The case primarily concerns how changes in shareholding and promoter status were reported to the stock exchange. While the Company failed to follow the prescribed process for reclassifying a promoter shareholder, Mr Singh and Ms Jain were found to have failed to make timely disclosures of their share transactions.
SEBI's proceedings against Vedic Ayurveda arose from the treatment of the Kalpak Vohra HUF, which held 4.63% of the company's shares. The HUF was shown as a promoter in the shareholding pattern for the quarter ended June 2020. However, from the quarter ended September 2020, the company began showing the HUF under the public shareholder category.
The regulator also found that this change was made without following the procedure prescribed under Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The company had neither obtained the required approvals nor made the necessary application to the stock exchange for reclassification. BSE confirmed that it had not received any such application from the company or the HUF.
As a result, SEBI held that Vedic Ayurveda had violated Regulations 31A(2) and 31A(3) of the LODR Regulations. Since the HUF was shown as a public shareholder without completing the prescribed reclassification process, the company also filed incorrect shareholding patterns for five quarters, from September 2020 to December 2021. This resulted in additional violations of Regulations 31(1) and 31(4), of the LODR Regulations.
The case against Mr Singh related to a series of transactions between December 2021 and March 2022. On 9 December 2021, Mr Singh acquired 385,241 shares, taking his shareholding to 12.10%. As his holding crossed the 5% threshold, he was required to make an initial disclosure under Regulation 29(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations). SEBI found that he failed to make the required disclosure.
Mr Singh subsequently sold 33,500 shares on 5 January 2022, 20,000 shares on 17 January 2022 and 48,626 shares on 24 January 2022. Each of these transactions involved a change exceeding the 2% threshold and therefore required disclosure under Regulation 29(2). No such disclosures were made.
On 26 February 2022, Mr Singh purchased another 150,000 shares, taking his holding to 8.71%. Although the disclosure was eventually made, it was delayed by one day and was also found to be incorrect. He then sold 100,000 shares on 16 March 2022, but again failed to make the required disclosure.
SEBI noted that BSE subsequently contacted Mr Singh in September 2024 to seek the required disclosures and later sought an explanation for the discrepancy in the February 2022 disclosure. Mr Singh did not respond to the Exchange. SEBI therefore concluded that he had violated Regulations 29(1) and 29(2), read with Regulation 29(3), of the SAST Regulations.
The proceedings against Ms Jain involved two delayed disclosures. Ms Jain purchased 385,241 shares from Sunayna Investment Company Ltd through off-market transactions on 30 August 2021. The disclosure required under Regulation 29(1) was due by 1 September 2021 but was not made until 23 November 2023, resulting in an 813-day delay.
MS Jain also sold 385,241 shares on 9 December 2021. The corresponding disclosure under Regulation 29(2) was due by 13 December 2021, but was received by the exchange only on 25 February 2022, a delay of 74 days.
Because of the delayed disclosures, SEBI offered Ms Jain an opportunity for summary settlement under its enforcement policy. However, the settlement did not go through as Ms Jain failed to remit the settlement amount within 30 calendar days of receiving the settlement notice. SEBI thereafter proceeded with adjudication.
The noticees raised several objections, including the delay in initiating proceedings and the disruption caused by the COVID-19 pandemic. They also argued that changes in their shareholding had been reflected in the company's quarterly shareholding patterns.
SEBI rejected the argument that such filings could substitute for the specific disclosures mandated under the SAST Regulations. The adjudicating officer, relying on a SAT ruling, reiterated that where the law prescribes a particular manner of making a disclosure, compliance has to be made in that prescribed manner.
On the issue of delay, SEBI noted that the violations came to its notice through a BSE report received on 23 February 2024. The examination report was subsequently approved and adjudication proceedings were initiated in 2025. SEBI therefore rejected the contention that the proceedings were initiated after an unreasonable delay.
While deciding the quantum of penalty, SEBI considered the factors specified under Section 15J of the SEBI Act, including the extent of disproportionate gain or unfair advantage, investor losses and the repetitive nature of the violations. The order notes that the material on record did not indicate any quantifiable disproportionate gain or investor loss, nor did it specifically establish that the violations were repetitive.
However, SEBI noted that the company had not taken remedial measures despite being put on notice for failing to follow the reclassification process. In Mr Singh's case, the adjudicating officer also noted his failure to respond to repeated correspondence from the stock exchange.
Accordingly, SEBI imposed ₹3 lakh on Vedic Ayurveda, ₹2 lakh on Mr Singh and ₹1 lakh on MS Jain, taking the total penalty to ₹6 lakh
