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

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A The contention that Takeover Regulations 2011 are clarificatory and, therefore, retrospective is ex facie fallacious and untenable. Regulation 3(3) of Takeover Regulations 2011 specifically postulate as under: “3. Substantial acquisitionof sharesor voting rights. xx xx xx B (3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition ofshares by any person,such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds,shall also be attracting the obligation to make an open offer for acquiring shares of the target C companyirrespective of whether there is a change inthe aggregate shareholding with persons acting in concert.”

62Copy pinpoint62. In the aforesaid background, 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 D 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 E 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.

63Copy pinpoint63. It is a general rule of law of interpretation that unless explicitly mentioned, a law cannot be presumed to be retrospective. In Commissioner of Income Tax, (Central)-I, New Delhi v.Vatika Township Private Ltd., 51a constitution bench decision, this court observed that: now 25%, the need to make a public offer shall arise. The Respondent has in all fairness has agreed that the new Takeover Code of 2011 does not apply retrospectively.” We may observe that SEBI Act is not a social welfare legislation but an eco-legal legislation and, therefore, must be interpreted pragmatically taking into account the commercial practices, interest of the investors/shareholders and also without ignoring the difficulties of the persons in control of the company. Competing interests, rights and obligations have to be balanced. 51 (2015) 1 SCC 1. H

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KRISHNA KHAITAN AND OTHERS [SANJIV KHANNA, J.]

“31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it……

32. The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in the decision reported in L’OfficeCherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd. Thus, C legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former D legislation or to explain a former legislation….” Further, in the absence of express statutory authorisation, delegated legislation in the form of rules or regulations, cannot operate retrospectively.52 Certainly, Regulation 3(3) in the Takeover Regulations 2011 clarified and possibly removed the shortcoming of the 1997 E Regulations. However, the language of Regulation 3(3) as reproduced above is apparently not of clarificatory or declaratory nature.53 E. Regulation 11 and the penalty under Regulations 44 and 45 of the Takeover Regulations 1997:54 52 Assitant Excise Commr, Kottayam and Others. v.Esthappan Cherian and Another, F (2021) 10 SCC 210. Also see, Income Tax Officer, Alleppey v M.C. Ponnose and Others, 1970 SCR (1) 678; Hukum Chand Etc. v Union of India and Others, (1973) 1 SCR 896; Regional Transport Officer,Chittoor and Others v.Associated Transport Madras (P) Ltd. and Others, (1980) 4 SCC 597; Federation of Indian Mineral Industries and Others v Union of India and Another, (2017) 16 SCC 186 and Union of India and Others v G.S. Chatha Rice Millsand Another, (2021) 2 SCC 209. 53 See L.R. Brothers Indo Flora Ltd. v. Commissioner of Central Excise, 2020 SCC G OnLine SC 705, Commissioner of Income Tax (Central)-I, New DelhiI v. Vatika Township (P) Ltd., (2015) 1 SCC 1 and Union of India and Another v. Indusind Bank Ltd. and Another, (2016) 9 SCC 720. 54 In Civil Appeal No. 1762 of 2014 (Madhuri S. Pitti’s case), as per the findings recorded by the Appellate Tribunal, violation of Regulation 11(1) was not alleged and made the basis of the letter dated 17 th December 2012. H

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64Copy pinpoint64. The impugned order in Appeal No. 23 of 2013 (Sunil Krishna Khaitan case) 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 B 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.

65Copy pinpoint65. As noticed above, 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/-.

66Copy pinpoint66. Regulations 44 and 45 of the Takeover Regulations 1997 read thus: “44. Directions by the Board. Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including: (a) directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulation 10, 11 or 12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale; (b) directing transfer of any proceeds or securities to the Investors Protection Fund of a recognised stock exchange; (c) directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach of regulation 10, 11 or 12; (d) directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulation 10, 11 or 12;

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(e) debarring any person concerned from accessing the capital A market or dealing in securities for such period as may be determined by the Board; (f) directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board; B (g) directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under regulation 6, 7 or 8; (h) directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer; (i) directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these regulations, to pay to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits.

45. Penalties for non-compliance. (1) Any person violating any provisions of the regulations shall be liable for action in terms of the regulations and the Act. (2) If the acquirer or any person acting in concert with him, fails to carry out the obligations under the regulations, the entire or a part of the sum in the escrow account shall be liable to be forfeited and the acquirer or such a person shall also be liable for action in terms of the regulations and the Act. (3) The board of directors of the target company failing to carry out the obligations under the regulations shall be liable for action in terms of the regulations and the Act. (4) The Board may, for failure to carry out the requirements of the regulations by an intermediary, initiate action for suspension or cancellation of registration of an intermediary holding a certificate of registration under section 12 of the Act: Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulations applicable to such intermediary is complied with. H

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A (5) For any mis-statement to the shareholders or for concealment of material information required to be disclosed to the shareholders, the acquirers or the directors where the acquirer is a body corporate, the directors of the target company, the merchant banker to the public offer and the merchant banker engaged by the target company for independent advice would be liable for B action in terms of the regulations and the Act. (6) The penalties referred to in sub-regulations (1) to (5) may include:— (a) criminal prosecution under section 24 of the Act; C (b) monetary penalties under section 15H of the Act; (c) directions under the provisions of section 11B of the Act; (d) directions under section 11(4) of the Act; (e) cease and desist order in proceedings under section 11D of the Act; D (f) adjudication proceedings under section 15HB of the Act.”

67Copy pinpoint67. It may be also relevant to reproduce here Sections 15-H and 15-I, which form part of Chapter-VIA, of the Act, which read thus:55 “15H. Penalty for non-disclosure of acquisition of shares E and take-overs- If any person, who is required under this Act or any rules or regulations made thereunder, fails to,- (i) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or F (ii) make a public announcement to acquire shares at a minimum price; (iii) make a public offer by sending letter of offer to the shareholders of the concerned company; or (iv) make payment of consideration to the shareholders who sold G their shares pursuant to letter of offer, he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher. 55 H As they existed during the relevant time period for this case.

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15I. Power to adjudicate- A (1) For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H, 15HA and 15HB, the Board shall appoint any of its officers not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. (2) While holding an inquiry, the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.” D

68Copy pinpoint68. Regulation 44 states that the Board, without prejudice to their rights to initiate action under Chapter VI-A56 and Section 2457 of the Act,may in the interest of the securities market or for protection of the interests of the investors, issue such directions as it may deem fit. Thereafter, it specifies certain directions in clauses (a) to (i), using the E word ‘including’, which implies that the directions issued by the Board can include the directions given in clauses (a) to (i), albeit the Board may issue directions even beyond what is stated in clauses (a) to (i). Thus, the Board’s power to give directions is wide. This is also clear from the relevant provisions of the Act, namely, Section 11 and 11B and Sections 11(2)(h), which read: F “11. Functions of Board. – (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. xx xx xx G 11-B. Power to issue directions. – Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary – 56 Chapter VI-A: “Penalties and Adjudication” (Section 15A to 15JA) 57 Section 24: “Offences” H

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A (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors of securities market; or B (iii) to secure the proper management of any such intermediary or person, it may issue such directions – (a) to any person or class of persons referred to in section 12, or associated with the securities market; or

C (b) to any company in respect of matter specified in section 11-A, As may be appropriate in the interests of investors in securities and the securities market. 11(2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for: D (h) Regulating substantial acquisition of shares and take-over of companies;”

69Copy pinpoint69. The use of the word ‘may’ in Regulation 44 and the wording of Sections 11(1), 11B and 11(2)(h) reflect that the Board has been conferred a discretion, which in turn also means and should be interpreted as imposing a duty, an aspect which we will elucidate in the subsequent paragraphs. Use of the word ‘may’ over the years is normally construed as permissive and not imperative. The words ‘may’ or ‘shall’ by their very etymological foundation denote discretion and mandatory nature of an act respectively. This Court has, therefore, held that the courts should not readily interpret the word ‘may’ as ‘shall’ unless such interpretation is necessary to avoid absurdity, inconvenient consequences or as mandated by the intent of the legislature which is gathered from the other parts of the statute.58

70Copy pinpoint70. 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 58 See Official Liquidator v. Dharti Dhan (P) Ltd., (1977) 2 SCC 166; Dinesh Chandra Pandey v. High Court of Madhya Pradesh and Another, (2010) 11 SCC 500; Mohan Singh and Othersv. International Airport Authority of India and Others, (1997) 9 SCC

132. Also see, Rajender Mohan Rana and Others v. Prem Prakash Chaudhary and Others, 2011 SCC OnLine Del 3684. H

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issued. The interpretation gets fortified in view of the words and object of the Regulation 44 which empowers the Board to issue directions as it deems fit. Section 11(1), while broadly defining the functions of the Board, states that it is the duty of the Board to protect interest of investors in securities and to promote the development of, and regulate the securities market by such measures as it thinks fit. Section 11B, which deals with the power of the Board to give directions, states that the Board, after making or causing an inquiry, may issue directions if it is satisfied that it is necessary in the interest of the investors, or orderly development of the securities market; to prevent the affairs of any intermediary or other persons referred to in Section 12 from conducting affairs in a manner detrimental to the interest of the investors or to secure proper management of such intermediary or persons. Section 11(2)(h) provides that the Board is entitled to take measures for regulating substantial acquisition of shares and takeover of companies. Regulation 44 states that the Board while issuing directions, has to keep in mind the interest of the securities market and its role as a protector of interest of investors. D We will read the word ‘or’ between the expression ‘in the interest of securities market or protection of investors’ as ‘and’. 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 investors. The exercise of discretion of the E Board, in fact, would not be restricted to the two facets mentioned above as the power and functions of the Board are far broader as they include promotion, development and regulation of securities market as a whole and regulating substantial acquisition of shares and takeover of companies.

71Copy pinpoint71. 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.59 Discretion, when of wide amplitude, and when it can 59 Sharpe v. Wakefield, [1891 AC 173]. Also see, Sant Raj and Anotherv. O.P. Singla and Another, (1985) 2 SCC 349 at para 4 and S.G. Jaisinghaniv. Union of India and Others, AIR 1967 SC 1427. H

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A have civil and penal consequences, must be exercised in a legal and regular manner.60 Exercise of discretion is always governed by rules, which means that the exercise of discretion should be fair and reasonable as the legislature while conferring discretion never intends that the authorities would not act whimsically, arbitrarily, buton the precept that they shall act only when it appears to be necessary in public interest. 61 B Legal exercise of discretion is one, where the authority examines and ascertains the facts, is aware of the law, and then decides objectively and rationally what serves the interest better. This is true even when the statutes are silent and only the power is conferred to act in one way or the other. Reasonableness as a standard is tested by reference to the community standards at the time of exercise of discretion. This means that discretion should be exercised within the limit to which an honest man competent to discharge his office ought to confine himself. 62 It will be also true to state that the greater the harm or penal consequences, greater is the duty and obligation of the public authority to ensure that discretion is used as an effective tool in regulation or administration but does not cause confusion, chaos and instability.

72Copy pinpoint72. 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. The underlying rationale of giving discretion is to ensure that the Board exercises the discretion in consonance with legitimate values of public law, which include need to maintain legal certainty and consistency which are at the heart of the principle of rule of law.63 These have to be balanced with other equally legitimate public law value, which is the object and purpose of the enactment. The need for the said flexibility is given and is necessary to meet unusual and practical situations and to do justice in a particular 60 Clariant International Ltd. and Another v. Securities and Exchange Board of India, (2004) 8 SCC 524 at para 26. 61 Banglore Medical Trust v. B.S. Muddappa and Others, (1991) 4 SCC 54 at para 46 G and 48. 62 Sharpe v. Wakefield, [1891 AC 173]: “according to the rules of reason and justice, not according to private opinion;…according to law and not humor. It is to be, not arbitrary, vague and fanciful, but legal and regular. And it must be exercised within the limit, to which an honest man competent to the discharge of his office ought to confine himself.” 63 De Smith’s Judicial Review, 7th Edition, Sweet and Maxwell (South Asian Edition) at H Heading 9-005 on page 515.

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case.64 The remedial order passed by the Board as the regulator must A also meet the said parameters in addition to meeting the requirements of the enactment.

73Copy pinpoint73. Clearly, therefore, 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). It may be, however, noted that B Section 15-H prescribes the lower as well as the higher monetary penalty limits. These stipulations have undergone modifications and changes from time to time. As per the amendments made by Act No. 59 of 2002, with retrospective effect from 29th October 2002, the penalty which can be imposed is not to be less than Rs. 10,00,000/- but may extend up to Rs. 25,00,00,000/- or three times the amount of profits made out of such C failure, whichever is higher. 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. D

74Copy pinpoint74. Reference in this regard is also to be made to Section 15-I, which has been quoted above. It states that the person concerned has to be given a reasonable opportunity of being heard for the purpose of imposing any penalty. The adjudicating officer has the power to summon and enforce attendance of any person acquainted with the facts and E circumstances of the case to give evidence or produce documents which, in the opinion of the adjudicating officer, would be useful or relevant to the subject matter of enquiry. Lastly, the adjudicating authority should be satisfied that the person has failed to comply with the provisions of the section specified in sub-section (1).65 F

75Copy pinpoint75. In this context, reliance placed by the Board on the judgments which relate to and arise from the orders passed by the adjudicating 64 C. Hilson, ‘Judicial Review, Policies and the Fettering of Discretion” [2002] P.L. 111; D. Galligan, ‘The Nature and Functions of Policy Within Discretionary Power’ [1976] P.L. 332. 65 Sub-section (3) empowers the Board to call for and examine records of any proceedings G under this Section and if it considers the order passed by the adjudicating authority is erroneous to the extent it is not in the interest of the securities market, it may, after making or causing an inquiry to be made, pass an order enhancing the quantum of penalty. The order under sub-section (3) can be passed within a period of three months from the date of order passed by the adjudicating authority or disposal of the appeal under Section 15-T, whichever is earlier. H

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A 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 be issued considering relevant factors, including, interest of the securities market and protection of the investors in mind. Regulation 44 is not a strict liablity provision.

76Copy pinpoint76. The above position in law gets fortified from Regulation 45 which stipulates that any person violating a provision of the regulations shall be liable in terms of the Regulation, that is, the Takeover Regulations 1997 and the Act. Sub-regulation (6) to Regulation 45, with reference to the penalties, states that it would include monetary penalties under Section 15-H of the Act. It may also include directions under the provisions of C Section 11B and 11(4) of the Act. Further, there is power to issue cease and desist order in proceedings under Section 11D of the Act. Criminal prosecution under Section 24 of the Act can also be initiated. Lastly, adjudicating proceedings under Section 15-H of the Act can be held. Therefore, the authorities have a right to take recourse to multiple proceedings which have been loosely classified and referred to as ‘penalties’ in Regulation 45(6). Nowhere, however, Regulation 45 stipulates that in case of violation of Regulations 10, 11 or 12 of the Takeover Regulations 1997, the Board must initiate action and issue directions in terms of Regulation 44. The Board, in appropriate case, may take action under Regulation 44 and issue directions, but when it issues such directions, it must keep in mind the interest of securities market and to the protect the interests of the investors. Existence and conferment of power, and reasonable and legilimate exercise of the power in accordance with law are two different facets.

77Copy pinpoint77. We will now reproduce the order passed by the F WholeTimeMember recording the reasons for issuing directions: “31. In my view, the facts and circumstance of the case, do not suggest any reason to deviate from the normal rule of requirement of making public announcement in accordance with the Takeover Regulations, 1997 as the same would be in the interest of the public shareholders of the Target Company.

32. In this case, since requisite public announcement has not been made by the noticees, KLL has contravened regulation 10 and the promoter group has contravened regulation 11(1) as discussed above. I note that the Takeover Regulations, 1997 have been repealed by the Takeover Regulations, 2011. In terms of regulation

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35(2)(b) of the Takeover Regulations, 2011, the obligation or liability acquired, accrued or incurred under the repealed regulations, shall remain unaffected as if the repealed regulations has never been repealed. In the present case, the noticees triggered the obligation under regulation 10 and 11(1) of the Takeover Regulations, 1997 on March 12, 2007 and interms of regulation 14(1) thereof they were obligated to make requisite public announcement within 4 days from March 12, 2007. Thus, the noticees had incurred this obligation prior to repeal of Takeover Regulations, 1997 and the obligation has to be completed under Takeover Regulations, 1997.

33. Since obligation under regulations 10 and 11 both have overlapped in this case, as observed by Hon’ble Supreme Court C in ‘Swedish Mach’ case, the noticees shall make a combined public announcement under regulations 10 and 11 read with regulation 14(1) of the Takeover Regulations, 1997.

34. Had the noticees made the public announcement in accordance with the Takeover Regulations, 1997 regulations and complied all related activities within the timelines specified under the Takeover Regulations, 1997, all formalities with respect to their public announcement and the open offer would 7 have been completed on June 15, 2007. Since the noticees have failed to make the public announcement within the stipulated time and the public announcement in compliance with this order would be after delay, the noticees shall pay interest on consideration amount as provided under the Takeover Regulations, 1997 to the shareholders who tender their shares in the open offer and who are eligible for interest as per law. F

35. I, therefore, in exercise of powers conferred upon meunder sections 19, 11 and 11B of the SEBI Act, 1992 and regulations 44 and 45 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulation 32(1)(h) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby issue the following directions: G (a) The noticees, Mr. Sunil Krishan Khaitan, Mr. Krishan Khaitan, KhaitanLefin Limited and The Orientale Mercantile Company Limited shall make a combined public announcement to acquire shares of the Target Company, Khaitan Electricals Limited, in terms of regulations 10 and H

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A 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, within a period of 45 days from the date of this Order. (b) The noticees shall, alongwith consideration amount,pay interest at the rate of 10% per annum, from June 16, 2007 B to the date of payment of consideration, to the shareholders who were holding shares in the target company on the date of violation and whose shares have been accepted in the open offer, after adjustment of dividend, if any, paid.”

78Copy pinpoint78. The Appellate Tribunal, on the other hand, has given the following reasons why the aforesaid directions were unacceptable and should be set aside: “35. In the instant case too, as a matter of undisputed fact, the promoter group has been in control of the Company since its very establishment in the year 1975. The Appellants seem to have been aware of the implication of the limit of creeping acquisition of 5% and, hence, did not breach regulation 11 by letting some warrants lapse and not converting them into shares. In fact, the Tribunal notes that during the relevant period there were about 7 acquisitions but at no point of time did the Appellants violate the provisions of any law but for the two conversions on March 12, 2007. We also note from the records that the Appellants have invariably acted in a bonafide manner by keeping the concerned stock exchanges and the Respondent informed regarding the true happenings with respect to the acquisitions of shares and the corresponding changes in the shareholding pattern. In this connection, the Tribunal F has perused various corporate announcements made by the Company to the stock exchanges informing them about the allotment of equity shares as well as shareholding pattern as of March 2006, June 2006, September 2006 and December 2006. Letters dated April 10, 2006, October 13, 2006 and April 11, 2007 etc. are on record and have been perused by the Tribunal. G

36. Similarly, it is noted that the two conversions of warrants on March 12, 2007, which were different transactions, in as much as the shares in the first tranche pertaining to 5 lac shares allotted to the promoter group were allotted pursuant to conversion of warrants at the rate of Rs.60 per share, and the shares in the H second transaction consisting of 8 lac warrants were converted

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at the rate of Rs.131 per share. Although, the two spells were different, they were executed on the same date and the creeping acquisition limit of 5% was clearly crossed in respect of the acquisition by the promoter group. Therefore, technically there is violation of Regulation 11(1) of the Takeover Code of 1997. For this violation, we are of the opinion that a suitable monetary penalty, must be imposed instead of calling upon the Appellants to make a combined public announcement to acquire shares of the Company at this belated stage. The requirement of making a public announcement would be totally superfluous in the facts and circumstances of the case and would not beget any good. The objective of the preferential allotment of shares in question was only to address the working capital requirements of the Company for its smooth day to day functioning. Therefore, a stable, low- cost funding-source, such as preferential allotment, was undertaken in the larger interests of the Company and, in effect, its shareholders. In this connection, it is pertinent to note that the allotment of preferential shares in question was made after seeking approval of the shareholders of the Company in two duly convened EGM’s held on March 23, 2006 and November 29, 2006.

37. Lastly, the acquisitions/ incidents pertain to the year 2006-

2007. The show cause notice was issued by the Respondent on March 26, 2012. After holding proceedings against the Appellants, E the Impugned Order came to be passed only on December 31,

2012. We note that there is an inordinate delay of about 5 years even in issuing the show cause notice and no explanation has been offered for the same. The Respondent was kept duly informed by the Appellants of all the transactions/acquisitions in F the year 2006-2007 along with information to other concerned authorities like various stock exchanges but no action was taken for the alleged violation for years together. Also, the point to be borne in mind while modifying the penalty imposed upon the Appellants is that the securities market is a volatile and pulsating structure wherein events unfold at a staggeringly fast pace. We G feel that to compel the Appellants to make a combined public announcement to acquire shares today would be iniquitous and would lead to more harm than good for a meretechnical fault, which in our opinion is remissible. Indeed, this Tribunal has taken a view consistently that in such cases of technical violation a H

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A monetary penalty could be imposed to serve the ends of justice keeping in view the factuality of a given situation.”

79Copy pinpoint79. 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 B 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. C 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 D 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.

80Copy pinpoint80. The direction given by the Board vide letter dated 17th E December 2012 in the case of Madhuri S. Pitti in the form of direction to modify the draft letter of offer submitted to the Board for approval on 19th September 2011 pursuant to the public announcement made by PLL on 9th September 2011, it must be stated, is rather odd and defies objectivity and logic. The Appellate Tribunal is right in noticing that there was lack of clarity on the part of the Board as to the provision under which the power has been exercised,as the Board’s power under Regulation 18 of the Takeover Regulations 1997 is to specify changes, if any, in the letter of offer, without there being any obligation on the part of the Board to do so, and thereupon the merchant banker and the ‘acquirer’ are required to carry out such changes before the letter of offer is despatched to the shareholders. As per sub-regulation (2), the letter of offer is to be despatched to the shareholder not earlier than 21 days from the date of submission of the letter of offer to the Board in terms of sub-regulation (1). In this case, directions of the Board for amendment of the letter of offer was issued after a lapse of more than one year as the draft letter of offer was submitted on 19th September H

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2011 and the directions were issued vide letter dated 17th December A

2012. Further, these directions were for the reason that the acquirer had failed to comply with Regulation 10 of the Takeover Regulations 1997 in the remote past, that is, in the year 2006 and 2007. Clearly, this is whimsical and arbitrary exercise of discretion by the Board which would have led to chaos and confusion. B

81Copy pinpoint81. This Court in the judgment authored by one of us (Sanjiv Khanna, J.) in Bhavesh Pabari (supra) had examined the question of delay and laches in initiating proceedings under Chapter VI-A of the Act and the principle of law that when no limitation period is prescribed proceedings should be initiated within a reasonable time and what would be reasonable time would depend upon facts and circumstances of each case. In this regard, it was held as under: “35. The appellants have also contended that in the absence of any prescribed limitation period, SEBI should have issued show- cause notice within a reasonable time and there being a delay of about 8 years in issuance of show-cause notice in 2014, the proceedings should have been dropped. This contention was not raised before the adjudicating officer in the written submissions or the reply furnished. It is not clear whether this contention was argued before the Appellate Tribunal. There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created, etc. The show-cause notice in the present case had specifically referred to the respective dates of default and the date of compliance, which was made between 30-8-2011 to 29-11-2011 (delay was between 927 days to 1897 days). Only upon compliance being made that the defaults had come to notice. In the aforesaid background, and so noticing the quantum of fine/penalty imposed, we do not find good ground and reason to interfere.” G

82Copy pinpoint82. The directions given in the aforesaid quotation should not be understood as empowering the authorities/Board to initiate action at any time. In the absence of any period of time and limitation prescribed by the enactment, every authority is to exercise power within a reasonable period. What would be the reasonable period would depend upon facts H

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A of each case, such as whether the violation was hidden and camouflaged and thereby the Board or the authorities did not have any knowledge. Though, no hard and fast rules can be laid down in this regard as determination of the question will depend on the facts of each case, the nature of the statute, the rights and liabilities thereunder and other consequences, including prejudice caused and whether third party rights have been created are relevant factors. Whenever a question with regard to inordinate delay in issuance of a show-cause notice is made, it is open to the noticee to contend that the show-cause notice is bad on the ground of delay and it is the duty of the authority/officer to consider the question objectively, fairly and in a rational manner. There is public interest involved in not taking up and spending time on stale matters and, therefore, exercise of power, even when no time is specified, should be done within reasonable time.66 This prevents miscarriage of justice, misuse and abuse of the power as well as ensures that the violation of the provisions are checked and penalised without delay, thereby effectuating the purpose behind the enactment. D

83Copy pinpoint83. We have already referred to Regulations 6, 7 and 8 of Takeover Regulations 1997 which requires the acquirer/shareholders to make disclosures to the company as well as to the stock exchange where the shares are listed. Violation of Regulations 6, 7 and 8 is not alleged. While it is true that the said disclosures and public notice of the disclosures cannot be treated as disclosure to the Board or authorities under the Act, the Board and the authorities, as a good regulator, cannot also claim complete ignorance. Significantly, in the present case, the investors of the target company have not raised any objection. The impugned order passed by the Whole Time Member does not refer to any market manipulation or fluctuation in share price, which was detrimental to the interests of the investors. It is not the case of the Board that any windfall gains or profits have been made by the respondents on account of violation of Regulation 11(1) of Takeover Regulations 1997. The order passed by the Whole Time Member, in fact, does not take into account the impact of the order on the securities market in case the investors/shareholders G 66 See State of Gujarat v. Patil Raghav Natha and Others, (1969) 2 SCC 187 at para 11; Mansaramv. S.P. Pathak and Others, (1984) 1 SCC 125 at para 12; Government of India v. Citedal Fine Pharmaceuticals, Madras and Others, (1989) 3 SCC 483 at para 6; State of Orissaand Othersv. Brundaban Sharma and Another, 1995 Supp (3) SCC 249 at para 16; State of Punjab and Othersv. Bhatinda District Coop. Milk Producers H Union Ltd., (2007) 11 SCC 363.

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in the target company as on 16th June 2007 are given an option to sell their shares on or after 31st December 2012, possibity of distruption on the functioning market place,detrimental impact on the market place/ investor confidence, qualitative impact of the retroactive directions on the law’s santity predicated on predicibilty and legal stability, as well as undermining of the people’s faith and trust on the Board as the protector of law.The directions, therefore, cannot be sustained.

84Copy pinpoint84. There is, as noticed and held below, some merit in the contention of the Board that the Appellate Tribunal could not have imposed penalty under Section 15-H when proceedings under the said Section had not been invoked by the Board and there is no order passed by the adjudicating authority imposing penalty under Section 15-H of the Act. C However, the effect of the argument raised by the Board would be that the order passed by the Whole Time Member under Regulation 44 giving directions would be quashed and set aside. The respondents would have, therefore, escaped without having to pay any penalty for violation of Regulation 11(1) of the Takeover Regulations 1997. It is in this factual background we have to decide the present appeals. As noticed above, the respondents have not filed appeals or cross objections challenging the penalty imposed by the Appellate Tribunal for violation of Regulation 11(1) of the Takeover Regulations 1997. F. Power of the Appellate Tribunal under section 15T of the Act:

85Copy pinpoint85. The last aspect of the present appeals relates to the power of the Appellate Tribunal.67 Sections 15-T of the Act read as under:68 “15T. Appeal to the Securities Appellate Tribunal. (1) Save as provided in subsection (2), any person aggrieved,- F (a) by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder; or (b) by an order made by an adjudicating officer under this Act, may prefer an appeal to a Securities Appellate Tribunal having G jurisdiction in the matter. (2) No appeal shall lie to the Securities Appellate Tribunal from an order made – 67 In reference to impugned judgment in Appeal No. 23 of 2012. 68 As it existed pre-2014 and 2017 amendment. H

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A (a) by the Board on and after the commencement of the Securities Laws (Second Amendment) Act, 1999; (b) by an adjudicating officer, with the consent of the parties. (3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Board or the adjudicating officer, as the case may be,is received by him and it shall be in such form and be accompanied by such fee as may be prescribed: Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period. (4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. (5) The Securities Appellate Tribunal shall send a copy of every order made by it to the Board, the parties to the appeal and to the concerned Adjudicating Officer. E (6) The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal.”

86Copy pinpoint86. The Board has contended that the Appellate Tribunal, in the F exercise of power under Section 15-T and while considering appeals against proceedings under Section 11 and 11B of the Act and Regulation 44 of the Takeover Regulation, 1997, could not have converted the directions of the Board with monetary penalty under Section 15-H. Thus, the impugned order could not have substituted the direction of the Board G against respondents to:(a) make a public offer in terms of Regulation 11; and (b) pay consideration amount along with interest at the rate of 10% per annum from June 16, 2007 to the date of payment of consideration to the shareholders, with the direction to pay a monetary penalty of Rs.25,00,000 for the breach of Regulation 11(1) of Takeover Regulation

1997. We have briefly referred to the reasoning in the earlier paragraphs, H

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and commented on the same. We have also reproduced the reasoning given by the Appellate Tribunal to substitute the direction of the Whole Time Member with that of the penalty.

87Copy pinpoint87. The appeal before the Appellate Tribunal under Section 15T, is the first appeal against the decision of the Board or the adjudicating officer. First appeal is a continuation or is co-terminus with the proceedings of the original adjudicating authority. 69 The first appeal is a valuable right of the party aggrieved, and all questions of fact and law decided by the Boardor the adjudicating authority,including exercise of discretionwhether within the law, are open for full consideration and examination.70 The Appellate Tribunal, in the absence of any limit, has plenary powers in disposing of an appeal.71 It can do what the Board/ C authorities can do and also direct them to do what they have failed to do. The position as to the power of the Appellate Tribunal has been appropriately summarised in Swedish Match (supra), wherein it has been held: 69 D See, Commissioner of Income Tax, U.P., Lucknow v. Kanpur Coal Syndicate, Kanpur, AIR 1965 SC 325; Jute Corpn. of India Ltd. v. Commissioner of Income Tax and Another, 1991 Supp (2) SCC 744; Commissioner of Income Tax, M.P., Bhopal v. NirbheramDaluram, (1997) 10 SCC 373; National Thermal Power Co. Ltd. v. Commissioner of Income Tax, (1997) 7 SCC 489. 70 Clariant International Ltd. and Anotherv. Securities &Exchange Board of India, (2004) 8 SCC 524: E “74. The jurisdiction of the Appellate Tribunal under the Act is not in any way fettered by the statute and, thus, it exercises all the jurisdiction as that of the Board. It can exercise its discretionary jurisdiction in the same manner as the Board. ……………..

77. The Board exercises its legislative power by making regulations, executive power by administering the regulations framed by it and taking action against F any entity violating these regulations and judicial power by adjudicating disputes in the implementation thereof. The only check upon exercise of such wide- ranging powers is that it must comply with the Constitution and the Act. In that view of the matter. where an expert Tribunal has been constituted, the scrutiny at its end must be held to be of wide import. The Tribunal. another expert body, must, thus, be allowed to exercise its own jurisdiction conferred on it by the statute without any limitation.” G (Emphasis Supplied) 71 Securities and Exchange Board of India v. Opee Stock-Link Ltd. and Another, (2016) 14 SCC 134: “15. Upon perusal of the impugned order passed by SAT, we do not find any specific conclusion arrived at by SAT to the effect that the findings recorded by the WholeTime Member as well as the Adjudicating Officer of SEBI were H

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A “84. It may be true that the Board in its impugned order dated 4- 6-2002 proceeded on a wrong premise that having regard to the proviso appended to Regulation 12, Regulation 12 would be attracted. But SAT, in our opinion, rightly construed the provisions of Regulations 11 and 12 in arriving at a finding that Regulation 11 would be attracted and Regulation 12 would not be. The Tribunal B was entitled to take a different view of the matter from that of the Board with a view to sustain the ultimate result in the appeal in exercise of its appellate power. Such a power in the appellate court/tribunal is akin to or analogous to the principles contained in Order 41 Rule 33 of the Code of Civil Procedure. Even otherwise, C before us the judgment of the Tribunal is in question, this Court is required to consider the correctness or otherwise of the Tribunal. In any event, the reasoning of the Tribunal shall prevail over the Board.” (Emphasis Supplied)

88Copy pinpoint88. In the context of the present appeal, it is to be noted that in the case of Sunil Krishna Khaitan, 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 E Appellate Tribunal while exercising appellate power could not have set aside and quashed the directions given in the appeal.

89Copy pinpoint89. At the sametime, in Sunil Krishna Khaitan’s 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 F 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.72 incorrect. The appeals before SAT were in the nature of first appeal and therefore, G it was open to SAT to reappreciate the evidence after looking at the facts of the case but upon perusal of the impugned order, we do not find any such finding to the effect that the findings arrived at by the Whole-Time Member as well as the Adjudicating Officer of SEBI were incorrect or perverse for a particular reason.” (Emphasis Supplied) 72 15J.Factors to be taken into account by the adjudicating officer.- H

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90Copy pinpoint90. We have also referred to Regulation 45 which in sub-regulation A (6) refers to different types of penalties which can be imposed on a person violating any of the provisions of the Regulations. 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 authorityempowered 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-I73 is vested with an officer to be appointed by the Board, not below the rank of Divisional Commissioner, While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default 73 15-I. Power to adjudicate: (1) For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G,15H, 15HA and 15HB, the Board shall appoint any officer not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. (2) While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in subsection (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. (3) The Board may call for and examine the record of any proceedings under this section and if it considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify: H

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A to act as an adjudicating officer. The adjudicating officer is required to hold an inquiry in the prescribed manner after giving the person a reasonable opportunity of being heard for the purpose of imposing any penalty. Powers are vested with the adjudicating officer to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document. B

91Copy pinpoint91. Thus, the Appellate Tribunal in Appeal No. 23 of 2013 in the case of Sunil Krishna Khaitan, could not have substituted the penalty imposed by the Board under Regulation 44 with that of penalty under Section 15-H.An appropriate view, in our opinion, would be that when the Appellate Tribunal holds that the order passed by the Whole Time C 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.

92Copy pinpoint92. However, as held above, in the absence of any cross-appeal or cross-objection by the respondent in Appeal No. 23 of 2013 (Sunil Krishna Khaitan’s case), we are not interfering with the order imposing penalty of Rs.25,00,000/- for the violation of Regulation 11(1) of the Takeover Regulations 1997. The said direction has attained finality. At the same time, we are inclined to direct that the Board would give quietus to the matter and should not initiate proceedings under Chapter VI-A of the Act.

93Copy pinpoint93. For the aforesaid reasons and grounds, the Civil Appeals preferred by the Board are dismissed with the clarification as to the power of the Appellate Tribunal under Section 15-T of Chapter VI-A of the Act, which is confined to examination of correctness and legality of the order under challenge.

94Copy pinpoint94. There will be no order as to costs.

Ankit Gyan Appeals dismissed. G (Assisted by : Adnan Khan, LCRA)

Provided that no such order shall be passed unless the person concerned has been given an opportunity of being heard in the matter:Provided further that nothing contained in this sub-section shall be applicable after an expiry of a period of three months from the date of the order passed by the adjudicating officer or disposal of the appeal under H section 15T, whichever is earlier.