Order in the matter of Kanchan International Ltd

Noticee Noticee Name PAN no. 1. Kanchan Kitchen Aid Pvt. Ltd. AAACK2600F 2. Champalal S. Khimavat AAKPK3404C 3. Dinesh C. Khimavat AAEPK3323Q 4. Usha D. Khimavat AAPPK0229G 5. Kanchan C. Khimavat ALUPK1076B 6. Bharat Pipalia AAEPP2531R 7. Mahendra D Khimawat AAGPK6362B 8. Chetan Khimavat Not Available 9. Marlex Products Ltd. AAACM0709R (The aforesaid entities are hereinafter referred to by their respective names / Noticee numbers and collectively as “the Noticees”) In the matter of Kanchan International Ltd. 1. Present proceedings have been initiated against the Noticees, vide a show cause notice dated August 11, 2016 (hereinafter referred to as “the SCN”) issued by Securities and Exchange Board of India (hereinafter referred to as “SEBI”), to the Noticees, under Section 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) and Regulation 32 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as “SAST Regulations, 2011”) for violation of Regulation 3(1) and 3(2) of the SAST Regulations, 2011.

2. Facts stated in the SCN and the allegations made therein are narrated in brief, as hereunder: a. The Noticees are persons belonging to the promoter/promoter group of Kanchan International Ltd. (hereinafter also referred to as “KIL”/ “the Target Company”), a company listed on BSE. Therefore, these Noticees are persons acting in concert as per the provisions of SAST Regulations, 2011.

b. It was observed that there was change in the shareholding of the promoter and promoter group entities due to sale of shares or off market transfer of shares by the Noticees and the share capital of the Target Company also changed due to conversion of warrants into equity shares. Vide special resolution passed at the AGM of the Target Company held on September 24, 2010, KIL had issued 25,00,000 fully convertible warrants to certain promoter/promoter group entities, which were converted into equity shares during the quarter ended March 31, 2012 and June 30, 2012.

c. The details of the acquisition of shares by promoter and promoter group entities and their percentage of shareholding are as under: Table 1 Date of Name of No. of % of Consolidat No. of No. of No. of % of Mode Consolidated acquisi the shares held shareh ed % of shares shares shares shareho % of tion entity pre-olding shareholdi acquired acquired held post-lding shareholding acquisition held ng of / / acquisitio held of / pre-pre-promoters/ disposed disposed n/ post-post-promoters/ disposal acquisi PAC’s pre-off off as % disposal acquisit PAC’s post tion/ acquisition of paid-ion or acquisition/ pre- / pre-up share post-post disposal dispos disposal capital disposa al l. 31/03/2 Kanchan 3,83,331 11.94 20.16 226531 6.15 6,09,862 16.54 Conversion of 25.98 Kitchen 012 warrants into Aid Pvt. Ltd. equity (Noticee no. 1) Kanchan 20,500 0.64 84000 2.28 1,04,500 2.83 C Khimavat (Noticee no. 5) 09/05/2 Kanchan 6,09,862 16.54 25.98 66000 1.31 6,75,862 13.44 32.41 012 Kitchen

Aid Pvt. Conversion of Ltd. (N1) warrants into Kanchan 1,04,500 2.83 73599 1.46 1,78,099 3.54 equity C Khimavat (N5) Champal 1,02,310 2.78 158170 3.15 2,60480 5.18 al S Khimavat (N2) Dines c. 98,310 2.67 216984 4.31 3,15,294 6.27 Khimavat (N3) Usha D 36,810 1.00 157599 3.13 1,94,409 3.87 Khimavat (N4)

d. In view of the above, it is alleged that Noticee no. 1 and Noticee no. 5 have acquired 2,26,531 and 84,000 shares of KIL, respectively, upon conversion of warrants into equity shares on March 31, 2012, due to which the total shareholding/ voting rights of promoter and promoter group entities increased from 20.16% to 25.98% on March 31, 2012, and thus, the Noticees could not have acquired these shareholding rights in KIL without making public announcement of an open offer in terms of Regulation 3(1) of SAST Regulations, 2011.

e. It is also alleged that the Noticees were already holding more than 25% of shares/ voting rights in KIL on May 9, 2012 and some promoter group entities namely, Noticee no. 1, 2, 3, 4 and 5, acquired 66,000, 1,58,170, 2,16,984, 1,57,599 and 73,599 shares of KIL respectively, upon conversion of warrants into equity shares on May 9, 2012, due to which the total shareholding/ voting rights of promoter and promoter group entities increased from 25.98% to 32.14%, thereby, entitling them to exercise additional voting rights in KIL which is greater than the threshold of 5 %, which the Noticees could not have acquired these additional shares or voting rights in KIL in a financial year, without making public announcement to an open offer in terms of Regulation 3(2) of SAST Regulations, 2011.

f. On the basis of the findings at para 2(d) and para 2(e) above, the SCN alleges that the Noticees have violated Regulation 3(1) and 3(2) of SAST Regulations, 2011. The SCN thus, had called upon the Noticees to show cause as to why appropriate directions including but not limited to the direction to make open offer to the shareholders of KIL should not be issued against them under Section 11B of SEBI Act, 1992 and Regulation 32 of SAST Regulations, 2011.

Personal hearing, replies and written submissions:

3. The personal hearing was held for Noticee no. 1, 3, 4, 5, 7 and 9 on November 18, 2019. On the said date of the hearing the Authorised Representative appearing on behalf of the aforesaid Noticees informed that Noticee no. 2 has expired. Further, he also informed that he would be making submissions on behalf of Noticee no. 8 as well, however, upon being called to present an Authorization letter from Noticee no. 8, he failed to produce the same. Hence, the submissions made by the said Authorized representative on behalf of Noticee no. 8 cannot be taken on record. I note that after personal hearing held on November 18, 2019, Noticee no. 7 has filed its written submission dated November 14, 2019, Noticee no. 3, 4 and 5 have filed their written submissions dated December 3, 2019 and Noticee no. 1 and 9 have filed their written submissions dated December 4, 2019. I note that despite the successful service of SCN and hearing notice, Noticee no. 8 has failed to file its reply/written submissions and has even failed to appear for personal hearing without any request for adjournment, hence, the matter is being proceeded against Noticee no. 8 ex-parte. Noticee no. 6 has filed his reply dated September 10, 2016 and he has failed to appear for the scheduled personal hearing without making any request for adjournment.

4. The contentions raised by Noticee no. 1, 3, 4, 5 and 9, to the allegations in the SCN are more or less similar in nature and the crux of the same is as follows:

a. Due to the dire financial state of KIL, promoters of KIL decided to infuse working capital into KIL by conversion of their warrants.

b. Bankers of KIL had issued notice under section 13(2) of SARFAESI Act, 2002. Attention of the promoters of KIL was to meet the financial obligations of bankers of KIL. c. The ill financial health of KIL, promoters and absence of professional expertise have led to the non-compliance of open offer requirement as contemplated under Regulation 3(1) and 3(2) of SAST Regulations, 2011. d. The Hon’ble High Court of Bombay had passed a winding up order dated January 13, 2015, against KIL, in Company Petition No. 297 of 2014. e. The promoters till date are trying their level best to revive KIL and KIL has paid almost 76% of its dues to the financial institutions as on date. f. KIL’s scrip has been suspended from trading in BSE w.e.f September 8, 2015 and KIL has been compulsorily delisted from BSE w.e.f. November 29, 2017. The Hon’ble High Court of Bombay vide order dated July 19, 2018 passed in Company Petition No. 839 of 2014, ordered for winding up of KIL. Ministry of Corporate Affairs master data shows the status of KIL as ‘under liquidation’. g. In view of the above stated reasons, it would cause great hardship on part of promoters, investors and KIL, if any direction is issued including the direction to make open offer to the shareholders of KIL, at this stage where the promoters are trying hard to revive KIL.

5. Noticee no. 7 has contended that as of the year 2000, he was not holding any shares of KIL and that he has been wrongly shown as part of promoter/promoter group of KIL and thus, wrongly classified as the person acting in concert in the present SCN. It is his case that he does not have any connection with KIL.

6. Noticee no. 6 contends that he was not a promoter of KIL and he was merely an employee of the Target Company, who had resigned on July 31, 2011. He further contends that he was holding an insignificant no. of shares in KIL at any point in time and that he was receiving salary as an employee of KIL.

Consideration of submissions and findings:

7. Before dealing with the issues involved in the matter, it would be appropriate to refer to the relevant provisions of law involved in the matter, the relevant extract of which is reproduced hereunder:

Relevant extract of provisions of SAST Regulations, 2011: “Definition: 2. (1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below, and their cognate expressions and variations shall be construed accordingly, - (a) “acquirer” means any person who, directly or indirectly 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 the target company;

(q) 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, — ……………………………………………………………………………………. (iv) promoters and members of the promoter group; ………………………………………………………………………………………… (s) ‘promoter’ has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and includes a member of the promoter group; …………………………

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) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

Provided that ………… Provided further that……..

Explanation.— For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,— (i) gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) ………………………………………….

Timing

13.(1) The public announcement referred to in regulation 3 and regulation 4 shall be made in accordance with regulation 14 and regulation 15, on the date of agreeing to acquire shares or voting rights in, or control over the target company.

(2) Such public announcement,— ……………………………………………………………… (b) pursuant to an acquirer acquiring shares or voting rights in, or control over the target company upon converting convertible securities without a fixed date of conversion or upon conversion of depository receipts for the underlying shares of the target company shall be made on the same day as the date of exercise of the option to convert such securities into shares of the target company;…………………..”

8. I note that SCN alleges that during the Financial Year 2011-12, Noticee no. 1 acquired 6.15% shares of KIL on March 31, 2012, by conversion of warrants into equity shares and Noticee no. 5 acquired 2.28 % shares of KIL on March 31, 2012, by conversion of warrants into equity shares. I note that because of these acquisitions on March 31, 2012 (“first trigger”), by the acquirers in the first trigger i.e. Noticee no. 1 and 5, the shareholding of the acquirers in first trigger alongwith the shareholding of the persons acting in concert in the first trigger i.e. Noticee No. 2, 3, 4, 6, 7, 8 and 9, increased from 20.16 % to 28.59%, as calculated from Table

1 above. I note that the SCN incorrectly mentions the increase in percentage shareholding from 20.16 % to 25.98%. It is further alleged in the SCN that Noticee no. 1 to 9 were the part of the promoter group of KIL as on the date of respective acquisitions by the acquirers in first trigger. As per Regulation 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. Thus, the SCN alleges that the acquirers in first trigger alongwith persons acting in concert in first trigger, by acquiring more than 25% shares (i.e. 8.43% shares - wrongly mentioned in SCN as 5.82% shares on net basis) on March 31, 2012 taking the shareholding of acquirers and persons acting in concert with them from 20.16% to 28.59%, without making public announcement for an open offer, have violated Regulation 3(1) of SAST Regulations, 2011.

9. SCN further alleges that during the Financial Year 2012-13, Noticee no.1, by conversion of warrants into equity shares, further acquired 1.31% shares of KIL on May 9, 2012, Noticee no. 5, by conversion of warrants into equity shares, further acquired 1.46% shares of KIL on May 9, 2012, Noticee no. 2, by conversion of warrants into equity shares, acquired 3.15% shares of KIL on May 9, 2012, Noticee no. 3, by conversion of warrants into equity shares, acquired 4.31% shares of KIL on May 9, 2012 and Noticee no. 4, by conversion of warrants into equity shares, acquired 3.13% shares of KIL on May 9, 2012. I note that because of these acquisitions, on May 9, 2012 (“second trigger”) by the acquirers in the second trigger i.e. Noticee no. 1, 2, 3, 4 and 5, the shareholding of the acquirers in second trigger alongwith shareholding of the persons acting in concert in the second trigger i.e. Noticee no.6, 7, 8 and 9, increased from 28.59% to 38.82% on gross basis, as calculated from Table 1 above. As per Regulation 3(2), no acquirer who together with person acting in concert with him was holding 25% or more but less than the maximum permissible non-public shareholding, shares or voting rights in a company, could acquire in any financial year 5% or more shares or voting rights in such company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company. Further, Explanation appended to said Regulation 3(2) provide that only gross acquisitions shall be taken into account regardless of any intermittent fall in shareholding or voting rights. Thus, the SCN alleges that the acquirers in second trigger alongwith persons acting in concert in second trigger, by acquiring more than 5% shares on gross basis (i.e. 10.23% shares) in a financial year on May 9, 2012, without making public announcement for an open offer, have violated Regulation 3(2) of SAST Regulations, 2011.

10. Be it noted that none of the Noticees have disputed the acquisitions which resulted into first trigger and second trigger. Be it further noted that none of the Noticees have disputed percentage of their respective shareholding in KIL (except Noticee no. 7) or the percentage of pre or post acquisition shareholding of other Noticees in KIL, as shown in Table 1 of the SCN. Be it further noted that none of the Noticees have contended that the warrants that were converted into equity shares by the acquirers had a pre-determined fixed date of conversion.

11. The main contention of Noticee no. 1, 3, 4, 5 and 9, is that they being the promoters of KIL and being concerned about the financial health of KIL, decided to convert their warrants into equity shares such that there was requisite capital infusion in KIL at the right time. It is their case that they had no intention to violate the open offer obligations of the SAST Regulations, 2011. In this regard, I note that SAST Regulations, 2011, in order to take care of deserving cases which may require exemption from the obligation to make open offer, in Regulation 11 thereof provides that the Board may for reasons recorded in writing, grant exemption from the obligation to make an open offer for acquiring shares under these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market. For this purpose, acquirer is required to make an application to the Board giving therein the details of the proposed acquisition and the grounds on which exemption is sought. In the present case, no such application has been filed by the acquirers before making the alleged acquisitions on March 31, 2012 and May 09, 2012. The ground stated by the Noticees for making acquisitions could have been considered in the application under Regulation 11, had it been filed by the acquirers. However, once the obligation to make open offer under Regulation 3(1) and 3(2) has been incurred then the consequences envisaged under the SAST Regulations, 2011 for not making the open offer shall ensue and the reasons for which acquisition was made becomes redundant. Therefore, I find that the contention raised by Noticee no. 1, 3, 4, 5 and 9, on the basis of reasons for which acquisition were made, is untenable.

12. The Noticees were shown as part of promoter/promoter group in the quarterly shareholding pattern disclosures on BSE from December 2011 to June 2012. I note that, in terms of Regulation 2(1)(q)(2)(iv) of SAST Regulations, 2011, unless the contrary is established promoters and members of the promoter group shall be deemed to be persons acting in concert with other person in the same category, as acquirers. Thus, in the present case, by virtue of Regulation 2(1)(q)(2)(iv) of SAST Regulations, 2011, the Noticees are deemed persons acting in concert for the acquisitions made the acquirers in the first and second trigger, unless the contrary is proved. In the present case, except Noticee no. 6, none of the Noticees have made contention that they were not acting in concert with the acquirers in first and second trigger, so as to prove contrary to the deeming fiction regarding Noticees being persons acting in concert.

13. Noticee no. 6, in order to rebut the presumption that he was person acting in concert with the acquirers and in first and second trigger, has contended that he was merely an employee of the Target Company and that he was not a promoter of KIL. I note that except for the bald denial, Noticee no. 6 has not furnished any evidence in support of his claims. I find that Noticee no. 6 was shown in the shareholding pattern of KIL from quarter ended September 2006 till quarter ended March 2014 (the last record available on BSE website) as part of promoter/promoter group. Thus, from the records of shareholding pattern as available on BSE website, it appears that Noticee no. 6 was shown as part of promoter/promoter group for 8 long years and in this long tenure he had never raised any objection, either to KIL or the stock exchange for such purported wrong disclosure as promoter of KIL. I also note that Noticee no. 6, has not provided any proof in support of his claim of employment at KIL. In view of the above, I am inclined to draw an inference that Noticee no. 6 has raised the contention of not being part of the promoter/promoter group of KIL for the first time in these proceedings, merely to escape from the adverse consequences of these proceedings. Hence, I find that being part of the promoter/promoter group of KIL,

Noticee no. 6 is a deemed person acting in concert in terms of Regulation 2(1)(q)(2)(iv) of SAST Regulations, 2011 for the acquisitions in question under these proceedings.

14. Similarly, I note that Noticee no. 7 has also mere denied holding any shares in KIL since year 2000. He also claims to have been wrongly classified in the promoter/promoter group by KIL. I find that Noticee no. 7 was shown in the shareholding pattern of KIL holding 3000 shares, from quarter ended March 2007 till quarter ended March 2014 (the last record available on BSE website) as part of promoter/promoter group. Except the bald assertion that he does not belong to the promoter/promoter group category of KIL, I find that Noticee no. 7 has not produced any evidence to prove his case, like approaching KIL or stock exchange claiming that his shareholding could not be included in the promoter/promoter group shareholding. On the contrary KIL continued to disclose shareholding of Noticee no. 7 under promoter/promoter group shareholding. Further, I note that, Noticee no. 7 has also not submitted any evidence in support of his claims including the claim that he ceased to be a shareholder of KIL since the year 2000. Thus, I find that Noticee no. 7 has raised this contention for the first time in these proceedings merely to escape the adverse consequences of these proceedings. Hence, I find that being part of the promoter/promoter group of KIL, Noticee no. 7 is a deemed person acting in concert in terms of Regulation 2(1)(q)(2)(iv) of SAST Regulations, 2011 for the acquisitions in question under these proceedings.

15. From the copy of the medical certificate of cause of death of Noticee no. 2, issued by Municipal Corporation of Greater Mumbai, as furnished by the Authorized representative of Noticee no. 1, 3, 4, 5 and 9, I note that Noticee no. 2 has expired on April 28, 2015

16. In view of the aforesaid discussions, I find that:- a. the Noticees were shown as part of promoter/promoter group in the quarterly shareholding pattern disclosures on BSE from December 2011 to June 2012. I note that, in terms of Regulation 2(1)(q)(2)(iv) of SAST Regulations, 2011, unless the contrary is established promoters and members of the promoter group shall be deemed to be persons acting in concert with other person in the same category, as acquirers. Thus, I note that the Noticees are deemed to be persons acting in concert, since none of them have been able to establish to the contrary.

b. during the Financial Year 2011-12, by the conversion of warrants into equity shares, Noticee no. 1 acquired 6.15% and Noticee no. 5 acquired 2.28 % shares of KIL on March 31, 2012. Thus, I note that because of these acquisitions in the first trigger by Noticee no. 1 and 5, the shareholding of the acquirers in first trigger alongwith the shareholding of the persons acting in concert in the first trigger i.e. Noticee No. 2, 3, 4, 6, 7, 8 and 9, increased from 20.16 % to 28.59%. In terms of Regulation 3(1) of the SAST Regulations, 2011, the Noticees were required to make a public announcement of open offer on acquisition of 25% or more shares, as their shareholding in the Target Company increased from 20.16% to 28.59%, which the Noticees have failed to make. Therefore, I find that the Noticees have violated Regulation 3(1) of SAST Regulations, 2011.

c. during the Financial Year 2012-13, by the conversion of warrants into equity shares, Noticee no.1 further acquired 1.31%, Noticee no. 5 further acquired 1.46%, Noticee no. 2 acquired 3.15%, Noticee no. 3 acquired 4.31% and Noticee no. 4 acquired 3.13%, shares of KIL on May 9, 2012. Thus, I note that because of these acquisitions in the second trigger by Noticee no. 1, 2, 3, 4 and 5, the shareholding of the acquirers in second trigger alongwith the shareholding of the persons acting in concert in the second trigger i.e. Noticee No. 6, 7, 8 and 9, increased from 28.59% to 38.82% on gross basis (i.e. an increase of 10.23 % in the same financial year). In terms of Regulation 3(2) of the SAST Regulations, 2011, on acquisition of 5% or more shares in any financial year, the Noticees were required to make a public announcement of open offer for an open offer, as their shareholding in the Target Company in financial year 2012-13 increased by 10.23% i.e. from 28.59% to 38.82%, which the Noticees have failed to make. Therefore, I find that the Noticees have violated Regulation 3(2) of SAST Regulations, 2011.

17. I note that Regulation 32 of the SAST Regulations, 2011 which provides for the consequences to be visited for the breach of the SAST Regulations, 2011, as has been observed in this case, gives flexibility to SEBI to enforce Regulation 3(1) and 3(2) by way of issuing several possible directions. Here, it would be appropriate to refer to the observations made by Hon’ble Securities Appellate Tribunal, Mumbai (hereinafter referred to as “Hon’ble SAT”) in order dated September 08, 2011 in Appeal No. 31 of 2011 – Nirvana Holdings Ltd. Vs. SEBI wherein Hon’ble SAT in respect of Regulations 10, 11 and 12 of SEBI (SAST) Regulations, 1997 which are pari materia to Regulations 3(1), 3(2) and 4 of the SAST Regulations, 2011, observed as under:

“…………………5. Having upheld the finding that the appellant violated Regulation 11(1) of the takeover code by not making a public announcement, the question that next arises is what direction should be issued to it. The whole time member has directed the appellant to disinvest 1,34,905 shares constituting 1.17 per cent of the equity capital of the target company which was in excess of the permissible limit of 5 per cent and transfer the profits, if any, to the Investor Protection Fund(s) of the concerned stock exchanges. He appears to have blindly accepted the plea of the appellant in this regard that was made in the supplementary reply dated May 25, 2010 as noticed above. Since the plea of the appellant is covered by the provisions of Regulation 44(a) of the takeover code, the whole time member has without recording any reasons directed the appellant to disinvest the shares in excess of the permissible limit. 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 take over. 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. Be it noted that in the present case, after issue of SCN in August 11, 2016, the Target Company has been compulsorily delisted by BSE since, November, 2017. In this regard, I note that Hon’ble SAT in its order dated June 28, 2018 passed in Appeal No. 374 of 2017 – Rudra Securities Ltd. & Ors. Vs. SEBI and other connected appeals while dealing with the contention raised by the acquirers/appellants inter alia on non-feasibility of directions given by SEBI to make open offer where the target the target company was delisted, observed as under:

“…………………….33. We do not agree with the arguments of the appellants that a public announcement for open offer is now impossible in view of the fact that PCL has been compulsorily delisted by the BSE on November 29, 2017. We note that while issuing the order on compulsory delisting by BSE on November 29, 2017, inter-alia-, the following directions were given: “Promoters of these delisted companies will be required to purchase the shares from the public shareholders as per the fair value determined by the independent valuer appointed by the Exchange, as mentioned in the Public Notice to be issued shortly.” Accordingly, there is no difficulty in buying back the shares by the promoters and PACs, including the appellants in three appeals here who have been directed to do so under SAST Regulations, 1997…………..”

19. I note that in the present case also the Target Company was compulsorily delisted by the BSE Ltd. vide same order dated November 29, 2017, as has been referred by Hon’ble SAT in its aforesaid order dated June 28, 2018 passed in Rudra Securities matter (Supra) and the same directions has been issued to the promoters of the Target Company involved herein. Therefore, I find that compulsory delisting of the Target Company herein is not an impediment in the way of carrying out of open offer obligations incurred by the Noticees.

20. The another submission of the Noticees which requires consideration in arriving at a decision whether to direct the Noticees to make open offer or not, is that in terms of order dated July 19, 2018 passed by the Hon’ble Bombay High Court in Company Petition No. 839 of 2014, the Target Company has been order to be wound up and the Official Liquidator attached to the High Court has been appointed as the liquidator for the Target Company. In this regard, I note that as per the information available on the website of Hon’ble Bombay High Court, after the passing of the winding up order dated July 19, 2018, an application being Company Application No. 85 of 2019 was filed by the Target Company in disposed of Company Petition No. 839 of 2014 for recall of the order dated July 19, 2018 passed in Company Petition No. 839 of 2014 wherein Hon’ble Bombay High Court passed an order dated June 19, 2019 which provides as under:

“…………..3. If by 08.07.2019 the ex directors do not file the statement of affairs, this application will stand dismissed without further reference to this Court. If by 08.07.2019 the ex directors file the statement of affairs and the the application is not so dismissed, then the application to be listed on 17.07.2019, on which date all ex directors shall remain present in Court……..”

21. As per the information available on the website of the Official Liquidator, Bombay High Court (OL), in the list of companies which have been ordered by the Court for winding up and whose winding up is pending, the name of the Target Company is available, but the number of Company Petition is shown as 297 of 2014 instead of 893 of 2014 and the date of winding up order is shown as January 13, 2015 instead of July 19, 2018. A perusal of the website of the Hon’ble Bombay High Court regarding the Company Petition No. 297 of 2014 reveals that in the said Company Petition in fact an order dated January 13, 2015 for winding up of the Target Company was passed. Thereafter, an application for seeking setting aside/stay of order dated January 13, 2015 was filed by the Target Company, whereupon Hon’ble Bomaby High Court was pleased to pass order dated April 15, 2015 which was modified by order dated April 18, 2015, directing inter alia as under:

“1] On 18th March, 2015 this Court passed the following order.

“The Company Registrar shall issue advertisements in Free Press Journal (in English) and Navshakti (in Marathi) setting out therein that the exdirectors of the Company have taken out an Application for setting aside/stay of the winding up order dated 13012015.”

2] The Company Registrar has issued the advertisements and has informed this Court that no claims have been received. In view thereof, the following order is passed:

The Petitioner is allowed to withdraw the amount of Rs.8 Lacs deposited by the Company with the Prothonotary and Senior Master of this Court.

The Prothonotary and Senior Master shall handover the said amount of Rs.8 Lacs to the Petitioner within a period of two weeks from the date of receipt of the Application from the Petitioner seeking such withdrawal.

3] The Company Petition is accordingly disposed of as withdrawn……..”

22. Thus the winding up proceedings which are shown as pending on the website of OL stands disposed of as withdrawn on April 15, 2018 and the winding up proceedings, pursuant to order dated July 19, 2018, which have been claimed to be underway by the Noticees, are being sought to be set aside/recalled by the Target Company. Further details of such winding up proceedings have neither been submitted by the Noticees nor are the same available in public domain. Therefore, in view of the aforesaid facts, the present matter is being proceeded on the premise that the Target Company has not been liquidated.

23. I note that In terms of Regulation 24 of the SEBI (Delisting of Equity Shares) Regulations, 2009 (hereinafter referred to as “Delisting Regulations”), the company which has been compulsorily delisted, its whole-time directors, its promoters and the companies promoted by any such person, shall not directly or indirectly access the securities markets for a period of ten years from the date of compulsory delisting. Further, Regulation 23(3) of the Delisting Regulations provides that pursuant to compulsory delisting of a company, the promoter shall acquire delisted equity shares from the public shareholders, subject to their option of retaining their equity shares, by paying them the fair value, as determined by the independent valuer appointed by the concerned recognised stock exchange. In addition to the restriction imposed under Regulation 24, SEBI Circular dated September 07, 2016 further provides that in case exit opportunity to the public shareholders of compulsorily delisted company is not provided despite the fair value of the shares being positive, such a company and the depositories shall not effect transfer, by way of sale, pledge, etc., of any of the equity shares and corporate benefits like dividend, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by the promoters/ promoter group till the promoters of such company provide an exit option to the public shareholders in compliance with Regulation 23(3) of the Delisting Regulations. Also the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option to the public shareholder is provided. Since the Target Company is a compulsorily delisted company, all the aforesaid measures apply to the Target Company and its promoters (the Noticees) and whole time directors.

24. Even though normally open offer has to be directed in case of acquisitions beyond the threshold limits provided under Regulations 3(1), 3(2) and 4 of the SAST Regulations, 2011, however, the same can be deviated in the facts and circumstances of a particular case. In this case, even though the Target Company has been compulsorily delisted, I am of the view that in the facts and circumstances of the case as the SAST Regulations, 2011 triggered twice, an open offer is need to be made. Hon’ble SAT also in its order passed in Rudra Securities matter (Supra) had observed that there is no bar in directing open offer even in case a target company is compulsorily delisted.

25. As noted above, the respective acquirers after acquiring shares/voting rights in the Target Company beyond the thresholds prescribed, have failed to make an open offer in terms of Regulation 3(1) and 3(2) of SAST Regulations, 2011, on two trigger dates namely, March 31, 2012 and May 09, 2012, as observed in para 16 above. However, I note that no pragmatic outcome will be achieved by directing the said Noticees to give two separate consecutive open offers. Hence, as a measure of feasibility and practicality, I find that a single open offer by all the acquirers along with the persons acting in concert would suffice in the facts and circumstances of the case.

26. I also note that under SAST Regulations, 2011, one of the principle underlying is exit opportunity to the public shareholders of the target company at the best price and accordingly, Regulation 8 of SAST Regulations, 2011 which deals with offer price provides that offer price in an open offer has to be highest of the prices of shares of the target company derived through various methods enlisted therein. Thus, I note that public shareholders of the Target Company are entitled to highest of the offer price to be computed in accordance with Regulation 8 of the SAST Regulations, 2011, from each date of trigger.

Directions:

27. In view of the aforesaid findings, I, in exercise of powers conferred upon me under Section 11B read with Section 19 of the SEBI Act, 1992 and Regulation 32 of the SAST Regulations, 2011, hereby direct that, - (i) Noticee no. 1, 3, 4, 5, 6, 7, 8 and 9 shall make a public announcement to acquire shares of the Target Company, within a period of 45 days from the date of coming into force of this order. The said open offer shall be made by the Noticees concerned before providing the exit opportunity to the shareholders of Kanchan International Limited, as required to be provided by the Noticees in terms of the Delisting Regulations;

(ii) The restraint imposed upon the Noticee no. 1, 3, 4, 5, 6, 7, 8 and 9 from accessing the securities market, by virtue of Regulation 24 of the Delisting Regulations, shall stand relaxed only for the compliance with direction contained in sub-para (i) above; and (iii) Noticee no. 1, 3, 4, 5, 6, 7, 8 and 9 shall along with the offer price, pay interest at the rate of 10% per annum, for the period starting from the date when the Noticees incurred the liability to make the public announcement and 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.

28. The proceedings initiated against Noticee no. 2 by the SCN, stands abated in view of the death of the Noticee no. 2.

29. In view of the exceptional circumstances emerging due to the outbreak of a COVID- 19 and consequential lock down imposed, this order shall come into force on May 18, 2020 or at the end of the lockdown period, if the lockdown is further extended beyond May 17, 2020.

30. A copy of this order shall be sent to the Noticees, recognised Stock Exchanges, Depositories and Registrar and Transfer Agents of Mutual Funds to ensure that the directions given above are strictly complied with.

Sd/- ANANTA BARUA Date: May 05, 2020 WHOLE TIME MEMBER Place: Mumbai SECURITIES AND EXCHANGE BOARD OF INDIA