Onus of disclosures likely on promoters

After SAT rap, Sebi to provide clarity on requirement under takeover code regulations

The Securities and Exchange Board of India (Sebi) would soon need to provide clarity on the disclosure requirement under the takeover code regulations.

Specifically, if the yearly disclosure requirement is of the individual promoter or the promoter group. This is a fallout of a Securities and Appellate Tribunal (SAT) ruling which opted for the latter view. It was critical of the Sebi stance in a number of cases.

ACTION AND REACTION

• SAT critical of Sebi stance on disclosure obligation
• Sebi in some cases ruled responsibility is with promoters and in some others with promoter group for disclosure under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
• SAT clubbed together 17 appeals
• SAT ruled responsibility of disclosures is with promoter group

SAT said Sebi’s was an inconsistent approach. In some cases, it had ruled one way on this issue and then the other. SAT had clubbed around 15 appeals against Sebi rulings in these matters. “Since there is no uniformity among the (Officers) of Sebi in determining the obligation to make yearly disclosure under the regulations in question, we call upon counsel for Sebi to inform us accordingly,” it stated last month.  
Adding: “It is the duty of Sebi to ensure consistency in implementing the regulations framed by it and that there is no uncertainty. It is unfortunate that Sebi wants that the orders passed by its AOs be upheld even though the said orders are mutually contradictory.”  

“The dispute in all the appeals was pertaining to the obligation casted on the promoter/promoter group to make yearly shareholding disclosure under Sebi takeover regulations. The appeals were due to inconsistency in Sebi's approach in determining (if) the said disclosure obligation is on each and every promoter or on the promoter group, and in case of failure to make such disclosure, whether each and every promoter is to be separately penalised or a penalty is to be jointly imposed on the promoter group,” said Tejesh Chitlangi, founder, IC Legal.

SAT said on a plain reading of the Substantial Acquisition of Shares and Takeover Regulations, the obligation of making disclosures should be with the promoter group. Market participants this clarity from SAT would reduce the confusion to a large extent.

"SAT seems to have cleared the confusion by concluding that under the Takeover Regulations such disclosure obligation is on the individual promoters if the company has only individuals as promoters and in case there is a 'promoter group' then the promoter group is required to make yearly disclosure and the penalty has to be accordingly imposed," said Tejesh.