Think twice before delaying disclosures

SEBI recently imposed a penalty of Rs 50 lakh on seven promoter entities of Hindustan Unilever Limited for their delayed filing of continual disclosures required under the takeover regulations of 1997 and 2011. The delays ranged from 4 to 31 days. While the promoters contended that the delays were inadvertent and without any intention to conceal any information or gain any advantage, the Adjudicating Officer of SEBI observed that once violation of statutory obligations is established, the intention of the violator becomes irrelevant and imposition of penalty becomes essential. While this order reiterates the importance of timely disclosure and indicates SEBI’s stand of placing interests of investors at the core of securities market regulation, the amount of penalty appears disproportionate.

Applicability of exemption under Takeover Regulations

A German holding company, in order to undertake some internal restructuring of business units, decided to transfer its substantial shareholding in an Indian listed company Styrolution ABS (India) Ltd., held through one of its subsidiaries based in the UK, to another subsidiary in Singapore. They sought informal guidance from SEBI regarding whether such inter se transfers would be exempt from open offer obligations under the takeover regulations.

The takeover regulations provides that inter-se transfers amongst a company, its subsidiaries, its holding company and other subsidiaries of such holding company are exempted. SEBI in its informal guidance, provided some clarity on whether a foreign company and its foreign subsidiaries can also avail of this benefit. While the definition of ‘company’ does not include a body corporate incorporated outside India, SEBI observed that, the definitions of ‘Holding Company’ and ‘Subsidiary’ under Section 4 of the Companies Act, 1956, includes such body corporates. Hence, SEBI found that such transfers will fall within the ambit of the general exemptions provided within the takeover regulations.