Order in the matter of Juggilal Kamlapat Jute Mills Company Limited[SAT Appeal No.:135/2017]

Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and Regulations 44 of the Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

In respect of: - 1 Acme Consultants Private Limited PAN: AACCA2649C 2 Namokar Vinimay Private Limited PAN: AABCN1203G 3 Mooldhan Advisory Systems Private Limited PAN: AABCM7438E

In the matter of Juggilal Kamlapat Jute Mills Company Limited

1. Juggilal Kamlapat Jute Mills Company Limited (hereinafter referred to as “Target Company” or “JK Jute”) is a company registered under the Companies Act, 1956 having its registered office at 84/49, Zarib Chowki, Kalpi Road, Kanpur – 208012 and its securities were listed on U.P. Stock Exchange Ltd. (‘UPSE’).

2. On July 18, 2007, Rainey Park Suppliers Private Limited (Rainey), Mooldhan Advisory Systems Private Limited (Mooldhan), Watermark Systems Private Limited (Watermark) and Kanishk Translink Private Limited (Kanishk) had together acquired and were holding 14.78% of the shares/voting rights in JK Jute. On July 24, 2007, Rainey entered into a Share Purchase Agreement (SPA) to acquire 43,89,690 shares, constituting 78.12% of the total shareholding/voting rights of J K Jute, from the then promoters of JK Jute, namely, the Singhania group. This acquisition under SPA triggered obligation to make an open offer under the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (herein after referred to as “Takeover Regulations”). Therefore, Rainey along with other Persons Acting in Concert (PACs), namely, Mooldhan, Watermark and Kanishk made a Public Announcement on July

Order in the matter of J K Jute Mills Co. Ltd.

30, 2007 to make an open offer to other shareholders of the Target Company to acquire balance 7.10% shares. In the open offer document Rainey, the acquirer, had shown Mooldhan, Watermark and Kanishk as PACs. Pursuant to the open offer, the total holding of Rainey became 86.23%, whereas the shareholding of Mooldhan, Watermark and Kanishk remained as it was before the open offer. The balance 3.54% shares remained with the public. The details of the pre-open-offer and post-open-offer shareholding/voting rights of the acquirers and PACs in JK Jute are mentioned below.

Change in shareholding of acquirers and PAC pursuant to open offer in January-February 2008

Name of acquirer Shareholdin Shares/voting Shares acquired Post open offer and PAC g in JK Jute rights acquired under open shareholding before SPA* under SPA* offer* /voting rights* Rainey Park Suppliers 4.55% 78.12% 3.56% 86.23% Pvt. Ltd. Mooldhan Advisory 4.89% 00 00 4.89% Systems Private Limited Watermark Systems 3.56% 00 00 3.56% Private Limited Kanishk Translink 1.78% 00 00 1.78% Private Limited Total 14.78% 78.12% 3.56% 96.46% *The shareholding percentage has been calculated taking 56,19,600 as the total number of equity shares issued by JK Jute.

3. The aforesaid open offer closed on February 19, 2008. Subsequently, on March 19, 2009 Rainey transferred a total of 45,44,850 shares/voting rights to Acme Consultants Private Limited (Acme), Namokar Vinimay Private Limited (Namokar) and Mooldhan. These acquirers are hereinafter collectively referred to as “Noticees” and individually by their respective names. The details of the acquisition of shares by the Noticees in JK Jute and their post-acquisition shareholdings are as under:

Name of Name of the Shareholding in No. of % of shares Post-the Acquirers JK Jute before shares acquired acquisition transferor transfer of acquired on on shareholding* shares on 19.3.2009* 19.2.2009* 19.3.2009* Rainy Park Acme 00 25,17,310 44.80% 44.80% Supplier Consultants Private Private Limited Limited Mooldhan 4.89% 7,50,000 13.34% 18.23% Advisory

Systems Private Limited Namokar 00 12,77,540 22.73% 22.73% Vinimay Private Limited Total 45,44,850 80.87% 85.76% *The shareholding percentage has been calculated taking 56,19,600 as the total number of equity shares issued by JK Jute.

4. The Noticees did not make any disclosure under regulations 7(1) of the Takeover Regulations regarding the acquisition of shares in JK Jute on March 19, 2009. Subsequently, SEBI received a complaint dated July 18, 2011 alleging violation of SEBI Regulations because of the aforesaid acquisition of shares of JK Jute by the Noticees and seeking an investigation into the matter. Preliminary examination by SEBI revealed that the acquisition by the Noticees has triggered regulation 10 of the Takeover Regulations. Therefore, SEBI vide letters dated August 26, 2014 and March 23, 2015 sought certain information and details regarding their aforesaid acquisition from the Noticees. The Noticees responded vide letters dated February 28, 2015 and September 7, 2015.

5. On an analysis of the information provided by Acme, Namokar and Mooldhan, it was observed by SEBI that Acme, Namokar and Mooldhan have common directors and Rainey had a different set of directors. Further, out of the three Noticees/acquirers, only Mooldhan was holding shares in JK Jute before and during the open offer made in 2008 (refer Table in para 2) as it was shown as PAC with Rainey, the acquirer, in the public announcement dated July 30, 2007. It was also noticed that the transfer of shares between Rainey and Noticees on March 19, 2009 took place within 3 years from the date of closure of open offer. Further, UPSE informed that the Noticees/acquirers have not made disclosures under regulations 7 or 8 of the Takeover Regulations. Therefore, it was alleged that the acquisitions of shares from Rainey by the Noticees, which triggered requirement to make an open offer, is not eligible for exemption under regulation 3(1)(e)(iv) of the Takeover Regulations.

6. Thus, as Mooldhan was holding 4.89% shares in the target company and it along with other persons acting in concert, namely, Acme and Namokar acquired further 80.87% shares in JK Jute on March 19, 2009 without complying with the obligation to make a public announcement of an open offer in terms of regulation 10 of Takeover Regulations, SEBI issued a Show Cause Notice dated July 29, 2016 (hereinafter referred to as "the SCN") to the acquirers calling upon them to show cause as to why suitable directions under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and regulation 44 of Takeover Regulations should not be issued against them.

7. Mooldhan and Namokar filed their replies to the SCN vide letters dated August 4, 2016. An opportunity of hearing was given to all the Noticees on December 19, 2016. Mr. Aditya Sarda, Authorized Representative, appeared for hearing on behalf of all the Noticees and made submissions on their behalf. The summary of the replies and oral submissions of the Noticees are as under:

a) J K Jute became a sick company due to continuous losses, labour unrest and uneconomic location and it filed case before BIFR (Case No. 149/1994) under Sick Industrial (Special Provisions) Companies Act, 1985 for taking rehabilitation measures by the BIFR. The matter is still pending.

b) In 2007, Rainey decided to acquire management control over JK Jute from its then promoters and for this purpose it entered into a SPA with Singhania Group. Mooldhan was one of the PAC with Rainey during the open offer made pursuant to the said acquisition. Rainey, Namokar, Acme and Mooldhan are companies under the same management as these companies are having same set of persons as directors (Amit Kumar Sarda and Shanta Sarda are common directors). Further, the shareholders of Rainey, Mooldhan, Acme and Namokar are similar and they are having control over the Board of Directors of these companies. Therefore, in terms of regulation 2(1)(e)(2)(i) of the Takeover Regulations, a company or its holding company or a company under the same management shall be deemed to be PAC with other person in the same category and in terms of provisions of regulation 3 of the Takeover Regulations they are exempted from making open offer for the alleged acquisition.

c) During the open offer made pursuant to public announcement dated July 30, 2007 there was an understanding between the acquirer and persons acting in concert that the Acquirer shall transfer the shares acquired by it under the open offer.

d) The entities paid the same price to transferor (Rainey) which Rainey had paid for acquiring shares from various entities during the open offer.

e) They did not make disclosure under regulation 7 and 8 of the Takeover Regulations as it escaped their attention due to wrong advice received at that point of time from their company secretary.

f) It was also stated that Yashdeep Trexim Pvt. Ltd., who filed complaint before SEBI, has also filed a case before CLB in which J K Jute has been arrayed as R-17 and the same is pending before CLB. The CLB vide an interim order has directed JK Jute to maintain status quo of the composition of the company and requested that the present proceedings may not be proceeded with till the final order in the matter is passed by CLB.

5. I have considered the SCN, replies and submissions made by the Noticees. In the present case, it has not been disputed by the Noticees that they acted in concert and acquired 80.87% shares in the Target Company on March 19, 2009, without making any public announcement. They have however contended that they were not required to make any public announcement as the acquisition of shares of JK Jute by the noticees was exempted under regulation 3(1)(e)(iv) of the Takeover Regulations from applicability of regulation 10 of the Takeover Regulations.

6. In view of the contention of the Noticees, it would be pertinent to refer to regulation 3(1)(e)(iv) of the Takeover Regulations. The relevant provisions reads as under:

“3. (1) Nothing contained in regulation 10, 11 and 12 of these regulations shall apply to:

… … … (e) inter se transfer of shares amongst –

… … … (iv) the acquirer and persons acting in concert with him, where such transfer of shares takes place three years after the date of closure of public offer made by them under these regulations.

Explanation – (1) The exemption under sub-clauses (iii) and (iv) shall not be available if inter se transfer of shares is at a price exceeding 25% of the price as determined in terms of sub-regulations (4) and (5) of regulation 20.

(2) The benefit of availing exemption under this clause, from applicability of regulations for increasing shareholding or inter se transfer of shareholding shall be subject to such transferor(s) and transferee(s) having complied with regulation 6, regulation 7 and regulation 8;

… … … “

7. From regulation 3(1)(e)(iv) of the Takeover Regulations it is clear that for availing exemption under the aforesaid provision the following conditions are to be satisfied – (i) the inter se transfer shall take place after three years from the date of closure of the public offer; (ii) the share price at which inter se transfer takes place shall not exceed 25% of the price determined in terms of sub-regulations (4) and (5) of regulation 20; and (iii) the transferors and transferees shall have complied with applicable disclosure requirements under Takeover Regulations. From the facts available on record, it is observed that the open offer closed on February 19, 2008 and the transfer of shares from Rainey to the Noticees took place on March 19, 2009. Further, the Noticees failed to make the disclosure regarding the acquisition under regulations 7 and 8 of the Takeover Regulations. Thus, as the Noticees failed to comply with the conditions prescribed under the aforesaid provision of regulation 3 of the Takeover Regulations they were not eligible for exemptions from making open offer. Accordingly, as the acquisition by the Noticees on March 19, 2009 crossed 15% threshold prescribed under regulation 10 of the Takeover Regulations, they were under an obligation to make public announcement of open offer to the shareholders of JK Jute.

8. The Noticees have also submitted that Yashdeep Trexim Pvt. Ltd. has filed a case before the Company Law Board, Kolkata Bench (C. P. No. 942 (397/398)/KB/2012). The CLB vide ad interim orders dated November 26, 2012 and January 15, 2013 has ordered JK Jute to maintain status quo of the composition of the Board of Directors and shareholding pattern of the company till next date of hearing. In view of this, the Noticees have requested that the present proceedings may not be proceeded with till the final order in the matter from CLB.

9. It is observed on a perusal of the aforesaid CLB orders that the dispute before CLB is between the parties with regard to gaining absolute control over JK Jute. SEBI is not a party to the proceedings before CLB and the issue of violation of Takeover Regulations is not before the CLB. Further, the entities are in breach of the provisions of the Takeover Regulations, as observed in para 7 above, which necessitates providing relief to the public shareholders in accordance with law. Therefore, I am not inclined to keep the present proceedings in abeyance.

10. In the context of enforcement of regulations 10, 11 and 12 of the Takeover Regulations, 1997, SAT vide order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) observed as follows: "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."

11. As observed by the Hon’ble SAT in the above case, normally in cases of failure to make an open offer a direction to make a public announcement to acquire shares of the target company is issued to acquirers. The present case is slightly different as the shares of JK Jute were listed exclusively on UPSE, which exited the Stock Exchange business pursuant to an order bearing ref. no. WTM/RKA/MRD/49/2015 dated June 9, 2015. Consequently, JK Jute is placed on the dissemination board of the National Stock Exchange (NSE). SEBI, in order to protect the interest of shareholders of exclusively listed companies which are on dissemination board of stock exchanges, has issued a circular bearing reference no. SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016 laying down options to be exercised by exclusively listed company on the dissemination board of a stock exchange, i.e., either to raise capital for listing on a nationwide stock exchange or to offer exit opportunity to investors. Such companies are required to indicate their intention and, accordingly, submit a plan of action to the stock exchange within 3 months from the date of the circular (which stands extended up to March 31, 2017 vide circular bearing reference no. SEBI/HO/MRD/DSA/CIR/P/2017/5 dated January 5, 2017), to be implemented under the supervision of the stock exchange.

12. It is noted that the primary object of the Takeover Regulations is to provide an opportunity of exit to public shareholders pursuant to change in control or takeover. The aforesaid SEBI circular also provides mechanism for providing exit opportunity to public shareholders of the companies that are on dissemination board of stock exchange. Therefore, while appreciating the fact that the aforesaid circular does not envisage to cover those companies where certain acquirers have violated Takeover Regulations necessitating public announcement, it is seen that the circular mandates providing an exit opportunity even to the shareholders of the companies on the Dissemination Board. In other words, the mere movement of a company from the listing platform of a stock exchange to the Dissemination Board of a nationwide stock exchange does not obviate the need to provide an exit opportunity to its public shareholders. Thus, the said circular emphasises the need for the promoters of a company on dissemination board to provide exit opportunity to its shareholders, in case it is unable to raise capital to get listed on another stock exchange.

13. In view of the above, I am inclined to direct the Noticees to provide an exit opportunity to other shareholders of JK Jute by broadly adopting the procedure laid down in clauses (iii) to (ix) of Annexure A of the circular at the price arrived at in para 14, without the shares being valued by an independent valuer.

14. I find from the submissions of the Noticees that they acquired shares on March 19, 2009 at the prices as shown below: Name of the acquirers No. of shares Price in rupees at which shares were acquired

Acme 22,61,430 5.50

2,55,880 5.10

Namokar 1,97,540 6.25

10,80,000 5.50

Mooldhan 7,50,000 5.50

Since the weighted average price of acquisition of shares to be ` 5.51, I direct the Noticee to offer exit opportunity to the public shareholders at ` 5.51 per share, with interest at the rate of 10% p.a. from June 19, 2009 (being the date within which the payment would have fallen due had the acquirers made an open offer for the subject acquisition) till the date of actual payment.

15. In view of the above, in exercise of powers conferred upon me under sections 11, 11B of the Securities and Exchange Board of India Act, 1992 and regulation 44 of Takeover Regulations, 1997 read with regulations 32 and 35 of the Takeover Regulations, 2011, I hereby direct the Noticees to:

(a) provide an exit opportunity to the other shareholders of the target company within a period of 90 days from the date of this order as stipulated in paragraphs 13 and 14 above, under the supervision of NSE;

(b) the Noticees shall along with the consideration amount, pay interest at the rate of 10% per annum from June 19, 2009 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 process.

16. This order shall come into force with immediate effect. A copy of this order shall be served upon the Noticees and the stock exchange for ensuring compliance with the above direction.

Date: January 10, 2017 G. MAHALINGAM Place: Mumbai WHOLE TIME MEMBER