SEBI fines Ambani Family for Irregularities in RIL Shareholding

Securities and Exchange Board of India

BEFORE THE ADJUDICATING OFFICER  

SECURITIES AND EXCHANGE BOARD OF INDIA  

[ADJUDICATION ORDER NO. Order/KS/AE/2021-22/11266-11299]

UNDER SECTION 15-I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995

IN RESPECT OF –

Noticee No.	Noticee Name	PAN
1	Shri Mukesh D Ambani	AADPA3705F
2	Shri Anil D Ambani	AADPA3703D
3	Smt. K D Ambani	AACPA5346H
4	Smt. Dipti D Salgaokar	ABKPS7317M
5	Smt. Nina B Kothari	AAHPK5415A
6	Shri R H Ambani	AALPA6303R
7	Shri Dattaraj Salgaokar	ABYPS1941H
8	Smt. Nita Ambani	AADPA3704E
9	Smt. Tina Ambani	AAEPA2345Q
10	Shri Akash M Ambani	AIBPA1587H
11	Shri Jayanmol Ambani	AJPPA3678N
12	Ms. Isha M Ambani	AIBPA1586G
13	Shri Vikram D Salgaokar	AXVPS0706M
14	Ms. Isheta D Salgaokar	BDLPS7706L
15	Ms. Nayantara B Kothari	AOTPK3112L
16	Fiery Investment & Leasing Pvt. Ltd. *	Not Available
17	Sanatan Textrade Pvt. Ltd. *	AAACS5556Q
18	Orson Trading Pvt. Ltd. *	Not Available
19	Clarion Invts & Tradg Co. Pvt. Ltd. *	Not Available
20	Reliance Consolidated Enterprises Pvt Ltd. *	AAACM2825L
21	Real Fibres Ltd.*	Not Available
22	Nikhil Investments Co. Ltd.*	Not Available
23	Hercules Investments Ltd. *	Not Available
24	Pams Invts & Trad Co. Ltd. *	AAACP2092A
25	Jagishwar Invts & Trdg Co. Ltd. *	AAAfCJ0979
26	Jagadanand lnvts & Trdg Co. Ltd. *	AAACJ0932H
27	Kankhal Trading LLP (Earlier known as : Kankhal lnvts & Trdg Co. Ltd.)	AAACK1774A
28	Kedareshwar Invts & Trdg. Co. Ltd. *	AAACK1532A
29	Entity Communications Pvt. Ltd. * on behalf of Akshar Trades (P) Ltd. ; Antarang Trader (P) Ltd. ; Antariksh Commercials (P) Ltd. ; Arundathi Trades (P) Ltd. ; Avada Trading Company Ltd. ; Chaitanya Commercials (P) Ltd. ; Deep Mercantile (P) Ltd.; Gaiety Mercantile (P) Ltd. ; Kalpavriksha Trading (P) Ltd. ;Neelam Mercantile (P) Ltd. ; Panchtirth Trading (P) Ltd. ; Platinum Commercials (P) Ltd. ; Prasiddhi Trading (P) Ltd. ; Shrusti Trading (P) Ltd. ; Spark Tradecom (P) Ltd. ; Sundale Merchandise (P) Ltd. ; Suprabhat Tradecom (P) Ltd. ; Vijeta Commercial (P) Ltd.	AAACE0876H
30	Evershine Traders Pvt. Ltd. * on behalf of Anusudha Tradecom (P) Ltd.; Bhagirath	Not Available
	Trader (P) Ltd.; Charishma Invt. (P) Ltd.; Cube Investments (P) Ltd.; Devpriya Mercantile (P) Ltd.; Eminent Commercials (P) Ltd.; Esteem Textiles Trading (P) Ltd.; Hexagon Trading & Invt (P) Ltd.; Khodiyar Trading & Invt (P) Ltd.; Kinnari Merchandise (P) Ltd.; Nirantar Merchandise (P) Ltd.; Nirupama Traders (P) Ltd.; Ranjana Traders (P) Ltd.; Smruti Mercantile (P) Ltd), Swarna Trading (P) Ltd.; Vanraj Merchandise (P) Ltd.
31	Anumati Mercantile Pvt. Ltd. * on behalf of Yangste Trading (P) Ltd	Not Available
32	Amur Trading (P) Ltd. *	Not Available
33	Tresta Trading (P) Ltd. *	Not Available
34	Reliance Realty Ltd. (Earlier Known as : Terene Fibres India (P) Ltd.)	Not Available

* Merged into Reliance Industries Holding Private Limited

(hereinafter collectively referred to as “Noticees”)

IN THE MATTER OF RELIANCE INDUSTRIES LTD.

BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted an investigation into the alleged irregularities relating to the issue of 12 crore equity shares in January 2000 by Reliance Industries Ltd. (hereinafter referred to as “RIL“) at a price of Rs. 75 per share to 38 allottee entities. The allotment was made consequent to the exercise of the option on warrants attached with 6,00,00,000- 14% Non Convertible Secured Redeemable Debentures (NCD) of Rs. 50/- each aggregating to Rs. 300,00,00,000 (PPD IV) issued in the year 1994. From the disclosure filed under Regulation 8(3) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as “Takeover Regulations“) by RIL to Bombay Stock Exchange (BSE) on April 28, 2000, it was observed that it had disclosed the above mentioned 38 allottee entities as Persons Acting in Concert (“PACs”) with the RIL promoters. From the aforesaid disclosures made by RIL it was observed that the shareholding of RIL promoters together with PACs had increased from 22.71% as on March 31, 1999 to 38.33% as on March 31, 2000. Out of these, 7.76% shares were acquired consequent upon a merger and thus were exempt under regulation 3(1) (j) (ii) of Takeover Regulations. However, 6.83% shares that were acquired by RIL promoters together with PACs in exercise of 3 crore warrants, were alleged to be in excess of ceiling of 5% prescribed in regulation 11(1) of Takeover Regulations.

2. It was alleged that the obligation not to make additional acquisition of more than 5% of voting rights in any financial year unless such acquirer makes a public announcement to acquire shares in accordance with the regulations under regulation 11(1) of Takeover Regulations arose on January 7, 2000, i.e. the date on which the PACs were allotted RIL equity shares on exercise of warrants issued in January 1994. Since the promoters and PACs have not made any public announcement for acquiring shares, it is alleged that they have violated the provisions of regulation 11(1) of Takeover Regulations.

3. In view of the above, adjudication proceedings were initiated under Section 15H of the SEBI Act, 1992 against 36 promoters and PACs, which includes the 34 Noticees and 2 other entities viz. Shri B H Kothari and Bhadreshyam Kothari, for the alleged violation of the provisions of regulation 11(1) of Takeover Regulations. Subsequently, Reliance Consolidated Enterprises Pvt Ltd vide its letter dated November 08, 2011 had inter alia stated that “B.H. Kothari” and “Bhadrashyam Kothari” were one and the same individual person. Further, in this regard, I note that vide Adjudication Order dated September 30, 2020, the adjudication proceedings against (Late) Shri Bhadreshyam Kothari in the present matter have been abated as the entity had passed away on February 22, 2015.

APPOINTMENT OF ADJUDICATING OFFICER

4. Shri Piyoosh Gupta was appointed as the Adjudicating Officer (AO) by SEBI vide communique dated December 15, 2011 under Section 15-I of the SEBI Act, 1992 read with Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as ‘Adjudication Rules’) to inquire into and adjudge under Section 15H of the SEBI Act, 1992 the aforementioned violations alleged to have been committed by the Noticees. As per the records, it is noted that settlement applications had been filed in the matter with SEBI by certain Noticees on August 2011. Subsequently, the said settlement applications were rejected by SEBI on May 15, 2020 and the same was communicated to the authorized representatives of the Noticees vide SEBI’s email dated May 18, 2020. The undersigned has been appointed as AO in the matter vide communique dated May 28, 2020.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

5. Show Cause Notices dated February 24, 2011 (hereinafter referred to as ‘SCN‘) was issued by the erstwhile AO to the Noticees in terms of Section 15I of the SEBI Act, 1992 read with Rule 4 of Adjudication Rules for the violations as specified in the SCN.

6. From the available records, I note that vide letter dated March 14, 2011 and March 17, 2011, Reliance Consolidated Enterprises Pvt Ltd inter alia requested for inspection of documents on behalf of the Noticees. Vide the said letters an opportunity of personal hearing in the matter was also requested. In this regard, vide letter dated March 18, 2011, it was inter alia communicated to Reliance Consolidated Enterprises Pvt Ltd that the relied upon documents based on which the SCN was issued was annexed to the SCN, and further an opportunity of personal hearing before the erstwhile AO was granted on April 20, 2011. I also note that certain other Noticees were granted an opportunity of personal hearing on April 21, 2011. Vide letter dated April 19, 2011, Reliance Consolidated Enterprises Pvt Ltd, on behalf of the list of Noticees annexed in its aforesaid letter, inter alia requested for the adjournment of the aforesaid hearings granted by the erstwhile AO, and also requested time till June 10, 2011 to file written submissions in the matter. Subsequently, vide Hearing Notice dated June 07, 2011, Reliance Consolidated Enterprises Pvt Ltd and the Noticees represented by it were granted opportunity of personal hearing on July 05, 2011. Vide letter dated June 10, 2011, reply was filed by Reliance Consolidated Enterprises Pvt Ltd and Entity Communications Pvt Ltd and the main contentions made therein are as follows –

PRELIMINARY ISSUES

i. The Noticees are making this preliminary submission before the Hon’ble Adjudicating Authority raising fundamental and important preliminary issues relating to issues of powers and jurisdiction of SEBI which the Noticee believes should be adjudicated upon, before a reply on merits to the SCN is sought by the Adjudicating Officer

ii. It is submitted that the preliminary and fundamental issues raised herein relate inter-alia to the ability of SEBI to initiate adjudication proceedings after a significant lapse of time, retrospective application of provisions of the 1997 SAST Regulations which are questions of significance and the Noticee urges the adjudicating authority to consider and examine before a reply on merits is sought from the Noticees. The making of these submissions should not be construed as a waiver of all or any of Noticees’ rights under equity, law or otherwise. The Noticees expressly reserve all their rights under equity, law and otherwise, including but not limited to filing a reply to the SCN on merits.

iii. The Noticees humbly submit that the SEBI ought to consider the preliminary submissions herein and should not proceed with the matter unless these preliminary issues are decided upon.

Adjudication proceedings are time barred

iv. The Noticees respectfully submit that the adjudication proceedings are barred by limitation.

v. It is true that the SEBl Act does not prescribe a period of limitation for the issue of a show cause notice and the commencement of adjudication proceedings. However, it is submitted that this does not mean that SEBl is empowered to initiate proceedings after an inordinate delay. It is further submitted that SEBl should act in a reasonable period of time. The Supreme Court in Citedal Fine Pharmaceuticals, Madras and Others v Government of India (AIR 1989 SC 1771) observed:

“In the absence of any period of limitation it is settled that every authority is  to exercise the power within a reasonable period. What would be reasonable period would depend upon the facts of each case. Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assesses to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice or demand for recovery was made within  reasonable period. No hard and fast rules can be laid down in this regard as the determination of the question will depend upon the facts of each case”

vi. The Supreme Court in State of Punjab v. Bhatinda District Co-op Milk Union Limited held that where no period of limitation has been prescribed under the Act, the statutory authorities must exercise its jurisdiction within the reasonable period and the Apex Court has also decided that the reasonable period depends on the scheme of the Act concerned but in no case will it be more than five years.

vii. It is submitted that initiation of adjudication proceedings against the Noticees, seventeen years after the acquisition of the Warrants and eleven years after the acquisition of Shares is clearly unreasonable and is bad in law. Further, it is submitted that this inordinate delay is attributable to SEBl alone and no justifiable excuse exists for the same.

viii. In this context, the Bombay High Court in Universal Generics Pvt. Ltd. v. Union of India (1993 ECR 190 (Bombay)), in a case where adjudication proceedings were sought to be initiated after expiry of ten years for breach of the Import Policy, 1984 by the Petitioner. The Bombay High Court while quashing the show cause notice, observed

“In the first instance, the respondents have no explanation why the adjudication proceedings were not completed for ten years. Secondly,  imposition of penalty, if at all, after a lapse of ten years is not just and fair. In these circumstances, in our judgment, to accede to the submission of the learned counsel that the respondents should be permitted to complete the adjudication proceedings cannot be accepted.”(Emphasis Supplied).

ix. Further, in Bhagwandas S. Tolani v. B.C. Aggarwal and Others (AIR 1983 (12) ELT 44 (Bom)), where adjudication proceedings under the Foreign Exchange Regulation Act, 1973 were sought to be initiated by the Enforcement Directorate, eleven years after the alleged violation, the Bombay High Court quashed the proceedings. The Bombay High Court observed that:

“In my opinion, the department is not entitled to take up old matters is this manner, if the department’s contentions as to limitation were to be accepted /that no limitation period applies, it would mean that the department can commence adjudication proceedings 10 years, 15 years or 20 years after the original show cause notice which cannot be permitted. The position might have been different if there had been any default on the part of the petitioner or any act of omission or commission on his part which had resulted in this long period of delay. Then in such cases the petitioner could not be permitted to take advantage of his own wrong. This is not the department’s case in the present matter. “(Emphasis Supplied).

x. Similarly, the Bombay High Court recently, in Cambata Industries (Pvt) Ltd v Additional Director of Enforcement ([2010] 99 SCL 262 (Bom) where adjudication proceedings were sought to be initiated by the Enforcement Directorate under Foreign Exchange Regulation Act, 1973 after an inordinate delay, observed that:

“The absence of relevant record due to lapse of more than 30-35 years is also a factual aspect which needs to be taken into account. In our view, the respondents cannot be allowed to reopen the proceedings. If allowed it would cause serious detriment and prejudice to the  petitioners. The Department is not entitled to reopen old matters in this manner.” (Emphasis Supplied).

xi. It is therefore humbly submitted that initiation of adjudication proceedings by SEBl seventeen years after the acquisition of the Warrants by the Noticee and eleven years after the acquisition of Shares, is unreasonable, time barred and the SCN ought to be set aside on this ground alone. It is also humbly submitted that initiation of adjudication proceedings after such an inordinate delay which is attributable to SEBl alone, causes grave prejudice to the Noticees as the Noticees have been deprived of full, fair and effective opportunity of presenting their case. This has also been recognized by the Hon’ble Securities Appellate Tribunal (hereinafter referred to as the “SAT”) in Ashok Chaudhary v. SEBl (SAT Order dated November 5. 2008), wherein the SAT has held as under:

“Long delays in issuing show cause notices to the delinquents will not subserve the purpose for which the Board has been set up. It would rather act against the interest of the securities market. Delays do not help anyone and besides depriving sometimes the delinquents of their right to defend themselves against the action sought to be taken against them, defeat the very purpose for which such notices are issued. It must be remembered that promptness in such matters will have a more deterring effect and advance the cause for which the enquiries are held.”

xii. The Noticees submit that the delay in issuing the SCN, which delay arises entirely on account of inaction by the SEBl, is unreasonable, arbitrary and causes substantial prejudice to the Noticees. Permitting the SEBl, a statutory authority, to initiate adjudication proceedings after such an inordinate delay is unreasonable, arbitrary and violative of the constitutional guarantee of non-arbitrariness under Article 14 of the Constitution of India.

xiii. Therefore, it is submitted that the adjudication proceedings sought to be initiated against the Noticees ought be dropped, on this ground alone.

The SCN is non-est and patently erroneous in as much as the Noticees have been charged with contravention of Section 15H of the SEBI Act which is not applicable

xiv. The SCN has charged the Noticees with contravention of Section 15H of the SEBI Act. Section 15H of the SEBI Act provides for penalty iriter-alia for failure to make a public announcement in accordance with the 1997 SAST Regulations. It is humbly submitted that Section 15H of the SEBI Act is not applicable in the present case and therefore the charge in the SCN is patently erroneous. On this ground alone the SCN ought to be quashed and the adjudication proceedings sought to be initiated against the Noticees should be dropped.

xv. The Noticees were exempt from the requirements of Regulation 11(1) of the 1997 SAST Regulations as the allotment of Shares was made on a preferential basis which was exempt under Regulation 3(1)(c) of the 1997 SAST Regulations.

xvi. Therefore, it is submitted that initiation of adjudication proceedings against the Noticees under Section 15H of the SEBI Act is untenable. Further, the order of the whole time member dated December 15, 2010 appointing the adjudicating officer itself is patently erroneous as the order empowers the adjudicating officer to enquire into and adjudge violation of Section 15H of the SEBI Act, which, for the reasons stated above, is not applicable. As the order appointing the adjudicating officer is in relation to Section 15H of the SEBI Act, the order itself has been issued without basis and without application of mind. Consequently, the SCN, which is based on the order, ought to be set aside as the entire adjudication process has been vitiated.

The SCN seeks to impose a greater penalty than applicable on the date of the alleged violation

xvii. Strictly without prejudice the above, the SCN seeks to impose an enhanced penalty under Section 15H of the SEBI Act which was not applicable on the date of the alleged violation.

Section 15H of the SEBI Act, as it existed on January 7, 2000, is extracted below: “15H. Penalty for non-disclosure of acquisition of shares and take-overs – If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-

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

(ii)make a public announcement to acquire shares at a minimum price; he shall be liable to a penalty not exceeding five lakh rupees’

xviii. Pursuant to an amendment, with effect from October 29. 2002, the penalty that could be imposed under Section 15H of the SEBI Act was increased to Rs. 25,00,00,000/- or three times the amount of profits made out of failure to make the requisite disclosures, whichever is higher.

xix. In light of the rule against ex post facto laws enshrined in Article 20(1) of the Constitution of India, no person can be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. Thus, penal statutes and penal provisions of any statute cannot be retrospective in nature. The Supreme Court in Rao Shiv Bahadur Singh v. State of Vindhya Pradesh (AIR 1953 SC 394) and Kedar Nath Bajoria v. State of West Bengal (AIR 1953 SC 404), has upheld the rule against retroactive operation of penalties.

xx. The Noticees submit that the penalty imposed, if any, therefore, has to be as per the law prevailing on the date of the alleged breach of the 1997 SAST Regulations, which is the date of conversion of the Warrants, i.e. on January 7, 2000. On that date, the unamended Section 15H of the SEBI Act applied and provided for a maximum monetary penalty of Rs. 5,00,000/-. The SAT, in the matters of D-link Holding Mauritius v. SEBI (SAT Order dated November 1, 2004) and Rameshchandra Mansukhani v. SEBI (SAT Order dated February 7, 2005), has upheld the position that the amount of monetary penalty imposed would be governed by the applicable cap on the day of the alleged breach.

xxi. In D-link Holding Mauritius SEBI (SAT Order dated November 1, 2004), the SAT held that “[t]he amendment to SEBI Act. 1992 did not contemplate that the enhanced penalties to be retrospective in effect. The plain reading of the amendment would indicate that the amendment was to come into effect prospectively and not retrospectively. It is quite possible in some legislation that amendments are made with retrospective effect. But we do not find any such intention on the legislature from the perusal of the amendment.

xxii. A similar view was taken by the SAT in Rameshchandra Mansukhani NRI SEBI (SAT Order dated February 7, 2005) where the SAT held that “[i]t is fairly conceded that there is nothing to show under the regulation that the regulation was amended with retrospective effect. Penalties unless specifically made  retrospective must inevitably be only with effect from the date of amendment.  Accordingly, we hold that at the relevant time the maximum penalty was Rs.5 lacs”.

xxiii. It is submitted that the reference in the SCN to the amended Section 15H of the SEBI Act as the basis for the imposition of the penalty is misconceived and based on an erroneous interpretation of the law. For these reasons, the SCN is liable to be dropped on this ground alone.

The SCN has sought to apply the provisions of 1997 SAST Regulations retrospectively

xxiv. The SCN charges the Noticees with contravention of Regulation 11(1) of the 1997 SAST Regulations. The SCN has sought to apply Regulation 11(1) of the 1997 SAST Regulations as amended on October 29, 2002 when the alleged violation occurred in January, 2000. Accordingly, the SCN seeks to give retrospective effect to the 1997 SAST Regulations. Such an exercise of power by SEBI is without jurisdiction and is ultra vires the SEBI Act.

xxv. The 1997 SAST Regulations have been issued by SEBI in exercise of its powers under Section 30 of the SEBI Act. The 1997 SAST Regulations are issued by SEBI, a subordinate authority, exercising the delegated power of rule making conferred on it by the Union Parliament. Accordingly, the 1997 SAST Regulations issued by SEBI is a delegated legislation. It is a well-settled principle of law that a delegated legislation operates prospectively unless the parent statue empowers the rule making authority to enact rules/regulations and given them retrospective effect.

xxvi. The Supreme Court has expressed this view in Commissioner of Income Tax v. Bazpur Co-operative Sugar Factory Limited (AIR 1988 SC 1263), where it was held that “[w]here any rule or regulation is made by any person or authority to whom such powers have been delegated by the legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect’. Further, the Supreme Court, in the matter of Process Technicians and Analysts’ Union v. Union of India (AIR 1997 SC 1288), has held that in order to give retrospective effect to delegated legislation, the power to do so must be clearly and explicitly conferred by the parent enactment.

xxvii. It is humbly submitted that Section 30 of the SEBI Act which empowers SEB1 to make regulations inter-alia states: “The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act“. Section 30 of the SEBI Act does not expressly or by implication empower SEBI to make regulations and apply them retrospectively.

xxviii. In this context, a reference may be made to the decision of the Supreme Court in Ex. Captain K.C Arora v State of Haryana (AIR 1987 SC 1858) where the Court observed that “it is, however, a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect. But the rule in general is applicable where the object of the statute is to affect the vested rights or to impose new burden or to impair existing obligations. Unless there, are words in the statute sufficient to show the intention of the legislature to effect existing rights, it is deemed to be prospective only. Provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment”.

xxix. Further, the Supreme Court in Keshavan Madhava Menon v. State of Bombay (AIR 1951 SC 128), held that “[e]very statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation”. This view is also supported by the decision of the Supreme Court in K. C. Arora v. State of Haryana (reported at AIR 1987 SC 1858), wherein it was held that “[i]t is, however, a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect. But the rule in general is applicable where the object of the statute is to affect the vested rights or to impose new burden or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only“.

xxx. It is submitted that since the SEBI Act does not either expressly or by implication empower the SEBI to make delegated legislation with retrospective effect, retrospective application of the 1997 SAST Regulations to the acquisition of the Warrants on January 12, 1994 and the subsequent acquisition of the Shares, is ultra vires the SEBI Act.

xxxi. Further, the 1997 SAST Regulations has expressly been held to apply prospectively. The Bombay High Court, in Harinarayan Bajaj v. Union of India ([2009] 147 CompCas 579 (Bom)), has held that, “Regulation 47 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 nowhere provide for retrospective application of these Regulations… The 1994 Regulations, on being repealed by the 1997 SAST Regulations, will be restricted to their operation as given in Regulation 47, which provides for repeal and savings, but insofar as the changes introduced by the 1997 SAST Regulations are concerned, particularly those provisions, which are substantive in nature and did not exist in the 1994 Regulations as spelt out in the comparative table in paragraph 29 of the aforesaid judgment, will have to be read in the context of the Regulations which stand substituted.”

xxxii. Given that such an exercise of power by SEBl is ultra vires the SEBl Act, it is submitted that the SCN ought to be set aside and the adjudication proceedings against the Noticees ought to be dropped.

CONCLUSION

xxxiii. For the foregoing reasons, the Hon’ble Adjudicating Officer ought to drop the proceedings against the Noticees for the following reasons:-

xxxiv. The adjudication proceedings are time barred and are hit by latches and delays;

xxxv. The principal charge against the Noticee under Section 15H of the SEBl Act is ex-facie patently erroneous as Section 15H of the SEBl Act does not apply. For the same reason, the order appointing the adjudicating officer based on which the SCN has been issued, is also patently erroneous and as a result the entire adjudication process has been vitiated.

xxxvi. The SCN seeks to impose greater penalties than those applicable on the date of the alleged violation; and

xxxvii. The Noticees are making these submissions in order that these fundamental issues are adjudicated upon as a preliminary matter by the Hon’ble Adjudicating Officer. We will be relying on judicial precedents in support of the submissions made herein. In this regard, we seek an opportunity to make legal submissions on the matter for which the Noticees will be represented by Counsel.

xxxviii. You are requested not to pass any order in relation to this interim application or on the merits of the SCN or otherwise proceed in the captioned matter without granting an opportunity of personal hearing.

7. Subsequently, the Noticees filed settlement applications in the matter on August and September 2011. I note that a personal hearing was conducted before the erst while AO on October 17, 2011 wherein the authorized representatives appeared on behalf of the Noticees inter alia submitted that the Noticees have filed consent applications in the present proceedings and at this stage the Noticees would not wish to make submissions on merits of the case. It was further submitted that the proceedings be kept in abeyance pending the final decision of the consent application. The Noticees also requested that the preliminary submissions dated June 10, 2011 filed by the Noticees be decided first before the matter is taken up for a decision on merits at the time when the matter is taken up for hearing on conclusion of the consent proceedings. It was further requested by the Noticees that the matter be taken up on another date since counsel for the Noticees are not available that day.

8. I note that the following entities viz. Uditi Mercantile Pvt Ltd and Pams Investments & Trading Co. Pvt Ltd had preferred appeal (Appeal No. 16 of 2012, and 22 of 2012) before the Hon’ble Securities Apellate Tribunal (SAT) in the matter wherein the grievance of the aforesaid appellants was that preliminary issues have been raised by the appellants vide their reply dated June 10, 2011 to the SCN relating to adjudication proceedings being time barred and being taken after unreasonable period. It was submitted by the appellants that initiation of adjudication proceedings by SEBI, seventeen years after the acquisition of warrants by the appellants and eleven years after the acquisition of shares, is unreasonable, time barred and the show cause notice ought to be set aside on this ground alone. In this regard, the Hon’ble SAT vide its Order dated April 08, 2013 issued the following directions –

“The appeals are disposed of with a direction that once the Board has taken a view on the consent proceedings preferred by the appellants, the adjudicating officer of the Board may decide the preliminary objection taken by the appellants in the adjudication proceedings in accordance with law.”

9. As per the available records, it is noted that the settlement applications filed by the respective Noticees were rejected by SEBI and the same was communicated to the authorized representatives of the Noticees vide SEBI’s email dated May 18, 2020. I note that the vide letter dated June 22, 2020, the appointment of the undersigned as AO in the present matter was communicated to the Noticees. Further, the Noticees were granted opportunity to make their submissions, if any, in the matter. Vide letter dated July 10, 2020, the authorized representatives (ARs) of the Noticees inter alia requested for inspection of documents in the matter. Accordingly, vide letter dated July 14, 2020 the ARs of the Noticees were granted an opportunity of inspection of documents and were advised to communicate with the Enforcement Department of SEBI in this regard. It was further communicated to the Noticees that the inspection of only those documents which have been relied upon in the matter, shall be provided.

10. Vide their letter dated July 10, 2020 (referred supra), the ARs also stated that 17 Noticees viz. Noticee Nos. 16 to 26 and 28 to 33, have merged into Reliance Industries Holding Pvt Ltd. It was further informed that Noticee No. 27 viz. Kankhal Invts. & Trdg. Co. Ltd. has been converted into a limited liability partnership and is now known as Kaankhal Trading LLP; and further that Noticee No. 34 viz. Terence Fibres India (P) Ltd. is now known as Reliance Realty Limited.

11. I note that the ARs of the Noticees were provided inspection of documents relied upon for the purpose of the SCN in the present proceedings, on September 15, 2020. Subsequently, vide letter dated September 22, 2020, the ARs of the Noticees inter alia requested full inspection of all documents requested by them vide their letter dated September 14, 2020 to the Enforcement Department of SEBI, and copy of disclosure letter dated April 25, 2000 and disclosure letter dated April 28, 2001 addressed by RIL under the Takeover Regulations, and bearing stock exchange inward nos. 28985 and 41315 respectively. It was further requested that adequate time be granted thereafter to enable the Noticees to access the old records, hold meeting with their lawyers and file detailed reply in the matter. In this regard, vide email dated September 23, 2020 it was inter alia communicated to the ARs of the Noticees that all the documents that have been relied upon with respect to the charges against the Noticees have been provided to the Noticees. Subsequently, vide letter dated September 24, 2020, the ARs of the Noticees submitted their reply. The main contentions made therein are reproduced below –

1. Despite several repeated requests, we have not been provided with inspection of all documents in relation to the Show Cause Notice as more particularly set out in the correspondence referred above. Instead, SEBI has continued to take the position that only documents that the Noticees are entitled to inspect are the ones relied on in the Show Cause Notice. SEBI has further sought to justify the position on the basis of observations in certain decisions of the Hon’ble Securities Appellate Tribunal (“SAT”) in the e-mail dated September 23, 2020.

2. We would like to reiterate that based on principles of natural justice and settled law in the context of ensuring a fair hearing in a proceeding before a judicial or quasi-judicial authority, including decisions of the Hon’ble Supreme Court of India, the Noticees are entitled to inspect all the material collected by SEBI in relation to the matters connected with the Show Cause Notice to be able to effectively respond to the Show Cause Notice.

3. Most importantly, in the present case, in the order dated February 4, 2019 (as modified by way of an order for speaking to the minutes dated February 20, 2019) in relation to Writ Petition (L) No. 300 of 2019 filed by Reliance Industries Limited before the Hon’ble Bombay High Court inter alia seeking inspection of all documents as presently sought for by the Noticees, including specifically Mr. Y. H. Malegam’s report, it has been recorded that:

‘The learned Senior Advocate for SEBI submitted that under the scheme of the Regulation and the ambit of the Internal Committee functioning, the Petitioner is not entitled to receive copy of the said report. The Internal Committee proceedings are initiated on the application filed by the Petitioner. The appropriate proceeding in respect of the subject of violation of Section 77(2) of the Companies Act is yet to take place. It is submitted that the arguments advanced by the Petitioner may be of some relevance in respect of the  proceedings as and when undertaken before the Adjudicatory Forum.’

In the same order, the Hon’ble Bombay High Court has also observed that:

“As and when the adjudicatory proceedings takes place, the Petitioner may ask for copies of such documents in accordance with the procedure established to conduct the proceedings”.

4. We are therefore surprised by SEBI’s refusal to provide the requested documents especially in light to the submissions having been made by the Learned Counsel appearing for SEBI before the Hon’ble Bombay High Court and the order of the Hon’ble Bombay High Court as above. A copy of the aforesaid order is enclosed for your ready reference.

5. In the matter of Price Waterhouse v. Securities and Exchange Board of India (Appeal No. 8 of 2011, dated June 1, 2011), the Hon’ble SAT dealt with the issue of right of a noticee to be provided access to material with SEBI, and the Hon’ble Presiding Officer, the Hon’ble Mr. Justice N. K. Sodhi (in a separate minority opinion), categorically held that:

“I am also of the view that fairness demands that the entire material collected during the investigations should be made available for inspection to the person whose conduct is in question. Whether it helps him or not is irrelevant. Equally immaterial is the fact that the authority is or is not relying upon the same. The authority may not rely on it but the delinquent could in support of his case. The reason is that every enquiry has to conform to the basis rule of natural justice and one of the elementary principles is that every action must be fair, just and reasonable. Withholding evidence whether exculpatory or incriminatory is neither fair nor just.’

6. The Hon’ble SAT’s decision (including the majority decision) was challenged by SEBI before the Hon’ble Supreme Court of India. In its order dated January 10, 2017, the Hon’ble Supreme Court categorically upheld the finding of the Hon’ble Mr. Justice N. K. Sodhi (as reproduced above) by holding that ‘We further direct, that all documents collected during investigation shall be permitted to be inspected by the respondents.’ In view of the decision of the Hon’ble Supreme Court of India, the observations made by  the Hon’ble Mr. Justice N. K. Sodhi (and not the observations in the majority opinion) in relation to the right to receive inspection of documents is the law.

7. The decisions referred in SEBI’s e-mail dated September 23, 2020, i.e. Shruti Vora v. SEBI (Appeal (L) No. 28 of 2020) and Anand R. Sathe v. SEBI (Appeal No. 150 of 2020), which followed the decision in Shruti Vora, are in the context of completely different facts and circumstances (as set out below) and the observations in these decisions in relation to inspection rights are not in line with the law laid down per the above decision of the Hon’ble Supreme Court of India.

(a) In Shruti Vora, the Hon’ble SAT was dealing with a matter where investigation commenced in the year 2018 and the show cause notice was issued in November 2019. It was in this context that the Hon’ble SAT observed that such notice is issued not for adjudication purpose, but to decide whether an enquiry is required or not and accordingly held that ‘The contention that the appellant is entitled for copies of all the documents in possession of the AO which has not been relied upon at the preliminary stage when the AO has not formed any opinion as to whether any enquiry at all is required to be held cannot be accepted’. No adjudication proceeding had been initiated at the relevant point and the adjudicating officer was required to look into issues which had not been examined by SEBI before and decide whether to initiate any enquiry or not.

(b) In the present case, SEBI has already arrived at a finding in April 2010 before issuing the Show Cause Notice. Further, SEBI has also commenced prosecution proceedings in relation to the subject matter of the Show Cause Notice, which is presently pending. The proceedings and the re-commencement of proceedings pursuant to the Show Cause Notice are based on various materials available with SEBI (and not just the documents mentioned in the Show Cause Notice issued in 2011).

In view of this, the decision in Shruti Vora, which deal with an entirely different set of facts and circumstances (preliminary enquiry stage of proceedings), do not apply in the present matter.

8. All allegations made by SEBI so far relate to the same transaction of issue of Non-Convertible Debentures (NCDs) in the year 1994 with warrants attached and acquisition of shares in the year 2000 pursuant to the said warrants. The Show Cause Notice was first issued almost 11 years after the said transaction. SEBI has been investigating and examining the matters for almost 20 years and has now also filed prosecution proceedings in relation to the subject matter of the Show Cause Notice. It is clear that all the documents requested have culminated in SEBI’s conclusion regarding breach of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and initiation of the current adjudication proceeding. In view of the foregoing, the Noticees will not receive a fair hearing and will suffer prejudice if all the material in relation to contraventions alleged in the Show Cause Notice and its subject transactions is not made available to the Noticees.

9. The basis of commencement and re-commencement of proceedings against the Noticees under the Show Cause Notice (and the commencement of prosecution proceedings for the same some subject matter) are various reports, notes and opinions available with SEBI in relation to the aforesaid issue of NCDs and shares. Therefore, the Noticees would be denied a fair hearing if they are only provided documents referred to in the Show Cause Notice, or are provided only certain documents selectively, as it deprives the Noticees the opportunity to examine such material and prepare an effective and complete response to the allegations raised against it.

10. n view of the aforesaid, we request you to provide:

(i) full inspection of all documents as requested in paragraph 5 of our letter dated September 14, 2020; and

(ii) photocopies of documents mentioned in paragraphs 2.1 (i) and 2.1 (ii) of our letter dated September 22, 2020.

11. Once we are provided inspection of all documents, we will be able to submit our detailed, effective and complete response to the Show Cause Notice.

12. We reiterate that the nature of the information required for dealing with the Show Cause Notice issued to 74 Noticees pertain to issue of NCDs in the year 1994 and acquisition of shares in the year 2000 pursuant thereto. The records of the case are voluminous and are stored at our client’s offices at more than one location. The offices of our client are closed for last six months. However, in view of the present proceedings, our client will endeavor to open its’ offices for this limited purpose after carrying out sanitization and installing the requisite mechanism for prevention of Covid-19 as per the directives of the Government in that regard.

13. Our client expects to temporarily open its’ offices in the week beginning October 5, 2020 and will require time till October 19, 2020 to peruse the available records in order to file response to the Show Cause Notice. This will however be without prejudice to our client’s contention that Noticees are entitled to full inspection and further without prejudice to our client’s contention that unless Noticees are provided with all the material and documents, they have been deprived of the opportunity of effectively dealing with these allegations in the SCN.

This letter should not be considered or construed to be an admission by the Noticees of any statement, allegation or contention in the Show Cause Notice, and is without prejudice to any contentions, rights or remedies that the Noticees may have in relation to the Show Cause Notice under equity, law or otherwise, all of which are expressly reserved.

12. Accordingly, considering that the inspection of relied upon documents have already been granted, and the Noticees’ request for additional time to submit reply, vide email dated September 25, 2020, the Noticees were granted time till October 19, 2020 as requested. Vide letter dated October 19, 2020, the Noticees submitted their reply, and the main contentions made therein are reproduced below –

1. We refer to the correspondence above resting with your email dated September 25, 2020 granting a final opportunity to the Noticees to file their reply to Show Cause Notice by October 19, 2020.

2. At the outset and without prejudice to what is stated in this reply, the Noticees deny having violated any of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“1997 SAST Regulations)”, as alleged in the Show Cause Notice or otherwise.

3. At the further outset, it is submitted that nothing contained in the Show Cause Notice shall be deemed to have been admitted unless specifically admitted herein or for want of specific traverse. Each objection and submission is without prejudice to the other objections and submissions in this reply.

4. Background

4.1 The Show Cause Notice alleges that the promoters of Reliance Industries Limited (“RIL”) along with the Noticees, as persons acting in concert, on January 7, 2000, had collectively acquired a 6.83% stake in RIL pursuant to the exercise of options on warrants attached to non-convertible debentures issued by RIL to the Noticees in January 1994 (“Warrants)”.

4.2 Based on the disclosures made by RIL to the stock exchanges under the 1997 SAST Regulations, the Show Cause Notice alleges that the shareholding of the promoters of RIL together with the Noticees, as persons acting in concert, increased from 22.17% as on March 31, 1999 to 38.33% as on March 31, 2000. The Show Cause Notice further alleges that out of these shares, acquisition of 7.76% shares was exempt as it was acquired pursuant to a merger which was exempted under the 1997 SAST Regulations.

4.3 Notwithstanding the fact that the 1997 SAST Regulations were not in force when the Warrants were issued to the Noticees in January 1994, the Show Cause Notice alleges that the acquisition of 6.83% shares in RIL pursuant to exercise of Warrants (“Warrant Shares)”, was in excess of the prescribed thresholds under Regulation 11(1) of the 1997 SAST Regulations, triggering a requirement for making a public announcement for the shares of RIL under the 1997 SAST Regulations. As the Noticees failed to make a public announcement, the Show Cause Notice alleges that the Noticees have contravened Regulation 11(1) of the 1997 SAST Regulations.

4.4 Eleven (11) years after the Warrant Shares were allotted to the Noticees pursuant to exercise of Warrants issued in January 1994, the Show Cause Notice seeks to initiate adjudication proceedings against the Noticees for the alleged contravention of Regulation 11(1) of the 1997 SAST Regulations, under Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (“Adjudicating Rules)”. Further, the Show Cause Notice directs the Noticees to show cause as to why penalty under Section 15H of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) ought not to be imposed on the Noticees.

4.5 Noticees had filed a reply raising preliminary objections in June 2011 and had requested that the preliminary objections be decided by the Adjudicating Officer. Few of the Noticees filed Appeals before the Hon’ble Securities Appellate Tribunal, which were disposed of by an order dated April 08, 2013. Relevant paragraphs of the order dated April 08, 2013 are reproduced below:

2 …………By its reply dated June 10, 2011 to the show cause notice, preliminary issues have been raised by the appellants relating to adjudication proceedings being time barred and being taken after unreasonable period. It is submitted by the learned senior counsels for the appellants that the initiation of adjudication proceedings by the Board, seventeen years after the acquisition of warrants by the appellants and eleven years after the acquisition of shares, is unreasonable, time barred and the show-cause notice ought to be set aside on this ground alone.

3. He (Mr. Khambatta appearing for SEBI) has specifically drawn our attention to para 13 of the affidavit wherein it is stated that this very issue has been raised by the appellants before  the adjudicating officer also and ought to be left to be decided by the adjudicating officer…..It was, therefore, submitted that the adjudicating officer could not decide the preliminary issues as the appellants themselves submitted that the proceedings be  kept in abeyance pending decision in the consent applications.

4. Having heard learned counsel for the parties and after perusing the record, we are of the view that this is not the stage where this Tribunal should intervene in the matter. The adjudicating officer was not in a position to give its ruling on the preliminary objections taken  by the appellants themselves as the consent proceedings are pending and a request was made by the appellants that the matter may be taken up for hearing on conclusion of the consent proceedings. We are given to understand that the consent proceedings are still pending. Once  the consent proceedings are over, it is for the adjudicating officer to give its ruling on the  preliminary objections taken by the appellants. We, therefore, decline to intervene in the matter at this stage. The appeals are disposed of with a direction that once the Board has taken a view on the consent proceedings preferred by the appellants, the adjudicating officer of the  Board may decide the preliminary objections taken by the appellants in the adjudication  proceedings in accordance with law.

4.6 By letters dated June 22, 2020 (received by Noticees on July 3, 2020), the adjudication proceedings against the Noticees were resumed. By our letters referred above, we inter alia requested for inspection of all documents, records, files with and internal notings of SEBI in respect of the Show Cause Notice.

4.7 Despite the law in this behalf settled by the Hon’ble Supreme Court of India in the recent PwC case, only the following documents were provided for inspection by SEBI to our representatives on September 15, 2020.

i. Photocopy of the disclosure letter dated April 25, 2000 addressed by Reliance Industries Limited under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (bearing stock exchange inward No. 28985);

ii. Photocopy of the disclosure letter dated April 28, 2001 along with annexures addressed by Reliance Industries Limited under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (bearing stock exchange inward No. 41315); and

iii. Two documents annexed to the Show Cause Notice (“said Annexures)”:

(a) Annexure – 1: List of 38 allottee entities

(b) Annexure – 2: Photocopy of the disclosure letter dated April 28, 2000 along with annexures addressed by Reliance Industries Limited under Regulation 8 (3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (bearing stock exchange inward No. 31413)

4.8 By our letters dated September 16, 2020 and dated September 22, 2020, we requested SEBI to provide:

(i) Full inspection of all documents as requested in paragraph 5 of our letter dated September 14, 2020 in accordance with your obligations under law; and

(ii) Photocopies of documents mentioned in paragraphs 4.7 (i) and 4.7 (ii) above.

4.9 However, by your letter bearing reference No. EFD/DRA-1/rjb/tvb/RIL/15972/2020 dated September 23, 2020, we were informed that SEBI is relying upon only the said Annexures for the purpose of the Show Cause Notice.

4.10 The Noticees are, accordingly, submitting the present reply on the basis that except the said Annexures, no other documents are being referred to or relied upon by SEBI in the present matter, and without prejudice to Noticees’ contention that SEBI has not granted inspection of all documents, records, files with and internal notings of SEBI in respect of the SCN thereby denying full opportunity to represent their case.

5. Adjudication proceedings are time -barred

5.1 The Noticees respectfully submit that the adjudication proceedings are barred by limitation and/or unreasonable and unexplained delay and laches.

5.2 As aforesaid, SEBI has confirmed that it is relying upon only the said Annexures for the purpose of the Show Cause Notice. The only document relied upon by SEBI for the purpose of Show Cause Notice is the disclosure letter dated April 28, 2000 along with annexures addressed by RIL under Regulation 8(3) of the 1997 SAST Regulations (bearing stock exchange inward No. 31413). Therefore, it is only on the basis of this document filed by RIL in April 2000 and available in public domain since then, that SEBI issued the Show Cause Notice in February 2011, i.e. after a period of eleven (11) years.

5.3 It is submitted that initiation of adjudication proceedings (in 2011) against the Noticees, seventeen (17) years after the acquisition of the Warrants (in 1994) and eleven years (11) after the acquisition of Warrant Shares and filings done in that behalf (in 2000), is clearly unreasonable and is bad in law. There has been inordinate and inexplicable delay, which is not attributable to the Noticees.

5.4 Although the SEBI Act does not prescribe a period of limitation for the issuance of a show cause notice and the commencement of adjudication proceedings, it is submitted that it is settled law that initiation of adjudication proceedings after an inordinate and inexplicable delay is bad in law. The Hon’ble Securities Appellate Tribunal in (i) Mr. Rakesh Kathotia & Ors. v. SEBI (Appeal No. 7 of 2016 decided on May 27, 2019); (ii) Ashok Shivlal Rupani & Anr. v. SEBI (decided on August 22, 2019); and (iii) Sanjay Jethalal Soni v. SEBI (Appeal No.102 of 2019 decided on November 14, 2019), had set aside the penalty imposed by the Adjudicating Officer on the ground of inordinate delay in initiation of adjudication proceedings.

5.5 The Hon’ble Supreme Court of India in State of Punjab v. Bhatinda District Co-op Milk Union Limited [(2007) 11 SCC 363] observed that where no period of limitation has been prescribed under the act, the statutory authorities must exercise its jurisdiction within the reasonable period, and what shall be the reasonable period would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors, and in this case found that revisional jurisdiction, should ordinarily be exercised within a period of three years having regard to the purport in terms of the subject legislation and in any event, the same should not exceed the period of five years.

5.6 In Universal Generics Pvt. Ltd. v. Union of India [1993 ECR 190 (Bombay)], adjudication proceedings were sought to be completed after expiry of ten (10) years for breach of the Import Policy, 1984. The Hon’ble High Court of Bombay while allowing the writ petition filed challenging the legality of the show cause notice, observed:

“It is also not in dispute that the respondents, in spite of direction given by the learned Judge to complete the adjudication proceedings, have not cared to do so for last about ten years. As the important goods are already cleared ten years before, the show cause notice seeking explanation of the petitioners as to why the imported goods should not be confiscated no longer survives for consideration. Shri Lokur, learned counsel appearing on behalf of the Department, submitted that the respondents should be permitted to complete the adjudication proceedings at least for the purpose of determining whether the petitioners are liable to pay any penalty amount. We are not inclined to accede to the submission for more than one reason. In the first instance, the respondents have no explanation why the adjudication proceedings were not completed for ten years. Secondly, imposition of penalty, if at all, after a lapse of ten years is not just and fair. In these circumstances, in our judgment, to accede to the submission of the learned counsel that the respondents should be permitted to complete the adjudication proceedings cannot be accepted. The petitioners are, therefore, entitled to relief.”

5.7 In Bhagwandas S. Tolani v. B.C. Aggarwal and Others [AIR 1983 (12) ELT 44 (Born)], where adjudication proceedings under the Foreign Exchange Regulation Act, 1973 were sought to be re-initiated by the Enforcement Directorate, eleven (11) years after the issuance of show cause notice, the Hon’ble High Court of Bombay observed that:

” In my view, even without considering the case that adjudication proceedings had in fact been held, I am of the opinion that this is otherwise also a stale matter which cannot be allowed to be reopened, since to allow it to be reopened, would cause serious detriment and prejudice to the petitioner. The fact that the petitioner is not able to produce the formal order is immaterial; that there were earlier adjudication proceedings may be reasonably borne out by the fact that the department did nothing for 11 years. The department has failed to clarify the position as regard the directions given to the Reserve Bank of India and an adverse inference is required to be drawn from such failure even otherwise in respect of such stale matter. In my opinion, the department is not entitled to take up old matters is this manner. If the department’s contentions as to limitation were to be accepted [that no limitation period applies], it would mean that the department can commence adjudication proceedings 10 years, 15 years or 20 years after the original show cause notice which cannot be permitted. The position might have been different if there had been any default on the part of the petitioner or any act of omission or commission on his part which had resulted in this long period of delay. Then in such case, the petitioner could not be permitted to take advantage of his own wrong. This is not the department’s case in the present matter.”(Emphasis Supplied).

5.8 It is submitted that initiation of adjudication proceedings by SEBI seventeen (17) years after the acquisition of the Warrants by the Noticee and eleven (11) years after the acquisition of Warrant Shares, is unreasonable, time barred, and on this ground alone, the Show Cause Notice ought to be set aside. The initiation of adjudication proceedings after such an inordinate delay causes grave prejudice to the Noticees as the Noticees have been deprived of full, fair and effective opportunity of presenting their case. This has also been recognized by the Hon’ble Securities Appellate Tribunal in Ashok Chaudhary v. SEBI (SAT Order dated November 5, 2008), as under:

“Long delays in issuing show cause notices to the delinquents will not subserve the purpose for which the Board has been set up. It would rather act against the interest of the securities market. Delays do not help anyone and besides depriving sometimes the delinquents of their right to defend themselves against the action sought to be taken against them, defeat the very purpose for which such notices are issued. It must be remembered that promptness in such matters will have a more deterring effect and advance the cause for which the enquiries are held. “

5.9 The Noticees submit that the delay in issuing the Show Cause Notice is unreasonable, arbitrary and causes substantial prejudice to the Noticees. Initiation of adjudication proceedings after such an inordinate delay is unreasonable, arbitrary and violative of the constitutional guarantee of non-arbitrariness under Article 14 of the Constitution of India and principles of equity and fairness. Please note that SEBI had filed a criminal complaint being SEBI MA 686 of 2020 before the Hon’ble SEBI Court, Mumbai inter alia for alleged violation of 1997 SAST Regulations and vide order dated September 30, 2020, the same was dismissed by the Hon’ble SEBI Court as being barred by limitation.

5.10 In view of the above, we submit that the adjudication proceedings sought to be initiated against the Noticees ought to be dropped, on this ground alone.

6. Without prejudice, the Show Cause Notice is misconceived and erroneous as Regulation 11 (1) of the 1997 SAST Regulations and Section 15 H of the SEBI Act are not applicable in the present case

6.1 The Show Cause Notice alleges that on account of the Noticees having allegedly violated Regulation 11(1) of the 1997 SAST Regulations, the Noticees would be liable for monetary penalty under Section 15H of the SEBI Act, which provides for penalty inter-alia for failure to make a public announcement in accordance with the 1997 SAST Regulations.

6.2 The Noticees were exempt from the requirements of Regulation 11 (1) of the 1997 SAST Regulations as the allotment of Warrant Shares was made on a preferential basis, which was exempt under Regulation 3(1)(c) of the 1997 SAST Regulations at the time of issue of Warrant Shares.

6.3 Regulation 3(1)(c) of 1997 SAST Regulations (in effect in January 2000), clearly provided that acquisition of shares by way of preferential allotments were exempted from public offer requirements subject to specific conditions.

6.4 In this regard, Noticees also rely upon the following extract in the Report of Bhagwati Committee constituted by SEBI, which inter alia observed that the above provision provided an automatic exemption :

“…The Committee noted that a majority of the automatic exemption cases are pursuant to acquisition through preferential allotment. While such allotments can be made only with the shareholders’ approval, having regard to the low turnout of the minority shareholders in these meetings and the fact that effectively there is no exit option to the shareholders, the Committee felt that a re look is required at the automatic exemption in such cases…

…The Committee recommends that the present exemption for preferential allotment be continued subject to the condition that any resolution for preferential issue should provide for postal ballot to enable greater shareholder participation.” (Emphasis Supplied)

From the provisions of 1997 SAST Regulations and the Report of Bhagwati Committee, it is clear that the preferential allotments and schemes of merger were automatically exempt from making an open offer at the relevant time under specific exemptions for acquisitions pursuant to a preferential allotment and merger scheme as above.

6.6 It is further submitted that Regulations 3(3) and 3 (4) of 1997 SAST Regulations required only a prior notice and a post-acquisition report to be filed. It submitted that the Hon’ble Securities Appellate Tribunal has held that delay or non-compliance with Regulation 3(3) and Regulation 3(4) did not amount to exemption not being available. In J. M. Financial & Investment Consultancy Services Ltd v. SEBI (SAT order dated March 16, 2001) and in Diamond Projects v. SEBI (SAT order dated May 18, 2004), the Hon’ble Securities Appellate Tribunal has held that a breach of this filing requirement cannot affect the exemption under Regulation 3(1)(c) of 1997 SAST Regulations.

6.7 In view of this, it is submitted that Regulation 11 (1) of 1997 SAST Regulations is not applicable in the present case and the initiation of adjudication proceedings against the Noticees under Section 15H of the SEBI Act is untenable and erroneous. Therefore, on this ground as well, the Show Cause Notice and the adjudication proceedings sought to be initiated against the Noticees ought to be dropped.

7. Reference to Section 15 H of the SEBI Act as amended in 2002 is misplaced.

7.1 As submitted hereinabove, the initiation of adjudication proceedings against the Noticees under Section 15H of the SEBI Act is untenable.

7.2 Strictly without prejudice the above, it is submitted that the Show Cause Notice refers to Section 15H as amended in 2002 and seeks to impose the enhanced penalty under the amended provisions of the SEBI Act which was not applicable on the date of the alleged violation.

7.3 Section 15H of the SEBI Act, as it existed on January 7, 2000, is extracted below:

“15H. Penalty for non-disclosure of acquisition of shares and take-overs – If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-

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

(ii) make a public announcement to acquire shares at a minimum price; he shall be liable to a penalty not exceeding five lakh rupees.”

7.4 Pursuant to an amendment, with effect from October 29, 2002, the penalty that could be imposed under Section 15H of the SEBI Act was increased to Rs. 25,00,00,000/- or three times the amount of profits made out of failure to make the requisite disclosures, whichever is higher.

7.5 In light of the rule against ex post facto laws enshrined in Article 20(1) of the Constitution of India, no person can be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of commission of the offence. The penal statutes and penal provisions of any statute cannot be retrospective in nature.

7.6 Without prejudice to the contention that the Noticees have not violated any law, it is submitted that the penalty imposed, if any, has to be as per the law prevailing on the date of the alleged violation of the 1997 SAST Regulations, which is the date of conversion of the Warrants, i.e. on January 7, 2000. On that date, the un-amended Section 15H of the SEBI Act applied and provided for a maximum monetary penalty of Rs. 5,00,000/-. The Hon’ble Securities Appellate Tribunal, in the matters of D-link Holding Mauritius v. SEBI (Order dated November 1, 2004) and Rameshchandra Mansukhani v. SEBI (Order dated February 7, 2005), has upheld the position that the amount of monetary penalty imposed would be governed by the applicable cap on the day of the alleged breach.

7.7 In D-link Holding Mauritius v. SEBI (SAT Order dated November 1, 2004), the Hon’ble Securities Appellate Tribunal held that “…The amendment to SEBI Act, 1992 did not contemplate that the enhanced penalties to be retrospective in effect. The plain reading of the amendment would indicate that the amendment was to come into effect prospectively and not retrospectively. It is quite possible in some legislation that amendments are made with retrospective effect. But we do not find any such intention on the legislature from the perusal of the amendment”. (Emphasis Supplied)

7.8 A similar view was taken by the Hon’ble Securities Appellate Tribunal in Rameshchandra Mansukhani NRI v. SEBI (SAT Order dated February 7, 2005) where the Tribunal held that “It is fairly conceded that there is nothing to show under the regulation that the regulation was amended with retrospective effect. Penalties unless specifically made retrospective must inevitably be only with effect from the date of amendment. Accordingly we hold that at the relevant time the maximum penalty was Rs.5 lacs”.

7.9 In view of the above, it is submitted that the reference in the Show Cause Notice to the amended Section 15H of the SEBI Act is irrelevant, misconceived and erroneous interpretation of the law.

8. Conclusion

8.1 Accordingly, we submit that the Learned Adjudicating Officer ought to withdraw the Show Cause Notice and drop the proceedings against the Noticees for the following reasons:-

a. The adjudication proceedings are time barred and are hit by laches and delays;

b. Regulation 11 (1) of 1997 SAST Regulations did not apply in the case of the Noticees;

c. The principal charge against the Noticees under Section 15H of the SEBI Act is ex-facie patently erroneous as Section 15H of the SEBI Act does not apply; and

d. The Show Cause Notice refers to penalty provisions not applicable on the date of the alleged violation.

8.2 Noticees will be relying on judicial precedents in support of the submissions made herein. In this regard, we seek an opportunity to make legal submissions on the matter for which the Noticees will be represented by Counsel. You are requested not to pass any order in the matter without granting an opportunity of fair personal hearing.

8.3 The present reply is without prejudice to the Noticees’ contention that they have not been granted full inspection of all documents and an opportunity to defend their case. The proceedings are being conducted in violation of natural justice.

8.4 This reply is without prejudice to all other rights and contentions of the Noticees, which are expressly reserved, and may be raised during the further course of the proceedings and personal hearings. All the rights of the Noticees in this regard are expressly reserved.

13. Subsequently, the Noticees were granted an opportunity of personal hearing on November 05, 2020 through video conference on webex platform due to pandemic. The following persons viz. Mr. Janak Dwarkadas, Senior Advocate; Mr. Rohan Rajadhyaksha, Advocate; Mr. Ashwath Rau, Advocate, AZB & Partners; Mr. Kashish Bhatia, Advocate, AZB & Partners; Mr. Vivek Shetty, Advocate, AZB & Partners; Ms. Cheryl Fernandes, Advocate, AZB & Partners; Mr. K. R. Raja, Director, Reliance Industries Holding Private Limited; Ms. Geeta Fulwadaya, Authorised representative; Mr. Sanjeev Dandekar, Authorised representative; and Mr. Amey Nabar, Advocate authorized representative attended the hearing on behalf of the Noticees wherein the submissions made by the Noticees vide their letter dated October 19, 2020 were reiterated. Further, a list of dates in respect of the Reply dated October 19, 2020 and List of Dates in respect of documents, along with the Compilation of Documents was shared by the ARs vide email on November 05, 2020. The aforesaid ARs requested two weeks’ time for filing of written submissions post hearing. Accordingly, time till November 19, 2020 was granted to the Noticees for the same.

14. Vide email and letter dated November 19, 2020, the ARs submitted post hearing written submissions on behalf of the Noticees along with annexures. The main contentions made therein are reproduced hereunder –

A. Brief facts:

1. On January 12, 1994, Reliance Industries Limited (“RIL”) allotted 6,00,00,000 – 14% Non-Convertible Secured Redeemable Debentures (“NCDs”) of Rs. 50 each aggregating to Rs. 300 crore, having warrants attached to it (“Warrants)”, to 34 allottee entities. The Warrants were detachable and each Warrant entitled its holder to apply for equity shares of RIL. The NCDs and Warrants were issued after due approval from the shareholders and board of directors of RIL and the NCDs and Warrants were listed on the stock exchanges.

2. The issuance and allotment of NCDs and the Warrants (including the approval of the board and shareholders of RIL) was completed in January 1994, i.e. before the Securities and Exchange Board of India (“SEBI”) notified the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“1997 Takeover Regulations)”. In fact, the issue and allotment of the NCDs and Warrants was completed even before SEBI had notified the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (the regulations which were replaced by the 1997 Takeover Regulations).

3. On January 7, 2000, pursuant to the exercise of the option on the Warrants, the Board of Directors of RIL approved the allotment of 12 crore equity shares of RIL to the 38 holders of the Warrants.

4. On April 28, 2000, RIL filed the disclosure under Regulation 8(3) of the 1997 Takeover Regulations and intimated stock exchanges that the holders of the Warrants were persons acting in concert (“PAC”) with the promoters of RIL. A copy of the disclosure dated April 28, 2000 is annexed hereto as Annexure-1. This disclosure is also annexed to the SCN (defined herein below).

5. On April 16, 2010, the Noticees received a letter from SEBI stating that pursuant to a complaint, SEBI had conducted an investigation into alleged irregularities in the issue of 12 crore equity shares by RIL to 38 allottee entities in January 2000, consequent to the exercise of the option on Warrants. The letter inter alia alleged that promoters and persons having control over RIL and 38 allottee entities that were PAC during 1999-2000, had violated Regulation 11(1) of the 1997 Takeover Regulations. A copy of the letter dated April 16, 2010 is annexed hereto as Annexure-2.

6. By an order dated December 15, 2010, an Adjudicating Officer was appointed under Section 15(I) of the SEBI Act, 1992 (“SEBI Act”) to enquire into and adjudicate the alleged violation of the 1997 Takeover Regulations by the Noticees.

7. A show cause notice was issued on February 24, 2011 (“SCN”) by SEBI to the Noticees under Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The Noticees were called upon to show cause as to why inquiry should not be held and penalty not be imposed for alleged contravention of Regulation 11(1) of the 1997 Takeover Regulations. A copy of the SCN which was issued on February 24, 2011 is annexed hereto as Annexure-3.

8. Thereafter, the Noticees filed a reply on June 10, 2011 raising objections to the SCN, inter alia stating that: (a) the SCN was vitiated on grounds of gross and unexplained delay and laches on SEBI’s part in issuing the SCN, 17 years after the issuance of the Warrants and 11 years after the acquisition of the equity shares by the Noticees; (b) the application of the 1997 Takeover Regulations to the issue of Warrants and subsequent conversion of Warrants into shares was misplaced and the 1997 Takeover Regulations could not be applied retrospectively; (c) the acquisition of equity shares was in any event exempted under Regulation 3(1)(c) of the 1997 Takeover Regulations; and (d) the SCN seeks to apply an enhanced penalty under Section 15H of the SEBI Act as amended on October 29, 2002 to an alleged infraction of the 1997 Takeover Regulations which took place on January 7, 2000, which is impermissible in law. The Noticees also called upon the Adjudicating Officer to first decide the aforesaid fundamental issues raised by the Noticees. A copy of the reply dated June 10, 2011 filed by the Noticees is annexed hereto as Annexure-4.

9. The Noticees thereafter filed a consent application on August 5, 2011 in relation to the letter dated April 16, 2010 and the SCN on the basis of the SEBI Circular dated April 20, 2007.

10. On account of the gross and unexplained delay by SEBI in issuing the SCN, 2 (two) of the Noticees, (i) Uditi Mercantile Private Limited; and (ii) Pams Investments & Trading Co. Pvt. Ltd. filed appeals (being Appeal No. 16 of 2002 and Appeal No. 22 of 2002) before the Hon’ble Securities Appellate Tribunal (“SAT”) against the order dated December 15, 2010 by which the Adjudicating Officer was appointed in the matter. By the appeals, the aforesaid two Noticees sought:

(a) quashing and setting aside of the order dated December 15, 2010, passed by the Executive Director, SEBI appointing an Adjudicating Officer to conduct proceedings under Chapter VI-A of the SEBI Act; and

(b) interim reliefs, being stay on the above order dated December 15, 2010 and any proceedings initiated pursuant thereto until disposal of the Appeal.

The aforesaid appeals were disposed by a common order dated April 8, 2013 passed by SAT, with the direction that: “…once the Board has taken a view on the consent proceedings preferred by the appellants, the adjudicating officer of the Board may decide the preliminary objections taken by the appellants in the adjudication proceedings in accordance with law.” A copy of the order dated April 8, 2013 passed by SAT in Appeal No. 16 of 2002 and Appeal No. 22 of 2002 is annexed hereto as Annexure-5. Accordingly, as per the aforesaid order dated April 8, 2013, the Adjudication Officer at the first instance is required to adjudicate upon the preliminary objections as raised by the Noticees.

11. On May 18, 2020, SEBI, by an email, rejected the settlement application filed by the Noticees. A copy of the email dated May 18, 2020 addressed by SEBI to the Noticees is annexed hereto as Annexure-6.

12. On June 22, 2020, SEBI addressed a letter to the Noticees (received on July 3, 2020), informing the Noticees that an Adjudicating Officer had been appointed to enquire into and adjudicate the alleged violation of the 1997 Takeover Regulations. The Noticees were granted a period of 7 days to make their submissions in response. A copy of letter dated June 22, 2020 issued by SEBI to the Noticees is annexed hereto as Annexure-7.

13. On July 16, 2020, SEBI filed a Criminal Complaint dated July 16, 2020 under Sections 24(1) and 27 of the SEBI Act, inter alia, in respect of the same alleged violations of the 1997 Takeover Regulations referred to in the SCN. This Criminal Complaint was dismissed by the Hon’ble (SEBI) Court on September 30, 2020 on account of being barred by limitation. A copy of the order dated September 30, 2020 is annexed hereto as Annexure-8.

14. Between July 2020 and September 2020, the Noticees made several requests for inspection and copies of all documents, records and files with respect to the SCN. However, request made by the Noticees was rejected by SEBI, and on September 15, 2020, the Noticees were granted inspection merely of the intimations dated April 25, 2000 and April 28, 2001 from RIL to the stock exchanges under the 1997 Takeover Regulations and the two (2) documents annexed to the SCN. Copies of intimations dated April 25, 2000 and April 28, 2001 were not provided to the Noticees. All correspondences exchanged between SEBI and the Noticees on the issue of inspection is annexed hereto (and collectively marked) as Annexure-9.

15. On September 25, 2020, SEBI addressed an email to the Noticees’ Advocate, granting time to file reply to the SCN by October 19, 2020. A copy of the email dated September 25, 2020 addressed by SEBI to the Noticees’ Advocate is annexed hereto as Annexure-10.

16. On October 19, 2020, the Noticees’ Advocate replied to the SCN raising preliminary objections as well as an objection on the ground of violation of principles of natural justice as the Noticees had not been given full inspection of all documents in the power, custody and possession of SEBI on the subject matter of the alleged violations of the 1997 Takeover Regulations referred to in the SCN, which was contrary to settled law on the subject. The Noticees also requested for a personal hearing in the matter.

17. Personal hearing was provided to the Noticees on November 5, 2020, pursuant to which the Adjudicating Officer granted the Noticees an opportunity to file their written submissions by November 19, 2020. During the course of the arguments, the Noticees had relied upon 2 (two) lists of dates and events, which are hereto annexed (and collectively marked) as Annexure-11.

18. The Noticees are accordingly making these submissions without prejudice to Noticees’ contention that SEBI has not granted inspection of all documents, records and files with, and internal notings of, SEBI in respect of the SCN, thereby denying full opportunity to the Noticees to represent their case. Further, these submissions are in addition to the correspondence resting with the letter dated October 19, 2020 and the submissions made at the personal hearing held on November 5, 2020, which shall be deemed to be a part of these submissions.

B. Submissions:

19. The SCN is vitiated by principles of limitation, delay and laches

It is submitted that the adjudication proceedings are barred by limitation and/or unreasonable and unexplained delay and laches.

(a) The issue and allotment of the NCDs and Warrants was approved by the shareholders of RIL and by the board of directors of RIL, and the issue of these securities, including the right to acquire shares, was completed in the year 1994. Further, both the NCDs and the Warrants were listed and therefore, the fact of issue of these NCDs and Warrants was known to stock exchanges (which approved their listing and were provided the relevant resolutions) and the public. Thus, SEBI is deemed to have been aware of the fact of issue of these NCDs and Warrants from the year 1994.

(b) The only document relied upon by SEBI for the purpose of the SCN is the disclosure dated April 28, 2000 along with annexures addressed by RIL under Regulation 8(3) of the 1997 SAST Regulations (bearing stock exchange inward No. 31413). The issuance and acquisition of equity shares pursuant to the exercise of Warrants was admittedly intimated to the stock exchanges even in April 2000. Therefore, it is undisputable that the information relating to the issue of NCDs and Warrants was known publicly since 1994, and the information in relation to exercise of the Warrants and the issuance of equity shares by RIL upon conversion of the Warrants was public knowledge and therefore, to SEBI’s knowledge, at least since the year 2000.

(c) Despite this, the SCN has been issued by SEBI after a gross and unexplained delay (i.e. after a period of 17 yearsfrom the issuance of the Warrants (in the year 1994) and 11 years from the acquisition of the equity shares upon conversion of Warrants (in the year 2000)). While the Noticees have also answered the SCN on merits, there is no explanation whatsoever in the SCN for it being issued after such an inordinate and gross delay. The issuance of the SCN after such an inordinate and gross delay would not only defeat the purpose of the SEBI Act and the 1997 Takeover Regulations but also prejudice the right to natural justice of the Noticees.

(d) Although the provisions of the Limitation Act, 1963 may not be applicable, as per settled law, a show cause notice cannot be issued after such a long and inordinate delay. Such a notice is barred by principles of limitation, delay and laches. In fact, as aforesaid, the Criminal Complaint dated July 16, 2020 filed by SEBI under Sections 24(1) and 27 of the SEBI Act, inter alia, in respect of the same alleged violations of the 1997 Takeover Regulations referred to in the SCN was dismissed by the Hon’ble (SEBI) Court by an order dated September 30, 2020 on account of it being barred by limitation.

(e) In support of the aforesaid proposition on limitation, delay and laches, the following judgments may be noted:

(i) State of Punjab v. Bhatinda District Co-op Milk Union Limited (2007) 11 SCC 363 (paragraphs 17 and 18)

(ii) Universal Generics Pvt. Ltd. v. Union of India 1993 ECR 190 (Bombay) (paragraph 2)

(iii) Bhagwandas S. Tolani v. B.C. Aggarwal and Others 1983 ELT 44 (Bom) (paragraph 8)

(iv) Rakesh Kathotia & Ors. v. SEBI (Appeal No. 7 of 2016 decided on May 27, 2019) – SAT (paragraphs 23 and 24)

(v) Ashok Shivlal Rupani & Anr. v. SEBI (Appeal No. 417 of 2018 decided on August 22, 2019) – SAT (paragraphs 6 to 9)

(vi) Sanjay Jethalal Soni v. SEBI (Appeal No.102 of 2019 decided on November 14, 2019) – SAT (paragraphs 11 to 14)

(vii) Ashok Chaudhary v. SEBI (Appeal No. 69 of 2008 decided on November 5, 2008) – SAT (paragraph 9)

(f) It is submitted that initiation of adjudication proceedings by SEBI seventeen (17) years after the issuance of the Warrants and eleven (11) years after the acquisition of shares upon exercise of Warrants, is unreasonable, time barred, and on this ground alone, the SCN ought to be set aside. The initiation of adjudication proceedings after such an inordinate delay causes grave prejudice to the Noticees as the Noticees have been deprived of a full, fair and effective opportunity of presenting their case.

(g) The delay in issuing the SCN is unreasonable, arbitrary and causes grave prejudice to the Noticees. Initiation of adjudication proceedings after such an inordinate delay is unreasonable, arbitrary and violative of the constitutional guarantee of non-arbitrariness under Article 14 of the Constitution of India and principles of equity and fairness.

(h) In view of the above, it is submitted that the adjudication proceedings sought to be initiated against the Noticees ought to be dropped, on this ground alone.

20. The provisions of the 1997 Takeover Regulations are not applicable to the issue of Warrants and conversion of Warrants

(a) The issue and allotment of the NCDs and Warrants was approved by the shareholders of RIL and by the board of directors of RIL, and the issue of these securities, including the right to acquire shares, was completed before SEBI notified the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 on November 4, 1994 or the 1997 Takeover Regulations on February 20, 1997. Further, both the NCDs and the Warrants were listed and therefore, the fact of issue of these NCDs and Warrants was known to stock exchanges (which approved their listing and were provided the relevant resolutions) and the public.

(b) While the Warrants were exercised and shares allotted on January 7, 2000, the issue of NCDs and the Warrants was completed in January 1994 (i.e. before SEBI had notified the 1997 Takeover Regulations).

(c) Further, it is also relevant to note that the Explanation to Regulation 3(4) of the 1997 Takeover Regulations which provided that “the relevant date in case of securities which are convertible into shares shall be the date of conversion of such securities” came to be inserted with effect from September 9, 2002.

(d) In other words, the said provision was not in existence on January 7, 2000 when the Warrants were converted into equity shares of RIL. It is submitted that the said Explanation does not apply retrospectively and neither could the Noticees have anticipated when the Warrants were converted into equity shares on January 7, 2000 that such an Explanation would be inserted after more than two (2) years in the future on September 9, 2002.

(e) Therefore, the issue of Warrants and the allotment of shares on conversion of Warrants were not subject to the provisions of the 1997 Takeover Regulations.

21. The acquisition of shares by the Noticees was exempt under Regulation 3(1)(c) of the 1997 Takeover Regulations

(a) Pursuant to the exercise of the Warrants, the equity shares of RIL were acquired by the Noticees on January 7, 2000. As on January 7, 2000, Regulation 3(1)(c) of the 1997 Takeover Regulations was a part of the 1997 Takeover Regulations (Regulation 3(1)(c) was deleted with effect from September 9, 2002).

(b) Regulation 3(1)(c) provided that nothing in Regulations 10, 11 or 12 of the 1997 Takeover Regulations shall apply to a preferential allotment made in pursuance of the Companies Act, 1956 The exemption under Regulation 3(1)(c) applied to the acquisition of RIL equity shares pursuant to exercise of the Warrants.

(c) In this regard, Noticees also rely upon the following extract in the Report of Bhagwati Committee constituted by SEBI, which inter alia observed that the above provision provided an automatic exemption :

“…The Committee noted that a majority of the automatic exemption cases are pursuant to acquisition through preferential allotment. While such allotments can be made only with the shareholders’ approval, having regard to the low turnout of the minority shareholders in these meetings and the fact that effectively there is no exit option to the  shareholders, the Committee felt that a re look is required at the automatic exemption in such cases…

…The Committee recommends that the present exemption for preferential allotment be continued subject to the condition that any resolution for preferential issue should provide for postal ballot to enable greater shareholder participation.” (Emphasis Supplied)

(d) From the provisions of 1997 Takeover Regulations and the Report of Bhagwati Committee, it is clear that the preferential allotments and schemes of merger were automatically exempt from making an open offer at the relevant time under specific exemptions for acquisitions pursuant to a preferential allotment and merger scheme as above merger scheme as above.

(e) The 1997 Takeover Regulations also provided for certain disclosures to be made before and after the acquisition of shares under Regulation 3(3) and Regulation 3(4). Even though it is not SEBI’s case in the SCN that because the requisite disclosures under Regulation 3(3) and Regulation 3(4) were not made, the said exemption is not available, it is nevertheless submitted that such a contention on SEBI’s part would be misconceived since it is settled law that the said exemption would be available even if the disclosure was not made.

(f) From the provisions of 1997 Takeover Regulations and the Report of Bhagwati Committee, it is clear that the preferential allotments and schemes of merger were automatically exempt from making an open offer at the relevant time under specific exemptions for acquisitions pursuant to a preferential allotment and merger scheme as above

(g) In view of this, it is submitted that Regulation 11(1) of 1997 Takeover Regulations is not applicable in the present case and the initiation of adjudication proceedings against the Noticees under Section 15H of the SEBI Act is untenable and erroneous. Therefore, on this ground as well, the SCN and the adjudication proceedings sought to be initiated against the Noticees ought to be dropped.

22. The SCN refers to Section 15H as amended on October 29, 2002 in the context of an alleged infraction on January 7, 2000

(a) A bare reading of the SCN reveals that the alleged infraction of the 1997 Takeover Regulations was on account of allotment of shares on January 7, 2000. However, in paragraph 5 of the SCN, after referring to Section 15H of the SEBI Act as it stood upto October 29, 2002, SEBI has also referred to Section 15H of the SEBI Act as amended on October 29, 2002.

Section 15H of the SEBI Act as it stood upto October 29, 2002

“15H. Penalty for non-disclosure of acquisition of shares and take-overs – If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-

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

(ii) make a public announcement to acquire shares at a minimum price; he shall be liable to a penalty not exceeding five lakh rupees.”

Section 15H of the SEBI Act as amended on October 29, 2002

“15H. Penalty for non-disclosure of acquisition of shares and take-overs – If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-

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

(ii) make a public announcement to acquire shares at a minimum price;

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

(iv) make payment of consideration to the shareholders who sold their shares pursuant to letter of offer. he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.”

(b) Whilst there is no question of violation of the 1997 Takeover Regulations, Section 15H of the SEBI Act as amended on October 29, 2002 can have no application to an alleged infraction which took place much prior to the said amendment on January 7, 2000. In this context, it is relevant to note that Article 20(1) of the Constitution of India provides as follows:

“No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in  force at the time of the commission of the offence.” (Emphasis Supplied)

(c) Accordingly, the application of Section 15H of the SEBI Act as amended on October 29, 2002 to the Noticees in the context of the alleged infraction dated January 7, 2000 would be ex facie unconstitutional and impermissible.

(d) Without prejudice to the contention that the Noticees have not violated any law, it is submitted that the penalty imposed, if any, has to be as per the law prevailing on the date of the alleged violation of the 1997 Takeover Regulations, which is the date of acquisition of shares upon exercise of the Warrants, i.e. on January 7, 2000. On that date, the un-amended Section 15H of the SEBI Act applied and provided for a maximum monetary penalty of Rs. 5,00,000/-.

(e) Further, it is settled law that amendments to the SEBI Act to enhance penalties are prospective (and not retrospective) and therefore, not applicable to alleged infractions committed prior to the date of the amendment. In support of the aforesaid proposition, the following judgments may be noted:

(i) D-link Holding Mauritius v. SEBI (Appeal No. 70 of 2004 decided on November 1, 2004) – SAT (paragraph 3); and

(ii) Rameshchandra Mansukhani v. SEBI (Appeal No. 151 of 2004 decided on February 7, 2005) – SAT (paragraphs 20 to 22)

(f) In view of the above, it is submitted that the reference in the SCN to the amended Section 15H of the SEBI Act is irrelevant, misconceived and erroneous.

23. The Noticees were not provided with a full inspection of documents in complete violation of the principle of natural justice

(a) The Hon’ble Supreme Court has held that the principles of natural justice necessitate that inspection of all documents must be provided in order to give a fair opportunity for any noticee to defend itself.

(b) In SEBI Vs. Price Waterhouse & Co. and others (Civil Appeal Nos. 6003-6004 of 2012), the Hon’ble Supreme Court directed SEBI to provide all statements recorded and inspection of all documents collected during the course of investigation to the respondents.

(c) It is therefore submitted that the Noticees are entitled to seek inspection of all documents, records and files with, and internal notings of, SEBI in respect of the SCN including without limitation, the reports and papers in relation to the investigation conducted by SEBI (referred to in the SCN), and: (i) the Report submitted by Mr. Y. H. Malegam, Chartered Accountant appointed by SEBI; (ii) the Brief for Opinion prepared by SEBI for obtaining the written opinion of the Hon’ble Mr. Justice B.N. Srikrishna (Retd.); and (iii) the Written Opinion issued by Hon’ble Mr. Justice B.N. Srikrishna (Retd.) upon verification of facts and report by Mr. Y. H. Malegam.

(d) SEBI’s reliance on the judgment of the Hon’ble SAT in Shruti Vora v. SEBI is totally misconceived. In the present case, the SCN was preceded by a letter dated April 16, 2010 addressed by SEBI in which SEBI had stated that an investigation had been conducted in the year 2002 in relation to the alleged infraction by the Noticees of the 1997 Takeover Regulations referred to in the SCN and, inter alia, it had been found that there was a violation of the 1997 Takeover Regulations. It was only thereafter that the SCN had been issued.

(e) Therefore, since in SEBI’s letter dated April 16, 2010, it had been concluded that there had been a violation of the 1997 Takeover Regulations, the Noticees were entitled to all documents which are incidental to or connected with SEBI’s letter dated April 16, 2010. This distinguishing feature of the present case was entirely absent in Shruti Vora v. SEBI and therefore, the said judgment would not apply to the present case.

(f) Based on principles of natural justice and settled law in the context of ensuring a fair hearing in a proceeding before a judicial or quasi-judicial authority, including decisions of the Hon’ble Supreme Court of India, the Noticees were entitled to inspect all the material collected by SEBI in relation to the matters connected with the SCN to be able to effectively respond to the SCN.

24. In view of the aforesaid, it is absolutely necessary in the interest of justice, equity and good conscience that the Learned Adjudicating Authority be pleased to pass an order dismissing the adjudicating proceedings initiated against the Noticees by the SCN, especially in view of the settled position in law on the proposition of delay and laches as more particularly set out herein above.

15. Vide email dated December 07, 2020, the ARs of the Noticee informed that one of the Noticees viz. Mr. R. H. Ambani had passed away on July 27, 2020 at Ahmedabad, and copy of the Noticee’s death certificate was enclosed. Subsequently, vide email dated December 14, 2020, clarification was sought from the ARs of the Noticees regarding the compliance of Regulations 3(1)(c), 3(3) and 3(4) of the Takeover Regulations in the context of the present matter. Further also the details of natural guardians of certain Noticees who were minor at the time of the alleged violations, and the comments, if any, of the said natural guardians was also sought. Vide email dated December 22, 2020, the ARs provided the reply to the aforesaid email dated December 14, 2020 and the main contentions made therein are as follows –

We refer to your email below, and write on behalf and under instructions from the Noticees, as under.

A. The scheme of Regulation 3(1)(c), Regulation 3(3) and Regulation 3(4) of SEBI Takeover Regulations, 1997:

1. Regulation 3(1)(c) of SEBI Takeover Regulations, 1997 (as it stood on January 7, 2000) provided as under:

“3 (1) Nothing contained in Regulations 10, Regulation 11 and Regulation 12 of these regulations shall apply to :

(c) preferential allotment, made in pursuance of a resolution passed under Section 81(1A) of the Companies Act, 1956 (1 of 1956)

Provided that,-

(i) board Resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board;

(ii) full disclosures of the identity of the class of the proposed allottee(s) is made, and if any of the proposed allottee (s) is to be allotted such number of shares as would increase his holding to 5% or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the General Meeting called for the purpose of consideration of the preferential allotment;”

2. Regulation 3(3) of SEBI Takeover Regulations, 1997 (as it stood on January 7, 2000) provided as under:

“(3) In respect of acquisitions under clauses (c), (e), (h) and (i) of sub-regulation (1), the stock exchanges where the shares of the company are listed shall, for information of the public, be notified of the details of the proposed transactions at least 4 working days in advance of the date of the proposed acquisition, in case of acquisition exceeding 5% of the voting share capital of the company.”

3. Regulation 3(4) of SEBI Takeover Regulations, 1997 (as it stood on January 7, 2000) provided as under:

“(4) In respect of acquisitions under clauses(a), (b), (c), (e) and (i) of sub-regulation (1), the acquirer shall, within 21 days of the date of acquisition, submit a report along with supporting documents to the Board giving all details in respect of acquisitions which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such person to exercise 15% or more of the voting rights in a company.”

4. The above Regulations were applicable for acquisition pursuant to preferential allotment of equity shares and convertible instruments.

5. If a convertible instrument was issued and allotted pursuant to a preferential allotment, after coming into effect of SEBI Takeover Regulations, 1997:

a. The above filings under Regulation 3(1)(c) of the Regulations were required to be made by the Company issuing the convertible instrument.

b. The pre-acquisition filing under Regulation 3(3) and the post-acquisition filing under Regulation 3(4) of the Takeover Regulations were required to be made by the acquirer.

6. The facts in the case of the Noticees are as follows:

a. The convertible instrument namely the warrants were issued and allotted in January 1994. At that point in time, neither the SEBI Takeover Regulations, 1994 nor the SEBI Takeover Regulations, 1997 has come into force.

b. In January, 2000, the warrants were converted into equity shares by the holders.

7. It is clear from the above that there was no issue and allotment of convertible instruments post the enactment of SEBI Takeover Regulations 1994 / SEBI Takeover Regulations, 1997.

8. When there is no issue and allotment of convertible instrument, there cannot be any question of filing of the above reports under Regulations 3(1)(c), 3(3) and 3(4) of the SEBI Takeover Regulations, 1997.

9. The SEBI Takeover Regulations, 1997, as it stood in January, 2000, envisaged filings only when convertible instruments were issued and allotted.

10. A mere conversion of a warrant into equity shares pursuant to a pre-existing right held since 1994 (at the cost of repetition, when neither the SEBI Takeover Regulations 1994 nor SEBI Takeover Regulations, 1997 had come into existence), did not trigger the filing requirements under Regulation 3.

11. Even otherwise, we beg to submit that in 1994:

a. The details of issue and allotment of convertible warrants was intimated to the stock exchanges in 1994 itself.

b. The warrants were listed on the stock exchanges.

c. The public as well as the shareholders of the Company were in full knowledge that before January 2000, these warrants were convertible into equity shares. It cannot be denied that the purpose of the filing is to make the public and the shareholders aware of the issuance.

12. Further as explained below, there is no need to get confused with the following Explanation inserted in September 2002 to Regulation 3(3) and Regulation 3(4) of SEBI Takeover Regulations, 1997:

“Explanation- For the purposes of sub-regulations (3) and (4), the relevant date in case of securities which are convertible into shares shall be the date of conversion of such securities.”

13. After insertion of the above Explanation in September 2002, the position on filing of reports under Regulation 3 was as follows:

a. When a convertible instrument is issued on preferential basis, the Company will make the filing under Regulation 3(1)(c) of the SEBI Takeover Regulations, 1997.

b. At the time of issue and allotment of convertible instrument, the acquirer was not required to make any filing under Regulation 3.

c. When the acquirer decides to exercise the conversion option:

i. Prior to the conversion, the acquirer has to file the pre-acquisition notice under Regulation 3(3); and

ii. Upon conversion and acquisition of equity shares, the acquirer has to file the post-acquisition report under Regulation 3(4).

14. Therefore:

a. Prior to the insertion of the Explanation in September 2002, the acquirer had to file the notice and the report at the time of acquiring the convertible instrument. The acquirer was not required to file any notice or report at the time of conversion.

b. After insertion of the Explanation in September 2002, the requirement of filing the notice under Regulation 3(3) and the report under Regulation 3(4) was shifted to the time when the acquirer actually exercises the conversion option and acquires the equity shares.

15. In the case of the Noticees:

a. No convertible instruments were acquired by the acquirers in January 2000 (they were acquired as early as in January 1994) – therefore there was no requirement to file the pre-acquisition notice under Regulation 3(3) and the post-acquisition report under Regulation 3(4) of the SEBI Takeover Regulations 1997.

b. The acquirers converted the warrants into equity shares in January 2000 – therefore there was no requirement to file the pre and post-acquisition notice / report for conversion. Had the acquirers converted the warrants into equity shares after September 2002, there would have been a requirement of filing the pre-acquisition notice under Regulation 3(3) and the post-acquisition report under Regulation 3(4) of the SEBI Takeover Regulations 1997.

16. It cannot be denied that the acquirers would not have been aware of an explanation which was to be inserted with effect from September 2002 and filed the pre-acquisition notice and post-acquisition report at the time of conversion of warrants into equity shares in January 2000.

17. Further, the legal position is, even assuming that the Explanation had been inserted in January 2000 itself but was to come into effect in September 2002, the acquirers were not required to filed the pre-acquisition notice and post-acquisition report at the time of conversion of warrants into equity shares in January 2000.

B. Filing of forms by RIL and the then promoter group of RIL under Regulation 3(3) and Regulation 3(4) of SEBI Takeover Regulations, 1997:

18. RIL had disclosed the details of issue and allotment of convertible warrants to the stock exchanges in 1994 itself. The warrants were listed on the stock exchanges.

19. It is clear from the above submissions that there was no need for the then promoter group of RIL to have filed any notice / report either under Regulation 3(3) or Regulation 3(4).

20. Accordingly, no notice / report has been filed till date under Regulation 3(3) and Regulation 3(4) of SEBI Takeover Regulations, 1997.

C. Non-filing does not invalidate the exemption:

21. Without prejudice to the above contentions, even assuming (without admitting) that the notice and report under Regulation 3(3) and Regulation 3(4) respectively had to be filed by the promoter group, any non-filing thereof does not take away the exemption from making an open offer. This is settled law as has been held in J. M. Financial & Investment Consultancy Services Ltd v. SEBI (Appeal No. 31 of 2000 decided on March 16, 2001).

D. As required by you, please find below details of the natural guardians of the following Noticees (who were minors), at the relevant time i.e. in January 2000