Disclosure of "otherwise encumbered" shares by Promoter / Promoter Group in
Clause 35, unjustified - SAT in Golden Tobacco Ltd & GHCL Ltd v. SEBI
Clause 35, unjustified - SAT in Golden Tobacco Ltd & GHCL Ltd v. SEBI
• Background of the case (Golden Tobacco Ltd & GHCL Ltd v. SEBI) :
o In this case, SEBI alleged that the company failed to comply the disclosure norms under clause 35 of the listing agreement to disclose to the stock exchange that by an arbitration order dated July 23, 2009, nine promoter entities of the company were restrained from selling transferring or creating third party interest in any manner in the shares of the company held by such promoters. Clause 35 requires the company to disclose to the stock exchange the details of “shares pledged or otherwise encumbered”.
o SEBI’s adjudicating officer imposed penalties under section 23E of the Securities Contracts (Regulation) Act, 1956 and section 15HA of the Securities and Exchange Board of India Act, 1992 of Rs. 1 crore on the Company.
o Company preferred an appeal to SAT against the aforesaid order.
• Issue under question :
o Whether a listed company is required to disclose to the Stock Exchange, details of ‘otherwise encumbered’ shares of that listed company held by the promoter/promoter group, even though there is no obligation cast upon the promoter/promoter group to make such disclosures to the listed company?
• SAT Order :
o SAT set aside the penalty order of Rs. 1 crore issued by the SEBI alleging violation of Clause 35 disclosure norms.
o According to SAT, obligation on Company to disclose to the Stock Exchanges details of shares which are otherwise encumbered by the promoter / promoter group was unjustified as there was no such obligation on the promoter / promoter group to intimate such details to the company.
o In order dated September 28, 2011 of Dewan Housing Finance Corporation Ltd. case, Adjudicating Officer of SEBI had already construed the words ‘shares pledged or otherwise encumbered’ to cover details of pledged shares only. Thus, it was unjustified on the part of the Assessing Officer to take a contrary view in case of Golden Tobacco Limited without assigning reasons thereto.
o In this case, SEBI alleged that the company failed to comply the disclosure norms under clause 35 of the listing agreement to disclose to the stock exchange that by an arbitration order dated July 23, 2009, nine promoter entities of the company were restrained from selling transferring or creating third party interest in any manner in the shares of the company held by such promoters. Clause 35 requires the company to disclose to the stock exchange the details of “shares pledged or otherwise encumbered”.
o SEBI’s adjudicating officer imposed penalties under section 23E of the Securities Contracts (Regulation) Act, 1956 and section 15HA of the Securities and Exchange Board of India Act, 1992 of Rs. 1 crore on the Company.
o Company preferred an appeal to SAT against the aforesaid order.
• Issue under question :
o Whether a listed company is required to disclose to the Stock Exchange, details of ‘otherwise encumbered’ shares of that listed company held by the promoter/promoter group, even though there is no obligation cast upon the promoter/promoter group to make such disclosures to the listed company?
• SAT Order :
o SAT set aside the penalty order of Rs. 1 crore issued by the SEBI alleging violation of Clause 35 disclosure norms.
o According to SAT, obligation on Company to disclose to the Stock Exchanges details of shares which are otherwise encumbered by the promoter / promoter group was unjustified as there was no such obligation on the promoter / promoter group to intimate such details to the company.
o In order dated September 28, 2011 of Dewan Housing Finance Corporation Ltd. case, Adjudicating Officer of SEBI had already construed the words ‘shares pledged or otherwise encumbered’ to cover details of pledged shares only. Thus, it was unjustified on the part of the Assessing Officer to take a contrary view in case of Golden Tobacco Limited without assigning reasons thereto.
