Order in the matter of S H Kelkar and Company Limited

WTM/GM/CFD/14/2018-19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY M/S. S H KELKAR AND COMPANY LIMITED ACQUIRER (S) RAMESH VINAYAK VAZE FAMILY TRUST KEDAR RAMESH VAZE FAMILY TRUST

BACKGROUND –

1. M/s. S H Kelkar and Company Limited (“Target Company”) was incorporated on July 01, 1955, and its Registered Office is at 36, Devkaran Mansion, Mangaldas Road, Mumbai, Maharashtra, 400002. The shares of the Target Company are listed on BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

2. An Application dated January 02, 2017 (“Application”) seeking exemption from the applicability of inter alia Regulation 3 and 5 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in the matter of proposed acquisition of shares and voting rights in the Target Company, was received by SEBI from Ramesh Vinayak Vaze Family Trust (“Acquirer Trust-1”) and Kedar Ramesh Vaze Family Trust (“Acquirer Trust-2”)(collectively referred to as “Acquirer Trusts”).

3. Regulations 3 & 5 of the Takeover Regulations state – “Substantial acquisition of shares or voting rights. 3. (1) No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

Order in the matter of SH Kelkar and Company Limited (2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding. Explanation — For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,— (i) Gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) In the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition. (3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.

Indirect acquisition of shares or control. 5. (1) For the purposes of regulation 3 and regulation 4, acquisition of shares or voting rights in, or control over, any company or other entity, that would enable any person and persons acting in concert with him to exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations, shall be considered as an indirect acquisition of shares or voting rights in, or control over the target company…”

4. In the aforementioned Application, the following was inter alia stated – i. The proposed acquisition / transfer comprises of two parts, namely PART A and PART B. The details are as under: PART A:

a. Transfer of equity shares of Keva Aromatics Private Limited into Trust-1 and Trust-2:  Mr. Ramesh Vinayak Vaze and Mrs. Prabha Ramesh Vaze have a total shareholding of 42.67% and 16.44% respectively in Keva Aromatics Private Limited, out of which they propose to transfer 41.86% shares and 15.63% shares respectively to Trust-1.  Mr. Kedar Ramesh Vaze has a total shareholding of 40.89% in Keva Aromatics Private Limited, out of which he proposes to transfer 40.08% shares to Trust-2.  Keva Aromatics Private Limited is the holding company of Keva Constructions Private Limited (which is holding 99.99% in Keva Constructions Private Limited).  Keva Constructions Private Limited in turn holds 6.20% equity shares in the Target Company.  By virtue of these proposed transfers, there would be an indirect increase in voting rights of Trust-1 and Trust-2 in the Target Company.

b. Transfer of equity shares of Keva Industries Private Limited into Trust-1 and Trust-2:  Mr. Ramesh Vinayak Vaze has a total shareholding of 50% in Keva Industries Private Limited, out of which he proposes to transfer 49% shares to Trust-1.  Mr. Kedar Ramesh Vaze has a total shareholding of 50% in Keva Industries Private Limited, out of which he proposes to transfer 49% shares to Trust-2.  Keva Industries Private Limited is the holding company of KNP Industries Pte. Limited (which is holding 95.01% in KNP Industries Pte. Limited).  KNP Industries Pte. Ltd. in turn holds 11.84% equity shares in the Target Company.  By virtue of these proposed transfers, there would be an indirect increase in voting rights of Trust-1 and Trust-2 in the Target Company.

PART B: c. Transfer of equity shares of the Target Company into the trust-1 and Trust-2 by the persons belonging to promoter group individually:  Mr. Ramesh Vinayak Vaze and Mrs. Prabha Ramesh Vaze propose to transfer 16.45% and 1.97% of their respective total holding of 17.95% and 3.47% in the Target Company to Trust-1.  Mr. Kedar Ramesh Vaze proposes to transfer 9.24% of his total holding of 10.74% in the Target Company to Trust-2.  By virtue of these proposed transfers, there would be a direct increase in voting rights of Trust-1 and Trust-2 in the Target Company.

ii. Presently, the Acquirer Trusts do not hold any equity shares of the Target Company. iii. The Acquirer Trusts would be acquiring a total shareholding (direct and indirect) of 44.72 % in the Target Company, which exceeds the stipulated threshold of an additional 5%. iv. The pre–acquisition direct shareholding in the Target Company as on January 02, 2017 along with the proposed post–acquisition direct shareholding in the Target Company, are provided below:

TABLE A – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) SR. NAME PRE – ACQUISITION POST – ACQUISITION NO. NO. OF % NO. OF % SHARES SHAREHOLDING SHARES SHAREHOLDING A. PROMOTER/ PROMOTER GROUP 1. RAMESH VINAYAK VAZE 2,59,65,600 17.95 21,69,312 1.50 2. PRABHA RAMESH VAZE 50,14,514 3.47 21,69,312 1.50 3. KEDAR RAMESH VAZE 1,55,25,100 10.74 21,69,312 1.50 4. ANAGHA S NENE 100 0.00 100 0.00 5. NIHAR S NENE 15,22,500 1.05 15,22,500 1.05 6. NANDAN KEDAR VAZE 13,25,000 0.92 13,25,000 0.92 7. PARTH KEDAR VAZE 13,25,000 0.92 13,25,000 0.92 8. NEHA KEDAR KARMAKAR 7,61,250 0.53 7,61,250 0.53 9. NISHANT KEDAR 7,61,250 0.53 7,61,250 0.53 KARMAKAR 10. SUMEDHA KEDAR 150 0.00 150 0.00 KARMAKAR 11. SKK INDUSTRIES PRIVATE 15,22,500 1.05 15,22,500 1.05 LIMITED 12. ASN INVESTMENT 15,22,500 1.05 15,22,500 1.05 ADVISORS PRIVATE LIMITED 13. KEVA CONSTRUCTIONS 89,63,757 6.20 89,63,757 6.20 PRIVATE LIMITED 14. VINAYAK GANESH VAZE 20,30,000 1.40 20,30,000 1.40 CHARITIES 15. KNP INDUSTRIES PTE. 1,71,24,000 11.84 1,71,24,000 11.84 LIMITED 16. RAMESH VINAYAK VAZE Nil Nil 2,66,41,490 18.42 FAMILY TRUST – TRUST-1 17. KEDAR RAMESH VAZE Nil Nil 1,33,55,788 9.24 FAMILY TRUST – TRUST-2 TOTAL 8,33,63,221 57.64 8,33,63,221 57.64 B. PUBLIC SHAREHOLDINGS 6,12,57,580 42.36 6,12,57,580 42.36 GRAND TOTAL 14,46,20,801 100.00 14,46,20,801 100.00 v. The pre–acquisition total shareholding (direct & indirect) of the Acquirer Trusts in the Target Company as on January 02, 2017 along with the proposed post–acquisition total shareholding (direct & indirect) of the Acquirer Trusts in the Target Company, are provided below:

TABLE B – DIRECT & INDIRECT SHAREHOLDING OF THE ACQUIRER TRUSTS IN THE TARGET COMPANY, PRE AND POST ACQUISITION (SOURCE: APPLICATION) Particulars Pre- Post- Acquisition Acquisition Ramesh Vinayak Vaze Family Trust – Trust-1 Direct holdings (voting rights) 0% 18.42% Indirect voting rights through Keva Aromatics Private 0% 3.56% Limited Indirect voting rights through Keva Industries Private 0% 5.51% Limited Total (Trust-1) 0% 27.49% Kedar Ramesh Vaze Family Trust – Trust-2 Direct holdings (voting rights) 0% 9.24% Indirect voting rights through Keva Aromatics Private 0% 2.48% Limited Indirect voting rights through Keva Industries Private 0% 5.51% Limited Total (Trust-2) 0% 17.23%

Total holdings / voting rights of the Acquirers [Total 0% 44.72% (Trust-1) + Total (Trust-2)]

vi. The Trustees of the Acquirer Trust-1 and Acquirer Trust-2 are persons who also form part of the Promoters and Promoter Group of the Target Company along with the Acquirer Trusts and have been declared so in disclosures given to the Stock Exchanges as holding an aggregate shareholding of 57.64% (i.e. total shareholding of the Promoter and Promoter Group in the Target Company), as on December 30, 2016. Accordingly, details of the Settlor, Trustees and Beneficiaries of the Acquirer Trusts are as provided in Tables C & D below –

Table C ACQUIRER TRUST-1 : RAMESH VINAYAK VAZE FAMILY TRUST SETTLORS TRUSTEES BENEFICIARIES  Mr. Ramesh Vinayak Vaze  Mr. Ramesh Vinayak Vaze  Mr. Kedar Ramesh Vaze  Mrs. Prabha Ramesh Vaze  Mrs. Prabha Ramesh Vaze  Kedar Ramesh Vaze Family Trust  Mr. Kedar Ramesh Vaze

Table D ACQUIRER TRUST-2 : KEDAR RAMESH VAZE FAMILY TRUST SETTLORS TRUSTEES BENEFICIARIES  Mr. Kedar Ramesh Vaze  Mr. Kedar Ramesh Vaze  Mr. Parth Kedar Vaze  Mr. Nandan Kedar Vaze  Future children of Mr. Kedar Ramesh Vaze vii. Grounds for seeking exemption – The following are the grounds for seeking exemption:

a. The proposed direct and indirect acquisition of 44.72% of voting rights, by both the Acquirers/Trust(s) is an internal reorganization within the promoter group of the Target Company. Both the transferors and transferees are part of the promoter group of the Target Company. b. The Trust-1 and Trust-2 have been created for restructuring the promoter holding amongst the members of Vaze family which are the entities forming part of Promoter/Promoter Group of Target Company. The beneficiaries of both the Trusts are the persons who are legally entitled to the shares proposed to be acquired by the Trust. The Trust provides legal and dependable conduit for the financial management of Trust Corpus. The trust is an expression of shared and combined responsibility towards securing the beneficiaries financial future and there is absolutely no commercial consideration involved in the acquisition process. The trustees and the beneficiaries of the Trust(s) are family members of the Transferors and are also forming part of Promoter/Promoter Group of the target company. c. Presently, voting rights in respect of equity shares of the Target Company are held/exercisable by Mr. Ramesh Vinayak Vaze, Mrs. Prabha Ramesh Vaze and Mr. Kedar Ramesh Vaze in proportion to their holding, whereas post re-organisation as proposed, same would be exercisable with a simple majority of the trustees of Trust-1 and Trust-2 with an affirmative vote by Mr. Kedar Ramesh Vaze.

As such, there is no change in control and proposed re-organisation will lead to unified structure for family members of promoter(s) of the Target Company. d. The proposed acquisition is only an arrangement wherein the shares of the beneficiaries will be held by the Trusts and therefore, it will not be prejudicial to the interests of the public shareholders of the Target Company. There will not be any change in control and management of the Target Company after the proposed acquisition. e. There would be no effective change in the exercise of the voting power or in the control/management of the Target Company, pursuant to the proposed transaction. f. Pursuant to the proposed transaction, instead of directly exercising voting rights to the extent of 44.72%, the promoters/Transferors of the Target Company would exercise the same through Trust-1 and Trust-2. g. There would be no reduction in the holding of the public shareholders in the Target Company.

h. The proposed transfer of equity shares in Trust-1 and Trust-2 would have been eligible for exemption from applicability of Takeover Regulations in terms of general exemptions available under Regulation 10(1) of the Regulation, as the proposed transaction would have satisfied all the requirements of being eligible for exemption under ‘interse promoter transfer’. However, since Trust-1 and Trust-2 are newly formed entities for the purposes of structuring promoter holding and Trust-1 and Trust-2 are not in existence for a period of past 3 years holding any shares in the Target Company. Hence the application is being made seeking exemption from applicability of obligation to make an open offer in terms of the Takeover Regulations.

5. Vide an e–mail dated April 21, 2017, SEBI, based on the recommendation of the Takeover Panel, advised the Acquirer Trusts to submit revised / amended trust deeds to include certain clauses. Accordingly, vide email dated April 28, 2017, the Acquirer Trusts submitted the amended trust deeds covering the points mentioned by SEBI.

6. Thereafter, the Application along with the further submissions were forwarded to the Takeover Panel in terms of the proviso to Regulation 11(5) of the Takeover Regulations and deliberated by the Takeover Panel in its meeting held on June 03, 2017. After deliberations, the Takeover Panel made the following observations – “In case of S H Kelkar & Co Ltd, the Panel noted that the requirements under the Takeover Regulations, 2011 were made stricter and clear to make the regulations more effective after considerable deliberations and that the regulatory intent is to ensure that the exemption is available only when the name of the transferor/transferee is disclosed for three years. The Panel was of the view that the case does not warrant grant of exemption and may be rejected since the company has been listed only in 2015 and therefore, the promoters have not been named in the shareholding pattern for the last three years.”

7. An opportunity of personal hearing was granted to the Acquirer Trusts on July 20, 2017 by the Competent Authority, which was attended by them. Thereafter, the Acquirers vide letters dated July 27, 2017 submitted written submissions. The Acquirer Trusts have submitted inter alia the following: (a) On November 19, 2009, Mr. Ramesh Vinayak Vaze and his brothers entered into a family settlement agreement, which was amended vide an addendum dated July 12, 2010 (referred to as Family Settlement). Pursuant to the same, the promoters of the Target Company comprising of Mr. Ramesh Vinayak Vaze, Mrs. Prabha Ramesh Vaze and Mr. Kedar Ramesh Vaze, took full control and management of the Target Company and its business.

(b) To avoid any difference of opinion within the Ramesh Vinayak Vaze family, the family decided to enter into a memorandum recording the family understanding dated December 10, 2015 for the benefit of the next generation of their family. Following the family understanding, Mr. Ramesh Vinayak Vaze, his wife Mrs. Prabha Ramesh Vaze and their son Mr. Kedar Ramesh Vaze decided to set up trust(s) to protect the wealth of the family beyond their lifetime. (c) The age of Mr. Ramesh Vinayak Vaze (76) and Mrs. Prabha Ramesh Vaze (72) are of concern and which is the primary reason for setting up the trust(s). The family is desirous of executing the proposed transfer of shares during the lifetime of Mr. Ramesh Vinayak Vaze and Mrs. Prabha Ramesh Vaze rather than doing it posthumously. (d) There will be no reduction in the shareholding of the public shareholders and the proposed acquisition would not adversely affect the interests of the public shareholders of the Target Company. (e) The sole and exclusive beneficiaries of the Trusts are individual promoters who are the direct descendants of Mr. Ramesh Vinayak Vaze and Mrs. Prabha Ramesh Vaze.

There is no third party beneficiary. (f) Pursuant to the proposed acquisition, there shall be no change in control or voting rights of the Target Company and Mr. Ramesh Vinayak Vaze, Mrs. Prabha Ramesh Vaze and Mr. Kedar Ramesh Vaze will together continue to execute the same voting rights through the Acquirer Trusts as they do pre-acquisition. (g) The settlors, Trustees and Beneficiaries of both the trusts belong to the promoter group of the Target Company. (h) The acquisition would be non-commercial transaction. (i) The proposed direct and indirect acquisition of 44.72% of voting rights, by both the Applicants is an internal reorganization within the promoter group of the Target Company. (j) The Transferors and Transferees are part of the Promoter Group of the Target Company. (k) The Applicants are ready and willing to comply with the lock-in period under Regulation 36 & 37 of the SEBI ICDR Regulations. They shall not transfer the shares prior to the expiry of the period of 3 years from the date of listing of the Target Company. (l) The Applicants are entitled to an exemption under Regulations 10(1)(a)(i) and 10(1)(g) of the Takeover Regulations.

(m) In a catena of decisions, SEBI has taken a consistent position and has granted exemption to various applicants with facts identical to the application of the Applicants.

8. Thereafter, the Application along with the further submissions were reconsidered by the Takeover Panel, which, after deliberations in its meeting held on September 14, 2017, noted that SEBI policy on granting exemption in cases of Trusts already provides that the exemption is available only when the transferors are disclosed as promoters in the shareholding pattern filed with the Stock Exchanges for a period of at least 3 years prior to transfer. Therefore, the Panel concluded that the Application did not warrant grant of exemption because of the fact that the transferors are not meeting the requirement of 3 year disclosure as provided in the policy.

9. The Applicants were granted a further opportunity of personal hearing before me on February 12, 2018. The Applicants attended the personal hearing and re-iterated the submissions made earlier. They also subsequently filed an affidavit stating inter alia that Shri Kedar Ramesh Vaze was the sole successor of Mr. Ramesh Vaze and Mrs. Prabha Vaze in respect of their shareholding in the Target Company.

Consideration of the Application and Findings –

10. I have considered the Application submitted by the Acquirer Trust along with their additional submissions; the recommendations of the Takeover Panel and other material available on record. In this regard, I note the following facts, as on January 02, 2017 (date of the Application) –

 The Promoter Group held 57.64% of the equity shares and voting rights in the Target Company.  The Proposed Acquirers hold nil equity shares and voting rights in the Target Company, as on the date of the Application.  The Acquirer Trust-1 and the Acquirer Trust-2 (i.e. the Proposed Acquirers) intended to acquire 27.49% and 17.23% respectively (total 44.72%) of the equity shares and voting rights (direct and indirect) in the Target Company from the existing shareholders who are part of the Promoters and Promoter Group.  Since the Proposed Acquirers along with persons acting in concert with them were already holding shares and voting rights of the Target Company in excess of 25%, as per Regulation 3(2) of the Takeover Regulations, the additional acquisition of shares of the Target Company in excess of 5% in a financial year shall trigger the requirement to make an open offer unless the same is exempted under the Takeover Regulations. The indirect acquisition of voting rights shall also attract the provisions of Regulation 5 of the Takeover Regulations.  Accordingly, the Proposed Acquirer sought exemption from the requirement of Regulations 3 (2) and 5 of the Takeover Regulations.

11. I note that for any exemption to be granted in the instant proceedings i.e. from the requirement of Regulations 3(2) and 5 of the Takeover Regulations, the Proposed Acquirers has to inter alia satisfy the condition specified under Regulation 10(1)(a)(ii) of the said Regulations.

12. Regulation 10(1)(a)(ii) of the Takeover Regulations states – “General Exemptions. 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, – (i)… … … (ii) Persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition;”

13. Regulation 10(1)(a)(ii) of the Takeover Regulations exempts acquisitions pursuant to inter–se transfer of shares amongst qualifying persons being promoters provided they are named as Promoters in the shareholding pattern filed by the Target Company in terms of the Listing Agreement or the Takeover Regulations for not less than three years prior to the proposed acquisition.

14. I note that the condition of a pre-existing relationship of at least three years has been specified under Regulation 10(1)(a)(ii) of the Takeover Regulations in order to curtail the abuse of introducing new entities within the definition of ‘qualifying persons’ under the said Regulations. I find that in the instant case, the transferors have not been named as promoters in the shareholding pattern filed by the Target Company with the Stock Exchanges for the last three years as the Target Company was listed less than 3 years ago. I am of the opinion that granting exemption from the said requirement would defeat the very objective why the norms were made stricter. In this regard, I agree with the observations of the Takeover Panel.

15. In view of the aforesaid, I do not find merit in the Application read with the Addendum to the application dated April 28, 2017 filed by the Proposed Acquirers seeking exemption from the requirement under Regulation 3 & 5 of the Takeover Regulations with respect to the proposed acquisition.

Order –

16. I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Regulation 11(5) of the Takeover Regulations, hereby reject the request for exemption from complying with the requirements of Regulations 3(2) & 5 of the Takeover Regulations as made by the Proposed Acquirers, viz. Ramesh Vinayak Vaze Family Trust and Kedar Ramesh Vaze Family Trust, with respect to the proposed acquisition/exercise of voting rights in respect of the Target Company, viz. S H Kelkar and Company Limited, by way of the proposed transactions as mentioned in the Application dated January 02, 2017 along with the Addendums to the application dated April 28, 2017.

17. The Application dated January 02, 2017 read with the Addendum to the application dated April 28, 2017 filed by Ramesh Vinayak Vaze Family Trust and Kedar Ramesh Vaze Family Trust, is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: April 26, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA