Order in the matter of Unique Organics Ltd

Under sections 11(4) 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: - 1 Mr. Jyoti Prakash Kanodia PAN: AFUPK6043E 2 Mrs. Madhu Kanodia PAN: ADHPA0741Q 3 Mrs. Sarla Devi Kanodia PAN:AGBPK7516N 4 Mr. Narendra Agarwal PAN:ABPPA4945A 5 Ms. Sunita Agarwal PAN:ACNPA5841N 6 Mr. Santosh Agarwal PAN:ABRPA9888J

In the matter of Unique Organics Limited

Background 1. Unique Organics Limited (hereinafter referred to as “Target Company” or “UOL”) is a company registered under the Companies Act, 1956 having its registered office at E-521, Sitapura Industrial Area, Jaipur - 302011 and its securities are listed on the Bombay Stock Exchange (BSE). As per the shareholding pattern of the Target Company disclosed to the BSE, the promoter and promoter group entities of the Target Company during the quarter ending on December 31, 2013 included Mr. Jyoti Prakash Kanodia, Mrs Madhu Kanodia, Mrs Sarla Devi Kanodia, Mr. Narendra Agarwal, Ms. Sunita Agarwal and Mr. Santosh Agarwal. These promoters and promoter group entities are hereinafter collectively referred to as “Noticees” and individually by their respective names.

Order in the matter of Unique Organics Ltd.

2. It was observed by Securities and Exchange Board of India (SEBI) from the quarterly shareholding pattern filed by the company with BSE that the shareholding/voting rights of the promoter and promoter group entities in the Target Company increased from 27.82%, in the quarter ending on December 31, 2013 to 33.7% in the quarter ending on March 31, 2014. The details of shareholding of promoter and promoter group entities in the quarter ending on December 31, 2013 and the details of acquisition are as follows:

Sl. Name of entities Shareholdi Date of Shares Post- Shareholding of No of the promoter ng before acquisition acquired acquisition promoter and and promoter acquisitio shareholdi promoter group group n ng entities at the end of quarter ending on March 31, 2014 1 Jyoti Prakash 6,42,494 -- -- 6,42,494 6,42,494 (10.79%) Kanodia (10.79%) (10.79%) 2 Madhu Kanodia 2,85,100 30.12.2013 2,50,000 5,35,100 5,35,100 (8.99%) (4.79%) (4.20%) (8.99%) 3 Sarla Devi Kanodia 5,78,800 31.12.2013 2,50,000 8,28,800 8,28,800 (13.92%) (9.72%) (4.20%) (13.92%) 4 Narendra Agarwal* 50,000 -- -- 50,000 00 (0.84%) (0.84%) 5 Santosh Agarwal* 50,000 -- -- 50,000 00 (0.84%) (0.84%) 6 Sunita Agarwal* 50,000 -- -- 50,000 00 (0.84%) (0.84%) Total 16,56,394 5,00,000( 21,56,394 20,06,394 (33.70%) (27.82%) 8.4%) (36.22%) * Three members of promoter group holding 2.52% were not in the category of promoters’ group at the end of March 2014 quarter. 3. The acquisition of shares by Mrs. Madhu Kanodia and Mrs. Sarla Devi Kanodia on December 30 and 31, 2013 constituted 8.40% of the total equity share capital of the Target Company. As a result of the aforesaid acquisition, the promoter group entities breached the acquisition limit of 5% during a financial year prescribed under regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations). Thus, the said acquisition by the Noticees, entitling them to exercise 8.4% shares/voting rights, obligated them to make a public announcement of open offer pursuant to regulation 3(2) of the Takeover Regulations. However, the Noticees did not make any public announcement of open offer in terms of the Takeover Regulations.

4. In view of the above, SEBI issued a Show Cause Notice (SCN) dated June 24, 2016 to the Noticees 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 and regulation 32 of Takeover Regulations should not be issued against them.

Reply and submissions:

5. Jyoti Prakash Kanodia, Madhu Kanodia and Sarla Devi Kanodia filed a common reply vide letter dated July 8, 2016. Narendra Agarwal and Sunita Agarwal replied vide letter dated July 9, 2016. The Noticees were granted an opportunity of hearing on March 20, 2017. Mr. Ramavtar Jangid, Company Secretary, appeared as authorised representative on behalf of Jyoti Prakash Kanodia, Madhu Kanodia and Sarla Devi Kanodia and made submissions. Santosh Agarwal did not respond to the SCN and did not appear for personal hearing. Narendra Agarwal and Sunita Agarwal also did not appear for hearing. The submissions of the Noticees are as under:

A. On behalf of Jyoti Prakash Kanodia, Madhu Kanodia and Sarla Devi Kanodia, it has been submitted that:

i. Mrs. Madhu Kanodia and Mrs. Sarla Devi Kanodia purchased 4.20% equity shares each under the mistaken belief that the creeping acquisition limit of 5% is applicable for individual acquirers.

ii. The acquirers are promoters and persons in control of UOL and the acquisition was made in a transparent manner. The company has not issued any bonus or rights share after the acquisition.

iii. The acquisitions were made at the market price of Rs.9.90 per share and Rs.10.39 per share on December 30 and 31, 2013. The share price of UOL subsequent to the acquisition by the acquirers was always higher than the acquisition price and as such investors were always having opportunity to sell their shares at good price.

B. Mr. Narendra Agarwal and Ms. Sunita Agarwal have stated in their reply that:

i. As per quarterly filing of the company with BSE for the quarter ending on March 31, 2014, they were not shown as part of the promoter group of the company and have diluted their whole holding in the company.

ii. That during the relevant period their shareholding in the company was only 50,000 shares each and they were not holding any position as director of UOL.

Consideration and findings:

6. I have considered the allegations against the Noticees in the SCN and replies and submissions made by Mr. Jyoti Prakash Kanodia, Mrs. Madhu Kanodia, Mrs. Sarla Devi Kanodia, Mr. Narendra Agarwal and Ms. Sunita Agarwal. It has been alleged that Noticees were promoters and promoter group entities of UOL and were holding 27.82% shares/voting rights in UOL when Mrs. Madhu Kanodia and Mrs. Sarla Devi Kanodia together acquired further 8.4% shares/voting rights on December 30 and 31, 2013. The said acquisition, taken together, breached the creeping acquisition limit of 5% during the financial year 2013-14, triggering the requirement to make public announcement for open offer in terms of regulation 3(2) of the Takeover Regulations, which they failed to do. The issues that arise for consideration are:

a) Whether the acquisition triggered the requirement to make a public announcement for an open offer in terms of regulation 3(2) of the Takeover regulations?

b) If yes, whether Noticee Nos. 4 to 6 are also liable to make an open offer along with Noticee Nos. 1 to 3 in spite of them not being shown as part of the promoter group of UOL in the quarterly shareholding pattern filed by the company for the quarter ending on March 31, 2014?

c) If the open offer requirement is triggered, whether a direction to make an open offer would be fruitful and if not, what are the alternatives, given the facts and circumstances of the case?

7. With regard to the question as to whether the acquisition by the Noticees has triggered regulation 3(2) of the Takeover Regulations, it is pertinent to refer to the relevant provision, which is reproduced as under.

“Substantial acquisition of shares or voting rights 3 (1) …. (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) … ….” Thus, as seen from the text of Regulation 3(2) above, it mandates that where an acquirer, who along with persons acting in concert with him holds 25% or more shares or voting rights in a target company and acquires further shares/ voting rights in the target company and such acquisition during a financial year exceeds 5% of the voting rights of the target company, then such acquirers are required to make a public announcement for open offer in terms of the Takeover Regulations.

8. Mrs. Madhu Kanodia and Mrs. Sarla Devi Kanodia have admitted that each of them acquired 2,50,000 equity shares on December 30, 2013 and December 31, 2013 respectively. It has been submitted that that they did not make the public announcement as their individual acquisition was below 5% and they were under the mistaken belief that the creeping acquisition limit of 5% during a financial year is computed by treating each acquirer separately. From a plain reading of Regulation 3(2), it is clear that any acquirer, who together with ‘persons acting in concert’ (PACs), holds 25% or more of shares or voting rights in the target company, shall acquire within a financial year, more than 5% of voting rights or equivalent additional shares, only by making an open offer. In other words, under Regulation 3(2), the holding of the PACs is taken along with that of the acquirer, not only for the computation of the initial minimum shareholding/voting rights of 25% or more, but also for the purpose of the subsequent trigger acquisition of 5% or more of the shares/equivalent voting rights of the target company within the same financial year. Thus the plea of mistake or ignorance of law is not available to the noticees.

9. In view of the above and considering the fact that the Noticees were together holding 27.82% of the total share capital of UOL before the aforesaid acquisition on December 30 and 31, 2013 and the Noticees together with persons acting in concert acquired more than 5% voting rights in the Target Company during the financial year 2013-14, the mandatory requirement of making open offer in terms of regulation 3(2) of the Takeover Regulations gets triggered. From the above, it is clear that the Noticees have contravened the provisions of regulation 3(2) of the Takeover Regulations.

10. The next question is whether Noticees Nos. 4 to 6 are also liable to make open offer under regulation 3(2), for the acquisition made by Mrs. Madhu Kanodia and Mrs. Sarla Kanodia. The circumstances under which Regulation 3(2) mandates an open offer by an acquirer has been explained in para 9 above. The term “acquirer” has been defined in regulation 2(1)(a) of Takeover Regulations as below:

“acquirer” means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in or control over a target company;”

It is observed from the above that a person can be an “acquirer” in terms of the Takeover Regulations even if the acquisition of shares/voting rights is done indirectly by him, or through or with ‘persons acting in concert’ with him. Thus, the definition of ‘acquirer’

includes within itself ‘persons acting in concert’. The definition of “person acting in concert” under regulation 2(1) (q) of the Takeover Regulations reads as under:

“persons acting in concert” means,— (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company. (2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,— (i) …; (ii) …; (iii) …; (iv) promoters and members of the promoter group; …; …; …” It is observed from the above definition, that promoters and members of the promoter group are deemed to be persons acting in concert unless the contrary is established. In other words, where a group of persons are shown in the category of promoters and members of the promoter group, then the onus of proving that one is not acting in concert with the other members of the promoter group lies on the person claiming it.

11. In the instant case, the acquisition of shares/voting rights took place on December 30 and 31, 2013 and the Noticee Nos. 4 to 6 were also shown as promoter and promoter group entities in the quarterly filing with the stock exchange for the quarter ending on December 31, 2013. Mr. Narendra Agarwal and Ms. Sunita Agarwal have submitted that they may not be treated as persons acting in concert with other promoters as they were not holding the position of director in the company and that in the quarterly filing of the company with the stock exchange for the quarter ending on March 31, 2014, they were not shown as persons belonging to the promoter group of the company as subsequently they had divested their stake in the company. However, as Noticees Nos 4 to 6 were part of the promoter and promoter group entities during the time of acquisition of shares, ie during the last quarter of 2013, the obligation for the acquisition for shares by Madhu Kanodia and Sarla Devi Kanodia would be binding upon them as well. Their subsequent exit in the next quarter from the promoter group does not absolve them from the mandatory obligation to make an open offer. Accordingly, I find that Noticees 4 to 6 are also liable to make an open offer along with the acquirers, Noticees Nos. 1 to 3, as they jointly triggered the mandate under Regulation 3(2) of the Takeover Code.

12. In view of the findings to Issues (a) and (b) as above, it is necessary for me to assess the facts and circumstances of the instant case in order to pass appropriate directions in the interest of the investors. It is settled legal position that as a normal rule, for failure to make an open offer as mandated, a direction to make a public announcement to acquire shares of the target company should issue and that the Board need not give any give reasons as to why such a direction is being issued because that is the mandate of Regulations. Hon’ble Securities Appellate Tribunal in Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011 decided on September 8, 2011) explained the scope of such directions while interpreting the Takeover Regulations, 1997, in the following words:

“….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." The provisions of the 1997 Takeover Code and of the 2011 Takeover Code are in pari materia with respect to the objects and scope of an open offer. Thus, if a direction to make an open offer is not in the interest of the securities market or the protection of interest of investors, then a deviation from the normal rule is permissible.

13. Keeping the aforesaid general position in mind, it is seen that if the open offer is to be directed, generally the acquisition price along with interest at the rate of 10% from the date when it fell due till the date of actual payment, is taken as the basis. In the instant case, such a computation would work out to Rs. 10.39 with interest of Rs.3.29 at the rate of 10% p.a. from April 1, 2014 onwards till date adding upto Rs.13.68 per share. In this context, it is relevant to state that the Noticees have submitted that subsequent to the acquisition, the price was always higher than the acquisition price and it is higher than the offer price even at present. On an examination of the current market price of the scrip, it is seen that the scrip is being presently traded at a price higher than the offer price arrived at above, i.e. Rs.13.68. The average market price of the scrip in BSE for the last six months is Rs. 14.38. Thus, the direction to make an open offer in the present situation would not be in the interest of the investors. Therefore, in the facts and circumstances of the case, I am of the view that it is appropriate to issue a direction to the members of the promoter group i.e. Noticees 1, 2 and 3 to divest the excess 3.40% of the shareholding of the Target Company. The said divestment may be done in small lots over the stock exchange so as to avoid any unusual impact on the price. Further, such sale proceeds less the cost of acquisition incurred by the noticees shall be remitted to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009. Since the Investor Protection and Education Fund is utilised for the purpose of protection of investors and promotion of investor education and awareness, I am of the considered view that in the facts and circumstances of this case the above directions would be in the interest of investors. I do not find it necessary to issue any directions against Noticees 4 to 6, as they are no longer part of the promoter group.

Directions 14. In view of the above, in exercise of powers conferred upon me under sections 11, 11B of the Securities and Exchange Board of India Act, 1992 and regulations 32 of the Takeover Regulations, 2011, I hereby issue the following directions:

a) That the Noticees 1, 2 and 3 shall jointly and severally, disinvest 3.40% shares of Unique Organics Limited through sale to parties not connected/ related to them in small lots in tranches on the stock exchange ensuring that such sale does not disturb the market equilibrium and transfer the proceeds of such sale of shares, after reducing the cost of acquisition from such proceeds, to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009; and b) That the Noticees 1, 2 and 3 shall complete the sale of shares as directed above within 3 months from the date of this order and file a report to the SEBI detailing the compliance of the above directions within two weeks from the date of such compliance.

15. A copy of this order shall be served upon the Noticees and the stock exchange for ensuring compliance with the above direction.

-Sd.-

Date: July 11, 2017 G. MAHALINGAM Place: Mumbai WHOLE TIME MEMBER