Order in the matter of Vision Cinemas Limited[SAT Appeal No.:352/201585/2017]

WTM/RKA/CFD-DCR/39/2015 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 the matter of acquisition of shares of Vision Cinemas Limited. 1. Vision Cinemas Limited (formerly known as Vision Technology India Limited) (hereinafter referred to as "the target company") is a company having its registered office at VCL Bldg., No. 44/1, K.H. Road, Bangalore - 560027. The shares of the target company are listed on Bombay Stock Exchange Limited ("BSE"). 2. As on June 09, 2011, the promoters of the target company, as disclosed to the stock exchange, were Mr. Bindiganavale Ranga Vasanth Kumar, Mr. Vishnu Vasanth, Ms. Vinitha Vasanth and Ms. Anita Vasanth, holding together 80,33,440 equity shares constituting 22.71% of the paid up capital of the target company. S. I. Media LLP (hereinafter referred to as "SIML") and Vasanth Color Laboratories Limited (hereinafter referred to as "VCLL") were under the same management as that of the target company and part of promoter group of the target company.

As on this date, they did not held any shares in the target company and were not disclosed as promoters in the shareholding pattern filed by the target company with the stock exchange. 3. On June 10, 2011, the board of directors of the target company passed a resolution for preferential allotment of 1,91,00,000 equity shares of the target company of ₹ 1/- each at a premium of ₹ 3.36/- per share and 1,75,50,000 warrants at a price of ₹ 4.36/- per warrant each convertible into one fully paid equity shares after twelve months from the date of issuance to promoters and non promoters. Pursuant to the same, the target company allotted, 1,00,00,000 equity shares to SIML and 50,00,000 equity shares to VCLL as allotment to promoters. In the explanatory statement pursuant to section 173(2) of the Companies Act, 1956, the target company had disclosed to the shareholders and the stock exchange that pursuant to the allotment to these entities, there will not be change in control, however, there will be corresponding change in the shareholding pattern as well as voting rights of promoters consequent to the preferential allotment to them.

Order in the matter of Vision Cinemas Limited

4. The said preferential allotment on June 10, 2011 resulted in change in the individual shareholding within the promoter group of the target company and in their collective shareholding as described in the following tables: Table 1- Change in Individual shareholding of promoters

Name of the promoter Pre-allotment Post-allotment Shareholding (%) Shareholding (%) Mr. Bindiganavale Ranga Vasanth Kumar 10.16 3.63 Mr. Vishnu Vasanth 6.42 4.17 Ms. Vinitha Vasanth 3.57 1.31 Ms. Anita Vasanth 2.01 2.31 Vasanth Color Laboratories Limited 0.00 9.18 S. I. Media LLP 0.00 18.36 Total 22.17 38.96 Table 2- Change in Collective shareholding of promoters.

Pre-allotment Shareholding Post-allotment shareholding No. of shares % of shares No. of shares % of shares Promoters 80,33,440 22.71 2,12,24,273 38.96 Public 2,73,37,850 77.29 3,32,47,017 61.04 Total 3,53,71,290 100.00 5,44,71,290 100.00 5. Thus, consequent to the aforesaid preferential allotment on June 10, 2011 to SIML and VCLL, the individual shareholding of SIML increased from 'NIL' to 18.36% i.e. an increase beyond 15% of the share capital of the target company increased by 16.25% from 22.71% to 38.96%. The said increase in shares of SIML individually triggered the obligation of SIML to make a public announcement of an open offer under regulation 10 read with regulation 14(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'the Takeover Regulations, 1997') within 4 working days from June 10, 2011. Further, the aforesaid increase of 16.25% (i.e. more than 5%) in the collective shareholding of the promoters triggered the obligation of promoters to make requisite public announcement of an open offer under regulation 11(1) read with regulation 14(1) of the Takeover Regulations, 1997 within 4 working days from June 10, 2011. 6. Since the promoters of the target company had failed to make requisite public announcement as aforesaid, SEBI issued a show cause notice dated May 27, 2014 (hereinafter referred to as "the SCN") to the promoters of the target company (hereinafter collectively referred to as "the Noticees" and individually by their respective names) 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 44 and 45 of the Takeover Regulations, 1997 read with regulations 32 and 35 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as “Takeover Regulations, 2011”) should not be issued against them.

7. The Noticees filed their replies to the SCN vide letters dated July 18, 2014. The submissions of the Noticees are, inter alia, as under:- (a) The preferential allotment was pursuant to the Order of Regional Director, Ministry of Corporate Affairs dated July 13, 2012. The said order accorded approval under section 297(1) of the Companies Act, 1956 to the target company to enter into a contract with the Noticees wherein the allotment of 1,00,00,000 equity shares to SIML and 50,00,000 equity shares to VCLL has been mentioned. The said order stated that the approval has been accorded without prejudice to any action that may be required to be taken by the target company under any other provisions of the Companies Act, 1956 or any other law in force. (b) Regulation 3(1)(j)(ii) of the Takeover Regulations, 1997 exempts requirement of open offer in case of any acquisition pursuant to a scheme of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign. The said preferential allotment qualified under regulation 3(1)(j)(ii) of the Takeover Regulations, 1997 and was thus exempt from open offer obligations.

(c) The shares have not yet been accorded listing permission by BSE and the same have not yet been credited to the demat accounts till date. Hence, the Noticees have not made any public announcement of open offer. (d) The Noticees have never had the intention to avoid making an open offer at any point in time and it was only due to the aforesaid reasons that no public announcement has been made. 8. Subsequently, the Noticees were granted an opportunity of personal hearing on August 26, 2014 which was re-scheduled to September 23, 2014 at the request of the Noticees. On the said date, the authorized representatives of the Noticees appeared and made submissions on their behalf. The Noticees also filed their written submissions in the matter vide letter dated September 27, 2014. The submissions of the Noticees are, inter alia, as under:- (a) On March 31, 2011, the board of directors of the target company considered the issue of 1,50,00,000 equity shares of ₹ 1/- each at a price of ₹ 4.36/- per share for consideration other than cash to the promoters, 50,00,000 equity shares of ₹ 1/- each at a price of ₹ 4.36/- per share to the non-promoters for cash and 2,00,00,000 equity warrants of ₹ 1/-each at a price of ₹ 4.36/- per warrant convertible into one fully paid equity share at the end of twelve months from the date of issuance of warrants to non-promoters for cash.

The board of directors also approved the convening of an Extra Ordinary General Meeting of the shareholders on May 27, 2011 to approve this proposal. (b) On May 27, 2011, the shareholders of the company passed a resolution approving the aforesaid issuances. (c) The target company was advised that the shares were being issued for consideration other than cash and the same had been approved under section 297 of the Companies Act, 1956 by the Regional Director, Ministry of Corporate Affairs. Since the Regional Director was a Judicial Authority, the company was further advised that any issue of shares made under the said order would be exempted from the requirements of complying with the regulation 10 and 11(1) of the Takeover Regulations, 1997. The target company, relying on the said advice and order, made necessary disclosures in the Explanatory Statement to the notice to the EGM that no open offer would be required to be made under the Takeover Regulations, 1997. The target company and its promoters genuinely believe that the Regional Director is a Judicial Authority and any transaction entered into on the strength of the said order would be exempted from the requirements of complying with regulation 10 and 11 of the Takeover Regulations, 1997. (d) An application for in-principle approval from the stock exchange was made to BSE on June 03, 2011. (e) The company in its board meeting on June 10, 2011 approved the issue of 1,91,00,000 equity shares and 1,75,50,000 warrants to both promoters and non-promoters, since they believed that the same has to be done within 15 days of the passing of the special resolution.

This was also conveyed to the BSE vide letter dated June 10, 2011. (f) Although the issuance of shares have been approved by the board of directors of the target company and stated as "allotted" in all its communications, the benefits arising out of allotment of shares never accrued to any of the shares. The shares were not credited to the demat accounts of the proposed allottees. By virtue of this, their names did not figure in the list of members of the target company. Consequent to this, they could not receive any notice pertaining to any shareholder meeting and also did not acquire any voting rights on these shares. The shares were however included in the share capital of the target company and were also shown in the shareholding pattern filed by the target company with the stock exchange on a quarterly basis from the quarter ending June 30, 2011. The shareholding pattern however contained a footnote that the preferential issue of equity shares allotted on June 10, 2011 and warrants converted/issued on January 23, 2013 had not received necessary listing and trading approval from BSE.

(g) The beneficiary position ("BENPOS") statement for the period ended March 31, 2014 showing the list of shareholders and the BENPOS statement for the period ended April 14,

2014 showing the list of shareholders and their shareholding, as enclosed with the submissions, supports the aforesaid statement. (h) After some correspondence, BSE advised the target company that the resolution passed on May 27, 2011 was not in strict compliance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("ICDR Regulation") and therefore, the target company was advised to pass the resolution once again. On receipt of this communication, a Board meeting was held on November 25, 2011 to convene a general meeting of the shareholders on December 23, 2011. The shareholders at their meeting on December 23, 2011 ratified the earlier resolution passed on May 27, 2011 by correcting the discrepancies pointed out by BSE. (i) Once the resolution was passed, the same was communicated to BSE with a request to grant necessary approvals for the listing of the shares. There has been a series of communications between the target company and BSE thereafter. (j) The tenure of the warrants which was for twelve months was extended to eighteen months vide a board meeting on May 30, 2012 and the same were due for conversion on December 10, 2012, i.e. within eighteen months from the date of their issue, which was June 10, 2011. The same was also communicated to the warrant holders.'

(k) The warrants which were issued to the non-promoters were converted on December 09, 2012 and 1,75,50,000 warrants were converted to 1,75,50,000 equity shares after receipt of entire consideration from the warrant holders. (l) BSE, vide e-mail dated December 18, 2013 informed the decision of Internal Listing Committee taken in its meeting held on December 17, 2013 as follows: i. Listing approval is approved for 39,75,000 equity shares out of 41,00,000 equity shares allotted to non-promoters subject to the target company making fresh application along with all the related required documents for listing of 39,75,000 equity shares only. ii. Listing approval for 1,50,00,000 equity shares issued to promoters will be granted subject to the company taking fresh consent from the shareholders and complying with the preferential issue regulations as applicable including fresh pricing and lock-in. iii. The target company should seek ratification by the shareholders for the extension of tenure of the warrants from twelve months to eighteen months, other terms of warrants remaining the same. Post obtaining ratification from the shareholders and completing the formalities, listing approval for 1,66,50,000 equity shares allotted on conversion of 1,66,50,000 warrants will be granted to the target company (m) On December 23, 2013, BSE granted listing approval for the listing of 39,75,000 equity shares of ₹1/- each at a price of ₹4.57/- per share to the non-promoters, instead of 41,00,000 equity shares issued/allotted by the board of the target company on June 10, 2011, thereby not granting approval for the balance 1,25,000 equity shares.

(n) Necessary corporate action was undertaken at both NSDL and CDSL and confirmation of credit was received from NSDL on April 02, 2014. The persons to whom the preferential allotment was proposed to be made became shareholders of the target company from this date onwards. (o) Another board meeting was held on June 20, 2014 to convene an Extra Ordinary General Meeting on July 07, 2014 to pass the resolutions regarding issue of 1,00,00,000 equity shares to SIML and 50,00,000 equity shares to VCLL at a price of ₹ 7.68/- per share for consideration other than cash. (p) An Extra Ordinary General Meeting was held on July 07, 2014 to ratify the above proposals and necessary special resolution was passed in this regard. BSE was informed of the outcome of the meeting of the shareholders and the approval of BSE is still awaited for the allotment of shares on preferential basis to the promoters and the allotment of shares on the conversion of warrants to non-promoters. (q) In light of the above submissions, it can be seen that though the board of directors of the target company approved the issuance of equity shares/warrants to the promoters and non-promoters on June 10, 2011, they were in all technicality not allotted.

No shares have yet been credited to the demat accounts of the proposed allottees. None of the proposed promoter allottees have enjoyed any of the rights as a shareholder, like receiving dividend, receiving notices for shareholder meetings, attend and vote at meetings etc. In fact the resolution approving the issue has actually been passed only on July 21, 2014 and hence any allotment done prior to this date would be null and void. (r) Further, there is still an uncertainty as to whether BSE would grant permission for the listing and trading of the shares and in case of such an eventuality, any decision to make an open offer would adversely affect the Noticees. (s) It is further confirmed that necessary compliances of the Takeover Regulations would be undertaken by the promoter allottees of the target company as and when listing permission is granted by BSE. (t) The Noticees include Mr. Vishnu Vasanth and Ms. Vinita Vasanth, the son and daughter of Mr. Ranga Vasanth Kumar, respectively, who are shareholders of the target company since its incorporation and have been classified as promoters, only due to their relationship to Mr. Ranga Vasanth Kumar.

Since they are employed with other companies and already pursuing their career and are not in any manner related to the day to day administration of the target company, it is requested that no orders be passed against Mr. Vishnu Vasanth and Ms. Vinita Vasanth.

9. I have considered the SCN, replies and submissions made by the Noticees and other material available on record. In this case, it is undisputed fact that pursuant to the resolution passed on May 27, 2011 by shareholders of the target company under section 81(1A) of the Companies Act, 1956, the target company made preferential allotment of 1,00,00,000 equity shares to SIML and 50,00,000 equity shares to VCLL on June 10, 2011 as per the resolution passed by its board of directors on the same date. Further, SIML and VCLL are part of promoter group of the target company and all promoters are persons acting in concert (PACs) with regard to the aforesaid preferential allotment to two promoters. Prior to this preferential allotment, SIML did not held any shares in the target company. I note that the aforesaid allotment of 1,50,00,000 equity shares to SIML would result in increasing the individual shareholding of SIML in the target company from 'NIL' to 18.36% and in the collective shareholding of all the promoters in the target company from 22.71% to 38.96% In this case, the dispute is with regard to the breach of regulation 10 by SIML and that of regulation 11(1) by the promoter group of the target company. 10. Before I proceed to deal with the contentions of the Noticees, I deem it necessary to refer to the relevant provisions of regulation 10, 11(1) and 14(1) of Takeover Regulations, 1997, which read as under: Regulation 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."

Regulation 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."

Regulation 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. "

11. From the language of regulation 10, it is clear that the obligation to make public announcement under the said regulation gets triggered when the acquisition of the acquirer, individually or collectively alongwith persons acting in concert with him, would entitle the acquirer to exercise 15% or more voting rights in the target company. In terms of regulation 11(1) the obligation to make public announcement under regulation 11(1) is triggered when an acquirer who, together with persons acting in concert with him, holds shares between 15% to 55% in the target company and acquires additional shares or voting rights himself or through or with persons acting in concert with him, and the acquisition gives additional entitlement to the acquirer to exercise more than 5% of the voting rights in any financial year ending on 31st March. 12. According to the Noticees they assumed that the aforesaid allotment of shares was exempt under regulation 3(1)(j)(ii) of the Takeover Regulations, 1997 since it was approved by Regional Director, Ministry of Corporate Affairs under section 297(1) of the Companies Act, 1956. In this regard, I note that regulation 3(1)(j)(ii) of Takeover Regulations, 1997 allows exemption from open offer obligations if the acquisition is made 'pursuant to' a scheme of arrangement or reconstruction under any law.

In the present case, it is noted that that the order dated July 13, 2012 of Regional Director was an approval of a contract under section 297(1) of the Companies Act, 1956. It is relevant to mention that as per the provisions of section 297 of the Companies Act, 1956 certain contracts between a director or companies/firms in which the directors are interested parties and the company can be entered into only with prior approval of the Central Government. In this case, the approval of Regional Director was not for a scheme of arrangement or reconstruction as contemplated under regulation 3(1)(j)(ii) of Takeover Regulations, 1997. Further, the said approval was given on July 13, 2012 i.e. much after the date of allotment (June 10, 2011) and thus, the acquisition in question was not pursuant to such approval. I am, therefore, of the view that the said allotment of shares was not pursuant to a scheme of arrangement or reconstruction as enunciated under regulation 3(1)(j)(ii) and reject the contention of the Noticees in this regard. 13. The Noticees have submitted that the preferential allotment was made on June 10, 2011 without receiving the in-principle approval from BSE since it was believed that the same had to be done within 15 days from the date of the special resolution passed under section 81(1A).

The in-principle approval had yet not been received and listing has been granted with regard to the shares allotted to SIML and VCLL under the preferential allotment. Accordingly, the shares allotted to them have not yet been credited to their demat accounts and the shares were technically not allotted. In this regard, it is relevant to mention that in both regulations 10 and 11, the operative words are 'acquirer' and 'acquire'. The word ' acquirer' has been defined in regulations 2(1)(b) to mean any person who, directly or indirectly acquires or agrees to acquire shares or voting rights or control in the target company. I further note that regulation 14(1) of the Takeover Regulations,1997, which provides for the timing of the public announcement, requires that the public announcement under regulation 10 or 11 should 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". Thus, if a person agrees to acquire shares / voting rights or control over the target company, he becomes an acquirer to make public announcement in the circumstances referred to in regulations 10, 11 or 12 within four working days of entering into the agreement.

In this regard, it is relevant to mention the following observations of Hon'ble Securities Appellate Tribunal (SAT) in the order dated April 27, 2001 in the matter of B. P. Amoco Plc. Vs. SEBI- "On perusal of the said regulation, it could be seen that the duty to make public announcement to acquire shares is fastened on the acquirer. As stated above, the expression 'acquirer' has been defined in the regulation to mean any person who, directly or indirectly acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. Thus in terms of the said definition, not only a person directly or indirectly acquiring the shares or voting rights in the target company or acquiring control over the target company is an acquirer, but one agreeing to acquire shares/voting rights or control is also an acquirer. It is not necessary that one should actually acquire shares / voting rights or control to consider him as an acquirer. It would suffice if a person agrees to acquire shares or voting rights or control over the target company."

14. The aforesaid observations of Hon'ble SAT have been upheld by Hon'ble Bombay High Court in the appeal B. P. Amoco Plc. Vs. SEBI vide its order dated August 08, 2001 wherein it has been held that if the interpretation is taken that only after concluding the acquisition a person would become an acquirer, it would result in grave anomaly and absurdity inasmuch the objective of making the public announcement (PA) is that once a decision is taken to acquire shares/voting rights or control, the public announcement should be made as a protective measure. I, therefore, find that the obligation to make public announcement does not arise only pursuant to a completed acquisition as sought to be contended by the Noticees. 15. In this case, admittedly, on June 10, 2011 the board of directors of the target company passed the resolution for allotment of shares on preferential basis. Thus, the decision to make allotment of equity shares to the aforesaid two promoters was taken on June 10,2011 and the obligation under regulation 10 and 11(1) was triggered on this date. In this context, it is noteworthy that Hon'ble SAT in the matter of Hanumesh Realtors Pvt. Ltd. vs. SEBI (Order dated July 25, 2012 in appeal no. 66 of 2012), has held that public announcement, in case of a preferential allotment, is required to be made within 4 days from the date of board resolution for allotment.

16. Another contention of the Noticees in this regard is that they have not exercised the voting rights with regard to the shares allotted under the preferential allotment. Further, none of the promoter allottees have enjoyed any of the rights as a shareholder like receiving dividend, receiving notices for shareholder meetings, attending and voting at meetings, etc. and therefore, the promoter allottees have effectively not acquired any voting rights. A plain reading of regulations 10 and 11(1) indicates that the obligation under those regulations is triggered by acquisition of equity shares which 'entitle' the acquirer to exercise voting rights beyond the prescribed threshold. The equity shares by their very nature carry voting rights. It is important to mention that the entitlement to exercise voting rights accrues on acquisition of equity shares. It is the entitlement to exercise voting rights which triggers the obligation under those regulations and not the actual exercise of voting rights or availing of other rights such as dividend, etc. Further, as mentioned above, Takeover Regulations, 1997 are triggered merely by an agreement to acquire shares or voting rights.

In this regard, I note that Hon'ble SAT, in the matter of Shri Sharad Doshi vs. The Adjudicating officer and others, (Order dated April 07, 1998 in appeal no. 01/1998), held that : "....Voting right is attached to equity share or say, it is built in the moment the share is issued", "....the time limit prescribed for public announcement to acquire shares is relatable to the finalization of the negotiations or entering into the agreement or memorandum of understanding to acquire shares. Date of registration of shares acquired in the Company’s register is not the starting point." and that "...Takeover regulations do not exempt such ‘adhoc’ acquisition from its scope...". 17. In light of the above, I am of the view that the entitlement to exercise voting rights in terms of regulation 10 and 11(1) of the Takeover Regulations, 1997 accrued to the Noticees when the equity shares were allotted to SIML and VCLL on June 10, 2011. The matters relating to grant of in-principle approval from the stock exchange, crediting of shares to demat accounts, listing of shares issued to promoters with the stock exchanges, etc. are not relevant for the purpose of the obligation under regulations 10 and 11(1) which was triggered on June 10, 2011.

18. The Noticees have further submitted that subsequent to the board meeting on June 10, 2011, multiple meetings of the board and shareholders have taken place to ratify the proposals as per the requirements laid down by BSE, the latest resolution was passed by shareholders on July 21, 2014. It has, thus, been contended by the Noticees that any allotment done prior to the same would be null and void. In this regard, I note that subsequent shareholders' resolution has not nullified the preferential allotment made to SIML and VCLL on June 10, 2011. The subsequent resolution has been passed merely to ratify few discrepancies pointed out by BSE. The subsequent resolution / ratification will not change the effect of allotment made on June 10, 2011. I note that the target company had received the payments from SIML and VCLL. Tthey were holding shares allotted to them and the capital of the target company has increased pursuant to the preferential allotment made to them as reflected in the shareholding pattern of the target company filed with BSE. I further note that the board resolution dated June 10, 2011, though stated by BSE to have been passed after a special resolution with defective notice to shareholders, has been effectively acted upon by the target company.

In my view, the allotment made on June 10, 2011 is not vitiated on account of any such defect as regards the obligations under the Takeover Regulations, 1997 are concerned. In this regard, it important to mention that in the matter of Pacific Coast Gold Mines v. Arbuthnot (1917) AC 607, it was held that "Where a resolution has been invalidly passed but has been acted upon it has to be regarded as effective, and the company and its members cannot set up its invalidity against its creditors." 19. Considering the above fats and circumstances, I am of the view that the charge in the SCN against the Noticees is established. Since these acquisitions were clearly in breach of regulation 11(1) by all the Noticees and regulation 10 by SIML, the consequences of this breach should follow. I note that regulation 44 read with regulation 45 of the Takeover Regulations, 1997 give flexibility to SEBI to enforce regulations 10 and 11(1) by way several directions including for- (a) making public announcement (b) disinvestment of shares acquired in breach of regulations; (c) transfer of any proceeds or securities to the investors protection fund, etc. The guiding principles for the directions as provided in these regulations are the interest of the investors and securities market which are the statutory guiding principles as inbuilt in the SEBI Act, the Takeover Regulations, 1997 and the Takeover Regulations, 2011. In this context, I note that the Hon'ble Securities Appellate Tribunal ("SAT"), 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 ." 20. In the present case consequent to the preferential allotment made to SIML and VCLL on June 10, 2011, the collective shareholding of the promoters of target company increased by 16.25% from 22.71% to 38.96% on account of which the Noticees collectively triggered the requirement of making a public announcement of an open offer under regulation 11(1) of the Takeover Regulations, 1997. The Noticees were therefore required to make a public announcement within 4 days from June 10, 2011. Further, the shareholding of SIML individually increased from 'NIL' to 18.36% because of which SIML triggered the requirement of making a public announcement of an open offer under regulation 10 of the Takeover Regulations, 1997. In the facts and circumstances of the present case discussed hereinabove, I do not find any reason to deviate from the normal rule to direct a public announcement to acquire shares of the target company in accordance with the provisions of Takeover Regulations, 1997, and issue any other direction as envisaged in regulation 44 and 45. It is however clarified that since obligation under regulations 10 and 11 both have overlapped in this case, the Noticees shall make a combined public announcement under regulations 10 and 11 read with regulation 14(1) of the Takeover Regulations, 1997. 21. I note that had the Noticees made the public announcement within a period of 4 days from June 10, 2011 in accordance with the Takeover Regulations, 1997 and complied with all related activities within the timelines specified therein, all formalities with respect to their public announcement and the open offer would have been completed on September 16, 2011. I, therefore, am of the view that since the public announcement now would provide a delayed exit opportunity to the shareholders of the target company, the Noticees 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.

22. The Noticees have requested that no order be passed against Mr. Vishnu Vasanth and Ms. Vinita Vasanth who are the son and daughter of Mr. Ranga Vasanth Kumar, respectively and have been classified as promoters of the target company only due to their relationship to Mr. Ranga Vasanth Kumar. Further, Since they are employed with other companies and are already pursuing their career and are not in any manner related to the day to day administration of the target company. In this regard, I note that in the present case, consequent to the preferential allotment made to SIML and VCLL, the collective shareholding of the promoters of the target company breached the 5% limit stipulated in regulation 11(1) of the Takeover Regulations, 1997. Thus, it shall be the joint and several obligation of the entire promoter group of the target company to make the public announcement to make an open offer and no person/entity belonging to the promoter group can be absolved from that obligation. I, therefore, reject the contention of the Noticees in this regard. 23. In view of the foregoing, I, in exercise of powers conferred upon me under sections 11, 11B read with section 19 of the SEBI Act and regulation 44 and 45 of the Takeover Regulations, 1997 read with regulations 32 and 35 of the Takeover Regulations, 2011, hereby issue the following directions: a) The Noticees shall make a public announcement to acquire shares of the target company in accordance with the provisions of the Takeover Regulations, 1997 read with the corresponding provisions of Takeover Regulations, 2011 within a period of 45 days from the date of this order; b) The Noticees shall, alongwith the consideration amount, pay interest at the rate of 10% per annum from September 17, 2011 to the date of payment of consideration, to the shareholders who were holding shares in the target company on the date of violation and whose shares are accepted in the open offer, after adjustment of dividend paid, if any.

24. This order shall come into force with immediate effect. A copy of this order shall be served upon the Noticees for ensuring compliance with the above directions

Sd/-

DATE: May 13th, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA