Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of “Renaissance Jewellery Limited

WTM/GM/CFD/10/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY M/S RENAISSANCE JEWELLERY LIMITED ACQUIRER KOTHARI DESCENDENTS PRIVATE TRUST

BACKGROUND –

1.1 M/s Renaissance Jewellery Limited (“Target Company”) was incorporated on December 4, 1989, under the Companies Act, 1956. The Registered Office of the Target Company is at Plot No 36A & 37, SEEPZ, MIDC Marol, Andheri East, Mumbai–400096. The shares of the Target Company are listed on BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 An Application dated March 6, 2017 (“Application”) seeking exemption from the applicability of inter alia Regulation 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in the matter of proposed acquisition of shares and voting rights in the Target Company, was received by SEBI from Mr. Niranjan Shah, Trustee of Kothari Descendents Private Trust (“Acquirer Trust”).

1.3 Regulation 3(2) of the Takeover Regulations states – “Substantial acquisition of shares or voting rights. 3. (2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations:

Order in the matter of M/s Renaissance Jewellery Limited

Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding. Explanation — For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,— (i) Gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) In the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.”

1.4 In the aforementioned Application, the following was inter alia stated – i. The Acquirer Trust is a private family trust set up inter alia to streamline succession and welfare of Niranjan Shah Family.

ii. The Acquirer Trust would be acquiring 15% of the shares of the Target Company as a gift from Mr. Niranjan Shah (Transferor), Promoter of the Target Company and also a Trustee of the Acquirer Trust.

iii. The Acquirer Trust has been declared as part of the Promoter Group in the shareholding pattern declared on January 20, 2017. Presently, the Acquirer Trust does not hold any equity shares of the Target Company.

iv. Thus, the Acquirer Trust would be acquiring an additional 15% shareholding in the Target Company, which exceeds the stipulated threshold of an additional 5%.

v. The pre–acquisition shareholding in the Target Company as on March 6, 2017 along with the proposed post–acquisition shareholding in the Target Company, are provided below:

TABLE A – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) SR. NAME PRE – ACQUISITION POST – ACQUISITION NO. NO. OF % NO. OF % SHARES SHAREHOLDING SHARES SHAREHOLDING A. PROMOTER/ PROMOTER GROUP 1. NIRANJAN SHAH 28,61,900 15.00 0.00 0.00 2. ACQUIRER TRUST 0.00 0.00 28,61,900 15.00 3. OTHER THAN ABOVE 1,14,47,680 60.00 1,14,47,680 60.00 TOTAL 1,43,09,580 75.00 1,43,09,580 75.00 B. PUBLIC SHAREHOLDING 47,69,860 25.00 47,69,860 25.00 C. TOTAL (A + B) 1,90,79,440 100.00 1,90,79,440 100.00 vi. The Trustees of the Acquirer Trust are Mr. Niranjan Shah (Transferor) and his wife i.e. Mrs. Kalpana Shah, who also form part of the Promoters of the Target Company along with the Acquirer Trust and have been declared so in disclosures given to the Stock Exchanges as holding an aggregate shareholding of 18.47%. Accordingly, details of the Settlor, Trustees and Beneficiaries of the Acquirer Trust are as under –

ACQUIRER TRUST – KOTHARI DESCENDENTS PRIVATE TRUST SETTLOR TRUSTEES BENEFICIARIES Mr. Niranjan Shah Mr. Niranjan Shah and a. Mr. Niranjan Shah Mrs. Kalpana Niranjan b. Mr. Suhel Rajendra Kothari (son-in-law) Shah c. Mrs. Suchita Suhel Kothari (Daughter) d. Miss Samara Suhel Kothari (Grand Daughter) e. Miss Zia Suhel Kothari (Grand Daughter) f. Any future child of Mr. Suhel Kothari and Mrs. Suchita Kothari g. Any Trust for the benefit of one or more of the above secondary beneficiaries or the issue of such secondary beneficiaries. h. (Mr. Niranjan Shah being the Primary Beneficiary and all others being Secondary Beneficiaries)

vii. GROUNDS FOR SEEKING EXEMPTION – a. The acquisition would take place pursuant to a private family arrangement intended to streamline succession and welfare of the Niranjan Shah family and would be a non-commercial transaction which would not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

b. The proposed gift (at nil cost) of 15% shares held by Mr. Niranjan Shah in the Target Company to the Acquirer Trust (in which he is also a trustee) is only an internal reorganization within the Niranjan Shah family.

c. The proposed gift of shares of the Target Company to the acquirer would not result in any change in Promoter Group shareholding nor would result in any change in the control or management of the Target Company. The total Promoter Group holding would remain 75%. There would not be any additional acquisition by the promoter group as a whole.

d. The change in the identity of persons who would exercise voting rights over the Target Company, would only be between persons who, in their personal capacities, are Promoters of the target company and are also relatives of the transferor.

e. The shareholding of the Acquirer Trust along with the promoter group, excluding the shareholding of Mr. Niranjan Shah would increase from 60% to 75% in the Target Company, which limit is beyond the threshold limit mentioned under Regulation 3(2) of the Takeover Regulations. There would be no fresh acquisition by the promoter group and the pre-acquisition and post-acquisition shareholding of the promoter group would remain unaltered at 75%. Either parties of the aforesaid transaction are part of the promoter group of the Target Company. Thus exemption has been sought from complying with the open offer requirements stipulated under Regulation 3(2).

f. There is no effective change in the exercise of voting rights or in the control/management in the Target Company.

1.5 Vide an e–mail dated August 11, 2017, SEBI informed the Acquirer Trust as under –

With reference to your captioned application, you may note that in recent past cases, where the acquirer is a trust/LLP, SEBI has granted exemption under Reg. 11 of SEBI (SAST) Regulations, 2011, from making an open offer, where the trust deed/LLP is in compliance with certain criteria, inter-alia, as stated below:

i. That the proposed Trust Deed of the Acquirer Trust contains the following: a. A restriction on any person other than the individual Promoters or their immediate relatives or lineal descendants or legal heirs, being eligible to be Trustees or beneficiaries; b. A declaration that the beneficial interest of the beneficiaries of the Trust has not been and will not in the future, be transferred, assigned or encumbered in any manner including by way of pledge/mortgage;

c. In case of dissolution of the Trust, the assets will be distributed only to the beneficiaries of the Trust or to their legal heirs; d. The Trustees will not be entitled to transfer or delegate any of their powers to any person other than one or more of themselves.

ii. The following Undertakings should form part of Trust Deed: a. Any change in the trustees / beneficiaries / partners and any change in ownership or control of shares or voting rights held by Trust/LLP shall be disclosed to the concerned stock exchanges with a copy endorsed to SEBI for its record. b. As far as the provisions of the SEBI Act and the regulations framed thereunder are concerned the ownership or control of shares or voting rights will be treated as vesting not only with the Trustees but also indirectly with the beneficiaries. c. The liabilities and obligations of individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to transfers to the Trust / LLP. d. The Trust / LLP shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI. The said confirmation shall be furnished to the company which it shall disclose prominently as a note to the shareholding pattern filed for the quarter ending March 31 each year, under regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. e. The Trust / LLP shall get its compliance status certified from an independent auditor annually and furnish the certificate to the Stock Exchanges for public disclosure with a copy endorsed to SEBI for its records iii. The following further conditions are satisfied: a. The proposed acquisition is in accordance with the provisions of the Companies Act, 2013 and other applicable laws; b. The transferors are disclosed as Promoters in the shareholding pattern filed with the Stock Exchanges for a period of at least 3 years prior to transfer (except for holding on account of inheritance); c. There is no layering in terms of trustees / beneficiaries in case of Trusts and partners/LLPs in case of LLPs nor layering by interspersing Trusts and LLPs together; d. The Trust deed / LLP agreement does not contain any limitation of liability of the trustees / beneficiaries / partners in relation to the provisions of the SEBI Act and all regulations framed thereunder.

In the instant case, it is prima-facie observed that there are certain clauses in the trust deed which are not in line with the aforesaid criteria. Some of said clauses are as detailed below – a. The Son-in-law of the seller Promoter who is a beneficiary does not come under the definition of ‘immediate relative’ in terms of Regulation 2(1)(l) of Takeover Regulations.

b. The provision of including Trusts as beneficiaries. c. Settlor having the power to appoint any person as an Administrator and no defined powers of such Administrator. The powers of the Administrator shall be detailed by the Settlor in the written instrument appointing the Administrator. d. Trustees having the power to delegate any of their powers to any other person.

In view of the above, if the aforesaid criteria appear acceptable to you, you are requested to submit the amended trust deed complying with the aforesaid criteria or alternatively provide your comments, at the earliest, so that the application may be processed further.

1.6 Vide a letter dated September 11, 2017, the Acquirer Trust furnished the amended Trust Deed to SEBI inter alia stating – a. Point no. 1.2 of Schedule 1 of the Trust Deed has been amended by removing the provision of having Trust as a beneficiary. b. Clause no. 4.6 of the Trust Deed, which provides the Settlor with the power to appoint any person as an Administrator, etc. has been deleted. c. Clause 6.2 of the Trust Deed has been amended suitably to restrict the Trustee’s power to delegate.

However, as regards the issue concerning the Son-in-law not being an “immediate relative” of the transferor, the Acquirer Trust submitted as under – d. The basic objective of the trust formation and settling the shares by Mr. Niranjan Shah to the Acquirer Trust is to streamline succession and welfare of Niranjan Shah Family. This way he is ensuring smooth transmission of shares owned by him to the benefit of his daughter, her husband and her children. Although, the son-in-law does not fall under the definition of “immediate relative” he can be considered as legal heir along with the daughter of the settlor and her children. Legal heir is one of the person who can be the trustees or beneficiaries.

1.7 The Application along with the further submissions were forwarded to the Takeover Panel in terms of the proviso to Regulation 11(5) of the Takeover Regulations and deliberated by the Takeover Panel in its meeting held on October 30, 2017. After deliberations, the Takeover Panel made the following observations – “In case of Renaissance Jewellery Limited, the Panel recommended that the proposed transaction does not warrant grant of exemption as, no supporting documentary evidence has been submitted by the applicant to establish that the son-in-law can be considered as a legal heir and the trust deed contains provision relating to delegation of certain powers of trustees to any person.”

1.8 Accordingly, vide an e–mail dated November 28, 2017, the Acquirer Trust was informed of the recommendations of the Takeover Panel. Confirmation was also sought on whether or not the Acquirer Trust was willing to amend the Trust Deed for removal of the issues recorded by the Takeover Panel in its aforementioned recommendations. Vide letter dated December 6, 2017, the Acquirer Trust submitted the amended Trust Deed with suitable amendments to the relevant clauses of the Trust Deed to the effect that the name of the son–in–law has been removed as a beneficiary and also the Trustee’s power of delegation has been restricted. Accordingly, the matter was again forwarded to the Takeover Panel indicating the fresh submissions made by the Acquirer Trust for their consideration.

1.9 The Application along with the further submissions were forwarded to the Takeover Panel in terms of the proviso to Regulation 11(5) of the Takeover Regulations and deliberated by the Takeover Panel in its meeting held on December 16, 2017. After deliberations, the Takeover Panel made the following observations – “In case of Renaissance Jewellery Limited, the Panel noted that the said matter was deliberated in earlier meeting wherein the Panel recommended that the proposed transaction does not warrant grant of exemption as no supporting documentary evidence has been submitted by the applicant to establish that the son-in-law can be considered as a legal heir and the trust deed contains provision relating to delegation of certain powers of trustees to any person. The Panel took note of the revised trust deed, wherein, the applicant has suitably modified the trust deed in respect of the aforesaid clauses. Accordingly, the Panel recommended grant of exemption to the proposed transaction in the matter.”

FINDINGS –

2.1 I have considered the Application submitted by the Acquirer Trust along with their additional submissions; the recommendations of the Takeover Panel and other material available on record.

2.2 From the preceding paragraphs, it is noted that –

A. The Application submitted is in respect of the proposed acquisition of shares and voting rights in the Target Company i.e. M/s Renaissance Jewellery Limited.

B. The aforesaid acquisition is proposed to be made by Kothari Descendents Private Trust i.e. the Proposed Acquirer, in the following manner – i. As on the date of application, the Promoter Group hold 75% of the equity shares and voting rights in the Target Company. Mr. Niranjan Shah is one of the Promoter Group shareholders directly holding 15% shareholding in the Target Company.

ii. Mr. Niranjan Shah proposes to transfer his shareholding in the Target Company to the Acquirer Trust, as under –

TABLE C – SHAREHOLDING IN THE PROMOTER HOLDING COMPANY BEING ACQUIRED BY THE ACQUIRER TRUST (SOURCE: APPLICATION AND SUBSEQUENT SUBMISSIONS) TARGET COMPANY PRE – ACQUISITION POST – ACQUISITION NO. OF SHARES % OF SHARES NO. OF SHARES % OF SHARES Niranjan Shah (‘Transferor’) 28,61,900 15.00 0.00 0.00 Kothari Descendents Private Trust (‘Acquirer Trust/Transferee’) 0.00 0.00 28,61,900 15.00

C. The proposed acquisition would take place pursuant to a private family arrangement intended to streamline succession and welfare of the Niranjan Shah Family and would be a non-commercial transaction (gift at nil cost) which would not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

D. There will be no change in control of the Target Company pursuant to the proposed acquisition.

E. The pre–acquisition and post–acquisition shareholding of the Promoters in the Target Company will remain the same.

F. There will also be no change in the public shareholding of the Target Company.

G. The Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts Regulation Rules, 1957 (“SCRR”) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

H. The Proposed Acquirer/Acquirer Trust has executed and submitted a copy of the amended Trust Deed vide letters dated September 11, 2017 and December 6, 2017.

I. The Takeover Panel has also recommended grant of exemption to the Proposed Acquirer.

2.3 Considering the aforementioned, I am of the view that exemption as sought for in the Application (read with further correspondence/submissions/ clarifications) be granted to the Proposed Acquirer, subject to certain conditions as ordered herein below.

ORDER –

3.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. Kothari Descendents Private Trust, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition/exercise of voting rights in respect of the Target Company, viz. M/s Renaissance Jewellery Limited, by way of proposed transactions as mentioned in the Application.

3.2 The exemption so granted is subject to the following conditions:

i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and other applicable laws. ii. On completion of the proposed acquisition, the Proposed Acquirer shall file a report with SEBI within a period of 21 days from the date of such acquisition, as provided in the Takeover Regulations. iii. The statements/ averments made or facts and figures mentioned in the Application and other submissions by the Proposed Acquirer are true and correct. iv. The provisions of the SEBI Act and the Regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights vests not only directly on the Trustees but also indirectly on the beneficiaries of the Proposed Acquirer. v. There shall be no limitation of liability of the Trustees/beneficiaries in relation to the provisions of the SEBI Act and all Regulations framed thereunder. vi. The Proposed Acquirer shall honour its undertakings and shall also ensure compliance with the statements, disclosures and undertakings made in the Application and in the subsequent correspondence.

vii. The Proposed Acquirer shall confirm, on an annual basis, that it is in compliance with the Exemption Order passed by SEBI with a reference to the said Order. The Proposed Acquirer shall also disclose the name(s) of its Trustee(s). The said confirmation/disclosure shall be furnished to the Target Company, which shall disclose prominently as a note to the shareholding pattern filed for the quarter ending March 31 each year, under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. viii. The Proposed Acquirer shall get the compliance status certified from an independent auditor annually and furnish the same to the Stock Exchanges with a copy endorsed to SEBI for its records. ix. The liabilities and obligations of the transferor under the SEBI Act and Regulations framed thereunder will not change or get diluted due to transfers to the Proposed Acquirer. x. The Proposed Acquirer shall also ensure that the covenants in the Trust Deeds are not contrary to the above conditions and undertaking provided by the transferors. In such case, the Trust Deeds shall be suitably modified and expeditiously reported to SEBI.

3.3 The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.

3.4 The Application dated March 6, 2017, filed by Mr. Niranjan Shah, Trustee of Kothari Descendents Private Trust, is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: April 19, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA