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In the matter of the acquisition of the shares of M/s Kerry Jost Engineering Limited

Mar 17, 2006
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Orders : Orders of AO

ORDER

 

IN THE MATTER OF THE ACQUISITION OF THE SHARES OF

 

M/s KERRY JOST ENGINEERING LIMITED

1.     I was appointed as the Adjudicating Officer vide SEBI order dated March 18, 2005 to enquire into and adjudge the alleged contravention of the provisions of Regulations 11(1) and 14(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 read with Section 15H (ii) of the SEBI Act, 1992 (hereinafter referred to as the Takeover Regulations and the Act respectively) in the matter of the acquisition of 16,000 shares constituting 8% of the equity capital of M/s Kerry Jost Engineering Limited (for brevity’s sake, hereinafter referred to as KJEL) by various entities i.e. M/s Phiroze Sethna Private Limited (PSPL) Jost Engineering Company Limited, (Jost) 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. Upon conclusion of the adjudicating proceedings, I had passed an order dated July 20, 2005 under the provisions of the SEBI (Procedure for holding inquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 directing that a consolidated penalty of Rs. 84,54,595/-(Rupees Eighty Four Lakhs Fifty Four Thousand Five Hundred Ninety Five Only) be levied upon PSPL, Jost, Mr Burjor Reporter and Mrs Aloo Reporter under Section 15H(ii) of the Act for their failure to comply with the provisions of Regulations 11(1), 14(1) of the Takeovers Regulations.

2.     PSPL, Jost, Mr Burjor Reporter and Mrs Aloo Reporter challenged the said order by filing Appeal Nos. 127, 127A, 127B, and 127C/2005 before the Hon’ble Securities Appellate Tribunal. The Hon’ble Tribunal, vide order dated February 6, 2006, directed the matter to be heard afresh on the basis of the notices to show cause issued to the appellants, after affording them an opportunity to place on record whatever further material they wanted to place on record, in support of their contentions within two weeks from February 6, 2006 and further directed that within four weeks thereafter, a fresh order be passed by me in accordance with law, after affording the appellants an opportunity of hearing. The appellants filed their written submissions on February 17, 2006 and were heard in person through their authorized representatives on March 01, 2006. This order is pursuant to the direction of the Hon’ble Tribunal.  

 

3.     The gist of the submissions made by the appellants in the present proceedings in writing and during the course of the personal hearing granted to them is reproduced below:-

(i)                 KJEL, which is a listed company on the Stock Exchange, Mumbai (BSE) for the last several years had a paid up capital of Rs.20 lakhs comprising of 2 lakh equity shares of Rs.10/- each fully paid up.

(ii)              It had suspended its business of manufacturing machine tools, dryers and drying systems and pneumatic dispatch systems from 1999 as it was incurring huge losses from year to year. There was no trading taking place in its shares and the last trading was on 20/04/1998.

(iii)            PSPL acquired 16000 shares (8%) of KJEL on December 12, 2002 from the existing promoters of KJEL, namely, Mrs.Parviz J. Batliwala and her two children, viz Miss Shireen Batliwala and Mr.Farrokh Batliwala who were holding 5000 shares each of KJEL. Mrs.Parviz J. Batliwala is the daughter of Mr.Reporter and Mrs.Reporter

iii)              Prior to the acquisition of 16000 shares, PSPL did not hold any share in KJEL.

iv)                Mrs.Batliwala and her two children (belonging to the Reporter group of KJEL) were holding the shares of KJEL for several years. Mrs.Batliwala was in need of funds and approached her parents to buy the shares of KJEL as it was difficult for her to find a buyer. KJEL, at the relevant time was incurring huge losses and there was no trading taking place in the said scrip. The parents agreed to purchase her shares in the name of the family owned company viz; PSPL at a price of Rs.64.25 per share, (being the last quoted price on 20/04/1998 on the BSE).

v)                  After the said transaction, Mrs.Parviz Batliwala and her two children ceased to be promoters of KJEL, (as they sold their entire holding to PSPL) and PSPL became the promoter group entity (as PSPL belonged to Mr. Reporter and Mrs. Reporter and their daughter Mrs.Parviz Batliwala.).

vi)                Thus the acquisition of 16000 shares by PSPL was not for substantial acquisition of shares or acquisition of control of KJEL or for the purpose of consolidation of holdings by the existing promoters (namely, Mr.Reporter, Mrs.Reporter. Jost’s Engineering Co.Ltd.) but to provide funds to Mrs Batliwala.

vii)             The transaction was intra-family transfer of shares and there was no increase in the promoters’ holding nor was there any change in control of management of KJEL.

viii)           The objective of the transaction did not fall within any of the objectives of Takeover Regulations and the aforesaid transaction did not affect the interest of the minority shareholders nor did it prejudice anyone. There was no change in control of the management of KJEL.

ix)               As the Reporter family is one of the promoters of KJEL and as PSPL is a family entity, PSPL became a part of the Reporter promoter’s group.  

x) Mr.Reporter continued to be promoter and in control of KJEL post the above transaction.

xi)   Regulation 11(1) of the Takeover Regulations is not applicable to the aforesaid transaction of 16000 shares of KJEL as the same did not result in a substantial acquisition of shares or voting rights or even acquisition of control of KJEL.

xii)            Acquisition of additional shares is a precondition for attracting Regulation 11(1) of the Takeover Regulations. As the impugned acquisition did not involve any additional shares being acquired, there was no consolidation in terms of Regulation 11(1) of the Takeover Regulations. 

xiii)          Regulation 11 only contemplates existing shareholders i.e., if a brand new acquirer (not holding any share) acquires shares first time, he is out of the purview of Regulation 11 of the Takeover Regulations. PSPL was not an existing shareholder of KJEL and therefore acquiring any additional shares as contemplated by Regulation 11(1) would not arise and hence PSPL was not “an acquirer” for the purpose of Regulation 11(1) of the Takeover Regulations.

xiv)           The allegation that “collective shareholding along with holding of persons acting in concert collectively went up from 117440 shares representing 58.72% to 133440 shares representing 66.72% of the equity capital of KJEL, i.e. there was an increase of 8% of equity capital of KJEL” was incorrect.

xv)  Assuming that PSPL is a person acting in concert, there was no increase in the promoter group holding of the shares of KJEL, pre and post acquisition as the same remained the same. The only change that occurred was that PSPL’s name got substituted as promoter (as PSPL’s promoters were already existing promoters of KJEL) in place of Mrs.Parviz Batliwala and her two children who sold their entire holding.

xvi)           The change in identity of promoters unaccompanied by any other change could not mean anything and did not matter as the then existing promoters of KJEL were already holding more than 15% of capital but less than 75% of capital of KJEL and were already in control and exercising control.

xvii)         In a subsequent offer made by Atul Gupta and others at a price of Rs.111/- (as against Rs.64.25 at which PSPL acquired the shares), few investors participated, thereby indicating no loss to the investors in the instant case.

xviii)      Even otherwise, the additional acquisition if at all, was restricted to 10,000 shares i.e. 5% of the capital of KJEL acquired from the children of Mrs.Perviz Batliwala, i.e. Ms.Shireen Jamshyd Batliwala (5000 equivalent to 2.50%), Mr.Farokh J.Batliwala (5000 equivalent to 2.50%) aggregating to 10,000 equity shares equivalent to 5%.

xix)          The 6000 shares equivalent to 3% shares acquired from Mrs.Perviz Batliwala, could not be considered as ‘additional shares’, as she was already a Director of PSPL. Thus, Regulation 11 was not triggered in any view of the matter.

xx) The aggregate shareholding of PSPL and persons deemed to be acting in concert remained the same, both prior and after the transaction.

xxi)          Assuming without admitting that the aforesaid transaction was hit by Regulation 11(1), they ought to have been granted exemption from making a public offer and were eligible / entitled to such an exemption under Regulation 3(1)(e)(i) of the Takeover Regulations.

xxii)        The aforesaid acquisition of 16000 shares amounted to 8% of the capital of KJEL, and hence they were not required to file a report under Regulation 3(4) of the Takeover Regulations as the said Regulation talks of acquisition of shares of 15% or more.

xxiii)     PSPL was promoted by the Reporter family in 1975 and was part of the promoters group falling under the category of Regulation 3(1)(e)(i) and therefore, the provision that the transferee company should hold the shares for a period of at least 3 years is not applicable in the instant transaction.

xxiv)       The 3 years stipulation of holding by the transferee company is applicable only under Regulation 3(1)(e)(iii) of the Takeover Regulations. 

xxv)         Reliance was placed on the judgment passed by the Supreme Court in the case of Swedish Match AB vs. SEBI and the order of the Tribunal in the case of HDFC v. SEBI in Appeal No. 21/2000.

 

Consideration of issues

 

4. Before proceeding on the merits of the case, I consider it relevant to place on record that while the Hon’ble Tribunal has directed the present proceedings to be conducted afresh on the basis of the notices to show cause, issued to the appellants, these notices in question were also issued earlier to several other entities who were parties to the previous impugned proceedings. As the order passed therein confined the liability only to the appellants, who challenged the order and the issue in lis is confined to them alone, the findings in the present proceedings are also confined only to the appellants.

 

5. It is a matter of record that PSPL had singly acquired 16,000 shares amounting to 8% of the equity capital of KJEL which constituted the shareholding of Mrs. Perviz Batliwala, Ms. Shereen J. Batliwala and Mr. Farrokh J. Batliwala in KJEL. This acquisition of 8% of their holding in KJEL by PSPL, along with the holding of the other persons found to have acted in concert with PSPL i.e. Jost, Mr Burjor Reporter and Mrs Aloo Burjor Reporter was found to have breached the 5% limit stipulated in Regulation 11(1) of the Takeover Regulations, and was not preceded with the mandatory public announcement, as required to be made in terms of Regulation 14(1) of the Takeover Regulations.

 

6. The appellants have however disputed their liability specifically on the grounds reproduced earlier.

 

7. To consider the issues raised by them, the relevant provisions of the Takeover Regulations have been referred to.

Regulation 11(1) provides as follow: - No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, [15 per cent or more but less than seventy five per cent.(75%) ] of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than  [5%] of the voting rights, [in any financial year ending on 31st March], unless such acquirer makes a public announcement to acquire shares, in accordance with the Regulations. (emphasis not supplied)

 

The words /expressions emphasized in bold above, merit further elaboration.

 

8. The term ‘acquirer’ has been defined under Regulation 2(1)(b) of the said Regulations as under : -

(b) 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;

 

9. This definition assumes great significance, in that it is clear that it is not necessary for an acquirer to actually acquire shares/voting rights or control to be considered 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.

10. In this context, the term “person acting in concert” has been defined in Regulation 2(1) (e) and reads as follows: -

(e) "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 over 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.

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

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

(ii) a company with any of its directors, or any person entrusted with the management of the funds of the company;

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

11. In the context of these provisions of law, the following facts may be relevant to consider.

 

12. The Annual Report 2002-2003 of KJEL inter alia states that Mr B H Reporter is the Chairman and Ex-officio Director of KJEL. The list of the promoters of KJEL mentioned therein show Jost, 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. It is also a matter of record that 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 and mother; Mr B H Reporter and Mrs. Aloo B Reporter respectively, all of who are Directors of the company. 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

 

13. Furthermore PSPL vide their letter dated May 18, 2004 informed SEBI that the main promoter of KJEL 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.

 

14. Thus PSPL is a promoter group company falling within the term “promoter” as setout in the definition contained in the erstwhile Regulation 2(1)(h) of the Takeovers Regulations The said definition inter alia includes within its ambit, a company which is directly or indirectly controlled by the promoter or a relative of the promoter, where the promoter is an individual. PSPL in the present case being a company controlled by the ‘Reporters’ alongwith their daughter, is therefore a promoter within the meaning of the said term.

 

 

15. The Takeover Regulations envisages transfer of holdings between promoters and exempts the same, from the applicability of the provisions of Regulations 10, 11, and 12 of the Takeover Regulations in the making of a public announcement, subject to the fulfillment of certain conditions. In the facts of the instant case, the acquisition in question (with PSPL being a promoter) was therefore entitled to exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations, subject to certain pre-conditions being satisfied.

 

15. The conditions, upon the fulfillment of which, exemption could have been granted are as follow :-

i. Regulation 3(1)(e)(iii)(b)

Proviso to the said regulation provides for an exemption in the case of inter se transfer between promoters, subject to the transferor(s) and transferee(s) holding shares in the target company for a period of at least three years.

 

It is an admitted fact that PSPL had never held any share in KJEL prior to the acquisition on 12th December 2004. Therefore the requirement of holding, for a period of three years, before the acquisition of the shares of KJEL had to be complied with by PSPL, which was however not complied. The holding of the other entities acting in concert with PSPL for the three years requisite period could not be taken into account since the proviso to Regulation 3(1)(e)(iii)(b) refers only to the “transferee” in distinction to “acquirer” which includes “the person acting in concert”. In other words, since the above proviso mandates only the transferees holding to be taken into account for the calculation of the three years period, in distinction to the holding of the acquirer, the holding of persons acting in concert for the purpose of calculation of three years period would not arise. For the purpose of determining the threshold point of Regulations 10, 11 and 12, the holdings of the acquirer along with the persons acting in concert is considered whereas for the purpose of granting exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations, the holdings of the transferee(s) alone is considered for determining the compliance with the proviso pertaining to the three year holding period.

 

Apart from the 3 year criterion as explained above, certain other pre-conditions were required to be complied with by PSPL, in order to claim the benefit of exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations.

 

ii. Explanation to Regulation 3(e)(iii) (Pricing of the shares)

Provides for the un-availability of the exemption under the said regulation where the interse transfer is at a price exceeding 25% of the price as determined under Regulations 20(4) and 20(5) of the Takeover Regulations. In the present case, the shares of KJEL were infrequently traded as per explanation (i) to Regulation 20(5) of the Takeover Regulations. The value of the parameters specified in Regulation 20(5) of the said Regulations i.e. net worth, EPS, book value of shares of KJEL, price earning multiple vis-à-vis the industry average were negative. The shares of KJEL were acquired at a price of Rs. 64.25 that is the last traded price of the shares of KJEL. This price exceeds 25% of the price as determined in terms of Regulation 20(5), making the exemption unavailable to the entities in the present case.

 

iii. Regulation 3(3)

Provides for information to be sent to the stock exchanges at least 4 working days in advance of the proposed acquisition, in case the acquisition exceeds 5%. In the present case, the entities had failed to send the said information.

 

 

iv. Regulations 3(4) read with 3(5)

Provides for a report to be filed with SEBI within 21 days of the date of acquisition along with a demand draft of Rs.10,000 giving all details in respect of the acquisition. The said report was filed with a delay of 503 days and thus there was a failure to comply with the provisions of the aforesaid Regulation.

 

v. Chapter II of the Takeover Regulations.

The provisions contained thereunder ought to have been complied with, within the specified time-limit by both the transferee and transferors, by their filing the statements concerning group and individual shareholding as required under Regulations 6, 7 and 8 of the said Regulations. However these time bound disclosures were not made on certain occasions. The impugned transaction took place on December 12, 2002. The status of compliances have been brought out below:- 

Name of entity

Reg.

6(1)

Reg.

6(3)

Reg.

7(1)

Reg.

7(2)

Reg.

8(1)

Reg.

8(2)

PSPL

(transferee)

Not applicable

Not applicable

Not appli-cable

Not applicable

Not applicable

Not applicable

Mrs. Parviz Batliwala

(transferor)

Not applicable

Not complied

Not appli-cable

Not applicable

Not applicable

Not complied

Ms. Shirin Batliwala

(transferor)

Not applicable

Not complied

Not appli-

cable

Not applicable

Not applicable

Not complied

Mr. Farokh J. Batliwala

(transferor)

Not applicable

Not complied

Not appli-cable

Not applicable

Not applicable

Not complied

 

16. As is apparent from the information provided above, all the above pre-conditions were not complied with by PSPL or the remaining transferors and hence, the application filed with SEBI under cover of letter dated May 18, 2004 along with a report under Regulations 3(4) and 3(5) of the said Regulations ( that was incidentally filed with a delay of 503 days) seeking exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations from the applicability of the said Regulations was not considered for grant of exemption from the applicability of the Takeover Regulations.

 

17. Notwithstanding these facts, the appellants have now raised a new line of argument before me to the effect that the impugned transaction is eligible for exemption under Regulation 3(1)(e)(i) of the Takeover Regulations.

 

18. The legal position in this context is that for the purpose of claiming the benefit of a specific exemption under Regulation 3 of the Takeover Regulations, a report along with the requisite fee under Regulations 3(4) and 3(5) of the Takeover Regulations is required to be filed with SEBI. No report to that effect has been filed by the appellants to claim the benefit of exemption under Regulation 3(1)(e)(i) of the Takeover Regulations. The report that was filed earlier belatedly, (503 days delay) was filed for claiming exemption under Regulation 3(1)(e)(iii)(b) of the Takeover Regulations.

 

19. Be that as it may, the contentions advanced by PSPL in this regard vide their letter dated March 2, 2006 are reproduced herein below:-

 

i) The transaction in question falls within the provisions of Regulation 3(1)(e)(i) which was amended by the SEBI (Substantial Acquisition of Shares and Takeovers (Second Amendment) Regulation 2002 with effect from 09/09/2002 by the addition of the following words:

“Where persons constituting such groups have been shown as group in the last published annual report of the target company.

 

ii) Prior to the said amendment, Regulation 3(1)(e)(i) read as under:

“Group companies coming within the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969)” (MRTP Act)

 

iii) The following persons constitute the group as defined in the Monopolies and Restrictive Trade Practices Act, 1969

(i)                 Mr. B.H. Reporter

(ii)              Mrs. Aloo B. Reporter

(iii)            Mrs. Parviz J Batliwala and her two children

(iv)             M/s. Phiroze Sethna Private Limited (PSPL) a family owned company of Mr. B.H. Reporter, Mrs. Aloo B. Reporter and their daughter Mrs. Parviz J. Batliwala.

(v)                Jost’s Engineering Company Limited

(vi)             Kerry Jost Engineering Limited.

 

iv) Definition of “Group” in MRTP, Act

Section 2(ef) “group” means a group of two or more individuals, associations of individuals, firms, trusts, trustee or bodies corporate (excluding financial institutions) or any combination thereof, which exercises, or is established to be in a position to exercise, control, directly or indirectly, over any body corporate, firm or trust;

 

v) The transaction in question took place in December 2002 (i.e. financial year 2002-2003)

 

vi) The annual report of KJEL, for the financial year 2001-2002 (the last annual report was finalized on 20/08/2002, i.e., prior to coming into force of the second amendment, which came into force from 09/09/2002)

 

vii) Therefore, the question of publishing the constituents of “group” in the said report did not arise.

 

viii) Compliance with Chapter II of the Takeover Regulations:-

a.     Regulation 6 required a person to make necessary disclosures within two months of the notification of the Takeover Regulations. These Regulations came into force in 1997. Thus Regulation 6 was not required to be complied with by PSPL as it was not holding any shares at the time when Regulation 6 came into force i.e. PSPL acquired the shares for the first time during December 2002.

b.     Regulation 7 was complied with by PSPL on 13/12/2002.

c.      As regards failure to disclose the shareholding in KJEL in terms of Regulation 8 of the Takeover Regulation, adjudication proceedings were initiated against PSPL and a penalty of Rs.10,000 was imposed by the Adjudicating Officer vide his order dated 19/11/2004) and on payment of the said penalty on 27/11/2002, the technical lapse was regularized.

 

ix) Thus the acquisition of 16000 shares by PSPL was intra family / intra group and hence was/ is eligible for exemption under Regulation 3(1)(e)(i) of the Takeover Regulations.

 

20. As brought out above, in the report filed earlier belatedly (delay of 503 days) under Regulations 3(4) and 3(5) of the Takeover Regulations, exemption was inter alia sought on the ground of the acquisition being an ‘inter se transfer of shares” falling within the ambit of Reg. 3(1)(e)(iii)(b) of the Takeover Regulations and not Regulation 3(1)(e)(i) of the said Regulations that is to say, the transfer was stated to have taken place between the entities i.e., the transferors and the transferees being promoters within the framework of the Takeover Regulations. In the said report, the impugned transaction was specifically stated to be outside the ambit of Regulation 3(1)(e)(i) and specifically categorized as “inapplicable.”

 

21. Notwithstanding the same, even if the contentions advanced by PSPL and the other appellants as regards them being a group company, were to be accepted, the conditions specified under Chapter II of the Takeover Regulations were not complied with by Mrs. Parviz J. Batliwala and her two children, as has been elaborated earlier. In fact, PSPL have very conveniently only highlighted the extent of their compliance with the provisions of Chapter II of the Takeover Regulations and not that of the remaining entities.

 

22. Explanation (2) to Regulation 3(1) (e) (i) inter alia provides that exemption under the said clause, from the applicability of the Takeover Regulations is subject to both the transferor(s) and transferee (s) complying with Regulations 6,7 and 8 of the Takeover Regulations. In the instant case, as Regulations 6,7 and 8 of the Takeover Regulations was not complied with by the transferors (Mrs. Parviz J. Batliwala and her two children) as has been elaborated earlier, the benefit of exemption under Regulation 3(1) (e) (i) of the Takeover Regulations from the applicability of the said Regulations, cannot be granted in the case of the impugned transaction.

 

23. Besides Regulation 3(3) of the Takeover Regulations provides for information to be sent to the stock exchanges at least 4 working days in advance of the proposed acquisition, in case the acquisition exceeds 5%, which was not sent.

 

In view of the aforesaid, the contention of the appellants as discussed above is rejected as misconceived.

 

24. Keeping these facts in mind, I now propose to consider the various grounds relied upon by the appellants to state that the impugned transaction is not hit by Regulation 11 (1) of the Takeover Regulations.

 

25. The appellants have contended that as the impugned transaction did not involve any additional shares being acquired, there was no consolidation of shares in terms of Regulation 11(1) of the Takeover Regulations.

 

26. This issue raised by the appellant could be addressed by referring to the views of the Hon’ble Tribunal in the matter of Yogi Sungwon (India) Ltd. Vs. SEBI (cited in MANU/SB/0089/2001) which inter alia held as follows: -

 

“The argument that the acquisition was from other shareholders in the same group and as a result of acquisition, the holding of group did not change is not of any force to claim non-applicability of the regulation to the transaction in question. If the interpretation of the appellant is accepted then the very exemption provided under section 3(1)(e) itself would become redundant.”

 

27. The fact is that the scheme of the Takeover Regulations does not envisage any exemption in respect of intra-se transfer amongst entities, merely on the ground that the shareholding between the said entities does not change after the acquisition of shares in the target company. Thus the contention of the appellants that the said intra-se transfer between promoters of the target company did not result in any additional increase of shares is therefore misconceived.

 

28. The appellants have also disputed their being treated as ‘persons acting in concert’.

 

29. Admittedly Jost, Mr B H Reporter, and his wife; Mrs Aloo Reporter had been holding jointly and severally 29.91% of the equity shares in KJEL for the last several years, 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 the said acquisition were holding 58.72% shares and the total promoter holding, post the said acquisition was 66.72%. The shareholding pattern 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 }

 

 

 

 

 

 

. 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 KJEL, holds a majority stake in Jost.

 

30. The shareholding of the promoters in Jost 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

 

 

31. From a cumulative reading of the facts above mentioned, 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.

 

32. In this context, Section 370 (1B) of the Companies Act, 1956 may also 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

or

(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.

 

33. 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).”

 

35. It is thus apparent that by virtue of the definition of persons acting in concert, read in the context of the provisions above mentioned, Jost along with Mr and Mrs Reporter are deemed to be acting in concert and shall be deemed to be acting in concert with PSPL, in respect of the acquisition of the said 16,000 shares of KJEL, unless the contrary is established by them.

 

36. The appellants have however urged that the commonality of objective and community of interest that are the basic requirements of a person to act in concert with PSPL were missing in their case. The appellants have further contended that the promoters and persons acting in concert are not one and the same and that they cannot form part of persons acting in concert, as they are being clearly identified as forming part of the promoters’ category.

 

36. Granted that it was PSPL undoubtedly, which singly acquired 8% shares of KJEL. However in light of the facts placed before me, which reveals that Jost, 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 KJEL was 64.58%, while on their own, they held a majority stake in Jost, it is clear that these entities had more than a commonality of purpose or objective i.e. of acquiring the shares of KJEL and hence acted in concert at that particular juncture.

 

37. To add strength to this finding, the views of the Hon’ble Tribunal in the case of Nagraj Ganeshmal Jain V/s. P. Sairam (2001) 33 SCL 295 (SAT) may be considered which have been reproduced below: -

 

“On a perusal of the definition of the expression ‘acquirer’ extracted above, it is clear that any person who acquires or agrees to acquire shares or voting rights/control of the target company is an acquirer. The expression “any person” is of wide amplitude. A person becomes an acquirer by virtue of his action- who acquires or agrees to acquire shares etc. Therefore it is difficult to agree with the Appellants contention that a promoter can never be an acquirer. A promoter could be considered as an acquirer or not would depend on the question as to whether he is a person who acquires or agrees to acquire shares etc. Identification is thus action related.” 

 

38. The Hon’ble Securities Appellate Tribunal while examining the concept of the expressions “promoter” and “acquirer” in Modipon Ltd v. SEBI & 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.”

 

39. I am also of the considered opinion that control of a company is not confined only to the shareholding, but can be exercised through several other means. Hence the contention that an acquirer must be an existing shareholder or that a promoter already in control of the company may not resort to acquisition of shares in that company, is incorrect.

 

40. The debate on the whole issue has been summed up in the case of Nagraj Ganeshmal Jain V/s. P. Sairam (2001) 33 SCL 295 (SAT), wherein the Hon’ble Tribunal had also observed as under: - 

“In the instant case there is no doubt as to the acquisition of shares by promoters. By the Appellants own admission they had acquired 18.82% equity capital on 15.9.1997 and the said additional acquisition raised their holding in the company’s capital from 52.95% to 71.77%. However, as per the information furnished by the Appellants vide letter dated 20.6.2001, none of them was individually holding even 5% or more shares in the company even after 15.9.1997. In that context it is relevant to see as to whether they were acting in concert and thereby their collective acquisitions need be taken into account. In this context the Appellants contention that they are not persons acting in concert for the reason that they had no common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company need be examined. Shri Kinikar had also stated that the company is not a target company covered under the specific definition. The Appellants argument in this regard that they are not persons acting in concert is based on two grounds, that since they were already holding 52.95%, acquiring further 18.82% share capital is not a substantial acquisition and further that since they were already in control of the company, there was no question of acquiring control over the company again. In this context it is to be noted that the Appellants had admitted that the whole purpose of acquiring shares in the preferential allotment was to infuse funds to meet the financial requirements of the company. Even if their objective was to make available funds to the company, for that purpose they had acquired 18.82% shares in the company, which is substantial. The shares are acquired by the acquirers and the funds are received by the company. It is not a case of direct supply of funds. It is a case of subscription against the shares acquired by them. Even the Appellants have not denied the fact of acquisition of shares by them. It is incorrect to say that such substantial acquisition should be for gaining control and in a company where the control is already vested in the acquirers; the acquisition of further shares was of no relevance. There is no doubt that as Justice Bhagwati Committee put it, to be acting in concert with an acquirer “they must have commonality of objective and a community of interests 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 concerted action of these persons must be an element of co-operation”. (para 2.22 of the report). In the instant case there is no dispute as to whether there was an element of co. operation among the Appellants to acquire shares of the company. It is also evident that they had a commonality of objectives and community of interest in as much as they had decided to subscribe to the preferential allotment made by the company. The object of subscribing to the preferential allotment may not be to acquire control but to infuse funds. But the fact remains that the Appellants had acquired shares following the common objective of acquiring shares. Therefore in the light of the undisputed facts before me, I have no hesitation to hold that the Appellants are acquirers in terms of regulation 2(1)(b) read with regulation 2(1)((e). Now comes the question raised by the Appellants that since they are promoters and in control of the company how can they be treated as acquirers. The Appellants contention that a person who is in control of the company cannot be an acquirer but only a promoter is not born out of any legal authority. The fact that in the regulation 2(1)(h) a promoter also includes “ the person or persons who are in control of the company” does not mean that he cannot be an acquirer who “acquires or agrees to acquire shares or voting rights in a company”. By virtue of a position to exercise control over a company, the person concerned is not debarred from acquiring shares in the company. In this context definition of control provided in the regulation is required to be looked into”.(emphasis not supplied)

 

Deriving strength from the views of the Hon’ble Tribunal, I find no

reason to take a different view in the instant case.

 

40. As 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, the provisions therein, would thus be attracted in respect of acquisition by a person, not necessarily an existing shareholder but 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 KJEL. 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.

 

41. It is on record that PSPL is a 100% subsidiary of the main promoters of KJEL who held 64.58% of its share capital at the relevant point of time (December 12, 2002). 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 KJEL who was also the promoter and director of PSPL.

 

42. It is also not in dispute that post the said acquisition, the majority control continues to remain with PSPL, Jost, Mr Burjor Reporter and Mrs Aloo Reporter, the main promoters of KJEL, in that PSPL is an entity stated to belong to the promoter group of KJEL 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 KJEL) being shareholders and Directors in PSPL. Incidentally, Mr B M Reporter is the Chairman of Jost and holds a majority stake therein.

43. The expression ‘person acting in concert’ defined in Regulation 2(1)(e) of the Takeover Regulations has been reproduced earlier as also the definition of the term “acquirer” under Regulation 2(1)(b) of the said Regulations. It is established that PSPL is the acquirer of 8% of the share capital of KJEL. Considering that the intent and action of the person decides as to whether that particular person is acting in concert with the acquirer, as also the relationship amongst these parties, it can be safely concluded that Jost, Mr B H Reporter and his wife; Mrs Aloo Reporter i.e. the entities forming part of the same group, acted in concert with PSPL with a common objective of acquiring the shares of KJEL. That is to say, PSPL directly and Jost, Mr B H Reporter, his wife; Mrs Aloo Reporter indirectly, acquired the shares of KJEL with a common objective.

 

44. The appellants have also urged that the additional acquisition if at all, was restricted only to 10,000 shares i.e. 5% of the capital of KJEL acquired from the children of Mrs.Perviz Batliwala, i.e. Ms.Shireen Jamshyd Batliwala (5000 equivalent to 2.50%) and Mr.Farokh J.Batliwala (5000 equivalent to 2.50%) aggregating to 10,000 equity shares equivalent to 5% and that the 6000 shares equivalent to 3% shares acquired from Mrs.Perviz Batliwala, could not be considered as ‘additional shares’, as she was already a Director of PSPL. On the said basis, they have stated that Regulation 11 of the Takeover Regulations was not triggered in any view of the matter.

 

45. This contention of the appellants is totally misconceived in that being a Director of PSPL, does not in any way mitigate the act of Mrs. Parviz Batliwala of selling her shareholding in KJEL to PSPL or of PSPL buying the said shares. The fact is that Mrs. Batliwala received the consideration for the transaction involving the sale of 6000 shares, which admittedly took place i.e., an overall purchase/ acquisition of 16,000 shares of KJEL was made by PSPL, a separate legal entity, on its own.

 

46. In view of the discussion as above, I do not find the case laws referred to by the appellants as of any relevance to the facts of this case. The acquirer along with the persons acting in concert, breached the threshold limit without making the mandatory public announcement as stipulated in Regulation 11(1) of the Takeover Regulations, resulting in the violation of the said Regulations. Consequently they would be liable under Section 15H(ii) of the Act which mandates the levy of penalty upon the acquirer(s) in case of an acquisition not preceded by a public announcement to the extent of Rs.25 crores or three times of the notional profits made out of such failure, whichever is higher.

 

47. However for the purpose of determining the quantum of penalty to be levied, the provisions of the Act also require the Adjudicating officer to refer to the factors as provided in the Section 15J of the Act, which also finds 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.

 

48. This is a direction and not an option, which is however to be exercised with due regard to discretion, that 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.

 

49. This is so because 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.

50. Taken in that context, in order to compute the disproportionate gain or unfair advantage enjoyed by the appellants, 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.

51. However, the fact remains that had the appellants made a public announcement to acquire 20% of the shares of KJEL, the shareholders of KJEL would have got an opportunity/option 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. This opportunity /option was denied to them. Further, such an announcement if made would have also impacted the price movement of the shares 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 appellants ought to have made under the Regulations.

 

52. However, I have noted that Mr Atul Gupta and Mr K V Ramana Shetty made an open offer, under the provisions of the Takeover Regulations for the shares of KJEL, pursuant to a memorandum of understanding dated March 31, 2004 at a price of Rs.111/- per share. In the said offer, all the appellants in the instant case had tendered their shares and consequently, none of them are holding shares in KJEL. The appellants have drawn my attention to the fact that very few of the remaining shareholders of KJEL had participated in the offer and have on that basis, submitted that their failure to make an open offer, pursuant to the impugned transaction did not affect any of the shareholders of KJEL or prejudice their interests.

 

53. Be that as it may, the fact remains that the appellants had no means of knowing the extent of the public response, in the event of the offer being made. 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 KJEL on account of the failure of these acquirers to make a public announcement under the Takeover Regulations, ought to be considered.

54. 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 KJEL in the said offer: ( the price at which 8% of the shares of KJEL were acquired by the acquirers): Rs.64.25.

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

                                IV.      20% of the total number of outstanding shares of KJEL 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 to be paid i.e. from December 18, 2002 till March 31, 2004 being the date when the acquirers sold their shares

                             VII.      the rate of interest

55. For the purpose of fixing the interest and the rate payable 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.

56. I have noted the order of the Hon’ble 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.

57. 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.

58. 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.

59. Had the appellants in the instant case made the public offer, they would have had to make a minimum payment of Rs.28, 18,198 to the shareholders of KJEL for acquiring the stipulated 20% of the shares of KJEL from them. However, by failing to make the required public offer, the appellants have deprived the shareholders of KJEL 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 appellants on the other hand.

60. 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 entity 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.

61. In the instant case, I have noted that the shareholders of KJEL 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. At that juncture, the public response, as pointed out by the appellants, was rather muted. However, considering that there was a substantial acquisition of shares by the appellants 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 earlier discussed in mind, 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, 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. Rather, 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/-.

62. 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 M/s Phiroze Sethna Private Limited, 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 M/s Kerry Jost Engineering Limited.

63 These appellants 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.

 

 

 

PLACE : MUMBAI

 G. BABITA RAYUDU

DATE : 17, MARCH 2006

  ADJUDICATING OFFICER