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Tribunal’s order on joint and several liability of PACs

Finsec Law Advisors

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On June 28, 2019, the Securities Appellate Tribunal (Tribunal) issued an order in the matter of Sanjay Jethalal Soni & ors. v. SEBI, clarifying that the appellants, as persons acting in concert (PACs), constituted a homogenous unit and were jointly and severally liable for violation of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Regulations).

In the present matter, the appellants, Sanjay Jethalal Soni, his wife Krupa Sanjay Soni and his proprietary concern J. M. Soni Consultancy, as PACs, had acquired shares of M/s. Oregon Commercial Ltd. (OCL) above a certain threshold, but failed to make the necessary disclosures in accordance with Regulation 7(1) read with Regulation 7(2) of the Takeover Regulations. For this, the Adjudicating Officer (AO), in its order dated July 27, 2018, imposed a penalty of Rs. 5 lakh each upon the PACs.

Additionally, Sanjay Jethalal Soni and Krupa Sanjay Soni, individually, had also acquired shares of OCL above the specified threshold and failed to make the necessary disclosures in violation of Regulation 7(1) read with Regulation 7(2), and Regulation 13(1) and Regulation 13(3) read with Regulation 13(5) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations). For these violations, the AO had imposed a penalty of Rs. 4 lakh and Rs. 5 lakh on Sanjay Jethalal Soni and Krupa Sanjay Soni, respectively.

While partly allowing the appeal, the Tribunal observed that Regulation 45 of the Takeover Regulations provides for imposition of penalty on an acquirer or any other person acting in concert, and not on the acquirer and person acting in concert. According to the Tribunal, PACs are required to be treated as a homogenous unit for the purposes of imposition of penalty, and the AO’s decision to impose penalty of Rs. 5 lakh on each of the PACs was incorrect. Hence, the Tribunal modified the penalty to Rs. 5 lakh, to be paid by the PACs jointly and severally.

According to the scheme of law envisaged under the Takeover Regulations, PACs are not viewed as separate entities and are considered to work as one cohesive structure for the acquisition of shares. In light of the same, this order keeps a check on the erroneous imposition of penalties under the Takeover Regulations on PACs as separate entities.