namely:
(d) five other members of whom at least three shall be the whole-time members."
9Regulation 2(1)(o): "target company" means a listed company whose shares or voting
rights or control is directly or indirectly acquired or is being acquired.
SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL
KRISHNA KHAITAN AND OTHERS [SANJIV KHANNA, J.]
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11. The respondents preferred an appeal before the Appellate
Tribunal, which by the impugned order has been partly allowed. The
Appellate Tribunal has held that Regulation 10 was not violated, but
Regulation 11(1) was violated albeit the direction with regard to issue of
public announcement and open offer was not sustainable at a belated
stage. There was a delay of about 5 years in issuing show-cause
noticerelating to acquisition/incidents which pertain to the year 2006-07,
and as the impugned order came to be passed only on 31st December
2012, the directions of the Whole Time Member for issue of public
announcement and open offer were set aside. However, monetary
penalty of Rs. 25,000,00/- has been imposed.
II) Appeal No. 2 of 2013 (Madhuri S. Pitti's case)
12. Pitti Laminations Ltd.10 was incorporated in the year 1983
under the Companies Act, 1956 and its six promoters, namely, Mr. Sharad
B. Pitti, Ms. Madhuri Pitti (R21), Mr. Akshay S. Pitti (R23),Pitti Electrical
EquipmentPvt. Ltd (R22), Mrs. Shanti B. Pitti and Mr. Sharad B. Pitti
have been controlling the affairs of PLL since its inception.
13. On 22nd June 2005, PLL allotted 3,90,000 shares and 4,10,000
warrants convertible into equity shares to R23. On 26th April 2006, R23
converted some warrants into equity shares which increased his individual
shareholding in PLL from 11.87% to 16.25%.
14. On 11th April 2007, R23 converted the remaining warrants into
equity shares of PLL, which again increased his individual shareholding
in PLL from 14.88% to 15.77%.
15. At the Annual General Meeting of PLL on 11th August 2011, a
preferential allotment of 40,50,000 equity shares to R21 andR22was
authorised by the shareholders of PLL.This resulted in increase in the
total shareholding of the three respondents (R21, R22 and R23) with that
of Mr. Sharad Pitti from 41.70% to 59.21%.
16. Accordingly, a public announcement was made on 09th
September 2011 and simultaneously, a Draft Letter of Offer was filed
before the Board for its approval on 19th September 2011.
17. On a query by the Board,R23 on 28th November 2011, wrote a
letter denying his failures to make public announcement at the time of
acquisition of shares by him on 22nd June 2005, and 26th April 2006.
10 Hereinafter referred to as "PLL".
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Subsequently, on 19th March 2012 a hearing was afforded to him in this
regard. Thereafter, R23had submitted replies on three occasions on the
respect of his purported failure to make public announcement at the
time of acquisition of the shares in 2005 and 2006.
18. After a lapse of more than one year, the Board through Assistant
General Manager, Corporate Finance Department, Division of Corporate
Restructuring issued the letter dated 17th December 2012,mandating the
Merchant Banker of the respondents to inter alia revise the schedule
of the offer by taking into account the acquisitions made by R23 on 26th
April, 2006 and 11th April, 2007 and thereby, revise the offer price to the
shareholders.
19. The respondents challenged the letter before the Appellate
Tribunal, which vide impugned order dated 31st October 2013 allowed
the appeal and permitted the respondents to continue with their offer
excluding the Board's directions relating to the acquisitions by R23 in the
years 2006 and 2007. The impugned order observes that the Board by
such letters could not issue directions to listed companies, by terming it
as a mere advice without giving any choice in the matter. Further, placing
reliance on the impugned order herein in Sunil Khaitan v. SEBI, Appeal
No. 23 of 2013 decided on 19th June 2013, the Appellate Tribunal observed
that to determine whether or not the limit under Regulation 10has been
crossed, shareholdings of all members of the group of persons acting in
concert would have to be reckoned as a whole.11
B. Contentions of the appellant/Board:
20. On 12th March 2007, individual shareholding of KLL (R13)in
KEL had increased from 10.52% to 17.16%, whereas shareholding of
the promoter group had collectively increased from 25.83% to 34.21%.
Thus, there was a violation of both Regulation 10 and Regulation 11(1)
of the Takeover Regulations 1997.
11 In Appeal No. 2 of 2013 (Madhuri S. Pitti'scase), there is no specific order under
Regulation 44 by the Whole Time Member, albeit, as noticed above, directions were
issued by the Board to amend the draft letter of offer submitted by PLL for the Board's
approval on 19th September 2011, vide the Board's letter dated 17th December 2012.
The Appellate Tribunal has adversely commented on the Board's conduct in issuing the
said direction by directing amendment of the draft letter of offer. During the course of
arguments, the Board has not specifically challenged the observations and the adverse
finding of the Appellate Tribunal that such directions could not have been issued by the
Board vide letter dated 17th December 2012. We will not make any comments or give
findings in this regard.
SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL
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21. On 26th April 2006, shareholding of R23 in PLL had increased
from 11.87% to 16.25%. Again, on 11th April 2007, shareholding of R23
had increased from 14.88% to 15.77%. However, no public announcement
for open offer was made by R23 or by the acquirer group within the
period of four days from the respective dates.
22. The objective of the Takeover Regulations 1997 is to bring to
the knowledge of the shareholders of the company any change in
substantial ownership of the company and to provide an exit opportunity
through an open offer in case of such substantial change.
23. Regulations 10 and 11(1) have to be read accordingly and in
line with the objective of the Takeover Regulations 1997.
24. Regulations 10, 11 and 12 operate in three distinct fields in
which the acquirer of shares or voting rights of the company is required
to make a public announcement and make an open offer to acquire
shares of existing shareholders. These Regulations may overlap in some
cases as in the present case, but are not mutually exclusive, as has been
held by this Court in Swedish Match AB and Another v. Securities
&Exchange Board of India and Another.12
25. Impugned judgment and reasoning given by the Appellate
Tribunal is contrary to the objective of Regulation 10, which is to ensure
that an exit option is provided to the existing shareholders once any
person, whether individually, and or along with any another person acting
in concert with each other, acquires shares that cross the 15% threshold.
Such acquirer or group, as the case may be, would be able to exercise
sufficient degree of control over the management of the company, which
may not be in the interest of the company and, therefore, exit option
should be given to the existing shareholders.
26. In contrast, the objective of Regulation 11 is to provide an
opportunity to the shareholders to exit in case an acquirer of shares,
having 15% or more but less than 55% of the shares or voting rights,
either individually or with persons acting in concert, increases their
shareholding or voting rights over 5% at any given point in a financial
year. As such acquisition enables the individual or the person acting in
concert with others to yield greater influence over management of the
company, and Regulations 11(1) of the Takeover Regulations 1997
provides for an exit option to the existing shareholders.
12 (2004) 11 SCC 641.
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27. Regulation 3(3) of the Takeover Regulations 2011 makes
explicit what was already implicit in the Takeover Regulations 1997, that
in a case an individual within the group crosses the stipulated minimum
shareholding threshold, such an individual shall make a public offer even
when there is no change in aggregate shareholdings of the group, that is,
persons acting in concert. Reference is made to the report of the
Takeover Regulation Advisory Committee headed by Mr. C. Achuthan,
which exhibits that Regulation 3(3) is to clarify the requirement that was
already existing in the Takeover Regulations 1997.
28. There is no estoppel against a statute and, therefore, the
respondents in appeals herein cannot take any advantage and plead that
the Board is deviating from its earlier stance. Reference is made to
Sanjiv Coke Manufacturing Company v. M/s. Bharat Coking Coal
Limited and Another.13 In fact, the interpretation given by the Board in
these appeals has been accepted by the Appellate Tribunal in certain
cases.
29. The Board has been conferred with powers under the Act in
terms of Section 11 thereof to issue appropriate direction for protection
of interest of the shareholders; under Section 15-H read with Section
15-I to impose monetary penalty on the defaulter; and under Section 24
to criminally prosecute the defaulter for contravention of the provisions
of the Act or regulations thereunder. These are separate powers vested
with the Board with distinct objectives, which can sometimes be
overlapping but are not identical, as has been held by this Court in Prakash
Gupta v. Securities &Exchange Board of India.14 The Board being
an expert body is entitled to exercise the aforesaid powers to subserve
the interest of the investors as well as to promote orderly and healthy
growth of the securities market.
30. The Appellate Tribunal should not have interfered with the
directions to make an open offer, which are in line with the objective of
Sections 11 and 11-B of the Act read with Regulation 44 of the Takeover
Regulations 1997. The order passed by the WholeTimeMember directing
making of public announcement for open offer along with paying interest
to the shareholders of the target company, was made with the larger
objective of protecting interests of the shareholders who have a right
and expectation to be provided with the opportunity to exit the company
13 (1983) 1 SCC 147
14 2021 SCC OnLine SC 485.
SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL
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in case the shareholding/voting rights of a person and/or persons acting
in concert crosses the stipulated threshold at any point of time.
31. Scope of power of the Appellate Tribunal enumerated in Section
15-T does not extend to substituting directions issued under Sections 11
and 11B of the Act with monetary penalty under Section 15-H of the
Act. The scope of power of the Appellate Tribunal is wide but cannot be
exercised in a manner which is inconsistent with the scheme of the Act.
Further, the directions issued for public announcement and open offer
are in line with the objectives of the Act which states that as soon as the
contravention of the statutory obligation is established, penalties must
follow. This is a distinct objective envisaged in Sections 11 and 11B of
the Act read with Regulation 44 of the Takeover Regulations 1997, as
has been held in several decisions of this Court in Zile Singh v. State of
Haryana and Others,15Chairman, SEBI v. Shriram Mutual Funds
and Another16 and Securities and Exchange Board of India v. Saikala
Associates Limited.17
32. The Appellate Tribunal does not exercise jurisdiction under
Article 226 of the Constitution of India and is a creation of the statute
and, therefore, cannot pass any order inconsistent with the scheme of
the Act. Thus, imposition of monetary penalty for violation of Regulation
11(1) of the Takeover Regulations 1997, as directed by the Appellate
Tribunal, is contrary to law and would also result in weakening of investor
confidence in securities market as defaulters would be able to escape
the obligation.
33.