Order in the matter of Sarang Viniyog Ltd. (formerly known as Pincon Spirit Ltd.)

WTM/RKA/EFD-DRA-III/45/2016 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 Regulations 44 and 45 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. Manoranjan Roy in the matter of acquisition of the shares of Sarang Viniyog Ltd. (formerly known as “Pincon Spirit Ltd.”)

1. Sarang Viniyog Ltd., formerly known as Pincon Spirit Ltd., (hereinafter referred to as "target company”) is a company listed on the Calcutta Stock Exchange having its registered office at P- 223, CIT Road, Scheme VI M, Kolkata, West Bengal – 700 054. 2. The target company had filed before Securities and Exchange Board of India (hereinafter referred to as 'SEBI') a draft scheme of arrangement with another company Gomukh Commercial Pvt. Ltd. While examining the same, it was inter alia observed that: (a) One Mr. Manoranjan Roy who did not have any shares in the target company had made acquisitions of shares in the target company on several dates between August 01, 2011 to December 31, 2011, as described in the following table: Table 1: Details of Acquisition of shares by Mr. Manoranjan Roy Date of Acquisition Name of Seller Number of shares Percentage of acquired shares acquired (%) 01/08/2011 Gravel Marketing Pvt. 874733 8.73 Ltd. 01/08/2011 Starlight Commosale 399475 3.99 Pvt. Ltd. 01/08/2011 Shree Tribhuvan Tie- 317185 3.16 up Pvt. Ltd. 01/08/2011 Total 1591393 15.88 05/08/2011 Magnolia Vinmay Pvt. 460000 4.59 Ltd.

Order in the matter of Sarang Viniyog Ltd.

05/08/2011 Bubna Properties Pvt. 490000 4.89 Ltd. 05/08/2011 Dream Commosale 450000 4.49 Pvt. Ltd. 05/08/2011 Total 1400000 13.97 31/12/2011 Debendra Modi 1000 0.01 31/12/2011 Nawal Kishore Singh 1000 0.01 31/12/2011 Total 2000 0.02 (b) As on December 31, 2011 Mr. Manoranjan Roy held 29,93,393 shares of the target company constituting 29.87% of its share capital. (c) By virtue of the aforesaid three acquisitions, the shareholding of Mr. Manoranjan Roy first increased from 0% to 15.88% of the total paid up share capital of the target company on August 01, 2011 and then increased from 15.88% of the total paid up share capital of the target company to 29.85% of the total paid up share capital of the target company resulting in an increase of 13.97%, on August 05, 2011. The change in the shareholding of Mr. Manoranjan Roy in the target company as a result of the above-mentioned three acquisitions are as given in the following table: Table 2: Change in shareholding of Mr. Manoranjan Roy Date of acquisition Pre acquisitions holding Post acquisition holding 01/08/2011 0 (0%) 1591393 (15.88%) 05/08/2011 1591393 (15.88%) 2991393 (29.85%) 31/12/2011 2991393 (29.85%) 2993393 (29.87%)

(d) In respect of his acquisitions dated August 01, 2011 and August 05, 2011 Mr. Manoranjan Roy was required to make a public announcement for an open offer in accordance with regulations 10 and 11 read with regulation 14 of the Takeover Regulations. However, he had failed to make the requisite public announcements on both the instances. 3. In view of the above, SEBI issued a show cause notice dated June 01, 2015 (hereinafter referred to as "the SCN") to Mr. Manoranjan Roy (hereinafter referred to as "the noticee") calling upon him 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 44 and 45 of the of regulations 10, 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “ the takeover Regulations,1997') read with the corresponding provisions of regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as “Takeover Regulations, 2011”) should not be issued against him.

4. It was, inter alia, alleged in the SCN that: - (i) Consequent to the acquisition dated August 01, 2011, the shareholding of the noticee increased from 0% to 15.88% of the total paid up share capital of the target company and this acquisition triggered the requirement of making a public announcement under regulation 10 of the Takeover Regulations, 1997. (ii) Consequent to the acquisition on August 05, 2011, the shareholding of the noticee increased from 15.88% to 29.85% of the total paid up share capital of the target company, i.e., an increase of 13.87% in his cumulative shareholding. The said increase of more than 5% in the shareholding of the noticee triggered the requirement of making a public announcement of an open offer under regulation 11(1) of the Takeover Regulations, 1997. (iii) As per regulation 14(1) of the Takeover Regulations, 1997, the public announcement, referred to in regulation 10 and 11, shall be made 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.

(iv) Thus, in terms of regulation 10 and 11(1) read with regulation 14(1) of the Takeover Regulations, 1997, the noticee was required to make a public announcement of an open offer for acquiring shares of the target company within 4 working days on both these occasions which he failed to make within the stipulated time. 5. The noticee, vide his letter dated June 30, 2005 filed his reply and submitted therein that the omission, if any, in compliance on his part are fully inadvertant and that he has already initiated process of compliance with regulatory requirements of open offer process. An opportunity of personal hearing was granted to the noticee before me on October 27, 2015 when Mr. R.S. Loona, advocate appeared on behalf of the noticee and made oral submissions on the basis of a short written submission dated October 27, 2015 which was tendered during hearing. Admitting the transaction and allegations of default of the noticee in making requisite public announcement in accordance with Takeover Regulations, 1997, he submitted the noticee is willing to make the public announcement.

However, according to learned advocate the public announcement as contemplated in the SCN shall be merely a technical formality and futile exercise in view of the following:- (a) The noticee had acquired the shares of the target company on different days at a price of `3/-per share. The market price of the target company’s share as on the closing of trading on October 23, 2015 at BSE was `79.20/-. (b) The target company had allotted bonus shares to all its shareholders on October 10, 2015 (Record Date). The open offer price as per the formula including interest @ 10% per annum will come to `4.49/- approx. (`3/- offer price, as there was no trading in Calcutta Stock Exchange + `1.49/- as interest @ 10% p.a. since August 01, 2011). (c) The share price of the target company had never come below `34 (unadjusted `68) in last one year. The share price of the target company had touched the peak of `119.50 (unadjusted `239) on August 21, 2015. (d) If SEBI pricing formula (as applicable to infrequently traded shares) is applied to the target company’s shares, even then the offer price would remain between `4/- and `5 including interest component as per erstwhile the Takeover Regulations, 1997. (e) Thus, the open offer price would be far less than the current market price and no public shareholder may tender his/her share at such lower price.

This will unnecessarily result in wasteful expenditure in paying substantial fees to merchant bankers and other professionals as also advertisement costs, etc. 6. It was further submitted that under a loan agreement dated 16th December, 2013 the noticee had given a loan of `30 crore in the year 2013-14 to the target company and under another loan agreement dated 11th November, 2014 he had lent additional `30 crore in the year 2014-15 to the target company. In terms of loan agreements the noticee had been given a right to convert his entire or part of the loan into equity shares of the target company at any time between September, 2015 and January, 2016. The noticee intends to convert the entire outstanding principal loan amount of `60 crore together with accrued interest thereon by exercising the conversion option and for this purpose he is in talks with the target company. Upon exercise of such conversion option, the shareholding of the noticee will further increase beyond the creeping acquisition limit of 5%, assuming the conversion option is exercised on January 01, 2016. Resultantly, the noticee will make public announcement as required by the Takeover Regulations, 2011 for acquiring at least further 26% shares from the shareholders of the target company as per the pricing formula given in the Takeover Regulations, 2011. Such an offer would be at a much higher price (considering the current market price) as compared to the open offer if made pursuant to the aforementioned acquisitions made in August 2011. It was further submitted that the noticee was in the process of arranging funds for making open offer and he undertakes that he would, within a period of 70 days from the date of hearing exercise the conversion option under the aforementioned loan agreements for acquiring further shares in the target company and consequent thereupon, make public announcement for open offer under the Takeover Regulations, 2011.

7. It was pleaded by the learned advocate that the noticee be not forced to make open offer at this stage in respect of acquisitions made in August 2011 as no purpose will be served by such offer. Instead of this, the noticee be allowed to make an open offer consequent upon acquisition of shares on exercise of conversion option under the aforesaid loan agreements. The noticee’s obligation for making open offer under the Takeover Regulations, 1997 be clubbed with his obligation for making open offer under the Takeover Regulations, 2011. 8. Vide his letter dated November 2, 2015, the noticee filed additional written submission in the matter which is summarised as following:- (a) As on October 12, 2015, the target company had merely 4998 shareholders. Average daily trading volume of the target company’s scrip during the past 26 weeks was 1.29 lakh shares only. Considering the less number of total shareholders and low trading volume, the share price of the target company will crash if the noticee is directed to offload/divest his holding, which in turn will hurt the interest of public shareholders.

(b) The legislative intent and purpose of the Takeover Regulations, 1997 will be better served if the noticee makes an open offer instead of divesting/offloading the holdings. As held by the Hon’ble SAT in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011), the primary object of the Takeover Regulations, 1997 is to provide an exit opportunity to the public shareholders. (c) Earlier, vide letter dated 30th June, 2015 to SEBI, the noticee had expressed his intention to make an open offer for the alleged violation and also took initiatives to appoint intermediaries in relation to the compliance of open offer process. The noticee is willing to make open offer as per prevailing market price of the shares of the target company. For this purpose, the noticee be directed to make public announcement for open offer and the date of public announcement be taken as the relevant date for the purpose of determining the offer price in accordance with sub-regulation (4) or (5) of regulation 20 of the Takeover Regulations, 1997, as applicable. (d) The SCN alleges that the noticee has breached of regulation 10 and regulation 11(1) of the Takeover Regulations, 1997. In this connection, it is submitted that regulations 10 and 11 are mutually exclusive in the sense that an acquirer can either breach regulation 10 or regulation 11 but never both the provisions simultaneously.

Regulation 10 and 12 are not mutually exclusive as the same acquirer could be acquiring both control and breaching the threshold of regulation 10. (e) For committing breach of regulation 11(1), it is a necessary pre-requisite that the acquirer has already acquired 15% or more shares or voting rights in accordance with law. In the instant case, since the noticee had not made open offer in compliance of regulation 10 after breaching the threshold of 15%, he could not be deemed to have acquired those shares in accordance with law. Consequently, any further acquisition would continue to be breach of regulation 10 only and not regulation 11. Hence, it is submitted that the noticee has not committed breach of regulation 11(1), as alleged. (f) Since the noticee intends to acquire control of the target company as well, he may be directed to make open offer under regulations 10 and 12 (instead of regulations 10 and 11). (g) As per regulation 20(4) of the Takeover Regulations, 1997, the offer price shall be the highest of – - the negotiated price; - the price paid by the acquirer/PAC for acquiring the Company’s shares during 26 weeks period prior to the date of public announcement; - the average of the weekly high and low of the closing prices as quoted on the stock exchange during the 26 weeks or 2 weeks preceding the date of public announcement, whichever is higher.

(h) Regulation 20(5) (for determining the open offer price for infrequently traded shares) also takes into consideration (a) the negotiated price (b) the highest price paid by the acquirer/PAC during the 26 weeks period prior to the date of public announcement and (c) other parameters including return on net worth, book value, etc. (i) The date of public announcement is the relevant date for determining the offer price for open offer. The Takeover Regulations, 1997 prescribes the formula for determining the offer price for open offer. However, the Takeover Regulations, 1997 prescribes the formula for determining the minimum offer price and does not prescribe any ceiling on the maximum offer price. (j) In order to give offer price with reference to the current market price of the target company’s shares, the noticee voluntarily agrees and undertakes to make an open offer at a price which may be determined by applying the SEBI pricing formula to the prevailing 26 weeks or 2 weeks trading prices, with reference to the actual date on which the public announcement shall be made by the noticee for complying with his obligations under regulations 10, 11 or 12 of the Takeover Regulations, 1997. 9. I have considered the SCN, replies and submissions made by the noticee and other material available on record.

In the present case, it is admitted position that the noticee has acquired the shares in the target company beyond the prescribed threshold under regulation 10 and 11 of the Takeover Regulations, 1997. However, it has been contended that regulation 10 and regulation 11 are mutually exclusive such that only either regulation 10 or regulation 11 is applicable to an acquisition, but not both. In order to deal with this contention I deem it necessary to refer to the relevant provisions the Takeover Regulations, 1997 which are reproduced as following:

"Acquisition of fifteen per cent or more of the shares or voting rights of any company. 10. No acquirer shall acquire shares or voting rights which taken together with shares or voting rights, if any, held by him or by persons acting in concert with him, entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations." "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 55 per cent 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 per cent 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." "Timing of the public announcement of offer. 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: …………………………………………………………………………………………. “Directions by the Board. 44. Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including:- (a) directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations 10, 11 or12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale; (b) directing transfer of any proceeds or securities to the investors protection Fund of a recognised stock exchange; (c) directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach of regulations 10,11 or12; (d) directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations 10, 11or 12; (e) debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board; (f) directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board; (g) directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the regulations 6,7 or 8; (h) directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer; (i) directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to pay to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits."

10. From the scheme of the Takeover Regulations, 1997, I note that there are three core regulations, i.e., 10, 11 and 12 that mandate public announcement in different situations for acquiring further shares in order to give exit opportunity to public shareholders in the target company at the best offer price. As written, they are mutually exclusive. However, depending upon facts and circumstances of a case, they may coincide and overlap such that the acquisition may together trigger any two or all of them. In this regard, I also note that the Hon'ble Supreme Court, vide order date August 25, 2004, in the matter of Swedish Match AB vs. Securities and Exchange Board of India held that regulations 10, 11 and 12, as they appear, operate in three different fields. However, there may be cases where, to some extent, regulations may overlap with each other, in which event it would be open to the acquirer to issue a combined public announcement fulfilling the requirement of all or two regulations, as the case may be. I, therefore, find that in the instant case, the two acquisitions on August 01, 2011 and August 05, 2011, triggered the obligation under regulation 10 and 11, respectively.

In terms of regulation 14(1) the public announcement with respect to first acquisition was required to be made with 4 days from August 01, 2011, i.e., on August 05, 2011.Thus, as on August 05, 2011 the noticee ought to have made the requisite public announcement in accordance with the Takeover Regulations, 1997 when his acquisition of 15.88% shares in the target company breached the threshold of 15% under regulation 10. Had he made such public announcement, he was eligible to acquire further shares from the open market on August 05, 2011 as permitted under regulation 20(7) of the Takeover Regulations, 1997; and if the price of such acquisition was higher than the offer price in the public announcement, he had to pay the highest price paid for such acquisition. The non-compliance of obligation under regulation 10 as a result of first acquisition did not render this acquisition illegal or unlawful as the noticee still could make delayed public announcement and pay interest on account of delayed public offer in terms of regulation 44 of the Takeover Regulations, 1997. I, therefore, find that the second acquisition dated August 05, 2011 triggered the obligation of the noticee under regulation 11(1) as it increased his shareholding in the target company from 15.88 % to 29.85 % i.e., more than permitted 5% creeping limit.

However, the noticee again failed to make the requisite public announcement in accordance with takeover Regulations, 1997 even after this breach. 11. In this case, since requisite public announcement had not been made by the noticee as discussed hereinabove. I note that the Takeover Regulations, 1997 have been repealed by the Takeover Regulations, 2011. In terms of regulation 35(2)(b) of the Takeover Regulations, 2011, the obligation or liability acquired, accrued or incurred under the repealed regulations, shall remain unaffected as if the repealed regulations has never been repealed. In the present case, the noticee triggered the obligation under regulation 10 and 11(1) of the Takeover Regulations, 1997 on August 01/05, 2011 and in terms of regulation 14(1) thereof he was obligated to make requisite public announcement within 4 days from August, 2011. Thus, the noticee had incurred this obligation prior to repeal of the Takeover Regulations, 1997 and the obligation has to be completed under the Takeover Regulations, 1997. Since obligation under regulations 10 and 11 both have overlapped in this case, as observed by the Hon'ble Supreme Court in aforesaid mentioned 'Swedish Mach' case, the noticee could make a combined public announcement under regulations 10 and 11 read with regulation 14(1) of the Takeover Regulations, 1997 on August 05, 2011. Since, the noticee has failed to make mandatory public announcement the consequences of such breach as provided under regulations 44 and 45 of the Takeover Regulations, 1997 should follow.

In this context, I note that the Hon'ble Securities Appellate Tribunal, 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." 12. In the present case, the noticee has admitted his default in making the requisite public announcement and had undertaken to make an open offer at a price which may be determined by applying the pricing formula under the Takeover Regulations, 1997. It has now, on March 29, 2016, been brought to my notice by the concerned Department/s in SEBI that the noticee has made a public announcement on January 25, 2016 for acquisition of 20% equity share capital of the target company under regulations 10, 11 and 12 of the Takeover Regulations, 1997 in respect of the violations that are the subject matter of the SCN in the instant proceedings and draft letter of offer has also been filed with SEBI in this regard by the noticee.

Thus, the issue contemplated in the SCN has been rendered academic. For the purpose of the disposal of SCN, in these facts and circumstances, it is noted that had the noticee made the public announcement within a period of 4 days from August 01, 2011 in accordance with the Takeover Regulations, 1997 and complied with all related activities within the timelines specified therein, all formalities with respect to his public announcement and the open offer could have been completed on November 02, 2011, i.e., 93 days from the date of making of the public announcement. It is also relevant to mention that at the relevant time, the shares of the target company were frequently traded on the stock exchange. I am also of the view that since the public announcement has been delayed by the noticee, he 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. 13. In this case, the noticee had acquired the shares which are found to be in violation of regulations 10 and 11(1) of the Takeover Regulations, 1997 at the price of `3 per share.

If the public announcement were to be directed under regulation 44 read with regulations 10 and 11(1) of the Takeover Regulations, 1997, the open offer could be at price of `21.73 per share (calculated in terms of regulation 20 of the Takeover Regulations, 1997 alongwith interest @ 10% per annum thereon) whereas the market price of the shares of the target company as on March 31, 2016 was `121.50 per share. It has been informed by the concerned Department/s in SEBI that in its public announcement/public offer the noticee has offered the exit price of `135/- per share to the public shareholders of the target company. In these facts and circumstances when the noticee has already made the public announcement at a price that is higher than the price calculated under the Takeover Regulations, 1997 and the prevailing market price of the shares of the target company, I do not deem this case fit to deviate from normal rule as held by the Hon'ble SAT in above mentioned Nirvana Holdings case and to issue any other direction under regulation 44 of the Takeover Regulations, 1997 read with regulation 32 of the Takeover Regulations, 2011. The show cause notice dated June 01, 2015 issued to the noticee, Mr. Manoranjan Roy in these proceedings is accordingly disposed of.

14. It is hereby clarified that this order does not express any opinion on final exit price in the public offer made by the noticee on January 25, 2016 and the concerned Department in SEBI is at liberty to take a final view in accordance with law while issuing observations on the draft letter of offer filed by the noticee in this regard.

Sd/-

DATE: APRIL 6TH, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA