Order in the matter of Murli Industries Limited

Under sections 11 and section 11B of the Securities and Exchange Board of India Act, 1992 read with regulation 44 of the Securities and Exchange Board of India (Substantial Acquisition of Shares And Takeovers) Regulations, 1997 read with regulation 35 of the Securities and Exchange Board of India (Substantial Acquisition of Shares And Takeovers) Regulations, 2011. In respect of: Table - A Sl. No. Entities PAN Order no. 1 Bajranglal B Maloo HUF AAAHB8633E 75/2015 2 Bajranglal Bankatlal Maloo ACHPM5764C 76/2015 3 Dinesh Maloo AJDPM8140R 77/2015 4 Lalchand B Maloo HUF AAAHL2224F 78/2015 5 Lalchand Bankatlal Maloo ACGPM0657D 79/2015 6 Madhu Sunil Maloo ACHPM5769R 80/2015 7 Mahesh Maloo AFXPM4524R 81/2015 8 Murli S Maloo ACGPM0665D 82/2015 9 Nandlal Bankatlal Maloo ACGPM0658N 83/2015 10 Nandlal Maloo HUF AAAHN6253N 84/2015 11 Nirmaladevi Nandlal Maloo ACHPM5770A 85/2015 12 Premadevi Sobhagmal Maloo ACVPM7333F 86/2015 13 Sangeetadevi Lalchand Maloo ACHPM5773D 87/2015 14 Sarita M Maloo ACVPM7332E 88/2015 15 Shantidevi Bajranglal Maloo ACHPM5772C 89/2015 16 Shilpa Maloo AIBPM3182A 90/2015 17 Sobhagmal Maloo ACGPM0656C 91/2015 18 Sunilkumar Sobhagmal Maloo ACGPM0659P 92/2015 Entities at Sl. no. 1-18 hereinafter collectively referred to as "the promoters" and individually by their respective names. 19 Runicha Alloys and Steel Private Limited ("Runicha") AACCR9947E 93/2015 20 Inco Infrastructure Private Limited ("Inco") AABCI3615H 94/2015 21 Ramji Agri Business Private Limited ("Ramji") AACCR9946F 95/2015 22 Ambaji Papers Private Limited ("Ambaji") AAFCA2276C 96/2015 23 Kanhaiya Mining & Mineral Private Limited ("Kanhaiya") AACCK5740L 97/2015 24 Krishnum Investments Private Limited ("Krishnum") AACCK5953H 98/2015 25 Lakhi Packaging Private Limited ("Lakhi") AABCL0873C 99/2015 26 Taitan Management Services Private Limited ("Taitan") AACCT2473R 100/2015 27 Simple Mining & Power Private Limited ("Simple") AAJCS0291D 101/2015 28 Ramkrishna Fabrication & Machineries Private Limited AADCR0189F 102/2015 ("Ramkrishna") Entities at Sl. No. 19-28 hereinafter collectively referred to as “connected companies” or individually by their respective names. Entities at Sl. No. 1-28 hereinafter collectively referred to as “Noticees” or by their respective category names or individually by their respective names. In the matter of Murli Industries Limited.

Order in the matter of Murli Industries Limited

Appearances: For entities at Sl. no. 1 to 18 : 1. Mr. Vinay Chauhan, Advocate 2. Mr. Prashant Ingale, Advocate 3. Mr. Apurv Gupta, Advocate 4. Mr. Tarun Singh, Company Secretary, Murli Industries Ltd.

For entities at Sl. no. 19 to 23: 1. Mr. Rajesh Khandelwal, Advocate

For entities at Sl. no. 24 to 28: 1. Mr. R.R. Bhonsale, Advocate, 2. Ms. Smita Gaidhani, Advocate

1. SEBI had received a reference from the Income Tax Department, containing certain findings in the matter of Murli Industries Limited (hereinafter referred to as “the company/MIL”). As per the reference received from the Income Tax Department, (the IT Department), MIL had incorporated ten private limited companies. For the sake of clarity, names of the ten connected companies alongwith their directors are reproduced hereunder: Table - B

Sl. No. Company Name Directors Chenaram C Rar and Lalit Loya 1 Runicha Bhawarlal Khariya and Nilesh Jain 2 Inco Shivshakti B Dhoot and Sanjay R Lute 3 Ramji Umardan Khariya and Lalit Loya 4 Ambaji Poonam C Bhattad and Chenaram Rar 5 Kanhaiya Shivshakti Dhoot and Sukharam Prajapat 6 Krishnum Lalit Loya and Kamalkishore Bhattad 7 Lakhi Srikant Ruthia and Bhawarlal Khalia 8 Taitan Poonamchand Bhattad and Nilesh Jain 9 Simple Shivshakti Dhoot and Birmagam Beniwal 10 Ramkrishna Nilesh Jain and Jairam Rar 2. The IT Department had conducted survey at the premises of the said companies and found that none of the aforesaid companies were traceable at their given addresses. The IT Department also conducted survey at the premises of one Mr. Amit Raja, Chartered Accountant (common auditor of the abovementioned ten connected companies) and impounded several documents including some original documents pertaining to these ten connected companies and their directors. From the premises of Mr. Amit Raja, the IT Department also found a file containing the shareholder details of the ten connected companies and the consolidated statement of the ten connected companies and their directors regarding their investments in MIL on various dates. As per the said reference, the aforementioned ten connected companies had together cornered a large part of the shareholding of MIL and were also suspected to have traded fraudulently in the scrip of the MIL.

3. As per the IT Department, Mr. Amit Raja’s relation with the connected companies and their directors was not just in his professional capacity as auditor and consultant, but he was also maintaining consolidated details of the ten connected companies and their directors as if they were one group. In view of the observations made by the IT Department, SEBI conducted a preliminary investigation in the matter.

4. On the basis of findings in the preliminary investigations, SEBI vide ex-parte ad-interim order bearing no. WTM/KMA/ISD/320/12/2010 dated December 02, 2010 (hereinafter referred to as “the interim order”) inter alia restrained the following entities (including the ten connected companies) from buying, selling or dealing in the securities of MIL and their listed group companies, in any manner whatsoever, till further directions. Table C Sl. No. Entities 1 Bajranglal B Maloo HUF 2 Bajranglal Bankatlal Maloo 3 Lalchand B Maloo HUF 4 Lalchand Bankatlal Maloo 5 Mahesh Maloo 6 Murli S Maloo 7 Nandlal Maloo HUF 8 Sunilkumar Sobhagmal Maloo 9 Runicha 10 Inco 11 Ramji 12 Ambaji 13 Kanhaiya 14 Krishnum 15 Lakhi 16 Taitan 17 Simple 18 Ramkrishna 5. Further, MIL and its promoters were directed to ensure that the shareholding of the promoters/promoter group in MIL is not altered in any manner till further directions.

6. Vide the SEBI order bearing no. WTM/KMA/IVD/372/03/2011, dated March 23, 2011 the interim ex-parte directions issued vide the interim order were confirmed/ revoked qua aforesaid 18 entities described in Table C as under:- Table D Sl. No. Entities Order 1 Bajranglal B Maloo HUF confirmed 2 Bajranglal Bankatlal Maloo confirmed 3 Lalchand B Maloo HUF confirmed 4 Lalchand Bankatlal Maloo confirmed 5 Mahesh Maloo confirmed 6 Murli S Maloo confirmed 7 Nandlal Maloo HUF confirmed 8 Sunilkumar Sobhagmal Maloo confirmed 9 Krishnum confirmed 10 Lakhi confirmed 11 Taitan confirmed 12 Simple confirmed 13 Runicha revoked 14 Inco revoked 15 Ramji revoked 16 Ambaji revoked 17 Kanhaiya revoked 18 Ramkrishna revoked

7. Further, vide the SEBI order bearing no. WTM/PS/MAR/IVD/ID8/2012, dated March 16, 2012, SEBI held that the interim directions, issued by vide SEBI order dated December 2, 2010 and confirmed vide SEBI order dated March 23, 2011, would continue till further directions against Bajranglal B Maloo HUF, Bajranglal Bankatlal Maloo, Lalchand B Maloo HUF, Lalchand Bankatlal Maloo, Mahesh Maloo, Murli S Maloo, Nandlal Maloo HUF, Sunilkumar Sobhagmal Maloo, Krishnum, Lakhi, Taitan and Simple. The interim direction mentioned at paragraph 53 (E) of the interim order in respect of the shareholding of promoters of MIL was also modified to the extent of directing the promoters of MIL to ensure that their shareholding in MIL was not altered in any manner till the enforcement proceedings were completed.

8. The investigation in the matter inter alia revealed that: (1) The entities at Sl. No. 1-18 in Table A are the promoters of MIL. (2) Mr. Srikant Chandrasekhar Ruthia, Mr. Nilesh Jain, Mr. Bhawarlal Khariya, Mr. Jairam Rar and Mr. Birmaram Beniwal opened their respective bank accounts with IDBI Bank (Civil Lines Branch, Nagpur) on May 19, 2005 with a deposit of `5,200 each. (3) None of these directors had any major transactions in their bank account except for some interest credited into the accounts and a few payments for ad hoc account statements, payment to NSDL, etc. The aforementioned directors made cash deposits in their bank accounts which they transferred to their respective companies. (4) On August 09, 2005, Mr. Nilesh Jain deposited `2 Lacs in cash into his account and on the same day `2 Lacs was transferred from his account to Taitan. On the next day, i.e., on August 10, 2005 Taitan made a payment of `1,84,233/- to Ventura Securities. (5) A similar pattern is observed in the IDBI bank accounts of Mr. Shivshakti Babulal Dhoot and Mr. Chenaram Rar also. (6) It is observed from the IDBI bank statement of Mr. Umardan Khariya that there were cash deposits of `1 Lac or above in his account and the same amount was being transferred to Ventura Securities (the trading broker) immediately after receipt of money in his account.

Mr. Umardan Khariya was also found to be receiving money from sale of shares, which he promptly paid to Simple. (7) Mr. Sukhram Prajapat was not a director of Krishnum or Lakhi. However, on 4 occasions during December 2007 to March 2008, he transferred huge sums of money totalling `96 Lacs to Krishnum. He also transferred money on 2 occasions to Lakhi during March 2008 totalling `56.50 Lacs. (8) Mr. Sukhram Prajapat transferred an amount of `2,10,912/- to the bank account of Mr. Umardan Khariya. Mr. Umardan Khariya, who was not a director of Simple, transferred huge sums of money totalling `85.50 Lacs to Simple on 5 different occasions during February-March, 2008. (9) From the bank account the statement of Kanhaiya (held with IDBI Bank, Civil Lines Branch, Nagpur) it was observed that the inflows were mostly in the form of unsecured loans and share application money. (10) Kanhaiya was incorporated only on May 05, 2005. The bank account of Kanhaiya was opened on June 10, 2005 with a meagre cash deposit of `10,000/-. The next transaction in the bank account was an unsecured loan of `30 Lacs.

This was followed by deposits into the account in the form of share application money to the tune of `26 Lacs. (11) Kanhaiya was incorporated only on May 05, 2005. The bank account of Kanhaiya was opened on June 10, 2005 with a meagre cash deposit of `10,000/-. The next transaction in the bank account was an unsecured loan of `30 Lacs. This was followed by deposits into the account in the form of share application money to the tune of `26 Lacs. (12) On June 16, 2005, a payment of `54 Lacs was made by Kanhaiya to Murli Agro Products Ltd. (now known as MIL) as share warrant application money. (13) The next transaction in Kanhaiya’s account above `1 Lacs was a loan received from SICOM (State Industrial & Investment Corporation Of Maharashtra Limited) of `4.86 Crore on December 05, 2006, i.e., after one and half years. In the interim, there are no transactions in the account to show any kind of income generated by the Kanhaiya or expenses incurred by it in the course of business. Kanhaiya’s bank account balance when the loan was sanctioned/disbursed was only `60,646/-. The next day, payment of `4.86

Crore was made to Murli Agro Products Ltd. for conversion of share warrants to equity shares. (14) From June 2005 to November 2008, Kanhaiya received `6.49 Crore as share application money from 20 entities out of which the share application money of two entities was refunded after October 2008 (received in June 2005). A total of `6,39,05,000/- was received by Kanhaiya as unsecured loan during the period June 2005 to December 2007. On November 30, 2007, Kanhaiya received `5,65,25,000/- from Madhulika - now known as ANG Financial Consultants Private Limited (hereinafter referred to as "Madhulika/ANG Financial") (15) Madhulika had received `28.27 Crore as a loan without any collateral from MIL on November 30, 2007. On November 30, 2007 and December 01, 2007 together, Madhulika had given a total loan of `28,26,25,000 to Kanhaiya, Ramji, Runicha, Ambaji and Inco. (16) On December 03, 2007, Kanhaiya repaid `5,65,12,080/- to SICOM (principal + interest). At this point, Kanhaiya started receiving share application money from various private limited companies. Share Application money thus received was used to repay the unsecured loan taken from Madhulika.

(17) Similarly, it was observed from the bank statement of Ramji that the inflows into its bank accounts were mostly in the form of unsecured loans and share application money. From June 2005 to March 2009, Ramji has received `6,51,84,725/- as share application money from about 30 entities. Ramji received a total of `10,53,13,000/- as unsecured loan during the period January 2006 to November 2007. (18) Ramji was incorporated only on April 28, 2005 and its bank account was opened on June 16, 2005 with a meagre cash deposit of `10,000/-. On June 29, 2005, Ramji received `25 Lacs from Pragya Commerce Private Ltd. (hereinafter referred to as "Pragya") and on June 30, 2005 it received `25 Lacs from Segment Mercantiles Pvt. Ltd. (hereinafter referred to "Segment") as share application money. The amount of `50 Lacs thus received was immediately paid to MIL as can be seen from the bank statement for share warrants. (19) On December 05, 2006, Ramji received a loan of `4.86 Crore from SICOM. Ramji's bank account balance before this loan was sanctioned was `14,743. On December 6, 2006, the company made a payment of `4.86 Crore to MIL for conversion of share warrants to equity shares.

(20) On November 30, 2007, Ramji received `5,65,25,000/- from Madhulika. On December 03, 2007, Ramji repaid `5,65,12,080 to SICOM. From May 2008, Ramji started receiving share application money from various private limited companies. The share application money thus received was used to repay the unsecured loan taken from Madhulika. Except for payment of certain service charges and audit fees, there are hardly any other transactions in this account of Ramji. Less than ten transactions appear in the statement of over four years, which seem to be of business related cash flows. A similar pattern was observed in the accounts of Ambaji, Inco and Runicha also. (21) It was observed that five of the connected companies, namely, Kanhaiya, Ramji, Runicha, Ambaji and Inco had received crores of rupees as share application money from corporate entities even when it was known that these connected companies did not have any business activity and infrastructure for conducting any business. (22) The information received from SICOM establishes that such loans were extended to these five connected companies based on the comfort letter furnished by MIL and post dated cheques furnished by Mr. Nandlal Maloo, Managing Director of MIL.

(23) Statement of the bank account of Taitan held with IDBI Bank, Civil Lines Branch, Nagpur was examined and it was observed that Taitan had made huge payments to various brokers through whom it has traded and money was received in its account from various shareholders on the same day as it had to pay the brokers. It was observed that most of the transactions in Taitan’s account were either payments to brokers or receipts of share application money. (24) Taitan also received unsecured loans from Lakhi and Krishnum, which were also used to pay brokers and repaid from the proceeds of sale of shares. A very similar pattern was also observed in the accounts of Simple, Krishnum and Lakhi. (25) Ramkrishna received share application money of `20 Lacs from Nihir Viniyog Pvt. Ltd. and `15 Lacs from Techbuild Impex Pvt. Ltd. which were immediately paid to Geojit Financial Services Ltd. After these transactions, the only types of transactions in the accounts of Ramkrishna are receipts from MIL (ostensibly as advance for purchase of land), cash withdrawals in lakhs of rupees and cash deposits of lakhs of rupees.

(26) Therefore, from the bank statements of Kanhaiya, Ramji, Ambaji, Inco and Runicha, it is clearly established that these companies had availed loans from SICOM to make the payments to MIL for conversion of the share warrants allotted to them. (27) The office notes of SICOM which discussed the loan proposals of Ramji, Runicha, Ambaji, Kanhaiya and Inco, clearly states that these companies did not meet any of the norms of Inter Corporate Deposits (hereinafter referred as "ICD"), though the loans granted to them were in the form of ICDs. (28) As per the SICOM policy, ICDs can be extended to a company provided the exposure is supported by a Letter of Comfort from a group company which meets all SICOM norms. (29) The note state the debt recovery options available to SICOM in case of default of ICDs extended to connected companies. One such option being “Murli Agro Products Limited (now known as MIL) acquiring the shares as under Creeping Acquisition.” The shares referred to here are the 5 Lac shares each of MAPL which the five connected companies would have to pledge as collateral for the ICDs.

(30) This shows that SICOM had discussions with the promoters/directors of MIL, wherein the promoters agreed to buy the shares of MIL from SICOM in case of default by the connected companies. (31) As per the arrangement, the securities toward the ICDs extended to the five connected companies, namely, Ramji, Runicha, Ambaji, Kanhaiya and Inco were as follows: (a). Pledge of 5 Lac shares of MIL on conversion of warrants; (b). Post dated cheques (hereinafter referred to as "PDCs") towards principal and interest from the borrower companies; (c). Personal guarantees of promoters/directors of borrower companies (d). Comfort letter dated December 1, 2006 of MIL (signed by company secretary of the MIL) (e). PDCs towards principal and interest from Mr. Nandlal Maloo (promoter/MD of MIL) (32) Therefore, the loan given by SICOM to Ambaji, Kanhaiya, Ramji, Inco and Runicha, for conversion of warrants of MIL were secured primarily by the comfort letter of MIL itself and the PDCs from Mr. Nandlal Maloo, as the personal asset worth of the promoters/ directors of the connected companies was only a few lacs each whereas the sanctioned loans were for `5 Crore in each case.

(33) In addition, as temporary collateral till the borrowers converted their warrants, each connected company was required to pledge 1.50 Lac shares of MIL with SICOM, which were to be released after conversion of warrants and subsequent pledge of the 5 Lac shares in demat form. (34) Mr. Nandlal Maloo, Mr. Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunilkumar Maloo (promoters of MIL) had pledged 7.50 Lac shares on behalf of the borrowers. (35) Thus it was alleged that the promoters of MIL had used their goodwill with SICOM to avail loans for the abovementioned five connected companies so that they may convert their warrants. (36) It is observed from the information furnished by the connected companies, MIL, bank transaction counterparties of connected companies that many top customers of MIL had given huge unsecured loans to the connected companies immediately after their incorporation and even before the respective connected companies had set up any business infrastructure.

(37) To repay their loans to SICOM, the five connected companies received the necessary funds as unsecured loans from ANG Financial, which in turn had received the necessary funds from MIL. (38) On the day when ANG Financial disbursed loan/ICD to the abovementioned 5 connected companies, ANG Financial had received the same amount from MIL, ostensibly for margin lease financing. However, ANG Financial repaid MIL only in instalments and only using the money paid by the connected companies as repayment for their respective loans. (39) Thus, it is clear that MIL has used ANG Financial /Madhulika as a conduit to provide funds to the abovementioned 5 connected companies to repay their loans to SICOM and hence the connection between MIL and the five connected companies. (40) From the details of the entities that have traded on National Stock Exchange of India Limited (hereinafter referred to as "NSE") in the scrip of MIL, it is observed that on January 24, 2008, February 26, 2008, February 27, 2008, February 28, 2008 and March 05, 2008, Simple purchased shares worth more than `10 Lacs of MIL from Mr. Sukhram T Prajapat (director of Kanhaiya).

(41) On Bombay Stock Exchange of India (hereinafter referred to as "BSE") during the period January 01, 2005 to December 31, 2009, out of the 683 trades executed by promoters of MIL, the connected companies and their respective directors - 319 trades were carried out in the scrip of MIL. The remaining 364 trades were executed by nine entities namely, Mr. Lalchand B Maloo (HUF), Taitan, Mr. Srikant Chandrasekhar Ruthia, Mr. Lalit Loya, Mr. Lalchand Bankatlal Maloo, Mr. Sunilkumar S Maloo, Mr. Murli S. Maloo, Mr. Bajranglal Bankatlal Maloo and Mr. Mahesh Maloo in various other scrips. (42) Thus, it is observed from the trading of the various entities directly or indirectly related to MIL that, except for Mr. Lalit Loya and Mr. Srikant Chandrasekhar Ruthia, none of the promoter/directors of the connected companies had any experience in trading in shares (other than the few trades in the scrip of MIL). (43) However, they placed a large number of buy and sell orders in the scrip of MIL and invested a large amount of money only in this scrip. Even the companies where Mr. Lalit Loya and/or Mr. Srikant Chandrasekhar Ruthia are directors, there are no transactions in other scrips.

(44) From the above, it was concluded that the entities are connected with each other and were acting in concert for acquisition of shares of MIL. The connection arising out of common contact details is given in the following table:

Table - E Common Telephone Director(s)/Connected Source document Number Company(s) 1 3096334 Kamalkishore Bhattad IDBI Bank a/c opening form of Krishnum Shivshakti B Dhoot IDBI Bank a/c opening form of Kanhaiya Nilesh Jain IDBI Bank a/c opening form of Ramkrishna Ramkrishna IDBI Bank a/c opening form Inco IDBI Bank a/c opening form; Guiness Securities a/c opening form Taitan IDBI Bank a/c opening form 2 2732955 Sukhram Prajapat IDBI Bank a/c opening form (Phone Number of Sanjay Lute IDBI Bank a/c opening form Mr. Harish D Jasani) Umardan Khariya IDBI Bank a/c opening form Lalit Loya IDBI Bank a/c opening form 3 9370422232 (Phone Krishnum Guiness Securities a/c opening form Number of Mr Amit Simple Guiness Securities a/c opening form Raja CA) Taitan Guiness Securities a/c opening form Lakhi Guiness Securities a/c opening form 4 2778910 Krishnum IDBI demat a/c opening form (Phone Number of Simple IDBI Bank a/c opening form; Mr Amit Raja CA) IDBI Demat a/c opening form Lalit Loya IDBI Bank a/c opening form of Runicha Kanhaiya Guiness Securities a/c opening form; IDBI Demat a/c opening form Taitan IDBI Demat a/c opening form Lakhi IDBI Demat a/c opening form Ambaji Guiness Securities a/c opening form; IDBI Demat a/c opening form Runicha IDBI Demat a/c opening form Ramji Guiness Securities a/c opening form; IDBI Demat a/c opening form Common Address Director(s)/Connected Source document Company(s) 1 C/o M/s. Murli Mr. Lalit Loya Address in Driving Licence Agro Products Limited, MIDC, Dhurkheda Tah, Umrer 2 Plot 142, East Ramji IDBI Demat a/c opening form Wardhaman Nagar, Behind Akash Apartment, Nagpur – 8 (Address of Mr. Amit Raja CA) Runicha IDBI Demat a/c opening form Lakhi IDBI Demat a/c opening form Taitan IDBI Demat a/c opening form Kanhaiya IDBI Demat a/c opening form; Guiness Securities a/c opening form Inco IDBI Bank a/c opening form; Guiness Securities a/c opening form

Simple IDBI Demat a/c opening form Krishnum IDBI Demat a/c opening form 3 C/o Vidya Amar Ramji IDBI Demat a/c opening form; Fulzale, Ambedkar Guiness Securities a/c opening form Square, Bypass Runicha IDBI Demat a/c opening form Road, Umrer, Krishnum Guiness Securities a/c opening form Nagpur 441203 4 2nd Floor, Bind Kamalkishore Bhattad IDBI Bank a/c opening form of Krishnum Apartment, Gandhi Krishnum Fortis a/c opening form; X Ray, Gandi Putla, IDBI demat a/c opening form Nagpur -8 (Address of Ms. Deepti Raja, wife of Mr. Amit Raja CA) Common e-mail Director(s)/Connected Source document address Company(s) 1 ar.nagpur@gmail.co Krishnum Guiness Securities a/c opening form; m ROC Filings (e-mail address of Simple Guiness Securities a/c opening form; Mr. Amit Raja CA) ROC Filings Taitan Guiness Securities a/c opening form; ROC Filings Lakhi Guiness Securities a/c opening form; ROC Filings (45) The contact details of all the ten connected companies (address, phone number and email) were common with each other and with Mr. Amit Raja and/or his family members. Hence, it is evident that all the ten connected companies and their directors are connected with each other.

The trading activities of the four connected companies, namely, Krishnum, Simple, Taitan and Lakhi which have actively traded in the scrip of MIL were also being looked after by Mr. Amit Raja (as the address and phone number of all the connected companies which were trading in the market were that of Mr. Amit Raja). (46) The directors of the ten connected companies admitted in their statements to the IT Department that these companies have a common auditor, common consultant (which incidentally is run by the family members of Mr. Amit Raja), bank accounts in the same branch of IDBI, demat accounts with the same depository participant, trading accounts with the same broker, off market transfers by directors of connected companies with the same counterparties and a large number of common shareholders. Thus, all the ten connected companies were managed by Mr. Amit Raja in his capacity as common auditor, consultancy including legal consultancy and the directors were only for namesake. (47) From the information furnished by the entities and their statements recorded in SEBI, it was observed that the various individuals who have incorporated the connected companies and looked after the activities of the companies, were in no way familiar with the businesses for which the companies were incorporated nor were any of them (except

Mr. Lalit Loya and Mr. Srikant Ruthia) experienced in trading in the securities market. (48) The only income for the various connected companies and their directors appear to be the dividend paid by MIL as seen from their respective bank statements. Further, none of the companies have invested in any scrip other than that of MIL since their incorporation. (49) During the 6 years of their incorporation, none of the connected companies, except Ramkrishna have undertaken any major business activity. Runicha, Ramji, Lakhi and Kanhaiya had carried out some business of coal, for which the buyer was Nandlal Enterprises Limited, which is a company connected to MIL. Even in the case of Ramkrishna, its business dealings were only with MIL and Nandlal Enterprises. (50) The ten connected companies namely, Ambaji, Inco, Kanhaiya, Krishnum, Lakhi, Ramji, Ramkrishna, Runicha, Simple and Taitan are connected companies set up by MIL only for the purpose of dealing in its own shares, and were managed by Mr. Amit Raja. Some of the connected companies accumulated shares of MIL by conversion of share warrants while the others traded in the scrip.

(51) Though the directors as per Form 32 filed by the respective companies are different for each company, the said ten connected companies were being managed by one Mr Amit Raja CA, auditor of these connected companies connected with/incorporated by MIL. (52) The ten connected companies were found connected to each other by way of common phone number, address, email id and as noted above and were persons acting in concert (PACs) with the common objective or purpose of substantial acquisition of shares of MIL. (53) All these connected companies were created only for the purpose of dealing in the shares of MIL and were clearly connected to it. Further, the acquisition of shares by five connected companies through conversion of warrants, funds for which were indirectly supplied by MIL and/or promoters of MIL, establish that these 5 entities were also PACs with the promoter group of MIL. (54) The share warrants allotted to the five connected companies were converted to equity shares on December 15, 2006. As on December 15, 2006, the shares of MIL held by each of the connected companies are as follows: Table - F Entity No. of % of equity Entity No. of % of equity Shares capital Shares capital Runicha 500000 Krishnum 81004 5.22 0.85 Inco 500000 5.22 Lakhi 84968 0.89 Ramji 500000 5.22 Taitan 61523 0.64 Ambaji 500000 5.22 Simple 110951 1.16 Kanhaiya 500000 5.22 Ramkrishna 19100 0.20 (55) As on December 15, 2006, 29.83% of the total equity capital of MIL was held by the ten connected companies, all under the same effective management and all PACs with the promoters of MIL and shared the common objective or purpose of substantial acquisition of shares etc. of MIL.

(56) The shareholding pattern of MIL for quarter ended September 2006 indicates that the promoters were holding 74.90% of the equity capital of MIL before the conversion of warrants on December 15, 2006. Upon conversion of warrants, the promoters' shareholding was 55.35% of the equity capital of MIL and the combined shareholding of the promoter group and the connected companies as the PACs increased to 85.18 % of the equity capital of MIL. (57) On acquiring additional share or voting right in MIL, the connected companies and the promoters were required to make public announcement as mandated under regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations, 1997) within the time period stipulated under regulation 14 of the Regulations. No such public announcement was made by the connected companies. 9. In view of the above, a show cause notice dated February 28, 2013 (SCN) was issued to all the 28 entities under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) read with regulation 44 of the Takeover Regulations, 1997 read with regulation 35 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the Takeover Regulations, 2011) for failure to make public announcement under regulation 11(2) of the Takeover Regulations, 1997. The provisions of the SEBI Act and Regulations made thereunder which are alleged to be violated/contravened by the Noticees are reproduced hereunder: Regulation 11(2): “No acquirer, who together with persons acting in concert with him holds, fifty five percent (55%) or more but less than seventy five percent (75%) of the of the shares or voting rights in a target company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations” Regulation 14 (1): “The public announcement referred to in Regulation 10 or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein.” Regulation 2(1)(e)

“person 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;” 10. The noticees replied to the SCNs issued to them as mentioned in the following table and also sought personal hearing in the matter: Table G: Replies of the noticees Sl.

No. Entities Dates of reply 1 Bajranglal B Maloo HUF April 30, 2013, 2 Bajranglal Bankatlal Maloo May 08, 2013, 3 Dinesh Maloo December 07, 2013, 4 Lalchand B Maloo HUF January 2014, 5 Lalchand Bankatlal Maloo March 04, 2014 6 Madhu Sunil Maloo February 05, 2015, 7 Mahesh Maloo March 20, 2015 8 Murli S Maloo 9 Nandlal Bankatlal Maloo 10 Nandlal Maloo HUF 11 Nirmaladevi Nandlal Maloo 12 Premadevi Sobhagmal Maloo 13 Sangeetadevi Lalchand Maloo 14 Sarita M Maloo 15 Shantidevi Bajranglal Maloo 16 Shilpa Maloo 17 Sobhagmal Maloo 18 Sunilkumar Sobhagmal Maloo 19 Runicha January 13, 2014 and March 20, 2015 20 Inco January 15, 2014 and March 20, 2015 21 Ramji January 15, 2014 and March 20, 2015 22 Ambaji January 14, 2014 and March 20, 2015 23 Kanhaiya January 16, 2014 and March 20, 2015 24 Krishnum January 17, 2014 and March 20, 2015 25 Lakhi January 17, 2014 and March 20, 2015 26 Taitan January 18, 2014 and March 20, 2015 27 Simple January 18, 2014 and March 20, 2015 28 Ramkrishna January 18, 2014 and March 20, 2015 11. An opportunity of personal hearing was granted to the Noticees on January 21, 2014, November 13, 2014 and January 15, 2015. The Noticees appeared through their authorised representatives before me and made submissions.

The replies/submissions of the Noticees are, inter alia, as under:

I. The promoters of MIL: (1) SEBI had violated the principles of natural justice by initiating the investigation against the promoter group entities without providing them a copy of the reference letter received from the IT Department. (2) There was nothing on record to demonstrate that MIL or any of its directors/promoters or relative of directors/promoters had incorporated the ten connected companies. Further, the information available on the Ministry of Corporate Affairs (MCA) demonstrated that neither MIL its directors/promoters nor the ten connected companies and its promoters/directors/shareholders have any connection with each other. (3) The promoters were not aware that the IT Department had conducted survey at the premises of the connected companies and found that none of the companies had proper offices or that the directors of the said companies were of no means to carry out huge transactions and the same is of no concern to them. Nothing has been brought on record to substantiate the aforesaid findings. These companies have proper offices at addresses mentioned on the website of the MCA and these connected companies were also regular in filing ROC filing, Tax returns and annual returns indicating that they are not connected companies, as alleged.

(4) Admittedly, banks, depository participants and stock brokers have opened their bank accounts, demat accounts and registered them as their clients. The alleged connected companies have also filed appeals before the Hon'ble Securities Appellate Tribunal (the Hon’ble SAT). Therefore, it is incomprehensible as to how these companies are branded as connected companies. (5) They were not aware of any survey conducted by IT Department at the premises of Mr. Amit Raja, Chartered Accountant and impounding of documents pertaining to connected companies and its directors and the same is of no concern to them. There is no embargo on any company to have a common Chartered Accountant as auditor and vice-versa and finding of the abovementioned documents at the Chartered Accountant's place is not abnormal. Further, the assessment of these alleged connected companies was carried on by IT Department and Mr. Amit Raja was presenting the said alleged companies before IT Department itself demonstrates that the IT Department had knowledge of association of Mr. Amit Raja with the alleged connected companies and that he has been maintaining records of these legally incorporated private limited companies.

Further, merely because the alleged connected companies have a single Chartered Accountant, it cannot be concluded that the relationship of Amit Raja stretched beyond relationship of Auditor and that he was managing the alleged connected companies. The basis on which IT reference had concluded that connected companies had together cornered a large number of MIL's shares and that the said companies have traded fraudulently, is also not disclosed. In any event as promoters, they have no control over entities acquiring shares of MIL and that they were not aware that the said connected companies were acting together. Therefore, SEBI had gone overboard to write conclusions first and thereafter joining bits and pieces to resurrect the preconceived conclusions. (6) With regard to the allegations that certain directors of alleged connected companies opened their respective bank accounts with IDBI Bank (Civil Lines Branch, Nagpur) and their various financial dealings, the promoters have submitted that they had no financial dealings with the said directors. (7) With regard to the entries in the bank account of Kanhaiya, the promoters have submitted that they are unaware of the transactions mentioned and the same are of no concern to them.

(8) The payment of `54 lacs made by Kanhayia to MIL was towards the share warrant application money and submit that at the relevant time MIL was not aware of the source of funds of Kanhaiya and the same was of no concern to them. Further, the balance amount of `4.86 Crore was received bona fide towards issuance of warrants and based on the same no adverse inference can be drawn against them. (9) With regard to the allegations that Madhulika had received `28.27 Crore as a loan without any collateral from MIL on November 30, 2007 and on November 30, 2007 and December 01, 2007 and Madhulika had given a total loan of `28,26,25,000/- to Kanhaiya, Ramji, Runicha, Ambaji and Inco, the promoters have submitted that the funds transferred to Madhulika were towards lease/hire purchase of plant and machinery for setting up cement plant in the state of Karnataka, Rajasthan and Gujarat. Initially, MIL applied for loan from the various banks for the setting up of abovementioned plant. Since, the sanctioning of the loan was taking time, the management decided to set up the plant through hire purchase of plant and machinery.

As per the agreement, MIL made advance payment of the agreed amount `282.70 Crores to Madhulika. Thereafter, since Madhulika failed to take material steps as agreed upon, the management of the company decided to acquire the plant and machinery at ownership when the loan was sanctioned by the banks for said plants. The rate of interest from the bank borrowing was lesser than the rent offered by Madhulika. Further, upon receiving sanction letters from various banks, MIL cancelled the agreement with Madhulika and refunded the advance payment of `28.27 Crores. (10) MIL or its promoters were not aware of any deal between Madhulika and alleged connected companies (i.e., entities at no. 19 to 23 in Table -A) and simply because MIL had made advance payment to Madhulika no adverse inference may be drawn. (11) With regard to the receipt and payments of money in the bank statement of Ramji, Ambaji, Inco and Runicha, the promoters have submitted that the aforementioned paras do not pertain to them and therefore, they have no comments to offer. (12) The promoters are unaware of transactions in the account of Ramji and the same are of no concern to them.

The amount paid by Ramji to MIL towards share warrants is a matter of record and at the relevant time MIL was not aware of the source of funds of Ramji and the same is of no concern to them. (13) With regard to the allegation that the information received from SICOM establishes that such loan was extended to these five connected companies based on the comfort letter furnished by MIL and post dated cheques furnished by Mr. Nandlal Maloo, the Managing Director of MIL, the promoters have submitted that the comfort letter was merely a letter issued to acknowledge the transactions that the management is aware of the loans taken by various entities and the Managing Director of MIL has no objection on the same. The comfort letter issued was not issued as any guarantee or security against the loan availed by the various entities. The post dated cheques were issued by Mr. Nandlal Maloo, Managing Director of MIL in his personal capacity based on his personal financial wisdom. There is no embargo on providing such security. None of these cheques were encashed by SICOM ever and these were given as comfort to SICOM.

(14) With regard to the allegation pertaining to the transactions in the bank account of Taitan held with IDBI Bank, wherein Taitan made huge payments to brokers or receipts of share application money and availed unsecured loans to make payment to brokers and repaid from the proceeds of sale of shares, and further receipt of unsecured loans from Lakhi and Krishnum, the promoters have submitted that there is nothing on record to demonstrate their involvement in any manner in the affairs of Taitan, Simple, Krishnum and Lakhi.

(15) With regard to the allegation pertaining to Ramkrishna receiving share application money from Nihir Viniyog Pvt. Ltd. and Techbuild Impex Pvt. Ltd. which was immediately paid to Geojit Financial Services Ltd. and further receipt of advance from MIL and funds withdrawn/cash deposits in account, the promoters have submitted that the amount transferred by MIL to Ramkrishna was towards advance for purchase of land situated at Chandrapur and they are not aware or concerned with other transactions of Ramkrishna. (16) With regard to the details of bank statements of Kanhaiya, Ramji, Ambaji, Inco and Runicha which established that these companies had availed loans from SICOM to make payments to MIL for conversion of the share warrants allotted to them, the promoters have submitted that that there is nothing wrong in companies seeking loans for making investments by way of share warrants in the companies. (17) The promoters are not aware of the office notes of SICOM and that Ramji, Ruchina, Ambaji, Kanhaiya and Inco did not meet any of the norms of ICD. The Noticees are not aware of SICOM policy that ICDs can be extended to the aforesaid companies provided the exposure is supported by a letter of comfort from a group company which meets all SICOM norms.

The promoters denied that the promoters entered into any agreement with SICOM to acquire the shares of MIL under creeping agreement in case there is any default in the repayment of ICDs as alleged and that there is nothing on record to substantiate the same. (18) The promoters also denied that loans given by SICOM for conversion of warrants of MIL were securely primarily by the comfort letter of MIL and the post dated cheques from Mr. Nandlal Maloo. Admittedly, there were other securities taken by SICOM as spelled out in the agreement. (19) The promoters denied that promoters, viz. (Mr. Nandlal Maloo, Mr. Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunil Kumar Maloo) had pledged any shares with SICOM or any other entity during the period 2006-07 (i.e., when the loans were given) as temporary collateral on behalf of borrowers as alleged. Further, the promoters denied that promoters of MIL had used their goodwill with SICOM to avail loans for the alleged five connected companies so that they could convert their warrants. (20) The top customers of MIL had given huge loans to the connected companies immediately after their incorporation and even before the said companies had set up any business infrastructure are vague, bald and sweeping and no particulars of the same have been spelled out.

(21) The promoters have no control over the affairs of their customers and they are not aware of any loans given by their customers to the alleged connected companies and the same is not their concern.

(22) With regard to the allegation that MIL had used Madhulika as a conduit to provide funds to the alleged 5 connected companies to repay loans to SICOM, the promoters submit they have no role in the alleged transactions and that they are unaware that Madhulika had provided necessary funds by way of unsecured loans to the connected companies. (23) The funds transferred to Madhulika were towards lease/hire purchase of plant and machinery for setting up cement plant in the state of Karnataka, Rajasthan and Gujarat. The company had applied for loan from various banks, however since the sanctioning of loan was taking time, the management decided to set up the plant through hire purchase of plant and machinery and therefore entered into agreement with Madhulika. However, the same did not materialize and the company decided to acquire the plant and machineries at ownership upon the loan getting sanctioned by the banks. Further, the rate of interest from the bank borrowing was lesser than the rent offered by Madhulika. The promoters denied that MIL had used ANG Financial as a conduit to provide funds to the alleged 5 connected companies to repay their loans to SICOM as alleged.

The funds transferred to ANG Financial were towards margin lease financing which was subsequently returned. (24) The promoters submitted that nothing has been brought on record to substantiate as to how they had any common objective with others for the purpose of acquiring substantial shares in MIL. Further, Mr. Lalchand Maloo, Mr. Sunilkumar Maloo and Mr. Bajranglal Maloo had traded in the scrip of MIL during the relevant period through market mechanism. During the period January 2008 the entire market was on the downside, the price of the scrip of MIL also eroded substantially (from `804 to `358). Thus, the trades were done to stabilize the price of the scrip and to prevent it from eroding furthermore. (25) With regard to the allegation that the connection arises out of common contact details, the promoters submitted that they are not aware of any person named Mr. Lalit Loya and Mr. Lalit Loya is not related to the MIL or its promoters in any manner. (26) MIL had never authorized Mr. Lalit Loya to give company's address as address of correspondence or receive any correspondence on their behalf.

Based on the company's address being given by some unconnected third party, no inference of connection between third party and MIL and its promoters can be drawn. (27) With regard to the allegation that the contact details of all the ten connected companies and their directors were common with each other and with Mr. Amit Raja and/or his family members and hence the connection, the promoters have submitted that based on mere commonality of address, phone numbers and email the alleged connected companies cannot be connected to each other for branding them as PACs. (28) With regard to the allegations that the trading activities of Krishnum, Simple, Taitan and Lakhi in scrip of MIL was being looked after by Mr. Amit Raja, the promoters have submitted that the same does not pertain to them and the allegation is in the nature of surmise and conjecture. (29) The promoters have submitted that they have no comments to offer and that companies having common auditor or consultants is nothing unusual or abnormal. (30) Merely because Mr. Amit Raja was common auditor/consultant, appointed by each of the companies independently, it cannot be automatically concluded that the directors are only for namesake.

Further that there is no basis for the said finding. (31) With regard to the allegation that the individuals who incorporated and looked after the activities of the connected companies were in no way familiar to the business activities of the companies nor were any of them experienced in trading in the securities market (except Mr. Lalit Loya and Mr. Srikant Ruthia). The promoters have submitted that the observations do not pertain to them and they have no comments to offer. The said directors have done trading through stock brokers in the market and the trades have not been disputed by the said directors/companies. (32) With regard to the allegation that the only income of the various connected companies and their directors was the dividend paid by MIL and the said companies since their incorporation have not invested in any other scrip other than MIL, the promoters have submitted that the observations do not pertain to them. (33) None of the connected companies have undertaken any major business activity except Ramkrishna. Further, Runicha, Ramji, Lakhi and Kanhaiya had carried out some business in coal, for which the buyer was Nandlal Enterprises Limited (hereinafter referred as "NEL"), which is a company connected to MIL.

Even in case of Ramkrishna, its business dealings have only been with MIL and NEL. In this regard, the promoters have submitted that at the relevant time NEL's turnover in coal trading was huge and in the range of `25 crores and it was dealing with host of entities involving around 100 entities. The aforesaid entities were a few of them. The coal trading was done in ordinary course of business wherein requisite goods were purchased and consideration paid. Furthermore, with regard to transactions between Ramkrishna and MIL, it is submitted by the promoters that MIL had acquired a piece of land from various parties for installing a project at Chandrapur and that MIL had also acquired a piece of land adjacent to the project land from Ramkrishna for consideration. The promoters submitted that based on said acquisition no adverse inference of connection be drawn between MIL and Ramkrishna. (34) There is no basis of finding that the alleged connected companies were created only for the purpose of dealing in the shares of MIL.

(35) The promoters are unaware that the connected companies were managed by Mr. Amit Raja, further they submit that merely because companies have common auditor, the same cannot be the basis for alleging or inferring that the said companies are group companies. Further, they deny that Mr. Amit Raja is connected with MIL since no basis has been brought on record to substantiate the same. The promoters also deny that MIL had any role in incorporating the alleged connected companies. (36) With regard to allegations that the ten connected companies were connected hence the promoters along with the said connected companies were PACs, in this regard the promoters submitted that if commonalities are there in address, telephone numbers, email ids, etc. there is nothing unusual and abnormal, at times for functional and operational conveniences same is being done. Further, nothing has been brought on record as to how they have concertedly bought the shares for the purported substantial acquisition or how they had the common objective of acquiring substantial shares or control over MIL. (37) The promoters have denied the allegations that the connected companies were connected to them and that the connected companies were indirectly supplied funds for conversion of warrants by MIL and/or promoters of MIL and that they were PACs to the promoter group of MIL as alleged.

(38) The promoters have denied that the entities Runicha, Inco, Ramji, Ambaji and Kanhaiya are connected related to MIL or its promoters and that the said entities are part of the promoter group of MIL, hence not PACs. (39) The promoters have denied that the 29.83% of the total equity capital of MIL held by alleged 10 connected companies on December 15, 2006 was under the same effective management and all PACs to the promoters of MIL and shared the common objective or purpose of substantial acquisition of shares, etc. of MIL. The promoters have submitted that they were already holding majority shareholding both pre and post conversion of warrants and continue to be in control of MIL and that there was no need for them to act in concert with others to acquire further shares. (40) Since the said connected companies have already exited, the same demonstrates that there was no common objective between the promoters and the alleged connected companies for the purpose of acquiring shares in MIL and that no creeping acquisition was made by the promoters of MIL. (41) The promoter shareholding of MIL upon conversion of warrants was 55.35% of the equity capital of the MIL.

The promoters have denied that the combined shareholding of the promoter group and the alleged connected companies as PAC increased to 85.18% of the equity capital of MIL as SEBI has without any basis clubbed the shareholding of alleged connected companies and promoters.

(42) In this regard, the promoters have relied on an order dated February 2, 2010 passed by the Hon’ble SAT in the matter of Triumph International Finance India Ltd. Vs. SEBI (SAT Appeal No. 183 of 2009), regarding the meaning of PACs. Following paras were referred by the Noticees: "...before two or more persons can be said to be acting in concert with each other they must have a common objective and that common objective should be substantial acquisition of shares. The shares then should be acquired pursuant to an agreement or an understanding which could be formal or informal. Sub section (2) of clause (2X1 )(e) of the takeover code then gives us the list of persons who shall be deemed to be acting in concert with each other. Before a charge of acting in concert is levied, it has to be alleged that the delinquent had a common objective pursuant to an agreement or understanding with another person for substantial acquisition of shares of the target company." ".. Association between persons is one thing but their acting in concert with a common objective to acquire substantial number of shares in a company in pursuance to an understanding or an agreement between them is altogether different. ....

Close business association between two or more persons does not by itself make them persons acting in concert" (43) With regards to the provisions of the Takeover Regulations, the promoters have submitted that: (i) That the shareholding of promoters which was 55.35% at the relevant time had come down to 30.66% as a result of liquidation of shares pledged and/ or kept as security by the promoters with banks/financial institutions for raising loans for the company. (ii) The 30% shares belonging to the alleged connected companies as per the SCN are already sold and the said connected companies have nil shareholding as on date. (iii) The directions under regulation 44 of Takeover Regulation, 1997 have to be tested on the anvil of the "interest of securities market" or for protection of the interest of investors" and should have nexus with the same. In the matter under reference, in fact, both corrective action (i.e., disinvestment) has already happened and also punishment (i.e., continuing debarment from securities market according to the interim order) for the alleged breach has already been imposed and continues till date.

Therefore, no further directions are warranted to be issued qua the promoters. (iv) MIL was a profit making company since its inception and the profit of MIL increased every financial year till 2010. The passing of the ex-parte order has affected MIL badly and presently it is making loss. As a result of which MIL has been referred to Board of Industrial & Financial Reconstruction (hereinafter referred to as "BIFR") under section 15(1) of the Sick Industrial Companies (Special Provision) Act, 1985 for determination whether MIL is a Sick Industrial Company or not. (v) At the relevant time the promoters were already holding 74% shares in MIL and were in management and control over the company. Therefore, there was nothing to be gained by the promoters in any manner, by acquiring the shares as alleged. Further, even post allotment of shares (consequent to conversion of warrants) also, the promoters were in management and control over MIL. (vi) Mr. Nandlal Maloo had issued the comfort letter to SICOM so that the funds would indirectly be infused into MIL, which was facing resource crunch at the relevant time.

In fact the funds actually came into MIL which were utilized by the company for its projects. Therefore, the issuance of the comfort letter in the circumstances by Mr. Nandlal Maloo cannot result in automatic inference of the promoters acting in concert with allottees. (vii) If the connected companies were acting in concert with the promoters then the regulation 11(2) of the Takeover Regulations, 1997 would have been triggered on acquisition of a single share of MIL by the connected companies as the promoters were holding 74% share capital and could not have acquired even a single share. As per records, some of these connected companies had acquired shares even in July 2005. (viii) That nothing has been brought on record to demonstrate as to how the date of December 15, 2006 has been picked up for the purpose of alleging that on the said date the provisions of regulation 11 got triggered. Further that the date of triggering is critical and crucial since the same has enormous bearing on the calculation of "offer price". Merely because December 15, 2006, happened to be share allotment date (consequent to conversion of warrants), same cannot become the triggering date.

The promoters further submitted that the allottees of share warrants have neither exercised voting rights in any of the meetings of the MIL nor had any representation on its board. (ix) The promoters have submitted that regulations would get triggered the day any of the entity who was allotted warrants or the entity who had traded in the market, would have had acquired even one share of MIL at prior point of time, since under regulation 11(2) at the relevant time, the promoters could have not acquired even a single share without making an open offer. Lakhi had acquired 11,000 shares way back on July 11, 2005 and similarly Simple had also acquired 11,000 shares way back on July 11, 2005. In the circumstances, the triggering date could never be December 15, 2006 and the same is at cross purposes with the allegations in SCN. (x) They were not acting in concert with any of the connected companies because there was no common objective between the connected companies and the promoters. The promoters were already holding 74% of the capital and were in control of MIL. Even after the allotment, the promoters continued to hold 55% shares and control over MIL.

In this regard they have placed reliance on Daiichi Sankyo Company Ltd vs Jayaram Chigurupati and Others (2010) 157 Com Cases 380 (SC) wherein it has been held that two or more persons may join hands together with the shared common objective or purpose of any kind but so long as the common object and purpose is not of substantial acquisition of shares of a target company they would not comprise PACs. (xi) Further, due to the operation of the interim order, the company is in very poor financial condition and has been suffering. II. Connected companies: A. Inco: (1) Inco has submitted that their registered office address is C/o Sanjay Lute, Near Padi Police Station, Pardi, Bhandara Road, Nagpur - 440008 and directors are Mr. Shivshakti B. Dhoot and Mr. Sanjay R. Lute. (2) Since incorporation, Inco is carrying out all business from the said address. Inco denied that their directors were of no means to carry out huge transactions running into millions of rupees as alleged, they denied that they were connected companies because since incorporation Inco has regularly filed income tax returns and requisite ROC filings.

(3) Mr. Amit Raja is Auditor/consultant with Inco however they are unaware that he is also Auditor/consultants with other companies. (4) They are unaware of the IT Department conducting survey at the premises of Mr. Amit Raja and their findings. (5) There is nothing unusual or abnormal that IT Department has found certain documents of Inco from Mr. Amit Raja's place since he is their auditor and also represents Inco before the IT Department for the purpose of assessment and other related work. Hence no adverse inference should be drawn simply based on the fact that Mr. Amit Raja is Auditor/Consultant at Inco. (6) The allegation that Inco is managed by Mr. Amit Raja since their relationship with him is limited only to that of Auditor/consultant is denied. (7) The allegation that they had cornered a large part of the shareholding of MIL together with other entities and that they had traded fraudulently in the shares MIL is baseless. (8) They were not related or connected to any of the alleged connected companies and were unaware of trading done by the connected companies in MIL. (9) Inco is unaware of the transactions in the account of its director, Mr. Shivhshakti B. Dhoot in IDBI Bank.

However, whatever transactions were carried out by Mr. Dhoot has been done in his individual account and Inco is nowhere concerned with the same. (10) Madhulika had given them `5,65,25,000/- towards loan/ICD which was subsequently repaid by Inco with interest. Inco is unaware about the source of funds of Madhulika. (11) It is denied that Inco did not have any business activity and infrastructure for conducting business, further that the share application money received by Inco from corporate entities was given to it for their upcoming projects and net worth. (12) With regard to the allegation on the comfort letter, Inco denied that loan was given to them only on the basis of comfort letter furnished by MIL. Inco submitted that the comfort letter was given just to acknowledge that MIL had no objection on the loan/ICD availed by Inco from SICOM for the purpose of payment of warrant money. (13) With regard to the allegation that Inco had availed loans from SICOM to make payments to MIL for conversion of the share warrants allotted to them, Inco had admitted the same and submitted that the said loan/ICD from SICOM was repaid subsequently.

(14) With regard to the matter pertaining to the loan related papers available with SICOM, Inco has submitted that they are unaware of the office notes and policy pertaining to ICD of SICOM. (15) Inco denied that loans given by SICOM for conversion of warrants of MIL were secured primarily by the comfort letter of MIL as alleged. Inco reiterated that the comfort letter issued was no way issued as any guarantee or security against the loan availed by Inco. Inco admitted to the matter pertaining to the post dated cheques received from Mr. Nandlal Maloo towards the ICD availed by it from SICOM and the same is on record. (16) Inco denied the allegations that it had provided temporary collateral by way of pledging 1.5 lac shares of MIL with SICOM as alleged. (17) Inco denied the allegation that the top customers of MIL had given huge loans to Inco, further no particulars/details of the said top customers and quantum of loans given has been provided to substantiate the allegation. (18) Inco submitted that the funds received from ANG Financial Consultants P. Ltd. was towards ICD/loan which was subsequently repaid with interest and that it was unaware from where ANG received/arranged/repaid the said funds.

(19) Inco has submitted that they have not traded in the scrip of MIL. (20) With regard to the allegation of connections with connected companies and MIL, Inco denied the same. With regard to the allegation that the phone number and address belonging to Mr. Amit Raja was appearing in demat account opening form with IDBI and Guiness Securities, Inco has submitted that Mr. Amit Raja had given his contact number and address for the sake of convenience. With regard to the allegation that Mr. Shivshakti B. Dhoot and Mr. Sanjay Lute, Director of Inco, it is submitted that they are unaware why the telephone number belonging to Mr. Amit Raja and Mr. Harish D. Jasani was mentioned against their name. (21) Inco denied that they alongwith other companies were PACs to the promoter group of MIL. Inco submitted that the shares allotted were converted to equity shares on December 15, 2006 which was 5.22% of the equity capital of MIL, presently their holding in MIL is nil. Therefore, Inco submitted that they have not triggered the provisions of regulation 11(2) of the Takeover Regulations as alleged and are not required to make any public offer, further that Inco does not have the financial wherewithal to make open offer since the company has been making losses since the last 3 years.

(22) Further Inco has submitted that though post conversion, they were holding the shares of MIL but they never exercised voting rights on the said shares, nor any management or control over MIL. B. Ramji: (1) Ramji’s registered office address was at C/o Lalit Loya, First floor, Adyalaale Layout, Near Gas Godown, Tahsil Road, Umred, Dist. Nagpur - 441203. Directors of Ramji are Mr. Umardan Khariya and Mr. Lalit Loya. (2) Ramji has admitted that they have received an amount of `25 lac each from Pragya and Segment on June 29, 2005 and June 30, 2005 respectively, both Pragya and Segment are their shareholders, the funds so received from them were paid to MIL towards share warrants. (3) With regard to the allegation that since incorporation, no major activity has been undertaken by Ramji, it is submitted that it has been trading in coal in normal course since past several years with various entities including Nandlal Enterprises Ltd. However, Ramji has denied that they have only traded through Nandlal as alleged, and that they are unaware that Nandlal was related / connected to MIL /promoters.

It is submitted by Ramji that their relationship with Nandlal was only limited to trading business and hence no adverse inference should be drawn against it. (4) Runicha also submitted similar reply vide its letter dated January 13, 2014 except for registered office address currently is - C/o Nilesh Jain, Plot No. 42, Tulsi Nagar Colony, Shanti Nagar, Nagpur - 440002. Directors of Runicha are Mr. Nilesh Jain and Mr. Bhawarlal Khalia. (5) Simple also submitted similar reply vide its letter dated January 18, 2014 except for Registered office address of Simple currently is - Behind Sai Baba Mandir, Near Govind

Apartment, Civil Lines, Chandrapur - 442401. Directors of Simple are Mr. Shivshakti Dhoot and Mr. Birmagam Beniwal. (6) Ambaji also submitted similar reply vide its letter dated January 14, 2014 except for Registered office address of Ambaji currently is - 204, M.B.K. Building, Near Indora Namkin, Central Avenue Road, Nagpur - 440008 (formerly it was Itwari High School, Rathid Bhawan, Nikalas Mandir Road, Nagpur-440002). Directors of Ambaji are Mr. Poonam Chand Bhattad and Mr. Chenaram Rar. (7) Similar version of reply was received from Kanhaiya dated January 16, 2014 except for the registered office address of Kanhaiya currently is - C/o Sukhram Prajapat, Plot No. 36, Hiwari Nagar, Beside Patil Floor Mill, Nagpur - 440008. Directors of Kanhaiya are Mr. Jairam Rar and Mr. Sukhram Prajapat. Further, Kanhaiya has submitted that as per SCN the name of Mr. Shivshakti Dhoot is appearing as director which is factual incorrect. C. Krishnum: (1) Registered office address of Krishnum currently is - C/o Lalit Ramniwas Loya, First Floor, Adyallale Layout, Near Gas Godown, Tahsil Road, Umred, Nagpur – 441203. Directors of Krishnum are Mr. Lalit Loya and Mr. Kamalkishore Bhattad.

(2) Krishnum has admitted that Mr. Sukhram Prajapat is one of its shareholders and the amount of `96 lacs deposited was towards the share application money. Post receiving the said amount from Mr. Prajapat the company issued shares to him. (3) Krishnum submitted that it had given and taken loan/money from various entities including Taitan which was subsequently repaid by Krishnum with interest. Hence no adverse inference can be drawn based on the loan taken. (4) Krishnum has submitted that it had not taken/received any loans /funds from ANG Financial as alleged. D. Lakhi: (1) Registered office address of Lakhi currently is - c/o Annapurna Traders, Kirana Oli, Itwari, Nagpur - 440002. Directors of Lakhi are Mr. Srikant Ruthia and Mr. Bhawarlal Khalia. (2) Lakhi has admitted that Mr.Sukhram Prajapat is one of its shareholders and the amount of Rs. 56.50 lacs deposited was towards the share application money. Post receiving the said amount from Mr. Prajapat the company issued shares to him. (3) Lakhi submitted that it had given and taken loan/money from various entities including Taitan which was subsequently repaid by Lakhi with interest.

Hence no adverse inference can be drawn based on the loan taken.

(4) Lakhi has submitted that it had not taken/received any loans /funds from ANG Financial as alleged. (5) Lakhi has submitted that it has been trading in coal in normal course since past several years with various entities including NEL, however it denies that it has only traded through NEL as alleged. Further, Lakhi has submitted that it is unaware that NEL was related/connected to MIL or its promoters and that their relationship with NEL was only limited to trading business and hence no adverse inference can be drawn against it. E. Ramkrishna: (1) Registered office address of Ramkrishna currently is - C/o Nilesh Kumar Jain, Plot no. 42, Tulsi Nagar Colony, Shanti Nagar, Nagpur - 440002. Directors of Ramkrishna are Mr. Nilesh Jain and Mr. Jairam Rar. (2) Ramkrishna has submitted that after receiving share application money from Nihir Viniyog P. Ltd. (`2 lacs) and Techbuild Impex P. Ltd. (`1.50 lacs) it had accordingly issued its shares to both the entities. The money paid to Geojit Financial Services was towards investment in securities market. The receipt of funds from MIL was advance towards sale of land situated at Chandrapur, Maharashtra and after receiving full consideration it had transferred the said in the name of MIL by executing the sale before concerned government authority.

However no inference can be drawn against it. F. Taitan: (1) Registered office address of Taitan currently is - 204, M.B.K. Building, Near Indore Namkeen, Vaishnav Devi Square, Central Avenue, Nagpur - 440008. Directors of Taitan are Mr. Poonamchand Bhattad and Mr. Nilesh Jain. (2) Taitan has submitted that it had given and taken loan/money in normal course of business from various entities including Lakhi and Krishnum and subsequently repaid the same with interest hence no adverse inference can be drawn from such loans. 12. I have carefully considered the SCN, the replies/written submissions of the Noticees and the relevant material available on record. It is admitted position that the Noticees appearing at Sl. No. 1-18 in Table –A were, at the relevant time, forming promoter group of MIL. While the promoters of MIL have claimed that their combined shareholding in MIL at the relevant time was 74% as per records the combined shareholding of the promoter group in MIL at the relevant time was 74.9%. Be that as it may, in terms of the regulation 11(2) of the Takeover Regulations, 1997 as applicable at the relevant time, the promoters of MIL could not have acquired, either themselves or with/through the PACs, any additional shares or voting rights in MIL without making a public announcement in accordance with the Takeover Regulations,

1997. It is admitted fact that consequent to conversion of share warrants on December 15, 2006 that were allotted by MIL to Kanhaiya, Ramji, Runicha, Ambaji and Inco on preferential basis the combined shareholding of these five companies in MIL increased from 'Nil' to 26.10%. As on December 15, 2006, the ten companies, i.e., Noticees No. 19 to 28 mentioned in Table A collectively held 29.83% of the total equity capital of MIL. It is also admitted position that upon conversion of the share warrants on December 15, 2006, the shareholding of the promoters became 55.35% from 74.90%. However, if the said ten companies are PACs with the promoter group, the combined shareholding of the promoter group, taken together with shareholding of these ten companies in MIL, increased from 74.90% to 85.18% of the equity capital of MIL as on December 15, 2006.

13. The Noticees have disputed that the said ten companies were not connected with each other or with the promoter group and were not PACs with the promoter group. In order to determine as to whether said ten companies were connected to each other and with the promoters of MIL and had acted in concert with the promoters of MIL for the acquisition of shares or voting rights in MIL on December 15, 2006. For this purpose it is necessary to refer to the definition of the expressions "acquirer" and "persons acting in concert" as defined under regulation 2(1) of the Takeover Regulations, 1997. As per regulation 2(1)(b) :

"(b) "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;"

This definition also needs to deal with concept of "persons acting in concert" which according to regulation 2(1) (e) 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 of 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; (iv) mutual fund with sponsor or trustee or asset management company; (v) foreign institutional investors with sub account(s); (vi) merchant bankers with their client(s) as acquirer; (vii) portfolio managers with their client(s) as acquirer; (viii) venture capital funds with sponsors; (ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer. Provided that sub-clause (ix)shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work.

(x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2% of the paid upcapital of the latter company. Note: For the purposes of this clause `associate' means: (a) any relative of that person within the meaning of section 6 of theCompanies Act, 1956 (1 of 1956); and (b) family trusts and Hindu Undivided Families." 14. In this case, admittedly the said 10 companies are not charged to be PACs under the deeming provisions of regulation 2(1)(e)(ii). Therefore, the case is to be examined under the general provisions of regulation 2(1)(e)(i) which provides for the bright line test for treating a person to be acting in concert with another for the purpose of acquiring substantial shares or control in a target company. In terms of regulation 2(1)(e)(i), 'persons acting in concert' comprise persons who, for the 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 cooperate by acquiring shares or agree to acquire shares or voting rights in the target company.

What is relevant is that the persons acting in concert must be interested or involved in the common objective or purpose of acquisition of shares or voting rights or in gaining control over the target company. 15. It is settled position that the concept of 'persons acting in concert' under the Takeover Regulation, 1997 is ‘acquisition’ specific and has to be determined on factual situations taking into account the commonality of objectives of the parties, etc. Whether a person is PAC with the acquirer or not depends upon facts of each case and conduct of the parties involved. In this regard, the judgments of Hon'ble Bombay High Court in K. K. Modi Vs SAT (2002) 35 SCL 230 (BOM.) and the Hon’ble Supreme Court in the case of Technip SA (2005)5SCC465 and Daiichi Sankyo Company Ltd vs Jayaram Chigurupati and Others (2010) 157 Com Cases 380 (SC) are relevant. In this case, therefore, it needs to be determined whether the Noticees had common object, pursuant to any agreement or understanding, formal or informal, to acquire shares or voting rights in MIL with regard to the acquisition in question.

For this purpose the facts and circumstances of this case need to be examined holistically.

16. It is noted that prior to the preferential allotment of share warrants by MIL to five of the Noticees, namely, Kanhaiya, Ramji, Runicha, Ambaji and Inco they had taken ICDs of `4.86 Crore each from SICOM subject to the following terms and conditions: (a). Pledge of 5 Lac shares of MIL by each of Kanhaiya, Ramji, Runicha, Ambaji and Incoafter conversion of share warrants; (b). Prior to the pledge of 5 lac shares as aforesaid, the promoters of MIL were required to pledge 1.5 lac shares each of MIL (totaling 7.5 lac shares) with SICOM. These pledged shares were to be released after conversion of warrants and pledge of the said 5 lacs shares; (c). Post dated cheques (hereinafter referred to as "PDCs") towards principal and interest from the borrower companies; (d). Personal guarantees of promoters/directors of borrower companies; (e). Comfort letter dated December 1, 2006 of MIL (signed by company secretary of the MIL) (f). PDCs towards principal and interest from Mr. Nandlal Maloo (promoter/MD of MIL). 17. Mr. Nandlal Maloo, Mr. Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunilkumar Maloo (the promoters of MIL) together pledged 7.5 lac shares of MIL as per the aforesaid condition.

Further, PDCs and the comfort letters dated December 01, 2006 were provided in favour of the aforesaid five connected companies by Mr. Nandlal Maloo and MIL, respectively. Subsequently, all these five connected companies repaid the ICDs to SICOM after obtaining loan from Madhulika which in turn had received funds from MIL without any collateral security. 18. I note that the promoters have denied that loans given by SICOM for conversion of warrants of MIL were secured primarily by the comfort letter of MIL and the post dated cheques from Mr. Nandlal Maloo and that there were other securities taken by SICOM as spelled out in the agreement. The promoters have also denied that Mr. Nandlal Maloo, Mr. Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunil Kumar Maloo had pledged any shares with SICOM or any other entity during the period 2006-07 (i.e., when the loans were given) as temporary collateral on behalf of borrowers as alleged. I, however, note that these facts are borne out of records before me. Both these comfort letters are in the nature of guarantee to SICOM that in the event of failure of borrowers to pay or perform any of the terms and condition of the sanction, MIL and/or Mr. Nandlal Maloo will pay the same to SICOM together with interest, cost, charges and expenses without any objections.

Both the comfort letters are unambiguous in content and provide complete comfort to SICOM in the event of failure of the borrowing entity. I also note that both MIL and Mr. Nandlal Maloo have given the comfort letter to SICOM knowing that the borrowers (the aforesaid five connected companies) did not have any business and were not in a position to first avail the ICDs and then repay them by any means. I, therefore, reject the contentions of the promoters that the comfort letter was merely a letter issued to acknowledge the transactions that the management is aware of the loans taken by various entities and the MD of MIL has no objection on the same. There is a clear element of assurance and guarantee extended to SICOM in case of failure of the borrower. Without having any connection with the borrowing entities, such an unambiguous comfort letter cannot be issued to the lender by anyone. Further, the promoters have failed to explain as to why such a letter was given to SICOM when MIL as a issuer of shares need not be concerned about the finances of the subscribers. The promoters have submitted that the cheques given by Mr. Nandlal Maloo were in his personal capacity.

In the instant matter, Mr. Nandlal Maloo is being charged in his personal capacity only and not as the managing director of MIL. Thus, the reply of the promoters does not provide any cogent reason for issuance of comfort letter and post dated cheques. 19. With regard to the allegation that MIL had used Madhulika as a conduit to provide funds to the aforesaid five connected companies to repay loans to SICOM, the Noticees have submitted they had no role in the alleged transactions and that they were unaware that Madhulika had provided necessary funds by way of unsecured loans to the connected companies. The promoters have further submitted that the funds transferred to Madhulika were towards lease/hire purchase of plant and machinery for setting up cement plant in the state of Karnataka, Rajasthan and Gujarat. In this regard, the promoters have submitted a copy of lease financing agreement dated

November 30, 2007. As per the terms of the lease finance agreement the MIL being the leasee had to pay 25% advance for procurement of plant and machinery from suppliers in Germany and India. I note that MIL had given `28,27,00,000/- as a loan to Madhulika without any collateral on November 30, 2007. However, Madhulika immediately transferred `28,26,25,000/-on November 30, 2007 and December 1, 2007 to five connected companies namely, Kanhaiya, Runicha, Ramji, Inco and Ambaji. The proximity and amount of fund transfer corroborates that the MIL had transferred funds to Madhulika to fund the aforesaid five connected companies rather than for procuring the plant and machinery as claimed by the prmoters. The Noticees have not shown that Madhulika had the ability to execute project of such level. Further, Madhulika never used the money towards the objectives stated by MIL and simply transferred the money to the five connected companies. In view of these facts and circumstances, I find that Madhulika was used as a front entity to facilitate transfer of funds from MIL to the five allottees, i.e., the aforesaid five connected companies.

20. The promoters have further contended that as promoters of a company they have no control over entities acquiring shares of MIL and that they were not aware that the said connected companies were acting together. I note that all the connected companies were being managed by one Mr. Amit Raja, Chartered Accountant and the IT Department during its survey had found various records of these connected companies in the premises of Mr. Amit Raja clearly indicating that Mr. Raja's relationship with these companies was not merely in his professional capacity as auditor and consultant. He was also maintaining consolidated details of 10 connected companies as if they were part of same group and being managed by him only. Out of these 10 connected companies, five connected companies mentioned in the preceding paragraphs were funded by MIL through Madhulika. Even if it were to be accepted that Mr. Amit Raja was not managing these connected companies or was managing these connected companies only in his professional capacity, the fact that MIL and its promoters arranged for funding to these connected companies who had subscribed to warrants of MIL by using same modus operandi, clearly show that these connected companies were acting in concert with each other while subscribing to the preferential allotment of warrants.

In view of these facts, I do not find any merit in the contentions of the promoters regarding their connection with each other. 21. With respect to allegations regarding fund transfer to Kanhaiya, the promoters have contended that at the relevant time MIL was not aware of the sources of funds and the same was of no concern to them and that the amount which they received from these entities towards issuance of warrants was bona fide receipt and based on the same no adverse inference can be drawn against them. I note that on December 5, 2006 Kanhaiya received `4.86 Crore as loan from SICOM and the very next day made the payment of `4.86 Crore to MIL for conversion of share warrants to equity shares. As noted above, the loan from SICOM to Kanhaiya was arranged through comfort letters issued by MIL and Mr. Nandlal Maloo. These facts and circumstances clearly establish the complicity of MIL and its promoters with Kanhaiya. 22. As regards the alleged fund transfer to Ramkrishna, the promoters of MIL have contended that the amount transferred by MIL for acquiring a piece of land adjacent to the project land from Ramkrishna.

The promoters of MIL have also submitted a copy of the sale deed dated August 28, 2007, showing consideration of `35,22,645/-. I, however, note from the extracts of the bank account statements of Ramkrishna that MIL has consistently been providing funds to it. In the calendar year 2007 alone, MIL had transferred a total of `1,82,50,000/- to Ramkrishna, the explanation for which have been given by neither the promoters of MIL nor Ramakrishna. I, therefore, find that Ramkrishna is connected to the promoters of MIL. 23. The promoters of MIL have submitted that Mr. Lalchand Maloo, Mr. Sunilkumar Maloo and Mr. Bajranglal Maloo had traded in the scrip of MIL during the relevant period through market mechanism and since the market was on the downside, their trades were done to stabilize the price of the scrip and to prevent it from eroding further. The promoters of MIL have further submitted that the trading done by the promoters of MIL independently in the ordinary course of business cannot be clubbed with the trading done by the other entities, viz., the ten connected companies to draw any adverse inference of acting in concert.

I note that the ten connected companies and the promoters of MIL have traded in the scrip of MIL during the relevant time. As discussed above, these ten connected companies are connected with each other and also with the promoters/directors of MIL. I do not find any merit in the submissions of noticees that trading by certain promoters was to stabilize the price of the scrip. Further, it is not envisaged that the promoters of a company would try and stabilize the price of the scrip. If the promoters were trying to increase or stabilize the price of the scrip in a falling market, this would be illegal as the promoters were hampering the price discovery mechanism of the stock exchange and this act would be akin to market manipulation. 24. I note that the promoters of MIL have denied knowing any person named Mr. Lalit Loya since he is not related to MIL or its promoters in any manner. I find that Mr. Lalit Loya is one of the directors in Runicha, Ramji and Krishnum. It is already established in the preceding paras that both these connected companies are connected with MIL and its promoters.

Apart from having common address with Mr. Lalit Loya, there are plethora of evidences to show that these connected companies were connected to MIL. I, therefore, do not find any merit in these contentions of the promoters of MIL.

25. I now proceed to deal with the submissions of the ten connected companies. These connected companies have mostly given common replies. All of them have denied their relationship or connection with other connected companies and have submitted that they were unaware of trading done by other connected companies in the scrip of MIL. I note that these connected companies were unable to produce any substantial evidence in support of their arguments. I find that the connection of these connected companies/their promoters/directors/shareholders is already established with MIL/its promoters/directors. Five of these connected entities have used the funds provided by Madhulika for repayment of loan to SICOM. It is already established that SICOM had sanctioned the loan to the five connected entities on the basis of the comfort letter/guarantee/collateral/PDCs provided by MIL and its promoters and the loan so obtained was utilised by the five connected companies towards subscription and conversion of share warrants. 26. I also do not find any merit in the submissions of connected companies that they have no connection with each other directly or through Mr. Amit Raja, Auditor.

The IT Department during its survey recovered consolidated details of these companies from the premises of Mr. Amit Raja alongwith financial and various other documents. Moreover, there is a commonality in the directorship of Mr. Lalit Loya (director of Runicha, Krishnum and Ramji), Mr. Chenaram C. Rar (director of Runicha, Ambaji), Mr. Nilesh Jain (director of Runicha, Ramkrishna and Taitan), Mr. Shivshakti B. Dhoot (director of Inco and Simple), Mr. Bhawarlal Khariya (director of Runicha and Lakhi). I also find that these connected companies and their directors have financial transactions with each other. Further, none of the connected companies, except Ramkrishna have undertaken any major business activity and whatever activities could undertaken, were linked to MIL or its connected entities. In view of these facts and circumstances, I do not find any merit in the submissions of the connected companies that they were not connected with each other. 27. The fact that the ten connected companies have common directorship, phone number, address, email address, and fund transfers amongst them, as noted above, buttresses the conclusion that these entities are connected to each other.

This is further corroborated by the fact that all these connected companies were being managed by their common auditor, Mr. Amit Raja. MIL had made preferential allotment of warrants to these connected entities and had also furnished comfort letters and PDCs so as to enable the connected companies to obtain ICDs from SICOM for subscription and conversion of warrants. Thus, the promoters acting in concert with the connected companies had cornered substantial shareholding in MIL. In view of these circumstances of the case, I find that the said connected companies have demonstrated meeting of minds and common objective or purpose of substantial acquisition of shares, etc. of MIL. Under the facts and circumstances discussed hereinabove, it is established that the whole scheme was devised and employed by the promoters of MIL to corner/ acquire substantial shares of MIL acting in league with the connected entities. Thus, the commonality of objective and understanding of all the Noticees to acquire substantial shares of MIL is also established. Considering the facts and circumstances of this case, I am of the view that all the Noticees are squarely covered within the definition of "persons acting in concert" under regulation 2(1) (e) of the Takeover Regulations, 1997. 28. I, therefore, find that on December 15, 2006, when the aforesaid 5 connected entities converted the shares warrants alloted to them by MIL as aforesaid all Noticees attracted the obligation to make public announcement as mandated under regulation 11(2) of the Takeover Regulations, 1997 within the time period stipulated under regulation 14 thereof.

No such public announcement has been made by the Noticees till date. In view of these facts and circumstances, I find that the Noticees have violated regulation 11(2) read with regulation 14 of the Takeover Regulations, 1997. 29. The Noticees have raised a contention with regard to the date of the trigger of the obligation i.e. December 15, 2006 and have submitted that in the instant case some of the connected companies had been acquiring the shares of MIL through secondary market even before December 15, 2006. Thus, if the connected companies were acting in concert with the promoters then the violation of regulation 11(2) would have occurred on acquisition of even single share by any of the Noticees prior to December 15, 2006. However, I note that the Noticees have not specified any date of such acquisition. As already mentioned hereinabove, the concept of PAC is acquisition specific. Even if I were to accept the contention of the Noticees that the connected companies were acquiring shares of MIL even before December 15, 2006, it does not change the fact that the Noticees had triggered regulation 11(2) of the Takeover Regulations, 1997 on December 15, 2006 when 5 of them acting in concert acquired shares pursuant to conversion of share warrants allotted to them by MIL.

I, therefore, find that for the purposes of this SCN, the Noticees have triggered regulation 11(2) of the Takeover Regulations, 1997 on December 15, 2006. 30. Considering the above facts and circumstances, I am of the view that the charge in the SCN against the Noticees is established. Coming to the possible directions for the violations found in the present proceedings, I note that the guiding principles for the directions as provided in regulation 44 of the Takeover Regulations, 1997 read with sections 11 and 11B of the SEBI Act, 1992 are the interest of the investors and securities market. In this regard, I note the Hon'ble SAT vide order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) observed as follows:

"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 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 ." 31. The Noticees have contended that regulation 44 of the Takeover Regulations, 1997 gives flexibility to SEBI to enforce regulation 11 by way of several directions. One of the directions under that regulation is debarring the Noticees from accessing the capital market or dealing in securities for a specified period. In the instant case, though there is no charge of fraudulent or manipulative trading against them, they have suffered such debarment for a period of more than 4 years vide the interim order dated December 02, 2010. Therefore, for the violations alleged in the SCN, such debarment may be treated as sufficient and commensurate directions. Another direction in regulation 44 is disinvestment of shares acquired in breach of regulations. In this case, the connected companies have sold all their shares in MIL. Further, the shareholding of the promoters in MIL has reduced on account of invocation of the pledge by the pledgee and promoters’ shareholding in MIL, at present, is reduced to 30.66% Thus, it has the same effect as that of direction to disinvest shares acquired by them in breach of regulations.

They have further contended that if they were directed to make public announcement in the instant case, it would be impossible for them to comply with such direction as their business is in poor financial condition on account of the directions issued against them vide the interim order and confirmatory order and they are facing financial hardship. If they are directed to give an open offer, it will only aggravate the financial problems they are suffering and this would have bad impact on MIL and its shareholders. MIL has also claimed to have file application before the Board for Industrial and Financial Reconstruction (BIFR) for declaring it to be a sick unit.

32. I have considered the above submissions of the Noticees and note that the restraint / debarment was imposed upon 18 of the Noticees listed in Table 'C' above by the interim order dated December 02, 2010 on the basis of prima facie finding, amongst other things, on fraudulent and unfair trade practices alleged against them. As noted above, while these interim directions were confirmed by the confirmatory order dated March 23, 2011 against 12 of the Noticees but were revoked against the remaining 6 as described in Table 'D'. Thus, the debarment has not been continued for more than 4 years against all the Noticees as submitted by them. I, however, note that after completion of investigation in the matter, the finding of indulgence in fraudulent and unfair trade practices have been given only in respect of four of the said 12 Noticees, namely, Krishnum, Lakhi, Taitan and Simple against whom the interim order was confirmed and in that respect adjudication proceedings have been initiated against them. Understandably, the interim directions as confirmed by confirmatory order was subsumed in the decision to initiate only adjudication proceedings against the aforesaid four Noticees in respect of whom the findings of fraudulent and unfair trade practices have been given during investigation and debarment/restraint was not to continue after such decision.

However, since no further order has been passed till date as contemplated in the confirmatory order the debarment/restraint imposed by the interim order read with the confirmatory order still continues against all 12 of them including eight Noticees against whom even findings of fraudulent and unfair trade practices have not been given in investigations. 33. I further note that the instant case, the shareholding of the Noticees have reduced on account of the sale by the connected companies and invocation of the pledge by the pledgee. However, such disinvestments were for the benefit of/prior financial obligation of the Noticees rather than being in the interests of investors or securities market as contemplated in regulation 44 and section 11/11B. I therefore, do not accept submissions of the Noticees in this regard. 34. In the present case, the obligation of the Noticees to make the open offer has been triggered on account of breach of regulation 11(2) of the Takeover Regulations, 1997. Further, the Noticees made those acquisitions in clandestine manner. Had the Noticees made the public announcement within a period of 4 days from December 15, 2006 in accordance with the Takeover Regulations, 1997 and complied with all related activities within the timelines specified therein, all formalities with respect to their public announcement and the open offer would have been completed by March 22, 2007, i.e., 97 days from the date of making the public announcement.

In this case, the Noticees failed to make the public announcement within 4 days from December 15, 2006. Had the Noticees made the public announcement within the time stipulated in regulation 14 of the Takeover Regulations, 1997, the price offered to the shareholders in the open offer could have been determined in terms of regulation 20 of the Takeover Regulation, 1997. 35. I find that the Noticees have deprived the shareholders the exit opportunity at the best offer price. In this case, the Noticees had acquired the shares which are found to be in violation of regulation 11(2) of the Takeover Regulations, 1997. In the facts and circumstances of the present case, I do not find any reason to deviate from the normal rule to make a public announcement to acquire shares of the target company in accordance with the provisions of the Takeover Regulations, 1997, and issue any other direction as envisaged in regulation 44. I am also of the view that since the public announcement now would provide a delayed exit opportunity to the shareholders of the target company, the Noticees should pay interest on the consideration amount to the shareholders who tender their shares in the open offer and who are eligible for interest as per law.

36. Considering the above facts and circumstances, I, in order to protect the interest of investors and the integrity of the securities market, in exercise of powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11 and 11B thereof and regulations 44 and 45 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulation 35 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 hereby issue the following directions to the Noticees: (i) The Noticees shall make a public announcement to acquire shares of Murli Industries Limited in accordance with the provisions of the Takeover Regulations, 1997, within a period of 45 days from the date of this order; (ii) The Noticees shall, alongwith the consideration amount, pay interest at the rate of 10% per annum from March 22, 2007 to 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, to them.

37. This order shall come into force with immediate effect. A copy of this order shall be served upon the Noticees for ensuring compliance with the above directions.

Sd/- DATE: 31st July, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA