RENUKA DATLA Vs. SECURITIES & EXCHANGE BOARD OF

JUDGEMENT

(1.) HEARD the learned counsel from both sides. The facts of the case are that Smt. Renuka Datla was holding 88918 shares amounting to 3.52% of the total share capital of M/s. Duphar Interfran Ltd. On 11th April, 2001 she further acquired 7771 shares taking her shareholding in her individual name to 3.83%. She and her husband also jointly held 1.39% of shares of the same company wherein her husband ™s name was indicated as the first holder in the certificates. The company was informed by its share transfer agent that the holding of Smt. Datla and her husband had jointly reached 5.22% of the total shareholding of the company. The company took the view that Smt. Datla should have informed the company about such acquisition within four working days from the date of acquisition as required under regulation 7 of Securities and Exchange Board of India(Substantial Acquisition of Shares and Takeovers) Regulations, 1997. On receipt of a complaint from the company the Securities and Exchange Board of India (SEBI) initiated adjudication proceedings. The Adjudicating Officer issued a show cause notice dated 22/7/2002 to which she duly replied offering her explanations. She was also given a personal hearing on 6/11/2002. Her submissions were that the number of shares held by her prior to 11th April, 2001 were 88918 which amounted to only 3.52% of the share capital. On 11th April, 2001 she had acquired 7771 shares and thus the total shares held by her in her name was only 96,689 shares amounting to 3.83% of the share capital. Her submission was that the shares held jointly in the names of her husband Shri Vijaykumar Datla, where her husband ™s name is shown as first holder, should not be included while calculating her shareholding in the company. The Adjudicating Officer held that in terms of section 41(2) of the Companies Act, 1956 every 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. In the case of joint shareholders, all the individuals become members of the company by virtue of their signing the application or transfer deed at the time of acquisition through allotment of transfer of shares as the case may be. Also as per section 87 of the Companies Act, 1956, 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. Thus the Adjudicating Officer held that, by virtue of section 87 of the Companies Act, 1956 read with section 41 ibid, in the case of joint shareholdings, all holders by virtue of being members have the same voting rights. Therefore, the Adjudicating Officer contended that in respect of the shares stated to be held by Smt. Datla jointly with her husband, where her husband is the first holder, these shares will also be reckoned for the purpose of determining the voting rights of Smt. Datla in the company. By taking into consideration all the shares held in the joint names and in her single name by Smt. Datla the total voting rights of Smt. Datla in the company has increased to 5.22% as on 11/4/2001 on which day she acquired 7771 shares of the company. Since it is the admitted case that she had not disclosed her holding and acquisition in terms of regulation 7(1) of the Regulations to the company the Adjudicating Officer held that she had contravened the provisions of sub regulation 1 of regulation 7 of the Regulations and accordingly imposed a monetary penalty of Rs.50,000/ - on Smt. Datla for the contravention. Being aggrieved by this order the present appeal has been filed.

(2.) THE learned counsel for the appellant did not plead vehemently that in the case of joint shareholding, each shareholder is not a member of the company. Apart from the various provisions of the Companies Act, 1956 quoted in the impugned order, the Articles of Association of the company also provided that any one of joint registered holders may vote at any meeting either personally or by proxy as if he were solely entitled thereto. Only in the case of more than one joint holders being present at any meeting, then the member whose name stands prior in order on the register shall alone be entitled to vote in respect of that meeting. After fairly stating that even if the Tribunal comes to the conclusion that the shares held jointly along with the appellant ™s husband are also to be reckoned for the purpose of determining whether the prescribed percentage of 5% of shareholding was crossed, the learned counsel pleaded that the failure to disclose it to the company was unintentional and was caused by the bona fide belief that she was not required to disclose her acquisition of 7771 shares on 11/4/2001 to the company as she genuinely believed that her joint shareholding with her husband was not to be reckoned for the purpose. The learned counsel cited this tribunal ™s judgement in SEBI vs. Cabot International Capital Corporation - Appeal No.24 of 2000 and also the Bombay High Court judgement in SEBI vs. Cabot International Capital Corporation. He vigorously pleaded that for a bona fide mistake where there was no intention of contravening a law and no damage has been caused to any other person, the monetary penalty is too harsh and disproportionate to the so called contravention of regulation 7 of the Takeover Regulations.

(3.) THE learned counsel for the respondent relied on A.I.R. 1953 - BOMBAY 433 to show that in the case of joint shareholders of a public limited company every joint shareholder is a member. As such the Adjudicating Officer rightly concluded that the shares held by Smt. Datla jointly along with her husband should also be reckoned for the purpose of determining her holding in the company.