SECURITIES AND EXCHANGE BOARD OF INDIA versus SUNIL KRISHNA KHAITAN AND OTHERS

SECURITIES AND EXCHANGE BOARD OF INDIAv.

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 Regulation10 of the SEBI Regulations, 1997 – Held: Regulation 10 states thatno ‘acquirer’ shall acquire voting rights, which taken together withthe shares or voting rights held by him or by ‘person acting inconcert’ would entitle the ‘acquirer’ to exercise 15% or more of thevoting rights in the company, unless such ‘acquirer’ makes publicannouncement to acquire shares in accordance with the regulations–The word ‘acquirer’ used in Regulation 10 takes its meaning fromthe definition clause (b) to Regulation 2(1), which refers to theshareholder as an individual and also ‘person acting in concert’with the him, which expression has been very widely defined videclause (e) to Regulation 2(1) of the Takeover Regulations 1997 –Regulation 10 does not apply when the ‘acquirer’ already holdsmore than 15% shares or voting rights in the target company – The‘acquirer’, for the purpose of the said Regulation, not only meansthe individual person but also the ‘person acting in concert’ withthe individual person.

SEBI (Substantial Acquisition of Shares and Takeovers)Regulations, 1997 –Regulation 44 and 45 –Regulation 11 and thepenalty under regulations 44 and 45 of the Takeover Regulations1997 – Held:Use of the word ‘may’ and not ‘shall’ in Regulation 44is significant – It is not mandatory that in case of every violationand breach of Regulations 10, 11 and 12, direction under Regulation44 shall be issued – The Board, therefore, when it decides to exerciseits power under Regulation 44 and issues directions under the saidRegulation has to keep the two facets in mind, namely, (i) interest ofthe securities market; and (ii) protection of interest of the investors–Regulation 44 is not strict liablity provision –Nowhere, Regulation45 stipulates that in case of violation of Regulations 10, 11 or 12 of

Athe Takeover Regulations 1997, the Board must initiate action andissue directions in terms of Regulation 44.

Securities and Exchange Board of India Act, 1992 (SEBI Act)– S. 15T – Power of Appellate Tribunal - The Appellate Tribunaldoes not have the power for the first time to initiate and thereupon,Bimpose penalty for non-compliance of the provisions of theRegulations under Chapter VI-A of the Act while deciding an appealagainst directions issued under Regulation 44 of the TakeoverRegulations, 1997 – That power is vested with the authority specifiedin the Act or the Regulations – The Appellate Tribunal is an appellateforum and not the authority empowered to initiate penaltyCproceedings under Section 15-H or suo moto issue directions underSection 11, 11B or 11(4)(d) of the Act – It can uphold or set asidethe direction issued, or modify and substitute the direction issuedunder Regulation 44 of the Takeover Regulations 1997 read withSections 11, 11B and 11(4)(d) of the Act.DWords 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 TakeoverERegulations)

1.1 Regulation 10 states that no ‘acquirer’ shall acquirevoting rights, which taken together with the shares or votingrights held by him or by ‘person acting in concert’ would entitlethe ‘acquirer’ to exercise 15% or more of the voting rights inFthe company, unless such ‘acquirer’ makes public announcementto acquire shares in accordance with the regulations. The word‘acquirer’ used in Regulation 10 takes its meaning from thedefinition clause (b) to Regulation 2(1), which refers to theshareholder as an individual and also ‘person acting in concert’with the him, which expression has been very widely defined videGclause (e) to Regulation 2(1) of the Takeover Regulations 1997.The Appellate Tribunal has, therefore, rightly held that the word‘acquirer’, which is term of art,25 should not be restricted toshares or voting rights of the individual shareholder as the termas defined includes the ‘person acting in concert’ with theH

shareholder. The shareholding/voting rights of the ‘acquirer’, thatis the individual shareholder together with the ‘person acting inconcert’ decides whether the ‘acquirer’ is required to make apublic offer/announcement in terms of Regulation 10, whichapplies when the voting rights of the ‘acquirer’ before acquisitionwere less than 15 %, but on fresh acquisition exceed 15% of thevoting rights in the company. Regulation 10 does not apply whenthe collective voting rights of the individual shareholder and the‘person acting in concert’, taken together is 15% or more on thedate when fresh shares or voting rights are acquired. Thebracketed portion of Regulation 10, namely “taken together withshares or voting rights, if any, held by him or by persons acting inconcert with him” affirms and endorses this interpretation. [Para44][1017-F-H; 1018-A-C]

1.2 In the context of Regulation 10, this Court does notthink that the draftsmen had committed mistake or had forgottenthe definition clauses while wording Regulation 10, wherein theyhave consciously used the expression ‘acquirer’, after havingdefined the same, instead of the word ‘person’, which word hasbeen used in Regulations 6 and 8 of the Takeover Regulations1997. To accept the interpretation given by the Board, we wouldhave to stretch the language of Regulation 10 and not read it as itreads, by assuming that the intent is to apply Regulation 10 intwo situations (i) when the acquirer as single entity, withouttaking into consideration the shareholding or voting rights of theperson(s) acting in concert; as well as (ii) when the single entitytogether with the person(s) acting in concert, acquire votingrights, and in either case to cross the stipulation of 15% of thevoting rights. But this would require us to ignore or rewrite theword ‘acquirer’ which as defined includes the ‘person(s) actingin concert’. It defeats the object and purpose behind the ‘term ofart’ definition. Regulation 10 applies to the ‘acquirer’ acquiringvoting rights, with reference to the existing holding as personand in concert with other persons, because the acquisition is tobe “taken together with shares or voting rights held by theacquirer himself or by person acting in concert with him”. Thecombined holding of the person and the ‘person acting in concert’determines application of Regulation 10. If an ‘acquirer’ already

Aholds more than 15 % shares or voting rights in concert withother persons, such holding is not be fragmented to calculate theshares or voting rights of the ‘acquirer’ in his personal capacityunder Regulation 10.[Para 46][1018-G; 1019-A-E]

1.3 Regulation 10 does not apply when the ‘acquirer’Balready holds more than 15% shares or voting rights in the targetcompany. The ‘acquirer’, for the purpose of the said Regulation,not only means the individual person but also the ‘person actingin concert’ with the individual person. In such cases, Regulation11(1) may apply when the ‘acquirer’ who hold between 15% to55% of shares or voting rights, post the acquisition of theCadditional shares or voting rights is entitled to exercise morethan 5% of the voting rights. It is accepted by the Board thatthey had read the expression ‘acquirer’ in Regulation 10 to meanand include the shareholder along with ‘person acting in concert’.Meaning thereby, there would not be any violation of Regulation

D10 if the ‘acquirer’, which would include the ‘person acting inconcert’, acquires new shares or voting rights when heindividually or along with the ‘person in concert’, already holdmore than 15% shares in the target company. This interpretationwas accepted and even communicated by the Board to thirdparties. Adjudicating Officer(s) have accepted this interpretationEand dropped penalty proceedings, which orders have attainedfinality 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 havetreated the expression ‘acquirer’, for the purpose of RegulationF10, to include ‘person acting in concert’ and the combinedshareholding were taken into consideration for deciding whetherthere was breach of Regulation 10. Where the ‘acquirer’,including the ‘person acting in concert’, already had shares orvoting rights in excess of the prescribed limit, they were notGheld guilty of violating Regulation 10.[Para 51][1022-F-G]

1.5 Contention of the Board that there is no estoppel againstlaw is well known, but the said principle is not applicable for severalreasons. First, the interpretation accepted by the AppellateTribunal is not only plausible but more acceptable than theHinterpretation propounded by the Board. Secondly, the Board,

which has the power to enact the Regulations, interpret and applythem, adjudicate and also pass penalty order in case of violationfor good and substantial reasons had interpreted regulations inthe same manner in earlier instances as interpreted by theAppellate Tribunal. Thirdly, the adjudication orders in the presentcase were passed well after the Takeover Regulations 1997 wererepealed with the enactment and enforcement of the TakeoverRegulations 2011. In the present case, therefore, we are dealingwith legacy issue. Regulation 10 of the Takeover Regulations1997, as interpreted and applied by the Board for over ten years,is sought to be overturned by the Board, thereby, creating penalconsequences. This should not be permitted and is hardlyacceptable when we apply the principle of good governance andregulation.[Para 60][1029-B-E]1.6 On the enforcement of Takeover Regulations 2011, itis clear that Regulation 10 will apply on an acquirer who crossesthe threshold of 15%, which under the Takeover Regulations2011, has been increased to 25%. Further, Regulation 10 wouldapply both when an individual acquirer or an acquirer in concertwith others acquires shares or voting rights beyond the thresholdlevel and such an acquirer would have to comply with theapplicable regulation. Takeover Regulations 1997 and TakeoverRegulations 2011, therefore, postulate different preconditions andthresholds. Reliance placed upon the Takeover RegulatoryAdvisory Committee Report would show that there was arethought and re-examination of Regulation 10 pursuant to whichRegulation 3(3) was enacted and made part of the regulatorymechanism under the Takeover Regulations 2011. It is generalrule of law of interpretation that unless explicitly mentioned, alaw cannot be presumed to be retrospective. Further, in theabsence of express statutory authorisation, delegated legislationin the form of rules or regulations, cannot operate retrospectively.Certainly, Regulation 3(3) in the Takeover Regulations 2011clarified and possibly removed the shortcoming of the 1997Regulations.[Para 62 and 63][1030-C-F; 1031-E]

Regulation 11 and the penalty under Regulations 44 and45 of the Takeover Regulations 1997

A2.1 The impugned order dismisses the appeal preferred bythe respondents and thereby affirms the order holding therespondents guilty of violation of Regulation 11(1) of the TakeoverRegulations 1997. The respondents have not filed appeals or crossobjections challenging the said finding of the Appellate Tribunal.Hence, we are not required to and would not comment on theBfindings recorded by the Appellate Tribunal on violation ofRegulation 11(1) of the Takeover Regulations 1997. We proceedon the basis that the respondents are guilty and have failed tomake public announcement within stipulated timeline as per theTakeover Regulations 1997. The contention of the Board is thatCthe Appellate Tribunal should not have modified the directiongiven by the Whole Time Member obligating public announcementwith the monetary penalty of Rs. 25,00,000/-. [Para 64 and65][1032-A-D]

2.2 Discretion is an effective and an important tool whichDthe legislature confers and vests with the executive for effectiveand good governance, administration, and in the present case –regulation, of the securities market which has complexcommercial and economic facets. Therefore, the law provides anoption to the Board and the authorities to adopt one or the otheralternatives. However, this does not mean that the Board or theEauthorities enjoy unfettered and unchecked discretionaryjurisdiction to act according to private or personal opinion in avague and fanciful manner. Discretion, when of wide amplitude,and when it can have civil and penal consequences, must beexercised in legal and regular manner. In the context ofFRegulations 44 and 45, it implies that the Board has the power tomake choice between different courses of action or inaction.This choice is not unfettered but is always held subject to impliedlimitations inherent in every statute, limitations set by the commonlaw and the constitutional mandate of rule of law. Regulation 44

differs from Section 15-H, which is somewhat strict liabilityGprovision that applies if person fails to comply with the clauses(i) to (iv). The phase ‘profits made out of such failure’ in Section15-H indicates that while imposing quantum of penalty theauthority should consider the profit made by the acquirer onaccount of failure to comply with the requirements mentioned inHclauses (i) to (iv) of Section 15-H. Reliance placed by the Board

on the judgments which relate to and arise from the orders passedby the adjudicating officer under Chapter VI-A of the Act are ofno relevance, as Regulation 44 is discretionary power and notmandatory in nature. Not only this, the directions underRegulation 44 are required to beissued considering relevantfactors, including, interest of the securities market and protectionof the investors in mind. Regulation 44 is not strict liablityprovision. [Para 71, 72, 73 and 75][1037-F-H; 1038-A]

2.3 We entirely agree with the reasoning given by theAppellate Tribunal for setting aside the directions given in thepenultimate paragraph of the orders passed by the Whole TimeMember. As noticed above, the violation alleged in Appeal No.23 of 2013 in the case of Sunil Krishna Khaitan relates to theyears 2006-2007. The order issuing the directions was passedon 31st December 2012, nearly eight years after the allegedviolation. The direction given is that the shareholders should begiven an option to sell the shares held by them on 16th June2007 by directing the respondents to make public announcementto acquire the shares. Direction has also been given to payinterest @ 10% per annum from 16th June 2007 till shares havebeen accepted in the open offer. The dividend paid, if any, wouldbe adjusted. We are not stating that this direction can never beissued, but the exercise of discretion to issue the said directionshas to be predicated and based upon good grounds and reasons.The directions of this nature are not automatic and are to beissued only when they are warranted and justified. Theincongruities and absurdities of the directions issued have beenhighlighted and noticed in the order passed by the AppellateTribunal. [Para 79][1044-B-D]

Power of the Appellate Tribunal under section 15T of theAct

3.1 An order in the form of directions under Regulation 44of the Takeover Regulations 1997 was issued. It was this orderwhich was made subject matter of challenge before the AppellateTribunal.Thus we do not accept the contention of the Board thatthe Appellate Tribunal while exercising appellate power couldnot have set aside and quashed the directions given in the appeal.

AIn the present case, proceedings under Section 15-H for levy ofpenalty were not initiated and no order of penalty under 15-Hwas passed by the adjudicating authority. The Appellate Tribunal,therefore, was not hearing an appeal against imposition of penaltyunder Section 15-H of the Act. Further, an order under Section15-H of the Act is passed by an adjudicating authority which, whileBimposing penalty, is required to take into consideration the factorsmentioned in Section 15-J.[Paras 88 and 89][1050-D-G]

3.2 The Appellate Tribunal does not have the power forthe first time to initiate and thereupon, impose penalty for non-compliance of the provisions of the Regulations under ChapterCVI-A of the Act while deciding an appeal against directions issuedunder Regulation 44 of the Takeover Regulations, 1997. Thatpower is vested with the authority specified in the Act or theRegulations. The Appellate Tribunal is an appellate forum andnot the authority empowered to initiate penalty proceedingsunder Section 15-H or suo moto issue directions under SectionD11, 11B or 11(4)(d) of the Act. It can uphold or set aside thedirection issued, or modify and substitute the direction issuedunder Regulation 44 of the Takeover Regulations 1997 read withSections 11, 11B and 11(4)(d) of the Act. Similarly, AppellateTribunal can uphold, set aside, modify and even substitute theEorder of penalty under Chapter VI-A of the Act. The power toinitiate and levy penalty in terms of Section 15-I is vested with anofficer to be appointed by the Board, not below the rank ofDivisional Commissioner, to act as an adjudicating officer. [Para90][1051-A-D]

F3.3 Thus, the Appellate Tribunal in appeal no.23 of 2013could not have substituted the penalty imposed by the Boardunder Regulation 44 with that of penalty under Section 15-H. Anappropriate view would be that when the Appellate Tribunal holdsthat the order passed by the Whole Time member on violation ofRegulations 10, 11 and 12 is sustainable, but the directions givenGin the order under Regulation 44 are not sustainable, it shouldleave it open to the Board to initiate proceedings and pass anorder 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]H12 SCR 1037 – followed.

Punjab Communications Ltd. v. Union of India andOthers (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; OfficialLiquidator v. Dharti Dhan (P) Ltd. (1977) 2 SCC 166 :[1977] 2 SCR 964; Dinesh Chandra Pandey v. HighCourt of Madhya Pradesh and Another (2010) 11 SCC500 : [2010] 8 SCR 37; Clariant International Ltd. andAnother v. Securities and Exchange Board of India(2004) 8 SCC 524 : [2004] 3 Suppl. SCR 843; BangloreMedical Trust v. B.S. Muddappa and Others (1991) 4SCC 54 : [1991] 3 SCR 102; Adjudicating Officer,Securities and Exchange Board of India v. BhaveshPabari (2019) 5 SCC 90; State of Gujarat v. PatilRaghav Natha and Others (1969) 2 SCC 187 : [1970]1 SCR 335; State of Punjab and Others v. BhatindaDistrict Coop. Milk Producers Union Ltd. (2007) 11SCC 363 : [2007] 11 SCR 14; Commissioner of IncomeTax, U.P., Lucknow v. Kanpur Coal Syndicate, KanpurAIR 1965 SC 325 : [1964] SCR 85; Commissioner ofIncome Tax, M.P., Bhopal v. Nirbheram Dalura (1997)10 SCC 373– relied on.

Sanjiv Coke Manufacturing Company v. M/s. BharatCoking 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 SCC1 : [2004] 5 Suppl. SCR 272; Chairman, SEBI v. ShriramMutual Funds and Another (2006) 5 SCC 361 : [2006]2 Suppl. SCR 833; Securities and Exchange Board ofIndia v. Saikala Associates Limited (2009) 7 SCC 432 :[2009] 6 SCR 798; – referred to.

From the Judgment and Order dated 19.06.2013 of the SecuritiesAppellate 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.

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 appealspreferred by the Securities and Exchange Board of India[1], whereby ithas challenged the order of the Securities Appellate Tribunal[2] dated 19[th]June 2013 in Appeal No. 23 of 2013 titled ‘Sunil Krishna Khaitan andOthers v. Securities and Exchange Board of India’; and the orderdated 31[st] October 2013 in Appeal No. 2 of 2013 titled ‘Smt. MadhuriS. Pitti and Others v. Securities and Exchange Board of India’.

2. Primary questions of law raised in these appeals relates to theinterpretation of Regulation 10 of the SEBI (Substantial Acquisition ofShares and Takeovers) Regulations, 1997;[3]the power and exercise ofthe power by the Board under Regulations 44 readwith 45 of the TakeoverRegulations, 1997; and the power and jurisdiction of the Appellate Tribunalunder 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] company incorporated in 1975,listed on BSE Limited and National Stock Exchange Limited, is engagedin the business of manufacturing and marketing of electrical goods.

4. KEL was founded by late Shri Krishna Khaitan (R12 in theappeal), who had passed away on 04[th] November 2012 and is representedby his legal representatives. The promoter group consists of his familymember/relative and associate entities, which include other respondentsin the appeal, namely Sunil Krishna Khaitan, M/s. KhaitanLefin Limitedand M/s. The Oriental Mercantile Company Limited (R11[st], R13[rd] andR14[th] 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’.

5. In the Extraordinary General Meeting held on 23[rd] March 2006,the shareholders of KEL had approved issuance of 10,00,000 equityshare warrants with the face value of Rs. 10/- each at premium of Rs.50/- each on preferential basis to the respondents. The warrants wereto be converted into equity shares within period of eighteen monthsfrom the date of allotment.

6. In the Extraordinary General Meeting held on 29[th] November2006, the shareholders had approved issuance of 10,00,000 warrantswith face value of Rs. 10/- each with premium of Rs. 121/- each onpreferential basis to M/s. Khaitan Lefin Limited (R13),[6] an identifiedmember of the promoter group, to be converted into equity shares withinCa period of eighteen months. This Extraordinary General Meeting hadalso approved issuance of 25,00,000 equity shares of face value of Rs.10/- each at premium of Rs. 125/- each on preferential basis to strategicinvestors. However, in this appeal, we are not concerned with the issueof shares to the strategic investors.

7. On 12[th] March 2007, the respondents acquired 13,00,000 sharesin KEL in two tranches i.e., 5,00,000 in one transaction and 8,00,000shares in the other. Upon receipt of the full consideration in terms of thewarrants, KEL had issued shares to the respondents consequent to whichthe shareholdings of the respondents and the promoter group underwenta change, which are required to be noted and are reproduced :

8. The respondents were served with the show-cause notice dated26[th] March 2012 issued by the Board with respect to violation of

Regulations 10 and 11(1) of the Takeover Regulations 1997, calling uponthem to show cause why suitable directions under Sections 11 and 11Bof the Act and Regulations 44 and 45 of the Takeover Regulations 1997read with corresponding provisions of Regulations 33 and 35 of the SEBI(Substantial Acquisition of Shares and Takeover) Regulations, 2011[7]should not be issued against them. Violation of Regulation 10 waspredicated on the ground that on 12[th] March 2007, shareholding of KLL(R13) had individually increased from 10.52% to 17.16% and thereby itwas mandatory for KLL to make public announcement in accordancewith the provisions of Regulation 10 read with Regulation 14(1) of theTakeover Regulations 1997 within four working days from 12[th] March2007. Further, on 12[th] March 2007, the collective shareholding of thepromoter group, including the acquirers, had increased from 25.83% to34.21% and, therefore, the acquirers collectively were required to makea public announcement in accordance with the provisions of Regulation11(1) read with Regulations 14(1) of the Takeover Regulations 1997within four working days from 12[th] March 2007.

9. The respondents contested the show-cause notice on variousgrounds, which we will be canvassing subsequently.

10. The Whole Time Member[8] of the Board did not agree withthe submissions made by the respondents and vide his order dated 31[st]December 2012 held that there was violation of Regulations 10 and11(1) of the Takeover Regulations 1997 and, therefore, the respondentsshall make combined public announcement to acquire shares of thetarget company,[9] namely KEL, in terms of Regulations 10 and 11(1) ofthe Takeover Regulations 1997 within forty-five days of the order. Furtherthe respondent, along with the consideration amount, shall pay interest@ 10% per annum from 16[th] June 2007 till the date of payment to theshareholders who were holding shares in KEL on the date of violation,and whose shares shall be accepted in the open offer, albeit afteradjustment of dividend, if any, paid. The effect of the aforesaid directionin the order dated 31[st] December 2012 would be examined by ussubsequently.

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 listed company whose shares or votingrights or control is directly or indirectly acquired or is being acquired.

A11. The respondents preferred an appeal before the AppellateTribunal, which by the impugned order has been partly allowed. TheAppellate Tribunal has held that Regulation 10 was not violated, butRegulation 11(1) was violated albeit the direction with regard to issue ofpublic announcement and open offer was not sustainable at belatedstage. There was delay of about 5 years in issuing show-causeBnoticerelating to acquisition/incidents which pertain to the year 2006-07,and as the impugned order came to be passed only on 31[st] December2012, the directions of the Whole Time Member for issue of publicannouncement and open offer were set aside. However, monetarypenalty of Rs. 25,000,00/- has been imposed.CII) Appeal No. 2 of 2013 (Madhuri S. Pitti’s case)

12. Pitti Laminations Ltd.[10] was incorporated in the year 1983under the Companies Act, 1956 and its six promoters, namely, Mr. SharadB. Pitti, Ms. Madhuri Pitti (R21), Mr. Akshay S. Pitti (R23),Pitti ElectricalDEquipmentPvt. Ltd (R22), Mrs. Shanti B. Pitti and Mr. Sharad B. Pittihave been controlling the affairs of PLL since its inception.

13. On 22[nd] June 2005, PLL allotted 3,90,000 shares and 4,10,000warrants convertible into equity shares to R23. On 26[th] April 2006, R23converted some warrants into equity shares which increased his individualshareholding in PLL from 11.87% to 16.25%.

14. On 11[th] April 2007, R23 converted the remaining warrants intoequity shares of PLL, which again increased his individual shareholdingin PLL from 14.88% to 15.77%.

15. At the Annual General Meeting of PLL on 11[th] August 2011, aFpreferential allotment of 40,50,000 equity shares to R21 andR22wasauthorised by the shareholders of PLL.This resulted in increase in thetotal shareholding of the three respondents (R21, R22 and R23) with thatof Mr. Sharad Pitti from 41.70% to 59.21%.

16. Accordingly, public announcement was made on 09[th]September 2011 and simultaneously, Draft Letter of Offer was filedGbefore the Board for its approval on 19[th] September 2011.

17. On query by the Board,R23 on 28[th] November 2011, wrote aletter denying his failures to make public announcement at the time ofacquisition of shares by him on 22[nd] June 2005, and 26[th] April 2006.

H10 Hereinafter referred to as “PLL”.

Subsequently, on 19[th] March 2012 hearing was afforded to him in thisregard. Thereafter, R23had submitted replies on three occasions on therespect of his purported failure to make public announcement at thetime of acquisition of the shares in 2005 and 2006.

18. After lapse of more than one year, the Board through AssistantGeneral Manager, Corporate Finance Department, Division of CorporateRestructuring issued the letter dated 17[th] December 2012,mandating theMerchant Banker of the respondents to inter alia revise the scheduleof the offer by taking into account the acquisitions made by R23 on 26[th]April, 2006 and 11[th] April, 2007 and thereby, revise the offer price to theshareholders.

19. The respondents challenged the letter before the AppellateTribunal, which vide impugned order dated 31[st] October 2013 allowedthe appeal and permitted the respondents to continue with their offerexcluding the Board’s directions relating to the acquisitions by R23 in theyears 2006 and 2007. The impugned order observes that the Board bysuch letters could not issue directions to listed companies, by terming itas mere advice without giving any choice in the matter. Further, placingreliance on the impugned order herein in Sunil Khaitan v. SEBI, AppealNo. 23 of 2013 decided on 19[th] June 2013, the Appellate Tribunal observedthat to determine whether or not the limit under Regulation 10has beencrossed, shareholdings of all members of the group of persons acting inconcert would have to be reckoned as whole.[11]

B. Contentions of the appellant/Board:

20. On 12[th] March 2007, individual shareholding of KLL (R13)inKEL had increased from 10.52% to 17.16%, whereas shareholding ofthe promoter group had collectively increased from 25.83% to 34.21%.Thus, there was 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 underRegulation 44 by the Whole Time Member, albeit, as noticed above, directions wereissued by the Board to amend the draft letter of offer submitted by PLL for the Board’sapproval on 19[th] September 2011, vide the Board’s letter dated 17[th] December 2012.The Appellate Tribunal has adversely commented on the Board’s conduct in issuing thesaid direction by directing amendment of the draft letter of offer. During the course ofarguments, the Board has not specifically challenged the observations and the adversefinding of the Appellate Tribunal that such directions could not have been issued by theBoard vide letter dated 17[th] December 2012. We will not make any comments or givefindings in this regard.

21. On 26[th] April 2006, shareholding of R23 in PLL had increasedfrom 11.87% to 16.25%. Again, on 11[th] April 2007, shareholding of R23had increased from 14.88% to 15.77%. However, no public announcementfor open offer was made by R23 or by the acquirer group within theperiod of four days from the respective dates.

B22. The objective of the Takeover Regulations 1997 is to bring tothe knowledge of the shareholders of the company any change insubstantial ownership of the company and to provide an exit opportunitythrough an open offer in case of such substantial change.

23. Regulations 10 and 11(1) have to be read accordingly and inCline with the objective of the Takeover Regulations 1997.

24. Regulations 10, 11 and 12 operate in three distinct fields inwhich the acquirer of shares or voting rights of the company is requiredto make public announcement and make an open offer to acquireshares of existing shareholders. These Regulations may overlap in someDcases as in the present case, but are not mutually exclusive, as has beenheld 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 AppellateTribunal is contrary to the objective of Regulation 10, which is to ensureEthat an exit option is provided to the existing shareholders once anyperson, whether individually, and or along with any another person actingin concert with each other, acquires shares that cross the 15% threshold.Such acquirer or group, as the case may be, would be able to exercisesufficient degree of control over the management of the company, whichmay not be in the interest of the company and, therefore, exit optionFshould be given to the existing shareholders.

26. In contrast, the objective of Regulation 11 is to provide anopportunity 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 theirGshareholding or voting rights over 5% at any given point in financialyear. As such acquisition enables the individual or the person acting inconcert with others to yield greater influence over management of thecompany, and Regulations 11(1) of the Takeover Regulations 1997provides for an exit option to the existing shareholders.27. Regulation 3(3) of the Takeover Regulations 2011 makesexplicit what was already implicit in the Takeover Regulations 1997, thatin case an individual within the group crosses the stipulated minimumshareholding threshold, such an individual shall make public offer evenwhen there is no change in aggregate shareholdings of the group, that is,persons acting in concert. Reference is made to the report of theTakeover Regulation Advisory Committee headed by Mr. C. Achuthan,which exhibits that Regulation 3(3) is to clarify the requirement that wasalready existing in the Takeover Regulations 1997.

28. There is no estoppel against statute and, therefore, therespondents in appeals herein cannot take any advantage and plead thatthe Board is deviating from its earlier stance. Reference is made toSanjiv Coke Manufacturing Company v. M/s. Bharat Coking CoalLimited and Another.[13] In fact, the interpretation given by the Board inthese appeals has been accepted by the Appellate Tribunal in certaincases.

29. The Board has been conferred with powers under the Act interms of Section 11 thereof to issue appropriate direction for protectionof interest of the shareholders; under Section 15-H read with Section15-I to impose monetary penalty on the defaulter; and under Section 24to criminally prosecute the defaulter for contravention of the provisionsof the Act or regulations thereunder. These are separate powers vestedwith the Board with distinct objectives, which can sometimes beoverlapping but are not identical, as has been held by this Court in PrakashGupta v. Securities &Exchange Board of India.[14] The Board beingan expert body is entitled to exercise the aforesaid powers to subservethe interest of the investors as well as to promote orderly and healthygrowth of the securities market.

30. The Appellate Tribunal should not have interfered with thedirections to make an open offer, which are in line with the objective ofSections 11 and 11-B of the Act read with Regulation 44 of the TakeoverRegulations 1997. The order passed by the WholeTimeMember directingmaking of public announcement for open offer along with paying interestto the shareholders of the target company, was made with the largerobjective of protecting interests of the shareholders who have rightand expectation to be provided with the opportunity to exit the company

13 (1983) 1 SCC 147

14 2021 SCC OnLine SC 485.

Ain case the shareholding/voting rights of person and/or persons actingin concert crosses the stipulated threshold at any point of time.

31. Scope of power of the Appellate Tribunal enumerated in Section15-T does not extend to substituting directions issued under Sections 11and 11B of the Act with monetary penalty under Section 15-H of theBAct. The scope of power of the Appellate Tribunal is wide but cannot beexercised in manner which is inconsistent with the scheme of the Act.Further, the directions issued for public announcement and open offerare in line with the objectives of the Act which states that as soon as thecontravention of the statutory obligation is established, penalties mustfollow. This is distinct objective envisaged in Sections 11 and 11B ofCthe Act read with Regulation 44 of the Takeover Regulations 1997, ashas been held in several decisions of this Court in Zile Singh v. State ofHaryana and Others,[15]Chairman, SEBI v. Shriram Mutual Fundsand Another[16] and Securities and Exchange Board of India v. SaikalaAssociates Limited.[17]D

32. The Appellate Tribunal does not exercise jurisdiction underArticle 226 of the Constitution of India and is creation of the statuteand, therefore, cannot pass any order inconsistent with the scheme ofthe Act. Thus, imposition of monetary penalty for violation of Regulation11(1) of the Takeover Regulations 1997, as directed by the AppellateETribunal, is contrary to law and would also result in weakening of investorconfidence in securities market as defaulters would be able to escapethe obligation.

33. Lastly, the delay in issue of show-cause notice itself wouldnot exonerate the defaulters under the Act and the relevant Regulations,Fas has been held in Adjudicating Officer, Securities and ExchangeBoard of India v. Bhavesh Pabari.[18]

34. For brevity, we are not reproducing the submissions made bythe respondents as they would be noticed subsequently and are inferablefrom our reasoning, which upholds the orders by the Appellate TribunalGon the interpretation of Regulation 10 of the Takeover Regulations1997.Secondly, we have upheld the order of the Appellate Tribunal settingaside the directions of public announcement with open offer given by

15 (2004) 8 SCC 116 (2006) 5 SCC 36117 (2009) 7 SCC 43218 (2019) 5 SCC 90H

the Whole Time Member under Regulation 44 for violation of Regulation11(1) of the Takeover Regulation,1997 in the case of Sunil KumarKhaitanin Appeal No. 8249 of 2013. However on the aspect of the powerof Appellate Tribunal under Section 15T of the Act, we have expressedour reservation and disagreed with the Appellate Tribunal for the reasonsset out below.

C. Relevant Provisions:

35. We begin by reproducingthe relevant provisions of the TakeoverRegulations 1997 which are as under:

“2. Definitions.

2. (1) In these Regulations, unless the context otherwise requires:

xx xx xx

(b) “acquirer” means any person who, directly or indirectly,acquires or agrees to acquire shares or voting rights in the targetcompany, or acquires or agrees to acquire control over the targetcompany, either by himself or with any person acting in concertwith the acquirer;

xx xx xx

(e) “person acting in concert” comprises—

(1) persons who, for common objective or purpose of substantialacquisition of shares or voting rights or gaining control over thetarget company, pursuant to an agreement or understanding (formalor informal), directly or indirectly co-operate by acquiring oragreeing to acquire shares or voting rights in the target companyor control over the target company.

(2) Without prejudice to the generality of this definition, the followingpersons will be deemed to be persons acting in concert with otherpersons in the same category, unless the contrary is established:

(i) company, its holding company, or subsidiary or suchcompany or company under the same management eitherindividually or together with each other;

(ii) company with any of its directors, or any person entrustedwith the management of the funds of the company;

(iii) directors of companies referred to in sub-clause (i) of clause

(2) and their associates;

(iv) mutual fund with sponsor or trustee or asset managementcompany;

(v) foreign institutional investors with sub-account(s);

(vi) merchant bankers with their client(s) as acquirer;

(vii) portfolio managers with their client(s) as acquirer;

(viii) venture capital funds with sponsors;

(ix) banks with financial advisers, stock brokers of the acquirer,or any company which is holding company, subsidiary orrelative of the acquirer :

Provided that sub-clause (ix) shall not apply to bankwhose sole relationship with the acquirer or with any company,which is holding company or subsidiary of the acquirer orwith relative of the acquirer, is by way of providing normalcommercial banking services or such activities in connectionwith the offer such as confirming availability of funds, handlingacceptances and other registration work;

(x) any investment company with any person who has aninterest as director, fund manager, trustee, or as shareholderhaving not less than 2 per cent of the paid-up capital of thatcompany or with any other investment company in which suchperson or his associate holds not less than 2 per cent of thepaid-up capital of the latter company.

Note : For the purposes of this clause ¯associate means,—(a) any relative of that person within the meaning of section 6of the Companies Act, 1956 (1 of 1956); and (b) family trustsand Hindu undivided families;

xx xx xx

6. Transitional provision.

(1) Any person, who holds more than five per cent shares orvoting rights in any company, shall within two months of notificationof these regulations disclose his aggregate shareholding in thatcompany, to the company.

(2) Every company whose shares are held by the persons referredto in subregulation (1) shall, within three months from the date of

notification of these regulations, disclose to all the stock exchangeson which the shares of the company are listed, the aggregatenumber of shares held by each person.

(3) promoter or any person having control over company shallwithin two months of notification of these regulations disclose thenumber and percentage of shares or voting rights held by him andby person(s) acting in concert with him in that company, to thecompany.

(4) Every company, whose shares are listed on stock exchangeshall within three months of notification of these regulations,disclose to all the stock exchanges on which the shares of thecompany are listed, the names and addresses of promoters and/or person(s) having control over the company, and the numberand percentage of shares or voting rights held by each such person.

7. Acquisition of 5 per cent and more shares or voting rightsof company.

(1) Any acquirer, who acquires shares or voting rights which (takentogether with shares or voting rights, if any, held by him) wouldentitle him to more than five per cent or ten per cent or fourteenper cent 2 [or fifty four per cent or seventy four per cent] sharesor voting rights in company, in any manner whatsoever, shalldisclose at every stage the aggregate of his shareholding or votingrights in that company to the company and to the stock exchangeswhere shares of the target company are listed.

(1A) Any acquirer who has acquired shares or voting rights of acompany under sub-regulation (1) of regulation 11, 1 [or undersecond proviso to sub-regulation (2) of regulation 11] shall disclosepurchase or sale aggregating two per cent or more of the sharecapital of the target company to the target company, and the stockexchanges where shares of the target company are listed withintwo days of such purchase or sale along with the aggregateshareholding after such acquisition or sale.

Explanation.—For the purposes of sub-regulations (1) and (1A),the term acquirer‘ shall include pledgee, other than bank or afinancial institution and such pledgee shall make disclosure to thetarget company and the stock exchange within two days of creationof pledge.

(2) The disclosures mentioned in sub-regulations (1) and (1A)shall be made within two days of — (a) the receipt of intimationof allotment of shares; or (b) the acquisition of shares or votingrights, as the case may be.

(2A) The stock exchange shall immediately display the informationBreceived from the acquirer under sub-regulations (1) and (1A) onthe trading screen, the notice board and also on its website.

(3) Every company, whose shares are acquired in mannerreferred to in subregulations (1) and (1A), shall disclose to all thestock exchanges on which the shares of the said company arelisted the aggregate number of shares held by each of such personsreferred above within seven days of receipt of information undersub-regulations (1) and (1A).

8. Continual disclosures.

(1) Every person, including person mentioned in regulation 6who holds more than fifteen per cent shares or voting rights inany company, shall, within 21 days from the financial year endingMarch 31, make yearly disclosures to the company, in respect ofhis holdings as on 31st March.

(2) promoter or every person having control over companyshall, within 21 days from the financial year ending March 31, aswell as the record date of the company for the purposes ofdeclaration of dividend, disclose the number and percentage ofshares or voting rights held by him and by persons acting in concertwith him, in that company to the company.

F(3) Every company whose shares are listed on stock exchange,shall within 30 days from the financial year ending March 31, aswell as the record date of the company for the purposes ofdeclaration of dividend, make yearly disclosures to all the stockexchanges on which the shares of the company are listed, thechanges, if any, in respect of the holdings of the persons referredGto under subregulation (1) and also holdings of promoters orperson(s) having control over the company as on 31st March.

(4) Every company whose shares are listed on stock exchangeshall maintain register in the specified format to record theinformation received under subregulation (3) of regulation 6, sub-

regulation (1) of regulation 7 and subregulation (2) of regulation8.

xx xx xx

10. Acquisition of fifteen per cent or more of the shares orvoting rights of any company.

No acquirer shall acquire shares or voting rights which (takentogether with shares or voting rights, if any, held by him or bypersons acting in concert with him), entitle such acquirer toexercise fifteen per cent or more of the voting rights in company,unless such acquirer makes public announcement to acquireshares of such company in accordance with the regulations.

11. Consolidation of holdings.

(1) No acquirer who, together with persons acting in concert withhim, has acquired, in accordance with the provisions of law, 15per cent or more but less than fifty five per cent (55%) of theshares or voting rights in company, shall acquire, either by himselfor through or with persons acting in concert with him, additionalshares or voting rights entitling him to exercise more than 5% ofthe voting rights, with post acquisition shareholding or voting rightsnot exceeding fifty five per cent., in any financial year ending on31st March unless such acquirer makes public announcementto acquire shares in accordance with the regulations.(2) No acquirer, who together with persons acting in concert withhim holds, fifty-five per cent (55%) or more but less than seventy-five per cent (75%) of the shares or voting rights in targetcompany, shall acquire either by himself or through or with personsacting in concert with him any additional shares entitling him toexercise voting rights or voting rights therein, unless he makes apublic announcement to acquire shares in accordance with theseRegulations:

Provided that in case where the target company had obtainedlisting of its shares by making an offer of at least ten per cent(10%) of issue size to the public in terms of clause (b) of sub-rule(2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957,or in terms of any relaxation granted from strict enforcement ofthe said rule, this sub-regulation shall apply as if for the words and

ABC

figures seventy-five per cent (75%), the words and figures ninetyper cent (90%) were substituted.

Provided further that such acquirer may, notwithstanding theacquisition made under regulation 10 or sub-regulation (1) ofregulation 11, without making public announcement under theseRegulations, acquire, either by himself or through or with personsacting in concert with him, additional shares or voting rights entitlinghim upto five per cent. (5%) voting rights in the target companysubject to the following:

(i) the acquisition is made through open market purchase innormal segment on the stock exchange but not through bulkdeal /block deal/ negotiated deal/ preferential allotment; or theincrease in the shareholding or voting rights of the acquirer ispursuant to buyback of shares by the target company;

(ii) the post-acquisition shareholding of the acquirer togetherwith persons acting in concert with him shall not increasebeyond seventy five percent. (75%).

(2A) Where an acquirer who (together with persons acting inconcert with him) holds fifty-five per cent (55%) or more but lessthan seventy-five per cent (75%) of the shares or voting rights ina target company, is desirous of consolidating his holding whileensuring that the public shareholding in the target company doesnot fall below the minimum level permitted by the ListingAgreement, he may do so by making public announcement inaccordance with these regulations:

Provided that in case where the target company had obtainedlisting of its shares by making an offer of at least ten per cent(10%) of issue size to the public in terms of clause (b) of sub-rule(2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957,or in terms of any relaxation granted from strict enforcement ofthe said rule, this sub-regulation shall apply as if for the words andfigures seventy-five per cent (75%), the words and figures ninetyper cent (90%) were substituted.

(3) Notwithstanding anything contained in regulations 10, 11 and12, in case of disinvestment of Public Sector Undertaking, anacquirer who together with persons acting in concert with him,has made public announcement, shall not be required to make

another public announcement at the subsequent stage of furtheracquisition of shares or voting rights or control of the Public SectorUndertaking provided:— (i) both the acquirer and the seller arethe same at all the stages of acquisition, and (ii) disclosuresregarding all the stages of acquisition, if any, are made in theletter of offer issued in terms of regulation 18 and in the firstpublic announcement.

Explanation. — For the purposes of regulation 10 andregulation 11, acquisition shall mean and include — (a) directacquisition in listed company to which the regulations apply; (b)indirect acquisition by virtue of acquisition of companies, whetherlisted or unlisted, whether in India or abroad.

12. Acquisition of control over company.

Irrespective of whether or not there has been any acquisition ofshares or voting rights in company, no acquirer shall acquirecontrol over the target company, unless such person makes publicannouncement to acquire shares and acquires such shares inaccordance with the regulations:

Provided that nothing contained herein shall apply to any changein control which takes place in pursuance to special resolutionpassed by the shareholders in general meeting:

Provided further that for passing of the special resolution facilityof voting through postal ballot as specified under the Companies(Passing of the Resolutions by Postal Ballot) Rules, 2001 shallalso be provided.

Explanation — For the purposes of this regulation, acquisitionshall include direct or indirect acquisition of control of targetcompany by virtue of acquisition of companies, whether listed orunlisted and whether in India or abroad.”

D.Interpretation of Regulation 10 of the TakeoverRegulations, 1997:

36. Regulation 6, transitional provision, states that any personwho holds more than 5% shares or voting rights in company shall,within two months of the notification of the Takeover Regulations 1997,disclose the aggregate shareholding to the company.[19] Every company

19 Regulation 6(1) of the Takeover Regulations, 1997.

Ais required to, within three months of the notification of the TakeoverRegulations 1997, disclose, to all stock exchanges in which the shares ofthe company are listed, the aggregate number of shares held by suchperson.[20] promoter or person having control over the company isrequired to, within two months, disclose the number and percentage ofvoting rights held by him and the persons acting in concert with him toBthe company.[21] In turn, the company is, within three months, required todisclose to all stock exchanges in which the shares of the company arelisted, the names and addresses of the promoters or the persons havingcontrol of the company, the number and percentage of shares or votingrights held by each such person.[22]C37. Regulation 7 states that any acquirer who acquires shares orvoting rights, taken together with the shares or voting rights already heldby him, which would entitle him to more than 5% or 10% or 14% or 54%or 74% shares or voting rights of the company in any manner whatsoever,disclose at every stage, aggregate of his shareholding or voting rights toDthe company and to the stock exchanges where the shares are listed.[23]Sub-regulation 1A to Regulation 7 states that any acquirer who hasacquired shares or voting rights of the company, under sub-regulation 1to Regulation 11 or under second proviso to sub-regulation 2 to Regulation11, shall disclose the purchase or sale aggregating 2% or more of theshare capital of the target company to the target company, and to theEstock exchanges where the shares of the target company are listed withintwo days of such purchase or sale along with aggregate of shareholdingafter such acquisition or sale. The explanation to Regulation 7(1) and(1A) states that the term ‘acquirer’ for sub-regulation (1) and (1A) shallinclude pledgee, other than bank or financial institution. Such pledgeeFshall make disclosure to the target company and the stock exchangewithin two days of creation of the pledge. Sub-regulation (2A) toRegulation 7 states that the stock exchange shall immediately displaythe information received from the acquirer under sub-regulation (1) and(1A) on the trading screen, the notice board and also on its website.Sub-regulation (3) requires every company whose shares are acquiredGin the manner referred to in sub-regulation (1) and (1A) to disclose to allstock exchanges, on which the shares of the said company are listed,

20 Ibid Regulation 6(2).21 Ibid Regulation 6(3).22 Ibid Regulation 6(4).H23 Ibid Regulation 7(1).

the aggregate number of shares held by such persons referred above,within seven days of receipt of information under sub-regulation (1) and(1A) of Regulation 7 of the Takeover Regulations 1997.

38. Regulation 6 exposits transparency and openness which isrequired in the form of disclosure to be made by the shareholders,promoters or person having control over the company, as well as thecompany in which they hold the shares. The information is not onlygiven to the stock exchanges where the shares of the company arelisted but are also put in the public domain so as to inform the shareholdersand others. Similar transparency and openness is mandated by Regulation7 which uses the expression ‘acquirer’, and applies when the ‘acquirer’acquires shares or voting rights of the specified percentage in thecompany. Regulation 6 consciously uses the terms ‘person’, ‘promoter’,or ‘a person having control over the company’, and does not use theterm ‘acquirer’, as the term ‘acquirer’ has been given, as noticed below,a specific legal meaning by the Takeover Regulations 1997. Regulation7, on the other hand, expressly uses the term ‘acquirer’.

39. When we turn to Regulation 8 which deals with ‘continuousdisclosures’, the regulation uses the term ‘person’, ‘promoter’, and ‘everyperson having control over the company’, which are the terms used inRegulation 6. Regulation 8 stipulates every person, which includes theperson mentioned in Regulation 6, who hold more than 15% shares ofvoting rights as on 31[st] March shall make disclosure to the companywithin 21 days from the end of the financial year. There is similarstipulation in sub-regulation (2) to regulation 8 which requires promoteror every person having control over company to make disclosurewithin 21 days from the end of the financial year, as well as the recorddate of the company for declaration of dividend, to make disclosure ofthe number and percentage of shares or voting rights held by him and bypersons acting in concert with him in that company to the company.Theexpression ‘person acting in concert’ has been defined in clause (e) toSection 2(1) of the Regulation, which clause has been examined andinterpreted by us subsequently, also finds reference in the expression‘acquirer’ defined by clause (b) in Regulation 2 to the TakeoverRegulations 1997. Every company whose shares are listed in the stockexchange is mandated by Regulation 8(3)to make disclosure to allstock exchanges where their shares are listed, within 30 days of the endof the financial year as well as the record date for the purpose of

Adeclaration of dividend as to the holdings of the persons covered by sub-regulations (1) and (2) of Regulation 8. Regulation 8(4) states that everycompany, whose shares are listed, shall maintain register in the specifiedformat to record the information received under sub-regulation (3) toRegulation 6, sub-regulation (1) to Regulation 7 and sub-regulation (2) toRegulation 8.B

40. The expression ‘acquirer’, as defined in the TakeoverRegulations 1997, is broad, wideand is given an expansive definition. An‘acquirer’ is person who directly or indirectly acquires or agrees toacquire shares or control over the target company by himself or withany person acting in concert with him. The phrase ‘directly or indirectly’Cas well as the expressions ‘acquired shares or voting rights’ and ‘withany person acting in concert with the acquirer’underlines the extensiveandwidespread ambit of the term ‘acquirer’. The term ‘acquirer’ is notrestricted to the person or individual shareholder as it encompasses anyother person acting in concert with the ‘acquirer’.D

41. The expression ‘person acting in concert’ as defined in clause(e) to Section 2(1) is again broad and expansive. The expression ‘personacting in concert’ as per sub-clause (1) to Clause (e) includes person,who for common object or for purpose of substantial acquisition ofshares, voting rights, gaining control over the company, pursuant to anEagreement or understanding formal or informal, directly or indirectly,cooperate by acquiring or agreeing to acquire shares or voting rights in atarget company or to take control over target company.Sub-clause 2to clause (e) to Section 2(1) incorporates legal fiction as it states that thepersons enumerated in clauses (i) to (x) shall be deemed to be personsacting in concert with other persons in the same category.The note toFsub-clause (e) to Clause 2(1) explains the expression ‘associate’ as arelative of the person within the meaning of Section 6 of the CompaniesAct, 1956, family trust and Hindu Undivided Families. However, thepresumption raised vide sub-clause (2) to Regulation 2(1)(e) is qualifiedand subject to- ‘unless the contrary is established’. Therefore, if theGcontrary is established, the presumption raised vide clauses (i) to (x)may not apply in enterity or only apply in part limited to specificshareholder(s) or the persons mentioned in clauses (i) to (x) who inconcert acquire shares or voting rights of target company. The factualmatrix is determinative as clause (e)vide sub-clause (1) to Regulation2(1) of the Takeover Regulations 1997 lays down derivativeor spin-offH

rule of interpretation, and even when the presumption under sub-clause(2)arises, the adjudicator will not applythe presumption when the fact tothe contrary are established. The presumptionis to be looked as “thebats of law, flitting in the sunlight but disappearing in the sunshine offact”.[24]

42. The object of the aforesaid wide definitions is to ensure thatno one is able to dribble past and defeat the Takeover Regulations 1997by resorting to camouflage and subterfuge.

43. Interpreting Regulation 10 the Appellate Tribunal in the caseof Madhuri S. Pitti, by referring to their earlier decision in the case ofSunil Krishna Khaitan, has opined:

“21. The first ingredient of the regulation in question is “acquirer”,the second is “shares or voting rights, if any, held by him or bypersons acting in concert with him”; and the third is “entitle suchacquire to exercise fifteen percent or more of the voting rights ina company”. The definitions of “acquirer” and “persons acting inconcert” as given in the Code of Conduct, 1997 are reproducedbelow for the sake of convenience”:

“2(b) “acquirer” means any person who, directly orindirectly, acquires or agrees to acquire shares or votingrights in the target company, or acquires or agrees toacquire control over the target company, either by himselfor with any person acting in concert with the acquirer;

2(e) “person acting in concert” comprises, -

(1) persons who, for common objective or purpose ofsubstantial acquisition of shares or voting rights or gainingcontrol over the target company, pursuant to an agreementor understanding (formal or informal), directly or indirectlycooperate by acquiring or agreeing to acquire shares orvoting rights in the target company or control over the targetcompany.

(2) Without prejudice to the generality of this definition,the following persons will be deemed to be persons actingin concert with other persons in the same category, unlessthe contrary is established:……”

24 Words from the Full Bench decision of the Andhra Pradesh High Court in G. Vasu v.Syed Yaseen Sifuddin Quadri, AIR 1987 AP 139.

DEF

22. simple reading of the definition of the word “acquirer” makesit clear that an acquirer may act alone or as part of group ofpersons acting inconcert. On the other hand, the definition of“persons acting in concert” reveals that people who cooperatewith each other in order to acquire substantial voting rights in aparticular company would be considered persons acting in concert.At this point, we find it necessary to quote paragraph 31 fromSunil Khaitanvs SEBI (Appeal No. 23 of 2013 decided on 19.06.2013) mentioned herein below:

“31. In this connection, it may also be pertinently noted thatthe SAST Regulations, 1997 allow certain persons/ entities toact in concert for the purpose of acquisition. Even the definitionof “persons acting in concert” as provided in Regulation 2 (e)(1)clearly provides that this expression includes persons who agreeto cooperate with each other to acquire shares/voting rights ina target company or control over the target company pursuantto formal or informal understanding between them, directly

or indirectly. Thus, the definition is wide enough and gives amplescope to persons to act in concert as one unit for the purposeof acquisition of shares/voting rights. Further, Regulation 2(e)(2)also enumerates various persons who could act in concert andthey, inter alia, include company, its holding company, asubsidiary, directors, mutual fund with sponsor or trustee,foreign institutional investors, merchant bankers, so on and soforth. In this context, if we look at the new SAST Regulations,2011, we note that Regulation 3(3) specifically provides thatacquisition of shares by any person within the meaning of sub-regulations 3(1) and 3(2) would be attracting the obligation tomake an open offer for acquiring shares of the target companyirrespective of its aggregate shareholding with persons actingin concert if the shareholding of such individual person exceedsthe threshold limit prescribed by regulation 10. It is pertinent tonote that such specific and unambiguous provision makingan individual liable to make public offer in case the individualshareholding increases during the course of the acquisition evenwhile acting in concert with other persons is conspicuouslymissing in the SAST Regulations, 1997. KLL was, therefore,not required to make public offer and the finding in theImpugned Order qua appellant no. 3, i.e., KLL is hereby set

aside. At any rate, since the amendment of the Takeover Codeand the inclusion of regulation 3(3) in the SAST Regulations,2011 the discussion regarding the applicability of regulation 10of the SAST Regulations, 1997 has been rendered academic.Having said that, in the facts and circumstances of the presentcase, KLL cannot be called upon to make an open offer byapplying regulation 3(3) of the new Takeover Coderetrospectively.”

23. Therefore, it is evident that the framers of the TakeoverRegulation, 1997 intended to bring out clear distinction betweenindividual acquiring of shares on one hand and shares acquired bypersons acting in concert on the other. The benchmark of 15%would, thus, apply to an individual when the individual is acquiringshares/voting rights on his behalf alone. Similarly, when we attemptto determine whether or not the said limit has been crossed,shareholdings of all members of the group of persons acting inconcert would have to be reckoned as whole. Any otherinterpretation which would serve to dilute the distinction betweenan individual acquirer and group of “persons acting in concert”as an acquirer. It would, indeed, make the concept of “personsacting in concert” nugatory, which could never have been theintention of the law makers. We, therefore, find Appellant No. 3free of any blame with respect to provisions of regulation 10 ofthe SAST Regulations, 1997 regarding his acquisitions in the years2006 and 2007.”

(Emphasis Added)

44. We agree with the interpretation.Regulation 10 states that no‘acquirer’ shall acquire voting rights, which taken together with the sharesor voting rights held by him or by ‘person acting in concert’ wouldentitle the ‘acquirer’ to exercise 15% or more of the voting rights in thecompany, unless such ‘acquirer’ makes public announcement to acquireshares in accordance with the regulations. The word ‘acquirer’ used inRegulation 10 takes its meaning from the definition clause (b) to Regulation2(1),which refers to the shareholder as an individual and also ‘personacting in concert’ with the him, which expression has been very widelydefined vide clause (e) to Regulation 2(1) of the Takeover Regulations1997. The Appellate Tribunal has, therefore, rightly held that the word

A‘acquirer’, which is term of art,[25] should not be restricted to shares orvoting rights of the individual shareholder as the term as defined includesthe ‘person acting in concert’ with the shareholder. The shareholding/voting rights of the ‘acquirer’, that is the individual shareholder togetherwith the ‘person acting in concert’ decides whether the ‘acquirer’ isrequired to make apublic offer/announcementin terms of Regulation 10,Bwhich applies when the voting rights of the ‘acquirer’ before acquisitionwere less than 15 %, but on fresh acquisition exceed15%of the votingrights in the company. Regulation 10 does not apply when the collectivevoting rights of the individual shareholder and the ‘person acting inconcert’, taken together is 15% or more on the date when fresh sharesCor voting rights are acquired.The bracketed portion of Regulation 10,namely “taken together with shares or voting rights, if any, held by himor by persons acting in concert with him” affirms and endorses thisinterpretation.45. When word/term has been defined in statute in particularDmanner then the interpreter can assume the word/term must beunderstood in the stipulated sense. The principle applies with greatervigour when the definition ofthe word/term is given legal and substantivemeaning, different from the common meaning, as then the writer demandsthat the reader should understand the term/word in the sensedefined.When the content and meaning given is technical, theinterpreterEis entitled to infer that the intention of the draftsmen is to deviate anddepart from the ordinary, literalor customary meaning. Therefore, whena statutory enactment consciously defines word or expression byenlarging or restricting the ordinary meaning, in the absence of clearindication to the contrary, the term as defined shall cover what is proposed,Fauthorised, done or referred to in the enactment.[26] This principle can bealso discarded when the definition readand applied would not agree withthe subject and context thereby making the provision unworkable orotiose.

46. In the context of Regulation 10, we do not think that theGdraftsmen had committed mistake or had forgotten the definitionclauseswhile wording Regulation 10, wherein they have consciously used

25 Lord Nicholls has defined the phrase‘termof art’ in legal sense as term with onespecific and precise meaning for the purposes of the enactment- see Brooks Vs. Brooks(1995) 3 All ER 257.26 Lord Lowry,Wyre Forest District Council v. The Secretary of State for Environment,H1990 2 AC 357.

the expression ‘acquirer’, after having defined the same, instead of theword ‘person’, which word has been used in Regulations 6 and 8 ofthe Takeover Regulations 1997.To accept the interpretation given by theBoard, we would have to stretch the language of Regulation 10 and notread it as it reads, by assuming that the intent is to apply Regulation 10 intwo situations(i) when the acquirer as single entity, without taking intoconsideration the shareholding or voting rights of the person(s) acting inconcert; 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 thestipulation of 15% of the voting rights.But this would require us to ignoreor rewrite the word ‘acquirer’ which as defined includes the ‘person(s)acting in concert’. It defeats the object and purpose behind the ‘term ofart’ definition. Regulation 10 applies to the ‘acquirer’ acquiring votingrights, with reference to the existing holding as person and in concertwith other persons, because the acquisition is to be “taken together withshares or voting rights held by the acquirer himself or by person acting inconcert with him”. The combined holding of the person and the ‘personacting in concert’ determines application of Regulation 10. If an ‘acquirer’already holds more than 15 % shares or voting rights in concert withother persons, such holding is not be fragmented to calculate the sharesor voting rights of the ‘acquirer’ in his personal capacity under Regulation10.

47. The language and the wording of Regulation 10 clearly differsfrom the language and wording of Regulation 11(1) of the TakeoverRegulations 1997. In Regulation 11(1), an acquirer, either himself orthrough or with any person acting in concert with him, has 15% or morebut less than 55% shares/voting rights, is required to make publicannouncement in accordance with the Regulation when he, either byhimself or through or with persons acting in concert with him, acquireadditional shares or voting rights entitling him to exercise more than 5%of the voting shares in addition to already acquired shares/voting rights.48. Thus Regulation 10 does not apply when the ‘acquirer’ alreadyholds more than 15% shares or voting rights in the target company. The‘acquirer’, for the purpose of the said Regulation, not only means theindividual person but also the ‘person acting in concert’ with the individualperson. In such cases, Regulation 11(1) may apply when the ‘acquirer’who hold between 15% to 55% of shares or voting rights, post theacquisition of the additional shares or voting rights is entitled to exercisemore than 5% of the voting rights.

A49. The contention of the Board that the interpretation by theAppellate Tribunal defeats the object and purpose of the TakeoverRegulations 1997 is feeble and evanescent argument. The interpretation,does not render Regulation 10 ineffective to deal with cases where anindividual, parts ways with the ‘person(s) acting in concert’ to acquireshares beyond the threshold of 15% with the intend to gain control orBstake in the target company. The argument overlooks the wording ofRegulations 2(1)(b) and (e). ‘person acting in concert’ as defined inclause (e) to Regulation 2(1) is fluctuating and not fixed body ofpersons. When there are divisions and differences between or amongstthe ‘person acting in concert’, or even otherwise, an acquirer acts at hisCown behest or in concert with different persons or group, Regulation10 may catch up. Definitions of the terms, ‘acquirer’ and ‘person actingin concert’ are situation and fact specific. The legal fiction vide sub-clause 2 to Section 2(1)(e), specifically stipulates- unless contrary isestablished. Yes, there could be situations when the ‘person(s) acting inconcert’ holding more than 15% voting rights post the said acquisitionDmay part ways, but Regulation 10 is not attracted and applicable to suchsituations. To argue that public shareholders can predict such eventsand therefore the Board’s interpretation is more acceptable is imaginativebut an uncompelling and weak argument.Risk taking is essential to anan active market, and in fact the secruties marketthrives on legitimateEchanges in management, flexibility and willingness to accept change,which may not predicitable. Good regulation, it is said, should promoteand allow for the effective management of risk and not striffle risk taking.Regulator should ensure that capital and other prudential requirementsare sufficient to address appropriate risk taking, and check excessiverisk taking.[27 ]Therefore, the apprehension of the Board, which is more inFthe nature of skepticism and qualm,is misconceived and should be rejected.

50. There is ample material, and it is accepted by the Board thatthey had read the expression ‘acquirer’ in Regulation 10 to mean andinclude the shareholder along with ‘person acting in concert’. Meaningthereby, there would not be any violation of Regulation 10 if the ‘acquirer’,Gwhich would include the ‘person acting in concert’, acquires new sharesor voting rights when he individually or along with the ‘person in concert’,already hold more than 15% shares in the target company. Thisinterpretation was accepted and even communicated by the Board to

27 See Objectives and Principles of Securties Regulation- Objectives of SecuritiesHRegulation 4.2.3 International Organisation of Securities Commissions,- May,2003.

third parties.Adjudicating Officer(s) have accepted this interpretationand dropped penalty proceedings, which orders have attained finalityand accepted by the Board. Relevant portions of some communications/orders passed are reproduced below:

F51. Thus, the Board as well as the Adjudicating Officer havetreated the expression ‘acquirer’, for the purpose of Regulation 10, toinclude ‘person acting in concert’ and the combined shareholding weretaken into consideration for deciding whether there was breach ofRegulation 10. Where the ‘acquirer’, including the ‘person acting inconcert’, already had shares or voting rights in excess of the prescribedGlimit, they were not held guilty of violating Regulation 10[28].

28 Under sub-section (3) to Section 15-I, the Board has the power to call for and examinerecords of any proceedings if it considers the order passed by the adjudicating officer iserroneous to the extent it is not in the interests of the securities market and after causingor making an inquiry pass an order enhancing the quantum of penalty if the circumstancesof the case so justify. The second proviso states that an order under sub-section (3) canH

52. It is important for the regulator to be consistent andpredictable.Further regulations must be clear as ambiguous regulationscause confusion and uncertainty. Regularity and predictability, along withcertainty, are hallmarks of good regulation and governance. Theseprinciples underpinthe ‘rule of law’, check arbitrariness and are read asthe intent of the legislation, which the Courts, if need be, will enforce asa principle of interpretation.The Board is entrusted to preform legislative,executive, investigative and adjudicatory functions. regulator when itexecutes statutory functions interprets the enactment and gives meaningand, in that sense, lays down what is believes is the rule. As legislatorwho constructs and states at the first instance what is the rule, the Boardtacitly promises and prophecies the interpretation that appeals to them.Any good regulatory system must promote and adhere to principle ofcertainty and consistency,providing assurance to the individual as to theconsequence of transactions forming part of his daily affairs.[29] LordDiplock has aptly said “unless men know what the rule of conduct isthey cannot regulate their actions to confirm to it.” Otherwise theregulator”fails in its primary function as rule” maker.[30] This does notmean that the regulator/authorities cannot deviate from the past practice,albeit any such deviation or change must be predicated on greater publicinterest or harm. This is the mandate of Article 14 of the Constitution ofIndia which requires fairness in action by the State, and non-arbitrarinessin essence and substance.Therefore to examine the question ofinconsistency, the analysis is to ascertain the need and functional valueof the change, as consistency is matter of operational effectiveness.Sometimes changes are desiable and necessary.Referring to theseaspects, in some cases, the Indian courts have applied the doctrine of

be passed by the Board after expiry of period of three months from the date of the orderpassed by the adjudicating officer or disposal of the appeal under Section 15-T, whicheveris earlier.

29Union of India v. Raghubir Singh, (1989) 2 SCC 754. Also see, The Nature of theJudicial Process, Benjamin N. Cardozo, page 33: “I am not to mar the symmetry of thelegal structure by the introduction of inconsistencies and irrelevancies and artificialexceptions unless for some sufficient reason, which will commonly be some considerationof history or custom or policy or justice. Lacking such reason, I must be logical justas I must be impartial, and upon like grounds. It will not do to decide the same questionone way between one set of litigants and the opposite way between another.”30 Franics Bennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint),Section 266 at page 801.

Asubstantive legitimate expectation[31] observing that the change in policyshould not be irrational or perverse or one which no reasonable personcould have made. In other words, principles of Wednesbury’sreasonableness would apply. Such principle stems, but is somewhatdifferent from the foundational idea of procedural legitimate expectation,which applies where particular mode is prescribed for doing an actBand there is no impediment in adopting the procedure, the deviation toact in similar manner without any reasonable principle, can be labelledas arbitrary.[32]

53. In Punjab Communications Ltd. v. Union of India andOthers,[33 ]it is observed that for legitimate expectation to arise, theCdecisions of the administrative authority must affect the person bydepriving him of some benefit or advantage which he had in the pastbeen permitted by the decision-maker to enjoy, and which he canlegitimately expect to be permitted to continue to do until he has beencommunicated some rational grounds for withdrawing it andhe has beengiven an opportunity to comment. It also means that the assurance givenDby the decision maker will not be withdrawn, without giving him anopportunity of advancing reasons to contend that they should not bewithdrawn. Reference can also be made to recent decision of thisCourt in State of Jharkhand and Others v. Brahmputra MetallicsLtd., Ranchi and Another[34 ]wherein reference was made to earlierEjudgment in National Buildings Construction Corporation v. S.Raghunathan and Others[35 ]to reiterate that claims based on legitimateexpectations have been held to acquire reliance on the representationsand resulting detriment to the complainant in the same way as claimsbased on promissory estoppel.

31 See, Council of Civil Service Unions v. Minister for the Civil Service, 1985 AC 374,Fwherein it was observed in that case that for legitimate expectation to arise, thedecisions of the administrative authority must affect the person by depriving him ofsome benefit or advantage which either (i) he had in the past been permitted by thedecision-maker to enjoy and which he can legitimately expect to be permitted to continueto do until there has been communicated to him some rational grounds for withdrawingit on which he has been given an opportunity to comment; or (ii) he has receivedGassurance from the decision-maker that they will not be withdrawn without giving himfirst an opportunity of advancing reasons for contending that they should not bewithdrawn.32Bannari Amman Sugars Ltd. v. Comercial Tax Officers and Others, (2005) 1 SCC625.

33 (1999) 4 SCC 727

34 (2020) SCC Online SC 968H35 (1998) 7 SCC 66

54. In the context of the present case, it is to be noted that theBoard is the draftsman of the legislationhaving enacted the TakeoverRegulations 1997 and hence, their interpretation and understanding ofthe Regulations is of importance and relevance. In the context of thepresent case, the Board, nearly five years after the transactions, hadissued the show-cause notice and then passed an order taking view oninterpretation of Regulation 10, which was contrary to the view expressedby it in several communications as also orders passed by the adjudicatingauthority.Past is passe and not present, and by giving ‘retroactive’operation without good reason and ground[36], the direction violatesfundamental notions of predictability and legal stability.[37]

55. We also feel that the principle of doubtful penalisation wouldbe applicable in the present case. Way back in 1955, this Court in TolaramRelumal and Another v. State of Bombay[38] had held that it is wellsettled rule of construction of penal statutes that if two views andreasonable constructions can be put on provision, the court must leanin favour of construction which exempts the subject from penalty rather

than one which imposes penalty.[39] In Bipin chandra ParshottamdasPatel (Vakil) v. State of Gujarat and Others,[40] three Judges’ Benchof this Court had referred to this principle and quoted the followingpassage from Mohammad Ali Khan and Others v. Commissioner ofWealth Tax, New Delhi,[41] which reads:

“6. It is cardinal principle of construction that the words of astatute are first understood in their natural, ordinary or popular36 See our findings below.

37 Methew P. Harrington: Foreward: The Dual Dichotomy of Retroactive Lawmaking.38 (1955) 1 SCR 158

39 Ibid, para 8: “The question that needs our determination in such situation iswhether Section 18(1) makes punishable receipt of money at moment of time whenthe lease had not come into existence, and when there was possibility that thecontemplated lease might never come into existence. It may be here observed that theprovisions of Section 18(1) are penal in nature and it is well-settled rule of constructionof penal statutes that if two possible and reasonable constructions can be put upon apenal provision, the court must lean towards that construction which exempts thesubject from penalty rather than the one which imposes penalty. It is not competent tothe court to stretch the meaning of an expression used by the legislature in order tocarry out the intention of the legislature. As pointed out by Lord Macmillan in Londonand North Eastern Railway Co. v. Berriman [1946 AC 278, 295] “where penalties forinfringement are imposed it is not legitimate to stretch the language of rule, however,beneficient its intention, beyond the fair and ordinary meaning of its language”.40 (2003) 4 SCC 64241 (1997) 3 SCC 511

Asense and phrases and sentences are construed according to theirgrammatical meaning unless that leads to some absurdity or unlessthere is something in the context or in the object of the statute tosuggest the contrary. It has been often held that the intention ofthe legislature is primarily to be gathered from the language used,which means that attention should be paid to what has been saidBas also to what has not been said. As consequence constructionwhich requires for its support addition or substitution of words orwhich results in rejection of words as meaningless has to beavoided. Obviously the aforesaid rule of construction is subject toexceptions. Just as it is not permissible to add words or to fill in aCgap or lacuna, similarly it is of universal application that effortshould be made to give meaning to each and every word used bythe legislature.”Reference was thereafter made to Francis Bennion’s StatutoryInterpretation which observes that the principle of doubtful penalisation,Doften limited to criminal statutes, in fact, extends to any form of detriment.The jurist has opined that it is principle of legal policy that personshould not be penalised except under clear law. We, when considering inrelation to the facts of the instant case, wherein the opposing constructionsof the enactment is possible, should presume that the legislature intendedto observe this principle. The courts, therefore, try to avoid adopting aEconstruction which penalises person where the legislature’s intentionto do so is doubtful.

56. We would quote Section 278 from the Bennion on StatutoryInterpretation, 5[th] Edition, Indian Reprint, which reads as under:

F“Section 278. Statutory interference with economic interests

One aspect of the principle against doubtful penalisation is that bythe exercise of state power the property or other economic interestsof person should not be taken away, impaired or endangered,except under clear authority of law.”

GIn the comments in Section 278 of the treatise, it is stated that thepresumption against imposition of statutory detriment to person’sproperty or other economic interest has been recognised and explainedin Entick v. Carrington[42] by Brat C.J. in the following words:

42 (1765) 19 State Tr 1029 at 1060.H

“The great end for which men entered into society was to securetheir property. That right is preserved sacred and incommunicablein all instances where it has not been abridged by some public lawfor the good of the whole.”

57. The principle of doubtful penalisation has limited value wheninterpreting beneficial or remedial statutes where the adjudicator mayadopt liberal and purposive interpretation.[43 ]The principle can beignored when other interpretative factors, like interest of public law andgood of the society, weigh heavily to tilt the scales against application ofthe principle.[44] The law of interpretation and court decisions applyingthe law of interpretation recognise pluralism in interpretation.[45] Legalmeaning of the enactment/provision in question often involves applicationsof divergent principles, rules, cannons and presumptions, which areresolved by weighing and balancing the conflicting interpretative criteriaand factors.[46] Clearly, straitjacket approach should not be adoptedwithout reference to the context, the subject matter and the object of theprovision. Only then the court can interpret and give meaning which the

legislature wanted to achieve and convey.

58. We have already, while referring to the principle of legitimateexpectation, referred to the exceptions when the court may not applythe said principle.

59. The Board has drawn our attention to the decision of thisCourt in Swedish Match (supra) wherein Mr. Justice S.B. Sinha, who is

43 FranicsBennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint),Section 271 at page 827.

44 See Her Majesty The Queen ex rel. Linda Merk v. International Association ofBridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC70; R. v. Hasslewander, [1993] 2 S.C.R. 398; R. v. Goulis (1981), 125 D.L.R. (3d) 137;Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham,Ont.: Butterworths, 2002 at page 387: “The rule [of strict construction] is difficult toreconcile with federal and provincial Interpretation Acts which provide that all legislationis to be deemed remedial and given liberal and purposive interpretation. In theclearest possible language, this statutory directive requires doubts and ambiguities inpenal legislation to be resolved in manner that promotes the purpose of the legislation,regardless of the impact on accused persons.”; Côté, Pierre André. The Interpretationof Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000 at page 477; Graham,Randal N. Statutory Interpretation:Theory and Practice. Toronto: Emond Montgomery,2001. at pp. 210-15.45FranicsBennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint).46Ibid.

Aalso the author of the judgment in Bipinchandra (supra), had not appliedthe principle of doubtful penalisation with reference to Regulation 11 ofthe Takeover Regulations 1997. The Hon’ble Judge in Swedish Match(supra) has explained that in the said case there was clear violationand failure on the part of the persons statutorily obliged to comply withthe imperative statutory provisions. With reference to this decision, theBBoard had referred to one line in paragraph 77[47] which refers to Regulation10 and states that the same would apply as no public announcement wasmade in its compliance. It is to be noted that Regulation 10 was notinvoked by the Board in Swedish Match (supra) and its violation wasnot alleged. In the subject appeal before this Court in Swedish MatchC(supra), reliance was placed on Regulation 12 to get over the mandateof Regulation 11, which contention was rejected. One stray sentence inparagraph 77 that Regulation 10 would apply should not be read as ratiodecidendi of the said decision and as finding on the interpretation ofRegulation 10.[48 ]Decision dated 25[th] July 2012 of the Appellate Tribunal

D47"77. With view to advert to the question, the admitted facts may be noticed: SwedishMatch Singapore agreed to acquire majority shareholding in Haravon and Seedsubsequent to 17-12-1997 wherefor the public offer was made. SMS comprising Haravonand Seed had 28.28% and 10.33% whereas the Jatia Group comprising AVP and Plashhad 5% and 15% respectively whereas public/others had 41.39% shares. In concertwith each other the two groups acquired shares from public. On or about 25-8-1999 byacquiring preferential shares the Swedish Match Group obtained 52.11% and the JatiaEGroup obtained 24.11% as result whereof in Wimco the shares held by public/otherscame down to 23.78%. Both the Swedish Group and the Jatia Group were exercisingjoint control. By reason of the Jatia Group opting out of the joint control by transfer ofshares in favour of Swedish Match Singapore, subsidiary of Swedish Match AB (apart of the Swedish Match Group) obtained 74% of shares whereas Haravon — 46.18%,Seed — 5.93% and SMS — 21.89%. Thus, the extent of shares of the Jatia Group cameFdown to 2.22%. The Jatia Group sold its shares to the public as result whereof sharesof the public became 23.78%. SMS is subsidiary of the Singapore Match Group.Swedish Match is the holding company being the owner of 100% shares of SMS. Itstands categorically admitted by the appellants herein that acquisition of shares fromthe Jatia Group in favour of SMS was done by the Swedish company as group and notas an individual company. Factually, therefore, it is not correct to contend, although inits notice dated 28-1-2002, SEBI had given indication thereof, that SMS had acquiredG21.89% shares of its own. Even if SMS had done so, Regulation 10 would apply as nopublic announcement was made therefor.”48 See Natural Resources Allocation, In re, Special Reference No. 1 of 2012, (2012) 10SCC 1:

“70. Each case entails different set of facts and decision is precedent on its ownfacts; not everything said by Judge while giving judgment can be ascribed precedentialvalue. The essence of decision that binds the parties to the case is the principle uponH

in Hanumesh Realtors Private Limited v. Securities and ExchangeBoard of India[49 ]is per incuriam as it has referred to the decision inSwedish Match (supra), which decision relates to and interpretsRegulation 11(1). In the present reasoning, we are not dealing andinterpreting Regulation 11(1) but Regulation 10 of the TakeoverRegulations,1997.

60. Contention of the Board that there is no estoppel against lawis well known, but the said principle is not applicable for several reasons.First, the interpretation accepted by the Appellate Tribunal is not onlyplausible but more acceptable than the interpretation propounded by theBoard. Secondly, the Board, which has the power to enact theRegulations, interpret and apply them, adjudicate and also pass penaltyorder in case of violation for good and substantial reasons had interpretedregulations in the same manner in earlier instances as interpreted by theAppellate Tribunal. Thirdly, the adjudication orders in the present casewere passed well after the Takeover Regulations 1997 were repealedwith the enactment and enforcement of the Takeover Regulations 2011.In the present case, therefore, we are dealing with legacy issue.Regulation 10 of the Takeover Regulations 1997, as interpreted andapplied by the Board for over ten years, is sought to be overturned bythe Board, thereby, creating penal consequences. This should not bepermitted and is hardly acceptable when we apply the principle of goodgovernance and regulation.

61. The argument of the Board that Takeover Regulations 2011are retrospective is to be only noted and rejected. The impugned orderpassed by the Appellate Tribunal in the case of Madhur S Pitti(AppealNo. 2 of 2013) specifically records that the Board had conceded that

Takeover Regulations 2011 do not have any retrospective application.[50]

which the case is decided and for this reason, it is important to analyse decision andcull out from it the ratio decidendi……..

73. It is also important to read judgment as whole keeping in mind that it is not anabstract academic discourse with universal applicability, but heavily grounded in thefacts and circumstances of the case. Every part of judgment is intricately linked toothers constituting larger whole and thus, must be read keeping the logical threadintact……….”49 Before Securities Appellate Tribunal, Mumbai, Appeal No. 66 of 2012, Date ofDecision: 25.07.2012.

50 “27. We agree with the Respondent to the extent that the SEBI Act is certainly asocial welfare legislation. But this does not take away from the undeniable fact thatRegulations 3(3) of the SAST Regulations, 2011 introduced the provision stating thateven in case of an individual’s shareholding crossing the stipulated threshold, which is

AThe contention that Takeover Regulations 2011 are clarificatory and,therefore, retrospective is ex facie fallacious and untenable. Regulation3(3) of Takeover Regulations 2011 specifically postulate as under:

“3. Substantial acquisitionof sharesor voting rights.

xx xx xx

(3) For the purposes of sub-regulation (1) and sub-regulation (2),acquisition ofshares by any person,such that the individualshareholding of such person acquiring shares exceeds thestipulated thresholds,shall also be attracting the obligation to makean open offer for acquiring shares of the targetCcompanyirrespective of whether there is change inthe aggregateshareholding with persons acting in concert.”

62. In the aforesaid background, on the enforcement of TakeoverRegulations 2011, it is clear that Regulation 10 will apply on an acquirerwho crosses the threshold of 15%, which under the Takeover RegulationsD2011, has been increased to 25%. Further, Regulation 10 would applyboth when an individual acquirer or an acquirer in concert with othersacquires shares or voting rights beyond the threshold level and such anacquirer would have to comply with the applicable regulation. TakeoverRegulations 1997 and Takeover Regulations 2011, therefore, postulatedifferent preconditions and thresholds. Reliance placed upon the TakeoverERegulatory Advisory Committee Report would show that there was arethought and re-examination of Regulation 10 pursuant to whichRegulation 3(3) was enacted and made part of the regulatory mechanismunder the Takeover Regulations 2011.

63. It is general rule of law of interpretation that unless explicitlyFmentioned, law cannot be presumed to be retrospective. InCommissioner of Income Tax, (Central)-I, New Delhi v.VatikaTownship Private Ltd.,[51]a constitution bench decision, this courtobserved that:

now 25%, the need to make public offer shall arise. The Respondent has in all fairnessGhas agreed that the new Takeover Code of 2011 does not apply retrospectively.”We may observe that SEBI Act is not social welfare legislation but an eco-legallegislation and, therefore, must be interpreted pragmatically taking into account thecommercial practices, interest of the investors/shareholders and also without ignoringthe difficulties of the persons in control of the company. Competing interests, rightsand obligations have to be balanced.51 (2015) 1 SCC 1.H

“31. Of the various rules guiding how legislation has to beinterpreted, one established rule is that unless contrary intentionappears, legislation is presumed not to be intended to have aretrospective operation. The idea behind the rule is that currentlaw should govern current activities. Law passed today cannotapply to the events of the past. If we do something today, we doit keeping in view the law of today and in force and not tomorrow’sbackward adjustment of it……

32. The obvious basis of the principle against retrospectivity is theprinciple of ‘fairness’, which must be the basis of every legal ruleas was observed in the decision reported in L’OfficeCherifiendes Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd. Thus,legislations which modified accrued rights or which imposeobligations or impose new duties or attach new disability haveto be treated as prospective unless the legislative intent is clearlyto give the enactment retrospective effect; unless the legislationis for purpose of supplying an obvious omission in formerlegislation or to explain former legislation….”

Further, in the absence of express statutory authorisation, delegatedlegislation in the form of rules or regulations, cannot operateretrospectively.[52] Certainly, Regulation 3(3) in the Takeover Regulations2011 clarified and possibly removed the shortcoming of the 1997Regulations. However, the language of Regulation 3(3) as reproducedabove is apparently not of clarificatory or declaratory nature.[53]

E. Regulation 11 and the penalty under Regulations 44 and45 of the Takeover Regulations 1997:[54]

52Assitant Excise Commr, Kottayam and Others. v.Esthappan Cherian and Another,(2021) 10 SCC 210. Also see, Income Tax Officer, Alleppey v M.C. Ponnose andOthers, 1970 SCR (1) 678; Hukum Chand Etc. v Union of India and Others, (1973) 1SCR 896; Regional Transport Officer,Chittoor and Others v.Associated TransportMadras (P) Ltd. and Others, (1980) 4 SCC 597; Federation of Indian Mineral Industriesand Others v Union of India and Another, (2017) 16 SCC 186 and Union of India andOthers 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 SCCOnLine 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. andAnother, (2016) 9 SCC 720.

54In Civil Appeal No. 1762 of 2014 (Madhuri S. Pitti’s case), as per the findingsrecorded by the Appellate Tribunal, violation of Regulation 11(1) was not alleged andmade the basis of the letter dated 17[th] December 2012.

A64. The impugned order in Appeal No. 23 of 2013 (Sunil KrishnaKhaitan case) dismisses the appeal preferred by the respondents andthereby affirms the order holding the respondents guilty of violation ofRegulation 11(1) of the Takeover Regulations 1997. The respondentshave not filed appeals or cross objections challenging the said finding ofthe Appellate Tribunal. Hence, we are not required to and would notBcomment on the findings recorded by the Appellate Tribunal on violationof Regulation 11(1) of the Takeover Regulations 1997. We proceed onthe basis that the respondents are guilty and have failed to make publicannouncement within stipulated timeline as per the Takeover Regulations1997.C

65. As noticed above, the contention of the Board is that theAppellate Tribunal should not have modified the direction given by theWhole Time Member obligating public announcement with the monetarypenalty of Rs. 25,00,000/-.

66. Regulations 44 and 45 of the Takeover Regulations 1997 readDthus:

“44. Directions by the Board.

Without prejudice to its right to initiate action under Chapter VIAand section 24 of the Act, the Board may, in the interest of securitiesEmarket or for protection of interest of investors, issue suchdirections as it deems fit including:

(a) directing appointment of merchant banker for the purposeof causing disinvestment of shares acquired in breach of regulation10, 11 or 12 either through public auction or market mechanism, inits entirety or in small lots or through offer for sale;

(b) directing transfer of any proceeds or securities to the InvestorsProtection Fund of recognised stock exchange;

(c) directing the target company or depository to cancel the shareswhere an acquisition of shares pursuant to an allotment is in breachGof regulation 10, 11 or 12;

(d) directing the target company or the depository not to giveeffect to transfer or further freeze the transfer of any such sharesand not to permit the acquirer or any nominee or any proxy of theacquirer to exercise any voting or other rights attached to suchHshares acquired in violation of regulation 10, 11 or 12;

(e) debarring any person concerned from accessing the capitalmarket or dealing in securities for such period as may bedetermined by the Board;

(f) directing the person concerned to make public offer to theshareholders of the target company to acquire such number ofshares at such offer price as determined by the Board;

(g) directing disinvestment of such shares as are in excess of thepercentage of the shareholding or voting rights specified fordisclosure requirement under regulation 6, 7 or 8;

(h) directing the person concerned not to dispose of assets of thetarget company contrary to the undertaking given in the letter ofoffer;

(i) directing the person concerned, who has failed to make publicoffer or delayed the making of public offer in terms of theseregulations, to pay to the shareholders, whose shares have beenaccepted in the public offer made after the delay, the considerationamount along with interest at the rate not less than the applicablerate of interest payable by banks on fixed deposits.

45. Penalties for non-compliance.

(1) Any person violating any provisions of the regulations shall beliable for action in terms of the regulations and the Act.

(2) If the acquirer or any person acting in concert with him, failsto carry out the obligations under the regulations, the entire or apart of the sum in the escrow account shall be liable to be forfeitedand the acquirer or such person shall also be liable for action interms of the regulations and the Act.

(3) The board of directors of the target company failing to carryout the obligations under the regulations shall be liable for actionin terms of the regulations and the Act.

(4) The Board may, for failure to carry out the requirements ofthe regulations by an intermediary, initiate action for suspensionor cancellation of registration of an intermediary holding acertificate of registration under section 12 of the Act: Providedthat no such certificate of registration shall be suspended orcancelled unless the procedure specified in the regulationsapplicable to such intermediary is complied with.

1034SUPREME COURT REPORTS[2022] 18 S.C.R.

A(5) For any mis-statement to the shareholders or for concealmentof material information required to be disclosed to the shareholders,the acquirers or the directors where the acquirer is bodycorporate, the directors of the target company, the merchantbanker to the public offer and the merchant banker engaged bythe target company for independent advice would be liable forBaction in terms of the regulations and the Act.

(6) The penalties referred to in sub-regulations (1) to (5) mayinclude:—

(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 ofthe Act;D

(f) adjudication proceedings under section 15HB of the Act.”

67. 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 sharesEand take-overs-If any person, who is required under this Act or any rules orregulations made thereunder, fails to,-

(i) disclose the aggregate of his shareholding in the body corporatebefore he acquires any shares of that body corporate; or

F(ii) make public announcement to acquire shares at minimumprice;

(iii) make public offer by sending letter of offer to theshareholders of the concerned company; or

(iv) make payment of consideration to the shareholders who soldGtheir shares pursuant to letter of offer,

he shall be liable to penalty twenty-five crore rupees or threetimes the amount of profits made out of such failure, whichever ishigher.

H55 As they existed during the relevant time period for this case.

-15I. 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 appointany of its officers not below the rank of Division Chief to be anadjudicating officer for holding an inquiry in the prescribed mannerafter giving any person concerned reasonable opportunity ofbeing heard for the purpose of imposing any penalty.

(2) While holding an inquiry, the adjudicating officer shall havepower to summon and enforce the attendance of any personacquainted with the facts and circumstances of the case to giveevidence or to produce any document which in the opinion of theadjudicating officer, may be useful for or relevant to the subjectmatter of the inquiry and if, on such inquiry, he is satisfied that theperson has failed to comply with the provisions of any of thesections specified in sub-section (1), he may impose such penaltyas he thinks fit in accordance with the provisions of any of thosesections.”

68. Regulation 44 states that the Board, without prejudice to theirrights to initiate action under Chapter VI-A[56] and Section 24[57] of theAct,may in the interest of the securities market or for protection of theinterests of the investors, issue such directions as it may deem fit.Thereafter, it specifies certain directions in clauses (a) to (i), using theword ‘including’, which implies that the directions issued by the Boardcan include the directions given in clauses (a) to (i), albeit the Boardmay 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 clearfrom the relevant provisions of the Act, namely, Section 11 and 11B andSections 11(2)(h), which read:

“11. Functions of Board. – (1) Subject to the provisions of thisAct, it shall be the duty of the Board to protect the interest ofinvestors in securities and to promote the development of, and toregulate the securities market, by such measures as it thinks fit.

xx xx xx11-B. Power to issue directions. – Save as otherwise provided insection 11, if after making or causing to be made an enquiry, theBoard is satisfied that it is necessary –

56 Chapter VI-A: “Penalties and Adjudication” (Section 15A to 15JA)

57 Section 24: “Offences”

A(i) in the interest of investors, or orderly development of securitiesmarket; or

(ii) to prevent the affairs of any intermediary or other personsreferred to in section 12 being conducted in manner detrimentalto the interest of investors of securities market; or

B(iii) to secure the proper management of any such intermediaryor 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

(b) to any company in respect of matter specified in section11-A, As may be appropriate in the interests of investors insecurities 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 ofcompanies;”

69. The use of the word ‘may’ in Regulation 44 and the wordingof Sections 11(1), 11B and 11(2)(h) reflect that the Board has beenconferred discretion, which in turn also means and should be interpretedEas imposing duty, an aspect which we will elucidate in the subsequentparagraphs. Use of the word ‘may’ over the years is normally construed

as permissive and not imperative. The words ‘may’ or ‘shall’ by theirvery etymological foundation denote discretion and mandatory nature ofan act respectively. This Court has, therefore, held that the courts shouldnot readily interpret the word ‘may’ as ‘shall’ unless such interpretationFis necessary to avoid absurdity, inconvenient consequences or asmandated by the intent of the legislature which is gathered from theother parts of the statute.[58]

70. Use of the word ‘may’ and not ‘shall’ in Regulation 44 issignificant. It is not mandatory that in case of every violation and breachGof 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 ChandraPandey v. High Court of Madhya Pradesh and Another, (2010) 11 SCC 500; MohanSingh and Othersv. International Airport Authority of India and Others, (1997) 9 SCC132. Also see, Rajender Mohan Rana and Others v. Prem Prakash Chaudhary andOthers, 2011 SCC OnLine Del 3684.H

issued. The interpretation gets fortified in view of the words and objectof the Regulation 44 which empowers the Board to issue directions as itdeems 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 insecurities and to promote the development of, and regulate the securitiesmarket by such measures as it thinks fit. Section 11B, which deals withthe power of the Board to give directions, states that the Board, aftermaking or causing an inquiry, may issue directions if it is satisfied that itis necessary in the interest of the investors, or orderly development ofthe securities market; to prevent the affairs of any intermediary or otherpersons referred to in Section 12 from conducting affairs in mannerdetrimental to the interest of the investors or to secure propermanagement of such intermediary or persons. Section 11(2)(h) providesthat the Board is entitled to take measures for regulating substantialacquisition of shares and takeover of companies. Regulation 44 statesthat the Board while issuing directions, has to keep in mind the interestof the securities market and its role as protector of interest of investors.We will read the word ‘or’ between the expression ‘in the interest ofsecurities market or protection of investors’ as ‘and’. The Board,therefore, when it decides to exercise its power under Regulation 44and issues directions under the said Regulation has to keep the twofacets in mind, namely, (i) interest of the securities market; and (ii)protection of interest of the investors. The exercise of discretion of theBoard, in fact, would not be restricted to the two facets mentioned aboveas the power and functions of the Board are far broader as they includepromotion, development and regulation of securities market as wholeand regulating substantial acquisition of shares and takeover of companies.71. Discretion is an effective and an important tool which thelegislature confers and vests with the executive for effective and goodgovernance, administration, and in the present case – regulation, of thesecurities market which has complex commercial and economic facets.Therefore, the law provides an option to the Board and the authorities toadopt one or the other alternatives. However, this does not mean thatthe Board or the authorities enjoy unfettered and unchecked discretionaryjurisdiction to act according to private or personal opinion in vague andfanciful manner.[59] Discretion, when of wide amplitude, and when it can

59Sharpe v. Wakefield, [1891 AC 173]. Also see, Sant Raj and Anotherv. O.P. Singla andAnother, (1985) 2 SCC 349 at para 4 and S.G. Jaisinghaniv. Union of India and Others,AIR 1967 SC 1427.

Ahave civil and penal consequences, must be exercised in legal andregular manner.[60 ]Exercise of discretion is always governed by rules,which means that the exercise of discretion should be fair and reasonableas the legislature while conferring discretion never intends that theauthorities would not act whimsically, arbitrarily, buton the precept thatthey shall act only when it appears to be necessary in public interest.[61]BLegal exercise of discretion is one, where the authority examines andascertains the facts, is aware of the law, and then decides objectivelyand rationally what serves the interest better. This is true even when thestatutes are silent and only the power is conferred to act in one way orthe other. Reasonableness as standard is tested by reference to theCcommunity standards at the time of exercise of discretion. This meansthat discretion should be exercised within the limit to which an honestman competent to discharge his office ought to confine himself.[62] It willbe also true to state that the greater the harm or penal consequences,greater is the duty and obligation of the public authority to ensure thatdiscretion is used as an effective tool in regulation or administration butDdoes not cause confusion, chaos and instability.

72. In the context of Regulations 44 and 45, it implies that theBoard has the power to make choice between different courses ofaction or inaction. This choice is not unfettered but is always held subjectto implied limitations inherent in every statute, limitations set by theEcommon law and the constitutional mandate of rule of law. The underlyingrationale of giving discretion is to ensure that the Board exercises thediscretion in consonance with legitimate values of public law, whichinclude need to maintain legal certainty and consistency which are at theheart of the principle of rule of law.[63] These have to be balanced withFother equally legitimate public law value, which is the object and purposeof the enactment. The need for the said flexibility is given and is necessaryto meet unusual and practical situations and to do justice in particular

60Clariant International Ltd. and Another v. Securities and Exchange Board of India,(2004) 8 SCC 524 at para 26.61Banglore Medical Trust v. B.S. Muddappa and Others, (1991) 4 SCC 54 at para 46Gand 48.

62 Sharpe v. Wakefield, [1891 AC 173]: “according to the rules of reason and justice, notaccording 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, towhich 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) atHHeading 9-005 on page 515.

case.[64] The remedial order passed by the Board as the regulator mustalso meet the said parameters in addition to meeting the requirements ofthe enactment.

73. Clearly, therefore, Regulation 44 differs from Section 15-H,which is somewhat strict liability provision that applies if person failsto comply with the clauses (i) to (iv). It may be, however, noted thatSection 15-H prescribes the lower as well as the higher monetary penaltylimits. These stipulations have undergone modifications and changes fromtime to time. As per the amendments made by Act No. 59 of 2002, withretrospective effect from 29[th] October 2002, the penalty which can beimposed 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 suchfailure, whichever is higher. The phase ‘profits made out of such failure’in Section 15-H indicates that while imposing quantum of penalty theauthority should consider the profit made by the acquirer on account offailure to comply with the requirements mentioned in clauses (i) to (iv)of Section 15-H.

74. 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 tobe given reasonable opportunity of being heard for the purpose ofimposing any penalty. The adjudicating officer has the power to summonand enforce attendance of any person acquainted with the facts andcircumstances of the case to give evidence or produce documents which,in the opinion of the adjudicating officer, would be useful or relevant tothe subject matter of enquiry. Lastly, the adjudicating authority should besatisfied that the person has failed to comply with the provisions of thesection specified in sub-section (1).[65]

75. In this context, reliance placed by the Board on the judgmentswhich 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 proceedingsunder this Section and if it considers the order passed by the adjudicating authority iserroneous to the extent it is not in the interest of the securities market, it may, aftermaking or causing an inquiry to be made, pass an order enhancing the quantum ofpenalty. The order under sub-section (3) can be passed within period of three monthsfrom the date of order passed by the adjudicating authority or disposal of the appealunder Section 15-T, whichever is earlier.

Aofficer under Chapter VI-A of the Act are of no relevance, as Regulation44 is discretionary power and not mandatory in nature. Not only this,the directions under Regulation 44 are required to be issued consideringrelevant factors, including, interest of the securities market and protectionof the investors in mind. Regulation 44 is not strict liablity provision.

B76. The above position in law gets fortified from Regulation 45which stipulates that any person violating provision of the regulationsshall be liable in terms of the Regulation, that is, the Takeover Regulations1997 and the Act. Sub-regulation (6) to Regulation 45, with reference tothe penalties, states that it would include monetary penalties under Section15-H of the Act. It may also include directions under the provisions ofCSection 11B and 11(4) of the Act. Further, there is power to issue ceaseand desist order in proceedings under Section 11D of the Act. Criminalprosecution 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 right to take recourse to multipleDproceedings which have been loosely classified and referred to as‘penalties’ in Regulation 45(6). Nowhere, however, Regulation 45stipulates that in case of violation of Regulations 10, 11 or 12 of theTakeover Regulations 1997, the Board must initiate action and issuedirections in terms of Regulation 44. The Board, in appropriate case,may take action under Regulation 44 and issue directions, but when itEissues such directions, it must keep in mind the interest of securitiesmarket and to the protect the interests of the investors. Existence andconferment of power, and reasonable and legilimate exercise of the powerin accordance with law are two different facets.

77. We will now reproduce the order passed by theFWholeTimeMember recording the reasons for issuing directions:

“31. In my view, the facts and circumstance of the case, do notsuggest any reason to deviate from the normal rule of requirementof making public announcement in accordance with the TakeoverRegulations, 1997 as the same would be in the interest of theGpublic shareholders of the Target Company.

32. In this case, since requisite public announcement has not beenmade by the noticees, KLL has contravened regulation 10 andthe promoter group has contravened regulation 11(1) as discussedabove. I note that the Takeover Regulations, 1997 have beenHrepealed by the Takeover Regulations, 2011. In terms of regulation

35(2)(b) of the Takeover Regulations, 2011, the obligation or liabilityacquired, accrued or incurred under the repealed regulations, shallremain unaffected as if the repealed regulations has never beenrepealed. In the present case, the noticees triggered the obligationunder regulation 10 and 11(1) of the Takeover Regulations, 1997on March 12, 2007 and interms of regulation 14(1) thereof theywere obligated to make requisite public announcement within 4days from March 12, 2007. Thus, the noticees had incurred thisobligation prior to repeal of Takeover Regulations, 1997 and theobligation has to be completed under Takeover Regulations, 1997.

33. Since obligation under regulations 10 and 11 both haveoverlapped in this case, as observed by Hon’ble Supreme Courtin ‘Swedish Mach’ case, the noticees shall make combined publicannouncement under regulations 10 and 11 read with regulation14(1) of the Takeover Regulations, 1997.

34. Had the noticees made the public announcement in accordancewith the Takeover Regulations, 1997 regulations and complied allrelated activities within the timelines specified under the TakeoverRegulations, 1997, all formalities with respect to their publicannouncement and the open offer would 7 have been completedon June 15, 2007. Since the noticees have failed to make thepublic announcement within the stipulated time and the publicannouncement in compliance with this order would be after delay,the noticees shall pay interest on consideration amount as providedunder the Takeover Regulations, 1997 to the shareholders whotender their shares in the open offer and who are eligible forinterest as per law.

35. I, therefore, in exercise of powers conferred upon meundersections 19, 11 and 11B of the SEBI Act, 1992 and regulations 44and 45 of the SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 1997 read with regulation 32(1)(h) ofthe SEBI (Substantial Acquisition of Shares and Takeovers)Regulations, 2011, hereby issue the following directions:

(a)The noticees, Mr. Sunil Krishan Khaitan, Mr. KrishanKhaitan, KhaitanLefin Limited and The Orientale MercantileCompany Limited shall make combined publicannouncement to acquire shares of the Target Company,Khaitan Electricals Limited, in terms of regulations 10 andH

A11(1) of the SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 1997, within period of 45 daysfrom the date of this Order.

(b)The noticees shall, alongwith consideration amount,payinterest at the rate of 10% per annum, from June 16, 2007to the date of payment of consideration, to the shareholderswho were holding shares in the target company on the date

of violation and whose shares have been accepted in theopen offer, after adjustment of dividend, if any, paid.”

78. The Appellate Tribunal, on the other hand, has given theCfollowing reasons why the aforesaid directions were unacceptable andshould be set aside:

“35. In the instant case too, as matter of undisputed fact, thepromoter group has been in control of the Company since its veryestablishment in the year 1975. The Appellants seem to have beenDaware of the implication of the limit of creeping acquisition of 5%and, hence, did not breach regulation 11 by letting some warrantslapse and not converting them into shares. In fact, the Tribunalnotes that during the relevant period there were about 7 acquisitionsbut at no point of time did the Appellants violate the provisions ofany law but for the two conversions on March 12, 2007. We alsoEnote from the records that the Appellants have invariably acted ina bonafide manner by keeping the concerned stock exchangesand the Respondent informed regarding the true happenings withrespect to the acquisitions of shares and the correspondingchanges in the shareholding pattern. In this connection, the TribunalFhas perused various corporate announcements made by theCompany to the stock exchanges informing them about theallotment of equity shares as well as shareholding pattern as ofMarch 2006, June 2006, September 2006 and December 2006.Letters dated April 10, 2006, October 13, 2006 and April 11, 2007etc. are on record and have been perused by the Tribunal.

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

at the rate of Rs.131 per share. Although, the two spells weredifferent, they were executed on the same date and the creepingacquisition limit of 5% was clearly crossed in respect of theacquisition by the promoter group. Therefore, technically there isviolation of Regulation 11(1) of the Takeover Code of 1997. Forthis violation, we are of the opinion that suitable monetary penalty,must be imposed instead of calling upon the Appellants to make acombined public announcement to acquire shares of the Companyat this belated stage. The requirement of making publicannouncement would be totally superfluous in the facts andcircumstances of the case and would not beget any good. Theobjective of the preferential allotment of shares in question wasonly to address the working capital requirements of the Companyfor its smooth day to day functioning. Therefore, stable, low-cost funding-source, such as preferential allotment, was undertakenin the larger interests of the Company and, in effect, itsshareholders. In this connection, it is pertinent to note that theallotment of preferential shares in question was made after seekingapproval of the shareholders of the Company in two duly convenedEGM’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 onMarch 26, 2012. After holding proceedings against the Appellants,the Impugned Order came to be passed only on December 31,2012. We note that there is an inordinate delay of about 5 yearseven in issuing the show cause notice and no explanation hasbeen offered for the same. The Respondent was kept dulyinformed by the Appellants of all the transactions/acquisitions inthe year 2006-2007 along with information to other concernedauthorities like various stock exchanges but no action was takenfor the alleged violation for years together. Also, the point to beborne in mind while modifying the penalty imposed upon theAppellants is that the securities market is volatile and pulsatingstructure wherein events unfold at staggeringly fast pace. Wefeel that to compel the Appellants to make combined publicannouncement to acquire shares today would be iniquitous andwould lead to more harm than good for meretechnical fault,which in our opinion is remissible. Indeed, this Tribunal has takena view consistently that in such cases of technical violation

ABC

Amonetary penalty could be imposed to serve the ends of justicekeeping in view the factuality of given situation.”

79. We entirely agree with the reasoning given by the AppellateTribunal for setting aside the directions given in the penultimate paragraphof the orders passed by the Whole Time Member. As noticed above, theBviolation alleged in Appeal No. 23 of 2013 in the case of Sunil KrishnaKhaitan relates to the years 2006-2007. The order issuing the directionswas passed on 31[st] December 2012, nearly eight years after the allegedviolation. The direction given is that the shareholders should be given anoption to sell the shares held by them on 16[th] June 2007 by directing therespondents to make public announcement to acquire the shares.CDirection has also been given to pay interest @ 10% per annum from16[th] June 2007 till shares have been accepted in the open offer. Thedividend paid, if any, would be adjusted. We are not stating that thisdirection can never be issued, but the exercise of discretion to issue thesaid directions has to be predicated and based upon good grounds andDreasons. The directions of this nature are not automatic and are to beissued only when they are warranted and justified. The incongruitiesand absurdities of the directions issued have been highlighted and noticedin the order passed by the Appellate Tribunal.

80. The direction given by the Board vide letter dated 17[th]EDecember 2012 in the case of Madhuri S. Pitti in the form of directionto modify the draft letter of offer submitted to the Board for approval on19[th] September 2011 pursuant to the public announcement made by PLLon 9[th] September 2011, it must be stated, is rather odd and defiesobjectivity and logic. The Appellate Tribunal is right in noticing that therewas lack of clarity on the part of the Board as to the provision underFwhich the power has been exercised,as the Board’s power underRegulation 18 of the Takeover Regulations 1997 is to specify changes, ifany, in the letter of offer, without there being any obligation on the partof the Board to do so, and thereupon the merchant banker and the‘acquirer’ are required to carry out such changes before the letter ofGoffer is despatched to the shareholders. As per sub-regulation (2), theletter of offer is to be despatched to the shareholder not earlier than 21days from the date of submission of the letter of offer to the Board interms of sub-regulation (1). In this case, directions of the Board foramendment of the letter of offer was issued after lapse of more thanone year as the draft letter of offer was submitted on 19[th] SeptemberH

2011 and the directions were issued vide letter dated 17[th] December2012. Further, these directions were for the reason that the acquirer hadfailed to comply with Regulation 10 of the Takeover Regulations 1997 inthe remote past, that is, in the year 2006 and 2007. Clearly, this iswhimsical and arbitrary exercise of discretion by the Board which wouldhave led to chaos and confusion.

81. This Court in the judgment authored by one of us (SanjivKhanna, J.) in Bhavesh Pabari (supra) had examined the question ofdelay and laches in initiating proceedings under Chapter VI-A of the Actand the principle of law that when no limitation period is prescribedproceedings should be initiated within reasonable time and what wouldbe reasonable time would depend upon facts and circumstances of eachcase. In this regard, it was held as under:

“35. The appellants have also contended that in the absence ofany prescribed limitation period, SEBI should have issued show-cause notice within reasonable time and there being delay ofabout 8 years in issuance of show-cause notice in 2014, theproceedings should have been dropped. This contention was notraised before the adjudicating officer in the written submissionsor the reply furnished. It is not clear whether this contention wasargued before the Appellate Tribunal. There are judgments whichhold that when the period of limitation is not prescribed, such powermust be exercised within reasonable time. What would bereasonable time, would depend upon the facts and circumstancesof the case, nature of the default/statute, prejudice caused, whetherthe third-party rights had been created, etc. The show-cause noticein the present case had specifically referred to the respectivedates of default and the date of compliance, which was madebetween 30-8-2011 to 29-11-2011 (delay was between 927 daysto 1897 days). Only upon compliance being made that the defaultshad come to notice. In the aforesaid background, and so noticingthe quantum of fine/penalty imposed, we do not find good groundand reason to interfere.”

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

Aof each case, such as whether the violation was hidden and camouflagedand thereby the Board or the authorities did not have any knowledge.Though, no hard and fast rules can be laid down in this regard asdetermination of the question will depend on the facts of each case, thenature of the statute, the rights and liabilities thereunder and otherconsequences, including prejudice caused and whether third party rightsBhave been created are relevant factors. Whenever question with regardto inordinate delay in issuance of show-cause notice is made, it is opento the noticee to contend that the show-cause notice is bad on the groundof delay and it is the duty of the authority/officer to consider the questionobjectively, fairly and in rational manner. There is public interest involvedCin not taking up and spending time on stale matters and, therefore, exerciseof power, even when no time is specified, should be done withinreasonable time.[66] This prevents miscarriage of justice, misuse and abuseof the power as well as ensures that the violation of the provisions arechecked and penalised without delay, thereby effectuating the purposebehind the enactment.D83. We have already referred to Regulations 6, 7 and 8 of TakeoverRegulations 1997 which requires the acquirer/shareholders to makedisclosures to the company as well as to the stock exchange where theshares are listed. Violation of Regulations 6, 7 and 8 is not alleged. Whileit is true that the said disclosures and public notice of the disclosuresEcannot be treated as disclosure to the Board or authorities under theAct, the Board and the authorities, as good regulator, cannot also claimcomplete ignorance. Significantly, in the present case, the investors ofthe target company have not raised any objection. The impugned orderpassed by the Whole Time Member does not refer to any marketFmanipulation or fluctuation in share price, which was detrimental to theinterests of the investors. It is not the case of the Board that any windfallgains or profits have been made by the respondents on account of violationof Regulation 11(1) of Takeover Regulations 1997. The order passed bythe Whole Time Member, in fact, does not take into account the impactof the order on the securities market in case the investors/shareholdersG

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 ofIndia v. Citedal Fine Pharmaceuticals, Madras and Others, (1989) 3 SCC 483 at para6; State of Orissaand Othersv. Brundaban Sharma and Another, 1995 Supp (3) SCC249 at para 16; State of Punjab and Othersv. Bhatinda District Coop. Milk ProducersHUnion Ltd., (2007) 11 SCC 363.

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

84. There is, as noticed and held below, some merit in the contentionof the Board that the Appellate Tribunal could not have imposed penaltyunder Section 15-H when proceedings under the said Section had notbeen invoked by the Board and there is no order passed by theadjudicating authority imposing penalty under Section 15-H of the Act.However, the effect of the argument raised by the Board would be thatthe order passed by the Whole Time Member under Regulation 44 givingdirections would be quashed and set aside. The respondents would have,therefore, escaped without having to pay any penalty for violation ofRegulation 11(1) of the Takeover Regulations 1997. It is in this factualbackground we have to decide the present appeals. As noticed above,the respondents have not filed appeals or cross objections challengingthe penalty imposed by the Appellate Tribunal for violation of Regulation11(1) of the Takeover Regulations 1997.

F. Power of the Appellate Tribunal under section 15T of

the Act:

85. The last aspect of the present appeals relates to the power ofthe 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,-

(a) by an order of the Board made, on and after the commencementof the Securities Laws (Second Amendment) Act, 1999, underthis 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 Securities Appellate Tribunal havingjurisdiction in the matter.

(2) No appeal shall lie to the Securities Appellate Tribunal froman order made –

67 In reference to impugned judgment in Appeal No. 23 of 2012.

68 As it existed pre-2014 and 2017 amendment.

A(a) by the Board on and after the commencement of the SecuritiesLaws (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 periodof forty-five days from the date on which copy of the orderBmade by the Board or the adjudicating officer, as the case maybe,is received by him and it shall be in such form and beaccompanied by such fee as may be prescribed:

Provided that the Securities Appellate Tribunal may entertain anappeal after the expiry of the said period of forty-five days if it isCsatisfied that there was sufficient cause for not filing it within thatperiod.

(4) On receipt of an appeal under sub-section (1), the SecuritiesAppellate Tribunal may, after giving the parties to the appeal, anopportunity of being heard, pass such orders thereon as it thinksDfit, confirming, modifying or setting aside the order appealedagainst.

(5) The Securities Appellate Tribunal shall send copy of everyorder made by it to the Board, the parties to the appeal and to theconcerned Adjudicating Officer.E(6) The appeal filed before the Securities Appellate Tribunal undersub-section (1) shall be dealt with by it as expeditiously as possibleand endeavour shall be made by it to dispose of the appeal finallywithin six months from the date of receipt of the appeal.”

86. The Board has contended that the Appellate Tribunal, in theFexercise of power under Section 15-T and while considering appealsagainst proceedings under Section 11 and 11B of the Act and Regulation44 of the Takeover Regulation, 1997, could not have converted thedirections of the Board with monetary penalty under Section 15-H. Thus,the impugned order could not have substituted the direction of the BoardGagainst respondents to:(a) make 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 considerationto the shareholders, with the direction to pay monetary penalty ofRs.25,00,000 for the breach of Regulation 11(1) of Takeover Regulation1997. We have briefly referred to the reasoning in the earlier paragraphs,H

and commented on the same. We have also reproduced the reasoninggiven by the Appellate Tribunal to substitute the direction of the WholeTime Member with that of the penalty.

87. The appeal before the Appellate Tribunal under Section 15T,is the first appeal against the decision of the Board or the adjudicatingofficer. First appeal is continuation or is co-terminus with theproceedings of the original adjudicating authority.[69] The first appeal is avaluable right of the party aggrieved, and all questions of fact and lawdecided by the Boardor the adjudicating authority,including exercise ofdiscretionwhether within the law, are open for full consideration andexamination.[70] The Appellate Tribunal, in the absence of any limit, hasplenary powers in disposing of an appeal.[71] It can do what the Board/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 beenappropriately summarised in Swedish Match (supra), wherein it hasbeen held:

69 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 andAnother, 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 489.70Clariant International Ltd. and Anotherv. Securities &Exchange Board of India, (2004)8 SCC 524:

“74. The jurisdiction of the Appellate Tribunal under the Act is not in any wayfettered by the statute and, thus, it exercises all the jurisdiction as that of theBoard. It can exercise its discretionary jurisdiction in the same manner as theBoard.

……………..

77. The Board exercises its legislative power by making regulations, executivepower by administering the regulations framed by it and taking action againstany entity violating these regulations and judicial power by adjudicating disputesin the implementation thereof. The only check upon exercise of such wide-ranging powers is that it must comply with the Constitution and the Act. Inthat view of the matter. where an expert Tribunal has been constituted, thescrutiny at its end must be held to be of wide import. The Tribunal. anotherexpert body, must, thus, be allowed to exercise its own jurisdiction conferredon it by the statute without any limitation.”

(Emphasis Supplied)

71Securities 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 anyspecific conclusion arrived at by SAT to the effect that the findings recorded bythe WholeTime Member as well as the Adjudicating Officer of SEBI were

A“84. It may be true that the Board in its impugned order dated 4-6-2002 proceeded on wrong premise that having regard to theproviso appended to Regulation 12, Regulation 12 would beattracted. But SAT, in our opinion, rightly construed the provisionsof Regulations 11 and 12 in arriving at finding that Regulation 11would be attracted and Regulation 12 would not be. The TribunalBwas entitled to take different view of the matter from that of theBoard with view to sustain the ultimate result in the appeal inexercise of its appellate power. Such power in the appellatecourt/tribunal is akin to or analogous to the principles contained inOrder 41 Rule 33 of the Code of Civil Procedure. Even otherwise,Cbefore us the judgment of the Tribunal is in question, this Court isrequired to consider the correctness or otherwise of the Tribunal.In any event, the reasoning of the Tribunal shall prevail over theBoard.”

(Emphasis Supplied)

88. In the context of the present appeal, it is to be noted that in thecase of Sunil Krishna Khaitan, an order in the form of directions underRegulation 44 of the Takeover Regulations 1997 was issued. It was thisorder which was made subject matter of challenge before the AppellateTribunal.Thus we do not accept the contention of the Board that theEAppellate Tribunal while exercising appellate power could not have setaside and quashed the directions given in the appeal.

89. At the sametime, in Sunil Krishna Khaitan’s case proceedingsunder Section 15-H for levy of penalty were not initiated and no order ofpenalty under 15-H was passed by the adjudicating authority. TheFAppellate Tribunal, therefore, was not hearing an appeal against impositionof penalty under Section 15-H of the Act. Further, an order under Section15-H of the Act is passed by an adjudicating authority which, whileimposing penalty, is required to take into consideration the factorsmentioned in Section 15-J.[72]incorrect. The appeals before SAT were in the nature of first appeal and therefore,Git was open to SAT to reappreciate the evidence after looking at the facts of thecase but upon perusal of the impugned order, we do not find any such findingto the effect that the findings arrived at by the Whole-Time Member as well asthe Adjudicating Officer of SEBI were incorrect or perverse for particularreason.”

(Emphasis Supplied)

7215J.Factors to be taken into account by the adjudicating officer.-H

90. We have also referred to Regulation 45 which in sub-regulation(6) refers to different types of penalties which can be imposed on aperson violating any of the provisions of the Regulations. The AppellateTribunal does not have the power for the first time to initiate andthereupon, impose penalty for non-compliance of the provisions of theRegulations under Chapter VI-A of the Act while deciding an appealagainst directions issued under Regulation 44 of the Takeover Regulations,1997. That power is vested with the authority specified in the Act or theRegulations. The Appellate Tribunal is an appellate forum and not theauthorityempowered to initiate penalty proceedings under Section 15-Hor suo moto issue directions under Section 11, 11B or 11(4)(d) of theAct. It can uphold or set aside the direction issued, or modify and substitutethe direction issued under Regulation 44 of the Takeover Regulations1997 read with Sections 11, 11B and 11(4)(d) of the Act. Similarly,Appellate Tribunal can uphold, set aside, modify and even substitute theorder of penalty under Chapter VI-A of the Act.The power to initiateand levy penalty in terms of Section 15-I[73 ]is vested with an officer to beappointed by the Board, not below the rank of Divisional Commissioner,

While adjudging quantum of penalty under section 15-I, the adjudicating officer shallhave due regard to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,made as result of the default;

(b) the amount of loss caused to an investor or group of investors as result of thedefault;

(c) the repetitive nature of the default

7315-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 ofa Division Chief to be an adjudicating officer for holding an inquiry in the prescribedmanner after giving any person concerned reasonable opportunity of being heard forthe purpose of imposing any penalty.

(2) While holding an inquiry the adjudicating officer shall have power to summon andenforce the attendance of any person acquainted with the facts and circumstances ofthe case to give evidence or to produce any document which in the opinion of theadjudicating officer, may be useful for or relevant to the subject-matter of the inquiryand if, on such inquiry, he is satisfied that the person has failed to comply with theprovisions of any of the sections specified in subsection (1), he may impose suchpenalty 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 sectionand if it considers that the order passed by the adjudicating officer is erroneous to theextent it is not in the interests of the securities market, it may, after making or causingto be made such inquiry as it deems necessary, pass an order enhancing the quantum ofpenalty, if the circumstances of the case so justify:

Ato act as an adjudicating officer. The adjudicating officer is required tohold an inquiry in the prescribed manner after giving the person areasonable opportunity of being heard for the purpose of imposing anypenalty. Powers are vested with the adjudicating officer to summon andenforce attendance of any person acquainted with the facts andcircumstances of the case to give evidence or to produce any document.B

91. Thus, the Appellate Tribunal in Appeal No. 23 of 2013 in thecase of Sunil Krishna Khaitan, could not have substituted the penaltyimposed by the Board under Regulation 44 with that of penalty underSection 15-H.An appropriate view, in our opinion, would be that whenthe Appellate Tribunal holds that the order passed by the Whole TimeCmember on violation of Regulations 10, 11 and 12 is sustainable, but thedirections given in the order under Regulation 44 are not sustainable, itshould leave it open to the Board to initiate proceedings and pass anorder under Chapter VI-A of the Act.

92. However, as held above, in the absence of any cross-appealDor cross-objection by the respondent in Appeal No. 23 of 2013 (SunilKrishna Khaitan’s case), we are not interfering with the order imposingpenalty of Rs.25,00,000/- for the violation of Regulation 11(1) of theTakeover Regulations 1997. The said direction has attained finality. Atthe same time, we are inclined to direct that the Board would give quietusEto the matter and should not initiate proceedings under Chapter VI-A ofthe Act.

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

94. There will be no order as to costs.

Ankit Gyan

(Assisted by : Adnan Khan, LCRA)

Appeals dismissed.

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