Authored by Lakshmi Narasimhan Srikrishna
SEBI had, through its adjudication order dated 5th January 2026 (“Order”), passed an order after examining a Draft Letter of Offer (DLoF) filed in connection with a proposed acquisition of shares of Eiko Lifesciences Limited (‘Company’) by Lenus Finvest Private Limited, a promoter entity of the Company. The examination was with respect to potential non-compliance with the disclosure requirements relating to shares (of the promoter entity which were seen to be encumbered by way of a pledge) under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”).
Following the said examination, SEBI initiated adjudication proceedings against Lenus Finvest Private Limited (“Noticee”) under Section 15A(b) of the SEBI Act, 1992 (“SEBI Act”), and issued a show cause notice alleging failure to make certain mandatory disclosures relating to pledges and annual encumbrance declarations relating to the shares held by the Noticee in the Company.
Alleged Violations regarding Non-Disclosures
As part of the adjudication proceedings, SEBI alleged two principal violations:
1. Failure to disclose creation and release of pledges: The Noticee had created (and subsequently released) pledges over shares of the Company held by it during the period 2019–2021 (seemingly for margin requirements with its stockbroker) but had not made disclosures regarding such creation and release of encumbrances to stock exchanges and the Company as per Regulations 31(1), 31(2) and 31(3) of the SAST Regulations; and
2. Failure to submit annual declaration of encumbrances: It was also alleged that the Noticee had failed to submit the annual declaration of encumbrances under Regulation 31(4) read with Regulation 31(5) in respect of a margin pledge created in May 2022 and released in February 2023.
Submissions Made by the Noticee
3. The Noticee contested that it had acted in good faith and responded to the allegations under the SCN on the following grounds:
i. It was submitted that the pledges (in respect of which contraventions of disclosure requirements were alleged) were ‘routine margin pledges’ created with by the Noticee with its stockbroker:
(a) as part of the normal investment/ trading activities of the Noticee; and
(b) were undertaken entirely within the depository system; and
(c) the creation and release of the pledges of the shares of the Company did not result in any change in beneficial ownership or control over the pledged shares.
ii. The legislative intent behind Regulation 31 of the SAST Regulations (which were alleged to have been breached) was to ensure disclosure of encumbrances that could materially affect control or ownership, such as pledges securing third-party debt. Margin pledges, according to the Noticee, did not fall within this intent.
4. It was also specifically submitted that the proviso to Regulation 31(2) of the SAST Regulations exempted encumbrances undertaken in a depository from disclosure requirements and the pledges created (and subsequently released with respect to the shares of the Company) were covered under the said exemption.
5. With respect to the non-filing of the annual declaration, the Noticee submitted that the said declaration for FY 2021–22 had been submitted within time and that, in any event, post-April 1, 2022, depository-based margin pledges stood exempt from disclosure.
Issues Considered by SEBI
6. The Adjudicating Officer framed the following issues for consideration:
a) Whether the Noticee had violated disclosure requirements under Regulation 31 of the SAST Regulations?
b) Whether such violations, if established, attracted monetary penalty under Section 15A(b) of the SEBI Act?
c) If so, what should be the appropriate quantum of penalty, having regard to the factors under Section 15J of the SEBI Act?
SEBI’s Findings
7. In the Order, SEBI found that there was a clear distinction between transactions which occurred prior to 1 April 2022 and transactions which happened after such date. It was found that exemptions relating to depository-based encumbrances were introduced only under the amendment to the SAST Regulations which came into effect on 01.04.2022 and any transactions which were not disclosed in line with the obligation under Regulation 31 of the SAST Regulations would continue to be covered. Therefore:
i. For transactions entered into by the Noticee during 2019–2021: SEBI held that at the relevant time, there was no exemption under the SAST Regulations for ‘margin pledges’ even if such pledges were undertaken through depositories. Accordingly, the non-disclosure of the creation and release of pledges during this period constituted a violation of Regulation 31(1), 31(2) read with Regulation 31(3); and
ii. For transactions during 2022–2023: SEBI accepted the Noticee’s submission that, with effect from 1 April 2022, encumbrances undertaken through a depository were exempt from disclosure requirements. Consequently, the Noticee was not found in violation of Regulation 31(4) and 31(5) in relation to the annual declaration for the margin pledge created and released during this later period.
Penalty Imposed and Legal Basis
8. SEBI reiterated that an intent to contravene obligations under the applicable statutes was not a prerequisite for imposition of penalty and relied on decisions of the Supreme Court and the Securities Appellate Tribunal. Having established violations in respect of the transactions which occurred prior to 01.04.2022, SEBI imposed a penalty of INR 1,00,000/- (Rupees One Lakh Only) on the Noticee under Section 15A(b) of the SEBI Act. In arriving at a decision regarding the quantum of the penalty, SEBI noted that:
i. There had been no ‘quantifiable disproportionate gain’ or ‘investor loss’ as far as the non-compliance of the Noticee was concerned; and
ii. The absence of any prior enforcement history against the Noticee was to be considered.
Key Takeaways from the Order
9. The Order makes it clear that:
i. Regulatory exemptions cannot be applied retrospectively and promoters of listed entities to whom disclosure obligations apply are to comply with such requirements as they stood on the date when such obligations arose. No distinction can be made between pledges made as part of a material transaction and those made as part of ‘routine’ margin requirements as part of a promoter’s ordinary trading/ investment activity.
ii. Non-compliance with mandatory disclosure requirements under the SAST Regulations could not be defended by claiming that actions were taking in good faith or that the transactions effected were bona fide in nature.
