Apr 26, 2006
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Orders :
Orders of SAT
IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 106 of 2005
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Date of Decision
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26/04/2006
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Radheshyam Tulsian & Ors.
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…..Appellant
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Versus
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Securities & Exchange Board of India & Ors.
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….Respondent
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None for the appellant
Mr. Ravi Hegde, Advocate for the respondent.
CORAM
Justice N.K. Sodhi, Presiding Officer
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
Whether the word ‘acquirer’ as used in Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short “the Regulations”) includes ‘persons acting in concert with him’ is the short question that arises for consideration in this appeal filed under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short “the Act”). Facts giving rise to this appeal lie in a narrow compass and these may first be noticed.
2. The Securities and Exchange Board of India (for short “the Board”) conducted investigations into the allegations of contravention of, amongst others, the provisions of Regulation 7(1) of the Regulations by some of the acquirers who acquired shares of The Grob Tea Company Limited (hereinafter referred to as “the Company”). During the course of the investigations it transpired that during the period from December, 1997 to September, 2000 two groups, namely, Tulsian group and Mittal group had acquired the shares of the Company. The said groups together acquired approximately 14.33% of the share capital of the Company. Tulsian group had acquired 7.78% of the shares and Mittal group acquired 6.55% of the shares of the Company. The details of the members of the Tulsian group are mentioned in table A referred to in paragraph 3 of the impugned order passed by the adjudicating officer and we need not refer to those members individually. Similarly the details of the Mittal group have been given in table B in paragraph 5 of the impugned order. Since both the groups had acquired shares of the Company in excess of 5% it was alleged that they had violated the provisions of Regulation 7 of the Regulations inasmuch as they did not disclose their shareholding of the Company to the Company. Notice was issued to both the groups to show cause why action be not taken against them for having violated the said Regulations. The members of Tulsian group filed their separate replies whereas the Mittal group filed a joint reply before the adjudicating officer. The primary submissions which the two groups made before the adjudicating officer were identical. It was contended that the group as such may be holding more than 5% of the shareholding of the Company but each member of the group individually who had acquired shares in his/its names did not hold shares more than 5% of the total shareholding of the Company and therefore it was not necessary for the individuals to disclose their shareholding of the Company to the Company. The adjudicating officer did not accept this contention and on a reference to the definition of the word ‘acquirer’ as given in clause (b) of Regulation 2(1) of the Regulations held that the shareholding of the persons acting in concert with the individual was also to be taken into account for the purpose of Regulation 7 and that if the group as a whole held shares in excess of 5% of the shares of the Company it was incumbent upon it to have made the necessary disclosures. Not having done so, the adjudicating officer held that Regulation 7 stood violated for which a monetary penalty of Rs. 50,000/- was levied on each of the two groups by his order dated February 28, 2005. It is against this order that the present appeal has been filed.
3. It is unfortunate that the appellants have not put in appearance to argue the matter when it came up for final hearing. This appeal came up for preliminary hearing before the Tribunal on 3/10/2005 and it was admitted. On that date the learned counsel appearing for the appellant filed some written submissions. Thereafter the Tribunal received a communication from the appellants informing the Tribunal that they would not appear in the case and that the appeal be decided on the basis of the memorandum of appeal and the oral submissions already made by their counsel on 3/10/2005. We have heard the learned counsel for the contesting respondents nos. 1 and 2. The fact that each individual member of the two groups holds shares in the company which are less than 5% is not disputed. It is also not in dispute that members of each group together hold shares in excess of 5%. As already observed, what is to be examined is whether the shareholding of each individual member of the group is to be considered for the purpose of Regulation 7 or is it the shareholding of the group as a whole to be taken to find out whether Regulation 7 becomes applicable. The word ‘acquirer’ has been defined in clause (b) of Regulation 2(1) of the Regulations and this definition reads as under:
“2.(1) In these regulations, unless the context otherwise requires :—
(a) …………
(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;”
4. A reading of the definition leaves no room for doubt that a person who directly or indirectly acquires shares in the company or acquires or agrees to acquire control over the company either by himself or with any person acting in concert with him is the acquirer. In other words the shares held by all the persons who act in concert with him are to be taken into account for determining whether Regulation 7 gets triggered. The requirement of Regulation 7 is that any person who acquires shares in a company either by himself or through persons acting in concert with him which when taken together with the shares already held by him would exceed 5% or 10% or 14% or 54% or 74% of the shareholding in the company should disclose at every stage his shareholding in the company to the company. The object underlying this provision is that no one should acquire substantial number of shares in a company without disclosing them to the company. The shareholding of those who acquire with him for a common purpose of substantial acquisition to gain control over the company pursuant to an agreement or understanding shall be taken along with the shareholding of the acquirer. This regulation when read in the context of the word ‘acquirer’ as referred to above and also taking into account the underlying object of the Regulation 7 we are of the view that shares held by persons acting in concert with the acquirer have to be taken into account for the purpose of disclosing the shareholding in the company to the company. It is, thus, clear that each of the two groups has to be taken as a whole and that each individual therein may be an ‘acquirer’ but the shares held by the other persons in the group would have to be taken into account for determining the applicability of Regulation 7. Each individual in the group becomes an acquirer and all other members therein are the persons acting in concert with him and therefore the shareholding of all the members put together has to be considered for the purpose. As already noticed, each group holds shares in the company in excess of 5%. It is not in dispute that each member of the group is the member of the same family and in the case of Tulsian group they are also members of Hindu Undivided Family. There could be no dispute that every member of the group was acting in concert with the others in the matter of acquiring the shares of the Company. We may mention that at no stage of the proceedings did either of the groups take the plea that its members were not persons acting in concert with each other. Since each group held shares in excess of 5% of the total shareholding of the Company it was incumbent upon each of them to have disclosed their shareholding in the Company to the Company. Since this was not done we are satisfied that the provisions of Regulation 7(1) were violated. No fault can thus be found with the action of the adjudicating officer imposing a penalty of Rs.50,000/- on each of the two groups.
5. In the result the appeal fails and the same stands dismissed with no order as to costs.
sd/-
Justice N.K. Sodhi
Presiding Officer
sd/-
C.Bhattacharya
Member
sd/-
R.N.Bhardwaj
Member