SECURITIES
(ADJUDICATION ORDER NO: SBM-ASR/AO/EAD-3/19-20/2016)
UNDER
SECTION 15 - I OF SECURITIES
In respect of:
Ms.
Nirmala Savla
PAN:
BGCPS4954G
Shri
Kunal Savla
PAN:
AFZPS4414A
In the matter of:
Hansu Controls Limited
FACTS OF THE CASE
1.
Securities and Exchange Board of India (hereinafter
referred to as “SEBI”) while
examining the Letter of Offer dated June 12, 2008 filed by Shri Chandrashekar
Ramashrey Gupta and Shri Ramashrey Jagannatram Gupta (hereinafter collectively
referred to as ‘Acquirers) for
making an open offer to acquire 20% shares of Hansu Controls Limited. (Hereinafter
referred to as ‘HCL/Target
Company'), which was listed on the Over the Counter Exchange of India (OTCEI), had observed certain instances
of non - compliances with respect to the provisions of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to
as “Takeover Regulations, 1997’) by Ms. Nirmala Savla and Shri Kunal Savla (hereinafter
collectively referred to as ‘Noticees’). The public announcement in respect of the aforementioned open
offer was made on May 5,
2008.
2.
As per the Letter of Offer dated June 12,
2008, the total paid up share capital of HCL was Rs. 90,01,000 /- represented
by 9,00,100 shares of Rs. 10/- each. As per the letter of offer, the total
shareholding of the promoters / promoter group in HCL during the period between 8th
September 2003 to 6th
September, 2004 was 81.65% represented by 7,34,900 shares of face value of Rs
10/ each. It was observed that the
Noticees viz. Ms. Nirmala Savla and Shri Kunal Savla (who were part of the
promoters/promoter group of HCL) had purchased 44,200 shares of HCL on 7th
September 2004 by way of off-market transaction. It was alleged that the 44,200
shares of HCL purchased by the Noticees (representing 4.91 % of the total
voting capital of HCL) on 7th September 2004 (i.e. 24,700 shares
purchased by Ms. Nirmala Savla and 19,500 shares purchased by Shri Kunal Savla
on 7th September 2004, as mentioned above) resulted in the total
shareholding of the promoters / promoter group in HCL increasing from 81.65% to
86.56% on 7th September 2004. Therefore, it was alleged that the
Noticees were required to comply with the provisions of Regulation 11 (2) read
with Regulation 14 of the Takeover Regulations, 1997 in respect of the above
mentioned purchases by them. It was alleged that the Noticees have failed to
comply with the above mentioned provisions of the Takeover Regulations, 1997.
APPOINTMENT
OF ADJUDICATING OFFICER
3.
Shri D. Ravikumar, Chief General Manager, was
appointed as Adjudicating Officer vide order dated March 07, 2013 under Section
15-I of
the Securities and Exchange Board of India Act, 1992 (hereinafter referred to
as ‘SEBI Act’) read with Rule 3 of
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred
to as ‘Adjudication Rules’) to
inquire into and adjudge under the provisions of Section 15H(ii) of the SEBI
Act, the violation of the provisions of Regulation 11(2) read with Regulation 14 of
the Takeover Regulations, 1997 alleged to have been committed by the
Noticees. The said appointment Order was communicated vide communiqué dated April
26, 2013. Subsequently, upon the transfer of Shri D. Ravikumar, I have been
appointed as Adjudicating Officer in the matter vide appointment order dated
June 22, 2015.
4.
Show Cause Notice dated June 30, 2015 was
issued to the Noticees in the said matter under the provisions of Rule 4(1) of
the Adjudication Rules to show cause as to why an inquiry should not be
initiated against the Noticees and penalty, if any, be not imposed on the
Noticees under the provisions of Section 15H (ii) of the SEBI Act for the
alleged violations as specified in the Show Cause Notice (hereinafter referred
to as "SCN"). It was alleged in the SCN that the Noticees
have failed to comply with the requirements of Regulation 11(2) read with Regulation 14 of the Takeover Regulations,
1997. Consequently, the Noticees were liable for penalty under the provisions
of Section 15H (ii) of the SEBI Act for the aforementioned violations allegedly
committed by them. The allegations leveled against the Noticees in the SCN are
mentioned as under:
a)
It was alleged that the Noticees who were part of the promoters/promoter group of HCL had failed to comply with the provisions of Regulation 11(2) read with Regulation 14 of the Takeover Regulations, 1997 in respect of the following transaction:
|
Noticee |
Date of acquisition |
No. of shares
bought |
Total shareholding
of the Promoters/promoter group |
|
|
Pre-acquisition |
Post-acquisition |
|||
|
Nirmala Savla & Kunal Savla |
07.09.2004 |
44,200 (4.91%) |
7,34,900 (81.65%) |
7,79,100 (86.56%) |
b)
It was alleged in the SCN that the total
shareholding of the promoter group in HCL prior to the aforementioned
acquisition of shares by the Noticees was 7,34,900 shares (representing 81.65%
of the total paid up capital of HCL). It was alleged that the Noticees had
acquired 44,200 shares of HCL on 7th September 2004 by way of off-market
transaction and as a result, the collective shareholding of the promoters/ promoter
group in HCL increased from 81.65% to 86.56% as on 7th September
2004. Specifically, it was alleged
that on September 07, 2004, the Noticees viz. Ms. Nirmala Savla and Shri Kunal
Savla had purchased 24,700 shares (2.74%) and 19,500 shares (2.17%) of HCL,
respectively, by way of off-market transactions, which resulted in the
collective shareholding of the Promoters / Promoter Group of HCL increasing
from 81.65% to 86.56% as on 7th September 2004. It was alleged that
the Noticees failed to comply with the provisions of Regulation 11 (2) read
with Regulation 14 of the Takeover Regulations, 1997 in respect of the aforementioned
transactions as they had failed to make a public announcement in terms of the provisions
of the Takeover Regulations, 1997.
5. The Noticees
submitted their reply to the SCN vide letter
dated August 10, 2015. The salient points of the reply furnished by the
Noticees are as follows:
a) The shares of HCL were listed on OTCEI
in April 1996. There have been no purchase and sale of the shares of HCL through
OTCEI Exchange since 1996 as no trading was taking place in the Exchange.
b) In the year 2008, Shri Chandrashekar
Ramashrey Gupta purchased all the shares of HCL from its Promoters and changed
the name of the Target Company to Sahiltech India Ltd.
c) Noticees admitted that they were part
of the promoter group of HCL. Noticees also admitted that they had purchased 44,200
shares of HCL on September 7, 2004 by way of off-market transaction.
d) The family members of the Promoters
were holding shares of HCL before the existence of the Takeover Regulations.
e) The market was down at that time and HCL
was unable to give satisfactory outcome and the Promoter Group wanted to exit from
the Company. The Noticees mentioned that since no trading in the shares of HCL was
taking place at OTCEI, the close relatives of the promoters had approached the
Noticees to purchase the shares of HCL from them.
f) There was no complaint from any other
member and no person had suffered any loss due to the above transaction. The
transfer of shares was within the promoter group and is not within the purview
of the Takeover Regulations.
g) Noticees also requested for a personal
hearing in the matter.
6.
In the interest of natural justice and in order to conduct an inquiry in
terms of Rule 4 (3) of the Adjudication Rules, the Noticees were granted an
opportunity of personal hearing on November 20, 2015 vide letter dated November
02, 2015. Shri Kunal Savla along with Shri Pradeep Savla attended the personal hearing
on November 20, 2015. The following submissions were made by Shri Kunal Savla
and Shri Pradeep Savla during the course of the personal hearing :
a)
The Noticees reiterated the submissions made by them vide their earlier letter
dated August 10, 2015.
b)
The Noticees agreed with the facts of the case, which was brought out in the
SCN.
c)
The Noticees also agreed to submit additional reply in the matter by
November 27, 2015.
7.
Thereafter,
a letter dated November 25, 2015 was received from the Noticees wherein the
following additional submissions were made by them:
a)
The
matter belongs to the year 2002, 2003 and 2004, whereas the SCN was served in
2015. As per Indian laws, the SCN was needed to be framed and served within
three years of reporting of the complaint.
b)
The
shares were purchased by the Noticees from other members of the promoter group
and were done to help other promoters who were in need of financial help.
c)
The
documentary evidences are not available in respect of the transactions as substantial
time has elapsed since the date of the transactions by the Noticees.
CONSIDERATION
OF ISSUES AND FINDINGS
8.
I
have carefully perused the oral and written submissions made by the Noticees,
the facts and circumstances of the case and the material available on record. I
observe that the allegation leveled against the Noticees is that they have
failed to make the necessary public announcement, which was required to be made
by them under the relevant provisions of Takeover Regulations, 1997, as
applicable.
9.
Before
moving forward, it is pertinent to refer to the
relevant provisions of the Takeover Regulations, 1997 (as it existed at
the relevant point of time of the transactions of the Noticees ), which reads as under:
SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997
Consolidation
of holdings
11 (2) No acquirer who, together
with persons acting in concert with him has acquired,
in accordance with the provisions of law, 75% of the shares or voting rights in a company, shall acquire
either by himself or through persons acting in concert
with him any additional share or voting right, unless such acquirer makes a public announcement to acquire
shares or voting rights in accordance with these
regulations.
Timing of the public announcement of offer
14. (1) The public announcement
referred to in regulation 10 or regulation 11 shall
be made by the merchant banker not later than four working days of entering into an agreement for
acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective
percentage specified therein:
10. In the
instant matter, it is also pertinent to mention the observations of the Hon’ble
Securities Appellate Tribunal (SAT) in the matter of Eider e-Commerce
Ltd. vs SEBI ( Appeal No 176 of 2007 decided on August 20, 2008) wherein, Hon’ble
SAT had, inter alia, observed that –
Once an
acquirer together with persons acting in concert with him holds more than 75
per cent shares in a company and were to acquire additional shares, there is no
requirement in the Takeover Code that he has to make any public announcement.
Regulation 11 is not attracted in such a situation.
To
illustrate, if an acquirer has already acquired say, 71 per cent of the equity
shares of a company, then according to Regulation 11(1), he is entitled to
acquire another 5 per cent in a period of 12 months without making a public
announcement. But actually, he is not permitted to do so in view of the
provisions of Regulation 11(2). If his
intention is to acquire anything beyond 4 per cent, he has to reach the level
of 75 per cent on the way and he would have to make a public announcement in
accordance with Regulation 11(2) before exceeding the benchmark of 75 per cent.
It is to be noted here that Regulation 21(1) of the Takeover Code (as it stood
at the relevant time) lays down that when the acquisition takes shareholding of
the acquirers beyond 75 per cent, the public offer “ shall be for such
percentage of the voting capital of the company as may be decided by the
acquirer”. Therefore, after crossing 75 per cent, the acquirer can stop at any
level that he decides and once he has crossed 75 per cent, there is no
requirement in the Takeover Code that he has to make any public announcement
before acquiring any further shares. This is the scheme of Regulation 11. When
we look at the facts of the case in hand, the promoters of EIL and their
associated entities held 84.5 per cent of the equity capital of EIL when the
appellant is alleged to have funded the purchase of shares of EIL by Saran
Investments along with Eider Financial Services Ltd. Assuming that the appellant
was an acquirer and acted in concert with the purchasers and the promoters of
EIL, he was not required to make a public announcement because Regulation 11
was not attracted. ‘’
Thus, it is clear from the observations made by
Hon’ble SAT that once an acquirer along with the persons acting in concert with
him holds more than 75% shares or voting capital in a company and were to
acquire additional shares, then there is no provision under the Takeover
Regulations, 1997 that he has to make a public announcement to acquire further
shares through open offer.
11.
In
the present case for which the proceedings are initiated against the Noticees,
I observe that as on September 6, 2004 i.e. one day prior to the transactions
in the scrip of HCL by the Noticees, the collective shareholding of the
promoters/promoter group in HCL, including the shareholding of the Noticees
(who were also part of the promoter/promoter group of HCL) was 81.65% (represented
by 7,34,900 shares). I find that the Noticees had purchased 44,200 shares of HCL
on September 7, 2004, which resulted in the total shareholding of the
promoters/promoter group in HCL increasing from 81.65% to 86.56% as on
September 7, 2004. The relevant details of the transactions of the Noticees in
the scrip of HCL are reproduced as under :
|
Date |
Mode of
Acquisition / Sale |
Name of the
Acquirer |
No. of Shares |
% of paid-up Share Capital |
No. of Shares held by
promoters prior to acquisition |
% to the paid-up share capital |
No. of Shares
held by promoters after acquisition |
% to the paid-up share capital |
|
07.09.04 |
Off Market
Purchase |
Nirmala Savla |
24,700 |
2.74 |
7,34,900 |
81.65 |
7,79,100 |
86.56 |
|
Kunal Savla |
19,500 |
2.17 |
I
observe from the above that the promoters/promoter group of HCL was already
holding shares in excess of 75% of the equity share capital/voting capital of
HCL at the time of the aforementioned purchase of 44,200 shares of HCL by the
Noticees on September 7, 2004. I also observe that the obligation to make a
public announcement to acquire further shares through open offer under the
provisions of Regulation 11 (2) of the Takeover Regulations, 1997 does not
cover a situation where an acquirer, who together with persons acting in
concert with him, had already acquired 75% or more of the total capital / voting
capital of the Company. In view of the above and also in light of the
observations of Hon’ble SAT in the matter of Eider e-Commerce Ltd, as brought
out in the pre-paragraphs, I find that the transactions of the Noticees on
September 7, 2004 involving their purchase of 44,200 shares of HCL cannot be covered
under the provisions of Regulation 11 (2) of the Takeover Regulations,
1997. Hence, without going into the
merits of the matter, I am of the view that the proceedings initiated against
the Noticees viz. Ms Nirmala Savla and Shri Kunal Savla vide SCN dated June 30,
2015 is untenable.
ORDER
12.
In view of the foregoing, the alleged
violation of the provisions of Regulation
11(2) read with Regulation 14 of
the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 is not established
against the Noticees viz. Ms. Nirmala Savla and Shri Kunal Savla and the matter
is accordingly disposed of.
13.
In terms of the provisions of Rule 6 of the
Adjudication Rules, copy of this order is being sent to the Noticees viz. Ms.
Nirmala Savla and Shri Kunal Savla and also to the Securities and Exchange
Board of India.
Place: Chennai SURESH B MENON
Date: 25.01.2016 ADJUDICATING OFFICER