Ignorance of fact can be condoned but ignorance of law cannot be pleaded as an excuse for noncompliance of the law.

This is an age-old maxim and the common man is expected to be aware of this fact. Also, it pays to read closely and, sometimes, between the lines too, where the issue involves statutory and regulatory compliances. In a recent Order regarding non-compliance of the provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, the Whole Time Member of SEBI has deliberated upon the above two issues. The facts of the case are that few persons and entities belonging to the promoter group (the acquirers) of the company M/s Bhawani Cements Limited (the target company) made a preferential allotment of 30,00,000 equity shares and sought exemption to make a public announcement under Regulation 3 (i) (l) read with Regulation (4) of the Takeover Regulations sometime in the year 2005 which was duly granted by SEBI. However, the company could not go ahead with the allotment at that time and sought extension in the year 2007 for the same. SEBI, while granting extension for the preferential allotment of 30,00,000 equity shares, clearly stated that the said exemption is not applicable for the proposed preferential allotment of 41, 96,790 warrants convertible into the same number of equity shares, even though the Company had taken shareholders approval in 2005 and in-principle approval for listing from the Bombay Stock Exchange. As it usually happens, the acquirers did not apply for exemption from making the public announcement nor did they pay attention to the SEBIs statement that the exemption is not meant for the proposed preferential allotment of warrants. When the warrants got converted into equity shares in December 2008 thereby increasing the shareholding and voting rights of the promoter group from 69.11% to 74.01%, Regulation 11(1) and 14(2) of the Takeover Regulations got triggered and hence the present Order by SEBI. Regulation 11(1) and the Proviso thereto clearly mandates that an acquirer holding 55% or more but less than 75% of the shares or voting rights in the target company has to make a public announcement in case of further acquisition of shares or voting rights. The Second Proviso clearly provides that the requirement of making a public announcement can be dispensed with where the acquirer is acquiring additional upto 5% shares or voting rights through open market purchase and not through preferential allotment/bulk deals, etc. SEBI has considered this violation of the Regulations by the acquirers as a deliberate violation and has passed directions to the acquirers to disinvest the 41,96,790 equity shares constituting 4.9% of the shareholding in violation of the Regulation 11(1) and 14(2) within a period of two months and credit the profits, if any, to the Investor Protection and Education Fund established by SEBI.

July 27, 2011-07-27