Penalty for Late Disclosure of Shareholding

Last week, an adjudicating officer of SEBI
issued an order
imposing an aggregate penalty of Rs. 50 lakhs (Rs. 5 million) on certain
promoter entities of Hindustan Unilever Limited (HUL) for delayed filing of
disclosures regarding the shareholding of such entities under the SEBI takeover
regulations.
It came to SEBI’s notice that there were
delayed filings of shareholding disclosures for certain years under the SEBI Takeover
Regulations of 1997 and thereafter for certain period under the SEBI Takeover
Regulations of 2013. The delay was arguably not enormous and ranged from 4 days
to a maximum of 31 days, and it was admittedly as a result of inadvertence.
The question was whether these delayed
disclosures were only technical or whether they were material, and if so
whether any penalty could be imposed on the promoter entities. The adjudicating
officer adopted a strict approach stressing the importance of timely
disclosures, and found that the breach necessitated the imposition of
penalties. The policy discussion is evident from the following passages in the
order:
18. It is pe[r]tinent
to note that timeliness is the essence of disclosure and delayed disclosure
would serve no purpose at all. I am also of the view that when mandatory time
period is stipulated for doing a particular activity, completion of the same
after that period would constitute default in compliance and not delay. …
24. From the
material available on record, the amount of disproportionate gain or unfair
advantage to the Noticees or loss caused to the investors as a result of the
default is not quantifiable. Though it may not be possible to ascertain the
monetary loss to the investors on account of default by the Noticees, the
details of the shareholding of the Noticees and timely disclosure thereof, were
of significant importance from the point of view of investors as that would
have prompted them to buy or sell shares of the company. The disclosures
obligations under SAST Regulations are critical and an important component of
the legal regime governing substantial acquisition of shares and takeovers. In
the absence of these timely disclosures, the investors will be deprived of
important information at the relevant point of time. It is also evident that
the Noticees have committed the defaults on more than one occasion and as such,
the default on the part of the Noticees is repetitive in nature.

This order reiterates
that timely disclosure of shareholding is an important aspect of takeover
regulation, non-compliance with which could give rise to significant
consequences.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

2 comments

  • Spontaneous Reactions (U-edited)>
    “The delay was arguably not enormous and ranged from 4 days to a maximum of 31 days, and it was admittedly as a result of inadvertence.”
    “24. From the material available on record, the amount of disproportionate gain or unfair advantage to the Noticees or loss caused to the investors as a result of the default is not quantifiable. ….”
    This post brings to the fore yet again the inherently apparent conflict between the two concepts – ‘ideology’ and ‘ideals’; but often confused with by the so called literates.
    Key Word-'Timely': Is one more of the several of such age-old concepts which, once upon a time considered/believed an ideological concept that has been fading slowly but steadily into insignificance or irrelevance.
    To illustrate, consider just for sake of comparison, the sagely but frowningly disproved ideology underlying the belief, – "Justice delayed Is Justice Denied". No need to add, however, that the commonly known fact of life is the ever growing enormous pendency in surpassing court litigation.
    Rest- be read in the latest post @swamilook.blogspot.com

    may be contd.

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