Order in the matter of Alchemist Realty Limited

WTM/GM/EFD/73/2018-19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and regulation 44 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulation 35(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. In respect of: - Sl. No. NOTICEE(S) PAN 1 KDS Corporation Limited AACCK4674P 2 Endogram Leasing and Trading Company Private Limited AAACE6313P

In the matter of Alchemist Realty Limited

1. Alchemist Realty Limited (earlier known as ‘Pan Packaging Industries Limited’ and hereinafter referred to as “Target Company / ARL / the company”) is a company engaged in construction and real estate business and its securities are listed on the Bombay Stock Exchange (BSE). M/s. KDS Corporation Limited (hereinafter referred to as “KDS”) is the main promoter of the ARL and it was holding 42.30% and 45.45% shares in the Target Company, as on March 31, 2010 and March 31, 2011 respectively. Endogram Leasing and Trading Company Private Limited (ELT) is one of the shareholders in the Target Company in which it held 11.61% shares, as on March 31, 2010 and March 31, 2011. 2. SEBI found from the annual returns filed by ELT with the Registrar of Companies (RoC) for the Financial Years 2005-06 to 2010-11 that KDS held 99% or more shares in ELT during the period from January 01, 2006 to March 31, 2011, which meant ELT was a subsidiary of KDS during the said period. Regulations 2(1)(e)(2)(i) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations), inter alia provides that a company and its holding company or subsidiary are deemed to persons acting in concert, unless the contrary is established.

Thus, since ELT was a subsidiary of KDS during the said period, it qualified to be a ‘person acting in concert’ (PAC) with the promoter entity KDS. The same implied that their combined shareholding in the Target Company had to be shown under the Promoters and Promoters Group category in the filings made to the BSE, in Order in the matter of Alchemist Realty Limited accordance with the provisions of Clause 35 of the Listing Agreement. The combined shareholding of KDS and ELT in the Target Company, as on March 31, 2010 and March 31, 2011 stood at 53.91% and 57.06%. However, as per the shareholding pattern of the Target Company disclosed on the BSE, the Promoters and Promoter Group were shown to be holding only 42.30% and 45.45% shares, as on March 31, 2010 and March 31, 2011 respectively, which indicated that only the shareholding of KDS was shown under the promoters and promoter group category, as against the combined shareholding of KDS and ELT (i.e. 53.91% as on March 31, 2010 and 57.06 % as on March 31, 2011). The details of shareholdings of KDS and ELT and their combined shareholding in the Target Company over the years are as follows: Particulars KDS (Promoter) ELT (PAC) Total Shareholding No. of % No. of % No. of % Shares Shares Shares As on January 2128320 39.34 742900 13.73 2871220 53.07 2006 As on March 2412320 37.51 742900 11.55 3155220 49.06 2007 As on March 5528640 39.27 1806716 12.83 7335356 52.10 2008 As on March 31343200 42.30 8605580 11.61 39948780 53.91 2009 As on March 31343200 42.30 8605580 11.61 39948780 53.91 20010 As on March 33677535 45.45 8605580 11.61 42283115 57.06 2011

3. From the above, it was seen that the combined shareholding of KDS and ELT (i.e. promoter entity and its PAC) had increased from 53.91% as on March 31, 2010 to 57.06% as on March 31, 2011. The same had happened on account of purchase of 23,34,335 shares (3.15%) of the Target Company by KDS through a block deal with Manbhavan Buildwell Pvt. Ltd. on August 18, 2010 at the BSE. 4. As per regulation 11(1) of the SAST Regulations, as it existed on the abovementioned date, “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 55 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 per cent of the voting rights, with post acquisition shareholding or voting rights not exceeding fifty five percent, in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.” Since the abovementioned acquisition of 3.15% shares by KDS on August 18, 2010 had resulted in the combined shareholding of KDS and ELT (i.e. acquirer promoter and its PAC) crossing the threshold limit of 55% prescribed under regulation 11(1) of the SAST Regulations, KDS and ELT were required to make a public announcement to acquire shares of the Target Company in accordance with the provisions of the SAST Regulations.

However, KDS and ELT had failed to do so. 5. A common notice dated October 27, 2016 (SCN) was issued to the KDS and ELT (hereinafter together referred to as ‘the Noticees”) calling upon them to show cause as to why suitable directions under section 11B, 11(1) and 11(1) of the SEBI Act, 1992 and regulation 44 of the SAST Regulations read with regulation 35(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 should not be passed or any other action as SEBI may deem fit in terms of the said Act or the Rules and Regulations framed thereunder, should not be taken. 6. KDS replied to the SCN vide letters dated May 26, 2017 and August 12, 2017 whereas ELT did the same vide letters dated December 28, 2016 and August 14, 2017. An opportunity of personal hearing was granted to the Noticees on October 24, 2017 which was attended by them through their authorized representatives. Thereafter, KDS and ELT made further written submissions vide letters each dated November 07, 2017. The Noticees vide letters and emails dated October 10, 2018 and October 11, 2018 were provided with another opportunity to make additional submissions, if any, in the matter.

However, no response was received from them. 7. The Noticees have made similar submissions in reply to the SCN. Vide their abovementioned letters and during the personal hearing, they have submitted inter alia the following: (a) KDS was the only promoter entity of the Target Company as on March 31, 2010 and March 31, 2011. Since KDS held 42.20% and 45.45% shares in the Target Company on March 31, 2010 and March 31, 2011, the same was shown by the Target Company in the shareholding pattern submitted to the exchange. (b) The assertion in the SCN that during the period from January 01, 2006 to March 31, 2011 KDS was holding more than 99% shares in ELT is wrong, imprecise and fallacious. KDS had transferred its entire shareholding in ELT to individual shareholders much before the abovementioned period, as per an agreement dated December 08, 2005 (Copy of agreement was enclosed with reply). To give effect to correct shareholding, ELT had duly accepted and registered the Share Transfer Deeds in its record and to ensure compliance, correct Annual Returns were filed with RoC which are showing the correct shareholding pattern in ELT (Copies of Annual Returns showing correct shareholding pattern in ELT for the years 2006 to 2011 were enclosed with the reply).

Thus, ELT was not a promoter group company in the Target Company. (c) During the period from January 01, 2006 to March 31, 2011, ELT was holding shares of the Target Company as a non-promoter company and thus its shareholding was shown under non-promoter category by the Target Company in its filings with exchange under Clause 35 of the Listing Agreement for January 2006 to March 2010. Since KDS was not holding any shares in ELT during the abovementioned period, ELT could not be termed as a person acting in concert with KDS for the said acquisition. (d) Since the post-acquisition shareholding of KDS as on March 31, 2011 was only 45.45% which was within the threshold limit of 55% prescribed under regulation 11(1) of the SAST Regulations, the requirement of making a public announcement to acquire shares did not arise. 8. I have examined and considered the facts of the case and the charges against the Noticees in the SCN. The charge against the Noticees is that they have failed to comply with the requirement of making a public announcement to acquire shares, as provided under regulation 11(1) of the SAST Regulations.

I note that under regulation 11(1) of the SAST Regulations, which is applicable to cases where an acquirer together with persons acting in concert with him holds 15% or more but less than 55% shares or voting rights in a company, the requirement of making a public announcement to acquire shares gets triggered in two scenarios: (i) when the annual creeping acquisition limit of 5% is breached by the acquirer together with PACs with him; or (ii) when the overall shareholding of the acquirer together with PACs crosses 55%. It is thus imperative to see whether the abovementioned acquisition of shares by KDS, as referred to in the SCN, falls under either of the two cases.

9. I note that the first scenario under regulation 11(1) as mentioned above (i.e. pertaining to annual creeping acquisition limit of 5%) is not relevant to this case, as the abovementioned acquisition in question is limited to purchase of 3.15% shares by KDS which is below the prescribed annual creeping threshold limit of 5%. Now, the moot point is whether the said acquisition of 3.15% shares by KDS in the Target Company is covered by the second scenario (i.e. pertaining to overall shareholding of the acquirer together with PACs crossing 55%), resulting in triggering the requirement of an open offer, as provided under regulation 11(1). 10. From the facts of the case, as mentioned in above paragraphs, I note that KDS, the promoter of the Target Company, was holding 42.30% shares in the Target Company, as on March 31, 2010. Subsequently, it acquired 3.15% shares on August 18, 2010 through a block deal on the exchange, thereby increasing its shareholding in the Target Company to 45.45%. As per SCN, another shareholder of the Target Company, viz. ELT, was holding 11.61% shares on the date of the said acquisition by KDS.

The SCN has alleged that since KDS was holding more than 99% shares in ELT as on the said date (i.e. August 18, 2010), ELT can be said to be a person acting in concert with KDS in respect of the said acquisition. The SCN has accordingly contended that combined shareholdings of the Noticees, prior to and post the said acquisition, have to be taken into reckoning for the purpose of deciding whether there was any breach of the threshold limit prescribed under regulation 11(1) of the SAST Regulations. The SCN has thus alleged that since the combined shareholding of KDS and ELT before the said acquisition of shares stood at 53.91% which increased to 57.06% after the acquisition, the same being more than the threshold limit of 55%, the Noticees were required to make an open offer for securities in accordance with the provisions of the SAST Regulations, which they have failed to make. 11. I have gone through the replies and submissions of the Noticees in respect of the charges in the SCN. I note that that while the Noticees have not disputed the fact of said acquisition by KDS, they have vehemently denied that ELT was acting as a PAC with KDS in respect of the said acquisition.

According to them, ELT was neither a part of the promoter group in the Target Company nor had it acted as a PAC of KDS during the period from January 01, 2006 to March 31, 2011, which covered the date of the said acquisition by KDS. Thus, they have contended that their combined shareholding cannot be taken into consideration for the purposes of deciding any breach of threshold limits prescribed under regulation 11(1).

12. Considering the above facts, I note that the instant case against the Noticees hinges entirely on the single most important issue of whether ELT was a PAC of KDS in respect of the said acquisition. I now proceed to decide the same.

13. I note that in respect of the allegation of ELT being a PAC of KDS for the purpose of the said acquisition on the relevant date, the SCN has relied upon the annual reports filed by ELT with RoC for various years, which allegedly show that KDS was holding 99% or more shares in ELT during January 01, 2006 to March 31, 2011, making ELT a subsidiary of KDS and in turn a part of the promoter group of the Target Company during the said period. I note that the Noticees have countered the same by submitting that KDS had sold its entire shareholding in ELT to other entities, viz. Shri Narinder Pal and Shri Rajababu Sampadarao Bandela, before the said period, in terms of an agreement dated December 08, 2005. They have also submitted a copy of the said agreement with their replies. The Noticees have also submitted that revised annual returns have been filed by ELT with RoC for all the years, reflecting the correct shareholding post the said sale of shares of ELT by KDS, copies of which were enclosed with the replies. Apart from the same, the Noticees have provided inter alia the following in support of their contentions: (i) Shareholding Pattern filed by the Target Company with the exchange for January 2006 to March 2010, wherein the shareholding of ELT was purportedly shown under non-promoter category (ii) copies of board resolutions passed by KDS and ELT; (iii) copies of Share Transfer Forms; and (iv) Copy of a page from Register of Members and Share Ledger of ELT. 14. I have examined the documents as relied upon by the SCN as well as the documents submitted by the Noticees in support of their contentions. Upon examination of the same, I note the following important points: (a) From the copy of the agreement purportedly executed on December 08, 2005 between KDS on one hand and Shri Narinder Pal and Shri Rajababu Sampadrao Bandela on the other hand in respect of purported sale of shares of ELT, which has been furnished by the Noticees as a supporting document, it is noted that the same does not bear any revenue stamp and appears to have been executed on plain paper. This raises doubt about their authenticity.

(b) The Annual Returns filed by ELT during 2005-06 to 2010-11 with the RoC, which have been relied upon by the SCN, have continuously shown KDS as its shareholder having 99% or more shares during the period from January 01, 2006 to March 31, 2011. However, the Annual Returns for 2005-06 to 2010-11, submitted by the Noticees in support of their contention that KDS was not a shareholder of ELT during January 01, 2006 to March 31, 2011, are revised Annual Returns all of which have been filed by ELT with RoC only on 29/08/2016, which is after the inquiry in the matter was initiated by SEBI. (c) The Noticees claim that KDS had sold its entire shareholding in ELT to Shri Narinder Pal and Shri Rajababu Sampadrao Bandela on December 08, 2005 itself pursuant to the abovementioned agreement. However, the original Annual Returns of ELT for 2005-06 to 2010-11 filed with RoC, showing KDS as holding 99% or more shares during all these years, which have been relied upon by the SCN, have been signed by the same Shri Narinder Pal and Shri Rajababu Sampadrao Bandela (as directors of ELT), who had purportedly purchased the said shares from KDS way back in December 08, 2005. The list of shareholders of ELT attached to the said Annual Returns clearly mention KDS as holding 99% or more shares during May 25, 2006 to March 31, 2011. (d) The copies of the Share Transfer Forms dated December 08, 2005 purportedly executed between KDS and Shri Narinder Pal and Shri Rajababu Sampadrao Bandela in respect of the purported sale of shares of ELT by KDS show that the transfer of shares by KDS to the abovementioned entities was approved by ELT on December 15, 2005. Further, even the copy of a page from ‘Register of Members and Share Ledger’ of ELT submitted by ELT shows that the name of Narinder Pal was entered therein on December 15, 2005. However, the copy of Board Resolution submitted by ELT, whereby the purported transfer of 9980 shares (more than 99% shares of ELT) from KDS to the abovementioned entities was approved by the Board of ELT, shows that the said resolution was passed only on November 15, 2012. If the Noticees’ contentions are to be believed, then it means the name of Shri Narinder Pal was entered into the Register of Shareholders of ELT years before such purported transfer was even permitted by the Board of ELT. Thus, the said documents are contradictory in nature.

15. Having considered the abovementioned points, I am of the opinion that the documents submitted by the Noticees are full of inconsistencies and thus cannot be relied upon. In fact, the filing of revised Annual Reports by ELT in August 2016 for all the years from 2005-06 to 2010-11 betrays the attempt of the Noticees to conceal important facts and mislead SEBI and renders their credentials suspect. I note that the documents relied upon in the SCN (i.e. original Annual Reports filed by ELT) prima facie establish that KDS was holding 99% or more shares of ELT as on the date of the abovementioned acquisition of 3.15% shares of the Target Company (i.e. August 18, 2010), which rendered ELT to be a subsidiary of KDS, as on the said date. The Noticees have failed to rebut the same with sufficient and credible proof. Thus, ELT can be said to be a part of the Promoter Group of the Target Company as on the date of the said acquisition of shares by KDS, in terms of sub-clause (a)(i) of Explanation I provided under regulation 2(1)(h) of the SAST Regulations. The said provision defines “promoter group”. Consequently, under regulation 2(1)(e)(2)(i), ELT also qualifies to be a person acting in concert with KDS in respect of the abovementioned acquisition.

16. Since KDS and ELT were part of the promoter group and were acting in concert with each other in respect of the abovementioned acquisition of shares, their combined shareholdings have to be considered for determining any breach of the threshold limit provided under regulation 11(1). As has already been stated above, the combined shareholding of KDS and ELT in the Target Company increased from 53.91 % as on March 31, 2010 to 57.06% as on August 18, 2010, due to acquisition of 3.15% shares by KDS. Since the same had crossed the threshold limit of 55% provided under regulation 11(1), I have no doubt that the Noticees were clearly required to make a public announcement to acquire shares of the Target Company, in accordance with the provisions of the SAST regulations.

17. Having concluded as above, it is pertinent to refer to the judgment of Hon’ble SAT in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) dated September 08, 2011, where it has been held as under: "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." 18. The above judgment of the Hon’ble SAT highlights the primary object of the Takeover Code which is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a takeover. Since the Noticees in this case have failed to fulfil their obligation under law, I deem it to be a fit case to issue appropriate directions in this regard. Directions 19. I, therefore, in exercise of powers conferred upon me under Sections 11 & 11B read with Section 19 of the SEBI Act, 1992 and regulation 44 of the SAST Regulations read with regulation 35(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations, 2011), hereby issue the following directions to the Noticees, viz. KDS and ELT,: a) The Noticees shall, jointly or severally, make a public announcement to acquire shares of the Target Company in accordance with the provisions of the Takeover Regulations, 2011, within a period of 45 days from the date of this order; b) The Noticees shall, along with the offer price, 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 are accepted in the open offer, after adjustment of dividend paid, if any.

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

Place: Mumbai G. MAHALINGAM Date: October 30, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA