Order in the matter of Exelon Infrastructure Limited

WTM/GM/EFD/97/2017-18

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI ORDER UNDER SECTIONS 11, 11B AND 11(4) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 44 AND 45 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997, IN THE MATTER OF EXELON INFRASTRUCTURE LIMITED NOTICEES – 1. SRINIVASA RAO MARUPUDI [PAN- ACQPM0876L, BCDPM3124P] 2. RAVINDRA DESHPANDE[PAN- AGOPD8942N] 3. SRINIVAS YADAV SHER [PAN- AUAPS8547G] 4. SHAIK AMEER BASHA [PAN- AEZPB3408A ]

Background 1 Securities and Exchange Board of India (“SEBI”) conducted investigation into the trading in the scrip of Exelon Infrastructure Limited (hereinafter referred to as EIL or the scrip) listed on the Bombay Stock Exchange (“BSE”) for the period from December 08, 2010 to January 20, 2012 (hereinafter referred as the “Investigation period” / "I.P") for ascertaining any possible violations, inter alia, of – i. The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations, 2003”); ii. The SEBI (Prohibition of Insider Trading) Regulations, 1992 (“PIT Regulations, 1992”) read with the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations, 2015”); iii. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (“SAST Regulations, 1997”), and iv. The Listing Agreement.

2 The investigation in the matter, was triggered by abnormal price movement in the scrip, created by positive corporate announcements by the company not supported by the fundamentals of the company. The Price Volume Chart during the period under investigation is as under:

Order in the matter of Exelon Infrastructure Limited

PV Chart -Exelon Infrastructure Ltd for Investigation period 150 1500000 No.of 100 1000000 Shares 50 500000 Close Price 0 0

On the basis of investigation, it was inter alia alleged in the Show Cause Notice (SCN) dated January 19, 2017 that Srinivasa Rao Marupudi, Ravindra Deshpande, Srinivas Yadav Sher and Shaik Ameer Basha have violated Regulations 10 and 11 of SEBI (SAST) Regulations, 1997.

3 The shareholding of the 3 directors, Ravindra Deshpande, Srinivas Yadav Sher and Srinivas Rao Marupudi on September 17, 2011 was as follows:- Table -I : Shareholding of Directors as on September 17, 2011. S. No. Name of the director No. of Shares held Percentage 1. Ravindra Deshpande 5,00,000 3.75% 2. Srinivas Yadav Sher 44,817 0.34% 3. Srinivas Rao Marupudi 6,11,608 4.59% Total 11,56,425 8.63%

Subsequently, on September 19, 2011 Srinivas Rao Marupudi acquired ten lakh shares in off market and the shareholding changed as under:- Table -II : Shareholding of Directors as on September 19, 2011. S. No. Name of the director No. of Shares held Percentage 1. Ravindra Deshpande 5,00,000 3.75% 2. Srinivas Yadav Sher 44,817 0.34% 3. Srinivas Rao Marupudi 16,11,608 12.08% Total 21,56,425 16.17%

Thus, it is alleged in the SCN that on the acquisition of Ten Lakh shares by Srinivasa Rao Marupudi in off market, the combined shareholding of the directors including the shareholding of other 2 directors namely Ravindra Deshpande, Srinivas Yadav Sher, who are deemed to be PACs as per Regulation

2(e)(2)(iii) of SEBI (SAST) Regulations 1997, crossed 15% on 19/09/2011. However, the 3 directors have failed to make a public announcement to acquire shares in accordance with Regulation 10 of SEBI (SAST) Regulations, 1997.

4 Further, it is alleged in the SCN that Ravindra Deshpande acquired 2,00,000 shares in off market on 23/09/2011 and 5,00,000 shares in off market on 07/10/2011, thus acquiring more than 5% shareholding in a financial year. Hence, the three directors namely, Ravindra Deshpande, Srinivas Yadav Sher and Srinivas Rao Marupudi acting together as PACs failed to make a public announcement to acquire shares in accordance with Regulation 11(1) of SEBI (SAST) Regulations, 1997. The change in shareholding for the group of three directors is as follows:- Table –III : Combined shareholding of three Directors. S. No. Date No. of shares Total Shares Percentage acquired 1. 22/9/2011 21,21,424 15.91% 2. 23/9/2011 2,00,000 23,21,424 17.41% 3. 07/10/2011 5,00,000 28,02,049 21.01%

5 The SCN also alleged that Shaik Ameer Basha, who was holding 5,00,000 shares, joined as a director on 21/10/2011 due to which the combined shareholding of the 4 directors who are deemed to be PACs (viz. Srinivasa Rao Marupudi, Ravindra Deshpande, Srinivas Yadav Sher and Shaik Ameer Basha) crossed 15% on 21/10/2011 as shown below:- Table –IV : Noticees’ combined shareholding. S. No. Name of the director Percentage of Shares held on Percentage of Shares held on 20/10/2011 21/10/2011 1. Srinivas Rao Marupudi 11.66 % 11.66% 2. Srinivas Yadav Sher 0.34 % 0.34% 3. Ravindra Deshpande 0.00 0.00 4. Shaik Ameer Basha Though he was holding 3.75 3.75% % share, he joined as a director only on 21/10/2011 Total 12% 15.73%

Therefore, the 4 directors named above failed to make a public announcement to acquire shares in accordance with Regulation 10 of SEBI (SAST) Regulations, 1997.

6 The common SCN dated January 19, 2017, was sent to all the noticees through speed post and hand delivery. As the SCN was not served on two noticees, service of SCN was attempted by affixture. Affixture was unsuccessful on the two noticee and therefore the service of SCN was effected by paper publication dated March 23, 2017.

7 In response to the SCN, only Shaik Ameer Basha vide letter dated April 3, 2017 inter alia replied, submitting that:-  He had resigned from the board of Exelon infrastructure Limited on 17-09-2014;  He was not involved in any of the decisions taken by the company nor involved in any announcement made by the company;  He was appointed as an independent Director of the company for a period of 2 years 11 months, i.e. from, 21-10¬2011 to 17-09-2014;  He was not a Promoter Director of the company;  During his period as a director, the company had not made any announcement nor did he violate any rules;  In this period, he had not purchased or sold any shares of the company. All the purchase and sale related transactions which were alleged in SCN had happened prior to him joining the company. 8 After considering the reply of the noticee, an opportunity of personal hearing was also granted to the noticees on April 5, 2017. The hearing notices were sent to the noticees by speed post and hand delivery. Notices of hearing were served on all the noticees by way of newspaper publication in Times of India and Ananda Bazar Patirika. In spite of publication of hearing notices, none of the noticees appeared for hearing or sought adjournment. In view of the same, I am compelled to decide the matter based on the material available on record.

9 On the day of personal hearing, only Srinivasa Rao Marupudi appeared out of the four noticees but he limited his submissions to the charges of market manipulation. Shaik Ameer Basha vide letter dated April 3, 2017 submitted that “He is going through health problem and he is not in condition to travel, as per Doctor’s advice. He not in a position to appear before the concerned officer.” In spite of granting the opportunity of hearing to the remaining two noticees, they failed to appear for hearing or seek adjournment. In view of the same, I am compelled to decide the matter based on the materials available on record.

Consideration:-

10 I have considered the charges in the SCN and the material on record. Before I proceed to deal with the allegation, I deem it necessary to refer to the relevant provisions of Regulations 10, and 11(1) of Takeover Regulations, 1997, which read as under: Regulation 10: "No acquirer shall acquire shares or voting rights which taken together with shares or voting rights, if any, held by him or by persons acting in concert with him, entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations." Regulation 11(1): "No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 55 per cent 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, in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations."

11 For adjudging the aforesaid issue, it is necessary to examine the definitions of “Acquirer” and “Person Acting in Concert” (PAC) as defined under the SAST Regulations, 1997 and the same is extracted below:- Acquirer-means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. Persons acting in concert comprises — (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. (2) Without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established : (i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other; (ii) a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii) directors of companies referred to in sub-clause (i) of clause (2) and their associates: …… Note : For the purposes of this clause”associate” means,- a) Any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1of 1956); and b) Family trusts and Hindu undivided families; 12 Based on the above extracted provisions, it has been alleged in the SCN that as per the definition of deemed PAC at Regulation 2(e)(2)(iii) of the SAST Regulations, 1997, all the directors of EIL are deemed to be PAC unless the contrary is established.

In this regard, it is noted that the SCN has failed to bring out any “common intention” on the part of the Noticees to acquire shares of the target company as a group / in concert. The SCN has also not brought out any connections to link each of the noticees with the other, through their association with other companies mentioned in Regulation 2(e)(2)(i) or with other associates. The SCN has limited the allegation to the fact that the noticees were directors of EIL at the time of acquisition.

13 I have also considered the shareholding pattern of the noticees during the investigation period which reveals that on December 8, 2010 the noticees (except Shaik Ameer Basha) has a consolidated shareholding of 6.94%. During the investigation period the combined shareholding dwindled to 3.57 % on February 3, 2011 and after Shaik Ameer Basha joined as director of the company the shareholding of the noticees surged to 21.01% on October 7, 2011. Finally at the end of the investigation period on January 7, 2012, the combined shareholding again shrunk to 13.57 % on January 7, 2012. Thus, from the fluctuating shareholding pattern also it is not possible to come to a conclusive finding that the noticees had a common intention to acquire shares of the target company.

14 Considering the above facts and circumstances of the case, I am of the view that Srinivasa Rao

Marupudi, Ravindra Deshpande, Srinivas Yadav Sher and Shaik Ameer Basha cannot be alleged to have violated Regulations 10 & 11(1) of SEBI SAST, 1997. I am inclined to drop the allegations in this regard, levelled against the noticees in the subject SCN. The SCN is disposed of accordingly.

Date: March 8, 2018 G. MAHALINGAM Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA