In the matter of the Acquisition of the Shares of Kerry Jost Engineering Limited 1552/2008]

Jul 20, 2005

Orders : Orders of AO

ORDER

UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995

READ WITH SECTION 15H OF THE SEBI ACT, 1992.

IN THE MATTER OF THE ACQUISITION OF THE SHARES OF KERRY JOST ENGINEERING LIMITED

1. Shri Atul Gupta and Shri Ramana Shetty sought to acquire 40,000 shares of M/s Kerry Jost Engineering Limited (for brevity’s sake, hereinafter referred to as Kerry Jost) constituting 20% of the equity capital of the said company at the price of Rs.111/- per share and to that effect, filed a draft offer document dated August 02, 2004 with the Securities and Exchange Board of India (hereinafter referred to as SEBI). Upon examining the said document, SEBI inter-alia noted that M/s Phiroze Sethna Private Limited (PSPL), one of the sellers in the said acquisition, purchased a total of 16,000 shares constituting 8% of the total paid up capital of Kerry Jost on December 12, 2002 from M/s Batliwala and her two children i.e. Shirin Batliwala and Farookh Batliwala; few among the many promoters of Kerry Jost which is a company listed on the Stock Exchange, Mumbai (BSE).

2. As PSPL had not filed the necessary report under Regulation 3(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (hereinafter

referred to as Takeover Regulations) consequent to the said acquisition, in order to seek exemption from the making of an open offer in terms of 11(1) of the Takeover Regulations, they were advised to file the said report. Upon examination of the report, it was inter alia noted that PSPL, together with persons acting in concert i.e. Jost Engineering, Mr B H Reporter, Mrs Aloo B Reporter, Mr Damodar Desai, Mr Govind Desai, Mr Gunanath Desai, Ms Shaila Govind Desai, Mr Govind Guru Desai, Mr Jamshed N Guzder, Mr Cyrus Guzder, Mr Farokh Guzder, Mr Jehangir Guzder, Mr K B Medappa and Ms K B Medappa (for brevity’s sake, hereinafter collectively referred to as the acquirers) had acquired additional shares of Kerry Jost constituting 8% of its total paid up share capital, which increased the holding of PSPL from Nil to 8%. Consequently, the holding of the other acquirers increased from 1,17,440 shares constituting 58.72% to 1,33,440 shares constituting 66.73% of the equity capital of Kerry Jost. Furthermore, the said acquisition entitled the acquirers to exercise more than 5% of the voting rights of Kerry Jost, without making the mandatory public announcement required to be made in such an event in terms of Regulations 11(1) read with 14(1) of the Takeover Regulations. It was also noted that exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations could not be granted for the said acquisition, since the preconditions for granting such an exemption was not complied with by both the transferees and transferors of the said shares of Kerry Jost. Consequently, the acquirers were found to have contravened the aforementioned provisions of the Takeover Regulations, making them liable under section 15H (ii) of the SEBI Act, 1992 (hereinafter referred to as Act).

3. In view of the same, adjudication proceedings were initiated against the acquirers by SEBI and in this context Shri S V Krishna Mohan was appointed as the adjudicating officer. Consequent to his transfer, I was appointed as the adjudicating officer, vide order of SEBI dated March 18, 2005 to enquire into and adjudge the alleged contravention by the acquirers of Regulations 11(1) and 14(1) of the Takeover Regulations read with section 15H (ii) of the Act.

NOTICE/ REPLY/ PERSONAL HEARING:

4. In this regard, notices dated May 18, 2005 and April 01, 2005 were issued to the acquirers in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules) where under they were asked to show cause as to why enquiry proceedings should not initiated against them for the alleged violation of the provisions of Regulation 11(1) read with Regulation 14(1) of the Takeover Regulations. The details of the said acquisition made by the acquirers were forwarded to them with an advice to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice, and also indicate whether they were desirous of a personal hearing.

5. In reply to the same, Jost’s Engineering Company Limited (Jost Engineering) stated to be representing all the acquirers except PSPL, vide their reply dated May 03, 2005 inter alia submitted as follows:

a. Jost Engineering was one of the promoters of Kerry Jost, holding 71,330 shares in the said company.

b. Pursuant to the letter of offer dated August 02, 2004 submitted under the Takeover Regulations, Mr Atul Gupta and Mr K V Ramana Shetty took over Kerry Jost.

c. During the takeover proceedings, Jost Engineering, Mr B H Reporter, Mrs Aloo B Reporter and PSPL were not found to have complied with Regulations 6 and 8 of the Takeover Regulations for which adjudication proceedings were initiated.

d. Upon conclusion of the said proceedings, vide an order dated November 19, 2004, a penalty was levied upon them which was duly paid.

e. Thereafter the takeover formalities relating to Kerry Jost were completed and Mr Gupta and Mr Shetty acquired the entire shareholding of all the promoters of Kerry Jost including the shareholding of Jost Engineering, Mr B H Reporter, Mrs Aloo B Reporter and PSPL.

f. 16000 shares of Kerry Jost were acquired on December 12, 2002 by PSPL, from Mrs P Bhatliwala (6000 shares) and her two children i.e., Ms. Shirene Bhatliwala (5000 shares) and Farokh Bhatliwala (5000 shares).

g. Prior to the said purchase, Mrs Bhatliwala and her two children were included in the promoters’ category, being the relative of Mr. B H Reporter, Director of Kerry Jost.

h. At that time, the total holding in the promoters category in Kerry Jost was 1,33,440 shares i.e.,

Jost Engineering Co.Ltd. 71,330 35.67%

Mr B H Reporter (Director) 41,810 20.91%

Mr G G Desai (Director) 1,600 0.80%

Mr G N Guzder (Director) 1,800 0.90%

Mr K B Medappa (Director) 300 0.15%

Directors relatives 16,600 8.30%

--------------------------------------------------------

Total 1,33,440 66.73%

--------------------------------------------------------

i) PSPL were not holding a single share in Kerry Jost until they acquired 16000 shares on December 12, 2002.

j) Pursuant to the said acquisition, Mrs Bhatliwala and her two children were removed from the promoters category and PSPL were included in the promoters category because the promoter, Director of Kerry Jost i.e., Mr B H Reporter was also Promoter, Director of PSPL.

k) Consequently the shareholding of the promoters category remained the same i.e., 1,33,440 shares which comprised of

Jost Engineering Co.Ltd. 71,330 35.67%

Mr B H Reporter(Director) 41,810 20.91%

Mr G G Desai (Director) 1,600 0.80%

Mr G N Guzder (Director) 1,800 0.90%

Mr K B Medappa (Director) 300 0.15%

PSPL Sethna Pvt Ltd. 16,000 8.00%

Directors relatives 600 0.30%

-------------------------------------------------- Total 1,33,440 66.73%

--------------------------------------------------

l) Thus there was no additional acquisition of shares in the promoters’ category as contemplated in Regulation 11(1) of the Takeover Regulations.

m) Consequent to the acquisition of 16,000 shares of Kerry Jost on December 12, 2002, PSPL had made the necessary disclosures under Regulation 7(1) of the Takeover Regulations to the BSE which vide its letter dated December 13, 2002 duly acknowledged the same (copy of the same enclosed).

n) The aforesaid transaction did not result in any change in the control and management of the Kerry Jost. None of the acquirers i.e., Jost Engineering, Mr B H Reporters, Mrs Aloo B Reporter, Mr Damodar Desai, Mr Govind Desai, Mr Gunanath Desai, Ms Shaila Govind Desai, Mr Govind Guru Desai, Mr Jamshed N Guzder, Mr Cyrus Guzder, Mr Farokh Guzder, Mr Jehangir Guzder, Mr K B Medappa or Ms K B Medappa gave their consent or approval to PSPL to act as a person acting in concert with them.

o) These acquirers expressly excluded themselves from the said acquisition and had nothing to do with the purchase of 16,000 shares by PSPL which was done purely in their individual capacity.

p) Mrs Roshan Cooper and Mrs Shirene Guzder who had received the notices had since expired and hence the proceedings initiated against them be dropped.

On the basis of the above, it was requested that as there was no violation of Regulations 11(1) read with 14(1) of the Takeover Regulations, the present proceedings be dropped.

6. Thereafter, PSPL vide their letter dated June 13, 2005 inter alia submitted as follows:

a. PSPL is a private limited company and its entire share capital representing 4000 shares of Rs.100/- each, is held by Mrs Parviz Bhatliwala, her father; Mr B H Reporter and mother; Mrs. Aloo B Reporter, all of who are Directors of the company and consequently all of them are in control of the company.

b. These three entities had been holding jointly and severally 29.91% of the equity shares in Kerry Jost for the last several years and for the purpose of the disclosures under the Takeover Regulations have been included in the promoters’ category of Kerry Jost along with the other promoter shareholders (A list of the promoters of Kerry Jost indicating the total number of shares held by them and their percentage to the total paid up capital was enclosed for perusal).

c. Mrs Bhatliwala and her two children sold their entire holding of 16,000 shares of Kerry Jost i.e. 8% of the paid up capital of Kerry Jost to PSPL.

d. PSPL made the necessary disclosures in the matter of the acquisition of 16,000 shares of Kerry Jost under Regulation 7(1) of the Takeover Regulations to the BSE.

e. PSPL is an old company established in 1975 and engaged in the manufacture of PVC plastic paste and moulded goods.

f. Prior to the acquisition of 16000 shares of Kerry Jost, PSPL were not holding any shares in the said company.

g. The requirement of the mandatory offer under Regulation 11(1) of the Takeover Regulations would

apply if an acquirer who together with persons acting in concert already held 15% but less than 75% of the shares or voting rights in the target company and acquire either themselves or with persons acting in concert, additional shares or voting rights which would entitle them to exercise voting rights in excess of 5% in any period of 12 months.

h. Since PSPL did not hold any share in Kerry Jost prior to December 12, 2002, the said acquisition of 16,000 shares of Kerry Jost did not amount to the acquisition of any additional shares as contemplated by Regulation 11(1) of the Takeover Regulations and consequently 11(1) of the Regulations would not be applicable to the said acquisition.

i. Consequent to the said acquisition of 16,000 shares, Kerry Jost deleted the names of Mrs Bhatliwala and her two children from the list of promoters and included the name of PSPL in the promoters category by virtue of Mr B H Reporter and Mrs Aloo B Reporter (who were already existing promoters and thereby categorized in the promoter category of Kerry Jost) being shareholders and Directors in PSPL.

j. The promoters’ pre acquisition and post acquisition holding remained the same i.e., 1,33,440 shares constituting 66.72% of the paid up capital of the Kerry Jost.

k. There was no breach of any creeping acquisition provision as the transfer of 16,000 shares did not result in any acquisition of shares by the existing promoters or any change in the promoters holding or change in control in Kerry Jost.

l. The transfer of 16,000 shares was not by way of purchase of any fresh or additional shares from an out side party or from the market but between the family members.

m. The Directors of PSPL were Mr B H Reporter and Mrs Aloo B Reporter; father and mother of Mrs Parviz Bhatliwala; Mrs Parviz Bhatliwala herself and Mr S K Wagle. The shareholders of PSPL were Mr B H Reporter, Mrs Aloo B Reporter and Mrs Parviz Bhatliwala.

7. The following documents were also enclosed for perusal.

1. The list of the promoters of Kerry Jost after the acquisition of 16,000 shares.

2. A copy of the letter of BSE dated December 13, 2002 evidencing the disclosure made under section 7(1) of the Takeover Regulations.

On the basis of the above, PSPL contended that there was no violation of Regulations 11(1) read with 14(1) of the Takeover Regulations and hence the present proceedings be dropped.

8. Subsequently notices of hearing under Rule 5(1) of the Rules were sent to the acquirers advising them to appear before me and make their submissions if any along with documentary evidence in support of their contentions.

9. During the personal hearing held on May 20, 2005, Jost’s Engineering, Mr K B Medappa, Ms. Kami B Medappa, Mr B Reporter, Mrs A B Reporter and Mr Jamshed N Guzder were represented by Mr C B Sagvekar, Vice President and

Company Secretary, Jost’s Engineering, while Mr Govind Desai appeared on his behalf and on behalf of Mr Damodar Desai, Gurunath Desai and Ms Shaila Govind Desai. All the said entities while reiterating the contentions earlier advanced on their behalf further requested that they be permitted to submit detailed written submissions on or before June 20, 2005 to counter the charge of them being treated as persons acting in concert with the acquirer, in the matter of the acquisition of 16,000 shares of Kerry Jost and to further substantiate their contention that they had not acquired any shares in Kerry Jost or violated the provisions of Regulations 11(1) read with 14(1) of the Takeover Regulations. Further to that, vide their individual letters, all of which were dated June 14, 2005, the above mentioned acquirers while reiterating the submissions made earlier inter alia made the following additional submissions :

a. The acquisition of 16,000 shares of Kerry Jost was made by PSPL in their individual capacity and the above mentioned acquirers were not involved in this transaction in any way.

b. The promoters and persons acting in concert are not one and the same. These acquirers are clearly identified as forming part of the promoters category and hence do not form part of persons acting in concert.

c. There is no change in the promoters holding of Kerry Jost both before and after the acquisition except for a change in the names of the promoters.

d. The pre acquisition and post acquisition holding in the promoters’ category remained the same i.e., 1,33,440 shares.

e. Under the provisions of Regulation 11(1) of the Takeover Regulations, a person who is already holding shares in the target company cannot acquire any additional shares or voting rights if the shares held by him and the shares held by persons acting in concert with him together are in excess of 5% during the period of 12 months, unless he makes a public offer. Thus an obligation to make the public offer is on the person who acquires shares/voting rights in excess of 5% during the period of 12 months and not on the persons who are already holding the shares, even though the shares so held by them together with the shares acquired by the acquirer exceed the prescribed percentage.

f. All the acquirers other than PSPL cannot be regarded as acquirers in the present case and are not acquirers within the meaning of the said Regulations.

g. On a clear reading and interpretation of Regulation 11(1) of the Takeover Regulations, it is apparent that the persons who for the first time acquired shares in the company (even if the shares so acquired and the shares of the other persons who are acting in concert with him exceed the prescribed limit) cannot be required to make the public offer as an acquirer.

h. The following documents were enclosed i.e. the list of promoters with their shareholding before acquisition of shares on December 12, 2002 and the list of the

promoters with their shareholding after acquisition of the shares on December 12, 2002.

10. During the course of the personal hearing granted to PSPL on June 28, 2005, Shri N L Bhatia, Practicing Company Secretary and Shri C B Sagvekar, appeared before me as the authorized representative of PSPL and reiterated the contentions made earlier vide their letter dated June 13, 2005. Subsequently, vide their letter dated June 30, 2005 the following additional submissions were made:

a. PSPL was a family controlled private company and its entire shareholding was owned by Mr B H Reporter, Mrs Aloo B Reporter and his daughter; Mrs Parviz Bhatliwala.

b. As Mrs Parviz Bhatliwala was in need of funds and there being no trading taking place in the shares of Kerry Jost for a long time, she sold 16,000 shares of Kerry Jost held by her and her two children to the family owned company PSPL, at the rate of Rs.64.25 i.e., the last traded price on April 20, 1998. A copy of the abstract of the BSE daily official list dated March 31, 2004 was enclosed for ready reference.

c. Pursuant to the said transfer of shares, the necessary declaration under Regulation 7(1) of the Takeover Regulations was duly made.

d. The transfer of 16,000 shares was an internal transfer within the promoter group whose holding remained at 66.72%, both prior to and post the said acquisition of 16,000 shares and hence there was no violation of Regulation 11(1) of the Takoever Regulations.

The following documents were also submitted:

j. Certificate of the MOA and AOA of PSPL

k. A Certified copy of the Annual Return of PSPL containing the prescribed particulars on the day of the AGM of the company held on July 30, 2003.

l. Certified copy of the Annual Report of PSPL for the year 2002-2003.

m. Status of the promoter shareholding in Kerry Jost before and after the acquisition by Mr Atul Gupta and Mr K V Ramana Shetty.

CONSIDERATION OF ISSUES:

11. I have considered at length the facts and circumstances of the case, the submissions made on behalf of the acquirers during the course of the hearings and through their letters cited earlier as also the material available on record, especially the factual position giving rise to the dispute.

12. The charge against the acquirers is that as the said acquisition would attract the provisions of Regulation 11(1) of the Takeover Regulations, a public announcement to make an open offer to acquire shares in terms of the requirement specified in Regulations 14(1) of the Takeover Regulations was warranted, which requirement was not complied with by the acquirers.

13. The dispute is thus in regard to the requirement of compliance of certain regulations and in this regard the issue which would therefore require to be addressed is as to whether the entities in question are acquirers in the light of the facts of the case and hence be required to make a public offer in the context of the relevant regulations.

14. In my view, a proper answer to this would depend on the proper interpretation of the relevant regulations and the applicability of the same with reference to the facts specific to the case.

According to sub regulation (1) of Regulation 11 of the Takeover Regulations, “no acquirer who, together with persons acting in concert with him has acquired in accordance with the provisions of law, 15% or more but less than 75% of the shares or voting rights in a company, shall

acquire either by himself or through persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any period of 12 months, unless such acquirer makes a public announcement to acquire shares of such company, in accordance with the regulation”.

15. All the entities before me have however questioned the appropriateness of being treated as an acquirer or as a person acting in concert under the Takeover Regulations and have consequently denied having violated the provisions of the Takeover Regulations mentioned above. In fact, the acquirers, other than PSPL have expressly excluded themselves from the said acquisition and stated that they had nothing to do with the purchase of 16,000 shares which was done purely in the individual capacity by PSPL. They have gone so far as to state that none of them neither Jost Engineering, Mr B H Reporter, Mrs Aloo B Reporter, Mr Damodar Desai, Mr Govind Desai, Mr Gunanath Desai, Ms Shaila Govind Desai, Mr Govind Guru Desai, Mr Jamshed N Guzder, Mr Cyrus Guzder, Mr Farokh Guzder, Mr Jehangir Guzder, Mr K B Medappa nor Ms K B Medappa gave their consent or approval to PSPL, to act as a person acting in concert with them.

16. PSPL have also questioned the appropriateness of being treated as an acquirer under the Takeover Regulations since the acquisition did not result in any change in the promoters holding or change in control/ management of Kerry Jost and if at all, the same resulted only in a change in the identity of the promoters.

17. In this regard, I consider it appropriate to refer to the definition of the term `acquirer’ under Regulation 2(1) (b) of the Takeover Regulations which provides that any person who acquires or agrees to acquire shares in a company, either by himself or with any person acting in concert with the acquirer is an acquirer.

18. On a perusal of the said definition, it would thus seem quite unnecessary for an acquirer to actually acquire shares/voting rights or control to consider them as an acquirer. It would suffice even if the person agrees to acquire shares or voting rights or control over the target company. The expression “any person” is thus of wide amplitude. A person becomes an acquirer by virtue of his action – who acquires or agrees to acquire shares etc. Identification is thus action oriented.

19. However in order to address the question as to whether PSPL along with the remaining promoters of Kerry Jost had a common objective or purpose of substantial acquisition of shares or voting rights of the shares of Kerry Jost and could thus be treated as acquirers/ persons acting in concert as far as the said transaction is concerned, the following facts may be relevant to consider.

20. It is an admitted fact that all the acquirers are promoters of Kerry Jost. It is not in dispute that prior to the said acquisition, the remaining acquirers except PSPL, held 1,17,440 shares constituting 58.72% of the paid up capital of Kerry Jost. However post the acquisition of 8% of the share capital of Kerry Jost, the share holding of all the acquirers became 1,33,440 shares constituting 66.72% of the paid up capital of Kerry Jost.

21. The Annual Report 2002-2003 of Kerry Jost inter alia states that Mr B H Reporter is the Chairman and Ex-officio Director of Kerry Jost. The list of the promoters of Kerry Jost brought out therein, inter-alia mention Jost Engineering, Mr B H Reporter, his wife; Mrs Aloo Reporter, their daughter; Mrs Parviz Bhatliwala, her children Ms Shirin Batliwala and Mr Farokh Batliwalal among the list of promoters.

22. PSPL is a private limited company and its entire share capital representing 4000 shares of Rs.100/- each, is admittedly held by Mrs Parviz Bhatliwala, her father; Mr B H Reporter and mother; Mrs. Aloo B Reporter, all of who are Directors of the company and consequently all of them are in control of the company. The Annual Report 2002-2003 of PSPL, also reveals that Mr B H Reporter, Mrs Aloo Reporter and Mrs Parviz Batliwala are the full time Directors of PSPL.

23. The details of the shareholding in PSPL are as follows:

Sr.No.	Name of the Shareholder	No. of Shares held	Percentage of the total paid up capital
1.	Mr B H Reporter	1750	43.75
2.	Mrs Aloo B Reporter	1250	31.25
3.	Mrs Parviz Bhatliwala	1000	25.00
	TOTAL	4000	100.00

These three entities had been holding jointly and severally 29.91% of the equity shares in Kerry Jost for the last several years, while the holding of PSPL, Jost Engineering, Mr B H Reporter, and his wife; Mrs Aloo Reporter in Kerry Jost, together constituted 64.58% of its paid up capital.

24. Furthermore PSPL vide their letter dated May 18, 2004 informed SEBI that the main promoter of Kerry Jost i.e., Mr B H Reporter directly controls PSPL and that Mr B H

Reporter along with his wife Mrs Aloo Reporter and daughter Mrs Batliwala hold 100% of the voting capital of PSPL. PSPL had also provided information inter alia stating that amongst the promoters, PSPL were prior and post the said acquisition holding nil and 8% shares respectively, Mrs Batliwala and her two children were prior and post the said acquisition holding 8% and nil shares respectively while the others, prior and post the said acquisition were holding 58.72% shares and the total promoter holding, post the said acquisition was 66.72%

25. The same is brought out in the table given below :-

Sr.No	Name of the Shareholders	Before Acquisition		After Acquisition
		No. of Shares	Percentage	No. of Shares	Percentage
1.	Jost Engineering Co.Ltd.	71330	35.67	71330	35.67
2.	Mrs Parviz Jamsyd Batliwala	6000	3.00	0	0
3.	Miss Shireen Jamshyd Batliwala	5000	2.50	0	0
4.	Mr Farrokh Jamshyd Batliwala	5000	2.50	0	0
5.	Phiroze Sethna Pvt Ltd.	0	0	16000	8.00
5.	Mr B H Reporter }	38000	19.00	38000	19.00
	Mrs Aloo Reporter }
6.	Mrs Aloo B Reporter }	3810	1.91	3810	1.91
	Mr B H Reporter }
7.	Mrs Roshan N Cooper	150	0.08	150	0.08
8.	Mr Damodar Desai }	450	0.23	450	0.23
	Mr Govind Desai }
9.	Mr Gunanath Desai }	450	0.23	450	0.23
	Mr Govind Desai }
10	Ms shaila Govind Desai }	700	0.35	700	0.35
	Mr Govind Guno Desai }
11	Mr Jamshed N Guzder	900	0.45	900	0.45
	Ms Shirin Jamshed Guzder
12	Mr Cyrus Jamshed Guzder	450	0.23	450	0.23
13	Mr Farokh Jamshed Guzder }	450	0.23	450	0.23
	Mr Jamshed N Guzder
14	Mr Jehangir N Guzder	450	0.23	450	0.23
	Mr Jamshed N Guzder
15	Mr K B Medappa }	300	0.15	300	0.15
	Mrs K B Medappa }

26. Upon examining the constitution of the Board of Jost Engineering as on 12-12-2002, it is noted that Mr B.H Reporter is the Chairman of the said company and together with the major promoters of Kerry Jost, holds a majority stake in Jost Engineering.

27. The shareholding of the promoters in Jost Engineering as on December 12, 2002, (the date of acquisition) is as follows:-


Sr. No.	Name of the Shareholders	No. of Shares	%

1	Miss Shireen Jamshyd Batliwala jointly with Mrs. Parviz Jamshyd Batliwala	17,000	2.22

2	Mr. Farrokh Jamshyd Batliwala jointly with	17,000	2.22
	Mrs. Parviz Jamshyd Batliwala

3	Mrs. Parviz Jamshyd Batliwala jointly with Mrs. Aloo Burjor Reporter	39,000	5.10

4	Mr. Burjor Hormusji Reporter	26,000	3.40
	Mrs. Roshan Noshir Cooper

5	Mr. F.A.A.Jasdanwalla	16,810	2.20

6	Mr. F.A.A.Jasdanwalla jointly with	4,300	0.56
	Mr. Ishtiyaq Inayatali Nagree

7	Mrs. Aloo Burjor Reporter jointly with	40,000	5.23
	Mr. Burjor Hormusji Reporter

8	Mrs. Aloo Burjor Reporter jointly with	20,000	2.62
	Mrs. Parviz Jamshyd Batliwala

9	Mr. Burjor Hormusji Reporter jointly with Mrs. Aloo Burjor Reporter	50,420	6.59

10	Mr. Homi Nusserwanji Sethna jointly with Mrs. Gooloo Homi Sethna	900	0.12

11	Phiroze Sethna Private Limited	76,000	9.94

12	Bullows India Private Limited	71,040	9.29

13	Reba Electronics Private Limited	12,450	1.63

	TOTAL	390,920	51.12

28. From the facts brought out, it is apparent that PSPL, Jost Engineering, Mr B H Reporter, Mrs Aloo Reporter together with Mrs Parviz Bhatliwala and her children; Ms Shirin Batliwala and Mr Farokh Batliwalal are inter-related.

29. In this context, Section 370 (1B) of the Companies Act, 1956 needs to be examined which provides that for the purpose of sub section (1) and (1A), two bodies corporate shall be deemed to be under the same management –

(i) if the managing director or the manager of the one body is –

(ii) the managing director or the manager of the other body

(iii) ----------------

(iv) ----------------

(v) -----------------

(vi) if one or more directors of one body corporate while holding, whether by themselves or together with their relatives, the majority of shares in that body corporate also hold, whether by themselves or together with relatives, the majority of shares in the other body corporate.

Sub section (1) and (1A), in this regard relates to the issuance of loans etc., to the company under the same management.

30. Furthermore, the relevant portion of Regulation 2(1)(e) of the Takeover Regulation which defines the term “person acting with concert’ may be referred to, which reads as follows:

2(1)(e) person acting in concert comprises:-

1) person who, for a common objective or purpose or substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal) directly or indirectly, co-operate by agreeing to acquire shares or voting rights in the target company or control over the target company,

2) without prejudice to the generality of this definition, the following persons will be deemed to be acting in concert with the other persons, with the same category unless the contrary is established:

i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other;

ii) ---------------------------

ii) directors of companies referred to in sub-clause (i) of clause (2) and their associates;

In terms of the Bhagwati Committee report ….to be acting in concert with an acquirer….”they must have commonality of objective and community of interest, which could be acquisition of shares or voting rights beyond the threshold limit or gaining control over the company and this act of acquiring shares or voting rights in a company must serve this common objective. Implicit in the concert action of these persons must be an element of co-operation (para 2.22 of the report).”

31. In the instant case, it was PSPL undoubtedly which singly acquired 8% shares of Kerry Jost. However in light of the facts placed before me, which reveals that Jost Engineering, Mr B H Reporter, Mrs Aloo Reporter and PSPL were part of the same promoter group and their total holding in the share capital of Kerry Jost was 64.58% while they held a majority stake in Jost Engineering, it is not difficult to conclude that these entities would have more than a commonality of purpose or object to acquire the shares of Kerry Jost and were acting in concert at that particular juncture.

32. However, in this context, a counter argument has been advanced that these acquirers do not form part of persons acting in concert, as they are being clearly identified as forming part of the promoters’ category.

33. I am however of the view that control of a company is not confined only to the shareholding, but can be exercised through several other means. It would therefore be incorrect to state that a promoter already in control of the company may not resort to acquisition of shares in that company. The Hon’ble Securities Appellate Tribunal while examining the concept of the expressions “promoter” and “acquirer” in Modipon Ltd v. SSEBI & Others, (2001) 33 SCL 85 had held as follows:

“It may be noted that the promoter as such need not be an acquirer automatically. Any person and shareholder including the promoter will become an acquirer or a person acting in concert with the acquirer, only if he falls within the definition of these expressions provided in regulation 2(b) and 2(e). It is the conduct of the party that decides the identity. A dormant promoter or a promoter simpliciter who neither acquires nor agrees to acquire shares or voting rights or control over the target company is not an acquirer and his share holding in the target company cannot be considered as the share holding of the acquirer warranting exclusion from the public shareholding. Similarly, if the characteristics of a person acting in concert stated in the definition are found missing in the case of a person, it may not be proper to consider him as a person acting in concert with the acquirer……..”.

“…..The expressions ‘acquirer’ and the ‘person’ acting in concert with the acquirer’ have been defined in the regulation. There is no hard and fast rule that a promoter can never be an acquirer or person acting in concert. If a promoter acquires or agrees to acquire shares or voting rights or gains control over the target company, he can be safely considered as an acquirer who in turn would be subject to the provisions of Regulation 11 of the Takeover Regulations. Likewise a promoter can be a person acting in concert, provided he is found to come within the scope of the definition under Regulation 2(1)(e). Whether a promoter is also an acquirer or person acting in concert would thus depend on the facts of each case. It is to be noted that there is no blanket prohibition on the promoters acquiring shares etc. in the company.”

Deriving strength from the views of the Hon’ble Tribunal, I find no reason to take a different view in the instant case.

34. Regulation 11 of the Takeover Regulations is on consolidation of holding of shares or voting rights in the target company by the existing holders of shares/voting rights. Regulation 11 (1) would thus be attracted in respect of acquisition by an acquirer, who together with persons acting in concert with him is holding 15% or more but less than 75% of the voting rights in a company. A similar situation was witnessed in the instant case, when PSPL together with the persons acting in concert with them, were holding more than 15% but less than 75% of the voting capital of Kerry Jost.

35. The expression acquirer has been defined in regulation 2(1)(b) of the Takeover Regulations. Acquisition of additional shares or entitlement of an acquirer to exercise voting rights upto 5% in any period of 12 months does not warrant a public announcement. But acquisition of additional shares or voting rights entitling the acquirer to exercise more than 5% of the voting rights in any period of 12 months is permissible, only upon making a public announcement to acquire shares.

36. In the light of the definition of the expression ‘acquirer’ in Regulation 2(1)(b) of the Takeover Regulations, there is little scope to not consider PSPL as the acquirer of 8% of the share capital of Kerry Jost. It is on record that PSPL is a 100% subsidiary of the main promoters of Kerry Jost and 64.58% of the share capital of Kerry Jost at the relevant point of time (December 12, 2002) was held by these promoters. These entities are inter connected and, are therefore, under the same management. It is also borne out of the material on record that the objective of acquiring shares by PSPL was to provide capital to one of the main shareholders/promoters of Kerry Jost who was also the promoter and director of PSPL.

37. It is also not in dispute that post the said acquisition, the majority control continues to remain with PSPL, Jost Engineering and Mr Burjor Reporter and Mrs Aloo Reporter, the main promoters of Kerry Jost in that, PSPL is an entity stated to belong to the promoter group of Kerry Jost by virtue of Mr B H Reporter and Mrs Aloo B Reporter (who are already existing promoters and thereby categorized in the promoter category of Kerry Jost) being shareholders and Directors in PSPL. Incidentally, Mr B M Reporter is the Chairman of Jost Engineering and holds a majority stake therein.

38. The expression ‘person acting in concert’ defined in Regulation 2(1)(e) has been reproduced earlier.

In the light of the same and the relationship amongst these parties, it can be safely concluded that PSPL, the main acquirer, acting in concert with Jost Engineering, Mr B H Reporter and his wife; Mrs Aloo Reporter i.e. the entities forming part of the same group, acquired the shares of Kerry Jost with such common objective. That is to say, PSPL directly and Jost Engineering, Mr B H Reporter, his wife; Mrs Aloo Reporter indirectly, acquired the shares of Kerry Jost.

39. As regard the remaining entities, it is my considered opinion that the intent and action of the person would decide as to whether that particular person is acting in concert with the acquirer. In the instant case, in light of the facts abovestated, especially considering the inter relationship between the said entities, it is difficult to infer that the remaining promoters of Kerry Jost i.e. Mr Damodar Desai, Mr Govind Desai, Mr Gunanath Desai, Ms Shaila Govind Desai, Mr Govind Guru Desai, Mr Jamshed N Guzder, Mr Cyrus Guzder, Mr Farokh Guzder, Mr Jehangir Guzder, Mr K B Medappa and Ms K B Medappa had any common objective or were acting in concert with PSPL, Jost Engineering, Mr Reporter or Mrs Reporter.

40. This is further apparent from the individual shareholding of each of these entities in Kerry Jost, the details of which are provided herein below along with the dates of the acquisition/purchase of the said shares:


Sr. No.	Folio No.	Name of the Shareholders	No.of Shares	Date of Allotment/	Mode of
				Purchase	Acquisition
1	D00802	MR. DAMODAR DESAI JTLY. WITH MR GOVIND DESAI	450	8/19/1991	Purchase

2	D00803	MR. GUNANATH DESAI JTLY. WITH MR GOVIND DESAI	450	8/19/1991	Purchase

3	D00906	MRS. SHAILA GOVIND DESAI JTLY. WITH	450	9/3/1991	Purchase
		MR. GOVIND GUNO DESAI
		- do -	250	5/13/1981	Allotment
4	M01303	MR. KONGANDA BELLIAPPA MEDAPPA JTLY. WITH	300	5/13/1981	Allotment
		MRS. KAMIE BELLIAPPA MEDAPPA
5	G02101	MR.JAMSHED NUSSERWANJI GUZDER JTLY. WITH	900	6/7/1971	Purchase
		MRS.SHIRIN JAMSHED GUZDER
6	G01801	MR.CYRUS JAMSHED GUZDER	450	6/7/1971	Purchase
7	G01901	MR.FAROKH JAMSHED GUZDER JTLY WITH	450	6/7/1971	Purchase
		MR.JAMSHED NUSSERWANJI GUZDER
8	G02001	MR.JEHANGIR JAMSHED GUZDER JTLY. WITH	450	6/7/1971	Purchase
		MR.JAMSHED NUSSERWANJI GUZDER

41. From a correlation of the facts stated earlier, it is clear that non of these entities are either a promoter/director of PSPL or Jost Engineering or form part of the management and instead hold only a minor stake in Kerry Jost. Further, they are also not related in any manner whatsoever with the other two promoters i.e. Mr Burjor Reporter and Mrs Aloo Repoter.

42. I have also taken cognizance of the demise of the other two promoters i.e. Mrs Shirin Jamshed Guzder and Mrs Roshan Cooper against whom the proceedings initiated stand abated.

43. In view the facts stated above, PSPL along with Jost Engineering, Mr Burjor Report and Mrs Aloo Reporters are to be considered as the acquirer/persons acting in concert at the time of the acquisition of 8% of the shares of Kerry Jost. Furthermore, I see no reason to hold that the said acquisition by the acquirers was not an additional acquisition over and above the bench mark of 5% stipulated in Regulation 11(1) of the Takeover Regulations. It is clear that although the acquirers along with the persons acting in concert breached the threshold limit as specified above, they did not make the mandatory public announcement as stipulated in Regulation 11(1) of the said Regulations, resulting in the violation of the said Regulations.

44. While it is appreciable that in a competitive environment, it becomes necessary for persons already in control of the company to consolidate their holdings, either suo moto or by building their defenses against takeover threats, the same ought to have been done in a regulated manner. Given that investor protection is a mandate of SEBI, which is empowered to regulate not only takeovers but also substantial acquisition of shares, any such acquisition should be done without adversely impacting investors’ interests.

45. Keeping the same in mind, Parliament provided for a penalty to be levied under Section 15H(ii) of the Act in case of such acquisitions not preceded by a public announcement, to acquire shares at a minimum price in terms of the provisions of the Takeover Regulations and in that context, mandated the levy of penalty upon the acquirer to the extent of Rs.25 crores or three times of the notional profits made out of such failure, whichever is higher.

46. Therefore, to determine the quantum of penalty to be levied in the case under consideration, I have considered the following factors as provided in the section 15J of the Act, which also find mention in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995, i.e., the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default.

47. Upon perusal of the provisions of Section 15J, it is clear that the adjudicating officer is required to have due regard to the factors stated in the section. The same is a direction and not an option, which is however to be exercised with due regard to her discretion. This discretion is to be exercised judiciously, depending upon the facts and circumstances of each case as well as after analysing of all the relevant material available on record especially in the case of failure to perform statutory obligations.

48. Any deviation or evasion of the regulatory provisions issued by the regulator in the interests of the investors or non adherence to the same for any reasons whatsoever, is bound to affect the interests of such investors. Although such a loss cannot be specifically computed in monetary terms, the fact remains that all regulatory provisions have a specific purpose behind their enactment. The very purpose of enacting any legislation is due adherence to the procedures laid down there under to ensure the sound and smooth functioning of the capital market. If no cognizance were to be taken of any breach of these provisions and no liability fixed there upon, the entire purpose of incorporating the provisions in the said enactments would become redundant.

49. Taken in that context, in order to compute the disproportionate gain or unfair advantage enjoyed by the acquirers, I have perused the records and have noted that there are no quantifiable figures available on that count. There are also no figures or data on record to quantify the amount of loss caused to the investors as a result of the default.

50. The fact is that had the acquirers made a public announcement to acquire 20% of the shares of Kerry Jost, the shareholders of Kerry Jost would have got an opportunity to tender their shares pursuant to such an open offer and exit from the company at a beneficial price, to be determined under the Takeover Regulations. Therefore, the interest of the shareholders has been affected. Further, such an announcement if made would have also impacted the price movement of the share in the stock exchange. Thus, the exit opportunity available to the shareholders via the secondary market would have been in addition to the open offer which the acquirers ought to have made under the Regulations.

51. However, I have perused the records and noted that an open offer, under the provisions of the Takeover Regulations for the shares of Kerry Jost was made by Mr Atul Gupta and Mr K V Ramana Shetty pursuant to a memorandum of understanding dated March 31, 2004 at a price of Rs.111/- per share. In the said offer, all the acquirers in the instant case tendered their shares. Consequently, none of the acquirers or the persons acting in concert with them are holding shares in Kerry Jost, post the said acquisition.

52. Therefore, keeping the facts above mentioned in mind, while computing the penalty to be levied in the instant case, the amount of notional loss caused to the shareholders of Kerry Jost on account of the failure of these acquirers to make a public announcement under the Takeover Regulations, ought to be considered.

53. For the purpose of determination of the notional loss, the following facts may be considered relevant:

I. the reference date if the public offer was made (four working days after the date of acquisition): December 18, 2002

II. the price of acquisition of the shares of Kerry Jost in the said offer: ( the price at which 8% of the shares of Kerry Jost were acquired by the acquirers): Rs.64.25.

III. the outstanding shares of Kerry Jost as on December 12, 2002 : 2 lacs

IV. 20% of the total number of outstanding shares of Kerry Jost as on December 12, 2002 (20% of 2 lac): 40,000 shares.

V. Minimum amount to be offered to the shareholders= 40,000 shares X 64.25 = Rs 25,70,000.

VI. the interest payable from December 18, 2002 till March 31, 2004 i.e. the date when the acquirers sold their shares

VII. the rate of interest

54. For the purpose of fixing the rate of interest in the said case, it would be relevant to note that the Hon’ble Supreme Court in Civil Appeal No.3183/2003 in the case of Clariant International Limited Vs. SEBI was inter alia pleased to observe that the bank rate of interest payable by Nationalized Banks on a fixed deposit for a period between 1998-2003 was around 9%. The Hon’ble Court further directed that the appellants therein ought to pay interest at the rate of 10% per annum from March 1998 till 2000 (in terms of the facts specific to that case) as they had in the Memorandum of Appeal filed before the Tribunal, contended that the Board (SEBI) should have granted interest at the rate of 10% per annum instead of 15%, and further directed that the dividend paid during such period be adjusted with the amount of interest.

55. I have also noted the order of the Securities Appellate Tribunal passed in Appeal No.11/2003 in the case of Pramod Jain Vs SEBI and another. In the said case, where the reference date was August 2001, the Hon’ble Tribunal while taking cognizance of the judgment of the Supreme Court cited above, were however pleased to direct that the interest payable to the shareholders shall be @ 6% or the prevailing bank rate (the bank at which the RBI lends to the bank) to be determined by the SEBI in the facts and the circumstances of the case.

56. However, no departure can be made from the dicta passed by the Apex Court and hence keeping the same in mind as also the observations of the Hon’ble Supreme Court i.e. 9% being the bank rate of interest payable by Nationalized Bank on a fixed deposit during the period between 1998-2003, I am of the view that as the period in the instant case i.e. from December 2002 to March 2004, falls close to the scheme of the period stipulated by the Supreme Court, during which period the interest rates varied between 9% to 6%, the interest of justice would be sub served if the rate of interest payable in the present case is fixed @ 7.5% from December 18, 2002 to March 31, 2004.

On the basis of these facts, in order to determine;

i) The interest payable from December, 18, 2002, till March 31, 2004 @ 7.5% on the minimum amount offered would amount to Rs 1,92,750/- and hence

ii) Simple Interest @ 7.5% for the period from December 18, 2002 to March 31,2004 would amount to Rs.2,48,198 and accordingly,

iii) The total notional loss to the shareholders would amount to Rs.28,18,198 i.e. Rs.25, 70,000 + Rs.2,48,198.

57. Hence, if the acquirers in the instant case, had made a public offer, they would have had to make a minimum payment of Rs.28, 18,198 to the shareholders of Kerry Jost for acquiring the stipulated 20% of the shares of Kerry Jost from them.

58. However, by failing to make the required public offer, the acquirers have deprived the shareholders of Kerry Jost of the amount of Rs.28,18,198 which would therefore be treated as the loss of the shareholders on the one hand and the profit made by the acquirers on the other hand.

59. Notwithstanding the above, any penalty levied which is lower than the amount of loss, as calculated above, may be considered as inequitable in law. This is so because an acquirer could acquire shares in violation of the Takeover Regulations, and yet deliberately fail to make an open offer knowing that the quantum of penalty that would be levied on him would be lower than the quantum of money that he would have to pay if he had to make an open offer. In any case, Section 15H(ii) of the Act mandates the imposition of a penalty amounting to 25 crores or 3 times the notional profit made by the acquirers, whichever is higher.

60. In the instant case, I have noted that the shareholders of Kerry Jost have already had the benefit of an open offer made by Shri Atul Gupta and Shri Shetty in the year 2004 wherein their shares were acquired @ 111/- per share. Moreover, the acquisition under consideration has not resulted in any change in control or management in Kerry Jost but a change in the identity of the promoters. However, considering that there was a substantial acquisition of shares by the acquirers which necessitated an open offer to be made in terms of Regulation 11(1) of the Takeover Regulations which however was not made, and keeping the facts above stated in view, on a judicious exercise of the discretion conferred upon me, considering the offence in its entirety and also bearing in mind the factors enumerated in Section 15J of the Act as well, taking into consideration the facts of the present case and after analysing all the material available on record, I am inclined to hold that the penalty need not be imposed strictly in terms of the quantum specified in Section 15H(ii) of the Act. Instead, a penalty equal to 3 times the notional profits enjoyed by the acquirers would be appropriate in the facts of the case i.e. Rs.28,18,198 X 3 = Rs.84,54,595/-.

61. Accordingly, I in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 think it appropriate to levy a consolidated penalty of Rs. 84,54,595/-(Rupees Eighty Four Lakhs Fifty Four Thousand Five Hundred Ninety Five Only) upon PSPL, Jost Engineering Company Limited, Mr Burjor Reporter and Mrs Aloo Reporter who are cumulatively directed to pay the said amount for their failure to comply with the provisions of Regulations 11(1), 14(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with Section 15H (ii) of the SEBI Act, 1992 in the matter of acquisition of 8% of the shares of Kerry Jost Engineering Limited.

62. These acquirers are jointly and severally payable to pay the penalty amount which shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India’ and payable at

Mumbai which may be sent to Shri.S.V.Muralidhar Rao, General Manager, Securities and Exchange Board of India, Mittal Court, B Wing, 224 Nariman Point, Mumbai – 400021.

In the matter of the Acquisition of the Shares of Kerry Jost Engineering Limited 1552/2008]

Jul 20, 2005

PLACE : MUMBAI G. BABITA RAYUDU

DATE : JULY 20, 2005 ADJUDICATING OFFICER