KOSHA INVESTMENTS LTD.versusSECURITIES & EXCHANGE BOARD OF INDIA & ANR.

                        [2015] 9 S.C.R. 412


A                  KOSHA INVESTMENTS LTD.
                                 v.
      SECURITIES & EXCHANGE BOARD OF INDIA&ANR.
                  (Civil Appeal No. 3219 of2006)
B                     SEPTEMBER 18, 2015
        [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]

         Securities & Exchange Board of India (Substantial
C   Acquisition of Shares & Takeovers) Regulations, 199 7 - Reg
    11 (1) and 14(1) - Requirement of making public
    announcement - Appellant consistently bought and sold
    shares of target company-SIL prior to June 1999 and also
    after August 1999 and became one of its promoters and did
D   not make required public announcement - Show cause
    notice to appellant- SEBI held that the appellant was already
    holding between 15% to 75% shares of SIL and it could
    acquire additional shares of this company without public
    announcement only upto 5% of its paid up capital during the
E   relevant period - However, it acquired shares constituting
    more than 5% of the paid up capital of SIL without public
    announcement as required by Reg 11(1) - SEBI issuing
    directions to appellant to make public announcement in terms
    of Reg 11 ( 1) and imposed penalty for the non-compliance -
F   Said orders upheld by tribunal - Held: Order passed by the
    tribunal concurred with since if the aggregate percentage of
    acquisitions at any point of time during the financial year
    exceeds 5%, Reg 11 would get trigger mandating public
    announcement - Reg 14(1) discloses that public
G   announcement should not be delayed beyond four working
    days of the agreement or decision to acquire the requisite
    number of shares or voting rights.

        Dismissing the appeals, the Court
H                               412
      KOSHAINVESTMENTS LTD. v. SECURITIES &              413
           EXCHANGE BOARD OF INDIA

     HELD: A careful reading of the Securities &             A
Exchange Board of India (Substantial Acquisition of
Shares & Takeovers) Regulations, 1997 discloses that
the public announcement should not be delayed beyond
four working days of the agreement or decision to
acquire the requisite number of shares or voting rights.     B
If the aggregate percentage of acquisitions at any point
of time during the financial year exceeds 5 per cent, the
provision would get triggered. The provision of
Regulation 11 mandating a public announcement will
kick in at any stage whence the shareholding of the said     C
entity in the target company would exceed 25 per cent.
Thus, the finding of the Tribunal is accepted. If the plea
of apP.ellant would be accepted then an acquirer can
keep on violating Reg 11(1) with impunity on as many
                                                             0
occasions by simply making subsequent sale or transfer
to another entity so as to reduce the so-called net
acquisition in a financial year to within 5%. This
interpretation would defeatthe purpose of Reg 11(1) and
render Reg 14(1) otiose. The concept of permitting           E
creeping acquisitions by permitting not more than 5%
of the shares or voting rights in a company limits the
period for such acquisition toa financial year ending by
31st March. But such concept does not dilute the
requirement of making a public announcement within           F
the time mentioned in Reg 14(1) ifthe acquisition even if
only once made and divested, is of more than 5% of
shares or voting rights in the target company. Even if
such acquisition is followed by sale in the same financial
year, the liability of making the public announcement        G
would remain unaffected and shall attract action. Further,
in case of acquisition of shares or voting rights the
appropriate applicable provision is Reg 14(1) and not
Reg 14(2) w~ich applies only when the acquisition is of
other securities including Global Depository Receipts,       H
414         SUPREME COURT REPORTS                   [2015] 9 S.C.R


A     American Depository Receipts. [Para 5, 7, 9) [418-H; 419-
      A,E; 412-C-G; 422-C)

         Swedish Match AB and Anr. vs. Securities & Exchange
      Board oflndia andAnr. (2004) 11 SCC 641: 2004 (3) Suppl.
B     SCR 745 - referred to.
                       Case Law Reference
         2004 (3) Suppl. SCR 745     referred to.       Para 9

C        CIVIL APPELLATE JURISDICTION: Civil Appeal No.
      3219 of 2006.

         From the Judgment and Order dated 08.08.2005 of the
      Securities Appellate Tribunal in Appeal No. 64 of 2004.

D                                 WITH
          C.A. No. 2132 of2007.

          Subramonium Prasad, Naveen Chander, Alok Kr. Agarwal,
      Utkarsh Srivastava, Manjula Gupta for the Appellant.
E
         C.U. Singh,Anip Sachthey, Shagun Matta, Rishi Gautam,
      Dhawal Mehrotra, Vikas Mehta for the Respondents.

          The Judgment of the Court was delivered by
F      SHIVA KIRTI SINGH, J. 1. Both the appeals have been
  preferred by the same appellant under Section 15Z of the
  Securities & Exchange Board of India Act, 1992 (for short,
  'SEBI Act'). The main appeal is of 2006 and requires detailed
  consideration. It is directed against order dated 08 1hAugust
G 2005 passed by the Securities Appellate Tribunal upholding
  and confirming the order of Securities & Exchange Board of
  India (SEBI) dated 2Th January 2004 directing the appellant
  to make public announcement in terms of Regulation 11 (1) of
H the Securities & Exchange Board of India (Substantial
  Acquisition of Shares & Takeovers} Regulations, 1997
    KOSHA INVESTMENTS LTD. v. SECURITIES &       415
 EXCHANGE BOARD OF INDIA [SHIVA KIRTI SINGH, J.]

(hereinafter referred to as 'the Regulations of 1997). The other A
appeal is directed against orders passed by SEBI and
confirmed by ~he Tribunal to impose penalty upon the appellant
for non-compliance with the order which is subject matter of
the earlier appeal. It goes without saying that the latter appeal
will follow the fate of the main appeal.               •          B

      2. Before adverting to the issues of law raised on behalf
ofthe.appellant, the essential facts may be noticed only in brief.
The appellant, Kasha Investments Ltd., acquired shares of
another company Snowcem India Ltd. (hereinafter referred to C
as 'SIL') from one of the original promoters of SIL and thus
itself became one of the promoters. An investigation by SEBI
covered the period June 1999 to August 1999 when there was
an initial upward movement in the price of shares of SIL and
also substantial increase in the volume of their trade. As a D
result of such investigation the appellant faced charges in
another proceeding under SEBI (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market)
Regulations, 2003 and was also served with a show cause
notice dated 14.11.2002 for alleged breach of provisions of E
Regulation 44 and 45(6) of the Regulations of 1997 read with
provisions of Section 11 and 11 B of the SEBI Act. The
proposed action under Regulations of 1997 was based upon
report of investigation showing that appellant had consistently F
bought and sold shares of SIL prior to June 1999 and also
after August 1999. As per record it was holding 21,32,900
shares of SIL constituting 20.29% of total paid up capital of
SIL. The appellant made additional purchase of shares
amounting to 10.81 % of the paid up capital of SIL in violation G
of Regulation 11 ( 1) of the Regulations of 1997 as it failed to
make the required public announcement in terms of the said
Regulation. After granting personal hearing and considering
the appellant's reply to the show cause notice, in the final order
SEBI came to a finding that as on 31 51 March 1999 appellant H
416         SUPREME COURT REPORTS                   [2015] 9 S.C.R.


A     was actually holding only 21,32,900 shares as shown by SEBI
      and not 31,84,228 shares which was claimed by the appellant
      on the ground that it had already pledged its shares to lenders
      who had lent money to SIL. The plea of pledge raised by the
      appellant was found without any substance and only an attempt
B     to conceal" subsequent purchase. Hence, SEBI came to a
      conclusion that the appellant was already holding between 15%
      to 75% shares of the target company SIL and it could acquire
      additional shares of this company through creeping acquisition
      mode, that is, without public announcement only upto 5% of its
C     paid up capital during the period of 12 months ending on 31st
      March 2000. However, by acquiring 11,36,700 shares of SIL
      during June 1999 to August 1999 it acquired shares constituting
      more than 5% of the paid up capital of SIL. For making such
      acquisition, the appellant was liable to make public
0
      announcement as required by Regulation 11(1) of the
      Regulations of 1997 .. Since the appellant failed to do so, the
      Whole Time Member of SEBI held it guilty and issued the
      following directions on 27 1ti January 2004 :
E         "15. In view of the findings above and in exercise of the
          powers conferred upon me under Section 19 read with
          Section 11 B of SEBI Act read with regulations, I hereby
          direct the acquirer viz., Kasha Investments Ltd. to make
          public announcement in terms of regulation 11 (1) of the
F
          said Regulations taking June 29.1999 as the reference
          date for calculation of offer price. The public
          announcement shall be made within 45 days of passing
          of this order.
G         16 ......... TheAcquirers are hereby accordingly directed
          to pay interest@ 15% per annum to the share holders for .
          the loss of interest caused to the shareholders from
          October 28, 1999 till the date of actual payment of
          consideration for the shares to be fl~ndered and accepted
H
          in the offer directed to be made by theAcquirers.
    KOSHAINVESTMENTS LTD. v. SECURITIES&         417
 EXCHANGE BOARD OF INDIA [SHIVA KIRTI SINGH, J.]

    17. It is also noted thatan order dated 3.12.03 was passed    A
    by me restraining the Kosha Investments Ltd. from buying,
    selling or dealing in securities in any manner, directly or
    indirectly, for a period of two years for violating the
    provisions of SEBI (Prohibition of Fraudulent and Unfair
    Trade Practices Relating to· Securities Market)               B
    Regulations, 1995. However, I direct the said order dated
    3.12.2003 shall not hamper the implementation of this
    order."

    3. The appellant preferred an appeal before the Securities    C
Appellate Tribunal to challenge the order dated 27th January
2004 passed by Whole Time Member of SEBI. The main
contention of the appellant before the Tribunal is recorded in
paragraph 7 of the impugned judgment and is as follows :
                                                                  D
    "Learn~d counsel for the appellant argued that KIL had
    been regularly purchasing and selling shares of SIL. He
    also argued that KIL had not acquired 5% or more than
    5% shares or voting rights in respect of shares of SIL at
    any point of time in the period of 12 months. He submitted E
    that out of 11,36, 700 shares which were purchased during
    June, 1999 to August, 1999 during the same period KIL
    also sold number of shares of SIL. He pointed out that
    KIL was not holding more than 5% shares of SIL at any
    point during the year and therefore the provisions of F
    Takeover Code did not trigger. He further argued that even
    if SEBI did not take into account the repurchases of
    pledged shares as return of shares, SEBI should accept
    that KIL did not acquire 5% or more shares at any point of
    time since sale and purchase of shares was being done G
    simultaneously and did not trigger the Takeover Code. He
    argued that SEBI ought to have taken into account that
    KIL also sold shares during the relevant period. He went
    on to argue that it was erroneous to determine the total H
    share holding of KIL at any given point of time during the
418       SUPREME COURT REPORTS                   [2015] 9 S.C.R.


A       investigation by completely ignoring the sale of shares
        made by it during the relevant period. He said that such a
        lopsided interpretation of Takeover Code would be
        erroneous and not maintainable. He said that determining
        the shareholding of a person without netting off would give
B       a distorted picture. He therefore concluded that for the
        reason mentioned above, the provisions of Takeover Code
        were not applicable in this case and no violation of SEBI
        Regulations has taken place."

C     4. The Tribunal accepted the counter arguments advanced
  on behalf of the SEBI to the effect that even during the period
  June 1999 to August 1999the appellant had acquired 6,61,800
  shares which constituted 6.29% of the paid up capital of SIL
  which was beyond the permissible limit of 5% and hence the
D requirement of making public announcement in terms of
  Regulation 11 (1) had to be met by the appellant which the
  appellant failed to do.

        5. Before the Tribunal as well as before us the main
E contention of the appellant is that SEBI failed to consider that
  the appellant was not only a promoter having more than 15%
  shares of SIL but it was also in the business of sale and
  purchase of shares which was being done simultaneously and
  hence exceeding the limit of 5% at any one point of tims was
F immaterial unless on a net accounting it could be found that
  such ceiling of 5% had been violated by appellant on account
  of its retaining more than 5% shares of SIL at the end of a
  financial year. On the other hand SEBI have reiterated their
  stand before the Tribunal that the ceiling of making acquisition
G of only up to 5% of the paid up capital of target company was
  no doubt to be reckoned during a period of 12 months, that is,
  a financial year but the requirement of Regulation 11(1) of the
  Regulations of 1997 of making a public announcement was
H triggered not only on actual acquisition beyond the 5% limit
    KOSHAINVESTMENTS LTD. v. SECURITIES & ·     419
 EXCHANGE BOARD OF INDIA [SHIVAKIRTI SINGH, J.]

but even on entering into an agreement for such acquisition or A
deciding to acquire such volume of shares of voting rights, in
view of provisions of Regulation 14(1) of the Regulations of
1997. A strong emphasis was laid on Regulation 14(1) which
requires the public announcement referred to in Regulation
10 or Regulation 11 to be made by the acquiring company B
(through its merchant banker), not later than four working days
of the agreement or decision to acquire the requisite number
of shares or voting rights which by itself triggers the
requirement of Regulation 11. (emphasis added) Let us
conceptualize the case of an entity holding 20 per cent of C
shareholding in a target company on 1st April of a given year.
If it were to increase its holding by say 3 per cent and
subsequently reduce it to 2 per cent. It at that point it intended
to purchase 4 per cent shares again, whether by way of
                                                                   0
fractions or otherwise, it would cross the threshold of 5 per
cent. It would then have to make compliance with Regulation
11. We hasten to clarify that if the aggregate percentage of
acquisitions at any point of time during the financial year
exceeds 5 per cent, the provision would get triggered. In other E
words, the provision of Regulation 11 mandating a public
announcement will kick in at any stage whence the
shareholding of the said entity in the target company would
exceed 25 per cent.
                                                                   F
      6. It will be relevant at this stage to extract Regulations
11(1), 13, 14(1) and 14(2) in order to appreciate the
submissions. These read as follows :

    "11. (1) No acquirerwho, together with persons acting in
    concert with him, has acquired, in accordance with the G
    provisions of law, 15 per cent or more but less than fifty
    five per cent (55%) of the shares or voting rights in a
    company, shall acquire, either by himself or through or with
    persons acting in concert with him, additional. shares or H
    voting rights entitling him to exercise more than 5 per cent
420     SUPREME COURT REPORTS                     [2015] 9 S.C.R.


A     of the voting.rights, in any financial year ending on 31s1
      March unless such acquirer makes a public
      announcement to acquire shares in accordance with the
      regulations.

B     12 ................ .

      13. Before making any public announcement of offer
      referred to in regulation 10 or regulation 11 or regulation
      12, the acquirer shall appoint a merchant banker in
c     Category I holding a certificate of registration granted by
      the Board, who is not an associate of or group of the
      acquirer or the target company.

      14. (1) The public announcement referred to in regulation
      10 or regulation 11 shall be made by the merchant banker
D
      not later than four working days of entering into an
      agreement for acquisition of shares or voting rights or
      deciding to acquire shares or voting rights exceeding the
      respective percentage specified therein:
E     Provided that in case of disinvestment of a Public Sector
      Undertaking, the public announcement shall be made by
      the merchant banker not later than 4 working days of the
      acquirer executing the Share Purchase Agreement or
      Shareholders Agreement with the Central Government or
F
      the State Government as the case may be, for the
      acquisition of shares or voting rights exceeding the
      percentage of shareholding referred to in regulation 10 or
      regulation 11 or the transfer of control over a target Public
G     Sector Undertaking.

      (2) In the case of an acquirer acquiring securities, including
      Global Depository Receipts or American Depository
      Receipts which, when taken together with the voting rights,
      if any already held by him or persons acting in concert
H
      with him, would entitle him to voting rights, exceeding the
      KOSHAINVESTMENTS LTD. v. SECURITIES&        421
   EXCHANGE BOARD OF INDIA [SHIVAKIRTI SINGH, J.]

      percentage specified in regulation 10 or regulation 11,          A
      the public announcement referred to in sub-regulation (1)
      shall be made not later than four working days before he
      acquires voting rights on such securities upon conversion,
      or exercise of option, as the case may be."
                                                                       B
       7. A careful reading of the aforesaid Regulations
  discloses that the public announcement should not be delayed
  beyond four working days of the agreement or decision to
  acquire the requisite number of shares or voting rights. We
  are in agreement with the finding of the Tribunal on this issue      C
  and find no merit in the contentions of the appellant. If the plea
  of appellant will be accepted then an acquirer can keep on
  violating Regulation 11 (1) with impunity on as many occasions
  as he/it wants and avoid letting the public have the required
  knowledge through public announcements by simply making              D
  subsequent sale or transfer to another entity so as to reduce
  the so-called net acquisition in a financial year to within 5%.
  This interpretation will defeat the purpose of Regulation 11 (1)
  and shall also render Regulation 14(1) otiose. The concept of
  permitting creeping acquisitions by permitting not more than         E
· 5% of the shares or voting rights in a company limits the period
  for such acquisition to a financial year ending by 31st March.
  But such concept do.es not dilute the requirement of making a
  public announcement within the time mentioned in Regulation          F
  14(1) ifthe acquisition even if only once made and divested,
  is of more than 5% of shares or voting rights in the target
  company. In other words, even if such acquisition is followed
  by sale in the same financial year, the liability of making the
  public announcement would remain unaffected and shall attract        G
  action, as in this case.

      8. Hence, the main contention advanced on behalf of the
 appellant is found to be without any merit. The other contention
 is that Regulation 14(2) of the Regulations of 1997 postpones         H
422        SUPREME COURT REPORTS                  {2015] 9 S.C.R.


A    the time for required public announcement to acquisition of
     voting rights when purchased securities are actually converted.
     According to the contention, only when securities or shares
     are converted by the acquirer into voting rights by getting it
     registered or upon exercise of option to acquire voting rights,
 B · the liability of making public announcement can be fastened.

         9. Aforesaid plea has been rightly countered by learned
  Senior Advocate for SEBI, Mr. C.U. Singh by pointing out that
  in case of acquisition of shares or voting rights the appropriate
C applicable provision is Regulation 14(1) and not Regulation
  14(2) which applies only when the acquisition is of other
  securities including Global Depository Receipts, American
  Depository Receipts. It is only such securities which require
  conversion or exercise of option which is contemplated by
D Regulation 14(2). He also pointed out that no such plea was
  raised before the SEBI or the Tribunal and rightly because in
  the present case only Regulation 14( 1) is applicable as it
  covers acquisition of either the shares or the voting rights or
  both which are the subject matter of Regulation 11 (1 ). Mr. Singh
E has also referred to a judgment of this Court in the case of
  Swedish Match AB and Another vs. Securities &
  Exchange Board of India and Another, (2004) 11 SCC 641.
  This judgment in paragraphs 90 onwards considered the
F purpose and effect of Regulations 10, 11 and 12 of the
  Regulations of 1997 and in paragraph 102 held them to be
  mandatory statutory provisions. However this judgment needs
  no elaborate consideration because no plea has been raised
  on behalf of appellant that the Regulations are directory or do
G not require compliance.

       10. We find that the plea that the matter at hand relates to
  Regulation 14(2) was not raised before the original authority
  or the Tribunal. We also find that it is a plea of desperation
H and undeserving of acceptance.
    KOSHA INVESTMENTS LTD. v. SECURITIES &      423
 EXCHANGE BOARD OF INDIA [SHIVAKIRTI SINGH, J.]

    11. In the final analysis we find no merit in these appeals      A
and hence they are dismissed with consolidated cost of Rs.
50,000/- to be paid by the appellant to SEBI within eight weeks. ·

NidhiJain                                     Appeals dismissed.
                                                                     B