Order in the matter of acquisition of shares of Saurashtra Cements Limited[SAT Appeal No.:154/2015

ORDER In respect of Fawn Trading Company Private Limited, Willow Trading Company Private Limited, Pallor Trading Company Private Limited, Fern Trading Company Private Limited and Tejashree Trading Company Private Limited In the matter of acquisition of shares of Saurashtra Cements Limited

1. The Hon'ble Securities Appellate Tribunal ("Hon'ble SAT") vide Order dated March 10, 2014 had set-aside the Order dated April 25, 2013 passed by the Securities and Exchange Board of India ("SEBI") and remanded the matter to SEBI for passing fresh order on merits in accordance with law. The above referred SEBI Order was passed in respect of Fawn Trading Company Private Limited ("Fawn"), Willow Trading Company Private Limited ("Willow"), Pallor Trading Company Private Limited ("Pallor"), Fern Trading Company Private Limited ("Fern") and Tejashree Trading Company Private Limited ("Tejashree") [all these five entities are collectively referred to as "the noticees"), in the matter of acquisition of shares of Saurashtra Cements Limited ("the target company"). The SEBI Order had directed the noticees to make a combined public announcement to acquire, jointly and severally, the shares of the target company in accordance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (since repealed) (hereinafter referred to as "the Takeover Regulations"). It is pertinent to note that the above said SEBI Order was passed in compliance with the Order dated March 03, 2011 (in Writ Petition No. 1080 of 1999 - Fawn Trading Co. Pvt. Ltd. vs. Union of India and others) of the Hon'ble High Court of Judicature at Bombay.

2. Before proceeding further, it is necessary to note the facts of the case :

(a) The target company was incorporated under the Companies Act, 1956, having its registered office at Agrima Business Centre, N. K. Mehta International House, 178, Backbay Reclamation, Mumbai - 400 020. The shares of the target company are listed on the Bombay Stock Exchange Limited ("BSE") and the National Stock Exchange of India Limited ("NSE").

(b) The target company convened an Annual General Meeting (AGM) on December 12, 1997 inter alia to pass a resolution under section 81(1A) of the Companies Act, 1956, to allot in the course of domestic and/or international offering, equity shares of `10/- each for a total of `400 crores including premium, at a price to be decided as per SEBI Guidelines on Preferential Issues, but not less than `30/- per share; to such class of persons being Indian financial institutions, banks, foreign companies, investment bankers, development institutions, mutual funds, FIIs, members, promoters or their associates etc, as the Board may decide, in one or more combinations thereof and in one or more tranches and on such terms and conditions incidental thereto. The resolution was passed in the AGM.

(c) The noticees applied for allotment of a total of 80 lakh shares and the target company had, on March 11, 1998, allotted 80,00,000 shares to five noticees, who are the wholly owned subsidiaries of a main promoter (i.e., Jagmi Investments Limited) of the Target Company, as under :

Name of the allottees Number of shares allotted Pallor 79,96,000 shares Fern 1,000 shares Fawn 1,000 shares Tejashree 1,000 shares Willow 1,000 shares Total 80,00,000 shares (d) The Target Company had, on March 27, 1998, further issued and allotted 40,00,000 shares to Tejashree. On March 31, 1998, the Target Company had also allotted 19,05,300 shares each to two different entities, namely, F. L. Smitdth & Co., Denmark and Industrialisation Funds for Developing Countries.

(e) In the meanwhile, a public offer was made on March 19, 1998 by the 'Auto Riders Group'. This offer was stayed by an injunction order dated March 25, 1998 passed by a Civil Court in Porbander in a suit filed by Fawn. Thereafter, the Auto Riders Group had filed a complaint with SEBI alleging violation of regulation 3(1)(c)(ii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (since repealed) ("the Takeover Regulations").

(f) SEBI had initiated proceedings which culminated in the Order dated January 15, 1999, wherein it was observed that (1) the noticees are part of the promoter group; (2) the details required under regulation 3(1)(c)(ii) were not disclosed in the notice calling for the General Meeting; (3) accordingly the regulations become applicable and the noticees were liable to make offer to the remaining shareholders of the target company; (4) price to be in accordance with the Takeover Regulations. In the interests of the shareholders of the target company and the securities market, SEBI vide the above order had directed the noticees to make a 'public announcement to acquire shares from the remaining shareholders (other than the promoters, their associates and person acting-in concert) of the target company an aggregate minimum of 20% of voting capital of the target company within a period of two months of the Order at a price in accordance with the regulations'.

(g) The SEBI Order was challenged by Fawn and the Target Company by way of two separate appeals before the Central Government. The Central Government (the appellate authority during that point in time) vide its Order dated April 05, 1999 rejected the appeals and upheld the SEBI Order dated January 15, 1999. Thereafter, Fawn and the other noticees challenged this SEBI Order by way of a Writ Petition (No. 1080 of 1999) before the Hon'ble High Court of Judicature at Bombay. The Hon'ble High Court while disposing off the said petition vide their Order dated March 03, 2011, observed /directed SEBI as follows :

" We have been informed that this order has also been confirmed by the Appellate Authority. This order admittedly was stayed by this court in the year 1999 itself and that stay continues to operate till today. After having heard the learned counsel appearing for both the sides, we find that due to passage of time and the circumstances have changed, it is for SEBI to consider whether even after lapse of so many years it still wants, the petitioner to make offer to the public, as is directed by the order impugned in the petition. In our opinion, due to passage of time and change in the circumstances, following order would meet the ends of justice. (i) The petitioner shall be at liberty to make the representation to the SEBI within a period of six weeks from today seeking appropriate reliefs from SEBI. In case, such a representation is made, the SEBI shall consider it in accordance with law and make appropriate orders. In case, the representation is made within the aforesaid period, the interim order passed by this court shall continue to operate till SEBI take a decision on the representation. ii) In case, the decision of SEBI is adverse to the interest of the petitioner, the petitioner shall be entitled to adopt such remedies as may be available to them in law. iii) All contentions of both the sides are kept open. ………… "

3. Pursuant to the Order of the Hon'ble High Court, Fawn, vide letter dated April 14, 2011, filed representation (which was on behalf of all five noticees) before SEBI, wherein the following submissions/statements were inter alia made : (i) The Target Company vide notice dated December 02, 1997 convened the Annual General Meeting (AGM) inter alia to consider issue of capital to the extent of `400 crore including premium to meet the cost of an expansion project. In the AGM, the resolution authorising the Board of Directors of the Target Company to issue and allot such number of equity shares in one or more tranches for an aggregate amount not exceeding ` 400 crore at a price not less than `30 per share, was passed. (ii) Pursuant to the resolution, the noticees (who belong to the promoter group of the Target Company) applied for the allotment of 80,00,000 equity shares at a price of `30/- per share including `20/- per share as premium, for an aggregate amount of `2400 million. (iii) On March 11, 1998, the Board of Directors of the Target Company resolved to issue 3,50,00,000 shares of `10/- each at a premium of `20/- to such class of persons viz., financial institutions, banks, foreign companies, promoters etc. In the same meeting, the Board of Directors allotted 80,00,000 shares, subject to a lock-in of three years, to the noticees.

(iv) The noticees are 100% subsidiary companies of Jagmi Investments Limited (a promoter of the Target Company). (v) On March 17, 1998, one Auto Riders Group sent a notice to SEBI and the Target Company, of their public offer proposed to be made on March 19, 1998 through their merchant bankers, Ind Global Finance Private Limited. The Target Company observed that the said notice was defective and invalid inter alia for want of adequate notice to the company and also for failing to take into account the enhanced capital structure of the Target Company pursuant to the allotment of shares made on March 11, 1998. (vi) Fawn Trading filed a civil suit against Auto Riders praying for an injunction. The Civil Court at Porbander passed an order restraining Auto Riders Group from acting pursuant to or in furtherance of or on the basis of the public offer dated March 1998 and also restraining the Target Company from acting pursuant to the said public offer. (vii) Thereafter, authorised by the shareholders resolution dated December 31, 1997, 40,00,000 shares were resolved to be allotted to Tejashree Trading against part payment of 10% of the issue price including premium.

Pursuant to the authority delegated by the shareholders in the meeting held on December 31, 1997, the Committee of Directors resolved to issue and allot 19,05,300 equity shares of `10/- each to F.L.Smitdth & Co., and Industrialisation Fund for Developing Countries against remittance of `30/- per share that is received in full. (viii) On April 2, 1998, the merchant banker of Auto Riders Group made a complaint to SEBI inter alia alleging violation of regulations 23(1)(b) and 3(1)(c)(ii) of the Takeover Regulations, 1997, and requested SEBI to investigate and initiate action against the Target Company. Fawn Trading had written various letters to SEBI raising certain issues. Thereafter SEBI passed the Order dated January 15, 1999. (ix) The whole controversy in this case is that the Takeover Regulations exempted preferential allotment from the requirement of making an open offer. According to regulation 3(1)(c) of the Takeover Regulation, preferential allotment would not attract the provisions of Regulation 10, 11 and 12 of the Takeover Regulations. Hence, the noticees were not required to make any offer to the public shareholders.

(x) The bone of contention is regarding certain disclosures in the notice dated December 2, 1997 issued to the shareholders. The notice issued for convening a general meeting stated that the allotment will be made to such class of persons - financial institutions, banks, foreign companies, promoters, associates. Therefore, it has been specifically stated that the allotment is to be made, amongst other persons, to the promoters. Preferential allotment was made to the noticees which were the subsidiaries of a promoter of the Target Company. Therefore, the five allottees (the noticees) were also the promoters of the Target Company. While the disclosure regarding identity of class of persons were made, the names of the promoters were not mentioned in the notice. Further, the specific price at which allotment would be made was also not mentioned. (xi) As the preferential issue was exempt under regulation 3(1)(c) from the applicability of the regulations 10, 11 and 12, the direction of SEBI contained in the Order dated January 15, 1999 to acquire 20% of the voting capital from the shareholders is contrary to law.

The basis of the said direction is non-disclosure of some information by the company in its notice dated December 2, 1997, which basis has no co-relation with the nature of direction (open offer) issued to them. (xii) There was no change in control of the Target Company as the old management continued to remain in control and the acquisition by the noticees in the preferential allotment did not alter that position. The Takeover Regulations speak of "Takeover" and in the instant case there was no takeover by anybody and the existing management continued to be at the helm of affairs of the company and are continuing even today. (xiii) The Takeover Regulations are based on the principle that if any person acquires voting rights beyond a threshold limit, then it is incumbent on that acquirer to make an open offer to acquire shares from other shareholders, subject to exceptions provided therein. (xiv) Assuming, without admitting, that the requirements of proviso to regulation 3(1)(c) have not been complied with fully, the same would not take away the exemption granted under the said provision to a preferential allotment.

(xv) There was substantial compliance of disclosures on the part of the Target Company in the notice dated December 3, 1997 and thereafter in the filings made to the stock exchanges. No objection was raised with respect to the allotment of shares to the noticees. (xvi) The Hon'ble Supreme Court in the case of Clariant International Limited has concluded that the shareholders who did not appear as such on the date when the impugned acquisition of the voting rights took place were not entitled to an open offer. Hence, in the present case the open offer will be more of a formality and will not serve any purpose. The shareholder base of the Target Company has reduced from 14,869 shareholders to 8,361 shareholders. Therefore, those who were shareholders at the relevant time and who could have been beneficiaries of their public offer (had it been made then) no more exist. (xvii) The Target Company is registered with the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of the Sick Industries (Special Provisions) Act, 1956. The BIFR is in the midst of considering a rehabilitation scheme for the Target Company and that any order by SEBI will have to take into account the fact that the Target Company is a sick company.

(xviii) The six monthly /two weeks average price prevailing on the BSE in the year 1999 was `30/- per share and the average price now (as on the date of reply) is `16.62/- per share. The share price has reduced by more than 45% and therefore the question that arises for consideration is - At what price the company is required to make a public announcement? (xix) Except Pallor Trading (which is holding 25,136 shares as on February 29, 2008) all the other noticees have ceased to be the shareholders of the Target Company. Fastening any obligation to acquire shares now is devoid of logic. Further, the noticees do not have any resource to acquire shares from the shareholders. The SEBI direction has lost its significance and relevance in view of the passage of around 13 years during which several changes have taken place. In such circumstances, no coercive action against them at this point of time is called for and warranted. (xx) The noticees cannot be regarded as having acted in concert as they are separate and independent entities. Considering all of them as a group is misconceived and directing all of them to make a joint offer without considering their individual acquisition is unfair and inequitable.

(xxi) The purported violation of disclosures in the notice dated December 2,1997 was by the Target Company. However, the Order of SEBI dated January 15, 1999 was against the noticees. Therefore, there is a mismatch of parties. The acquirers (noticees) cannot be penalised for the lapse by the Target Company.

In view of their submissions, the noticees sought the following relief : a) SEBI does not insist for implementation of its directions of public announcement to acquire 20% of voting capital of the Target Company from the shareholders, i.e., the directions which was issued in its Order dated January 15, 1999 against them. b) SEBI does not enforce its Order dated January 15, 1999 against them and to terminate the proceedings by a suitable action /order and discharge them in the matter. c) Any other appropriate relief in the facts and circumstances of the case.

4. In the hearing held on December 27, 2012, the noticees were represented by Mr. J. J. Bhatt, Advocate. The learned advocate reiterated the submissions made by the noticees in their representation. Thereafter, written submissions of the noticees were made vide letter dated January 10, 2013. In the written submissions, while reiterating majority of the submissions made in the representation, the noticees additionally submitted the following : a. The alleged violation of Regulation 3(4) is not very fatal and does not take away exemption. Further, exemption is not subject to the compliance of the conditions stated in this provision. The requirements of Regulation 3(4) are procedural and disclosure related, and applicable post acquisition. Non-filing of a report does not vitiate the allotment, nor takeaway the exemption. b. In this case, there was no violation of regulation 11, as the shares were acquired through preferential allotment, which is automatically exempt from the requirements of regulation 10, 11 and 12. The SEBI Order dated January 15, 1999 has termed the alleged violation of regulation 11(1) & (2) as hypothetical.

c. Fern, Willow, Tejashree and Pallor were not the shareholders of the Target Company as on the date of allotment. Their acquisition of shares was not for consolidation as consolidation presupposes some existing holding. Regulation 11(1) covers consolidation of holdings by additional acquisition. d. There is no clarity in the SEBI Order as to the identity of the persons acting in concert with the noticees. It appears that the five noticees (acquirers) are treated as Persons Acting in Concert (PACs). Inclusion of PACs is only for the purpose of calculating aggregate shareholding of acquirers and PACs between 15 % and 75% under Regulation 11(1). The Target Company had allotted shares to each of five noticees separately on a standalone basis. Their acquisition was independent and separate and treating all of them as PACs is misconceived. e. The alleged violation of regulation 3(4) and non-compliance with regulation 3(1)(c)(2) cannot and ought not result in issuance of any directions to the noticees. f. Four of the noticees already ceased to be the shareholders of the Target Company with effect from February 29, 2008 and therefore they could not be directed to acquire shares. g. The net worth of the five noticees as on date is in the negative. They do not have funds or resources to acquire shares. h. Since 90% of the earlier shareholders have offloaded their stake in the company, the public offer if made will be a mere formality and would involve huge costs to them. Further, the equity shares of the Target Company are traded in the dematerialised mode since the year 2000. i. There was no economic loss caused to the then shareholders on account of the preferential issue and failure to make any public offer by the noticees. j. If all the five noticees are treated as acquirers and PAC, then it is not clear as to how much of the 20% capital has to be acquired by each of the five noticees. k. The definition /concept of 'Person Acting in Concert' has undergone changes, refinement in the course of last few years. l. The Takeover Code of 1997 has been repealed and the new Takeover Code of 2011 cannot be made applicable to their case. m. The noticees relied upon the judgements of the Hon'ble Supreme Court in the matters of Swedish Match and Clariant International and of the Hon'ble Securities Appellate Tribunal in the matter of Phiroze Sethna.

n. The noticees submitted that no useful purpose would be served if the direction contained in the SEBI order is sought to be enforced now and therefore requested that they be discharged from the proceeding.

5. Further to the consideration of the submissions of the noticees, SEBI vide its Order dated April 25, 2013 had inter alia concluded that - a) The noticees are classified as promoters and have been allotted shares in the preferential issue. b) The conditions prescribed under regulation 3(1)(c)(ii) of the Takeover Regulations were not complied with, and therefore the application of regulation 11 to such acquisition of shares by the noticees was not exempted. c) Regulation 11(1) & (2) were therefore triggered on account of the acquisitions (on preferential allotment by target company) made on March 11, 1998 and March 27, 1998 by the noticees. d) Directing the noticees to make a public offer would be appropriate and would meet the objectives of the scheme of the Takeover Regulations. The noticees were accordingly directed to, jointly and severally, make a public announcement to acquire shares under the Takeover Regulations. e) Direction for payment of interest on the consideration amount may not be reasonable as the Hon'ble Bombay High Court had stayed the SEBI Order dated January 15, 1999.

6. The noticees had challenged the above SEBI Order dated April 25, 2013 before the Hon'ble Securities Appellate Tribunal (Hon'ble SAT"), when the Hon'ble SAT had vide Order dated March 10, 2014 set-aside the SEBI Order with the directions as mentioned in paragraph 1 above. Pursuant to this Order of the Hon'ble SAT, SEBI advised the noticees to clarify as to how many are the present shareholders of the target company and their composition and out of the current shareholders, how many shareholders were there on the trigger date and their percentage holding at the time of trigger and also their present holding. In response, Fawn, vide letter dated May 09, 2014, while submitting the Shareholding pattern of the target company for the quarter ended on 31.03.2014, inter alia submitted that assuming the trigger date to be March 11, 1998 (date on which the board of directors of the target company resolved to allot shares), there were 14,998 shareholders holding 61,61,076 shares (51.38%) out of which as on date 4020 shareholders holding 15,99,279 shares (3.12%) are continuing to hold shares.

Fawn also submitted ".. it is also pertinent to note that since 11.3.1998 to date, the shareholders of TC (target company) may have also traded in the shares of TC. At present, TC are unable to trace the very old records from 11.3.1998 to 26.2.2003. However, as per the records submitted by TC, from 27.2.2003 to till date, the said shareholders of TC have bought 15,94,250 shares and their holding should have been 77,55,326 shares, but as on date out of the aforesaid shareholders, 4020 shareholders are holding 15,99,279 shares. Thus, the eligible shareholders as on 11.3.1998 must have traded atleast in 61,56,047 shares of TC (ignoring bought and sold during the period). Since the shares are dematerialized and therefore fungible, it cannot be assumed that the said shareholders are still holding all or any part of the shares, which they were holding on 11.3.1998. Of course as and when TC trace the records from 11.3.1998 to 26.2.2003, we will arrange to get the information from TC and inform you ........."

7. The noticees were afforded an opportunity of personal hearing on July 31, 2014 when they were represented by Mr. P.N. Modi, Senior Advocate, Mr. Neville P. Lashkari, Advocate, Mr. Joby Mathew, Advocate, Mr. Deepak Dhane, Advocate, Mr. A.M. Fadia, Mr. A.P.Rao and Mr. Yogesh Shah. Mr. P.N. Modi, Senior Advocate tendered a note containing the chronology of events in the matter along with their main submissions on behalf of the noticees. Such submissions are stated below : a) In March 1998, when the Takeover Code was allegedly triggered, SEBI had no power to order an Open Offer under regulation 44 of the Takeover Code. It was only on September 09, 2002 that regulation 44 was substituted and regulation 44(f) was added. b) The SEBI Order dated April 25, 2013 inter alia relied on regulation 32(i)(h) and regulation 35 but the same were not in existence in 1998 and came into being only under the Takeover Code of 2011. c) Under section 15H of the SEBI Act as of 1998, only a monetary penalty of a maximum of `5 lakhs could be imposed on a party for a violation of the Takeover Regulations. d) It would be discriminatory to now direct the noticees to make any open offer.

In numerous similar cases, SEBI has only imposed a small monetary penalty instead of directing an open offer to be made. e) Considering the issues of "passage of time" and "changed circumstances" as per the directions of the Hon'ble Bombay High Court in its Order dated March 03, 2011, this is not a fit case to direct the noticees to make any open offer. f) In any event and without prejudice to the aforesaid, it is submitted that the alleged violation is at the highest a technical and/or venial breach and further the same has been committed by the Target Company. Therefore, it is untenable that directions are passed against the noticees for no fault of theirs. g) Regulation 3(1)(c)(ii) as applicable read that the allotment must result in an increase "... to 5% or more ...". This was amended to "... beyond 5% ....." only in November 1998. However, in the present case, the shares held by the promoters admittedly were 48.64% even before the acquisition of shares by the preferential allotment, and therefore regulation 3(1)(c)(ii) cannot apply and disclosure of the 'class' as made was adequate. h) It was not possible for the Target Company to mention the names of the allottees in the notice of the AGM, as the allottees were not yet identified by names.

The law does not require the performance of an impossible condition. i) As per the Bhagwati Committee Report, full disclosure under regulation 3(1)(c)(ii) was required only when there was a change in control of the Target Company, and admittedly there was none. j) The shareholders have not been prejudiced in any way. k) The Target Company is now a sick company before the BIFR. Share prices have collapsed. It would therefore be most unfair and unjust to now require an open offer to be made. l) It is now not possible to trace which shares were held by the shareholders in 1998 since shares are dematerialized.

The learned senior advocate also submitted a brief note on judgments relied upon by the noticees in the matter along with copies of such judgments.

8. I have considered the submissions made by the noticees, the documents submitted by them and other documents available on record. Before proceeding, I refer to the Orders passed by the Bombay High Court and the Hon'ble SAT in the subject matter.

a. The Hon'ble Bombay High Court vide Order dated March 03, 2011 (in Writ Petition No. 1080 of 1999 - Fawn Trading Co. Pvt.Ltd. and others vs. Union of India and others) had made the following observations and directions :

" We have been informed that this order has also been confirmed by the Appellate Authority. This order admittedly was stayed by this court in the year 1999 itself and that stay continues to operate till today. After having heard the learned counsel appearing for both the sides, we find that due to passage of time and the circumstances have changed, it is for SEBI to consider whether even after lapse of so many years it still wants, the petitioner to make offer to the public, as is directed by the order impugned in the petition. In our opinion, due to passage of time and change in the circumstances, following order would meet the ends of justice. (i) The petitioner shall be at liberty to make the representation to the SEBI within a period of six weeks from today seeking appropriate reliefs from SEBI. In case, such a representation is made, the SEBI shall consider it in accordance with law and make appropriate orders. In case, the representation is made within the aforesaid period, the interim order passed by this court shall continue to operate till SEBI take a decision on the representation. ii) In case, the decision of SEBI is adverse to the interest of the petitioner, the petitioner shall be entitled to adopt such remedies as may be available to them in law. iii) All contentions of both the sides are kept open. ………… "

b. The Hon'ble High Court had observed that 'due to passage of time' and the 'changed circumstances', it is for SEBI to decide whether even after lapse of many years, it still wants the noticees to make the public announcement. Further, a reading of the Order passed by the Hon'ble High Court would indicate that the findings and observations with respect to the violations/the liability incurred by the noticees, as found in the SEBI Order dated January 15, 1999 read with the Central Government's Order dated April 05, 1999, have not been set-aside. Accordingly, there is no reason for me to reconsider or revise the views taken by SEBI or the Appellate Authority (Central Govt.) in respect of the findings. Therefore, in terms of the Order of the Hon'ble High Court read with the Order dated March 10, 2014 passed by the Hon'ble SAT, SEBI is directed to only consider whether even after lapse of so many years it still wants the acquirers/noticees to make offer to the public, as directed vide SEBI Order dated January 15, 1999.

c. I note that SEBI vide its Order dated January 15, 1999 had passed the following direction :

"18. Therefore, in exercise of powers conferred upon me under the provisions of sub-section (3) of Section 4 of the SEBI Act, 1992 read with regulation 44 of Takeover Regulations and taking into consideration the facts, the totality of the circumstances in the interests of the shareholders of SCL and the interest of securities market, I, D.R.Mehta, Chairman-SEBI, direct the five preferential allottees namely, Fawn Trading Co. Pvt. Ltd., Fern Trading Co. Pvt. Ltd., Tejashree Trading Co. Pvt. Ltd., Willow Trading Co. Pvt. Ltd. and Pallor Trading Co. Pvt. Ltd. to make a public announcement to acquire shares from the remaining shareholders (i.e. other than promoters, their associates and persons actingin-concert) of SCL an aggregate minimum of 20% of voting capital of SCL within a period of two months of this order at a price in accordance with the Regulations. "

As can be observed, the above said SEBI Order dated January 15, 1999 had directed the five noticees to make a public announcement to acquire an aggregate minimum of 20% of voting capital/shares of the Target Company from non-promoter shareholders of the Target Company, within a period of two months from the date of the Order at a price in accordance with the Takeover Regulations. This SEBI Order has been upheld by the Central Government vide its Order dated April 05, 1999.

d. The noticees have contended that in view of 'passage of time' and 'changed circumstances' as stated by the Hon'ble Bombay High Court in their Order, this case is not a fit case for directing the noticees to make an open offer. The noticees have also submitted that : (a) The Target Company is registered with the BIFR and the BIFR is considering a rehabilitation scheme for the company and that any order of SEBI will have to take into account of this fact. (b) Share prices have collapsed. (c) Except Pallor Trading, all the other noticees have ceased to be the shareholders of the Target Company and fastening any obligation to acquire shares now is devoid of logic. (d) The noticees do not have any resource to acquire shares from the shareholders. Their net-worth as on date is in the negative. (e) The SEBI Order dated 15.01.1999 has lost its significance and relevance in view of the passage of time and in such circumstances, no coercive action against them is called for. (f) As 90% of the earlier shareholders have off-loaded their stake in the Target Company, the public offer if made will be a mere formality and would involve huge costs to them. (g) There is no economic loss caused to the then shareholders on account of the preferential issue and failure to make any public offer by the noticees. (h) It would be discriminatory to now direct the noticees to make open offer as in numerous cases, SEBI has imposed monetary penalty instead of directing an open offer. (i) It is not possible to trace which shares were held by the shareholders in 1998 as shares are dematerialised.

e. Before dealing with the submissions, it is important to appreciate the significance of an 'open offer' as provided for under the Takeover Regulations. In this regard, the following observations of the Hon'ble Court/Tribunal are worth mentioning :

(i) The Hon'ble Supreme Court of India in the matter of Nirma Industries Limited and another vs. SEBI (Civil Appeal no. 6082 of 2008) vide Order dated May 09, 2013, inter alia made the following observations :

"42. A conspectus of the aforesaid Regulations would show that the scheme of the Takeover Code is (a) to ensure that the target company is aware of the substantial acquisition; (b) to ensure that in the process of the substantial acquisition or takeover, the security market is not distorted or manipulated and (c) to ensure that the small investors are given an option to exit, that is, they are offered a choice to either offload their shares at a price as determined in accordance with the takeover code or to continue as shareholders under the new dispensation. In other words, the takeover code is meant to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers and that the process does not take place in a clandestine manner without protecting the interest of the shareholders....... 57. We are not inclined to accept the aforesaid submission. In the aforesaid judgment in Sahara India Real Estate Corporation Limited (supra) this Court observed as under: From a collective perusal of Sections 11, 11A, 11B and 11C of the SEBI Act, the conclusions drawn by the SAT, that on the subject of regulating the securities market and protecting interest of investors in securities, the SEBI Act is a stand alone enactment, and the SEBIs powers thereunder are not fettered by any other law including the Companies Act, is fully justified.

58. These observations have been made by this Court to emphasise that SEBI has all the powers to protect the interests of investors in securities and also to ensure orderly, regulated, and transparent functioning of the stock markets. The aforesaid observations would be of no assistance to the appellants herein who is seeking to walk away from public offer merely to avoid economic loses. Rather we agree with the submission of Mr. Venugopal that permitting such a withdrawal would lead to encouragement of unscrupulous elements to speculate in the stock market. Encouraging such a practice of an offer being withdrawn which has become uneconomical would have a destabilizing effect in the securities market. This would be destructive of the purpose for which the Takeover Code was enacted. 71. We are inclined to agree with the submission made by Mr. Venugopal that the appellants cannot be permitted to wriggle out of the obligation of a public offer under the Takeover Regulation. Permitting them to do so would deprive the ordinary shareholders of their valuable right to have an exit option under the aforesaid regulations. The SEBI Regulations are designed to ensure that public announcement is not made by way of speculation and to protect the interest of the other shareholders."

The above order of the Hon'ble Supreme Court is with respect to an order of rejection (by SEBI) of an application made by the concerned acquirer to withdraw his open offer already made in the year 2005. The SEBI Order was upheld by the Hon'ble SAT and later by the Hon'ble Supreme Court also in the decision referred above. The acquirer thereafter continued with his open offer and completed the formalities associated therewith during the year 2014. In the above case, as can be seen, the open offer formalities were completed after 9 years from the date of public announcement. No relief was granted to the appellant by the Hon'ble Supreme Court on account of 'passage of time' or 'changed circumstances' in the above referred case.

(ii) The Hon'ble Securities Appellate Tribunal made the following observations in its Order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31 of 2011). These observations would elucidate the importance of public offer to the shareholders of a target company : "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. " [emphasis supplied]

As observed by the Hon'ble SAT, SEBI need not give any reasons while issuing a direction for a public offer and that only when such directions are not in the interest of the securities market or for the protection of interest of investors, could SEBI deviate from the normal rule. Therefore, it needs to be seen as to whether the circumstances, as contended by the noticees, in the present case are convincing enough for SEBI to deviate from the normal rule of open offer.

f. In the present case, it was the noticees who had preferred the appeal against the SEBI Order dated January 15, 1999. The Central Government had, in the first appeal, upheld SEBI's Order. The findings in the SEBI Order had not been reversed by the Hon'ble High Court of Bombay. If passage of time is allowed as a ground, then it may make place for acquirers who had defaulted or delayed in making a public announcement of open offer to employ delay tactics, filing frivolous appeals and thereafter cite the delay that had ensued in evading from their liability to make the open offer. It then would be unfair for the shareholders of that company who lose their valuable right to exit. As the 'passage of time' is only because of the continuous litigation pursued by the noticees, there should be no advantage of 'passage of time' or 'changed circumstances' that should accrue to them. The noticees cannot be termed as the victims of delay, rather they are the reason for the same. With respect to frivolous litigations and illegitimate claims made by litigants for subverting the legal system, I refer to the following observations made by the Hon'ble Supreme Court in the Order dated May 06, 2014 in the matter of Subrato Roy vs. Union of India and others [Writ Petition (Criminal) No. 57 of 2014]: "…………….. 147. The number of similar litigants, as the parties in this group of cases, is on the increase. They derive their strength from abuse of the legal process. ……………. 149. This abuse of the judicial process, needs to be remedied ………………..…… 150. The Indian judicial system is grossly afflicted, with frivolous litigation. Ways and means need to be evolved, to deter litigants from their compulsive obsession, towards senseless and ill-considered claims. 151. What is sought to be redressed is a habituation, to press illegitimate claims. This practice and pattern is so rampant, that in most cases, disputes which ought to have been settled in no time at all, before the first Court of incidence, are prolonged endlessly, for years and years, and from Court to Court, upto the highest Court. …………….."

It is therefore clear that mere delay and passage of time cannot be a reason for absolving any person of his liability. This is especially so if delay was caused by litigation initiated by the responsible party.

g. The noticees have also contended that the SEBI Order dated January 15, 1999 has lost its significance in view of the passage of time and in such circumstances, no coercive action against them is called for. An order directing an acquirer to make an open offer in a case of default, is not a coercive order. It is an equitable remedy to the shareholders. Therefore, such a direction cannot be equated with a penal direction. Monetary penalties imposed under adjudication proceedings or, fine or imprisonment imposed in a prosecution proceedings under section 24 of the SEBI Act read with the Takeover Regulations are penal in nature.

h. The noticees have contended that their net-worth is in the negative and do not have resources for acquiring the shares of the Target Company in an open offer. As regards such claim of changed financial circumstances of the noticees, it needs to be appreciated that such grounds cannot be a valid defence. Further, it is not the case of the noticees that they have been declared as 'insolvent'. The noticees have also contended that the share price of the target company is reducing in value. I note that the Hon'ble Supreme Court in the matter of Nirma Industries (referred supra) has observed " 26. ........... The appellants had made an informed business decision which unfortunately for them, instead of generating profits was likely to cause loses. In such circumstances, they wanted to pull out and throw the burden on to the other shareholders. We, therefore, fail to see what prejudice has been caused to the appellants by the order passed by the SEBI rejecting the request of the appellants.". The acquirers/noticees had acquired shares in a preferential allotment during 1998. When the acquirers have enjoyed such a benefit, they should ideally discharge all obligations that may be associated with such acquisitions. It is unfair to say that the company was profitable at the time of non-compliance by the acquirers and it is now a sick company, when such obligation to make a open offer has to be made in terms of the law. These grounds are not cogent reasons for absolving them from their liability. Accordingly, I dismiss such contentions.

i. The contention of the noticees that the Target Company is under a reference before the BIFR, has no bearing on the case at all. It is the noticees who have incurred the liability to make the public offer (which liability arose in view of the non-compliance with the prescribed conditions for availing exemption under the Takeover Regulations). The target company's financial status is not in any manner related with the open offer directed against the noticees.

j. Another ground raised by the noticees is that except for Pallor Trading, all the other noticees have ceased to be the shareholders of the Target Company and therefore fastening any obligation on them to acquire shares now is devoid of logic. I am of the view that once a liability is incurred to make an open offer, such liability is not discharged till the open offer is made.

The liability shall remain irrespective of whether that entity continues or ceases to be the shareholder.

k. The offer price in the public announcement to acquire shares in the open offer as per the Takeover Regulations, using the price data for 26 weeks prior to the board resolution date, i.e., March 11, 1998, is calculated as `33.94/-. I have perused the price-volume data of the Target Company for the months - January 2014 - December 2014 (till 17.12.2014) as available from the website of BSE. The same is extracted below:

Month Open Price High Price Low Price Close Price No. of Shares No. of Trades Jan-14 16 18.4 13.5 14 12329 227 Feb-14 14 15 13.32 13.63 25243 332 Mar-14 13.7 18.61 12.4 18.58 125056 1153 Apr-14 18.5 22.7 17 20.1 241998 1022 May-14 20.8 29.75 18.05 27.45 447373 1561 Jun-14 28.8 36.95 27.15 34.85 483387 2321 Jul-14 34.95 43.45 31.4 39.85 668711 3099 Aug-14 43 66.35 32.75 59.7 2054709 12403 Sep-14 61 65.8 46.5 52.3 1253315 6333 Oct-14 52.6 53.8 46.5 53.8 557586 2671 Nov-14 55.4 64.65 47 49.9 9578872 16739 Dec-14 52.2 52.6 35.05 38.2 1013004 4544

The share price is fluctuating from Rs.13.50/- (low price-January 2014) to 66.35/- (high price- Aug 2014). I have also perused the price-volume data (source - BSE website) for three recent dates: Date Open Price High Price Low Price Close Price No. of Shares No. of Trades 17-Dec-14 37.9 39.5 35.05 38.2 45476 301 16-Dec-14 38 38.5 35.25 37.6 122538 395 15-Dec-14 39.1 40 38.25 39 82521 333 The calculated offer price of `33.94/- is slightly lesser than the price range. However, considering the volumes of shares (in the range of 20,000 approx. to 60,000 shares approx.) of the target company that are traded presently, the open offer if made by the acquirers now, would be beneficial to the shareholders of the target company as they get an opportunity to exit from the company.

l. Further, if the noticees make a public announcement of an open offer now, the same would be a delayed open offer. In this case, the noticees are also liable to pay interest on the offer price as provided under the Takeover Regulations, 1997 read with the Hon'ble Supreme Court's Order dated August 25, 2004 in Clariant International Limited and another vs. SEBI [Appeal (Civil) No. 3183/2003], to those shareholders who were holding the shares as on the trigger date and continue to hold the same and tender the shares in the delayed offer if made by noticees. Taking into consideration the interest at the rate of 10% p.a., the offer price comes to approximately `90/-. This price is definitely more than the present quoted share price of the target company at BSE. Therefore, original shareholders would definitely benefit by the open offer if the noticees make the same today. The above factors are definitely in the interest of the shareholders/investors of the target company.

m. The noticees have argued that 90% of the earlier shareholders have off-loaded their stake in the Target Company, the public offer if made will be a mere formality and would involve huge costs to them. They also contended that it is not possible to trace which shares were held by the shareholders in 1998 as shares are dematerialised. Under the scheme of the Takeover Regulations and the observations made by the Hon'ble Supreme Court passed in its judgment dated August 25, 2004 in Clariant International Limited and another vs. SEBI [Appeal (Civil) No. 3183/2003], in case of a delayed open offer, such open offer shall be made to all shareholders of the company at an offer price calculated in accordance with the Takeover Regulations and that the interest would be payable only to those original shareholders who held on to the shares as on the trigger date and continued to hold the same and tendered them in a delayed offer. An open offer shall be made to all shareholders of a target company. Determining the original shareholders would be relevant only for the purposes of identifying who would be eligible for interest payment for the delayed open offer. In this respect, I also refer to the letter dated May 09, 2014 of Fawn Trading, wherein in answer to SEBI's question "... out of the current share-holders, how many were shareholders on the trigger date, also their percentage shareholding at the time of trigger and currently", it has replied "... Based on this date of 11.3.1998, please note that there were 14,998 shareholders holding 61,61,076 shares (51.38%) out of which as on date, 4020 shareholders holding 15,99,279 shares (3.12%) are continuing to hold shares ". Accordingly, as informed by the noticees, the offer price along with interest would be payable only to 4020 shareholders (if their shares are tendered and accepted) as these shareholders held shares of the Target Company as on the trigger date and continue to hold them. The other shareholders (if they tender shares and the same are accepted) would be eligible only for the offer price calculated as per the Takeover Regulations.

n. Considering all the above factors, I am of the considered view that the implementation of the offer would definitely be in the interest of the public shareholders (both original shareholders and others), as there would be an exit opportunity to them.

o. The noticees have also contended that there is no economic loss caused to the then shareholders on account of the preferential issue and failure to make any public offer by the noticees. The first part of this submission has no relevance to the subject at hand and the second part of the submission cannot be accepted as it does not have any merit. Failure to make the public announcement and its consequences on the shareholders cannot be measured in terms of economic losses only. The exit opportunity is a valuable right available to a shareholder when there is a substantial acquisition of shares or control under the Takeover Regulations. Further, it is already mentioned above that all shareholders would benefit by the open offer and more particularly the original shareholders would stand to benefit economically as they would be eligible for the offer price with interest.

p. The noticees have also contended that it would be discriminatory to now direct the noticees to make open offer as in numerous cases, SEBI has imposed monetary penalty instead of directing an open offer. I would deal with this submission along with another objection raised by the senior counsel for the noticees during the personal hearing. The learned senior advocate had argued that during March 1998, when the Takeover Regulations Code was allegedly triggered, SEBI had no power to order an open offer under regulation 44 of the Takeover Regulations. This contention was made on the ground that a specific direction [in regulation 44(f)] to order an open offer was brought into force only on September 09, 2002 in the Takeover Regulations. Prior to the amendment of regulation 44 made with effect from September 09, 2002, the regulation 44 read as follows : "44. Directions by the Board.-The Board may, in the interests of the securities market, without prejudice to its right to initiate action including criminal prosecution under section 24 of the Act give such directions as it deems fit including : (a) directing the person concerned not to further deal in securities; (b) prohibiting the person concerned from disposing of any of the securities acquired in violation of these Regulations; (c) directing the person concerned to sell the shares acquired in violation of the provisions of these Regulations; (d) taking action against the person concerned." [Emphasis supplied]

The directions mentioned in clauses (a) to (d) of regulation 44 (prior to the amendment) mentioned above are not 'exhaustive' directions which SEBI could order invoking regulation 44. The regulation 44 uses the expression "including", which naturally means that SEBI could pass any directions in the interest of securities market including those directions mentioned under clauses (a) to (d). By using the expression, SEBI has a wide scope with respect to the nature of directions it could pass in a matter in the interest of securities market. In this regard, I also refer to the observation inter alia made by the Hon'ble Supreme Court of India in the matter of Vinay Chandra Mishra [AIR 1995 SC 2348], that "The expression "including" has been interpreted by courts, to extend and widen the scope of power." Therefore, the above argument of the noticees is without merit. If a situation or a case warrants, SEBI has the powers to issue necessary directions including passing of an order directing an acquirer to make an open offer with conditions in order to protect the interest of the securities market.

q. The noticees have also submitted certain judgments of the Hon'ble SAT. These judgments were produced to show that the penalty under section 15H(ii), as it existed on the date of commission of the alleged offence, had to be applied to and where the Hon'ble SAT had reduced the penalties where disclosures under regulation 3(1)(c)(ii) of the Takeover Regulations were not properly done. The noticees have also referred to a later Order passed by SEBI dated July 28, 2004 (in the matter of acquisition of shares of Jay-Yushin Limited by Ushin Limited through preferential allotment), and submitted that in this case SEBI had considered the factors such as approval of shareholders in the AGM, no change in control or in the Board of Directors, directions to make a public offer was not given and instead adjudication proceedings were directed to be initiated for such violations in not making the required disclosures. I have perused this Order of SEBI and note that SEBI has observed that exemption from applicability of regulation 11 for such acquisition was not available to the acquirer as disclosures mandated under regulation 3(1)(c)(i) & (ii) were not made. It needs to be appreciated that under the scheme of the SEBI Act and the rules and regulations framed thereunder, directions under sections 11 and 11B could be issued simultaneously with further action in the nature of adjudication or prosecution or a combination of all. The argument of the noticees that only adjudication proceedings could be invoked for such violations is therefore misplaced. As already observed by the Hon'ble SAT in the matter of Nirvana Holdings, SEBI need not assign any reason for directing an open offer and deviation could be made only if such a direction for open offer is not in the interest of investors and securities market. In this case, it is already observed that investors/shareholders of the target company would immensely benefit from an open offer if made by the noticees now.

r. The noticees have argued that 'passage of time' is a ground for not directing the open offer. This 'passage of time' had occurred on account of the noticees preferring appeals challenging the SEBI Order dated January 15, 1999. The same cannot and should not be a ground for deviating from the normal rule of directing an open offer. As mentioned earlier, such grounds if allowed would only enable acquirers to wriggle out of their liability.

s. The noticees have also contended that no useful purpose would be served if the open offer is directed to be made now and have requested SEBI to discharge them from the proceedings. These submissions have no merit in the light of observations and reasons mentioned above as to how the shareholder of the target company would benefit if the noticees make an open offer today. Useful purpose would therefore be served if an open offer as directed vide the SEBI Order dated January 15, 1999 is emphasised by SEBI now on the noticees.

t. Regarding 'change in circumstance', the noticees have not submitted any particular circumstance which would afford them any benefit, except for stating about the financial condition of the target company, reference to the BIFR, share price collapsing, noticees' net-worth is in the negative, that they do not have resource to make the open offer. These general submissions have already been dealt with and found to be of no relevance or merit.

u. Exit opportunity mandated under the Takeover Regulations is a valuable right of the shareholders. The same cannot be and should not be denied normally in the absence of other factors if they weigh more than such a conferred right on the shareholders. The noticees were the subsidiaries of a main promoter of the target company. By virtue of the preferential allotment, the promoter group (through the noticees) had consolidated and acquired substantial shareholding in the target company. The noticees (being part of the promoter group) intending to take benefit of exemption from the requirement of a open offer should have ensured that all the conditions (the compliance of which would grant them the exemption) and requirements were complied with.

v. Considering all such reasons and observations, the grounds of 'passage of time' and 'change of circumstance' as contended by the noticees, cannot be taken as compelling grounds for not insisting the noticees/acquirers to make the public announcement of open offer today. Accordingly, each of the five noticees are jointly and severally responsible to make the public announcement, as directed vide the SEBI Order dated January 15, 1999 which was upheld by the Central Government's Order dated April 05, 1999.

9. With the above observations and discussions, the issue before SEBI, as per the directions of the Hon'ble High Court and the Hon'ble SAT, has been answered. However, for completeness and a wholesome view of the matter, I would consider and make my observations with respect to the other issues/contentions raised by the noticees in the matter.

a. The noticees have contended that the regulations 10, 11 and 12 of the Takeover Regulations would not be applicable to a 'preferential allotment' and that the noticees were not required to make an offer to the public shareholders. While admitting the deficiencies with respect to the required disclosures, the noticees have contended that the non-disclosure of some information by the target company has no co-relation with the nature of the direction of open offer issued to them. The noticees also contended that the disclosures were made by the target company, but the directions were issued against the noticees, and therefore there is a mis-match of parties. They have also contended that the breach is technical in nature. It has been contended that there was no change in control of the target company as the old management continued to remain in control and the acquisition by the noticees did not change that position. It is also contended that the noticees cannot be regarded to have acted in concert as they are separate and independent entities.

b. I have considered such submissions. As the present matter is with respect to acquisition of shares in a preferential allotment and with reference to regulation 3(1)(c) of the Takeover Regulations, I note that the said regulation was incorporated as per the recommendations made in the Report dated January 18, 1997 of the Justice Bhagwati Committee. The Committee had recommended that preferential issue of capital made with express consent of the shareholders to whom full disclosures about the proposal including the likely changes in the control of the company, if any, had been made, may be exempted if the said allotment has been made by way of explanatory statement to the notice to the general meeting in which the proposal is being put up for shareholders approval.

c. Regulation 3(1)(c) of the Takeover Regulations as it stood during the relevant period, is reproduced below for reference :

"3.(1) Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to: ………. (c) preferential allotment, made in pursuance of a resolution passed under Section 81(1A) of the Companies Act, 1956 (1 of 1956): Provided that, (i) Board Resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board; (ii) full disclosures of the identity of the class of the proposed allottee (s) is made, and if any of the proposed allottee (s) is to be allotted such number of shares as would increase his holding to 5% or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the General Meeting called for the purpose of consideration of the preferential allotment." [Emphasis supplied]

In terms of this provision, as it stood then, regulations 10, 11 and 12 thereof were not applicable for preferential allotment if full disclosures of the identity of the class of the proposed allottees was made. In case, any of the proposed allottee(s) is to be allotted such number of shares as would increase his holding to 5% or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the General Meeting called for the purpose of consideration of the preferential allotment. Further, in order to be exempted, a report in terms of regulation 3(4) of the Takeover Regulations was to be filed with SEBI within 21 days of the acquisition giving details in respect of the acquisition which taken together with shares or voting rights, if any, held by him or by persons acting in concert with him would entitle such person to exercise 10% or more of the voting rights in a company.

d. Therefore, as can be seen, the applicability of regulation 10, 11 and 12 (as the case may be) with respect to increase in the shareholding/voting rights would not arise if the conditions as mentioned under the proviso to regulation 3(1)(c) are complied with. However, such conditions were admittedly not fully met, thereby rendering the acquirers ineligible for claiming the exemption. The Order of SEBI dated January 15, 1999 has observed that identity of the seven entities (including noticees) who were allotted shares and the number of shares allotted to them, were not disclosed. Further, the price as mentioned in the AGM notice was only 'indicative' and not 'specific'. The noticees while stating that the notice to the shareholders disclosed the identity of the class of persons to whom allotments would be made, have admitted that the same did not specifically mention the names of the promoters to whom allotments would be made or the price at which the allotment would be made. As per the above SEBI Order, the noticees did not become eligible to avail the benefit under regulation 3(1)(c)(ii) of the Takeover Regulations as the disclosures mandated therein were not made in the notice of the General Meeting which was called for considering the preferential allotment. Further, a report under regulation 3(4) was also not filed. The SEBI Order dated January 15, 1999 had dealt with how the regulations are triggered and how the noticees became liable to make a public offer in respect of their acquisitions through preferential allotment. These defaults had triggered the applicability of regulation 11 for making a public announcement as mandated therein.

e. It is the case of the noticees that the non-compliance with the conditions would not take away the exemption and that their non-compliance cannot be the basis for directing them to make a public offer to acquire shares. These submissions cannot be accepted. If conditions are prescribed to avail a benefit, the person who wishes to avail such benefit should comply with all conditions. For claiming a benefit or exemption, the person should comply with all the conditions that are prescribed, else such benefit or exemption shall not be available. There are a plethora of judicial pronouncements on this principle and I refer to the following observations made by the Hon'ble Supreme Court and Hon'ble High Court to the effect that if conditions are prescribed for availing exemption/benefit, such benefit cannot be availed without fulfilling such conditions:

(i) In Commissioner of Central Excise v. Hari Chand Gopal {(2011) 1 SCC 236}, the Hon'ble Supreme Court held as under : "29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly...." (ii) In Panwar Trading Corporation vs. State of Rajasthan {MANU/RH/1020/2014}, the Hon'ble High Court of Rajasthan had observed - "29. A person claiming benefit of exemption must show that he satisfies the eligibility criteria and for that purpose the provision must be strictly construed. If exemption is available on complying with certain conditions, the conditions have to be mandatorily complied with ... 30. In India Agencies (Regd.), Bangalore v. Additional Commissioner of Commercial Taxes, Bangalore (2005) 2 SCC 129, the Supreme Court emphasised that in case of Inter-State sales, the provision for furnishing original Form-C to claim concessional rate of tax under Section 8(1) of Central Sales Tax Act, 1956 is mandatory and that dealer has to strictly follow the procedure. It was held that to claim concessional rate of tax, provisions have to be strictly construed and that unless there is strict compliance with the provisions of the Statute, the registered dealer is not entitled to the concessional rate of tax. 32. The benefit of credit under the Act is in the nature of a concession given which could be availed only in the manner and in the circumstances mentioned in Section 18."

f. Therefore, under regulation 3(1)(c) of the Takeover Regulations, if regulations 10, 11 and 12 would not apply to a preferential allotment subject to compliance with conditions mentioned therein; then the non-compliance with the prescribed conditions would result in the benefit not accruing to the acquirers. Accordingly, the regulations i.e., 10, 11 or 12, as applicable would be triggered and the person who has lost the benefit shall act as obligated under the said regulation including the requirement of an open offer.

g. I also find that the requirement of mentioning the names of the acquirers and the price at which shares are allotted is not a technical issue as contended by the noticees. The shareholders of the target company have the right to know as to who is coming as a major shareholder, when they are passing a resolution with respect to the preferential allotment in the General Meeting. Therefore, the violation cannot be considered as trivial. Further, the noticees are subsidiaries of the promoter of the target company and therefore cannot be considered as innocent third parties who should not be made liable for the fault of the target company. All the noticees/the acquirers are wholly owned subsidiaries of the promoter, who were in control of the target company at the time of issuance of notice to the shareholders. Thus, the acquirers through their holding company (promoter) could have easily ensured the disclosures as per the regulations in the notice. In view of such observations and reasons, the submission of the noticees that 'the violation is at the highest a technical or venial breach and the same has been committed by the target company and that passing directions against the noticees is not tenable for no fault of theirs', cannot be accepted.

h. The noticees have also contended that the disclosures under regulation 3(1)(c)(ii) was required only when there was a change in control of the target company. The submission is incorrect. The provision does not state that disclosures as required under regulation 3(1)(c)(ii) should be made only if such allotment results in a change of control as information with respect to whether such allotment would result in change in control over the company is one of the disclosures as required under regulation 3(1)(c)(ii) of the Takeover Regulations.

i. The noticees had also contended that Fern Trading, Willow Trading, Tejashree Trading and Pallor Trading were not the shareholders of the target company as on the date of allotment and their acquisition is not for consolidation. The noticees have also contended that there is no clarity in the SEBI Order dated January 15, 1999 as to the identity of the persons acting in concert. I have perused the notice for the AGM issued by the target company and also the board of director's resolution dated March 11, 1998 as cited in the SEBI Order dated January 15, 1999. The Board resolution stated that Fawn, Fern, Willow and Tejashree are the promoters of the target company and have been disclosed in the filings made to the stock exchanges. The resolution also stated that the board was recently informed that Pallor has become a subsidiary of the promoter and therefore is a promoter as defined under the Takeover Regulations.

I also note that the SEBI Order dated January 15, 1999 has recorded that Pallor was not a promoter during the period when the notice was issued calling for the AGM or when the resolution was passed for issue and allotment of shares in the preferential issue and that the shareholders did not have the opportunity to consider whether a new entity should be allotted a 'large chunk' of shares. The aforesaid SEBI Order also records the manner of increase of the promoter group's shareholding/voting rights pursuant to the allotments made to the five noticees. Considering such observations, the contentions of the noticees as mentioned above does not have merit.

10. In view of the above reasons and observations, it would definitely be in the interest of the shareholders of the target company and the securities market if the noticees are directed to make the public announcement of an open offer now, as was directed vide the SEBI Order dated January 15, 1999.

11. In view of the foregoing, in compliance with the Order dated March 03, 2011 of the Hon'ble Bombay High Court and the Order dated March 10, 2014 of the Hon'ble Securities Appellate Tribunal, I hereby direct the noticees, namely, Fawn Trading Company Private Limited, Pallor Trading Company Private Limited, Fern Trading Company Private Limited, Tejashree Trading Company Private Limited and Willow Trading Company Private Limited, to make a public announcement of an open offer to acquire shares of the Target Company, Saurashtra Cements Limited as directed vide SEBI Order dated January 15, 1999 as upheld by the Order dated April 05, 1999 of the Central Government.

12. In view of the delay in making the open offer in terms of the SEBI Order dated January 15, 1999, the above noticees shall, along with the consideration amount, pay interest at the rate of 10% per annum, from the date when they incurred the liability to make the public announcement till 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 have been accepted in the open offer, after adjusting dividend, if any, that was paid.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date : December 31st, 2014 Place : Mumbai