BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

Appeal No.93/2002

                                                            Date of Hearing: 5th July, 2004

                                                            Date of decision: 9th July, 2004

In the matter of

1.      Mazsher N Laila

2.      Ms. Zainab M. Laila

3.      Ms. Farida M. Laila

4.      Master Ali M. Laila

5.      Ms. Fatema M. Laila

6.      Ms. Arefa M. Laila

7.      Mr. Sabbir N. Laila

8.      Ms. Munira S. Laila

9.      Mr. Akeel S, Laila

10. Ms. Ajman S. Laila              Appellants– Represented by

Shri Mahendra C. Bhuta , Company       Secretary.

            Versus

Shri S. V. Krishna Mohan,

Adjudicating Officer,

Securities and Exchange Board

 of India                                             Respondent – Represented by

                                                            Shri  Kumar Desai, Advocate

Coram:

            Justice Shri Kumar Rajaratnam, Presiding  Officer

            Dr. B. Samal, Member

Per :   Dr. B. Samal, Member

            The present appeal is against the impugned order of the Respondent dated 30th August, 2002.  It is alleged that the appellants have contravened section 3(1)(c ) (ii) and 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers)Regulations, 1997 while acquiring 12,00,000 shares of Oxford Industries Ltd., constituting 20.19% of its share capital on preferential basis on 22nd June, 2002.

2..        Oxford Industries Ltd., is a listed company dealing in Textiles and is listed at Ahmedabad , Bombay and Madras Stock Exchanges.  The company’s paid up share capital presently is Rs.5,93,60,000/- (Rupees five crore ninty three lakhs sixty thousand only).   From the inception of the company i.e. since last 20 years the promoters and persons in control have been members of the Laila family.  At all material times since passing of section 81(1A) Resolution the said promoters have held a little over 25% of the equity.  In order to fulfill one of the conditions for availing loan from IDBI, the company i.e. Oxford Industries Ltd., had made a preferential issue of 1,20,000 Optional Convertible Cumulative Redeemable Preference Shares in terms of special resolution under section 81(1A) of the Companies Act, 1956 passed at the 18th Annual General Meeting held on 28th September, 1999.

3.         In the Explanatory Statement attached to the notice convening the 18th Annual General Meeting  vide Item No.8, the appellants have mentioned that that the above preferential shares were to be allotted inter alia to promoters group and accordingly identity of the class of entity i.e. promoters was disclosed.  According to the appellants, the allotment of above preferential shares to each of the allottees was less than 5% of the post issue capital and accordingly the appellants were under bonafide belief that the disclosures contemplated under Regulation 3(1) (c ) (ii) of SEBI (Substantial Acquisition of Shares and Takeovers ) Regulations, 1997 were not required. 

4.         The appellants who were acquirers were issued notice by the Respondent under rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by adjudicating officer) Rules, 1995 seeking their reply on the alleged contravention of SEBI (Substantial Acquisition of Shares and Takeovers ) Regulations, 1997 while acquiring the 12,00,000 shares of Oxford Industries Ltd., on preferential basis on 22nd June, 2001 which increased their shareholding from 25.31% to 40.39% of the  paid up capital of the company.  It is alleged that the acquirers (the appellants) who are promoters have not complied with regulation 11(1) which stipulates that the acquirers who already hold more than 15% but less than 75% of the share capital along with persons acting in concert shall not acquire additional shares or voting rights which entitle them to exercise more than 5%  of the voting rights  in any period of 12 months unless such acquirer make a public announcement to acquire shares in accordance with the regulations.

5.         It was not disputed that the allottees  who were allotted 12,00,000 shares on preferential basis constituted 20.19% of the paid up share capital of the company are promoters and persons acting in concert.  One of the   acquirers  Shri Mazher N. Laila is the Chairman & Managing Director of the company while another acquirers Shri Shabbir N. Laila is a Wholetime Director as per the 18th Annual Report (98-99) of the company.  Details of the shareholding of Shri Mazher N. Laila and persons acting in concert with him prior to and after the acquisition of the shares in the preferential allotment are as under:

PRE ACQUISITION

POST ACQUISITION

Mazher N. Laila

2,23,580

4.71

50,000

2,73,580

4.60

Ms. Zainab Laila

71,980

1.52

2,00,000

2,71,980

4.58

Ms. Farida M. Laila

1,06,390

2.24

1,70,000

2,76,390

4.65

Ali M. Laila

1,56,030

3.29

1,20,000

2,76,030

4.64

Fatema M. Laila

75,370

1.59

1,05,000

1,80,370

3.03

Arefa M. Laila

54,800

1.16

55,000

1,09,800

1.85

Shabbir N. Laila

1,41,520

2.98

1,35,000

2,76,520

4.65

Munira s. Laila

1,42,320

3.00

1,35,000

2,77,320

4.67

Akeel S. Laila

1,56,550

3.30

1,20,000

2,76,550

4.65

Aiman S. Laila

72,190

1.52

1,10,000

1,82,190

3.07

 

12,00,730

25.31%

12,00,000

24,00,000

40.39%

 

6.         The main contention of the appellants is that the preferential allotment in question is exempt in terms of regulation 3(1) ( c ) of the 1991 Regulations from the purview of regulation 10,11 and 12 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997     in view of the fact that none of the allottees had individual shareholding which is in excess of the 5% of the voting rights.  Requirements of compliance in terms of regulation 10,11 and 12 is by the acquirer.  The present adjudication proceedings are directed against the acquirers for their failure in terms of Regulation 11(1) to make a public announcement.  Since the acquirers were already holding 25.31% of the paid up capital prior to the present acquisition in the preferential allotment, they could not have acquired collectively 5% or more of additional capital unless they made a public announcement to acquire shares in accordance with the regulations.

The expression “acquirer” as per Regulation 2(1) (b) means:-

“any person, who directly or indirectly acquires, or agrees to acquire shares or voting rights in the target company or acquires or agrees to acquire control over the target , either by himself or with any person acting in concert with the acquirer.”

The expression “person acting in concert” has been defined in regulation 2(1)(e) as under:

(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 or 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;

(iv)            mutual fund with sponsor or trustee or asset management company,

(v)               foreign institutional investors with sub-account(s);

(vi)            merchant bankers with their client (s) as acquirer;

(vii)          portfolio managers with their client(s) as acquirer;

(viii)       venture capital funds with sponsors;

(ix)            banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirers;

Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work;

(x)              any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company.”

7.         Shri Mahendra Bhuta, Representative of the appellant submitted that 400 employees are working in the company.  The company had to avail of IDBI loan and it was the principal requirement  of IDBI that they must increase their share capital base.  Hence the promoters after getting the approval from their Board issued preferential shares in the form of 1,20,000 Optional Convertible Cumulative Redeemable Preference Shares.   The appellants have not got any proportionate gain.  This was only to revive the company and provide employment to the workers.  The learned Representative  pleaded that the penalty of Rs.5 lakhs imposed by the Respondent is too heavy for a minor irregularity committed by the appellants who was in dire need of capital.

8.         Shri Kumar Desai, learned counsel for the Respondent submitted that the appellants have not complied with the proviso to regulation 3(1) (c ) (ii) in as much as no details were provided with regard to the following in the Annual General Meeting notice dated 29th July, 1999:

      (1) Identity of the allottees

      (2) Price at which shares were proposed to be allotted

      (3) Consequential changes in the Board of Directors

      (4) Consequential changes in the voting rights

(5) Consequential changes in the shareholding pattern of the company and whether allotment would result in change in control.

 

9.         Shri Kumar Desai, the learned Counsel specifically mentioned that no public announcement was made.  Had there been any such public announcement it would have given the existing shareholders an opportunity to exit from the company in accordance with the price determined in terms of  the regulations particularly in view of the fact that the price of the company’s shares were traded mostly below Rs.10/-.  Though it is very difficult to estimate the quantum of loss yet an opportunity of exiting from the company was denied to the existing shareholders who might  have opted for such exit.  Moreover, high penalty in accordance with the rules has to be imposed to have a deterrent effect.

10.       After hearing the Representative of the appellants and the Counsel for the Respondent  and perusing the documents and materials submitted before us, we uphold the order of the Respondent.  However, taking into account the fact that the company employs 400 workers and share capital had to be increased  to avail loan from IDBI to upgrade the technology, we reduce the quantum of  penalty  to Rs.50,000/-.  The appellants to deposit the penalty amount within six weeks from the date of receipt of this order.

 

            The appeal is disposed of accordingly.

 

            No order as to costs.

(Pronounced in Court)

 

 

 

 

         Justice Kumar Rajaratnam

            Presiding officer

          Dr.D.B.Samal 

            Member

 

Place: Mumbai

Date: 9th July, 2004