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TMI Blog2019 (4) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company has been made stands disproved as it is an admitted fact that the combined shareholding of all respondents together was less than 10%. The trigger for mandated disclosure under Regulation 7 of the Takeover Regulations, 1997, has been violated does not have merit since it is found that respondents who were found to be PACs had a maximum shareholding of only about 4.85% of the shareholding in the appellant company. We also found no merit in the argument that all the 10 respondents were persons acting in concert and came together to dislodge the then management of the company based on the fact that they were petitioners/consenting shareholders to a Company Petition filed against mismanagement and oppression etc. In fact what is on evidence is that some of the respondents had sold part of their shares even prior to the Company Petition filed in March 2010. If these entities were in fact consolidating their shareholding in the appellant company such reverse transactions would not have been done. Similarly, some of the entities such as Respondent No. 2 had acquired the shares of the appellant company since the latter’s incorporation and as such cannot be held to have acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 7(2) of the SEBI Takeover Regulations, 1997. Further, it was also alleged in this communication that the nature of trading of some of those parties and their source of fund may be investigated to ascertain whether these entities violated the SEBI PFUTP Regulations and the antimoney laundering laws. Those 10 entities who, allegedly committed the violations, have been made respondents in this appeal and are listed as Respondent Nos. 2 to 11 while SEBI is Respondent No. 1. 3. On April 15, 2013 SEBI closed the complaint filed by the appellant on September 26, 2011 by stating that while some of the entities alleged to be PAC were in fact PACs, all those 10 entities together were not PACs. Further, the shareholding of the entities who were PACs was 1.07% (Respondent Nos. 2 to 5) and about 4% (Respondent Nos. 8 to 10), both of which was less than the threshold level of 'more than 5%' required for triggering disclosure under Regulation 7(1) of the Takeover Regulations, 1997. 4. The appellant company filed an appeal before this Tribunal aggrieved by the decision of SEBI dated April 15, 2013. When the matter came up for hearing before this Tribunal on November 07, 2014 the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n March 07, 2017) which held that circulars and administrative orders issued by SEBI cannot be appealed before this forum. Similarly, the appellant also raised a preliminary objection stating that the impugned order/ communication is issued by an Officer who does not have the power to issue such orders under the Scheme of Delegation in SEBI. Without going into the legality of all these preliminary objections we hold that in view of the order of this Tribunal dated November 07, 2014, which dealt with a similar order/ communication passed by same Officer of SEBI in the same matter and where no such ground was considered we are of the view that these preliminary objections at this stage are devoid of any merit and are, therefore, disposed off. Accordingly, we proceed to deal with the basic issues raised in this appeal as to whether, given the factual matrix, there was indeed violation of the relevant Takeover Regulations by Respondent Nos. 2 to 11. 7. For convenience, we reproduce the relevant provisions of Takeover Regulations, 1997 as under:- "Definitions. 2. (1) In these Regulations, unless the context otherwise requires:- (a)… (b) "acquirer" means any person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate holds not less than 2 per cent of the paid-up capital of the latter company. Note: For the purposes of this clause "associate" means,- (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families;" "Acquisition of 5 per cent and more shares or voting rights of a company. 7. (1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent [or fifty four per cent or seventy four per cent] shares or voting rights in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed. (1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, [or under second proviso to subregulation (2) of regulation 11] shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the targ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 6 5155 0.01 6. Merlin Securities Pvt. Ltd. Respondent No. 7 21,65,481 2.81 7. Lifecycle Infotech Pvt. Ltd. Respondent No. 8 11,85,010 1.54 8. G K Trading Pvt. Ltd. Respondent No. 9 12,45,589 1.61 9. Mr. Anil Goyal Respondent No. 10 34,381 0.05 10. Brijmohan Sagarmal Capital Services Pvt. Ltd. Respondent No. 11 14,22,500 1.85 11. Sunayana Commercial Pvt. Ltd. 6,54,072 0.84 Total Shareholding 75,27,266 9.78 Serial No. 11 is not a party. However, since it is connected to Respondent No. 9, this entity is also considered a deemed to be connected entity and hence its shareholding in the appellant company has also been considered by the Adjudicating Officer. 10. What is held in the impugned order/ communication is as follows:- "10. In the light of the aforesaid, the following observations have been made:- i. Lifecycle, G.K, Anil Goyal and Sunayana Commercial Pvt. Ltd. have admitted that they are PACs with each other and together hold around 4% shareholding of BCL. ii. Since, BET, Fullford, Britex, Poddar I and Poddar H are directly/indirectly being managed by Birla Group, they may be deemed to be PAC with each other. However, it may be note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle motive in removing the then management of the company and taking over control of the company. Their behavior undoubtedly shows the same motive and, therefore, they were acting in concert. Further, it is contended that the inter-relationship between these entities and their common connection to the Birla family (M. P. Birla) is prima facie evident. They were not given any interim relief sought while filing the Company Petition. 13. It was also submitted that some of the respondents had only a minuscule of share capital and/ or networth prior to 2008-2009 but suddenly, they acquired shares of the appellant company worth several crores during the period 2008-2010 in the run up to the Company Petition filed in 2010. Therefore, the complaint made to SEBI by the appellant also contained specific information relating to the financial activities of these entities. In addition to violation of Takeover Regulations, 1997 SEBI was also asked to investigate whether there was violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short) as well as antimoney laundering laws. 14. It was further con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act. It was further contended that apart from what is shown in the impugned order that some of these Respondents were PACs there is nothing on record to show that all the Respondent No. 2 to 11 have anything common in between them. Being party to a Company Petition relating to alleged mismanagement and oppression of minority shareholders etc. is not the same as being PACs as defined under Regulation 2(1) e(1) of the Takeover Regulations, 1997. As such no group which is found to be acting in concert or no other respondent ever held more than 5% of the shares of the appellant company necessitating disclosures under Regulation 7 of the Takeover Regulations, 1997. Some of these parties had acquired shares much prior to the Company Petition filed in the year 2010 while some of them have acquired shares more than a year before filing the said Company Petition. The impugned order has clearly brought out the connections, wherever exist, between the respondents by their names. Whoever is not specifically stated in the impugned order is covered under 'others'. Accordingly, Respondent Nos. 2 to 5 were found to be PAC's and so were Respondent Nos. 8 to 10 but other Respondents were st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned communication is an administrative order and not an adjudication order. Information from the respondents was sought and the same, appellant's complaint and other records available with SEBI had been used in preparing the impugned communication. No personal hearing, cross examination etc. was involved in the process, as it was not a quasijudicial process. 19. It was further contended by the learned senior counsel for SEBI that there was no 'substantial acquisition of shares' as alleged, which would have resulted in acquiring or controlling the company, because, at the relevant time the trigger for such substantial acquisition was 15% of the share capital of the company while the allegation is that all the 10 Respondents if combined had acquired only less than 10% of the share capital. Investigation found that no PACs or individual entities had acquired more than 5% of the share capital. At the same time, the promoter shareholding in the appellant company was 63%. Therefore, by no stretch of imagination the Respondent Nos. 2 to 11 by their combined holding of less than 10% of the shares have made a substantial acquisition and taken over the company or its management as all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent Nos. 2 to 6 made additional submissions that the reliefs sought by the appellant are far beyond the alleged disclosure violations made by the Respondents. The appellant seeks to restraint the Respondent Nos. 2 to 11 and all other parties who were acting in concert from buying, selling or dealing in the shares of not only the appellant company but from the securities market itself. This shows that the motive behind filing the complaint and that of hiding behind the face of the company is quite different from what is appears to be. The respondent Nos. 2 to 6 together held only 1.07% of the shares of the appellant company; between five of them this range from 11 shares to 6,50,961 and in no way they could have either substantially acquired the company or control it. They exercised a shareholders democratic right in a legal manner and filed a Company Petition about mismanagement and oppression which does not amount to acting in concert with those who became consenting parties to the Petition. It is an exercise of statutory right of a shareholder. 23. Learned counsel Shri Chauhan appearing for Respondent No. 7 submitted that its total shareholding in the appellant company at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 has been violated by Respondent No. 2 to 11 herein looking at the facts and the evidence/ records produced before us. Without going into the details of the Company Petition, which is not relevant to the matter before us, we hold that coming together for exercising the basic rights of shareholders in a Company Petition relating to alleged mismanagement and oppression of minority shareholders stand on a different pedestal as compared to coming together to acquire shares/ control of a target company. Here the target company in question is the appellant whose promoters held 63% of its share capital at the relevant time. That means even if all other parties coming together would still be in a minority. The argument that an effort in substantial acquisition of shares in the appellant company has been made stands disproved as it is an admitted fact that the combined shareholding of all respondents together was less than 10%. The trigger for mandated disclosure under Regulation 7 of the Takeover Regulations, 1997, has been violated does not have merit since it is found that respondents who were found to be PACs had a maximum shareholding of only about 4.85% of the shareholding in the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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