Order in the matter of Refex Refrigerants Limited

WTM/GM/EFD/DRA III/10/FEB/2017 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under section 11B of the Securities and Exchange Board of India Act, 1992 and regulation 44 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. In respect of: - Mr. Anil T Jain (PAN: AADPA8582A) In the matter of acquisition of shares of Refex Industries Limited (formerly known as: Refex Refrigerants Limited)

Background: 1. Refex Industries Limited (hereinafter referred to as “Target Company” or “Refex”) is a company registered under the Companies Act, 1956 having its registered office at 20, Mooker Nallamuthu Street, Chennai – 600001 and its securities are listed on the Bombay Stock Exchange (‘BSE’).

2. Securities and Exchange Board of India (SEBI) conducted an investigation to look into the trading activity of certain connected entities in the scrip of Refex for the period from August 1, 2008 to December 31, 2008. The investigation, inter alia, revealed that Mr. Anil T Jain, who was a promoter and director of Refex during the relevant time, together with the promoter group entities, was holding more than 55% shares/ voting rights in Refex during the quarter ending on June 30, 2008 and September 30, 2008. Mr Anil T Jain is hereinafter referred to as the “Noticee”. The shareholding pattern of the promoter and promoter group entities in the company for the quarters June 30, 2008, September 30, 2008 and December 31, 2008 is as under:

Quarter 30-Jun-08 30-Sep-08 31-Dec- 08 Particulars No of No of Shares % No of No of Shares % Share No of No of Shares % Share Share Share Share Holding Share Holding Holders holding Holders Holders Promoter 18 98,86,170 63.88 7 58.23 7 90,93,050 58.76% & Group 90,11,072 Public 3,706 55,89,006 36.12 3,701 64,64,104 41.77 4898 63,82,126 41.24% Total 3724 1,54,75,176 100.00 3,708 1,54,75,176 100.00 4905 1,54,75,176 100.00

Order in the matter of Refex Industries Ltd.

3. On September 4, 2008, the Noticee acquired 42 shares of Refex through off-market transaction from one Mr. Anand Kalu Marathe. It was alleged that this acquisition by the Noticee is in breach of regulation 11(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as Takeover Regulations, 1997) as he did not make any public announcement of open offer to acquire shares from other shareholders of Refex.

4. Thus, the Noticee’s acquisition of 42 shares on September 4, 2008 through the off market transaction, without complying with the obligation to make a public announcement of an open offer in terms of regulation 11(2) of the Takeover Regulations, 1997 caused SEBI to issue a Notice dated February 26, 2016 to Anil T Jain calling upon him to show cause as to why suitable directions under section 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") and regulation 44 (f) and (i) of Takeover Regulations, 1997 should not be issued against him. There was no reply from the side of the Noticee.

Submissions: 5. An opportunity of hearing was given to the Noticee on December 19, 2016. Mr. B Madhuprasad, Chartered Accountant, appeared for hearing on behalf of the Noticee and made the submissions. The Noticee has also filed written submission dated December 22, 2016 in the matter. The summary of the oral and written submissions of the Noticee are as follows:

a) The total issued and subscribed equity shares of Refex was 1,54,75,176 and out of this the Noticee acquired only 42 shares on September 4, 2008. This acquisition is unintentional and forms a very negligible percentage and considering the materiality of 42 shares to such large capital it may not be treated as acquisition for consolidation. b) The promoters’ shareholding and public shareholding in Refex remained unchanged during the quarters from December 2008 to December 2009. c) There has not been any change in the management control of the company nor has the transaction resulted in any loss to the investors. d) The Takeover Regulations, 1997 was amended on October 30, 2008 and second proviso to regulation 11(2) of the Takeover regulations was added which provided that persons who are holding above 55% but below 75% shares/voting rights in a company can acquire further shares/voting rights up to 5% in the company, without making any public announcement.

e) Further, the Takeover Regulations, 1997 has been substituted by SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as Takeover Regulations, 2011). In terms of the present Takeover Regulations, the acts and omissions of the Noticee would not constitute a violation as regulation 3(2) of the Takeover Regulations, 2011 permits persons, who are holding 25% or more shares or voting rights in a target company but less than maximum permissible non-public shareholding, to acquire up to 5% shares in a financial year without making any public announcement.

Consideration of issues and findings: 6. I have considered the Show Cause Notice, documents available on record and submissions of the Noticee. In the present case, it has not been disputed by the Noticee that he was a promoter and director of Refex during the relevant time and that he along with other promoter group entities was holding more than 55% shares/voting rights and he acquired 42 shares of the Target Company in an off-market deal on September 4, 2008 without making any public announcement. However, it was submitted that the Noticee’s acquisition of 42 shares of the company on September 4, 2008 is not material and constitutes very negligible percentage of shares/voting rights of the company, which cannot be construed as acquisition for consolidation. It has also been submitted that subsequent amendments to Takeover Regulations permit acquisition of up to 5% shares/voting rights without making any public announcement for acquirers falling within the category in which the Noticee is.

7. The submissions of the Noticee need to be examined in the light of the relevant provisions of the Takeover Regulations. Regulation 11 of the Takeover Regulations, 1997, as it prevailed during the time of acquisition of shares i.e., on September 4, 2008, read as under:

“Consolidation of holdings 11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any financial year ending on 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. (2) No acquirer, who together with persons acting in concert with him holds, fifty five per cent (55%) or more but less than seventy five per cent (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:

Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent. (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures, seventy five per cent (75%), the words and figures ‘ninety per cent (90%)’ were substituted;”

8. In terms of the regulation 11(1) of the Takeover Regulations, 1997, where an acquirer holds 15% or more but less than 55% of the shares or voting rights in a target company, he could acquire additional 5% shares or voting rights in a financial year without making public announcement. However, in terms of regulation 11(2), where the acquirer along with persons acting in concert are holding 55% or more but less than 75% shares or voting rights in a target company he cannot acquire any additional shares or voting rights therein unless the acquirer makes a public announcement for open offer in accordance with the Takeover Regulations, 1997.

9. Takeover Regulations, 1997 was amended by SEBI (Substantial Acquisition of Shares and Takeover Regulations) (Amendment) Regulations, 2008, on October 30, 2008, whereby another proviso was added to regulation 11(2) which reads as under:- "Provided further that such acquirer may, without making a public announcement under these Regulations, acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him up to five per cent (5%) voting rights in the target company subject to the following:- (i) the acquisition is made through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated deal/ preferential allotment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buyback of shares by the target company; (ii) the post-acquisition shareholding of the acquirer together with persons acting in concert with him shall not increase beyond seventy five per cent (75%)."

This amendment permitted acquisition of shares or voting rights up to 5% even by those acquirers who were holding 55% or more but less than 75% shares/voting rights in the company without making any public announcement. The acquisition without any public announcement was, however, allowed subject to the two conditions that - (a) the acquisition should be made through open market purchase in normal segment on the stock exchange or it is pursuant to buy back of shares by the target company, and (b) the post-acquisition shareholding of the acquirer along with persons acting in concert shall not go beyond 75%.

10. It is observed that the acquisition of shares by the Noticee has taken place on September 4, 2008. It is clear from a plain reading of the provisions of sub-regulations 11(2) of the Takeover Regulations, 1997, as it prevailed during the time of the acquisition, that the Noticee could not have acquired any additional share or voting right in the target company without making a public announcement for open offer in terms of Takeover Regulations, 1997.

11. It is also noted that subsequently, i.e., in October 2008, in order to facilitate consolidation of shareholding by persons already in control or holding substantial number of shares in a company, a proviso was added in sub-regulation 11(2) of the Takeover regulations, 1997 to provide for exemption from making open offer for acquisition of up to 5% shares by shareholders holding more than 55% shares in a company, subject to their fulfilling certain conditions, including that it is an open market purchase over the exchange. Presently, the Takeover Regulations, 2011 that has repealed and substituted the Takeover Regulations, 1997 with effect from October 23, 2011, permits vide regulation 3(2) the acquisition up to 5% shares in a financial year by any acquirer who holds 25% or more shares or voting rights in a target company without making an open offer.

12. Thus, effectively, in less than two months subsequent to the acquisition of 42 shares by the Noticee, the Takeover Regulations, 1997 were amended to facilitate consolidation of shareholding by persons already in control by permitting acquisition up to 5% shares without making any open offer subject to certain conditions stipulated therein. Further, under the provisions of the new Takeover Regulations, 2011 the rigors of the then applicable provision under regulation 11(2) have been considerably diluted. Further, I cannot be oblivious of the fact that the number of shares acquired are quite negligible and forms a very miniscule percentage of the share capital of the Target Company and these shares have been acquired by persons who are already in control of the company. It is also noted that the shareholding of the promoter and promoter group, to which the Noticee belongs, has reduced from 63.88% in the previous quarter to 58.23% in the quarter in which the Noticee has made the acquisition, i.e., quarter ending on September 30, 2008 and the shareholding percentage of promoters and promoter group and public shareholding has remained unchanged during the quarters from December 31, 2008 to December 31, 2009. In view of the above, it does not appear that there was any attempt on the part of the Noticee to consolidate his shareholding in Refex.

13. On an overall assessment of the facts and circumstances of the case, I am inclined to arrive at the following conclusions:

 that there is a violation of regulation 11(2) of the Takeover regulations, 1997 by the Noticee;  that the violation is un-intentional and not for consolidation  that the violation is technical and venial in nature; and  that there are clear mitigating circumstances in the form of subsequent amendments to the takeover regulations which further lessens the gravity of the violation.

14. In view of the above, in exercise of powers conferred upon me under section 11B of the SEBI Act, 1992, I do not find this to be a fit case warranting a direction as proposed in the show cause notice dated February 26, 2016 and the show cause notice stands disposed accordingly.

-Sd- Date: February 02, 2017 G. MAHALINGAM Place: Mumbai WHOLE TIME MEMBER