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.