Order in the matter of S.A.L. Steel Ltd.

WTM/RKA/CFD-DCR/158/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and regulation 32 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in respect of SAL Care Private Limited and Shah Alloys Limited In the matter of acquisition of shares of S.A.L. Steel Limited by SAL Care Private Limited. 1. S.A.L. Steel Limited (hereinafter referred to as "the target company") is a company having its registered office at 5/1, Shreeji House, 5th Floor, Ashram Road, Behind M. J. Library, Ahmedabad, Gujarat - 380006. The shares of the target company are listed on Bombay Stock Exchange Limited ("BSE") and National Stock Exchange of India Limited ("NSE"). 2. As on December 06, 2011, the promoter group of the target company comprised Shah Alloys Limited ("Shah Alloys"), Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) individually holding 35.61%, 10.95%, 0.52% and 3.48%, respectively of the paid up capital of the target company. Thus, on this date, promoter group collectively held 4,29,59,889 (50.56%) equity shares of the target company. 3. Three of the promoters viz. Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) who were, amongst themselves, collectively holding 1,27,02,900 ( i.e.14.95%) equity shares of the target company transferred their entire shareholding in the target company on December 07, 2011, December 08, 2011 and December 09, 2011 to SAL Care Private Limited (hereinafter referred to as 'the acquirer'). From December 09, 2011 onwards, in the disclosures filed with the concerned stock exchanges, the acquirer was shown in the promoter group of the target company. 4. Consequent to the aforesaid transfer of shares, there was change in shareholding of these selling promoters and the acquirer as described in the following table;-

Date of Name of the Pre-acquisition Number and Post-acquisition acquisition seller promoter shareholding of % of shares shareholding of acquirer acquired acquirer

Order in the matter of S.A.L. Steel Limited

December 07, Mr. Rajendra V. Nil 93,05,800 93,05,800 (10.95%) 2011 Shah (10.95%) December 08, Ms. Ragini R. 93,05,800 4,38,700 97,44,500 (11.47%) 2011 Shah (10.95%) (0.52%) December 09, Rajendra V. 97,44,500 29,58,400 1,27,02,900 2011 Shah(HUF) (11.47%) (3.48%) (14.95%) 5. In respect of the aforesaid transactions, the acquirer filed a report on December 24, 2011 under regulation 10(7) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as 'Takeover Regulations')claiming non-applicability of open offer obligations under Chapter II of the Takeover Regulations. Such claim was made by the acquirer on the premise that the acquisitions in question were inter-se transfers amongst the 'qualifying persons' as mentioned in regulation 10(1)(a)(iii) of the Takeover Regulations, since the acquirer's director and promoter, Mr. Karan Shah is the immediate relative (son) of Mr. Rajendra V. Shah (one of the selling promoter of the target company) and holds more than 66% of the share capital of the acquirer. In view of this fact, it was claimed that the acquirer was covered within the definition of 'promoter group' under regulation 2(1)(zb)(iv)(A) of SEBI (Issue of capital and Disclosure Requirements) Regulations, 2009 ("ICDR Regulations").

6. On examination of the aforesaid report, SEBI noted that with regard to the aforesaid acquisitions, the acquirer and Shah Alloys Ltd. (i.e. the promoter other than the selling promoters) being members of the promoter group, were 'persons acting in concert' within the meaning of the expression under regulation 2(1)(q)(2)(iv) of the Takeover Regulations. Further, pursuant to the aforesaid acquisitions, though the total promoters' shareholding in the target company remained at 50.56%, the shareholding of the acquirer along with the shareholding of Shah Alloys Ltd. (PAC) increased from 35.61% to 50.56%. The said increase in shareholding of the acquirer and PAC was more than the permissible limit of 5% stipulated in regulation 3(2) of the Takeover Regulations. SEBI further noted that the acquisitions in question did not satisfy the conditions stipulated in regulation 10(1)(a)(iii) of the Takeover Regulations and therefore the same did not qualify for exemption from the obligation to make an open offer under Chapter II of the Takeover Regulations. 7. Being not satisfied with the grounds forwarded by the acquirer for exemption under regulation 10(1)(a)(iii) of the Takeover Regulations, SEBI issued a show cause notice dated April 03, 2014 (hereinafter referred to as "the SCN") to the acquirer and Shah Alloys Ltd. (the existing promoter) the PAC with the acquirer calling upon them to show cause as to why suitable directions under sections 11 and 11B of the Securities and Exchange Board of India

Act, 1992 ("SEBI Act") and regulation 32 of the Takeover Regulations should not be issued against them. The acquirer and PAC are hereinafter collectively referred to as "the Noticees". It was alleged in the SCN that that as a result of the aforesaid acquisitions, there was an increase of more than 5% in the shareholding of the acquirer along with the PAC in the target company, and the aforesaid acquisitions also resulted in a change in control of the target company and therefore the acquirer and the PAC were required to make a public announcement in accordance with the provisions of regulation 3(2) and 4 read with regulation 13 of the Takeover Regulations, which they failed to make. 8. The Noticees filed their replies vide letters dated May 15, 2014. The Noticees were also granted an opportunity of personal hearing on June 26, 2014. Thereafter, the Noticees filed their written submissions in the matter vide letters dated July 02, 2014. The replies / written submissions of the Noticees are, inter alia, as under:- Relies / written submissions of the acquirer (SAL Care Private Limited): (a) Pursuant to the acquisition of shares as described in the SCN, the individual shareholding of the acquirer in the target company increased from nil to 14.95% of the total paid-up capital.

The acquirer had acquired those shares from the existing promoters of the target company. The said acquisition, being less than 25% of the total paid-up capital of the target company, did not come under the purview of regulation 3 of Takeover Regulations relating to open offer requirements. (b) The acquirer and the other promoter of the target company (i.e. Shah Alloys) are not acting in concert with each other in any way with respect to the aforesaid acquisition of shares or exercising control over the target company. There is no change in shareholding of Shah Alloys and no change in control of the target company. The acquirer has not taken control of the target company and none of its director / employee has been appointed as director / key personnel in the target company. The acquirer has not interfered in the day to day management or the decision making process of the target company. (c) SEBI has considered that the acquirer was included in the promoter group of the target company but actually the director of the acquirer was already on the promoter group of the target company so the question of including the acquirer in the promoter group does no arise.

The allegation that the acquirer was included in the promoter group is not correct as SEBI has not provided any documentary evidence / proof in that regard. (d) Mr. Karan Shah is the director and promoter of the acquirer and holds majority shareholding of more than 66% in the acquirer. He is the only son of Mr. Rajendra V.

Shah and also the coparcener of Mr. Rajendra V. Shah (HUF). He and the acquirer both fall within the definition of 'promoter group under regulation 2(zb) of the ICDR Regulations. Thus, regulation 10(1)(a)(iii) is applicable in case of the acquirer. (e) All necessary compliances under the Takeover Regulations have been made by the acquirer well within the prescribed time limit and it has also informed the target company and other relevant authorities about the purchases of shares made by it. (f) In respect of the alleged violation of regulation 3(2), the acquirer has also drawn reference to the order of the Whole Time Member, SEBI in the matter of Prozone Capital Shopping Centers Limited dated May 15, 2014. Relies / written submissions of Shah Alloys Limited: (a) Shah Alloys has been holding the shares of the target company from its incorporation and its holding in the target company has not changed till date. (b) No documentary evidence has been provided by SEBI in support of the allegation that Shah Alloys is a PAC with the acquirer. The allegation has been leveled only on the basis of an assumption.

(c) There is no change in control and management of the target company. (d) In respect of the alleged violation of regulation 3(2), Shah Alloys has also drawn reference to the order of the Whole Time Member, SEBI in the matter of Prozone Capital Shopping Centers Limited dated May 15, 2014. 9. I have considered the SCN, replies and submissions made by the Noticees and other relevant material available on record. In this case, the transactions described in the SCN are admitted by the Noticees. It is undisputed fact that more than 66% shares in the acquirer are held by Mr. Karan Shah son of Mr. Rajendra V. Shah, who was a promoter of the target company at that point of time acquisition in question. By virtue of the fact of such holding in the acquirer by an immediate relative of promoter /director of the target company, the acquirer is covered within the meaning of the term "promoter group" under regulation 2(1)(t) of the Takeover Regulations read with regulation 2(1)(zb)(iv)(A) of the ICDR Regulations. Thus, from the date of registration of the target company i.e. from February 26, 2008, the acquirer was part of its 'promoter group' though it was not disclosed as such in the shareholding pattern filed by the target company with the concerned stock exchanges under the listing agreement till December 09, 2011 when it was so disclosed after the aforesaid acquisitions.

Thus, the acquirer was part of promoter group of the target company prior to the acquisitions in question and continued thereafter. As per regulation 2(1)(q)(2)(iv) of the Takeover Regulations, the promoters and members of the promoter group are deemed to be PACs unless the contrary is established. It is trite to say that the burden of establishing the contrary to the status of PAC by virtue of being part of the promoter group lies on the persons claiming the contrary. In this case, the Noticees have contended that they were not acting in concert with each other for the purpose of the acquisitions in question because pursuant to the acquisitions by the acquirer there is no change in shareholding of Shah Alloys Ltd. and there is no change in control of the target company. In my view, these factors are is not sufficient to establish contrary to the status of Shah Alloys Ltd. as deemed PAC with the acquirer under regulation 2(1) (q) (2) (iv). In this regard, the following facts are relevant to mention:- a) Shah Alloys, Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) were the promoters of the target company when the acquirer acquired the entire shareholding held by three promoters viz; Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF). b) As per the shareholding pattern of Shah Alloys for the quarter - December 2011, Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) formed part of the promoter group of Shah Alloys and held 39.97%, 5.79% and 7.74%, respectively in it. c) Mr. Karan Shah is the promoter and director of the acquirer and holds the majority shareholding therein.

He also holds 40,000 shares representing 0.20% of the share capital in Shah Alloys. d) Mr. Rajendra V. Shah who is the father of Mr. Karan Shah was the promoter of and chairman of Shah Alloys. Further, Mr. Karan Shah was also the coparcener of Rajendra V. Shah (HUF). e) Immediately after acquisitions in question, On December 9, 2011 and December 10, 2011, the acquirer made disclosures to BSE / NSE under regulation 29(1) and regulation 29(2) of the Takeover Regulations regarding the acquisitions made by it, wherein it disclosed itself as a part of the promoter group alongwith Shah Alloys Ltd. 10. From the above facts, it is noted that the acquirer and Shah Alloys are companies which have been promoted and are being controlled by members of the same family i.e. the family of Mr. Rajendra V. Shah. Further, the acquisitions under consideration were made by the acquirer from Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) and at the time of these acquisitions, Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) (along with other members of the promoter group) were in control of Shah Alloys and held a majority shareholding therein.

The status of acquirer and Shah Alloys Ltd. prior to the acquisitions coupled with omission to disclose the acquirer in promoter category though it was part of promoter group and subsequent acts of disclosing the acquirer in the promoter category after acquisition indicate that the acquirer and Shah Alloys acted in concert with each other with common object and purpose of the aforesaid acquisition of 14.95% shares by the acquirer. 11. The Noticees have further contended that SEBI has not provided any documentary evidence / proof in support of the allegation that the acquirer was included in the promoter group of the target company pursuant to the acquisition of 14.95% shares of the target company. In this regard, I note that on December 9, 2011 and December 10, 2011, the acquirer itself made disclosures to BSE / NSE under regulation 29(1) and regulation 29(2) of the Takeover Regulations, respectively regarding the acquisitions made by it, wherein it was disclosed as a part of the promote group. The same was also reflected in the shareholding pattern of the target company for the quarter ended December 2011 displayed on the BSE website.

Since the allegation in this regard has been made in the SCN on the basis of these disclosures made by the acquirer and the target company in the public domain, the question of furnishing documentary evidence in this regard does not arise at all. 12. Another contention of the Noticees is that the acquisition in question was exempted under regulation 10(1)(a)(iii) of the Takeover Regulations which reads as under: "10. (1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor,— (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,— (iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than fifty per cent of the equity shares of such company, other companies in which such persons hold not less than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons;" 13. In terms of regulation 10(1)(a)(iii) the inter se transfer of shares amongst the acquirer and the persons holding not less than fifty per cent of the equity shares of acquirer could be exempted from the open offer obligation under Chapter II of the Takeover Regulations.

In this case, though the son of one of the seller promoter held more than 50% equity shares in the acquirer, none of the seller promoters held any shares therein. Therefore, the acquisitions of the Noticees in this case was not eligible for exemption under said regulation 10(1)(a)(iii). 14. The acquirer has further contended that it had acquired 14.95% shares of the target company which was less than 25% of the total paid-up capital of the target company and thus the acquisitions did not come under the purview of regulation 3(2) of the Takeover Regulations. In this regard, I note that though pursuant to its acquisitions from the three other selling promoters the individual shareholding of the acquirer in the target company increased from "NIL" to 14.95%, the collective shareholding of the acquirer taken together with that of Shah Alloyes Ltd. (the other promoter holding 35.61% equity shares of the target company) who was PAC with the acquirer for the purposes of its acquisition increased from 35.61% to 50.56%, which was in excess of the 5% limit stipulated in regulation 3(2). 15. It is also alleged in the SCN that pursuant to the acquisitions made by the acquirer, there was a resultant change in control over the target company and therefore the acquirer and the PAC violated regulation 4 of the Takeover Regulations.

In this regard, as noted above, the acquirer is part of 'promoter group' under regulation 2(1)(t) of the Takeover Regulations read with regulation 2(1)(zb)(iv)(A) of the ICDR Regulations since the date of registration of the target company and thereafter. The Noticees were in control of the target company prior to the acquisitions in questions and thereafter and the entire shareholding of promoters in the target which was 50.56% in the hands of 5 promoters prior to the acquisitions remained unchanged in the hands of two promoters after the acquisitions. I further note that the transferors of shares in the present case were belonging to one family and the transferee company is controlled by another member of the same family - Mr. Karan Shah. Further, the PAC (i.e. Shah Alloys) is also controlled by the aforesaid three transferors. Furthermore, Mr. Rajendra V. Shah (one of the transferors) continues to be the Chairman of the target company even after the aforesaid transfers. It is gainsaying in this case that shareholding of the promoters has remained unchanged at 50.56% even after the aforesaid acquisition by the acquirer and no new person has joined the control since the acquirer was part of the promoter group of the target company since its registration in February 26, 2008 though it was not disclosed as such till December, 2011. From the SCN, it is noted that it is on the basis of such disclosure only that the allegation of violation of regulation 4 has been made in this case.

Considering these facts and circumstances, I find that change in number of promoter from 5 to 2 though would be too venial. 16. It is noted that the acquisitions in question were by way of inter se transfer of equity shares amongst promoters of the target company. However, since the acquirer was not disclosed in the shareholding pattern filed by the company in terms of the listing agreement or under the Takeover Regulations till December 09, 2011, the acquisitions in question did not qualify for automatic exemption under regulation 10(1) (a) (ii) of the Takeover Regulations. Had the acquirer been disclosed by the target company in its 'promoter group' for three years prior to the acquisition by the acquirer, the acquisitions would have been automatically exempt under regulation 10(1)(a)(ii) from the applicability of regulation 3(2) of the Takeover Regulations on account of being inter se transfer of shares amongst persons named as promoters. In addition, I note that the acquisitions in question were not done in a clandestine manner and all the requisite disclosures in that regard were made by acquirer which are available in public domain.

17. I note that the Noticees in their submissions have referred to the exemption order of Whole Time Member, SEBI in the matter of Prozone Capital Shopping Centers Limited dated May 15, 2014, which related to a proposed transfer of shares from an individual to his family trust and exemption from open offer obligation was granted by SEBI in respect of that acquisition. In the facts and circumstances of this case, I am of the opinion that had an application for exemption under regulation 11 of the Takeover Regulations been filed by the acquirer prior to the acquisitions under consideration, they might have chance to get such exemption. 18. Considering the facts and circumstances as discussed hereinabove, I do not find blameworthy conduct on the part of the Noticees and the alleged breach in this case is technical and minor. In this regard, I note that the Hon'ble High Court in the matter of SEBI v. Cabot International Capital Corporation (2005 123 CompCas 841) had pronounced the principle that where the breach of the regulation is unintentional, not deliberate, technical, minor and based on a bona fide belief, strict enforcement of the regulations may not be warranted.

19. In view of the above, I do not find the need to issue any direction to the acquirer and the PAC in the matter. However, I am of the view that the Noticee, being promoters of the target company should take utmost care and be more vigilant and careful while consolidating their shareholding in the target company in future. The SCN dated April 3, 2014 is disposed off accordingly.

DATE: December 12th, 2014 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA