Order in the matter of acquisition of shares of Brand Realty Services Limited

WTM/RKA/CFD-DCR/04/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and regulations 44 and 45 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in the matter of acquisition of shares of Brand Realty Services Limited (formerly known as Sahil Financial Services Limited). In respect of Mr. Kamal Manchanda, Ms. Renu Manchanda, Mr. Ravi Manchanda, Mr. Ramesh Chand Girdhar, Ms. Pratibha Gupta, Mr. Krishan Lal Manchanda, Ms. Aruna Manchanda and Mr. Jagdish Chander Manchanda 1. M/s Brand Realty Services Limited (hereinafter referred to as "the target company") is a company incorporated under the Companies Act, 1956 having its registered office at S-8 & S- 2 DDA Shopping Complex, Opp. Pocket-1, Mayur Vihar Phase-1, Delhi- 110 091. The shares of the target company are listed on Bombay Stock Exchange Limited (BSE). During the period September 30, 2008 to December 31, 2010 Mr. Kamal Manchanda, Ms. Renu Manchanda, Mr. Ravi Manchanda, Mr. Ramesh Chand Girdhar, Ms. Pratibha Gupta, Mr. Krishan Lal Manchanda, Ms. Aruna Manchanda and Mr. Jagdish Chander Manchanda (collectively referred to as "the promoter group") were the promoters of the target company. 2. As per the shareholding pattern filed by the target company, the promoter shareholding for the quarter ending on September 30, 2008 was 62.56% of the total share capital of the target company, which increased to 74.12% for the quarter ending on December 31, 2010. The increase in shareholding of the promoter group was entirely due to the increase in shareholding of Mr. Kamal Manchanda. The increase in the promoter group shareholding took place in the following manner: Quarter No. of shares held % of Promoters' Total equity capital of ending by promoters shareholding the target company Sep-08 18,79,618 62.56 30,04,400 Dec-08 19,40,646 64.59 30,04,400 Mar-09 20,26,893 67.46 30,04,400 Jun-09 20,90,328 69.58 30,04,400 Sep-09 20,97,328 69.81 30,04,400 In the matter of Brand Realty Services Limited

Mar-10 21,71,038 72.26 30,04,400 Sep-10 22,17,341 73.8 30,04,400 Dec-10 22,26,841 74.12 30,04,400 3. Between October 31, 2008 to March 31, 2009, Mr. Kamal Manchanda had acquired 1,47,275 shares (4.90%) of the target company. On April 08, 2009 he further acquired 4,000 shares (0.13%). Consequently, the promoter group's collective shareholding in the target company increased from 62.56% (as on October 30, 2008) to 67.60% (as on April 08, 2009), i.e., more than permissible threshold limit of 5% prescribed under regulation 11(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Takeover Regulations, 1997"). Thus, it was prima facie observed that these acquisitions had triggered the obligation to make public announcement in accordance with the provisions of regulation 11(2) read with regulation 14(1) of Takeover Regulations, 1997 within 4 working days from April 08, 2009. 4. Accordingly, a show cause notice dated June 11, 2014 (SCN) was issued to the promoter group of the target company (hereinafter collectively referred to as "the noticees") calling upon them to show cause as to why suitable directions under sections 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 the corresponding provisions of regulations 32 and 35 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the Takeover Regulations, 2011) should not be issued against them for the alleged violations of regulation 11(2) read with regulation 14(1) of the Takeover Regulations, 1997. 5. Vide letter dated June 25, 2014, the noticees filed their reply to the SCN and inter alia submitted that: i. The increase in their shareholding has been within 5% in every financial year, which is as per rules.

Therefore, they have not violated any provision of the law. ii. Purchases made in one financial year cannot be clubbed with the purchases made in the previous financial year. If all financial years are considered separately, their shareholding in the target company has not increased by more than 5% in any financial year, as detailed below: Financial No. of shares acquired % of shares acquired Year 2008-09 1,47,275 4.9% 2009-10 1,44,145 4.8% 2010-11 55,803 1.86% iii. In spite of the fact that the noticees had been extremely careful in their conduct, as can be seen from their track record, if at all there is a lapse on the part of the noticees, the same may be condoned as it is purely non-intentional and is only due to changing rules and guidelines. 6. An opportunity of personal hearing was granted to the noticees on August 06, 2014. Mr. Praveen Rastogi, Company Secretary appeared on the scheduled date on behalf of the noticees and made submissions on the lines of their reply dated June 25, 2014. The noticees were granted liberty to file written submissions within one week of the hearing.

The noticees filed their written submissions vide letter dated August 14, 2014. The submissions of the noticees are inter alia as follows: i. On April 08, 2009, the collective shareholding of the promoter group increased from 67.46% to 67.60% due to acquisition of 4000 shares by one of the promoters, namely, Mr. Kamal Manchanda. ii. The acquisition of such 4000 shares was made through open market purchase in normal segment on the stock exchange. As per regulation 11(2) of the Takeover Regulations, 1997, the additional purchase of 5% equity shares was allowed through normal market. iii. Their acquisitions were bona fide and in view of ambiguity with regard to application of regulation 11(2), their acquisitions being within 5% in each financial year, they should be given benefit of doubt and a lenient view should be taken in the facts and circumstances of this case. iv. There was no change in control of the target company pursuant to the said acquisition. v. Further, as per the Takeover Regulations, 2011, acquisitions up to 5% of shares are allowed every financial year which was not in earlier regulations. vi.

Mr. Kamal Manchanda and the target company had complied with the requisite disclosures with respect to regulations 7(1), 7(1A), 7(3) of the Takeover Regulations, 1997 for the acquisitions in question. 7. I have considered the SCN, the oral and written submissions made on behalf of the noticees and other relevant material available on record. I note that the acquisitions in question that resulted in increase in collective shareholding of the noticees from 62.56% to 67.60% i.e. more than 5% have not been disputed. In this regard, the noticees have submitted that their acquisition in respective financial years i.e. 2008-09, 2009-10 and 2010-11 did not increase beyond 5%. According to them, their acquisitions were bona fide and in view of ambiguity with regard to application of regulation 11(2), their acquisitions being within 5% in each financial year, they should be given benefit of doubt and a lenient view should be taken in the facts and circumstances of this case.

8. In order to deal with the charge and the above submissions of the noticees, it is necessary to refer to background of second proviso of regulation 11(2) that was inserted therein vide amendment dated October 30, 2008. It is noted that prior to this amendment, relevant provisions of regulation 11 provided as under:- "Consolidation of holdings 11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent.(55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any financial year ending on 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. (2) No acquirer, who together with persons acting in concert with him holds, fifty five per cent. (55%) or more but less than seventy five per cent. (75%) of the of the shares or voting rights in a target company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations: Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent.

(10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures 'seventy five per cent. (75%)', the words and figures 'ninety per cent. (90%)' were substituted." 9. In terms of the above regulation 11(1), an acquirer holding 15% or more but less than 55% of the shares or voting rights in a target company, in which mandatory minimum public shareholding limit was 25%, could acquire additional 5% shares or voting rights in any financial year ending on 31st March. This acquisition of 5% in every financial year is commonly called as 'creeping acquisition'. However, in terms of above provision of regulation 11(2) an acquirer, holding 55% or more but less than 75% shares or voting rights in such target company could acquire any additional shares or voting rights therein only by way of an open offer by making a public announcement in accordance with the Takeover Regulations, 1997. On harmonious construction of these two provisions, the provisions of regulation 11(1) were being applied such that an acquirer holding less than 55% shares or voting rights in a target company could not cross the threshold of 55% by way of 'creeping acquisition' under regulation 11(1).

10. On October 30, 2008, the Takeover Regulations, 1997 were amended vide SEBI (Substantial Acquisition of Shares and Takeover Regulations) (Amendment) Regulations, 2008 whereby another proviso was added in regulation 11(2) which provided as under:- "Provided further that such acquirer may, without making a public announcement under these Regulations, acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him up to five per cent. (5%) voting rights in the target company subject to the following:- (i) the acquisition is made through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated deal/ preferential allotment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buy back of shares by the target company; (ii) the post acquisition shareholding of the acquirer together with persons acting concert with him shall not increase beyond seventy five per cent.(75%)." 11. As per the language of this proviso, an acquirer holding 55% or more but less than 75% of shares or voting right in a target company could acquire additional shares or voting rights upto 5% without making a public announcement.

This acquisition was, however, allowed subject to the two conditions that - (a) the acquisition should be made through open market purchase in normal segment on the stock exchange or it is pursuant to buy back of shares by the target company; and (b) the post acquisition shareholding of the acquirer together with PACs should not increase beyond 75%. It is relevant to mention here that this amendment was brought in to provide 'creeping acquisition' up to 5% to persons holding above 55% but below 75% shares or voting rights in a target company. 12. Following the above amendment, SEBI received several queries/informal guidance requests regarding the applicability of the amended regulation 11(2) such as – whether the acquisition of 5% under amended regulation 11(2) is only an interim measure up to March 31, 2009, whether it is only a one-time measure, whether shares can be acquired in several tranches, whether 'creeping acquisition' of 5% under regulation 11(2) was available in every financial year, etc. In view of such doubts and ambiguities, SEBI issued interpretative circular dated August 06, 2009 under regulation 5 of the Takeover Regulations, 1997 for removal of difficulties in interpretation of the second proviso to regulation 11(2).

The said circular provided as under:- "SEBI has been receiving representations from market participants / listed companies with respect to the interpretation of the proviso inserted by the aforesaid amendment. After examining these representations, it is hereby clarified that – a) The acquisition, within the limit of five per cent (5%) under the second proviso to sub-regulation (2) of regulation 11, may be made by an acquirer who, together with persons acting in concert with him, holds fifty five per cent (55 %) or more but less than seventy five per cent (75 %) of the shares or voting rights in the target company; b) The acquirer together with persons acting in concert with him, holding shares or voting rights as specified at (a) above, may acquire additional shares or voting rights upto a maximum of five per cent (5 %) voting rights in the target company in one or more tranches, without any restriction on the time-frame within which the same can be acquired; c) The aforesaid acquisition of five per cent (5 %) shall be calculated by aggregating all purchases, without netting the sales. d) Consequent to such acquisition, the percentage of shareholding / voting rights of the acquirer, together with persons acting in concert with him, in the target company, shall not increase beyond seventy five per cent (75 %).

This limit is applicable irrespective of the level of minimum public shareholding required to be maintained by the target company in terms of clause 40A of the Listing Agreement." 13. Thus, on and from August 06, 2009 the generally prevailing doubts and ambiguities were removed and it was clarified that an acquirer who holds 55% or more but less than 75% of the shares or voting rights in a target company could acquire additional shares or voting right upto a maximum of 5% in a target company in one or more tranches without any restriction on the time-frame without making a public announcement. Accordingly, an acquirer falling under regulation 11(2) could not avail benefit of 'creeping acquisition' of 5% in every financial year. 14. In this case, there is no dispute as to compliance with two conditions of the proviso of regulation 11(2). Admittedly, the noticees held 55% shares in the target company before the acquisition of 4.90% shares therein by the promoter during the financial year ending on March 31, 2009. This acquisition was clearly exempted from obligation to make public announcement as it was within 5% threshold in regulation 11(2).

15. I note that the collective shareholding of the noticees in the target company had increased from 67.46% as on March 31, 2009 to 67.60% as on April 08, 2009, which resulted in acquisition of more than 5% shareholding as per regulation 11(2). Admittedly, the persons belonging to the promoter group of the target company had purchased 1,44,145 shares constituting 4.8% of the share capital of the target company during the financial year ending March 31, 2010. Pursuant to the same, the collective shareholding of the noticees in the target company had increased from 67.46% to 72.26% as on March 31, 2010. Considering the ambiguity prevailing till clarification was issued on August 06, 2009 and the fact that noticees have not acquired more than 5% in the previous financial year, I give benefit of doubt to them with regard to their acquisitions on or before August 06, 2009.

16. I further note that as on August 06, 2009, the noticees collectively held 21,02,328 shares (constituting 69.97% of shares capital) of the target company and one of the promoters, Mr. Kamal Manchanda acquired additional 1,24,513 shares (4.14%) in the target company from August 06, 2009 till December 31, 2010. These acquisitions were admittedly made when doubts with regard to applicability of regulation 11(2) post the above amendment had already been removed on August 06, 2009. Thus, they cannot feign ignorance about applicability of regulation 11(2) as clarified by circular dated August 06, 2009 and cannot be given benefit of doubt with regard to these acquisitions. Since these acquisitions were clearly in breach of regulation 11(2), the consequences of this breach should follow. In this regard, I note the Hon'ble SAT vide order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) observed as follows: "It must be remembered that whenever an acquirer violates Regulation 10, 11 or 12 of the takeover code by not making a public announcement, he should be directed to comply with the provision by making a public offer.

The words “unless such acquirer makes a public announcement” appearing in Regulations 10 and 11(1) make these provisions mandatory and a public announcement has to be made. Similar words appear in Regulation 12 as well. These provisions make the acquisition conditional upon a public announcement being made. The primary object of the takeover code is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a takeover. This right to exit is an invaluable right and the shareholders cannot be deprived of this right lightly. It is only when larger interest of investor protection or that of the securities market demands that this right could be taken away. Therefore, as a normal rule, a direction to make a public announcement to acquire shares of the target company should issue to an acquirer who fails to do that. The Board need not give reasons as to why such a direction is being issued because that is the mandate of Regulations 10, 11 and 12. However, if the issuance of such a direction is not in the interest of the securities market or for the protection of interest of investors, the Board may deviate from the normal rule and issue any other direction as envisaged in Regulation 44 of the takeover code.

In that event, the Board should record reasons for deviation." 17. I note that regulation 44 read with regulation 45 of the Takeover Regulations, 1997 provided for consequences of breach thereof. The guiding principles for the directions as provided in these regulations are the interest of the investors and securities market which are the statutory guiding principles as inbuilt in the SEBI Act and the Takeover Regulations, 1997. 18. It is important to mention here that I have already given the benefit of doubt in respect of all the acquisitions prior to August 6, 2009. However, since the noticees were collectively holding more than the threshold of 55% stipulated in regulation 11(2) as on August 6, 2009 (i.e. (69.97% ), an acquisition of even a single share would have triggered the open offer requirement under regulation 11(2). Thus, when Mr. Kamal Manchanda acquired 2900 shares (0.097% of the share capital) on August 25, 2009, the noticees collectively triggered the requirement to make an open offer under regulation 11(2) and were therefore required to make a public announcement within 4 days from August 25, 2009. In the facts and circumstances of the present case discussed hereinabove, I do not find any reason to deviate from the normal rule to make a public announcement to acquire shares of the target company in accordance with the provisions of Takeover Regulations, 1997, and issue any other direction as envisaged in regulation 44. 19. I note that had the noticees made the public announcement within a period of 4 days from August 25, 2009 in accordance with the Takeover Regulations, 1997 and complied with all related activities within the timelines specified therein, all formalities with respect to their public announcement and the open offer would have been completed on November 30, 2009. Therefore, I am of the view that since the public announcement now would provide a delayed exit opportunity to the shareholders of the target company, the noticees should pay interest on the consideration amount to the shareholders who tender their shares in the open offer and who are eligible for interest as per law.

20. Considering the above, I, in exercise of powers conferred upon me under sections 11, 11B read with section 19 of the SEBI Act and regulation 44 and 45 of the Takeover Regulations, 1997 read with regulations 32 and 35 of the Takeover Regulations, 2011, hereby issue the following directions: a) The noticees shall make a public announcement to acquire shares of the target company in accordance with the provisions of the Takeover Regulations, 1997, within a period of 45 days from the date of this order; b) The noticees shall, alongwith the consideration amount, pay interest at the rate of 10% per annum from December 01, 2009 to the date of payment of consideration, to the shareholders 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. 21. This order shall come into force with immediate effect. A copy of this order shall be served upon the noticees for ensuring compliance with the above directions

Sd/- DATE: January 21st, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA