Section 15H of The Securities and Exchange Board of India Act, 1992
If any person, who is required under this Act or any rules or regulations made thereunder, fails to—
- (i)disclose the aggregate of his share holding in the body corporate before he acquires any shares of that body corporate; or
- (ii)make a public announcement to acquire shares at a minimum price; 7[(iii) make a public offer by sending letter of offer to the shareholders of the concerned company; or
- (iv)make payment of consideration to the shareholders who sold their shares pursuant to letter of offer,] he shall be liable to a penalty 8[which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher].
Summary
- This rule punishes people who fail to follow required disclosure and takeover rules when buying shares.
- You can be penalized for failing to disclose your total existing shareholdings before acquiring new shares in a company.
- You face a penalty if you fail to make a required public announcement to acquire shares at a minimum price.
- You will be penalized if you fail to send a letter of offer to the shareholders to make a public offer.
- You can be fined for failing to pay the shareholders who actually sold their shares to you after receiving your letter of offer.
- The penalty starts at a minimum of ten lakh rupees and goes up to twenty-five crore rupees, or three times the profit made from the failure, whichever is higher.
Practical examples
FAQ
1. Do I need to declare the shares I already own before buying more?
Yes, if required by the rules, you can be penalized for failing to disclose the aggregate of your shareholding before you acquire any new shares of that body corporate.
2. What happens if I make an offer to shareholders but never pay them?
You will face a heavy penalty for failing to make payment of consideration to the shareholders who sold their shares pursuant to a letter of offer.
3. What is the maximum fine for a disclosure failure?
The penalty can extend to twenty-five crore rupees or three times the amount of profits made out of your failure, whichever is higher.
Test yourself
Q1.Under Section 15H of The Securities and Exchange Board of India Act, 1992, which of the following failures triggers a penalty during a takeover?
Q2.Under Section 15H of The Securities and Exchange Board of India Act, 1992, what specific failure is penalized after a public offer is successfully sent?
Q3.Under Section 15H of The Securities and Exchange Board of India Act, 1992, when exactly must a person disclose their aggregate shareholding to avoid a penalty?
Q4.How does the maximum penalty formula under Section 15H of The Securities and Exchange Board of India Act, 1992, compare to the maximum penalty formula for insider trading under Section 15G?