Substantial Acquisition of Shares or Voting Rights in and Acquisition of
Control Over a Listed Company

SEBI Powers of Investigation & Award of Penalties for violations of the provisions of the Regulations by the acquirer / target company /Merchant Banker(Regulations 39 to 45)

For the due implementation of the different provisions of the Regulation SEBI is vested with extensive powers of investigation on specific issues as under:

1. to investigate into the complaints received from the investors, the intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers;

2. to investigate suo-moto upon its own knowledge or information, in the interest of securities market or investors interests, for any breach of the Regulations ;

3. to ascertain whether the provisions of the Act and the Regulations are being complied with.

Procedure for such investigation and obligations of the Board while carrying out such investigation are given under Regulation 39 to 43. The powers of Board to inflict penalties on violators is given in Regulation 45.

Regulation 43 deals with the powers of the board to give directions "in the interest of securities market or for protection of interest of investors", as under-

1. directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations 10, 11 or 12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale;

2. directing transfer of any proceeds or securities to the investors protection Fund of a recognised stock exchange;

3. directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach of regulations 10,11 or 12;

4. directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations 10, 11 or 12;

5. debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board;

6. directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board;

7. directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the regulations 6,7 or 8;

8. directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer;

9. directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to pay to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits.

The Regulations have laid down the general obligations of acquirer, target company and the Merchant Banker. For failure to carry out these obligations as well as for failure / non compliance of other provisions of the Regulations, the Regulations have laid down the penalties for non compliance. These penalties include

1. forfeiture of the escrow account,

2. directing the person concerned to sell the shares acquired in violation of the regulations,

3. directing the person concerned not to further deal in securities,

4. levy monetary penalties,

5. initiate prosecution proceedings.

6. directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations 10, 11 or 12

7. directing transfer of any proceeds or securities to the Investors Protection Fund of a recognised stock exchange;

8. directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach of regulations 10,11 or 12;

9. directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations 10, 11 or 12;

10. debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board;

11. directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board;

12. directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the regulations 6,7 or 8;

13. directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer;

14. directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits.

Further, the Board of Directors of the target company would also be liable for action in terms of the Regulations and the SEBI Act for failure to carry out their obligations specified in the Regulations.

Action can also be initiated for suspension, cancellation of certificate of registration against an intermediary such as the Merchant Banker to the offer.