BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Order Reserved on : 18.06.2020

Date of Decision : 08.07.2020

Appeal No. 583 of 2019

ICICI Bank Limited

ICICI Bank Towers,
Bandra Kurla Complex,
Mumbai – 400 051. …Appellant

Versus

Securities and Exchange Board of India,

SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051. …Respondent

Mr. Darius Khambata, Senior Advocate with Mr. Sandeep

Parekh and Mr. Tushar Hathiramani, Advocates i/b Finsec
Law Advisors for the Appellant.

Mr. Mustafa Doctor, Senior Advocate with Mr. Abhiraj

Arora and Mr. Vivek Shah, Advocates i/b ELP for the
Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer

Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
 2

Per: Dr. C.K.G. Nair, Member

1. This appeal has been preferred aggrieved by the order

of the Adjudicating Officer („AO‟ for short) of Securities and

Exchange Board of India („SEBI‟ for short) dated September

12, 2019. By the said order a penalty of Rs. 5 lakh each has

been imposed on the appellant for violation of Clause 36 of

the Equity Listing Agreement („Listing Agreement‟ for short)

read with Section 21 of the Securities Contracts (Regulation)

Act, 1956 („SCRA‟ for short) and Regulation 12(2) of the

SEBI (Prohibition of Insider Trading) Regulations, 1992

(„PIT Regulations, 1992‟ for short).

2. The question raised in this appeal is, whether the

information relating to signing of a Binding Implementation

Agreement („Binding Agreement‟ for short) by an Authorized

Executive Director of the appellant with the dominant

Shareholders of the Bank of Rajasthan was liable to be

disclosed on an immediate basis under Clause 36 of the

 3

Listing Agreement and Regulation 12(2) of the PIT

Regulations, 1992.

3. The facts relating to the matter are the following: -

(i) On May 18, 2010 at 4.30 AM a Binding

Agreement was signed by the Executive Director

of the appellant with the dominant shareholders of

Bank of Rajasthan who held 28.61% of the equity

shares of Bank of Rajasthan proposing an

amalgamation of the appellant bank and the Bank

of Rajasthan.

(ii) Same day, at 5.12 p.m. and at 5.25 pm the Bank of

Rajasthan informed the National Stock Exchange

(NSE) and Bombay Stock Exchange (BSE)

respectively that a meeting of its Board of

Directors is being convened immediately to

discuss the proposal relating to amalgamation of

the Bank of Rajasthan with the ICICI Bank

 4

(appellant). It also stated that the Board of

Directors of the ICICI Bank also was scheduled to

meet the same day to discuss this issue.

(iii) At 5.57 p.m. the Power of Attorney from the

dominant Shareholders was received by the legal

advisors to the parties. The Board of Directors of

the appellant met at 6.00 p.m. and concluded its

meeting around 7.30 p.m. Disclosures relating to

the merger / amalgamation were made to NSE at

8.10 p.m. and to the BSE at 8.18 p.m.

respectively.

4. We have heard the learned Senior Counsel for the

parties at length through video conference on account of the

ongoing Covid-19 pandemic.

5. Shri Darius Khambata, learned Senior Counsel for the

appellant made valiant efforts in demolishing the findings in

the impugned order on several grounds: for going beyond the

 5

show cause notice; for misinterpreting the provisions of price

sensitive information (PSI) in the PIT Regulations; for

misreading the performance capability of the Binding

Agreement; for its failure to understand the provisions of the

Indian Contract Act, 1872 („Contract Act‟ for short); for its

language and tenor and the over reach in treating a premature

information as liable to be disclosed. The learned Senior

Counsel also emphasized the inordinate delay of 8 years in

issuing the Show Cause Notice and 9 years in passing the

impugned order. It was also contended that the affidavit-in-

reply filed by SEBI goes beyond the impugned order.

6. It was strongly contended that the Binding Agreement

was entered into between the appellant and the dominant

Shareholders of Bank of Rajasthan, not with the Bank of

Rajasthan itself. As such, it was not an agreement signed

between the amalgamating parties and hence premature to be

disclosed. Further, it was strongly contended that the

agreement in itself had two conditions precedent clearly

 6

given at Clause 5 of the agreement which states that (i) power

of attorney from the dominant Shareholders has to be given to

the custody of the legal advisors of the respective parties and

(ii) the Board of Directors of both the banks have to approve

the proposal including the draft scheme of amalgamation

annexed to the Binding Agreement. In the absence of

fulfilling both these conditions, it was contended, the Binding

Agreement is nothing but a bundle of papers. Therefore, at

best, when the power of attorney was deposited with the legal

advisors to the parties (which was at 5.57 p.m.) one could say

that the Binding Agreement had reached some stage of being

capable of performance (in terms of its contracting nature)

but it would achieve certainty only when the Board of

Directors of both the banks approved it and in the case of the

appellant it was approved only when the board concluded its

meeting at 7.30 p.m. Therefore, there has been no delay in

disclosing the proposed amalgamation to the Stock

 7

Exchanges concerned at 8:10 p.m. and 8:18 p.m. on the same

day after the binding conditions have been fulfilled.

7. The learned Senior Counsel relying on a number of

judgments stated that contingent agreements are not certain

agreements because for those agreements to attain certainty

the conditions precedents have to be first fulfilled. Therefore,

contingent contracts cannot be treated as certainties. He also

emphasized the meaning of „condition precedent‟ as defined

in the Black‟s Law Dictionary as “An act or event, other than

a lapse of time that must exist or occur before a duty to

perform something promised arises. If the condition does not

occur and is not excused, the promised performance need

to be rendered. The most common condition contemplated by

this phrase is the immediate or unconditional duty of

performance by a promisor.‖ Similarly, the appellant placing

Sections 31 to 33 of the Contract Act, reproduced below,

emphasized the enforceability of a contract subject to

happening of the stated event(s).

 8

“31. ‗Contingent Contract‘ defined – A

‗contingent contract‘ is a contract to do or not
to do something, if some event, collateral to
such contract, does or does not happen.

32. Enforcement of contracts contingent on an

event happening – Contingent contracts to do
or not to do anything if an uncertain future
event happens cannot be enforced by law
unless and until that event has happened. If the
event becomes impossible, such contracts
become void.

33. Enforcement of contracts contingent on an

event not happening – Contingent contracts to
do or not to do anything if an uncertain future
event does not happen, and be enforced when
the happening of that event becomes
impossible, and not before.”

He also relied on the decision of the Supreme Court in Delhi

Airtech Services P Ltd v State of UP (2011) 9 SCC 354,

wherein the Hon‟ble Supreme Court held that unless a

condition precedent has been performed, the rights under the

contract / agreement in which they are contained would not

arise. The relevant para of the said Judgement is reproduced

below:
 9

―70. The expression condition precedent has

been defined in Words and Phrases (permanent
edition, Vol. 8. St. Paul, Minn, West Publishing
Co., 1951, p 629) as those which 'must be
punctually performed before the estate can
vest'.‖

Further, judgment of the Bombay High Court in Jethalal C

Thakkar v RN Kapur ILR 1955 Bom 1083; AIR 1956

Bom 74 wherein it was held that an agreement provides that

the obligations contained therein would arise on the

occurrence of a contingency, the agreement would not

constitute a contract unless and until the contingency occurs

(pg. 1086, 1087) was also emphasized to drive the point

home.

―Fulfilment of Clause 2.2(ii) is a condition

precedent to enforceability of the Agreement.‖

8. It was also strongly argued that the Binding Agreement

was not a contract between the Bank of Rajasthan and ICICI

Bank but between only the dominant Shareholders of the

Bank of Rajasthan and ICICI Bank, while the amalgamation

 10

had to be between the Bank of Rajasthan and the ICICI Bank.

Therefore, the Binding Agreement was not between the

relevant parties and hence had not attained the stature of

material information liable to be disclosed with immediate

effect. In this regard reliance was placed on the Guidelines of

the Reserve Bank of India dated May 11, 2005 which, inter

alia, stated as follows:-

―2….Boards of the banks have to play a crucial

role in the process. It may be ensured that the
decision of merger should be approved by two
third majority of the total Board members and
not those present alone.‖

9. Therefore, as per the RBI Guidelines it was contended

that the banks could not have considered the Binding

Agreement as a concluded contract unless board approvals

had been obtained and, therefore, when the boards of both the

banks were not privy to the Binding Agreement it was not

liable to be disclosed, particularly, when the Binding

Agreement also contained confidentiality provisions to that

effect. The appellant further relied on the decision of the

 11

Supreme Court in M. V. Shankar Bhat & Anr v Claude

Pinto since (Deceased) by LRs & Ors – (2003) 4 SCC 86

wherein it was held that “31. When an agreement is entered

into subject to ratification by others, a concluded contract is

not arrived at. Whenever ratification by some other persons,

who are not parties to the agreement is required, such a

clause must be held to be a condition precedent for coming

into force of a concluded contract.”

10. It was also vehemently argued that signing of the

Binding Agreement did not constitute Price Sensitive

Information as defined under Regulation 2(ha) of PIT

Regulations, 1992. In this regard, it was contended that only

when an amalgamation is certain it becomes a Price Sensitive

Information not when some parties have entered into an

agreement for amalgamation which is condition precedent.

Therefore, the amalgamation became a Price Sensitive

Information only when the board approval for the same was

obtained. Every information relating to a possible

 12

amalgamation is not Price Sensitive Information liable to be

disclosed. The Impugned Order held it to be a PSI based on

analysis of the price of the shares of Bank of Rajasthan, not

that of the appellant, that too based on post disclosure. There

has been no analysis of the price sensitiveness of the Binding

Agreement per se. Reliance was placed on the Order of this

Tribunal in Jubilant Stock Exchanges Holding Pvt Ltd &

Ors v SEBI – Appeal No. 174 of 2018 which held that the a

Memorandum of Understanding entered into for the sale of a

hospital did not constitute price sensitive information on its

mere execution as it was not a transfer or sale and was merely

an offer which was not enforceable as it was subject to

completion of due diligence and the determination of actual

consideration.

11. It was further submitted that SEBI‟s reliance on the

judgment of this Tribunal in J C Mansukhani v SEBI

(Appeal No. 192 / 2014), New Delhi Television Ltd v SEBI –

2019 SCC Online SAT 140 and the reference to Tata

 13

Chemicals Ltd. acquiring 100% stake of British Gas Ltd

which disclosed the same at the time of an agreement are not

relevant to the matter as the underlying facts in those matters

and in the matter under challenge are distinguishable.

12. The learned Senior Counsel for the appellant also relied

on the Guidelines dated September 30, 2014 issued by the

Bombay Stock Exchange relating to disclosures by listed

companies highlighting the need for avoiding premature

disclosures and disclosing only at the right time and argued

that in the case of amalgamation, merger, etc. only after the

board approval the company should make the relevant

disclosure.

13. In short, the learned Senior Counsel for the appellant

contended that the Binding Agreement signed in the early

hours of May 18, 2010 was not an agreement between the

relevant parties, it was only an understanding to bind the

dominant promoters to take the next steps towards a possible

 14

amalgamation; not a Binding Agreement till the conditions

precedent i.e. obtaining power of attorney and board

approvals, are met; both the RBI Guidelines and BSE

Guidelines on amalgamations require disclosures only after

board approval; it was not an agreement between the relevant

parties as only the dominant Shareholders of the Bank of

Rajasthan was a party not the Bank of Rajasthan itself; it was

not a PSI and it was treated as a PSI based on the post

disclosure price movement of the shares of only Bank of

Rajasthan; the relevant disclosure was made immediately

after the board approvals and therefore there was no delay in

disclosing the relevant information both under the Listing

Agreement and PIT Regulations, 1992 and if the Binding

Agreement itself was disclosed the appellant would have

been charged with premature disclosure thereby impacting

the securities of the companies.

14. The learned Senior Counsel also submitted that the

impugned order and the submissions of SEBI, particularly,

 15

the affidavit-in-reply goes beyond the show cause notice and

the impugned order respectively, the former in terms of

treating the Binding Agreement as a certainty and the latter as

a near certainty and in bringing in new facts and both in

misinterpreting the provisions of law. In order to take home

this argument the learned Senior Counsel relied on Nasir

Ahmad vs Asst. Custodian General (1980) 3 SCC 1 (Para

3), wherein the Supreme Court held that an enquiry which

travels beyond the bounds of a Show Cause Notice is

impermissible and also in Canara Bank & Ors vs Debasis

Basu (2003) 4 SCC 557, (Para 15) it was held that the Show

Cause Notice must be precise and should apprise a party

determinatively of the cause he has to meet. Therefore, it was

contended that the impugned Order deserves to be quashed

forthwith.

15. As an alternative, the learned Senior Counsel for the

appellant submitted that even if it is held that there is a

technical violation as the disclosure could have been made a

 16

little earlier at around 5.57 p.m. when the Power of Attorney

was received, but by then trading hours was over, and hence a

minor technical delay is not open to the respondent to impose

a penalty after 9 years of the alleged violation and that too

when the show cause notice was issued after 8 years. The

respondent SEBI was fully aware of all the developments at

the relevant time itself and even the investigation report

which recommended the same course of action was submitted

in August 2012. In support of this contention the learned

Senior Counsel placed reliance on a decision of this Tribunal

in the matter of Ashok Shivlal Rupani v SEBI (Appeal No.

417 of 2018).

16. The learned Senior Counsel Shri Mustafa Doctor

representing respondent SEBI, on the other hand, vehemently

argued that what is relevant is whether the Binding

Agreement signed between the Executive Director and Chief

Financial Officer (CFO) of the appellant and the Dominant

Shareholders of the Bank of Rajasthan in itself was a material

 17

event and hence a Price Sensitive Information and therefore

was liable to be disclosed with immediate effect. He

reiterated the reasonings in the impugned order and stated

that from the agreement itself it is clear that the proposed

amalgamation was enabling synergy between the two entities

and hence material and as such price sensitive. Further, actual

trading data itself shows that the announcement which was

made subsequently did impact the volume of trading and

prices of both the scrips. Therefore, it was contended that the

argument of the appellant that the Binding Agreement was

subject to conditions and therefore was liable to be disclosed

only after the conditions have been fulfilled has no merit. The

learned Senior Counsel also submitted that the circular of the

BSE relied on by the appellant came more than four years

later to the event and in any case such circulars/guidelines

cannot overrule provisions in an Act and the Regulations.

17. Before we proceed, the relevant provisions of SCRA,

Listing Agreement, PIT Regulations, 1992 and Annexure to

 18

the PIT Regulations, 1992 are reproduced for convenience

below:-

― SCRA

S.21. Where securities are listed on the

application of any person in any recognized
stock exchange, such person shall comply with
the conditions of the listing agreement with that
stock exchange.

Listing Agreement

Cl. 36. Apart from complying with all specific

requirements as above, the Company will keep
the Exchange informed of events such as
strikes, lockouts, closure on account of power
cuts, etc. both at the time of occurrence of the
event and subsequently after the cessation of
the event in order to enable the shareholders
and the public to appraise the position of the
Company and to avoid the establishment of a
false market in its securities. In addition, the
Company will furnish to the Exchange on
request such information concerning the
Company as the Exchange may reasonably
require. The Company will also immediately
inform the Exchange of all the events, which
will have bearing on the
performance/operations of the company as well
as price sensitive information. The material
events may be events such as:
 19

(7) Any other information having bearing

on the operation/performance of the
company as well as price sensitive
information, which includes but not
restricted to; i) Issue of any class of
securities.

ii) Acquisition, merger, de-merger,

amalgamation, restructuring, scheme of
arrangement, spin off or selling divisions
of the company, etc.

iii) Change in market lot of the

company‘s shares, sub-division of equity
shares of company.
iv) Voluntary delisting by the company
from the stock exchange(s).
v) Forfeiture of shares.
vi) Any action, which will result in
alteration in, the terms regarding
redemption/cancellation/retirement in
whole or in part of any securities issued
by the company.
vii) Information regarding opening,
closing of status of ADR, GDR, or any
other class of securities to be issued
abroad.
viii) Cancellation of
dividend/rights/bonus, etc.

The above information should be made public

immediately.

PIT Regulations, 1992

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R. 2 (ha) ―price sensitive information‖ means

any information which relates directly or
indirectly to a company and which if published
is likely to materially affect the price of
securities of company.

Explanation.—The following shall be deemed

to be price sensitive information:—
(i) periodical financial results of the company;
(ii) intended declaration of dividends (both
interim and final); (iii) issue of securities or
buy-back of securities; (iv) any major
expansion plans or execution of new projects.
(v) amalgamation, mergers, or takeovers; (vi)
disposal of the whole or substantial part of the
undertaking; (vii) and significant changes in
policies, plans or operations of the company;

Code of internal procedures and conduct for

listed companies and other entities.

R. 12(2). The entities mentioned in sub-

regulation (1), shall abide by the code of
Corporate Disclosure Practices as specified in
Schedule II of these Regulations.

SCEHDULE II - CODE OF CORPORATE

DISCLOSURE PRACTICES FOR
PREVENTION OF INSIDER TRADING

2.0 Prompt disclosure of price sensitive information

2.1 Price sensitive information shall be given

by listed companies to stock exchanges and
 21

disseminated on a continuous and immediate

basis.‖

18. A reading of the aforesaid legal provisions makes it

eminently clear that disclosures have to meet all of those

stated provisions. Clause 36 is sweeping in nature as it

mandates all disclosures to enable the shareholders and the

public to appraise the position of the Company and to avoid

the establishment of a false market in its securities. It also

mandates that the Company will also immediately inform the

Exchange of all the events, which will have bearing on the

performance/operations of the company as well as price

sensitive information. Sub clause 7 further mandates

disclosure of any other information having bearing on the

operation/performance of the company as well as price

sensitive information, which includes but not restricted to the

specified events. Under 7(ii) comes merger, amalgamation

etc. Price sensitive information as defined under PIT

Regulation 2 (ha) “means any information which relates

 22

directly or indirectly to a company and which if published is

likely to materially affect the price of securities of company”.

19. Given the above provisions of law, having heard the

learned counsel for both the parties and having perused the

various documents relating to the appeal we do not find merit

in the submissions of the appellant. We note that the Binding

Agreement was signed by a Board Authorized Executive

Director of the appellant bank and two representatives of the

dominant Shareholders. One of the signatories (Sanjay

Kumar Tayal) from the dominant Shareholders‟ side was also

a Director of Bank of Rajasthan at the relevant time.

Therefore, the contention that it was just a preliminary

agreement having no materiality and certainty does not have

any meaning. More importantly it was not a draft Binding

Agreement taken before the Board of the appellant as a draft

proposal, like any normal agenda, but a signed Binding

Agreement by the two parties. As noted in the impugned

order the Binding Agreement itself contained provisions

 23

relating to the swap ratio and the outer time limit (of two and

five days) in completing the steps/formalities concerned. It is

also on record that the agreement signed in the early hours of

May 18, 2010 at 4.30 a.m. got culminated in the decisions of

both the Boards of Directors by the same evening. The Bank

of Rajasthan disclosed the fact relating to their Board of

Directors meeting to the Stock Exchange at 5.12 p.m. and the

Board of Directors of ICICI Bank met at around 6.00 p.m.

(presumably the notice relating to this board meeting was

already disclosed to the Stock Exchanges).

20. The contention that the Binding Agreement was

premature for disclosure as it was only a contingent contract

and not a certainty does not have any merit as the disclosure

regulations and the provisions of the Contract Act stand on

different footing. While certainty is paramount for a contract,

materiality of an event is what is tested in disclosure; if the

event does not fructify disclose that as well with reasons

explained. Be that as it may. For the sake of argument let us

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probe this proposition further. Is the Binding Agreement a

completely uncertain document about its outcome? What are

the proposed conditions to be met? (1) production of Power

of Attorney by the same Dominant Shareholders who have

already signed the agreement at 4.30 a.m. and (2) approval of

the respective Boards of both the banks, the appellant as well

as Bank of Rajasthan. The signatory of the appellant was a

board authorized Executive Director. Shri. Sanjay Kumar

Tayal, one of the two signatories on the other side, was also a

Director on the Board of Bank of Rajasthan at the relevant

time. Two of them signed on behalf of all the dominant

shareholders. In the light of this it would be irrational to

assume that the Binding Agreement did not have any

certainty or did not have a reasonable certainty of

performance.

21. Further, a look at the run up to signing the Binding

Agreement as given in the Investigation Report would

indicate that it was a story of amalgamation foretold. Starting

 25

in February 2010 ICICI Bank Officials at various senior

management levels and the dominant shareholders had

multiple meetings. On 6th May the dominant shareholders

informed their lack of interest to go ahead. However, a

meeting was held on 7th May, the very next day, to consider a

way forward, which within 10 days thereafter resulted in the

Binding Agreement, which also contained all the necessary

steps to be taken by the parties, and included the share swap

ratio. A two days / five days time frame was given to the

Transferor Bank and the Transferee Bank to complete the

procedures. Meeting was held between 11.30 p.m. on 17th

night which concluded around 4.30 a.m. on 18th early hours.

At 4.30 p.m. Sanjay Tayal sent a communication requesting

to arrange a meeting of the Board of Directors of Bank of

Rajasthan, which informed the exchanges at 5.12 and 5.25

p.m. and arranged the said meeting starting 5.30 p.m. Power

of Attorneys were received by the legal advisers before 5.57

p.m., whereupon the Binding Agreement was executed and

 26

executed copies were given to parties. Appellant Bank started

board meeting at 6.00 p.m. Both the bank boards approved

the proposal by 7.30 p.m. Facts relating to this timelines

would undoubtedly indicate a well planned and well executed

plan suiting professional companies leaving no element of

practical uncertainty regarding the Binding Agreement,

though legally many a hornets‟ nest can be raised about its

binding, contractual nature, which is though not the basis of

disclosure law.

22. The Binding Agreement was a material event regarding

the performance of the appellant is not a disputed fact as

revealed in the disclosure actually made by the Appellant.

That disclosure, inter alia, states as follows:

―The proposed amalgamation would

substantially enhance ICICI Bank's branch
network, already the largest among Indian
private sector banks, and especially strengthen
its presence in northern and western India. It
would combine Bank of Rajasthan's branch
franchise with ICICI Bank's strong capital
base. The valuation implied by the share
exchange ratio as mentioned above is in line
 27

with the market capitalization per branch of old

private sector banks in India. It also compares
favorably with relevant precedent
transactions.‖

23. The disclosure further stated the following:

"There can be no assurance that terms of the

scheme will not have an adverse impact on
ICICI Bank. The proposed amalgamation and
any future acquisitions or mergers may involve
number of risks, including deterioration of
asset quality, diversion of our management's
attention required to integrate the acquired
business and failure to retain key acquired
personnel; and clients, leverage synergies or
rationalize operations, or develop the skills
required for new businesses and markets, or
unknown and known liabilities, some or all of
which could have an adverse impact on our
business.‖

24. This statement clearly demonstrates that the appellant

was aware of the potential risk and hence the impact the

proposed amalgamation could have on its share prices clearly

making it price sensitive information. Therefore, the

disclosures by the appellant regarding the potential synergy

and performance of the amalgamation and its risk factors

would make it both material and price sensitive information.

 28

Therefore, the finding to this effect in the impugned order

cannot be faulted, irrespective of whether post-facto share

prices were in fact affected or not, and whether such an

analysis has been done or not. What is relevant for disclosure

is the materiality and the ex-ante possibility of impacting

prices of the securities, which may not come true ex-post due

to several other factors affecting the company concerned

or/and the securities market in general.

25. A clear reading of the disclosure provisions both under

Clause 36 read with Section 21of SCRA and under the PIT

Regulations, 1992 would necessitate disclosure of the

Binding Agreement since what is liable to be disclosed is

material and price sensitive information relating to the

performance of a company on a continuous basis. Therefore,

what is held in the impugned order that the said Binding

Agreement fulfills both these criteria and therefore should

have been disclosed with whatever conditions attached to the

Binding Agreement has no deficiency.

 29

26. It is the contention of the appellant that even after the

board approval two more crucial steps had to be completed

for the amalgamation to become effective. These steps were

(1) the shareholders approval of both the entities and (2) the

approval of the RBI to the proposed amalgamation under

Section 44 of the Banking Regulations Act. In fact, if it is the

argument of the appellant that the Binding Agreement signed

by the dominant Shareholders, one of whom was also a

Director of Bank of Rajasthan, on one hand and an authorized

Executive Director on the other was an uncertain event then

we are of the considered view that shareholders approval

(when the public shareholding in both the entities was of a

high order) is a much more uncertain event. Equally uncertain

is the approval of the banking regulator RBI to the proposed

amalgamation. Therefore, conditions precedent stipulating

certain steps which are at least partly within the control of the

signatories to the Binding Agreement cannot be more

uncertain than the steps which are completely outside the

 30

control of the signatories. Accepting the argument of the

learned Senior Counsel for the appellant would therefore

mean that disclosure relating to an amalgamation has to be

made only when the final approval (RBI approval) is

available would make the disclosure regulations regarding

securities markets meaningless. The reason why disclosure

regulations are more onerous and continuous in nature in a

disclosure-based regime is because of this market dynamics

which factors in every single bit of information which is

material to the security of an entity continuously on real time

basis.

27. By the same reasoning the interpretation given by the

circular of the BSE dated September 30, 2014 relied on by

the appellant also does not come to the aid of the appellant

even ignoring the fact that this circular was not available on

the date of the event. What the circular states is as follows:-

The BSE Circular of 2014

 31

“9. Disclosures relating to Any other

information having bearing on the
operation/performance of the Listed Entity as
well as price sensitive information, which
includes but not restricted to;
I. ……………….

II. Acquisition, merger, de-merger,

amalgamation, restructuring, scheme of
arrangement, spin off or selling divisions of
the Listed Entity, delisting, redemption/
cancellation/retirement of any securities
issued by the Listed Entity.

This should be informed at time of Board

approval or any committee authorized by the
Board.
Acquisition / agreement to acquire:
a) Name of the target entity
b) Whether the promoter/ promoter group/
group companies have any interest in the entity
being acquired? If yes, nature of interest and
details thereof;
c) Whether the acquisition would fall within
related party transactions? If yes, whether the
same is done at‚ arm‘s length;

d) Industry to which the entity being acquired

belongs;
 32

As reproduced, the above circular states that information

relating to amalgamation etc has to be informed at the time of

board approval or any committee authorized by the board.

The format also states “acquisition / agreement to acquire”

which clearly envisages situations of a Committee approval

and agreement to acquire also to be disclosed. Further, in the

absence of clarity, what is presumed by the BSE circular is a

standard approach to such proposals i.e. draft proposal

placing before a Committee or the Board of Directors of a

company and which is approved by the Board of Directors or

by a Committee authorized by the Board. In the instant case,

it is an Executive Director of the appellant who is authorized

by the Board to sign such agreement(s) the signatory to the

Binding Agreement. As such, it could be treated as a

committee authorized by the Board, as a committee can be

comprising one member also. In any case, the BSE circular

does not take into account specific situations like a Binding

Agreement signed by the dominant Shareholders and a Board

 33

authorized entity etc. before being submitted as a draft

agenda before the Board of Directors for approval. Therefore,

even a principle-based interpretation of the BSE Circular

cannot be applied to the given facts of the case apart from the

fact that the said circular was issued more than four years

subsequent to the concerned events.

28. In view of the above reasons we do not agree with the

contentions of the learned Senior Counsel for the appellant

that the Binding Agreement was premature to be disclosed;

was liable to be disclosed only after the conditions precedent

were met and that the RBI and BSE Guidelines/circular

mandate disclosure only after Board approval in every given

facts of the matter. Moreover, though we agree with the

principles underlying contingent contracts and the principles

laid down in various judgments cited on the issue we are of

the considered view that such interpretations cannot be

extended ipso facto to the provisions of disclosure

laws/regulations when the said regulations mandate

 34

disclosure of every material and price sensitive information

relating to the performance or operation of a listed company

on an on-going, continuous basis. If such disclosures had to

await finality/complete certainty of material corporate

decisions not only disclosure laws become redundant but

consequently even core PIT Regulations to help prevent

insider trading, a major bane of securities market, will also

become a casualty. The purpose and spirit of disclosure in a

disclosure-based regulatory regime is simple and clear;

disclose all material and price sensitive events/information

and disclose even when one is in doubt. It does not have to be

tested with finer legal examination, hairsplitting arguments or

semantics. Here, it is an admitted fact that the appellant itself

had a view that the event was disclosable; hence consulted

their legal advisers though at 12.31 p.m. they advised against

disclosing for whatever reasons. In our reasoned view, given

the facts of this matter, the signed Binding Agreement in

question was price sensitive and admittedly material to the

 35

performance of the appellant and needed to be disclosed on

an immediate basis which was not done.

29. Similarly, we do not agree with the submissions made

by the learned Senior Counsel for the appellant on the usage

of some adjectives or qualifiers (amalgamation vs

information relating to amalgamation; certainty vs near

certainty) or in providing publicly known facts (trading

volumes and prices of the appellant before the Tribunal) in

bringing out the deficiencies in the show cause notice vis-à-

vis in the impugned order vis-à-vis the affidavit-in-reply.

Providing information available in the public domain to the

Courts does not suffer from any infirmities. We are of the

considered opinion that other deficiencies, though avoidable,

do not tarnish the findings in the impugned Order as language

of communication, even in judicial proceedings, have not

achieved perfection of mathematical/algebraic formulae.

Hence, such technical deficiency, though should be avoided,

cannot be used to undermine the facts of the case and in

 36

interpreting regulatory provisions. On the basis of

interpretation given in the impugned order itself the finding

that signing of the Binding Agreement was a material and

price sensitive information and hence there was a delay of a

trading day in making the disclosure to the Stock Exchanges

cannot be faulted. It was a PSI is also clear from the fact that

the investigation revealed insider trading by entities

connected with the dominant Shareholders in the shares of

Bank of Rajasthan on the day of the Binding Agreement.

Submission that insider trading did not happen in the shares

of the Appellant does not dilute the issue since it is the same

Binding Agreement which triggered the alleged violation of

insider trading. Therefore, the appeal fails on merit.

30. However, we agree with the contentions of the learned

Senior Counsel for the appellant on the inordinate delay in

issuing the show cause notice and in passing the impugned

order by respondent SEBI. The disclosure violations had been

noticed by SEBI soon thereafter and a preliminary

 37

investigation was carried out and a report was available in the

month of August 2012. However, even the show cause notice

was issued almost six years thereafter in June 26, 2018. In the

interim proceedings against the other entities relating to

alleged insider trading had been completed. Despite that the

respondent SEBI could not issue the show cause notice to the

appellant herein and proceed with the matter within a

reasonable period of time. The submissions that final

investigation report was approved only in 2015 (3 years delay

even thereafter), no prejudice has been caused to the

appellant etc cannot be accepted since a company, that too a

banking company, being a dynamic entity grows organically

and inorganically and learns by doing. Given that a violation

committed at an early stage of an organizational life cycle,

and which was known to the Regulator, cannot be invoked to

punish it several years down the line when the organization

has reached a different stature and position. That would

cause prejudice to the appellant unlike as argued by the

 38

respondent SEBI. Moreover, corrective actions relating to

market violations have to be taken by the regulator as early as

possible, at least soon after it becomes known to the

regulator, for appropriately punishing the guilty not only for

the sake of modifying the behavior of the violator but also for

sending strong messages to the market participants in general.

After all the charge against the appellant is one trading day‟s

delay in disclosure, but the delay on the part of SEBI to show

cause is 2955 days from the date of the event and about 2130

days from the date of the preliminary investigation report,

which is too wide a gap to be ignored. Several years‟ delay in

show-causing and concluding proceedings in such known

incidence of violation / alleged violations is a failure in

effectively performing the behavior modification function of

a market regulator. The orders relied on by SEBI on the

ground of delay are distinguishable from the facts of this

matter. Therefore, we are of the considered view that

issuance of a penalty order against the appellant in

 39

September, 2019 for certain disclosure violations in mid-May

2010 by issuing a show cause notice on June 26, 2018 has

caused prejudice to the appellant and the order suffers from

laches, as held in this Tribunal‟s Order in the matter of Ashok

Rupani (supra).

31. In the instant case we, however, find that the appellant

did not take the plea of laches before the AO. This plea was,

however, taken before the Tribunal in the memo of appeal. It

is well settled that in the absence of pleadings, evidence if

any, cannot be considered. Parties cannot be permitted to

travel beyond its pleadings. The object and purpose of

pleadings is to enable the adversary party to know the case it

has to meet.

32. The pleadings, however, should receive a liberal

construction. No pedantic approach should be adopted to

defeat justice on hair-splitting technicalities as held by the

Supreme Court in Ram Sarup Gupta (deceased) by LRs vs

Bishun Narain Inter College AIR 1987 SC 1242. Thus,

 40

sometimes pleadings are expressed in words which may not

expressly make out a case in accordance with strict

interpretation of law, in which case, it is the duty of the Court

to ascertain the substance of the pleadings in order to

determine the question.

33. Thus, if a case is not specifically pleaded, the same can

still be considered by the Court only where the pleadings in

substance though not in specific terms contain the necessary

averment to make out a particular case. Further, if the issue

raised is a question of law and goes to the root of the problem

then it can be raised at any stage.

34. Laches is a mixed question of fact and law. The facts in

the instant case indicate delay in issuing the show cause

notice. However, the plea of laches though not raised before

the AO was specifically raised in the appeal before this

Tribunal. We however, find that undue delay in initiating the

proceedings by the respondent by itself causes prejudice and

 41

would ultimately attach a stigma pursuant to any adverse

order that may be passed.

35. Thus, in the instant case, though there are laches, that

by itself in the peculiar circumstances of the case, will not

vitiate the proceedings but definitely the penalty amount of

Rs. 10 lakh imposed on the appellant cannot be sustained and

deserves to be substituted by a lesser penalty.

36. In the result, while upholding the impugned order on

merits, we modify the penalty imposed on the appellant to

only a warning which will meet the ends of justice in the

given facts and circumstances of the matter. Appeal is

thereby partly allowed. No orders on costs.

37. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to

sign a copy of this order nor a certified copy of this order

could be issued by the registry. In these circumstances, this

order will be digitally signed by the Presiding Officer on

 42

behalf of the bench and all concerned parties are directed to

act on the digitally signed copy of this order. Parties will act

on production of a digitally signed copy sent by fax and/or

email.

TARUN Sd/-
Digitally signed by TARUN
AGARWAL
DN: c=IN, st=Uttar Pradesh,
2.5.4.20=a0e08b2d80e9d23c2c2a Justice Tarun
AGAR
a3e16780d684adad6bc9e810de2
d7b0c28efd35557c9,
postalCode=211001, street=B/
A,NYAYA MARG ALLAHABAD,
Agarwala
serialNumber=095f8b286bb0b1c
Presiding Officer
WAL
d07ff676611f4f5e7999727d404aa
38ca422f9d3529bdb8a3,
o=Personal, cn=TARUN AGARWAL
Date: 2020.07.08 11:22:39 +05'30'

Sd/-
Dr. C.K.G. Nair
Member

Sd/-
Justice M.T. Joshi
Judicial Member
08.07.2020
msb