Order in respect of Thacker and Co. Ltd. in the matter of Thacker and Co. Ltd.

Under Section 11B of the Securities and Exchange Board of India Act, 1992.

Sr. no. Name of the Noticee PAN 1. Thacker and Co. Ltd. AAACT3200A

1. Present proceedings have emanated from a show cause notice dated May 31, 2016 (hereinafter referred to as “SCN”) issued by Securities and Exchange Board of India (hereinafter referred to as “SEBI”) to Thacker and Co. Ltd. (hereinafter referred to as “the Noticee”/“TCL”/“the Company”) under Section 11B of the SEBI Act, 1992 (hereinafter referred to as “SEBI Act)” for the alleged violation of Rule 19(2)(b) and 19A of Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as “SCRR”).

2. The said SCN came to be issued in the wake of investigation conducted by SEBI in the scrip of the Company. The findings of the investigation, as stated in the SCN and allegations made in the SCN are narrated in brief, as hereunder:

(i) The SCN states that as on March 31, 2013, the shareholding of promoters in TCL was 89.01%.

(ii) In order to comply with Rule 19(2)(b) and 19A of SCRR, which prescribes minimum public shareholding (hereinafter referred to as “MPS”) of 25%, TCL came out with an offer for sale through stock exchange mechanism (hereinafter referred to as “OFS”) on June 24, 2013.

(iii) The floor price of the OFS was not disclosed, but instead was submitted to the Designated Stock Exchange (in this case, the Bombay Stock Exchange) in a sealed envelope which was to be opened post closure of the offer. As per the disclosure on BSE dated June 24, 2013, it was seen that the floor price was Rs 1050 per share and clearing price was Rs. 1125 per share.

(iv) SCN states that the following three promoters of TCL offered their shares in the OFS, the details of which are as under:

S. No. Name of the seller promoter Number and percentage of shares offered for sale 1. Pudumjee Investment & Finance Co. ltd. 2840 (3.61%) 2. Shyam M Jatia Jt. Vandana Jatia 2733 (3.74%) 3. Suma Commercial Pvt. Ltd. 5464 (6.93%) Total 11037 (14.01%)

(v) Pursuant to the OFS, a total of 8 entities were allotted shares. The details of allotment made to 8 entities are as follows:

S. Client Name Order Order Alloted Alloted % of Total No. Quantity Price Quantity Price share Consideration (in Rs.) capital 1. Rena issance 1250 1200 1250 1200 1.59% 15.00 Paints Pvt. Ltd. 2. Statu s Impex 2400 1200 2400 1200 3.05% 28.80 Pvt. Ltd. 3. Kisho re Uttam 850 1200 850 1200 1.08% 10.20 Naik

4. Aade shwar 50 1151 50 1151 0.06% 0.58 Estates Pvt.Ltd. 5. Deva shish 2500 1150 2500 1150 3.17% 28.75 Exports Pvt. Ltd. 6. Om Hari 1300 1125 978 1125 1.24% 11.00 Mahabir Halan HUF 7. Sarw ankumar 2200 1125 1655 1125 2.10% 18.62 Devidutt Saraf 8. Suna ina 1800 1125 1354 1125 1.72% 15.23 Nareshkumar Saraf (vi) SCN alleges that the out of 8 OFS allottees, as mentioned above, 5 OFS allottees were related to each other by means of same/similar address, certain financial transactions, off market transfer of shares, common directors and common trading members.

(vii) SCN alleges that Sarwankumar Saraf and Sunanina Saraf are connected to the promoters who were sellers in OFS and other promoter entities, of TCL. SCN also alleges that Status Impex Ltd., Devashish Exports Pvt. Ltd. Om Hari Mahabir Halan HUF are connected to each other and to the promoter entities of TCL.

(viii) The details of connection between Ms. Sunaina Nareshkumar Saraf, Mr. Sarwankumar Devidutt Saraf, Om Hari Halan HUF and the promoters of TCL has been explained in the SCN through the following diagram:

(ix) The SCN states that, Mr. Nareshkumar Kisanlal Saraf, who is the husband of Ms. Sunaina Saraf, is the son of Mr. Kisanlal Saraf, who is also the brother of Mr. Sarwankumar Saraf. Mr. Kisanlal Saraf is/was a director in a promoter entity of TCL i.e. Suma Commercial Private Limited. Suma Commercial Private Ltd. was one of the seller in OFS of TCL. Chem-Mach Private Limited, another promoter of TCL is a closely held company having only 2 shareholders and Mr. Kisanlal Saraf is one of the shareholders. The SCN also alleges that Mr. Sarwankumar Saraf had off-market transfers and financial transactions with Halan Properties Limited. Halan Properties Ltd. and Cheerful Commercial Private Limited (another promoter of TCL) have a common director, Mr. Ajay Halan, brother of Mr. Om Hari Halan, who is the karta of Om Hari Halan HUF which is an OFS allottee. The SCN also states that Mr. Naresh Saraf is directly connected with Arun Jatia, promoter / Chairman of TCL, on social networking website www.facebook.com.

Based on the above, the SCN has alleged that the two OFS allottes Ms. Sunaina Saraf and Mr. Sarwankumar Saraf are connected to Sellers in the OFS and other promoter entities of TCL.

(x) The alleged relationship among three other OFS allottees, viz., Status Impex Pvt. Ltd., Devashish Exports Pvt. Ltd. and Om Hari Mahabir Halan HUF has been depicted in the SCN in a diagram which is reproduced below:

(xi) The SCN alleges that, the funds used by Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. for bidding in the OFS were borrowed from the same source i.e. from Ramganjmandi Investments Limited, an erstwhile subsidiary of Associated Stone Industries (Kotah) Ltd. of which Mr. Deepak Jatia, Mr. Tushya Jatia and Ms. Anita Jatia are promoters amongst others. According to the SCN, Status Impex Pvt.Ltd. and Devashish Exports Pvt. Ltd. had received Rs. 28.80 lacs in HDFC Bank A/c No. 05428140000117 and Rs. 28.75 lacs in HDFC Bank A/c No. 05428140000075, respectively, from Ramganjmandi Investments Limited's HDFC Bank A/c No. 05428470000078, on June 21, 2013 and subsequently, payments were made to the member Shreepati Holdings & Finance Pvt. Ltd. on the same day for bidding in the OFS of TCL. The SCN alleges that Rs. 86.15 lacs was initially transferred from Associated Stone Industries (Kotah) Ltd.'s HDFC Bank A/c No. 00608470000014 to Ramganjmandi Investments Limited's HDFC Bank A/c No. 05428470000078 on June 21, 2013 which was subsequently, transferred to Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. The SCN further states that Associated Stone Industries (Kotah) Ltd. is promoted by Mr. Deepak Jatia, Mr. Tusya Jatia and Ms. Anita Jatia among others and that Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. are two of the promoters of Associated Stone Industries (Kotah) Ltd. The SCN also notes that the upfront margin money deposited by Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. for the OFS on June 21, 2013 exactly matched the allotment amount consequent to bid quantity and bid price in the OFS of TCL on June 24, 2013. The SCN also states that the shares of Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. are mainly held (directly and indirectly) by entities namely Mr. Deepak Jatia, Mr. Tushya Jatia, Ms. Anita Jatia and Mr. Halan M. Om Hari who is also the Karta of Om Hari Mahabir Halan HUF and one of the directors of Devashish Exports Pvt. Ltd.

(xii) The SCN alleges that Mr. Ajay Halan, director of Cheerful Commercial Pvt. Ltd., promoter entity of TCL, was also a director of Deejay Mining and Exports Pvt. Ltd., who is majority shareholder in Devashish Exports Pvt. Ltd. The SCN also states that Mr. Deepak Jatia and Mr. Arun Jatia (Promoter & Chairman of TCL) are found to be friends on social networking website www.facebook.com. The SCN states that the funds used by Om Hari Mahabir Halan HUF for bidding in the OFS have flown from Insco Steels Limited. According to the SCN, Insco Steels Ltd transferred Rs. 87.82 lacs on June 21, 2013 from Allahabad Bank A/c No. 50043598542 to Vertex Trade & Properties Developers Pvt. Ltd.’s (Vertex) Union Bank A/c No. 378901010036879. On the same day, Vertex transferred Rs. 30 lakhs and Rs. 40 lakhs to Shree Global Tradefin Ltd.’s (SGTL) Union bank A/c No. 378901010036053. Consequently, SGTL transferred Rs. 30 lakhs to Steel Master’s (a firm whose proprietor is Mr. Om Hari Halan) Union bank A/c No 378901010036701 and Steel Master further transferred this Rs. 30 lacs on June 21, 2013 to Halan Finance’s Union bank A/c No. 378901010036542, which was used to pay margin money to Shreepati Holdings and Finance Pvt. Ltd. for bidding in the OFS of TCL. Insco Steels Limited has a common director (Mr. Vinod Jatia) with Cheerful Commercial Pvt. Ltd. and Chem Mach Private Limited (promoter entities of TCL). The amount Rs. 25 Lacs, which Halan Finance received in its PNB Bank A/c No. 0062002100151343 on June 24, 2013 was found to be from Shree Ranisati Enterprises Limited (Proprietary firm of Toony Nemnath Jatia). The same was also verified from Punjab National Bank vide email dated July 23, 2015. Moreover, the SCN also points out that Mr. Ajay Halan, brother of Mr. Om Hari Halan, is/was also a director in promoter entity of TCL, Cheerful Commercial Private Limited. Mr. Ajay Halan and Om Hari Halan are/were neighbors and are/were directors of Halan Properties Ltd. Based on the above, the SCN alleges that Status Impex Pvt. Ltd., Devashish Exports Pvt. Ltd and Om Hari Mahabir Halan HUF are connected to each other and to the promoter entities of TCL.

(xiii) SCN also alleges that as per then applicable guidelines for OFS, the bidders were required to pay 100% margin upfront in cash. It was observed that the margin money was deposited well in advance by all the five connected allotted/related allottees was either same or higher than the allotment even though for most of them the initial bids itself were at very low price. Further, in case of two out of these five allottees the margin deposited on June 21, 2013 (from same source for both of them) for bidding on June 24, 2013 was exactly same at which allotment was determined which seems highly unlikely but also strengthens the suspicion that the dilution by way of OFS was structured and allottees had prior knowledge/understanding of the structuring of OFS.

(xiv) SCN alleges that OFS by TCL was conducted in a manner which resulted in the allotment of 11.28% of the share capital of TCL (out of a total of 14.01% offered for sale by the 3 promoters) to 5 entities which were connected to the promoters.

(xv) The SCN also alleges that the floor price for the sale of shares of OFS was apparently set unusually relatively high so as to prevent the general public from getting any allotment. In this regard the SCN states that OFS floor price of Rs. 1050/- per share was highest amongst the following:

• The last traded price of TCL - Rs. 195.10 (on October 09, 2009) • The price indicated as determined for disclosure under Regulation 8(2) (e) of SEBI (Substantial Acquisition of Shares and Takeovers ) Regulations, 2011 (hereinafter referred to as “SAST Regulations, 2011”) involving promoters/ directors as per disclosure dated September 24, 2013 - Rs. 334/-, • The trade price as per the SAST/PIT disclosures by promoters during October 2013 - Rs. 204.85.

(xvi) Based on the above, the SCN alleges that the floor price of OFS was relatively high. The SCN alleges that the price determined by the promoter entities for certain acquisition of shares of TCL in terms of Regulation 8(2)(e)of SAST Regulations, 2011 in September 2013 involved price determination taking into account valuation parameters including book value, comparable trading multiples and such other parameters as are customary for valuation of shares and for this transaction the price was determined to be Rs. 334. Therefore, the SCN alleges that the determination of price at Rs. 1050 based on ‘book value as submitted by the Noticee for the OFS June 2013 is unusually high.

(xvii) SCN alleged that in the OFS carried out by the Noticee on June 24, 2013, in order to make itself compliant with MPS, the floor price for sale of the shares was apparently set unusually relatively high so as to prevent general public from getting any allotment and that five out of eight allottees were found to be related to each other and to the promoters and that the OFS was maneuvered to make an appearance that there was compliance of requirement of MPS while in fact the shares were allotted to the entities related to the promoters. Therefore, SCN alleged that the above said five allottes are part of promoter group and does not fall within the category of public shareholding.

(xviii) Therefore, the SCN alleged that in effect the promoter shareholding of the company was not reduced which is in violation of Rules 19(2) (b) and 19A of SCRR.

Hearing, reply and written submissions

3. The Noticee submitted a reply dated June 09, 2017 to the SCN. The Noticee was granted hearings on October 5, 2017, May 8, 2018 and October 23, 2018 which were adjourned due to reallocation of cases and operational exigencies respectively. Subsequently the Noticee was granted another hearing dated July 03, 2019. The Noticee sought adjournment of the same. A final date of hearing was granted to the Noticee before me on January 08, 2020. On the said date Advocates representing the Noticee were heard when advocates for the Noticee also tendered a brief note on submissions and hearing was concluded in the matter.

4. In its reply dated June 09, 2017 and brief note on submissions, the Noticee has submitted as follows:

a. The Noticee denied the allegation in the SCN.

b. TCL is one of the oldest listed companies In India. TCL has always been a small company with a low capital base and its public shareholding has been sparsely spread among merely 90- 100 shareholders (pre OFS)

about 125- 200 shareholders after OFS. The shares of TCL were held mostly by legal heirs/ successors to earlier generations of shareholders. Further all company shares where in physical format until March 31, 2013 which would also have deterred market trades as a result the shares have always been infrequently traded.

c. There may have been latent demand for the shares of TCL. However the same being an infrequently traded skip there was no market for the same. The intrinsic value of the shares of TCL increased substantially in the subsequent years, a fact which is not reflected in the market price of the scrip since it was not a frequently traded one. The same can be evidence by observing the book value per share of TCL for 10 years prior to the OFS. Although the scrip of TCL did not witness much trading on the exchange, being a very old company, it may have interested latent buyers over the years. The factors set out above were not considered or appreciated in the SCN where it is mentioned that the reason for illiquidity was the absence of sellers as prospective buyers were always present in the market.

d. TCL's first corporate action in decades was the OFS in June 2013 followed by the split of its shares in the ratio of 1:2 on January 13, 2014 and in the ratio of 1:5 on June 25, 2014.The lack of trade in the scrip during the period from January 2009 to October 2013 was therefore in tandem with the dormancy of TCL scrip.

e. The widely publicized regulatory initiatives during the period from 2010 to 2013 urging dilution of promoter stake in listed companies ignited interest of the public in illiquid scrips such as TCL. SEBI had vide SEBI/Cir/ISD/2010 dated September 2, 2010 issued directions for ‘trading rules and shareholding in dematerialized mode’ that inter alia mandated that securities of company were to be traded in the normal segment if and only if the company had achieved at least 50% non-promoters’ shareholding in demat form and maintained the same on a continuous basis. SEBI further vide circular dated June 17, 2011 decided that the securities of ta company shall be traded in the normal segment of the exchange only if the company achieved 100% of the promoters and promoters group shareholding in demat form by the quarter ended September 2011, later extended to December 2011. With TCL’s old listing records being untraceable a capital confirmation letter was sought from BSE on October 9, 2012. Eventually after completion of necessary formalities an OFS was made by three of its promoters of June 24, 2013. The dematerialization of long stagnant shareholdings, the interest caused by the OFS, the increased liquidity of the scrip with the stock split altogether resulted in temporary phase of active price movement for some months after the OFS. It is indeed possible that the fact that an OFS was necessitate was also instrumental in the scrip of TCL witnessing some demand.

f. Assuming whilst denying that the OFS allottees were connected/ related to the promoters of TCL such alleged connection do not disqualify them from participating in the OFS. There is no violation or irregularity in such participation by the OFS allottees.

g. The alleged relationship with the OFS allottees do not qualify them as promoter group entities of TCL. It is submitted that the term ‘promoter group’ is defined by law and the alleged connections in the present case do not qualify the OFS allottes as promoter group of TCL. Therefore, the requirement of the OFS is indeed met as the issuances is to non promoter entities.

h. There was no reason for the promoters of TCL to have gone through the alleged scheme for allotting the shares to entities/ persons connected to them since as a listed company the shares of TCL would lie with public shareholders. There is no benefit or illegal gain that the promoters of TCL would procure on account of such an issuance to allegedly connected entities.

i. There is no money flow from any of the promoters or personnel of TCL to or from any of the OFS allottees.

j. The scrip of TCL was in the periodical auction session from April 8 through January 13, 2014. The scrip movement was monitored by the circuit filters imposed by the BSE during the same. Even when it was out of the periodic call option session the TCL script being an illiquid script was subject to circuit filters imposed by BSE on such scrips. This did not permit the scrip price to move beyond a certain extent.

k. Whilst the script of TCL remain infrequently traded the market value thereof did not clearly indicate the intrinsic value of the scip. The book value per share for the 10 years from FY 2003-04 to FY 2012-13 can be evidenced by looking at the certificate of an independent chartered accountant. The price at which the OFS was undertaking was therefore indeed compatible to the book value of the shares of TCL over the years.

l. The promoters of TCL therefore conducted OFS in June 2013 as per extant rules governing the procedure and at a price which they believed to be in proximity to the true book value of the shares of TCL.

m. With respect to the allegation of connection of the Noticee with the OFS allottees:

- Mr. Kishanlal Saraf was not involved with nor did he have any knowledge of the business Chem Mach Pvt. Ltd., Suma Commercial Pvt. Ltd. or TCL as he was only a nominee of Mr. M.P. Jatia. - Both Chem Mach Pvt. Ltd. and Suma Commercial Pvt. Ltd. were exclusively owned by Mr. M.P Jatia. After his demise the family elders told his sons, Mr. Shyam Jatia and Mr. Arun Jatia to maintain status quo until resolution of their ongoing dispute and hence Mr. Kishanlal Saraf continued as director of Suma Commerial Pvt. Ltd. and shareholder of Chem Mach Pvt. Ltd. The records of ROC shows that Mr. Kishanlal Saraf resigned as director of Suma Commercial Pvt. Ltd., immediately after the dispute was resolved, i.e. on October 28, 2013. - Mr. Ajay Halan, though a director was not a stakeholder in Cheerful Commercial Private Limited. - Mr. Arun Jatia’s Facebook friendship is not with Mr Naresh Kishanlal Saraf of the address mentioned in the SCN. - Mr Deepak Jatia is socially known to Mr. Arun Jatia and they are not aware of or Privy to the personal and business dealing of each other. - Mr Vinod Jatia became director of Chem Mach Pvt. Ltd. only on August 26 2013, that is after the OFS. Mr Vinod Jatia became director of Cheerful Commercial only on August 22, 2013 that is after OFS.

- TCL has no Association with Mr. Toony Nemnath Jatia and Shree Ranisati Enterprises Ltd. - Connection alleged in the SCN between Status Impex Ltd., Devashish Exports Pvt. Ltd., and Om Hari Halan HUF with the promoters of TCL is belied.

n. With reference to SAST disclosures of Rs. 334 per equity share of TCL, it is submitted that the same was as per the regulation 8(2)(e) of SAST Regulations, 2011. The inter se transfer however was at the price of Rs 204.85 which was as per SEBI guidelines for infrequently traded shares. The circuit limit which was applicable on October 1, 2013 when the inter se transaction took place was Rs.204.85/Rs.185.35. Hence, the inter se transaction could not have taken place at a higher price than Rs. 204.85. With reference to the floor by price of the OFS, considered book value was one of the many parameters for determining the intrinsic value of TCL shares. Both the OFS and inter se transfer was done on the platform of BSE and the two prices cannot be compared.

o. The OFS was genuine and bonafide and none of the allottees are connected to TCL. Assuming whilst denying that there was indeed such a connection between the promoters of TCL and the OFS allottees, there is a legal definition available of what criteria ought to be applied for an entity to become part of the promoter group of TCL under regulation 2(zb) of the SEBI (Issue of Capital and Disclosure requirements) Regulations, 2009 and none of the above criteria are applicable in the case of OFS allottees based on the allegation with SCN. It is submitted that inclusion of entities in part of the ‘promotor group’ entail huge legal and regulatory obligations and such applications cannot be applied on the basis of such distant and apparently unconnected basis as set out in the SCN. In any event there was nothing to demonstrate that there was any fund flow between TCL and any of the OFS allottees.

p. In such an event, it is apparent that the OFS was compliant with the requirement of SCRR of meeting minimum public shareholding in TCL since the allottees were public shareholders and not part of promoter group of TCL.

Consideration of submissions and findings

5. I have considered the allegations in the SCN, the submissions of the Noticee in the reply and brief note on submissions and material available on record. Before dealing with the submissions of the Noticee, it will be relevant to refer to the provisions of law alleged in the SCN to have been violated by the Noticee. The same is as follows:

Extract of the relevant provisions of SCRR:

“(d) “public” means persons other than – (i) the promoter and promoter group; (ii) subsidiaries and associates of the company. Explanation: For the purpose of this clause the words “promoter” and “promoter group” shall have the same meaning as assigned to them under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

(e) “public shareholding” means equity shares of the company held by public and shall exclude shares which are held by custodian against depository receipts issued overseas.

19. Requirements with respect to the listing of securities on a recognized stock exchange. (1) …. (2) Apart from complying with such other terms and conditions as may be laid down by a recognized stock exchange, an applicant company shall satisfy the stock exchange that : …. (b)(i) At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or (ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees: Provided that the requirement of post issue capital being more than four thousand crore rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 as existed prior to the date of such commencement : Provided further that the company, referred to in sub-clause (ii), shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India. ………………………….. Continuous Listing Requirement. “19A. (1) Every listed company other than public sector company shall maintain public shareholding of at least twenty five per cent.:

Provided that any listed company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2014, shall increase its public shareholding to at least twenty five per cent, within a period of four years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India. (2) Where the public shareholding in a listed company falls below twenty five per cent. at any time, such company shall bring the public shareholding to twenty five per cent. within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India. (3) Notwithstanding anything contained in this rule, every listed public sector company shall maintain public shareholding of at least ten per cent :"

6. The allegation levelled in the SCN is that the OFS undertaken by TCL on June 24, 2013 to comply with the provisions of Rules 19(2)(b) and 19A of SCRR was maneuvered to make an appearance that there was compliance of requirement of MPS while in fact shares were allotted to the entities related to the promoters. As per SCN five out eight OFS allottees were related to the promoters of TCL. These five alleged related allottees are: (i) Sunaina Nareshkumar Saraf; (ii) Sarwankumar Devidutt Saraf; (iii) Status Impex Pvt. Ltd.; (iv) Devashish Exports Pvt. Ltd.; and (v) Om Hari Mahabir Halan, HUF.

7. The Noticee, in reply to the said allegation has refuted the basis of connection between the promoters of TCL and the OFS allottees and has also stated that even if such a connection did exist these allottees could not be considered to be part of the ‘promoter group’ of TCL as defined in Regulation 2(1) (zb) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as “ICDR Regulations”), as alleged in the SCN, and therefore, the MPS norms had been complied with. I note that the during the personal hearing also the authorized representative laid great emphasis on the contention that even if the connections alleged in the SCN between the five allottees and promoters of TCL are taken as true, the same does not result into making them part of the “promoter” of “promoter group” of TCL, as alleged in the SCN. Before dealing with other contention of TCL regarding connections/relations, as alleged in the SCN between five allottees and promoters of TCL, I would deal with the said contention. The said understanding of TCL of the allegation in the SCN seems to have emanated from the last line of the para 20 of the SCN which states “Therefore, it is alleged the above said five allottes are part of promoter group and does not fall within the category of public shareholding.” I have perused the SCN and I find that if SCN is read as a whole the case against the TCL is that it did not comply with MPS requirement even after OFS by its three seller promoters as the five allottees were related/connected to the promoters and therefore, 11.28% shares of TCL allotted to these entities can not be termed as these shares are held by public so as to make TCL compliant with MPS requirement.

The last line of para 20 must be read in the context of all the allegations made in the SCN. When so read, it becomes clear that SCN is not alleging that these five allottees were part of promoter group. This meaning of SCN is further supported by the fact that SCN nowhere refers to any provisions of law according to which such five allottees can be termed as “promoter” or part of “promoter group”. Had it been intended in the SCN to term the said five allottees as “promoter” or part of “promoter group” then SCN would have referred to the definition of “promoter” and “promoter group” as laid down under Regulation 2(1)(za) and 2(1)(zb) of the ICDR Regulations, alongwith specific reference to the respective sub-clauses of such definitions by virtue of which said five allottees could be termed as “promoter” or part of “promoter group”. Absence of reference to such critical definitions in the SCN, shows that SCN never made the charge as is understood by TCL. The last line of para 20, can be read only to mean that because of connection/relation of these five allottees with the promoters of TCL, shareholding of these five allottees can not be considered as public shareholding.

Therefore, the contention of TCL in this regard is misplaced and untenable.

8. In response to the allegation of connection/relation of the said five allottees with the promoters of TCL, it has been contended that Mr. Kisanlal Saraf, was not involved with nor did he have any knowledge of the business of Chem Mach Pvt. Ltd., Suma Commercial Pvt. Ltd. or TCL as he was only a nominee of Mr. M. P. Jatia who was the original exclusive owner of both these companies. TCL has contended that after the demise of Mr. M.P Jatia the family elders told his sons, Mr. Shyam Jatia and Mr. Arun Jatia to maintain status quo until resolution of their ongoing dispute and hence, Mr. Kishanlal Saraf continued as director of Suma Commerial Pvt. Ltd. and shareholder of Chem Mach Pvt. Ltd. It has been further contended that the records of ROC show that Mr. Kishanlal Saraf resigned as director of Suma Commercial Pvt. Ltd. immediately after the dispute was resolved, i.e. on October 28, 2013. Moroever, the Noticee has submitted that Mr. Arun Jatia is friends on www.facebook.com with some other Naresh Saraf, not the one alleged in the SCN.

9. In this regard, I note that SCN alleges that Ms. Sunaina Saraf and Mr. Sarwankumar Saraf (the two connected OFS allottees) are connected to the two promoters of TCL i.e. Chem Mach Pvt. Ltd. and Suma Commercial Pvt. Ltd. through Mr. Kisanlal Saraf who was a 50% shareholder of Chem Mach Pvt. Ltd. and a director of Suma Commercial Pvt. Ltd. Mr. Kisanlal Saraf is the father-in-law of Ms. Sunaina Saraf and brother of Mr. Sarwankumar Saraf. The connection of Kishanlal Saraf with the said two OFS allottees or with two promoters of TCL is not denied by TCL. TCL has only contended that Kishanlal Saraf was only a nominee director of Mr. M. P. Jatia who died on May 25, 2012, and that he was not involved or having knowledge of the business of Chem Mach Pvt. Ltd., Suma Commercial Pvt. Ltd. or TCL. I note that when TCL has not denied that Mr. Kisanlal Saraf was a 50% shareholder of Chem Mach Pvt. Ltd. (one promoter entity of TCL) and a director of Suma Commercial Pvt. Ltd. (another promoter entity of TCL), and that he was related to two of the OFS allottees, i.e. father-in-law of Ms. Sunaina Saraf and brother of Mr. Sarwankumar Saraf then the contention that he was not involved or having knowledge of the business of Chem Mach Pvt. Ltd., Suma Commercial Pvt. Ltd. or TCL. is of no consequence on the allegation. Therefore, allegation in SCN that Ms. Sunaina Saraf and Mr. Sarwankumar Saraf are connected to the promoters of TCL is sustainable and allotment of shares in OFS to these two allottees can not be termed as allotment to ‘public’.

10. I note that paragraph 14 of the SCN, alleges relationship amongst Status Impex Pvt. Ltd., Devashish Exports Pvt. Ltd., Om Hari Mahabir Halan, HUF and promoters of TCL, on the basis of fund transfers, shareholdings, common address, common directorship, friendship on social networking websites, etc. In reply to said allegations, TCL has submitted that it can not comment on the funds used by OFS allottees nor can it provide any verification or affirmation on the flow chart given in the SCN depicting the connections between the these three OFS allottees and the promoters of TCL. TCL has further submitted that assuming whilst denying that there were connections between some of the promoter entities of TCL and some OFS allottees, the same does not lead to a conclusion of these entities being part of the promoter group of TCL in relation to the OFS. TCL has further submitted that in any case no funds have flown from TCL to any of the OFS allottees. In this regard, I note that as discussed above, the charge in the SCN is not that the OFS allottees are part of the promoter group of TCL. The charge in the SCN is that five out of eight allottees in the OFS were connected related to the promoters of TCL and therefore, the shareholding of these allottees can not be termed as public shareholding and accordingly, TCL did not comply with MPS requirement as laid down under Rule 19(2)(b) and 19A of SCRR.

11. Regarding such connections, SCN alleges that funds used by Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. for bidding in the OFS were borrowed from the same source i.e. from Ramganjmandi Investments Limited, an erstwhile subsidiary of Associated Stone Industries (Kotah) Ltd. of which Mr. Deepak Jatia, Mr. Tushya Jatia and Ms. Anita Jatia are promoters amongst others. According to the SCN, Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. had received Rs. 28.80 lacs in HDFC Bank A/c No. 05428140000117 and Rs. 28.75 lacs in HDFC Bank A/c No. 05428140000075, respectively, from Ramganjmandi Investments Limited's HDFC Bank A/c No. 05428470000078, on June 21, 2013 and subsequently, payments were made to the member Shreepati Holdings & Finance Pvt. Ltd. on the same day for bidding in the OFS of TCL. The SCN alleges that Rs. 86.15 lacs was initially transferred from Associated Stone Industries (Kotah) Ltd.'s HDFC Bank A/c No. 00608470000014 to Ramganjmandi Investments Limited's HDFC Bank A/c No. 05428470000078 on June 21, 2013 which was subsequently transferred to Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. The SCN further states that Associated Stone Industries (Kotah) Ltd. is promoted by Mr. Deepak Jatia, Mr. Tusya Jatia and Ms. Anita Jatia among others and that Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. are two of the promoters of Associated Stone Industries (Kotah) Ltd. The SCN also states that the shares of Status Impex Pvt. Ltd. and Devashish Exports Pvt. are mainly held (directly and indirectly) by entities namely Mr. Deepak Jatia, Mr. Tushya Jatia, Ms. Anita Jatia and Mr. Halan M. Om Hari who is also the Karta of Om Hari Mahabir Halan, HUF and one of the directors of Devashish Exports Pvt. Ltd. The SCN alleges that Mr. Ajay Halan, director of Cheerful Commercial Pvt. Ltd., promoter entity of TCL, was also a director of Deejay Mining and Exports Pvt. Ltd., who is majority shareholder in Devashish Exports Pvt. Ltd. The SCN also states that Mr. Deepak Jatia and Mr. Arun Jatia (Promoter & Chairman of TCL) are found to be friends on social networking website www.facebook.com.

The SCN further alleges that the funds used by Om Hari Mahabir Halan, HUF for bidding in the OFS have flown from Insco Steels Limited. According to the SCN, Insco Steels Ltd. transferred Rs 87.82 lacs on June 21, 2013 from its Allahabad Bank A/c No. 50043598542 to Vertex Trade & Properties Developers Pvt. Ltd.’s (Vertex) Union Bank A/c No. 378901010036879. On the same day, Vertex transferred Rs. 30 lakhs and Rs. 40 lakhs to Shree Global Tradefin Ltd.’s (SGTL) Union bank A/c No. 378901010036053. Consequently, SGTL transferred Rs. 30 lakhs to Steel Master (a firm whose proprietor is Mr. Om Hari Halan) Union bank A/c No. 378901010036701 and Steel Master further transferred this Rs. 30 lacs on June 21, 2013 to Halan Finance’s Union bank A/c No. 378901010036542, which was used to pay margin money to Shreepati Holdings and Finance Pvt Ltd. for bidding in the OFS of TCL. Insco Steels Limited has a common director (Mr. Vinod Jatia) with Cheerful Commercial Pvt. Ltd. and Chem Mach Private Limited (promoter entities of TCL). The amount Rs. 25 Lacs, which Halan Finance received in its PNB Bank A/c No. 0062002100151343 on June 24, 2013 was found to be from Shree Ranisati Enterprises Limited (Proprietary firm of Toony Nemnath Jatia).

Moreover, the SCN also points out that Mr. Ajay Halan, brother of Mr. Om Hari Halan, is/was also a director in promoter entity of TCL, Cheerful Commercial Private Limited. Mr. Ajay Halan and Om Hari Halan are/were neighbors and are/were directors of Halan Properties Ltd. Based on the above, the SCN alleges that Status Impex Ltd., Devashish Exports Pvt. Ltd and Om Hari Mahabir Halan HUF are connected to each other and to the promoter entities of TCL.

12. On merits of the allegation regarding connection of three OFS allottees with promoters of TCL, TCL has submitted that Mr. Ajay Halan, though a director, was not a stakeholder in Cheerful Commercial Private Limited and that Mr. Deepak Jatia is socially known to Mr. Arun Jatia and they are not aware of or privy to the personal and business dealing of each other. The Noticee has also submitted that Mr. Vinod Jatia became director of Chem Mach Pvt. Ltd. only on August 26 2013, that is after the OFS and Mr. Vinod Jatia became director of Cheerful Commercial only on August 22, 2013 that is after OFS and that TCL has no Association with Mr. Toony Nemnath Jatia and Shree Ranisati Enterprises Ltd. In this regard, I note that the shares of Status Impex Pvt. Ltd. and Devashish Exports Pvt. Ltd. are mainly held (directly and indirectly) by entities namely Mr. Deepak Jatia, Mr. Tushya Jatia, Ms. Anita Jatia and Mr. Halan M. Om Hari who is also the Karta of Om Hari Mahabir Halan, HUF (one of the OFS allottee) and one of the directors of Devashish Exports Pvt. Ltd. Mr. Deepak Jatia and Mr. Arun Jatia (Promoter & Chairman of TCL) are found to be friends on social networking website www.facebook.com.

I further note that Mr. Ajay Halan, director of Cheerful Commercial Pvt. Ltd., promoter entity of TCL, was also a director of Deejay Mining and Exports Pvt. Ltd., who is majority shareholder in Devashish Exports Pvt. Ltd. When all these facts are looked together, it shows that bidding in the OFS by Status Impex Pvt. Ltd. and Devashish Exports Pvt. was because of relation between Arun Jatia (promoter and MD of TCL) and Deepak Jatia. Also, Om Hari Halan (Karta of Om Hari Halan, HUF – one of the allottee) is the shareholder and Devashish Exports Pvt. Ltd. (one of the OFS allottee). Another shareholder of Devashish Exports Pvt. Ltd. is Deejay Mining and Exports Pvt. Ltd. wherein Ajay Halan (brother of Om Hari Halan and director of one of the promoter company of TCL) is a director. Mr. Vinod Jatia, director of Insco Steels Ltd. (which provided funds to Om Hari Mahabir Halan, HUF for bidding in the OFS) is also a director in Cheerful Commercial Pvt. Ltd. and Chem Mach Pvt. Ltd., the two promoters of TCL which shows that Om Hari Mahabir Halan, HUF was connected related to promoters of TCL. Contention that Vinod Jatia became director of these two promoters companies of TCL after OFS does not change the inference of connection, because appointment of Vinod Jati as director in the two promoter companies of TCL shows that Vinod Jatia was already known to the promoters of TCL even at the time when he was director of Insco Steels Ltd. which transferred funds to Om Hari Mahabir Halan, HUF for bidding in the OFS.

13. In view of the aforesaid discussions, I find that five OFS allottees i.e. Sunaina Nareshkumar Saraf, Sarwankumar Devidutt Saraf, Status Impex Pvt. Ltd., Devashish Exports Pvt. Ltd. and Om Hari Mahabir Halan, HUF were connected/related to the promoters of TCL. Accordingly, 11.48% shares allotted to these five entities in the OFS can not be considered as part of the public shareholding and on completion of the OFS on June 23, 2013, TCL was not in compliance with MPS. Therefore, TCL was in violation of Rule 19(2)(b) and 19A of SCRR which required TCL to have minimum 25% public shareholding in it.

14. TCL in its written submissions has submitted that on May 06, 2017 it had announced a bonus issue pursuant to which, wherein none of the entities in the promoter group of TCL participated, shareholding of the promoter group of TCL fell to 54.31% of the issued capital and the public shareholding of TCL increased to 46.69% as of June 30, 2017, as under:

S. No. Category Particulars No. of shares held Percentage of after bonus issue shareholding (As on 30.06.2017) 1. Promoter Promoters and 590730 54.31 Promoter Group 2. Public OFS Allottees 219832 20.21 Others (excluding OFS 277073 25.47 allottees) Total 1087719 100.00

15. TCL has further submitted that its shareholding pattern as on December 31, 2019 is as under:

S. No. Category Particulars No. of shares held Percentage of after bonus issue shareholding (As on 30.06.2017) 1. Promoter Promoters and 590730 54.31 Promoter Group 2. Public OFS Allottees 207753 19.10 Others (excluding OFS 289236 26.59 allottees) Total 1087719 100.00

16. I note that present SCN against TCL is for non-compliance with MPS requirements which resulted in to violation of Rule 19(2)(b) and Rule 19A of SCRR, in June, 2013. I further note that public shareholding in TCL increased to 25.47% (excluding shareholding of OFS allottees) as on June 30, 2017 and as on December 31, 2019 public shareholding in TCL is at 26.59% (excluding shareholding of OFS allottees). Thus, from June 30, 2017, TCL is in compliance with Rule 19(2)(b) and Rule 19A of SCRR. In view of this, I note that main allegation in the SCN regarding non-compliance with MPS requirements calling for issue of directions to comply with MPS requirements, under Section 11B of the SEBI Act, already stands addressed. In view of this, I find that directions under Section 11B of the SEBI Act, 1992, as proposed in the SCN, are not called for in view of the compliance with MPS requirements by TCL and at this juncture of time.

Directions:

17. In view of the aforesaid observations and findings, I, in exercise of the powers conferred upon me under Sections 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992 hereby dispose of SCN against the Noticee, Thacker and Co. Ltd., without any directions.

18. This order shall come into force with immediate effect.

19. A copy of this order shall be served on the Noticee, recognized stock exchanges, depositories to ensure compliance with above directions.

Date: April 27, 2020 ANANTA BARUA Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA