Order in the matter of Beryl Securities Ltd[SAT Appeal No.132/2017][SAT Appeal No.393/2017]

WTM/GM/EFD/ 43 /2017-18

SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and Regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in respect of: -

1. Ms. Sangita Sethi (PAN: AERPS2183R) 2. Sanjay B Sethi. HUF (PAN: AANHS4504C) 3. Ms. Soniya Sethi (PAN: AERPS2182Q) 4. Sudhir B Sethi, HUF (PAN: AANHS4505D) 5. Mr. Sudhir Sethi (PAN: ALLPS5223K) 6. Mr. Babulal Sethi (PAN: AFBPS4762D) 7. Babulal Sethi, HUF (PAN: AAFHB1551A) 8. Mr. Sohil Sethi (PAN:AUAPS1786M) 9. Mr. Sanjay Sethi (PAN: ALLPS5222J) 10. Tara Sethi (Tara HUF) (PAN: ASAPS8013M) In the matter of acquisition of the shares of Beryl Securities Ltd.

1. Beryl Securities Ltd., (hereinafter referred to as "Target Company") is a company having its registered office at 43-44, 2nd floor, Dawa Bazar, 13-14, RNT Marg, Indore – 452001 (Madhya Pradesh) and its shares are listed on the Bombay Stock Exchange Limited (BSE). As per the shareholding pattern of the target company disclosed to the BSE, as at quarter ending September 2013, the promoter group of the target company included Ms. Sangita Sethi, Mr. Sanjay B Sethi, HUF, Mr. Sanjay Sethi, Sudhir B Sethi, HUF, Mr. Sudhir Sethi, Mr. Babulal Sethi, Babulal Sethi, HUF, Ms. Soniya Sethi, Mr. Sohil Sethi, Tara Sethi (Tara HUF) (hereinafter collectively referred to as "Noticees / promoter group"). Further from the quarterly shareholding pattern filed with BSE as at the end of June 2013 quarter, it was observed that shareholding and voting rights of the noticees in the target company have increased from 23.24% to 25. 09% and the noticees have not made any public announcement for open offer for acquisition of shares, as mandated under

Order in the matter of Beryl Securities Ltd.

regulation 3(1) read with regulation 3(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "Takeover Regulations, 2011”).

2. In this regard, it is noted that the increase in the shareholding was observed pursuant to the acquisition by four noticees Ms. Sangita Sethi (22,500 shares), Mr. Sanjay B Sethi HUF (23,000 shares), Ms. Soniya Sethi (22,200 shares) & Sudhir B Sethi, HUF (25,900 shares) viz, on May 17, 2013, wherein noticees acquired 93,600 shares constituting 1.85% of the share capital of the target company. Consequently, the following changes were observed in the shareholding of the noticees:

Pre-acquisition Pre-acquisition Post- Post-shareholding shareholding acquisition acquisition (no.) (%) shareholding shareholding (no.) (%) Noticees 11,77,500 23.24 % 12,71,100 25.09 %

3. As seen from the above table, pursuant to the aforesaid acquisition by the noticees on May 17, 2013, their shareholding in the target company increased from 23.24% to 25.09% thereby exceeding the threshold of 25% stipulated in regulation 3(1) SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "Takeover Regulations, 2011”). In terms of regulation 3(1) read with regulation 3(3) the Takeover Regulations, 2011, prior to placement of the purchase order to acquire shares on May 17, 2013, the noticees were under an obligation to make a public announcement of an open offer for acquiring shares of the target company, which they failed to make.

4. Since the noticees failed to comply with the obligation to make a public announcement of an open offer in respect of the acquisition dated May 17, 2013 in terms of regulation 3(1) read with 3(3) of Takeover Regulations, 2011, SEBI issued a show cause notice dated June 17, 2016 (hereinafter referred to as "the SCN") to the acquirer calling upon it to show cause as to why suitable directions under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and Regulations 32 and 35 of Takeover Regulations, 2011 should not be issued against it.

5. Four of the noticees, who actually acquired shares namely, Sanjay Sethi (23,000 shares), Sudhir B Sethi HUF (25,900) Sonia Sethi (22,500 shares) and Sangita Sethi (22,500 shares) sent separate replies dated 19/08/2016 on similar lines. They stated that they along with the other promoters of the company had decided to make an open offer for acquisition of 26% of additional shares of the company in compliance with the Regulation 3(1) of the SEBI Takeover Regulations. It was further informed that they are in the process of appointing Merchant Banker to assist them in completing the open offer process. Therefore, it was stated that since they decided to make an open offer on the basis of the promoter shareholding having crossed from 23.24% to 25.09%, there is no need to issue any direction as stated in the SCN. Other Noticees namely, Sangeetha Sethi HUF, Sudhir Sethi, Babulal Sethi HUF, Sanjay Sethi, Sohai Sethi, Tara HUF did not file any reply.

6. In the additional reply dated December 7, 2016, Shri Kamal Aggarwal, CA representing all the Noticees stated that his clients are the promoters of BSL as per the details given in the prospectus and details provided by the company to BSE and MPSE while filing the shareholding pattern and annual disclosures under SEBI SAST Regulations. Copy of the prospectus issued by the company at the time of IPO in 1996 and the shareholding of promoters as per the records of BSE for the quarters ending June 30, 2013, September 30, 2013 and December 31, 2013 were annexed to the reply. It was further stated that the Beryl Drugs Ltd. (BDL) was also promoted by his clients and his clients are the promoters and Directors of BDL. A copy of the promoters shareholding in BDL as per the records of BSE for the quarter ending June 30, 2013, September 30, 2013 and December 31, 2013 was also annexed to the reply. It has been stated that in the prospectus of BSL, the details of BDL were given as a company owned by the promoters. It is the case of the noticees that BDL is a company owned and controlled by the promoters of BSL and was holding 6,78,400 equity shares of BSL (13.39%) from inception and even during the quarters June 30, 2013, September 30, 2013 and December 31, 2013. Copies of the shareholding of BDL in BSL as per the BSE records for the relevant quarters have been annexed.

7. It has been further stated that as per the definition of Person acting in concert (PAC) with promoters under 2 (1)(q)(2) under SEBI Takeover Regulations, 2011, BDL though a part of the promoter of BSL, was inadvertently not shown as promoters in the shareholding pattern submitted by BSL with BSE. It was further stated that as per the definition of PAC, the persons falling within the categories “A company, its holding company, subsidiary company and any company under the same management or control” shall be deemed to be PAC. BDL is a part of the promoters of Target Company, though inadvertently it was not shown as promoters in the shareholding pattern submitted by Target Company to BSE.

8. Accordingly, it has been contended that violation of Regulation 3(1) of the SEBI (SAST) Regulations will not apply and that the noticees are not under an obligation to make an open offer. It has been stated that due to some wrong interpretation and /or advice, without considering the shareholding pattern of BDL, the noticees had intimated SEBI that they will be appointing Merchant Banker for an open offer. However, in view of the legal and factual position contended, it has been submitted there is no violation of Regulations 3(1) and 3(2).

9. Further in response to certain clarifications raised by SEBI vide letter dated 23 January, 2017. regarding the date of acquisition of shares by BDL in BSL, noticees vide letter dated February 6, 2017 (received on February 13, 2017) submitted that BDL had filed share applications prior to the IPO (that opened on February 1, 1996) and applied for 6,78,400 shares. As a proof of the same, copies of four share applications for promoters dated February 3, 1995, February 15, 1995, March 27, 1995 and January 20, 1996 were produced. From this, it can be seen that a total of 6,78,400 shares were allotted to BDL. Subsequently at the time of listing, BSL had submitted a letter to M P Stock Exchange informing that 15,00,000 shares belonged to promoters (Distinctive Number 1 to 15,00,000). Noticees have submitted copy of BSE’s notice dated April 9, 1996 informing all its stock brokers that equity shares (Distinctive number 1 to 15,00,000) allotted to promoters are not transferable upto the dates mentioned against them and would not be good delivery in the market till then.

10. It was further stated that as shares were allotted to BDL prior to the IPO of BSL, no disclosure was made since the SEBI Takeover Regulations, 1997 came into force thereafter. However, reliance was placed on disclosure under Regulations 6 and 8 of the SEBI Takeover Regulations wherein the name of BDL is shown under promoter quota shareholding.

11. As far as the connection between BSL and BDL, it was stated that BDL is owned and controlled by the promoters of BSL. Page 12 of the IPO prospectus of BSL has been relied upon for this purpose. The promoter’s shareholding of BDL and BSL has also been produced to show that Mr. Sudhir Sehti and Mr. Sanjay Sethi were directors of both companies since their inception.

12. I have considered the SCN, replies and submissions made by the noticees and other material available on record. At this juncture, it is pertinent to reproduce the provisions of the Regulation 3(1) read with 3(3) of Takeover Regulations, 2011 which reads as under:- SUBSTANTIAL ACQUISITION OF SHARES, VOTING RIGHTS OR CONTROL Substantial acquisition of shares or voting rights. 3. (1) No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations. (2)…. (3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition of shares by any person such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.

13. Thus the issue for determination is whether BDL is a part of the promoter or promoter group as contended by the noticees and whether they are under an obligation to make an open offer under 3(1) read with 3(3) of Takeover Regulations, 2011. For adjudging the aforesaid issue, it is necessary to examine the definitions of “Acquirer”, “Promoter group” and “Person Acting in Concert” (PAC) as defined under the Takeover Regulations, 2011 and the same is extracted below:- Acquirer-means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company. Persons acting in concert means— (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company.

(2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,— (i) a company, its holding company, subsidiary company and any company under the same management or control; (ii) a company, its directors, and any person entrusted with the management of the company; (iii) directors of companies referred to in item (i) and (ii) of this sub-clause and associates of such directors; (iv) promoters and members of the promoter group; (v)….. (xiii)….. (t) Promoter group has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; Definition of promoter group as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (SEBI, ICDR Regulations, 2009) 2(Zb) Promoter Group includes: (i) the promoter; (ii) an immediate relative of the promoter (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and (iii) in case promoter is a body corporate: (A) a subsidiary or holding company of such body corporate; (B) any body corporate in which the promoter holds ten per cent. or more of the equity share capital or which holds ten per cent. or more of the equity share capital of the promoter; (C) any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent. or more of the equity share capital in that body corporate also holds twenty per cent. or more of the equity share capital of the issuer; and (iv) in case the promoter is an individual: (A) any body corporate in which ten per cent. or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member; (B) ……

14. The definition of “Promoter Group” in the ICDR Regulations, 2009 has been adopted in the context of defining “persons acting in concert” (PAC) along with the “acquirer” in the Takeover Regulations, 2011. The ICDR stipulates the details of specific disclosure that are required in an offer document. In this context, it is seen that ICDR provides two separate definitions for “promoter” and “promoter group”, with the idea of informing the subscribers to the issue or the public, the details about the promoters and promoter group entities by separately making appropriate disclosures to that effect in the offer document. The question therefore is whether a person falling within the definition of “promoter group” can qualify to be a “deemed PAC” for the purpose of ‘acquisition’ automatically, without there being any proof of having acted in concert or any disclosure to that effect having been made to the public / investors at large through the stock exchange mechanism. I am of the opinion that the “deemed PAC” is a category which is often used for dual purposes – either to assert that they have acted along with the acquirer or to deny that they have so acted in a particular acquisition. Thus the question of whether BDL can be treated as a PAC for the acquisition of shares by the Noticees in May 2013 will necessarily depend on the proof of conduct of the Noticee-promoters as well as that of the persons claimed to be PACs, i.e. BDL.

15. I have gone through page 12 of the IPO prospectus of BSL which has been relied upon by the noticees to establish that BDL is owned and controlled by the promoters of BSL. I agree that Page 12 of the prospectus shows that BDL is one amongst the other ventures promoted by the promoters of BSL. The prospectus on page 13 reads as: “Beryl Drugs Ltd. has no business interests in the company except for the rent receivable from Beryl securities Ltd. for the premises. The company will have no business through any of the group companies.” Upon a perusal of the prospectus, I find that the prospectus nowhere discloses that BDL is a promoter of BSL and that it has a share-holding of 13.9% in BSL. Further, the Noticees have submitted the promoters shareholding of BDL and BSL for the quarters ending June, September and December 2013 (running pages 46 to 51). From the said share holding pattern, I notice that in the category named as “promoter and promoter group” of BSL, there are 10 entities i.e. the noticees covered in this order and no one else is shown therein. In the case of BDL, the persons belonging to the category of promoter and promoter group comprises of individual members of the Sethi family, namely Babulal Sethi, Sangita Sethi, Sonia Sethi and Sudhir Sethi. It is relevant to note that Beryl Drugs Ltd has been shown as “belonging to the category of Public and Holding more than 5% of the total number of the shares of the company” for the quarters ending June, September and December 2013 of BSL, from the annexures at running pages 52 to 54. I have also perused the yearly disclosures made by BSL under Regulation 6(2),(4) and 8(3) of SAST Regulations for the years 2001 to 2012. I find that BDL has been shown as part of promoters or person having control over the company and persons acting in concert with them for all the years until 2012. The subject acquisition took place in May 2013 and the noticees have failed to produce any disclosure which evidences BDL as part of the promoter group of BSL after 2013. Besides this, I notice that Beryl Drugs has been shown in the category of public shareholder of BSL not only for the quarters ending June, September and December 2013 but also for the recent quarters ending December 2016 and March 2017.

16. It appears that BDL was a dormant/ passive shareholder from the point of time of acquisition of shares of BSL prior to the IPO and continued without any change to its shareholding which constitutes 13.39 % from such acquisition till December 2013. None of the public disclosures of shareholding pattern of BSL shows BDL as part of promoter or promoter group prior to or post 2013. The annual disclosures filed to the stock exchange up to 2012 was not in the public dissemination of the stock exchange. Without such disclosures in place, the noticees have contended that BDL has been inadvertently not shown as promoters in the shareholding pattern submitted by BSL with BSE. This contention does not appear tenable as I notice that even after the personal hearing, the disclosures do not show BDL as part of the promoters or promoter group of BSL.

17. When the charge of violation of Regulations 3(1) was levied against the noticees, the noticees initially admitted the breach and stated that they are ready to make an open offer and are in the process of appointing a Merchant Banker for the same. However, in the reply sent after receipt of the hearing notice, i.e. in December 2016, the Noticees advanced the argument that by definition of PAC, BDL is a deemed PAC, as it is a part of the promoters of BSL but was inadvertently not shown as promoters in the shareholding pattern submitted to BSE. The strange volte face is not supported by adequate proof. BSL having consistently shown BDL as part of “public shareholder” to the stock exchange cannot be now heard to contend that BDL belongs to the category of “deemed PAC” by virtue of the definition clause in the Takeover Regulations. It appears that the Noticees are attempting to convert the proceedings initiated for non-compliance with the mandatory open offer requirement into a minor matter of non-disclosure, which is an afterthought and if accepted would defeat the object of the takeover regulations. Public disclosures of share holding pattern are manifestations of special arrangements or agreements or strategies that exist between promoters and non-promoters having substantial stake. The plea of inadvertent error does not hold good in case of ownership disclosures. In view of this, I am of the opinion that even though the definition of “Acquirer” in the Takeover Regulations, 2011 includes the PACs acting along with Acquirer, which in turn would include promoter group entities and in that sense BDL may qualify to be a promoter group entity, the conduct of the noticee-promoters and BDL, as reflected in the offer document and the public disclosures of their shareholding pattern are to the contrary. Further, there is no other proof to show that they acted in concert for the acquisition. Hence for the purpose of the subject acquisition, BDL cannot be treated as a person acting in concert with BSL. Admittedly, the acquisition of 1.85 % on May 17, 2013 has taken the total shareholding of the noticee-promoters to 25.09%.

18. In this connection, as the provisions contained in Regulation 3(1),(2),(3) and 4 of Takeover Regulations 2011 are in pari materia with Regulations 10, 11 and 12 of Takeover Regulations 1997, I am relying on the observation of the Hon’ble Securities Appellate Tribunal in its order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) which reads as :

"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." In view of the above, I find that Regulation 3(1) of SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 2011 stands violated.

Directions

19. In view of the above, I, in exercise of powers conferred upon me under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with regulations 32 of the Takeover Regulations, 2011, hereby issue the following directions against Ms. Sangita Sethi, Mr. Sanjay B Sethi, HUF, Mr. Sanjay Sethi, Sudhir B Sethi, HUF, Mr. Sudhir Sethi, Mr. Babulal Sethi, Babulal Sethi, HUF, Ms. Soniya Sethi, Mr. Sohil Sethi, Tara Sethi (Tara HUF):

a. The noticees shall jointly and 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. They shall along with the consideration amount, pay interest at the rate of 10% per annum from August 7, 2013 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. A copy of this order shall be served upon the Noticees, stock exchanges and depositories for ensuring compliance with the above directions.

DATE: August 24, 2017 G. MAHALINGAM PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA