Metex Marketing Pvt. Ltd vs Sebi

Date of Hearing : 09.01.2019 Date of Decision : 04.06.2019

Appeal No. 95 of 2016 Metex Marketing Pvt. Ltd. 357, Kothari Mansion, SVP Road, Mumbai - 400 004. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. P. N. Modi, Senior Advocate with Mr. Jaikishan Lakhwani, Mr. Kunal Katariya, Advocate i/b Mr. Jaikishan Lakhwani, Advocate for the Appellant. Mr. Kumar Desai, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

With Appeal No. 92 of 2016

1.

Apurva M. Shah

2. Ms. Ashni Shah

3. Ms. Bhavna M. Shah

4. Manish L. Shah

5. Manish L. Shah HUF

4A, Sambhav Tirth, 2A, Bhulabhai Desai Road, Hajiali, Mumbai - 400 026. ...Appellants

Versus 2

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Ankit Lohiya, Advocate with Mr. Rohit Patil, Advocate i/b Juris Link for the Appellants.

Mr. Kumar Desai, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

With Appeal No. 93 of 2016 Ms. Chanchal Jain 1/B, Nagindas Building, Prathna Samaj, Mumbai - 400 004. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Saurabh Bachhawat, Advocate with Mr. Aagam Doshi, Ms. Ria Jain, Advocates i/b Aagam Doshi for the Appellant. Mr. Kumar Desai, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

With Appeal No. 94 of 2016

1. Mr. Lalitchandra Shah

2. Ms. Sumitra Lalitchandra Shah

203, Rajmohan Society, Asurvav, Dharampur, Valsad - 396050. ...Appellants

Versus 3

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Aditya H. Mehta, Advocate i/b Haresh Mehta & Co. for the Appellants.

Mr. Kumar Desai, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

With Appeal No. 96 of 2016

Rashi Jain 601/602, Padmavati Heights, P B Marg, Tardeo, Mumbai - 400 007. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Nikhil Shah, Advocate i/b Joby Mathew & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member

Per : Justice Tarun Agarwala, Presiding Officer 4

1. These appeals have been filed against a common order dated

March 9, 2016 passed by the Whole Time Member (hereinafter

referred to as, 'WTM') of Securities and Exchange Board of India

(hereinafter referred to as, 'SEBI') and, therefore, all these appeals

are being decided together. For facility, the facts stated in Appeal

No. 95 of 2016 are being taken into consideration.

2. The WTM in its order found that the appellants who were the

promoters of the target company, Koffee Break Pictures Ltd. (KBPL)

subscribed to warrants in a preferential allotment with a common

objective of acquisition of substantial shares and converted the

warrants into equity shares which resulted in the collective increase

in the shareholding from 12.77 % to 25.20% which was beyond the

threshold of 15%, thus, triggering Regulation 10 of the Securities and

Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 1997 (hereinafter referred to as 'Takeover

Regulations, 1997'). Since no public announcement was made under

Chapter III of the Takeover Regulations, 1997, the WTM after

considering the provision of Regulation 44 of the Takeover

Regulations, 1997 directed the appellants jointly and severally to

make a public announcement to acquire the shares in accordance

with the provisions of the Takeover Regulations, 1997 and alongwith

the consideration amount also pay interest @ 10% p.a. from March

23, 2010 to the date of payment of consideration to the shareholders 5

who were holding shares in the target company on the date of

violation and whose shares are accepted in the open offer after

adjustment of dividend paid, if any.

3. The facts leading to the filing of the appeals are that the target

company was incorporated in 2004 as "My Fellow Fashions Ltd" and

was engaged in Textiles. In 2005, Apurva Shah, one of the

appellants in Appeal No. 92 of 2016 was inducted as a director. The

target company diversified its business and recast its business model

into movie making. In July 2005, the name of the target company

became Koffee Break Pictures Ltd. (KBPL). Apurva Shah,

appellant, acquired control of the Company and described himself as

a promoter without any shareholding.

4. On June 14, 2008, the target company had its Extra Ordinary

General Meeting and a resolution was passed for preferential

allotment of one crore warrants of Rs. 10/- each at a value of Rs. 21/-

to 47 allottees. On December 8, 2008, the shares were split in a ratio

of 1:10. As per disclosures made by the target Company as on June

30, 2009, the promoter group held 28,90,810 shares constituting

4.51% of the share capital. As per disclosure made by the target

company, Metex Marketing Pvt. Ltd. ('Metex' for short), and

appellant in Appeal No. 95 of 2016 was shown as promoters. It is

relevant to mention here that the lock in period for conversion of 6

warrants into equity shares was one year for non-promoters and three

years for promoters.

5. Metex converted 10,00,000 warrants into shares on October 31,

2009 and again on December 12, 2009, 65,00,000 warrants were

converted into shares. Other appellants also converted their warrants

into shares on different dates. Thus, as on December 31, 2009, the

promoter group held 3,27,63,440 shares which constituted 25.20% of

the shares capital which resulted in the triggering of Regulation 10 of

the Takeover Regulations, 1997.

6. In view of the increase in the shareholding of the promoter

group, a show cause notice dated September 26, 2014 was issued to

the promoter group to show cause as to why suitable directions

should not be issued under Section 11 and 11B of the Securities and

Exchange Board of India Act, 1992 and Regulations 44 and 45 of the

Takeover Regulations, 1997 read with Regulations 32 and 35 of the

Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 2011. After considering the

replies, the WTM passed the impugned order.

7. The WTM found that the appellant was named as well as

disclosed as a promoter on the BSE website. In the Extra Ordinary

General Meeting (EOGM) notice dated April 22, 2008, the appellant

was named and disclosed to the shareholders as a promoter. The 7

appellants were promoters at the time of preferential allotment as

well as at the time of conversion of warrants into equity shares. The

WTM also found that the appellant was aware of this fact, namely,

that the appellant was shown as a promoter of the target company.

The WTM also found that the appellant failed to take steps for

rectification of its name being shown as a shareholder. The WTM

consequently, held that the appellant was a "promoter" as defined

under Regulation 2(1)(h), and was an "acquirer" under Regulation

2(1)(b) of the Takeover Regulations, 1997, and shared a common

objective and also had a commonality of interest with other

promoter's group and, thus, were "acting in concert" as per

Regulation 2(1)(e) of the Takeover Regulations, 1997. The WTM

consequently, found that the total shareholding of the promoters

group exceeded 15%, thus, triggering Regulation 10 of the Takeover

Regulations. Since no public announcement was made within the

stipulated period, action was taken under Regulation 44 as stated

aforesaid. Similar findings have been given by the WTM against

other appellants.

8. The WTM categorized the promoter group as under:

1. Metex Marketing Pvt. Ltd. (MMPL) - Comprising of Jayesh

Patel, Siddhartha Jain, Chanchal Jain, Priyanka Jain and

Rashi Jain.

8 2. Shah Group - Comprising of Apurva Shah, Ashni Shah,

Bhavna Shah, Manish Shah, Manish Shah HUF,

Lalitchandra Shah and Sumitra Lalitchandra Shah.

9. The WTM found that the shareholding of Metex as under :

a) Siddhartha Jain - 50%

b) Chanchal Jain - 25%

c) Jayesh Patel - 25%

10. The WTM found that Siddhartha Jain was the brother-in-law

of Apurva Shah, Chanchal Jain was the mother-in-law and Rashi Jain

was wife of Siddhartha Jain and Ashni Jain was wife of Apurva Shah

and was thus, closely connected with the Shah group.

11. The contention of the appellant Metex is, that there has been

an inordinate delay in initiating the proceedings. The delay of six

years is fatal and on this short ground, the impugned order was liable

to be set aside. It was also urged that on account of passage of time,

the direction given by the WTM to purchase shares at Rs. 33.50 per

share has become unworkable and, in any case arbitrary, in as much

as, currently the market rate is Rs. 0.138 per share. In support of his

submissions, the learned counsel has relied upon two decisions of

this Tribunal in the matters of :

1) Shri S. K. Khaitan & Ors. vs. SEBI [2013 SCC OnLine SAT 25] and 9

2) Phiroze Sethna & Ors. vs. Adjudicating Officer, SEBI [2007 SCC OnLine SAT 94]

12. It was also contended that it is not known as to whether the

price of Rs. 33.50 per share fixed by the WTM is for one share of

face value of Rs. 10/- or face value of Re. 1/-. Further, the charging

of interest @ 10% p.a. was wholly arbitrary and excessive in as much

as the price of Rs. 33.50 includes the interest component and

charging interest separately was wholly illegal.

13. It was also contended that Metex was never a promoter of the

target company and that the target company unilaterally and without

taking any consent had included Metex as a promoter of the target

Company. It was further contended, in the alternative, that, in any

case, the appellant was not acting in concert and was not an acquirer

as it had no intention to take control of the target Company, nor at

any moment of time exercised any voting rights.

14. Rashi Jain the appellant in Appeal No. 96 of 2016 is the wife

of Siddhartha Jain and contended that she is not a promoter nor

acting in concert nor participated in any meeting nor exercised any

vote. The appellant adopted the stand taken by Metex.

15. Lalitchandra Shah and Sumitra Lalitchandra Shah, appellants

in Appeal No. 94 of 2016 are the grandparents of Apurva Shah and 10

contended that they are not the promoters nor were acting in concert.

It was contended that the appellants wrote a letter on October 9, 2015

to the company informing them that they were wrongly shown as

promoters of the target Company. It was further contended that since

his grandson Apurva Shah was the Managing Director, the appellant

infused funds in the company by subscribing to the warrants issued

by the target Company.

16. In Appeal No. 93 of 2016, the appellant Chanchal Jain, is the

mother-in-law of Apurva Shah and contended that she is neither a

promoter nor has any common objective with the other promoters.

17. Apurva Shah in Appeal No. 92 of 2016 contended that certain

entities were erroneously shown as promoters of the company till

September 2014 which was rectified in the disclosure shown in

December 2014. The appellant contended that he never acquired any

shares and was a dormant promoter without any common objective

or purpose. The appellant contended that the direction to provide

exit opportunity to the shareholders and to purchase the shares at this

belated stage was wholly unfair, and that, in the given circumstances,

other direction as provided under Regulation 44 could have been

issued.

18. On the other hand, the learned counsel for the respondent

submitted that there is no error in the impugned order and that the 11

appeal is required to be dismissed with costs. The Board of Directors

of the target Company in its resolution dated April 22, 2008 had

resolved that the proposed allottees were specifically being shown as

promoters and that the company had been informed that the proposed

allottees including corporate bodies had expressed their intention to

subscribe to the offer. The resolution indicated the percentage of the

proposed allotment and also indicated that the lock in period for

promoters was three years and for non-promoters, the lock in period

was one year. It was contended that the appellants were 'promoters'

as per the definition in Regulation 2(h) of the Takeover Regulations.

Further, the appellants were also 'acquirer' as per Regulation 2(b)

and were 'persons acting in concert' as per Regulation 2(e)(i) as a

homogenous unit, with a common objective and commonality of

interest.

19. The learned counsel for the respondent further contended that

the target Company / Apurva Shah was specifically called upon to

provide information with regard to increase in the shareholdings of

the promoter group inspite of which no information was supplied. It

was contended that after the issuance of the SCN, some of the

appellants, namely, Lalitchandra Shah, Sumitra Shah, Rashi Jain and

Metex protested with regard to inclusion of their names as promoters.

It was urged that this protest was only an afterthought and, in any

case, the evidence was clear that the appellants were acting in concert 12

with a common object and had grossly violated Regulation 10 of the

Takeover Regulations. It was further contended that as per the

disclosures made by the Target Company in March 2010, June 2010

and September 2010, the appellants were shown as promoters and no

objection was raised by any of the promoters.

20. In support of his submissions the learned counsel place reliance

to the following decisions :-

1) Rajesh Toshniwal vs. SEBI & Ors. decided by SAT on

June 1, 2012 in Appeal No. 139 of 2011,

2) Technip S. A. vs. SMS Holding (P) Ltd. & Ors. [(2005) 5

SCC 465],

3) Naagraj Ganeshmal Jain vs. P. Sri Sai Ram decided by

SAT on August 17, 2001 in Appeal No. 12 of 2001.

21. We have heard Mr. P. N. Modi, Mr. Ankit Lohia,

Mr. Saurabh Bachhawat, Mr. Aditya Mehta, Mr. Nikhil Shah, the

learned counsel for the appellants and Mr. Kumar Desai, learned

counsel for the respondent at some length.

22. On the issue of delay, it was contended that there is no

provision either under the SEBI's Act or under the Takeover

Regulations for providing a period of limitation and contended that

action was taken as soon as the respondent became aware of the 13

violation. In support of his submission, the learned counsel placed

reliance on the following decisions of this Tribunal in :-

1) Vaman Madhav Apte & Ors. vs. SEBI decided on March

4, 2016 in Appeal No. 449 of 2014,

2) Sudarshan Walia & Ors. vs. SEBI decided on October

14, 2016 in Appeal No. 470 of 2015.

23. It is no doubt true that no period of limitation is prescribed in

the SEBI's Act or the Regulations for issuance of a show cause

notice or for completion of the adjudication proceedings. The

Supreme Court in Government of India vs, Citedal Fine

Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held

that in the absence of any period of limitation, the authority is

required to exercise its powers within a reasonable period. What

would be the reasonable period would depend on the facts of each

case and that no hard and fast rule can be laid down in this regard as

the determination of this question would depend on the facts of each

case. This proposition of law has been consistently reiterated by the

Supreme Court in Bhavnagar University v. Palitana Sugar Mill

(2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District

Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint

Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors.

(2015) Vol. 3 SCC 695. The Supreme Court recently in the case of 14 Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC

Online SC 294 held:

"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."

24. This Tribunal has consistently held that in the absence of any

specific provision in the SEBI Act or in the Takeover Regulations,

the fact that there was a delay on the part of SEBI in initiating

proceedings for violation of any provision of the Act cannot be a

ground to quash the penalty imposed for such violation.

25. In the instant case, we find that as on December 31, 2009 the

promoter group held 25.20% of the total shareholding of the target

company and, therefore, triggered Regulation 10 of the Takeover

Regulations. When SEBI came to know about the violation, it issued

a letter dated November 27, 2013 directing the target company and

the appellants to furnish the details of the shareholding of the

promoter's group. A reminder was also sent on March 19, 2014.

The appellants inspite of furnishing the information kept on filing

application after application seeking further time to furnish the

information. Apparently no information was forthcoming, and

consequently, the show cause notice was eventually issued on 15

September 24, 2014. After providing ample opportunity of hearing,

the impugned order was passed on March 9, 2016.

26. Considering the aforesaid, even though no period of limitation

is prescribed, such powers must be exercised within a stipulated

period. In the instant case, the aforesaid sequence of events clearly

indicates that in the given circumstances the respondent exercised its

power within a reasonable period. We find that there is no inordinate

delay either in initiation of the proceedings or in passing the

impugned order after issuance of the show cause notice. The

contention raised by the appellants that there has been an inordinate

delay in the initiation of the proceedings cannot be accepted.

27. The admitted facts as culled out is that the target company

made preferential allotment of one crore warrants of Rs. 10/- face

value with Rs. 11/- premium on June 14, 2008 to 47 allottees

including the appellants except the appellant Apurva Shah. It is also

admitted that all the appellants converted their warrants into equity

shares on several dates between July 2009 to December 2009.

Admittedly, as on June 30, 2009 the total shareholding of the

promoters group was 4.51% of its shareholding which was equivalent

to 28,90,810 shares which rose to 3,27,63,440 shares or 25.20% of

the total shareholding of the target company as on December 31,

2009. The increase in the total shareholding of the promoters group 16

to 25.20% triggered Regulation 10 of the Takeover Regulations as it

exceeded the threshold of 15%.

28. The contention of the appellants that they were not promoters

of the target company and the disclosures made by the target

company either in the EOGM or in the open offer was without their

consent and knowledge cannot be accepted. The contention that the

appellants were wrongly branded as promoters is patently incorrect.

The contention of the appellant Metex that the target company had

made them a promoter group entity unilaterally without their consent

cannot be accepted. The contention that they were not aware of this

fact that they were being treated as a promoter group entity cannot be

believed. The contention that there was no agreement or

understanding between the appellants inter se and, therefore, they

were not persons acting in concert also cannot be believed. The

contention that there was no intention to acquire control on the target

company or there was no commonality of interest or commonality of

objective also cannot be accepted. The contention that the appellant

Metex never attended any general meeting of the target Company or

exercised of any voting rights at any stage is immaterial and has no

relevance to the violation that they had committed. 17

29. In order to appreciate the submissions of the parties, it would

be relevant to consider a few provisions of the Takeover Regulations.

Regulation 2(h) defines 'promoter' as under:-

"2(h). promoter means--

(a) any person who is in control of the target company;

(b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later;

and includes any person belonging to the promoter group as mentioned in.

Explanation I:

Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity.

Explanation I.─ For the purpose of this clause, "promoter group" shall include:

(a) in case promoter is a body corporate--

(i) a subsidiary or holding company of that body corporate;

(ii) any company in which the promoter holds 10 % or more of the equity capital or which holds 10 % or more of the equity capital of the promoter;

(iii) any company in which a group of individuals or companies or combinations thereof who holds 20 % or more of the equity capital in that company also holds 20 % or more of the equity capital of the target company; and

(b) in case the promoter is an individual--

18

(i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse;

(ii) any company in which 10 % or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member;

(iii) any company in which a company specified in (i) above, holds 10 % or more, of the share capital; and

(iv) any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10 per cent of the total.

Explanation II. ─ Financial Institutions, Scheduled Banks, Foreign Institutional Investors (FIIs) and Mutual Funds shall not be deemed to be a promoter or promoter group merely by virtue of their shareholding:

Provided that the Financial Institutions, Scheduled Banks and Foreign Institutional Investors (FIIs) shall be treated as promoters or promoter group for the subsidiaries or companies promoted by them or mutual funds sponsored by them."

30. From the aforesaid provision, it is apparently clear that the

definition of promoter is very wide and, in the instant case, for the

limited purpose, a promoter is a person who is named as promoter in

any offer document of the target company or any shareholding

pattern filed by the target company with the stock exchanges

pursuant to the listing agreement.

19 31. In the instant case, the appellants were shown as promoters in

the open offer by the target company. The appellants were shown as

prospective promoters in the resolution of the target company dated

April 22, 2008 wherein the appellants were specifically shown as a

part of the promoter group. The resolution of the Board of Directors

dated April 22, 2008 clearly indicated that the appellants had

expressed their intention to subscribe to the offer which facts have

not been denied by them. Thus, it is clear that some of the appellants

were proposed allottees of the preferential warrants were shown as a

homogenous group of promoters. Further, the target company had

shown the appellants as promoters while making the disclosures on

the stock exchanges from time to time. Thus, we are of the opinion

that the appellants were part of the promoters group.

32. Regulation 2(b) defines 'an acquirer' as follows :-

"2(b). "acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer."

33. From the aforesaid definition, any person who acquired

shares or voting rights either himself or with any person acting in

concert is an acquirer. In the instant case, admittedly, the appellants

acquired substantial shares in the target company and, therefore, are

the acquirers.

20

34. The question next is whether the acquirer defined under

Regulation 2(b) were acting in concert or not? In this regard,

Regulation 2(e) defines 'person acting in concert' as follows :-

"2(e). "person acting in concert" comprises, -

(1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company.

(2) Without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established :

(i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other;

(ii) a company with any of its directors, or any person entrusted with the management of the funds of the company;

(iii) directors of companies referred to in sub-

clause (i) of clause (2) and their associates;

(iv) mutual fund with sponsor or trustee or asset management company;

(v) foreign institutional investors with sub-

account(s);

(vi) merchant bankers with their client(s) as acquirer;

(vii) portfolio managers with their client(s) as acquirer;

(viii) venture capital funds with sponsors;

(ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer :

21 Provided that sub-clause shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work;

(x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-

up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company.

Note : For the purposes of this clause "associate" means,--

(a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and

(b) family trusts and Hindu undivided families."

35. The aforesaid provision is very wide and, in the nutshell, for

the purpose of this appeal, a person who acquires shares or voting

rights or gains control over the target company pursuant to an

agreement or understanding with a common objective or purpose

would be a person acting in concert. We find that the appellants had

a common objective of acquisition of substantial shares when they

subscribed to warrants in the preferential allotment. It is not denied

that the appellants did not express their intention to subscribe to the 22

offer when preferential warrants were given to them. Such intention

has been specifically recorded in the resolution of the Board of

Directors of the target company dated April 22, 2008. This common

objective of acquisition of substantial shares of the appellants is writ

large. Further, all the warrants were converted into equity shares

after holding them during the lock in period of three years and

beyond. Such action and conduct demonstrate the common objective

as well as commonality of interest. It also indicates that the

appellants, as promoters, were a homogenous unit and that the

appellant Apurva Shah was the kingpin and was responsible for the

conduct of the business and management of the target company.

Thus, we are of the opinion that the appellants having consciously

acquired the warrants and then converted the same into shares. The

appellants had a commonality of objective and commonality of

interest with the promoter group and were thus, persons acting in

concert with regard to the acquisition of shares.

36. From the aforesaid, it is apparently clear that the appellants

were not only promoters but were also acquirers and worked as a

homogenous unit for the ultimate purpose of acquiring substantial

shares in the target company. By such acquisition the total

shareholding of the target company became 25.20%. It exceeded the

threshold of 15%, thus triggering the applicability of Regulations 10

and 14 of the Takeover Regulations. For facility, provision of 23

Regulations 10 and 14 of the Takeover Regulations are extracted

hereunder :-

"10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations."

"14. (1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein:

Provided that in case of disinvestment of a Public Sector Undertaking, the public announcement shall be made by the merchant banker not later than 4 working days of the acquirer executing the Share Purchase Agreement or Shareholders Agreement with the Central Government or the State Government as the case may be, for the acquisition of shares or voting rights exceeding the percentage of shareholding referred to in regulation 10 or regulation 11 or the transfer of control over a target Public Sector Undertaking.

(2) In the case of an acquirer acquiring securities, including Global Depository Receipts or American Depository Receipts which, when taken together with the voting rights, if any already held by him or persons acting in concert with him, would entitle him to voting rights, exceeding the percentage specified in regulation 10 or regulation 11, the public announcement referred to in sub-regulation (1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be.

24 Provided that in case of American Depository Receipts or Global Depository Receipts entitling the holder thereof to exercise voting rights in excess of percentage specified in regulation 10 or regulation 11, on the shares underlying such depository receipts, public announcement shall be made within four working days of acquisition of such depository receipts.

(3) The public announcement referred to in regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer.

(4) In case of indirect acquisition or change in control, a public announcement shall be made by the acquirer within three months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company in India."

37. From the aforesaid provisions an acquirer who acquires more

than 15% of the shares or the voting rights of the target company will

be required to make a public announcement in accordance with

Regulation 14. In the instant case, apparently, it was not done and,

therefore, the consequence of violation of Regulations 10 and 14 was

imposed by the impugned order.

38. It was contended by the appellants that they had not given their

consent for being made promoters and that the target company had

unilaterally placed them in the promoters group without their

consent. It was contended that when they had protested and directed 25

the target company by the letter dated October 9, 2015 to rectify the

error and delete their names as promoters. Such contention cannot be

accepted. In the first instance, we find that the appellants had

themselves expressed their desire to be preferential allottees to the

warrants which was indicated in the resolution of the Board of

Directors. Subsequent disclosures were made by the target company

on the platform of the exchange from time to time showing the

appellants as a homogenous unit as a promoter group. Further, we

find that no steps were taken by the appellants at any stage prior to

the issuance of the show cause notice dated September 26, 2014 and

much later filed a letter dated August 17, 2015. Such letter, in our

opinion, is clearly an afterthought and cannot be given any

cognizance. The fact that the appellants gave their consent to acquire

the warrants on a preferential basis was based on a common

objective or purpose to acquire substantial shares or voting rights.

This alone, makes the appellants as persons acting in concert and,

thus, comes under the umbrella of promoters. The fact that they

continued to hold the warrants during the lock in period demonstrates

the common objective to acquire substantial shares in the target

company. The element of co-operation between the appellants were

implicit by their actions and conduct. Apurva Shah was the

Managing Director and was the brain behind the issuance of the

convertible preferential warrants. All the appellants were admittedly 26

close relatives or were connected entities. Apurva Shah had actively

co-operated in the acquisition for the other appellants and thus,

shared a commonality of objective and commonality of interest and

were thus, persons acting in concert. It is a matter of common

knowledge that a preferential allotment is made to the person /

entities on a one to one basis who are acquainted with the Company

and/or its promoters/directors. Thus, the preferential allotment

envisage a common objective of acquiring shares. In any case, even

if the contention is accepted for a moment that the appellants are not

part of the promoter group, nonetheless, the appellants are acquirers.

Such acquisition of shares exceeded 15% which triggered the

mechanism of the Regulations 10 and 14 which apparently had not

been complied with. Thus, there was a clear breach of Regulations

10 and 14 of the Takeover Regulations.

39. For the breach committed by the appellants, the WTM has

considered the provision of Regulation 44. In the circumstances of

the case, the WTM after considering the breach of Regulations 10

and 14 found that there was no reason to deviate from the normal

rule of directing the appellants to make the public announcement to

acquire shares of the target company in accordance with the

provisions of the Takeover Regulations which was with a view to

provide a delayed exit opportunity to the shareholders of the target

company. In our opinion, such direction is in accordance with 27

Regulation 44(f) and (i). For facility the said provisions are extracted

hereunder :-

"44(f). 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;

(g) ........

(h) ........

(i) 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."

Thus, the direction of the WTM to make a public

announcement does not suffer from any error of law.

40. The WTM has directed the appellants to make an open offer

at a price of Rs. 33.50 per share, which has been calculated in terms

of Regulation 20 of the Takeover Regulations, alongwith interest.

We are unable to agree with the calculation or the rate fixed by the

WTM, namely, Rs. 33.50 per share. In the first instance, we find that

the WTM has fixed Rs. 33.50 per share on the basis of

approximation. This price has been calculated in terms of Regulation

20. How and in what manner the calculation of Rs. 33.50 has been 28

arrived at is not known. Admittedly, at the time of allotment of the

warrants, the price per warrant was Rs. 21/-. Does the price of Rs.

33.50 per share includes the interest component is not known. If

interest has been added in the fixation of the price per share in which

case further directions for payment of interest under Regulation 44(i)

would become unwarranted.

41. We also find that the price of one warrant was Rs. 21/- on a

face value of Rs. 10 per warrant. Subsequently, after conversion of

the shares, the shares were split in the ratio of 1:10 i. e. to say one

share of Rs. 10 became 10 shares of Re. 1/- each. The impugned

order does not indicate as to whether the rate fixed, namely,

Rs. 33.50 per share is for 10 rupees share or for one rupee share. In

the light of the aforesaid, the fixation of price of Rs. 33.50 per share

cannot be sustained.

42. We, accordingly, affirm the order of the WTM except that

part which relates to the fixation of the price of Rs. 33.50 per share

and to that limited extent, we remit the matter to SEBI to appoint a

merchant banker who will fix the price per share keeping in mind

that the face value per share is Re. 1/-. The determination of the

price per share will be approved by SEBI and thereafter SEBI will

give such directions to the merchant banker and/or the appellants for

compliance for making public announcement within a stipulated 29

period in order to provide a delayed exit opportunity to the

shareholders of the target company.

43. If the price fixed by the merchant banker does not include the

component of interest, in that case, SEBI will also pass orders for

payment of interest under Regulation 44(i) of the Takeover

Regulations. Such exercise shall be carried out by SEBI within three

months from today.

44. In the light of the aforesaid, the appeals are partly allowed.

Parties shall bear their own costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

04.06.2019 Prepared & Compared by PTM