1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted investigation into the allegation of contravention of, interalia, the provisions of Regulation 7(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’) by certain entities in the matter of acquisition of shares of The Grob Tea Company Ltd. (hereinafter referred to as ‘Grob’).

 

2. In the following paragraphs Nos. 3 to 6, the undersigned gives a summary of the findings of SEBI investigation.

 

3. The investigation of SEBI revealed that the acquisition of shares of Grob during the period of December 1997 to September 2000 was mainly made by two groups, namely, the Tulsian Group and the Mittal Group.  The said groups together acquired approximately 14.33% (Tulsian Group 7.78% and Mittal Group 6.55%) of the total share capital of Grob.  As per the investigation conducted by SEBI, the following are the persons which form the Tulsian Group.  

 

 

Table A

Sr.No.	Name	Addres	Relation/Directorship
1.	Shri Mahadeolall Tulsian	3-B, Lal Bazar Street, 2nd Floor, Kolkata-700 001.	Father of Shri Radheshyam Tulsian.
	Shri Radheshyam Tulsian	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Son of Shri Mahadeolall Tulsian.
	Shri Sanjiv Kumar Tulsian	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Son of Shri Radheshyam Tulsian
	Shri Siddharth Tulsian	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Son of Shri Radheshyam Tulsian.
	Smt. Kusum Tulsian	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Wife of Shri Radheshyam Tulsian
	Smt. Neelam Tulsian	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Daughter-in-law of Shri Radheshyam Tulsian
	Calcutta Hardware Store	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Proprietor – Shri Radhesyam Tulsian.
	RST Holdings Ltd.	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Directors – Shri Radhesyam Tulsian, Shri Sanjiv Kumar Tulsian, Shri Siddhartha Tulsian and  Ms.Swetha Tulsian.
	Fixopan Management Ltd.	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Director – Shri Radheshyam Tulsian.
	Eximpo Tea Ltd.	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Director – Shri Radheshyam Tulsian
	Ranisati Udyog Ltd.	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Director – Shri Sanjiv Kumar Tulsian
	Zoom Constructions and Holdings Ltd.	3-B Lal Bazar Street, 2nd Floor, Kolkata – 700 001.	Directors – Shri Sanjiv Kumar Tulsian,  Smt. Kusum Tulsian, Shri Radheshyam Tulsian
	Shree Sanyogita Pvt.Ltd.	9/1,  Lower Rowdon Street, Block – B, Main  Mansion, Ground Floor, Kolkata – 700 020.	Director – Shri Sanjiv Kumar Tulsian.
	Krishna Devlocon Consultancy Pvt.Ltd.	9/1,  Lower Rowdon Street, Block – B, Main  Mansion, Ground Floor, Kolkata – 700 020.	Director – Shri Sanjiv Kumar Tulsian.
	Shakti Devlocon Pvt. Ltd.	9/1,  Lower Rowdon Street, Block – B, Main  Mansion, Ground Floor, Kolkata – 700 020.	Director – Shri Sanjiv Kumar Tulsian.
16.	Shri Kishan Kumar Saraf	P-3, New CIT Road, Kolkata – 700 073.	Distantly related to Shri Radheshyam Tulsian.

 

4. The shareholding of Grob acquired by the persons belonging to Tulsian group accounts for approximately 7.78% of the total paid up share capital of Grob.  From the bank statements submitted by the above entities before the investigating authority of SEBI, it was found by SEBI that the funds for purchase of shares of Grob originated mostly from the Hindu Undivided Family of Mahadeolall Radheshyam.  M/s. Mahadeolall Radheshyam (HUF) is a family fund of the Tulsians in which all the family members of the Tulsian group are equal members.  Shri Radheshyam Tulsian is the Karta of the HUF.   The Investigations carried out by SEBI further revealed that funds from the following persons were also used for the purchase of the shares of Grob, namely,  Shri Siddharth Tulsian,  Shri Sanjiv Kumar Tulsian and Smt. Neelam Tulsian.  On the basis of the common addresses, relationship/ directorship of the above individuals and the sources of funds, it was alleged that all the above entities belonging to Tulsian Group were acting in concert in acquiring the share capital of Grob.   Therefore, it was alleged that Shri Radheshyam Tulsian acting in concert with his family members and other related entities acquired shares beyond 5% and violated regulation 7(1) of SEBI (Substantial Acquisition and Takeover) Regulations, 1997 by not reporting the same to the Grob.

 

5.  As per the investigation conducted by SEBI,  the following are the details of the persons constituting Mittal group:

 

Table B

Sr.No.	Name	Addres	Relation/Directorship
1.	Shri Satyanaran Mittal	1, Rawdon Street, Kolkata – 700 017.	Father of Ram Avtar Mital
2.	Smt. Shanti Mittal	1, Rawdon Street, Kolkata – 700 017.	Wife of Shri Satyanarayan Mittal
3.	Shri Ram Avtar Mittal.	1, Rawdon Street, Kolkata – 700 017.	Son of Shri Satyanarayan Mittal.
4.	Shri Krishna Mittal	1, Rawdon Street, Kolkata – 700 017.	Son of Shri Ram Avtar Mittal.
5.	Shri Bipin Mittal	1, Rawdon Street, Kolkata – 700 017.	Son of Shri Ram Avtar Mittal.
6.	Shri Ravindra Kumar Mittal	1, Rawdon Street, Kolkata – 700 017.	Son of Shri Ram Avtar Mittal
7.	Smt. Kanta Mittal	1, Rawdon Street, Kolkata – 700 017.	Wife of Shri Ram Avtar Mittal.
8.	Smt. Ritu Mittal	1, Rawdon Street, Kolkata – 700 017.	Daughter in law of Shri Ram Avtar Mittal
9.	Smt.Ritu Mittal (Jr.- Jalan)	1, Rawdon Street, Kolkata – 700 017.	Daughter in law of Shri Ram Avtar Mittal.
10.	Smt.Kavita Bhuwalka	1, Rawdon Street, Kolkata – 700 017.	Daughter of Shri Ram Avtar Mittal.
11.	Smt. Twinkle Agarwal	1, Rawdon Street, Kolkata – 700 017.	Daughter of Shri Ram Avtar Mittal.
12.	Smt.Savita Kasera	6B, AJC Bose Road, Kolkata – 700017.	Daughter of Shri Ram Avtar Mittal.
13	Smt. Chetna Mittal	1, Rawdon Street, Kolkata – 700 017.	Daughter in law of Shri Ram Avtar Mittal
14.	Shri Vikas Kasera.	6B, AJC Bose Road, Kolkata – 700017.	Husband of Smt. Savita Kasera.
15.	Nikhil Exports Pvt. Ltd.	6B, AJC Bose Road, Kolkata – 700017.	Directors -  Shri Satyanarayan Mittal, Shri Ravindra Kumar Mittal
16.	Aska Roadways Pvt Ltd	1, Rawdon Street, Kolkata – 700 017.	Directors – Shri Kanta Mittal, Shri Bipul Mittal, Shri Ravindra Kumar Mittal,  Shri Gopal Krishna Mittal
17.	ERC India Ltd.	1, Rowdon Street, Kolkata-700 017.	Direcotrs- Shri Satyanarayan Mittal, Shri Ram Avtar Mittal, Shri Bipul Mittal, Shri Ravindra Kumar Mittal, Shri Gopal Krishna Mittal.
18.	Aska Investments Pvt. Ltd.	1, Rowdon Street, Kolkata-700 017	Directors – Shri Satyanarayan Mittal, Shri RamAvtar Mittal, Shri Bipul Mittal, Shri Ravindra Kumar Mittal, Shri Gopal Krishna Mittal
19.	Action Trades Pvt.Ltd.	1, Rowdon Street, Kolkata-700 017	Directors- Shri Satyanarayan Mittal, Shri Bipul Mittal
20.	IPCCA Financial Services Pvt.Ltd.	1, Rowdon Street, Kolkata-700 017	Directors – Shri Ravindra Kumar Mittal, Shri Gopal Mittal
21.	Masterlook Tracon Pvt. Ltd.	6B Acharya Jagdish Chandra Bose Road, Kolkata 700 017.	Director -  Shri Vikas Kasera
22.	Swift Carriage & Trade Services Pvt. Ltd.	6B Acharya Jagadish Chandra Bose Road, Kolkata – 700 017.	Director – Shri Vikas Kasera.

 

 

6. The holdings of Mittal Group in Grob were 76196 shares which is approximately 6.55% of the total paid up capital of Grob.  Shri Ram Avtar Mittal who represented the Mittal Group before the Investigating Authority of SEBI is the head of the family of the Mittals.   Shri Ram Avtar Mittal admitted in his letter dated February 22, 2003 addressed to SEBI that he along with his family members, relatives and companies controlled by him acquired the said number of shares of Grob Tea Ltd. From the Bank statements submitted by the above persons of Mittal group before the investigating authority of SEBI, it was found that the funds for purchase of shares in Grob came mostly from within the family members themselves.  The funds were received mainly from the following persons/ entities belonging to the Mittal Group, viz., ERC Ltd, Action Trades Pvt. Ltd., Nikhil Exports Pvt. Ltd., Aska Investments Pvt. Ltd. On the basis of the statement of Stock Broker Prabhat Kumar Jhunjhunwala, it was found that Shri Bipul Mittal, Shri Gopal Krishna Mittal, Smt. Kanta Mittal, Smt. Ritu Mittal, Smt. Kavita Bhuwalka, Shri Ravi Mittal, Smit. Twinkle Agarwal, Aska Investment Pvt.Ltd., Action Trade Pvt.Ltd., Nikhil Exports P Ltd., IPPCA Financial Services Pvt. Ltd., Swift Carriage and Trade Services Pvt.Ltd., Affinity Finance P Ltd belonging to Mittal group were introduced by Shri Ram Avtar Mittal. Further Shri Sanjiv Tulsian, Sakti Devlecon P Ltd., Fixopan Management Pvt.Ltd.,  Krishna Devlo Consultancy Pvt. Ltd. Shri Sanyogita Commercial Pvt. Ltd., belonging to the Tulsian group were introduced to the broker by Shri Ram Avtar Mittal.  The broker also stated that the deliveries for purchase transactions done by all these entities were given to the nominees of Shri Ram Avtar Mittal.  Shri Ram Avtar Mittal and his family acquired 6.55% of the paid up share capital of the company.  They acted in concert to acquire more than 5% shares of the company and have not reported the same to the company.  The same has been established on the basis of the following criteria (a) The address 1, Rowdown Street, Kolkata – 700 017 is common for the Mittal Group (b) all the individuals  are directly related to Shri Ram Avtar Mittal.  Further the companies had common directors and (c) The funds for purchase of the shares of Grob came mostly from the family fund, family members and/ or entities belonging to the acquirer group. Therefore, it was alleged that Shri Ram Avtar Mittal acting in concert with his family members acquired shares beyond 5% and has violated regulation 7(1) of SEBI (Substantial Acquisition and Takeover) Regulations, 1997 by not reporting the same to the Grob.

 

 

7. In view of the above findings of the investigating report, SEBI vide order dated October 8, 2003 appointed Shri K R C V Seshachalam, Deputy Legal Adviser of SEBI as Adjudicating Officer to enquiry into and adjudge the aforesaid violations allegedly committed by the persons forming the Mittal group and the Tulsain group.  Accordingly, show cause notices dated November 25, 2004 were issued by the said Adjudicating Officer to the entities of the Mittal group and the show cause notices dated December 6, 2004 were issued to the Tulsian group.  The said show cause notices were issued under Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995.  

 

8. Vide orders dated December 28, 2004, SEBI appointed the undersigned as the Adjudicating Officer in the instant matter in place of Shri K.R.C.V Seshachalam.  

 

9. Undated replies were received by the undersigned issued by the following entities of Tulsian Group viz., (i) legal heir of Shri Mahadeolall Tulsian,   (ii) Shri Sanjiv Kumar Tulsian (iii) Shri Siddharth Tulsian (iv) Smt. Kusum Tulsian,  (v) Smt. Neelam Tulsian,  (vi) M/s. Calcutta Hardware Store  (vii) RST Holdings Pvt. Ltd. (viii) Fixopan Management Pvt. Ltd. (ix) Eximpo Tea Ltd. (x) Ranisati Udyog Ltd.  (xi) Zoom Construction and Holding Pvt. Ltd. (xii) Shree Sanyogita Commercial Pvt. Ltd. (xiii) Krishna Devlo Consultancy Pvt. Ltd. and (xiv) Sakti Devlocon Pvt. Ltd.  However, no reply was received from Shri Kishan Kumar Saraf.    

 

10. The Mittal Group represented by Shri Ravindra Kumar Mittal issued a common reply to the show cause notice on behalf of all the entities of Mittal group vide letter dated February 7, 2005. From the said letter, it appears that Action Trades Pvt. Ltd., Nikhil Exports Ltd. and IPCCA Pvt. Ltd. were merged with Aska Investments Pvt. Ltd.  The undersigned in the following paragraph No. 11 cites the contentions and submissions of Tulsian group and Mittal group respectively. 

 

11. The submissions and contentions raised by both the Mittal group and the Tulsian group were identical. The summary of their submissions is as follows: None of them held or hold more than 5% of the shares of and in Grob Tea Ltd.   In Regulation 7 of the Takeover Regulations, there was no mention of persons acting in concert. It deals only with ‘acquirer’ to mean an individual and none of them being individuals acquired more 5% of the shares of Grob.  From Regulation 2 (1) (b) of the Takeover Regulations which defines an acquirer, it is evident that it consists of two parts, one relating to acquisition of shares simplicitor and the other totaling to acquisition of shares with the intent to have control of the company with the common objective of substantial acquisition of shares or voting rights for gaining control over the target company directly or indirectly acquire shares or voting rights.  The concept of persons acting in concert would not apply in case of acquisition of shares simplicitor and therefore ‘acquirer’ means only an individual.  In Chapter III Regulation 10 of the Takeover Regulations, it is stipulated that no acquirer or person acting in concert with him shall acquire more than 15% without a public offer.  Therefore, only Regulation 10 is a mandatory provision.  However, Regulation 7 does not prohibit a person acquiring more than 5% shares and as such any excess over 5% cannot be held to be invalid.  Therefore, it appears from the above that Reg. 7 of the Takeover Regulations was clearly not attracted in this case as none of them hold more than 5% shares of Grob Tea Ltd.  It is denied and disputed that they acted in concert to acquire more than 5% shares in Grob and not reported the same to Grob as alleged.  In view of the fact that Reg. 7 of the Takeover Regulations is not applicable in this case, the question of acting in concert to acquire shares of Grob does not and cannot arise. In any event the instant show cause notice is of no effect at present in view of the fact that the shares which were held by them were directed to be sold to Grob pursuant to an order dated October 15, 2004 passed by Hon’ble Justice Ashim Kumar Banerjee in the High Court at Calcutta in APO No. 235 of 2004 (Aska Investments Pvt Ltd & Anr., v.  The Grob Tea Co. Ltd & Ors). Aska Investments Pvt Ltd and Radheshyam Tulsian upon taking the consent of 14 other shareholders of Grob as mentioned in the show-cause notice filed an application under Section 397 and 398 of the Companies Act, 1956 against Grob and its majority shareholders on the ground of oppression and mismanagement in the year 2000.  On receipt of the said application, Grob and its majority shareholders being the respondents in the 397 petition filed an application under Section 111A of the Companies Act, 1956, inter-alia, praying that the names of all the shareholders mentioned in the show cause notice should be deleted from the books and records of Grob in view of the fact that they allegedly acquired more than 5% shares of Grob in violation of Regulation 7 of the Takeover Regulations.  Consequently, Grob and its majority shareholders prayed that the section 397 petition should be dismissed in view of the fact that since the shares over 5% by the persons mentioned in the show cause notice were acquired in violation of Reg. 7 of the Takeover Regulations, the said acquisition of shares being invalid, the petitioners in the 397 petition did not have the requisite 10% shareholding of Grob to maintain a petition under Section 397 and 398 of the Companies Act, 1956. Both the 397 petition as well as the 111A petition were heard by the Company Law Board and by a composite judgment and order dated January 30, 2004, the Company Law Board was pleased to dismiss the 397 petition on the ground of maintainability and was pleased to allow the 111A application of Grob by directing the shares held by the persons mentioned in the show cause notice which was acquired over and above 5% of the shares of Grob should be deleted from the records of the Grob.  The petitioners in the 397 petition who were included as persons and/or Companies in the show cause notice being aggrieved by and dissatisfied with the order of the Company Law Board dated January 30, 2004 preferred an appeal under Section 10F of the Companies Act, 1956 before the Hon’ble High Court at Calcutta. The Hon’ble Calcutta High Court, by judgment and order dated October 15, 2004 was pleased to allow the said appeal.  The Hon’ble High Court at Calcutta, interalia, held that Reg. 7 was not attracted in the said case in view of the fact that none of the individuals ever held more than 5% shares of Grob and the concept of persons acting in concert is not applicable with regard to Reg. 7 of Takeover Regulations.  The Hon’ble High Court at Calcutta went on to hold that the shares acquired by the petitioners of 397 petition were valid, and therefore, the 397 petition was maintainable and since the petitioners therein were minority shareholders of Grob holding about 14.12% shares of Grob for the ends of justice the said minority shareholders being the persons/companies mentioned in the show cause notice were directed to sell their shares in favour of Grob at a particular valuation.  Thereafter, an application was made by Grob for clarification of the Judgment and order dated October 15, 2004 and by an order dated December 7, 2004 the Hon’ble Justice Ashim Kumar Banerjee was pleased to dispose of the said application by, interalia, recording that the learned counsel appearing on behalf of Grob Tea Ltd hands over a cheque for for the entire purchase price of the shares held by them in Grob.  As a result of the said order dated December 7, 2004 they received the entire purchase price of the shares as mentioned above and handed over the subject shares held by us in favour of Grob Tea Ltd.  It was further recorded in the order dated December 7, 2004 that the purchase of the said shares by Grob must not be construed as acquisition of shares in violation of SEBI Regulations, 1997. Regulation 7 of the Takeover Regulations were not attracted in this case at all and in any event the shares which were held by them were sold to Grob pursuant to the orders passed by the Hon’be High Court at Calcutta mentioned above, and therefore, the question of any penalty being imposed upon them jointly and severally under Section 15A of the SEBI Act as mentioned in the show cause notice does not and cannot arise. 

 

12. On perusal of the aforesaid written submissions, the undersigned was of the opinion that it is a fit case for conducting inquiry in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 and accordingly, February 22, 2005 and February 23, 2005 of 2005 was fixed as dates of inquiry for Tulsian and Mittal groups respectively. Vide notice dated February 10, 2005, the persons forming the said two groups were advised to appear for inquiry at the Eastern Regional Office of SEBI at Kolkata. The Grob Tea Co. Ltd., was also issued summons under Rule 4 (6) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 to produce the relevant documents in the matter on February 22, 2005 before the undersigned with respect to the petitions filed by the persons of the abovesaid two groups before the Hon’ble Company Law Board and the appeal before the Hon’ble High Court at Kolkata.

 

a)                  In response to the summons dated February 10, 2005 issued by the undersigned, Shri Prem K. Bafana, company secretary of Grob.  appeared before the undersigned at the Eastern Regional Office of SEBI at Kolkata on February 22, 2005 and filed various documents pertaining to the petitions filed under Section 397 of Companies Act, 1956 filed by the persons belonging to the above groups and the application filed under Section 111A of Companies Act, 1956 filed by Grob, before the Hon’ble Company Law Board.  Shri Bafana also filed various documents pertaining to the appeal emanated from the order of the Hon’ble Company Law Board which was preferred under Section 10F of Companies Act, 1956 before the Hon’ble High Court at Calcutta.  The undersigned recorded the evidence of Shri Bafana with respect to the facts which were in his knowledge pertaining to the acquisition of shares of Grob. by the Mittal and Tulsian groups.  Shri Bafana deposed before the undersigned as follows: The acquirers, namely, Mittal and Tulsian group acquired the shares of Grob.   However, they failed to comply with the provisions of Reg. 7 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.   In terms of the said Regulation 7, they were required to disclose to the company within 4 working days of their acquisition taken together with persons acting in concert touching 5% or more which they failed and the failure continued. In doing so, they committed a breach of Reg. 7 as well as Reg. 8 of the Takeover Regulations. By such non-disclosure, they concealed the information from the investors at large.  After acquisition of shares in the year 1998 to 2000, the above parties, viz., the Mittal and Tulsian groups filed a petition under Sec. 397 of Companies Act, 1956 before the Hon’ble Company Law Board.  Based on the facts of 397 petition, the company filed a petition under section 111A of Companies Act, 1956 before Hon’ble Company Law Board.  In its final order dated January 30, 2004, the Hon’ble Company Law Board directed Grob to delete the names of the Tulsian and the Mittal group shareholders from the register of members of Grob.   Against this order of Hon’ble Company Law Board, the Tulsian and Mittal group shareholders went in an appeal before the Hon’ble Calcutta High Court which directed by an order dated October 15, 2004 that Grob shall buy the shares of Tulsian and Mittal group at a price of Rs.73.40.  This order was from an appeal under section 111A of Companies Act, 1956

 

13. In reply to the aforesaid notice dated February 10, 2005, the persons belonging to Tulsian group, except Shri Kishan Kumar Saraf  represented by Shri A.N. Keshari, a practicing chartered accountant   appeared before the undersigned for inquiry on February 23, 2005.   Shri Keshari submitted that no violation was committed by the persons belonging to the Tulsian group further stated that detailed submissions were already made by way of written submissions before the undersigned. The said authorized representative filed the following documents under covering letter dated February 22, 2005 viz., (a) a notarized photocopy of order No. CP 72 of 2000 dated 30.01.2004 in the matter of The Grob Tea Company Ltd. Vs Aska Investment (P) Ltd. passed by The Hon’ble Company Law Board, (b) a notarized photocopy of order dated October 15, 2004 of The Hon’ble Calcutta High Court in the matter of Aska Investment (P) Ltd. and another in APO 235 of 2004 and (c) a photocopy of Order dated 07.12.2004 by the Hon’ble Calcutta High Court in ACD No.210 of 2004 and APO No.235 of 2004. On specifically asked by the undersigned whether the above persons would be filing any other documents in the proceedings, the authorized representative replied that no other documents were to be filed. The authorized representative further submitted that all the contentions raised by the above persons were communicated to the undersigned by way of written submissions and there was nothing more to submit.

 

14.  The Mittal group,  however, chose not to appear before the undersigned for inquiry and instead issued a letter dated February 21, 2005 inviting the attention of the  undersigned to its letter dated February 7, 2005 and in the said letter February 21, 2005 submitted that they had nothing more to submit and requested to drop the proceedings against them.

 

15. On a careful perusal of the show cause notices issued to the persons forming the Mittal and Tulsian groups and the written submissions made by them, oral submissions made by the Tulsian group at the time of inquiry and the evidence of the company secretary of Grob, the following issues emerged for the consideration and the finding of the undersigned:

 

1. Whether, the Tulsian and Mittal groups can be considered as acquirers which make them liable to file the information in terms of Reg.7 (1) of the Takeover Regulation.

 

2. Whether they failed to disclose as to the said acquisition to Grob.

 

3. Whether the order of the Hon’ble High Court at Calcutta absolved the above groups of their liability to pay penalty under Section 15A(b) of the Securities and Exchange Board of India Act, 1992

 

16. The show cause notice dated November 25, 2004 issued by the then adjudicating officer, Shri K.R.C.V. Sheshachalam to the persons belonging to the Mittal group  communicated the finding of the investigation carried out by SEBI that they acting in concert acquired approximately 6.55% of the paid up share capital of Grob.  The said fact was not disputed by the Mittal group in its written submissions dated January 18, 2005.   In the said written submissions, the Mittal group contested that the Regulation 7 of the Takeover Regulations, was not applicable with regard to any of the shares held by them as none of them held or hold more than 5% of the shares of and in Grob.   As per the Mittal group, in the said Reg. 7, there was no mention of persons acting in concert and it deals only with acquirer to mean an individual and none of them being individual acquire more than 5% of the shares of Grob.  The Mittal group submitted that from Regulation 2(1)(b) of the Takeover Regulations, which defines an acquirer which defines an acquirer consists of two parts, one relating to the acquisition of shares simplicitor and the other relating to the acquisition of shares with an intention to have control of the company.  The Mittal group further submitted that the definition of person acting in concert as used in Regulations 2(1)(e) of Takeover Regulations if read with the previous lines in the said Regulations would apply only when persons with the common objective of substantial acquisition of shares or voting rights for gaining control of the target company directly or indirectly acquire shares or voting rights and hence the concept of persons acting in concert would not apply in case of acquisition of shares simplicitor and therefore acquirer means only an individual.    In terms of the show cause notice dated December 6, 2004 issued by the then adjudicating officer, the Tulsian group acquired approximately 7.78% of the paid up share capital of Grob and the Tulsian group also issued the similar reply as of the Mittal group.  Reg. 7(1) of Takeover Regulations as in force at the relevant point of time reads as follows: “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 5 per cent shares or voting rights in a company, in any manner whatsoever, shall disclose the aggregate of his shareholding or voting rights in that company, to the company”. Reg. 2(1) (b) of the Takeover Regulations, which defines an acquirer reads as follows: “2(1) (b) “acquirer” means   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”.  Reg. 2(1)(e) of the Takeover Regulations, which defines a ‘person acting in concert’  reads as follows:  “”person acting in concert” comprises, - (1) persons who for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control of the target company, pursuant to an agreement or understanding (formal or informal),  directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company…”      As per the definition of the person acting in concert, it comprises persons who for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding which is formal or informal, co-operate by acquiring or agreeing to acquire shares or voting rights of the target company or control over the target company.  In the instant case, the consolidated acquisition of 6.55% by the Mittal group and 7.78% by the Tulsian group of the total paid up share capital of  Grob was not disputed by either of the groups.  Now the question to be decided is that whether each of the individual acquirer would not be considered as an acquirer because none of the individual acquirers hold more than 5% of the paid up share capital of Grob. From the definition of the acquirer under the Takeover Regulations, it can be seen that  a person becomes an acquirer by directly or indirectly acquiring or agreeing 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.  From this definition, it is clear that in order to be considered as an acquirer, a person need not himself alone acquire the shares or voting rights or control over the target company but also along with the persons acting in concert.  In this connection it is pertinent to refer to the decision of  the Securities Appallete Tribunal in Mega Resources Limited v. SEBI (2002 3 CLJ 179)  in which it was observed with respect to Regulation 7 “On a combined reading of the definitions of terms ‘acquirer’ and ‘person acting in concert’, in regulations 7 and 2(1)(e), it was not possible to agree with the appellant’s submission that in view of the use of the word ‘acquirer’ in singular and the absence of the words ‘acting in concert’ in the regulation, it excludes an ‘acquirer’ whose individual holding does not exceed 5 per cent, from complying with the requirement of the regulation. In the light of the definition of the expression ‘acquirer’ and the ‘persons acting in concert’ and also taking into consideration the purpose of regulation 7, the acquisition of shares by persons acting in league, was very relevant and the disclosure of such concerted acquisition to the target company and in turn to the CSE was in tune with the objective of the said disclosure. If one were to accept the appellant’s contention, that would mean that each person acting in concert could acquire up to 5 per cent shares without making the disclosure and continue to do so up to 15 per cent, without attracting the requirements of public offer in terms of regulation 10. Such an interpretation would defeat the very purpose of the Regulations. One of the objects of the Regulations is to protect the interests of the investors through prompt disclosures. The shares acquired by all those persons acting in league have to be taken as a whole for the purpose of regulation 7. Since the appellant itself had admitted that the holding of the appellant with its associate(s) exceeded 5 per cent of the paid-up capital of BD, it was incumbent upon the appellant to make the disclosure as per regulation 7(1) to BD.” Therefore, the undersigned does not find any merit in the contention of  the Mittal and Tulsian groups that unless each of  the persons comprising the said groups did not acquire acquire more than  5 per cent,  they cannot be termed as  acquirers for the purpose of complying with Reg. 7(1).

 

17.  In view of the definition of the persons acting in concert, it is to be examined from the facts of the case whether there was an agreement or understanding which was formal or informal to acquire the shares or voting rights or control over the company between the acquirers and the persons acting in concert.  The show cause notice issued to the Mittal group communicates the finding of the investigation carried out by SEBI to the effect that from the bank statements submitted by the persons comprising the Mittal group, it was found that the funds for purchase of shares in Grob came mostly within the family members themselves and the following persons/ entities belonging to the Mittal group viz., ERC Limtied,  Action Trades Pvt.Ltd.,  Nikhil Exports Pvt.Ltd. and Astha Investments Pvt.Ltd. The show cause notice further states that on the basis of the following criteria, it was established that the persons of Mittal group acted in concert with each other in acquiring the shares of Grob, viz., (a) the address 1, Rowdown Street, Kolkata 700 017 is common for the Mittal group. (b) all the individuals are directly related to Shri Ram Avtar Mittal and further, the companies of the Mittal group have common directors; and (c) the funds for purchase of the shares of Grob came mostly from the family funds, family members and entities belonging to the Mittal group. From the written submissions filed by the Mittal group,   it was seen that none of the said findings of the investigation which were communicated through the show cause notice was disputed or denied by the Mittal group.  In the case of Tulsian group, show cause notice dated December 6, 2004 communicates the finding of the investigations carried out by SEBI as per which, it was found that the funds for purchase of shares by the entities comprising of the Tulsian group came mostly from M/s. Mahdeolall Radheshyam (HUF) which is a family fund of Tulsian in which all the family members of Tulsian group were equal members. Shri Radheshyam Tulsian is the Karta of the HUF. As per the show cause notice, it was also observed that funds from the following entities were also used for the purpose of purchase of shares, viz., (a) Siddharth Tulsian (b) Sanjiv Kumar Tulsian and (c) Neelam Tulsian.  The show cause notice further stated that on the basis of the following criteria, it was established that the persons of Tulsian group acted in concert with each other in acquiring the shares of Grob: (a) the addresses of the Tulsian group entities is common, i.e., 3-B, Lalbazar Street, 2^nd Floor, Kolkata- 700 001; (b) individuals in the Tulsian Group are directly related to Radheshyam Tulsian and the companies in the group have common directors and (c) funds for the purchase of shares came mostly from the family funds of Tulsian group. From the written submissions filed by the Tulsian group,   it was seen that none of the said findings of the investigation which were communicated through the show cause notice was disputed or denied by the Tulsian group. In view of these facts, the undersigned has no hesitation in finding that persons and entities of Tulsian group acted in concert with each other in acquiring the shares of Grob and the same is the case with Tulsian group. Therefore the said groups were liable to make disclosures to Grob as prescribed by Reg. 7(1) of the Takeover Regulations.   

 

18.  After finding that the Mittal group and the Tulsian group were the acquirers who were liable to make the disclosures to Grob in terms of Regulation 7(1) of Takeover Regulations, the next issue which comes up for consideration and giving finding is whether they failed to disclose as to the said acquisition to Grob. The show cause notices issued by the then Adjudicating Officer to the Mittal group entities and the Tulsian group entities communicate the findings of the investigation carried out by SEBI that there was a failure on part of the said entities in making disclosures to Grob as to the acquisition of shares by them in terms of Reg. 7(1). In the written submissions filed before the undersigned, the above entities vehemently contended that they were not liable to make any disclosures as none of them acquired more than 5 percent of the paid up share capital of Grob.  The said argument of the entities belonging to the Mittal group and the Tulsian group has been rejected by the undersigned in the preceding paragraphs.  Hence, there was a default by the said entities in complying with the provisions of Reg. 7(1) of Takeover Regulations.  Therefore, the undersigned finds all the entities of the Tulsian group and the Mittal group more specifically described in Table ‘A’ and ‘B’ above of violating the provisions of Reg.7(1) of Takeover Regulations.   

 

19. In their written submissions, the entities of the Mittal group and the Tulsian group contended that the Hon’ble High Court at Calcutta held that Reg.7 was not attracted in the matter of acquisition of shares of Grob by the said groups.  In view of the fact that none of the individuals ever held more than 5 percent of Grob Ltd.  and concept of persons acting in concert is not applicable with regard to Reg 7 of Takeover Regulations.  It was noted that His Lordship Mr. Justice Ashim Kumar Banerjee of the High Court at Calcutta while disposing of the appeal preferred by the entities belonging to the Mittal group and the Tulsian group vide orders dated October 15, 2004  in APO No.235 of 2004 observed, inter-alia “With due respect to  His Lordship in the Single Bench decision of this Court [unreported decision in the case of Arun Kumar Bajoria v. SEBI (W.P. No.331 of 2001) dated March 27^th, 2001]   I am in total disagreement with the  view where His Lordship held that the Regulation 7 would include ‘persons acting in concert’.  However, the same may not be relevant herein and I do not feel it necessary to refer the said issue to a larger bench for a decision as I feel that the present issue can be resolved without going into details as to what has been held by His Lordship on the meaning of Regulation 7”. The undersigned thoroughly went through the order of the Hon’ble High Court at Calcutta in APO No.235 of 2004 and found that the Hon’ble Court did not conclusively determine the question as to whether the acquirer in terms of Reg.7 includes persons acting in concert.  Further, as per the said order, a single bench of the same High Court held in ((W.P. No.331 of 2001) that the acquirer in terms of Reg.7 includes persons acting in concert.  Therefore, the undersigned considers the observations of His Lordship Mr. Justice Ashim Kumar Banerjee as mere obiter dictum.  In view of  the decision of Single Bench of the Calcutta High Court in the matter of Arun Kumar Bajoria v. SEBI,  the undersigned finds that the observations of   His Lordship Mr. Justice Ashim Kumar Banerjee  made in orders dated October 15, 2004 are not of any help to the entities of  Mittal group and Tulsian group.  Further, the undersigned is supported in holding this view by the decision of the Hon’ble Securities Appellate Tribunal in the matter of Mega Resources Ltd., v. SEBI (supra).

 

20. Since, in the preceding paragraphs, the undersigned found the entities of Mittal group and Tulsian group guilty of violating the provisions of Reg.7(1) of the Takeover Regulations, now it has to be decided what should be the quantum of penalty to be imposed on them.

 

21. To determine the quantum of penalty under Section 15A (b), the undersigned considered the following factors as provided in the section 15J of SEBI Act, 1992 viz.(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default ; (b) the amount of loss caused to an investor or group of investors as a result of the default and; (c) the repetitive nature of the default.

 

22. As regards the disproportionate gain or unfair advantage made as a result of the default, there are no figures available on record. However, in the opinion of the undersigned, disproportionate gain or unfair advantage cannot be quantified in cases of failure to comply with the provisions of Reg. 7(2) of the Takeover Regulations. In the same way, the amount of loss caused to the investors or group of investors also cannot be quantified. However, in the instant case, the violation committed by was a one time violation and not repetitive in nature.

 

23.  In this background, the order of the Hon’ble SAT in the appeal no. 48 of 2001 in the matter of Luxury Foams Ltd. vs SEBI is  pertinent to be cited. In the said order, the Hon’ble SAT observed “In this context, the object of the regulation should be remembered.  It is meant for “information disclosure” to the investors.  Had one of the appellants complied with the requirements of disclosing the acquisition of shares made by him and the remaining 10 appellants, it would have been considered sufficient, as such  an action would have met with the object for which the regulation is put in place.  But since there is a failure in this regard, imposition of penalty on each one of the appellants –acquirers-is legally in order.”  The undersigned therefore holds all the persons belonging to the Mittal group and Tulsian group liable for penalty jointly and severally as their liability to comply with the provisions of Reg. 7(1) of the Takeover Regulations was joint and several.

 

24.  In the instant case, the violations were committed during the year 2000. The penalty prescribed for violation of Sec. 15(1) (b) was Rs. One lakh fifty thousand for each failure before the amendment of Securities and Exchange Board of India Act, 1992 in the year 2002. Consequent to the amendment to Securities and Exchange Board of India Act, 1992 in the year 2002, the said penalty was enhanced to Rs. One lakh for each day during which the failure continues or Rs. one crore whichever is less. After taking in to consideration the factors prescribed under Sec. 15J of Securities and Exchange Board of India Act, 1992, the undersigned is of the view that though the persons belonging to the Mittal and Tulsian groups were found violating the provisions of Reg. 7(1) of the Takeover Regulations penalty need not be harsh in the absence of information with respect to the unfair advantage gained by them and the loss suffered by investors.   

 

25. Since there was no reply to the show cause notice from Shri Kishan Kumar Saraf belonging to the Tulsian group nor he appeared for the inquiry, the undersigned decided to proceed against Shri Saraf in terms of Rule 4(7) of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995.  Further, the adjudication proceedings are abated with respect to Shri Mahadeolall Tulsian who is reportedly dead.  Further, no penalty is imposed on Action Trades Pvt. Ltd., Nikhil Exports Ltd., and IPCCA Financial Services Pvt. Ltd which were reportedly merged with Aska Investments Pvt. Ltd.

 

ORDER:

 

26. Therefore in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, the undersigned hereby imposes:

 

(a)      a penalty of Rs.50000/- Rupees fifty thousand only) on the persons of the Tulsian group as cited in Table A hereinabove (except Shri Mahadeolall Tulsian who is reportedly dead).

 

(b)      a penalty of Rs.50000/- (Rupees fifty thousand only) on the persons of the Mittal group as cited in Table B hereinabove (except Action Trades Pvt. Ltd., Nikhil Exports Ltd., and IPCCA Financial Services Pvt. Ltd which were reportedly merged with Aska Investments Pvt. Ltd.) ;

 

for the aforesaid violation of Sec. 15A(b) of Securities and Exchange Board of India Act, 1992 read with Reg. 7(1) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Persons of Mittal group and Tulsian group  shall pay the abovesaid amount of penalty by way of demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Shri Jayanta Jash, Deputy General Manager, Securities and Exchange Board of India, Eastern Regional Office, 303, L& T Chambers, 16, Camac Street, Kolkata- 700017.

 

27. In terms of Rule 6 of the SEBI (Procedure for holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order are sent to all the persons of the Mittal and Tulsian groups, The Grob Tea Company Ltd., and SEBI.  

 

 

 

Date:   February 28, 2005                            A. Chandra Sekhar Rao

Place: Mumbai                                            Adjudicating Officer