SEBI’s Direction to Sell Excess Shares and 1-year Debarment for SAST Norm Violation wasn’t Harsh | SAT

Case Details: R V Lifestyle Ltd. v. Securities and Exchange Board of India - [2023] 152 taxmann.com 143 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Abhiraj Arora, Deepanshu Agarwal, Ms Misbah Dada & Shourya Tanay, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant company and its promoters were holding 41.82% of the total shareholding of Target Company. The Target Company issued warrants convertible into equity shares in favour of the appellant company and its promoters.

The warrants were subsequently converted into equity shares. As a result of the conversion of warrants, there was an increase in shareholding of the acquirer by more than 5% in the financial year, which violated regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations).

The WTM of the SEBI passed an order directing the appellants to make an open offer. However, considering the long lapse of time in culminating proceedings, the direction to make an open offer was held to be inappropriate by the SAT. The SAT accordingly remitted the matter to WTM to issue an appropriate direction other than the direction to make an open offer.

Subsequently, WTM, by the impugned order directed the appellants to sell shares in the target company that exceeded 5% and further directed them to deposit the proceeds of the same in Investors Protection Fund. The appellants, by the same impugned order, were further restrained from accessing the securities market for a period of one year.

SAT Held

The SAT held that the direction given by WTM was neither arbitrary nor harsh and was in accordance with regulation 44 of SAST Regulations. Therefore, an instant appeal against the order of WTM was to be dismissed.

The SAT, further held that clause (e) of regulation 44 grants discretion to the authority to debar any person from accessing the capital market or dealing in securities for such a period as may be determined by the Board. Accordingly, the appeal was to be dismissed.

List of Cases Referred to

• • SEBI v. R.V. Lifestyle Ltd. [Civil Appeal No. 1331 of 2022, dated 15-9-2022] (para 3).