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TMI Blog2010 (2) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... tial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code). In order to appreciate the aforesaid question and the circumstances in which it arises, it is necessary to first notice some facts. 2. The Securities and Exchange Board of India (for short the Board) carried out investigations into the dealings in the shares of the target company to find out the role played by Ketan Parekh and his entities while trading in the scrip. Investigations revealed that substantial quantity of shares of the target company had been acquired by the Ketan Parekh group including the appellant herein. The six companies that were included in the Ketan Parekh group were Classic Credit Ltd., Classic Share & Stock Broking Services Ltd., Panther Fincap & Management Services Ltd., Panther Investrade Ltd., Triumph International Finance Ltd. (the appellant) and Triumph Securities Ltd. which have been referred to by the Board as Ketan Parekh entities / groups. It transpired that al l these entities together acquired a large number of shares while acting in concert with each other and that their total acquisition was more than 5 per cent of the shares or voting rights in the targe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had been issued had acquired shares of the target company which crossed the threshold limit of 5 per cent of the paid up share capital of the target company and since they all failed to disclose their holdings to the target company, they violated Regulation 7 of the takeover code. He also found that the appellant and the other noticees were acting in concert with each ot her and that all the companies including the appellant were closely associated with Ketan Parekh. On the basis of these findings he imposed the maximum monetary penalty of ₹ 5 lakhs on the appellant. Hence this appeal. It is pertinent to mention that no order was passed against the other noticees (companies which were clubbed with the appellant) as they all filed applications for a consent order and the proceedings qua them have ended in a consent order. 5. We have heard the learned counsel for the parties. The fact that the appellant acquired shares of the target company is not in dispute. It is also not in dispute that the total shares acquired by the appellant and the other noticees taken together exceed 5 per cent of the paid up share capita l of the target company on all the six days as mentioned in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / affiliated to Ketan Parekh atleast from the year 1999 onwards and that its plea that it was not acting in concert with other noticees could not be accepted. Since the shares of the target company had been acquired with a common objective of the Ketan Parekh group, it is necessary to refer to the facts noticed in para 19 of the impugned order and the same reads as under:- "19. However, it was observed from the records made available even to the noticee that: i. 15.84% (7.92% each) of the equity share capital of the Company were held by Mrs. Mamta Parekh (wife of Mr. Ketan) and Mrs. Ami Parekh (wife of Mr. Kartik), where Mr. Ketan and Mr. Kartik were cousins. ii. The noticee held 49% in TSL, which was under the management and control of Mr. Ketan and Mr. Kartik. An Option agreement dated March 18, 1999, was executed by and between the noticee and Mr. Ketan. The noticee paid consideration to Mr. Ketan to acquire 51% equity share capital of TSL on 21/03/1999. TSL was to become a 100% subsidiary of the noticee by June 2001. The noticee had earlier admitted to have nominated 2 directors on the Board of TSL. iii. The noticee did not have membership of the Bombay Stock Exchange Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 1999 onwards. Thus, the noticee's plea that it was not affiliated to or managed by Mr. Ketan Parekh or Mr. Kartik Parekh does not hold ground. Neither does the plea that the noticee was not acting in concert with the other entities as mentioned in the above para graphs hold ground, since the shares had been acquired with a common objective of the Ketan Parekh group, of which the noticee also forms a part. Also the noticee's claim that Classic Credit Ltd. and Panther Fincap & Management Services Ltd. had been its clients and the noticee had no relationship with them other then that as clients cannot be accepted in view of the facts discussed in the previous paragraphs." Let us now examine whether a ll the facts referred to in para 19 taken collectively or individually establish the allegation that th e appellant was acting in concert with the other noticees. "Person acting in concert" has been defined in the takeover code to mean persons who for a common objective or purpose of substantial acquisition of shares or voting rights pursuant to an agreement or understanding (formal or informal) directly or indirectly cooperat e by acquiring or agreeing to acquire shares or vot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ketan Parekh and that finding was reversed in the appeal holding that the appellant was not under the control of Ketan Parekh though it was a close associate of his investment / broking companies. This is what the Tribunal has observed in its order dated May 14, 2007. " We have heard the learned counsel for the parties who have taken us through the voluminous record of this case. The first argument of the learned counsel for the appellant is that the Board has grossly erred in recording a finding that the appellant was being controlled by Ketan Parekh and that it was difficult to believe that it was an independent body run absolutely with no control of Ketan Parekh. We have perused paragraphs 10.4.1 to 10.4.9 of the impugned order and agree with the learned counsel for the appellant that the findings of the Board in this regard cannot be upheld. It is not in dispute that Mrs. Mamta Parekh wife of Ketan Parekh holds 7.92% of the share capital of the appellant and an equal percentage of shares are held by Mrs. Ami Parekh wife of Kartik Parekh who is a cousin brother of Ketan Parekh from the paternal side (father's brother's son). The two ladies, thus, hold 15.84% of the total share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that Ketan Parekh and his investment companies which had subsequently been debarred from accessing the capital market had been operating through the appellant as their broker. It is not necessary for us to discuss that material in view of the admission made by the learned counsel for the appellant. These business dealings howsoever close they may have been also do not lead us to conclude that Ketan Parekh was controlling the appellant company. The fact that the appellant and TSL (Ketan Parekh entity) had close business association is further clear from the f act that they were enjoying a joint over draft facility from Global Trust Ba nk Ltd. against common security to be provided by either of them. We agree with the learned counsel for the appellant that this again is no proof of Ketan Parekh having control over the appellant. We have examined the facts noticed by the Board in paragraphs 10.4.1 to 10.4.9 of the impugned order and find that none of them independently or collectively conclusively establish the fact that the appellant was under the actual control of Ketan Parekh. We are also of the view that the finding whether the appellant was being controlled by Ketan Parekh or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lish that the appellant was acting in concert with Classic Credit Ltd. an d Panther Investrade Ltd. We regret our inability to accept this argument. Mere ly because the appellant and Triumph Securities Ltd. enjoyed a joint over draft facility does not lead to the conclusion that they were acting in concert for acquiring the shares of the target company. Such dealings, at the most, indicate close business association between the entities which, we have already held, do not establish the fa ct that they were acting in concert with each other. Even if one were to assume that the appellant and Triumph Securities Ltd. were acting in concert, it would not follow that the shares acquired by the other entities to whom the common show cause notice had been issued were to be clubbed with the shares acquired by the appellant. It is pertinent to mention here that it is common case of the parties that the shareholding of the appellant together with that of Triumph Securities Ltd. also did not exceed the threshold limit of 5 per cent prescribed by Regulation 7 of the takeover code. 8. No other point was raised. 9. For the reasons recorded above we cannot uphold the findings recorded by the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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