CHAPTER IV: Investigation And Action By The Board

Board’s right to investigate.

38. The Board may appoint one or more persons as investigating officer to undertake investigation for any of the following purposes, namely :—

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 motu upon its own knowledge or information, in the interest of the securities market or investors’ interest, for any breach of the regulations ;
3. to ascertain whether the provisions of the Act and the regulations are being complied with for any breach of the regulations.

Notice before investigation.

39. (1) Before ordering an investigation under regulation 38, the Board shall give not less than 10 days notice to the acquirer, the seller, the target company, the merchant banker, as the case may be.

(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may, by an order in writing direct that such investigation be taken up without such notice.

(3) During the course of an investigation, the acquirer, the seller, the target company, the merchant banker, against whom the investigation is being carried out shall be bound to discharge his obligation as provided in regulation 40.

Obligations on investigation by the Board.

40. (1) It shall be the duty of the acquirer, the seller, the target company, the merchant banker whose affairs are being investigated and of every director, officer and employee thereof, to produce to the investigating officer such books, securities, accounts, records and other documents in its custody or control and furnish him with such statements and information relating to his activities as the investigating officer may require, within such reasonable period as the investigating officer may specify.

(2) The acquirer, the seller, the target company, the merchant banker and the persons being investigated shall allow the investigating officer to have reasonable access to the premises occupied by him or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the acquirer, the seller, the target company, the merchant banker or such other person and also provide copies of documents or other materials which, in the opinion of the investigating officer are relevant for the purposes of the investigation.

(3) The investigating officer, in the course of investigation, shall be entitled to examine or to record the statements of any director, officer or employee of the acquirer, the seller, the target company, the merchant banker.

(4) It shall be the duty of every director, officer or employee of the acquirer, the seller, the target company, the merchant banker to give to the investigating officer all assistance in connection with investigation, which the investigating officer may reasonably require.

Submission of report to the Board.

41. The investigating officer shall, as soon as possible, on completion of the investigation, submit a report to the Board :

Provided that if directed to do so by the Board, he may submit interim reports.

Communication of findings.

42. (1) The Board shall, after consideration of the investigation report referred to in regulation 41, communicate the findings of the investigating officer to the acquirer, the seller, the target company, the merchant banker, as the case may be, and give him an opportunity of being heard.

(2) On receipt of the reply, if any, from the acquirer, the seller, the target company, the merchant banker, as the case may be, the Board may call upon him to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act and the regulations.

Appointment of auditor.

43. Notwithstanding anything contained in this regulation, the Board may appoint a qualified auditor to investigate into the books of account or the affairs of the person concerned :

Provided that the auditor so appointed shall have the same powers of the investigating authority as stated in regulation 38 and the obligations of the person contained in regulation 40 shall be applicable to the investigation under this regulation.

Directions by the Board.

44. Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including :—

1. directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulation 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 regulation 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 regulation 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 regulation 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.

Penalties for non-compliance.

45. (1) Any person violating any provisions of the regulations shall be liable for action in terms of the regulations and the Act.

(2) If the acquirer or any person acting in concert with him, fails to carry out the obligations under the regulations, the entire or a part of the sum in the escrow account shall be liable to be forfeited and the acquirer or such a person shall also be liable for action in terms of the regulations and the Act.

(3) The board of directors of the target company failing to carry out the obligations under the regulations shall be liable for action in terms of the regulations and the Act.

(4) The Board may, for failure to carry out the requirements of the regulations by an intermediary, initiate action for suspension or cancellation of registration of an intermediary holding a certificate of registration under section 12 of the Act :

Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulations applicable to such intermediary is complied with.

(5) For any mis-statement to the shareholders or for concealment of material information required to be disclosed to the shareholders, the acquirers or the directors where the acquirer is a body corporate, the directors of the target company, the merchant banker to the public offer and the merchant banker engaged by the target company for independent advice would be liable for action in terms of the regulations and the Act.

(6) The penalties referred to in sub-regulations (1) to (5) may include :—

1. criminal prosecution under section 24 of the Act;
2. monetary penalties under section 15H of the Act;
3. directions under the provisions of section 11B of the Act;
4. directions under section 11(4) of the Act;
5. cease and desist order in proceedings under section 11D of the Act;
6. adjudication proceedings under section 15HB of the Act.

Appeal to the Central Government.

46. Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, (i.e., after 16th December, 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.

Repeal and saving.

47. (1) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, are hereby repealed.

(2) Notwithstanding such repeal,—

1. anything done or any action taken or purported to have been done or taken including approval of letter of offer, exemption granted, fees collected, any adjudication, enquiry or investigation commenced or show-cause notice issued under the said regulations shall be deemed to have been done or taken under the corresponding provisions of these regulations;
2. any application made to the Board under the said regulations and pending before it shall be deemed to have been made under the corresponding provisions of these regulations;
3. any appeals preferred to the Central Government under the said regulations and pending before it shall be deemed to have been preferred under the corresponding provisions of these regulations.

Index
	CHAPTER I: Preliminary
	CHAPTER II: Disclosures of shareholding and control in a listed company
	CHAPTER III: Substantial acquisition of shares or voting rights in and Acquisition of control over a listed company
	CHAPTER IV: Bail Out Takeovers
	CHAPTER V: Investigation and action by the board