14/03/2017 Delivery | Westlaw India

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Content Type: Cases
Title : Ch. Kiron Margadarsi Financiers v
Adjudicating Officer, Securities and Exchange
Board of India
Delivery selection: Current Document
Number of documents delivered: 1

2017 Thomson Reuters South Asia Private Limited

14/03/2017 Delivery | Westlaw India Page 2

Securities Appellate Tribunal

28 August 2001

Ch. Kiron Margadarsi Financiers

v
Adjudicating Officer, Securities and Exchange Board of India

Case No : Appeal No. 21/2001.

Bench : C. ACHUTHAN
Citation : 2001 Indlaw SAT 42, 2002 (3) CLC 27
Summary : Securities and Exchange Board of India - Securities and Exchange Board of
India Act, 1992, s.15H, - Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997, regns. 2 (1)(b), 10 - Acquisition of shares -
Contravention of regulation - Imposition of penalty - Appellant was engaged in business of
financing, bill discounting - APL' Company whose shares were subjected to acquisition -
SEBI prima facie viewed that acquisition of shares attracted provisions of regulation 10 and
appointed adjudicating officer to enquire into contravention of regulation r/w. s.15H of 1992
Act - Adjudicating Officer viewed that there was failure on part of appellant to comply with
requirements of regulation and levied penalty of Rs. 3 lakh - Whether shares so held by
appellant amounted to acquisition in terms of regn.10, requiring to make public offer.

Held, as per regn.2 (1)(b) it is clear that person is an acquirer who acquires or agrees to
acquire shares or voting rights/control in target company. Act of acquisition of shares or
voting rights by itself will not attract provisions of regn.10, though person who acquired
shares or voting rights may fall within definition of expression 'acquirer'. Each and every
acquisition by acquirer need not necessarily attract provisions of regn.10. It is clear that plain
acquisition even if it exceeds 10 per cent of paid-up capital of company will not attract
regn.10, unless acquisition entitles acquirer to exercise ten per cent or more of voting rights
in company. Appellant had not become entitled to exercise voting rights in company over and
above said limit for reason that its holding of 4, 35, 040 shares was not registered in
company's register of members in its name. Regulation cannot be said to attract in this case.
Adjudicating officer has imposed monetary penalty on ground that appellant had violated
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provisions of regn.10, based on his finding that it acquired 15.04 per cent shares of APL
without making an open offer. Said finding does not sustain for reason that appellant's
acquisition entitling it to exercise voting rights was below 10 per cent benchmark provided in
regn. 10. Imposition of penalty cannot be sustained. Appeal allowed.

The Order of the Court was as follows :

Margadarsi Financiers, the appellant herein, is a HUF of which Shri Ch. Kiron is power
of attorney holder and the main contact person. The appellant is, inter alia, engaged in
the business of financing, bill discounting, etc. Aurobindo Pharma Ltd. ('APL') whose
shares are subjected to acquisition, is a company registered under the Companies Act,
1956. It is one of the leading manufacturers of life saving antibiotic bulk drugs in India.
APL's issued capital is Rs. 4.72 crore.
Securities and Exchange Board of India ('SEBI') came to know from the APL's
distribution schedule drawn as on 29th August, 1997 that the appellant was holding 3,
32, 540 shares (7.03 per cent of the paid-up capital) and the acquisition was made for the
first time in the year 1997. In the light of the said information, SEBI decided to enquire
into the matter, mainly with a view to ascertain the extent of compliance of the
provisions of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 ('the Regulations') by the appellant.
As per further details collected by SEBI, it was noticed that as on 20th January, 1997 the
appellant acquired 3, 87, 540 shares by way of pledge from the borrower. 3, 87, 540
shares constitute 8.2 per cent of the paid-up capital of APL. Subsequently on 14th May,
1997 the appellant acquired 3, 80, 040 shares more, again by way of pledge. As a result
thereof total holding of the appellant rose to 7, 67, 580 shares in APL (16.24 per cent of
the paid-up capital). In this context SEBI prima facie felt that the said acquisition of
shares attracted the provisions of regulation 10 {as it stood prior to 28th October, 1998}
and decided to appoint an adjudicating officer to enquire into the alleged contravention
of the regulation read with section 15H of the Securities and Exchange Board of India
Act, 1992 ('the Act') and impose monetary penalty if considered necessary.The
adjudicating officer so appointed, after enquiry viewed that there was failure on the part
of the appellant to comply with the requirements of the regulation and consequently
levied a penalty of Rs. 3 lakh on the appellant vide order dated 3rd April, 2001.
Shri Raghu Cidambi, learned representative appearing for the appellant, submitted that
the appellant had not violated the provisions of regulation 10 as its holding never crossed
the benchmark of 10 per cent specified in the regulation. Shri Cidambi explained the
circumstances and sequence of events involved in the acquisition. The position is
summarised in the following chart :
-------------------------------------------------------------------------------- Date Particulars
Amount of No. of Whether Details of Percentage loan shares shares shares of holding
sanctioned of APL transf- returned to paid-up by Margad- as erred on repay- capital arsi
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pledged If yes, ment of Financiers collateral loan (In Rs.) security

-------------------------------------------------------------------------------- 1 2 3 4 5 6 7
-------------------------------------------------------------------------------- 22.8.96 Loan 30, 00,
000 55, 000 No Nil 1.164 sanctioned to P. Ramana Reddy, director APL
-------------------------------------------------------------------------------- 20.1.97 Loan 115, 00,
000 3, 32, 540 Yes. Nil 7.037 sanctioned Transferred to P. V. in the name Ramaprasad of
Ch. Kiron, Reddy, Power of MD, APL attorney holder
-------------------------------------------------------------------------------- 14.5.97 Loan 94, 25,
000 3, 80, 040 No Nil 8.043 sanctioned to P. Ramaprasad Reddy, MD, APL
-------------------------------------------------------------------------------- 14.5.97 Loan of -30,
00, 000 -55, 000 1.16 Rs. 30 lakh sanctioned to P. Ramana Reddy repaid
-------------------------------------------------------------------------------- 1.7.98 Part -65, 00,
000 The entire N.A. payment of 3, 32, 540 Rs. 65 shares lakh made continued by P. V. to
be Ramaprasad in the Reddy name of Ch. Kiron, as it was only a part payment of loan
-------------------------------------------------------------------------------- 25.5.99 77, 400 N.A.
N.A. Transferred N.A. 1.638 to shares of in the name 21.9.98 APL taken of Shri Ch. as
delivery Kiron as a result of market purchases made by Margadarsi Financiers
-------------------------------------------------------------------------------- 25.9.98 Loan taken 7,
12, 580 N.A. by P. R. (332540 + Ramaprasad 380040) Reddy to Returned the tune of Rs.
1.15 crore and Rs. 94.25 lakh repaid in full on 25.9.1998
-------------------------------------------------------------------------------- 28.9.98 22, 700
shares N.A. N.A. N.A. N.A. 0.48 to of APL 9.12.98 taken as delivery as a result of
market purchases made by Margadarsi Financiers
--------------------------------------------------------------------------------The appellant's main
submission is that as the shares were received by way of pledge the same cannot be
considered as an acquisition for the purpose of the regulation for the reason that the
concept of pledge as per section 172 of the Contract Act, 1872 does not provide for
vesting the legal ownership of the property in the pledgee, it is considered only as a
security for payment of debt and the ownership of the goods pledged continue to remain
with the debtor and the loan agreements in the instant case provide only for the
acquisition of shares for recovery of loan in the event of the borrower committing
default. According to him acquisition of shares is, therefore, contingent upon default and
this contingency is entirely outside the control of the appellant. For an agreement to
acquire shares to fall within the meaning of regulation 2(1)(b) it is necessary for the
acquirer to have the unfettered right to acquire the shares and such right exercisable at
his option. In a pledge, as in the instant case, the acquisition, if any, can only occur if the
appellant chooses to exercise its option to acquire shares on the happening of default and
takes necessary steps for such acquisition. In this context the learned representative cited
the following cases :
Balakrishna Gupta v. Swadeshi Polytex 1985 Indlaw SC 442 (SC), therein the Supreme
Court had held that the pledgee cannot be treated as the holder of the shares pledged in
his favour and the holder continues to be the member in respect of the shares and can
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exercise his voting rights.

A. K. Menon v. Fair Growth Financial Services Ltd. and Bank of India v. Custodian
1995 16 CLA 364/ 1993 Indlaw MUM 347 (Spl. Court). Shri Cidambi had also cited two
Andhra Pradesh High Court decisions in Md. Sultan v. Firm of Ramprasad Kannayalal
1963 ALT 452 and Narasayamma v. Andhra Bank Ltd. 1960 ALT 66 in this regard.Shri
Cidambi submitted that regulation 10 is attracted only in cases where the acquirer
consequent to such acquisition of shares gets entitled to exercise 10 per cent or more
voting rights in the company, that in the instant case the voting right pertaining to the
shares involved were never transferred to the appellant but remained with the borrowers.
In this context, he further submitted that the pledged shares were all returned to the
owners, when the loan amount was repaid, and till then the shares were held as security
for repayment of the loan. This is indicative of the true nature of the transaction. He
submitted that the shares in the instant case were held only in trust for borrowers and as
security for repayment of debt.
Learned representative submitted that every person who comes within the definition of
'acquirer' under regulation 2(1)(b), cannot be considered to have violated the regulation
on acquisition of shares, and every acquisition of shares which is more than 10 per cent
of the paid-up capital of the target company does not amount to violation of regulation
10, unless such acquisition entitles the acquirer to exercise 10 per cent or more voting
rights in the target company. According to him in terms of section 87 of the Companies
Act, 1956 only a person whose name appears in the members register of a company is
entitled to voting right and in that view of the matter only a part of appellant's holding
was entered in the register and that part holding was less than 10 per cent. He said that
the legal right to vote in a company vests in a member and the concept of member has
been defined in section 41 of the Companies Act, and that in terms of the definition the
appellant is not a member.
As an alternate submission Shri Cidambi stated that even if it is admitted that the 3, 32,
540 shares transferred in the name of the appellant are to be taken into account, its
holding did not exceed the benchmark provided in the regulation requiring compliance of
the requirements stipulated therein.Shri Cidambi countered the respondent's version that
all those pledges which are not exempted vide regulation 3(1)(f)(iv) are covered under
regulation 10, stating that in view of section 172 of the Contract Act, the same being the
substantive law governing pledge, no specific exemption is required to keep pledge of
shares out of the purview of regulation 10, etc. He said in certain cases even in a pledge
the shares held by the pledgee may be registered in its name if the agreement between
the parties provides for the same and regulation 3(1)(f)(iv) is meant to take care of such
extraordinary cases.
Referring to the respondent's version that the appellant had not filed any statement in
terms of section 187C of the Companies Act, in respect of the shares held by it, Shri
Cidambi submitted that the said section is applicable to benami holding and the appellant
being not a benamidar there was no need to file any returns under the said section.
14/03/2017 Delivery | Westlaw India Page 6

Learned representative submitted that the appellant has not violated the provisions of
regulation 10 and that in any case imposition of penalty was not warranted in this case,
as none of the factors referred to in section 15J existed, that the adjudicating officer had
also endorsed the same as could be seen from his finding in the impugned order that
"acquisition, by way of pledge of shares by the promoters of APL, would not have
resulted in any loss to any other shareholders as there is no material impact on the price
of the scrip there is a change in the control of the company. The gain to MF (the
appellant) was only the interest they would have earned for the loan they have given.
This is in the normal course of their business"

. The learned representative submitted that having recorded such a clear finding, the
adjudicating officer should not have imposed Rs. 3 lakh as penalty.Shri Ananta Barua,
appearing for the respondent, explained the factual position leading to the conclusion
that the appellant had acquired shares beyond the benchmark provided in regulation 10
and failed to comply with the requirements of the said regulation. He stated that on 20th
January, 1997 the appellant acquired 3, 87, 540 shares by way of pledge, which
constituted 8.20 per cent of the paid-up capital of APL. Subsequently on 14th May, 1997
the appellant acquired additional 3, 80, 040 shares of APL, also by way of pledge. The
same day 55, 000 shares were returned to APL. As a result thereof the total shareholding
by the appellant accounted for 15.08 per cent of the paid-up capital of APL.
Shri Barua submitted that to constitute 'acquisition' in terms of the regulation delivery of
shares alongwith duly signed transfer deeds would be enough. In this context, he referred
to the definition of the expression 'acquirer' in regulation 2(1)(b) that any acquisition
would attract the provisions, that the only requirement is that the subject-matter of the
acquisition should be 'shares' or 'voting rights' or 'control' over the company. He also
referred to the definition of the expression 'shares' in regulation 3(1)(k) and stated that
shares for the purpose means shares in the share capital a company carrying voting right
and includes any security which would entitle the holder to receive shares with voting
rights. According to him in the instant case the appellant had acquired APL's equity
shares carrying voting rights and these shares though held as security entitled the
appellant to exercise voting rights at a later date.
Learned representative stated that as per the clear provisions of the regulation it can be
safely concluded that the instant transaction was an acquisition. He stated that regulation
3(1)(f) expressly excludes acquisition of shares in the ordinary course by banks and
public financial institutions as pledgees, that this limited exclusion clearly confirms that
acquisition of shares by way of pledge by persons other than banks and public financial
institutions is to be considered as acquisition for the purpose of the regulation, that if
transfer of pledged shares, as a class was to be excluded or exempt from the purview of
the Regulations, no exemption would have been specifically carved out for banks and
public financial institutions. According to him the limited exclusion in regulation 3(1)(f),
therefore, clearly confirms that acquisition of shares by way of pledge by persons other
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than banks and public financial institutions will come under the purview of the
regulation. Shri Barua submitted that if the appellant's version that transfer of shares
during the subsistence of pledge should not be treated as acquisition for the purpose of
the regulation is accepted, the same would totally nullify the regulation and render it
powerless as parties would subvert the regulation with impunity by resorting to the
simple device of acquiring shares in the garb of pledge. In this context Shri Barua
referred to the decision of the Supreme Court in Bhavesh D. Parikh v. UOI 2000 Indlaw
SC 625 and stated that the takeover regulation being an economic legislation, its
provisions need be interpreted in such a way so as to meet the mischief rather than for
providing loopholes. He also cited the decision of the Tribunal's decision in the VLS
Finance v. SEBI 2000 39 CLA 257.Shri Barua submitted that a loan agreement between
the parties combined with physical delivery of shares alongwith duly signed transfer
deeds clearly amounted to an agreement to acquire shares within the meaning of
regulation 2(1)(b). According to him, the agreement referred to in the regulation will also
cover any agreement including pledge agreement whereby shares are acquired. He stated
that any persons who acquires or agrees to acquire shares or voting rights or control in a
company is an acquirer and the conduct of such an acquirer attracts regulation 10 on
holding 10 per cent or more of the shares.
Referring to section 172 of the Contract Act, Shri Barua submitted that the actual
delivery of goods referred to therein encompasses delivery of shares and as such even if
the shares are given as security, by virtue of the fact that the possession is transferred to
the lender, delivery of shares could be construed as acquisition. Shri Barua pointed out
that a total of 7, 67, 580 shares were acquired by the appellant as pledgee by means of an
agreement, and that out of the said acquisition 3, 32, 540 shares were transferred in the
name of the pledgee and in respect of the remaining 4, 35, 040 shares the borrower
directors of APL had submitted duly discharged transfer deeds alongwith the share
certificates, that the acquisition, therefore, is complete in all respects and the appellant
became an acquirer in terms of regulation 2(b), the acquisition having crossed the
benchmark attracted regulation 10. He stated that it is not necessary that shares need be
transferred in the name of the acquirer to attract the regulation.
Shri Barua submitted that Rs. 3 lakh levied as penalty is against the maximum penalty of
Rs. 5 lakh provided in section 15H(ii) that the adjudicating officer has viewed the matter
leniently and arrived at a lesser amount, after taking into consideration all the relevant
factors. He submitted that, therefore, there was no need to reduce the quantum of
penalty.I find that the facts are not in dispute in this case. The appellant had received 7,
67, 580 shares of APL (16.24 per cent) by pledge against loan given by it to the directors
of the said company. Out of the said shares, 3, 32, 540 (7.037 per cent) shares were
transferred in the name of the appellant and the remaining 4, 35, 040 (9.207 per cent)
shares though handed over to the appellant, continued to remain in the name of the
borrowers on the register of members of APL. It is also seen that the entire shares so
received as security against the loan were returned to the borrowers by 25th September,
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1998 on repayment of the loan amount.

In the context of the admitted fact that the acquisition was in the context of shares
pledged with the appellant and that total shares involved constituted 16.24 per cent of the
paid-up capital of APL, the only question that is to be considered is that as to whether the
shares so held by the appellant amounted to acquisition in terms of regulation 10,
requiring to make a public offer.
Before we proceed further in the matter it is felt that the concept of pledge need be
clearly understood as the parties herein have viewed the scope of the same differently.
There is no dearth of authorities in this regard. According to section 172 of the Contract
Act, 1872, the bailment of goods as security for payment of a debt or performance of a
promise is called pledge. The bailor is in this case called the 'pawner' and the bailee is the
'pawnee'. It is seen from the definition that there are three essential ingredients of a
pledge; (1) there must be a bailment of goods as defined in section 148 of the Contract
Act, that is, delivery of goods; (2) the bailment must be by way of security and; (3) the
security must be for payment of a debt or performance of a promise. It is, thus, clear that
a pledge is the delivery of goods by the pledger to the pledgee by way of security upon a
contract that they shall, when the debt is paid or the promise is performed, be returned or
otherwise disposed of according to the directions of the pledger. A pledge would,
therefore, create an estate which vests in the pledgee, which is distinguishable from
ownership. The title of ownership of the pledged property remains with the pledger.The
respondent while defending the order had attempted to analyse the provisions of
regulations 2(1)(b) and 10, to bring home the point that the appellant is an acquirer and
the acquisition attracted the requirement of making public offer, as provided in the
regulation. According to regulation 2(1)(b), 'acquirer' means any person who directly or
indirectly acquires or agrees to acquire shares or voting rights in the target company, or
acquires or agrees to acquire control over the target company, either by himself or with
any person acting in concert with the acquirer.
In terms of regulation 10 "no acquirer shall acquire shares or voting rights which (taken
together with shares or voting rights if any held by him or by persons acting in concert
with him) entitle such acquirer to exercise ten per cent (15 per cent with effect from 28th
October, 1998) or more of the voting rights in a company, unless such acquirer makes a
public announcement to acquire shares of such company in accordance with the
Regulations"

.
On a perusal of regulation 2(1)(b) it is clear that a person is an acquirer who acquires or
agrees to acquire shares or voting rights/control in the target company. The mode of
acquisition of shares or the purpose of acquisition is of not much significance to identify
the acquirer. As has been held in the case of Joshi Jayantilal v. State of Gujarat 1962
AIR(Guj) 297 and as per the Blacks Law Dictionary acquisition is the act of becoming
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the owner of certain property, the act by which one acquires or procures the property in
any thing. In this context it is to be noted that the act of acquisition of shares or voting
rights by itself will not attract the provisions of regulation 10, though the person who
acquired the shares or voting rights may fall within the definition of the expression
acquirer. Each and every acquisition by an acquirer need not necessarily attract the
provisions of regulation 10. What attracts the regulation is the acquisition of
shares/voting rights which will entitle the person acquiring the shares to exercise voting
rights beyond certain limits specifically provided in the regulation, say ten per cent in
regulation 10. Thus, it is clear that a plain acquisition even if it exceeds 10 per cent of the
paid-up capital of the company will not attract regulation 10, unless the acquisition
entitles the acquirer to exercise ten per cent or more of the voting rights in the company.
In this context it is considered necessary to look at the legal provisions which entitle a
person to exercise voting rights in a company. Section 87(1) of the Companies Act,
inter alia, states that every member of a company limited by shares and holding any
equity share capital therein shall have a right to vote, in respect of such capital on every
resolution placed before the company. The expression member has been defined in
section 41 as follows :
41. Definition of member- (1) The subscribers of the memorandum of a company
shall be deemed to have agreed to become members of the company, and on its
registration, shall be entered as members in its register of members.
(2) Every other person who agrees in writing to become a member of a company and
whose name is entered in its register of members, shall be a member of the company.
(3) Every person holding equity share capital of company and whose name is entered as
beneficial owner in the records of the depository shall be deemed to be a member of the
concerned company.
Thus, it is clear that the voting right is vested in members and a person can be considered
as a member only if he falls in one of the categories referred to in section 41 of the
Companies Act. No doubt it is open to a member to become bound by contract to
exercise voting power as directed by another person.
As discussed earlier, the legal ownership in the property which is pledged, vests with the
pledger and does not pass automatically to the pledgee. What passes is merely the
possession of the property. It is well settled that if blank transfer forms along with share
certificates are delivered with the intention of sale, then the transferee gets a right to fill
in his name and to get his name transposed in the records of the company. However, in
all cases where blank transfer forms along with share certificates are handed over to the
transferee, the same position will not apply. Thus, for example, if a pledger hands over to
the pledgee share certificates along with blank transfer forms as and by way of pledge,
the transaction still remains a transaction of pledge. Mere receipt of share certificates
along with blank transfer forms will not give to the pledgee any right, title or interest in
the shares. The right, title and interest and ownership of the shares will continue in the
pledger. The only right which the pledgee will have will be on non-payment to have the
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shares sold after notice. Such sale can only take place after a notice to the pledger. This is
one instance where, even though blank transfer forms have been handed over along with
share certificates, there is still no transfer of ownership. Other instances may be where
the shares along with blank transfer forms are kept as security towards repayment of a
debt. If they are merely kept as security, then again by such deposit no right is created in
favour of the creditor. It is only after the agreed time of repayment is over that the
security can be enforced and it is only at that stage that the creditor gets a right to fill in
his name in the transfer forms and get his name transposed in the records of the
company. In the instant case it is seen that 3, 32, 540 shares (7.04 per cent) were
transferred in the name of the appellant and its name was entered in the members register
maintained by APL, thereby entitling the appellant to exercise voting rights attached to
those shares. For computing the entitlement for exercising voting rights in APL, for the
purpose of regulations, the said holding has to be taken into consideration in view of the
legal position that a member is entitled to exercise voting rights. In view of the clear
words in the regulation regarding entitlement to exercise voting rights, the shares
standing in the name of pledgee, though acquired by way of security need be taken into
account. However, it is not so in the case of the remaining shares which were only held
by the appellant, but not registered in its name. The voting rights in respect of the said
shares remained with the pledgers. Even the loan agreement in the instant case does not
authorise the appellant to exercise the voting rights attached to the said shares, on their
behalf. Shareholding, irrespective of the quantum, which does not entitle the person
concerned to exercise voting rights in the company is to be discarded for computing the
10 per cent bench mark in regulation 10.
The appellant's submission that the entire quantum of shares received by it by way of
pledge need be excluded for the purpose of regulation 10 is untenable for the reason that
in respect of 7.04 per cent of the share capital it had become entitled to exercise voting
rights. However, that is not the case with regard to the remaining portion of the shares
held by it. Since these shares were only 'held' by it and the appellant was not entitled to
exercise voting rights attached to those shares, it cannot be said that holding those shares
amounted to acquisition to decide the benchmark provided in regulation 10. Once the
said holding is not taken into consideration, the appellant's holding remains at 7.04 per
cent which is well below the threshold limit provided in regulation 10 and, therefore, it
was not required to make any public announcement to acquire shares in accordance with
the Regulations.The respondent's argument that since pledge has been specifically
excluded from the scope of the regulation in the case of banks and financial institutions
and not in other cases and, therefore, the instant case is covered by the regulation is not
acceptable. If the acquisition entitles an acquirer to exercise 10 per cent or more of the
voting rights in a company, then only the regulation would be attracted. It is not the
manner in which the shares are acquired. It is the effect that triggers action. If the
acquisition has no impact on the voting rights, regulation is not attracted. In the light of
the factual position discussed above, the appellant had not become entitled to exercise
voting rights in the company over and above the said limit for the reason that its holding
14/03/2017 Delivery | Westlaw India Page 11

of 4, 35, 040 shares was not registered in the company's register of members in its name.
Therefore, the regulation cannot be said to attract in this case. The respondent's
apprehension that if 'pledge' is not treated as acquisition, it would negate the purpose of
the regulation is baseless as a 'mere pledge' as such does not affect the management or
control of the company. It will not even affect the market quotation as the pledged shares
are kept on hold and not traded in the market. Change in possession of share certificates
by itself, without transferring attendant rights, will not affect the ownership or
management control of a company. The moment those shares are registered in the
company's register automatically the acquirer will become entitled to voting rights and
depending on the quantum of shares involved and its attendant voting rights acquired
regulation 10 also would attract.
Shri Barua had cited the case of Bhavesh Parekh and VLS Finance (supra). Bhavesh
Parekh's case was relied to show that in matters of economic policy court should not
interfere with the decision of the expert bodies which have examined the matter. VLS
Finance case was relied to show that simple shareholding would attract the regulation.
But in VLS's case the applicable regulation was the one under the 1994 Regulations
which was replaced by the 1997 Regulations. These two cases are, therefore, of no
relevance to the matter under consideration.Section 15H(ii) , which the adjudicating
officer has invoked for the purpose of imposing penalty, is applicable only if a person
who is required under the Act, rules or regulations made thereunder, fails to make a
public announcement to acquire shares at a minimum price. The adjudicating officer has
imposed monetary penalty on the ground that the appellant had violated the provisions of
regulation 10, based on his finding that it acquired 15.04 per cent shares of APL without
making an open offer. The said finding does not sustain for the reason that the appellant's
acquisition entitling it to exercise voting rights was below the 10 per cent benchmark
provided in regulation 10. Therefore, imposition of penalty cannot be sustained.
For the reasons stated above the appeal is allowed and the impugned order is set aside.

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