TaxTMI 
TaxTMI 
2019 (4) TMI 596
X X X X Extracts X X X X
X X X X Extracts X X X X
....Mangsule, Advocate, Mr. Joby Mathew, Advocate with Mr. Nikhil Shah, Advocate i/b Joby Mathew & Associates ORDER Per: Dr. C.K.G. Nair 1. This appeal has been filed challenging the order / communication dated December 27, 2016 issued by the Assistant General Manager of the Securities and Exchange Board of India ("SEBI" for convenience) disposing off a complaint made by the appellant alleging prima facie violation of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 ("Takeover Regulations, 1997" for convenience) by some entities. 2. The appellant is a listed company. Vide communication dated September 26, 2011 the appellant lodged a complaint with SEBI, which, inter alia, stated that some parties connected to each other and were Persons Acting in Concert ("PACs") with the Birlas acquired shares of the appellant company without making mandatory disclosures as prescribed under law and thereby, violated Regulation 7(1) and Regulation 7(2) of the SEBI Takeover Regulations, 1997. Further, it was also alleged in this communication that the nature of trading of some of those parties and their source of fund may be investigated to ascertain whether these enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hem are persons acting in concert with each other. No violation of provisions of Regulation 7 of Takeover Regulations was observed." 6. Before coming to the details of the matter we propose to deal with two preliminary objections raised by some of the respondents, including SEBI. These respondents submitted that the appeal is not maintainable since the appellant is not a person aggrieved. A target company is not affected by who purchases or acquires its shares, it is a neutral legal entity. Therefore, it is contended that the real appellant is hiding behind the shield of the company who is not an aggrieved person and hence the appeal is not maintainable. The second preliminary objection raised by these respondents is that the impugned communication is an administrative order and hence not appealable before this Tribunal in view of the Judgement of Hon'ble Supreme Court in the matter of National Securities Depository Ltd. V/s Securities and Exchange Board of India (2017) 5 SCC 517 (decided on March 07, 2017) which held that circulars and administrative orders issued by SEBI cannot be appealed before this forum. Similarly, the appellant also raised a preliminary objection stating ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement 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 acquirer: 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... information under [sub-regulations (1) and (1A)]." 8. The allegation of the appellant in its complaint is that Respondent Nos. 2 to 11 were PACs within the meaning of Takeover Regulations, 1997 and they acquired the shares of the appellant company with the motive/ intent to acquire/ control the company and since the combined acquisition of shares of these Respondents together came to about 10% of the aggregate share capital of the appellant company and, therefore, breach the 5% trigger which mandated disclosures to the appellant company and to the Exchanges. Therefore, Respondent Nos. 2 to 11 violated Regulation 7(1) and Regulation 7(2) of the Takeover Regulations, 1997. 9. At the relevant time these 10 Respondents together held less than 10% of the aggregate share capital of the appellant company as follows:- Sr. No. Particulars Number of Shares Shareholding (%) 1. Birla Education Trust Respondent No. 2 6,50,961 0.85 2. Earthstone Holding (Two) Limited. Respondent No. 3 65,790 0.09 3. Aventz Finance Pvt. Ltd. Respondent No. 4 98.316 0.13 4. Adventz Securities Enterprises Ltd. Respondent No. 5 11 0.00 5. Go....
X X X X Extracts X X X X
X X X X Extracts X X X X
....passing the order in a cavalier manner since an opportunity of being heard was not provided to the appellant. He further contended that the Officer concerned who passed the order/ communication despite giving an opportunity of explanation to the Respondent Nos. 2 to 11 neither gave an opportunity of hearing to the appellant nor the documents obtained from the respondents were shared with the appellant. It was also contended that some of the statements made by the respondents regarding their PAC status were relied on by the SEBI Officer blindly and if an opportunity was provided to the appellant it would have been able to prove that all these respondents were indeed PACs. 12. It was further contended by the learned senior counsel for the appellant that detailed "evidence" was provided by the appellant in its complaint regarding the reasons for the respondents therein to be PACs. All of them were parties to Company Petition No. 1 of 2010 filed before the Company Law Board ("CLB") under Section 397/ 398 of the Companies Act, 1956 seeking removal of the Chairman of the appellant company and they acquired about 8% of the share capital of the appellant company during the period 2008-2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vil Appeals Nos. 9258-65 of 2003 with Nos. 10092-98 of 2003, decided on May 11, 2005) the appellant submitted that the degree of proof required to prove persons acting in concert is one of probability and the same can be proved by looking at the conduct of parties. Further citing Guiness PLC and Distillers Co. PLC (Panel hearing on 25 August 1987 and 2 September 1987) direct evidence in such issue may not be forthcoming inference need to be drawn based on the circumstances. Similarly appellant submitted that as held in the judgment of the Supreme Court of India in the matter of Chairman, SEBI V/s Shriram Mutual Fund and Anr. (2006) 5 SCC 361 (Civil Appeals Nos. 9523-24 of 2003, decided on May 23, 2006) mens rea or intension is always not needed while deciding imposition of penalty wherever breach or contravention of statutory obligation is established. 16. We have heard the learned counsel for the various respondents Shri Rafique Dada and Shri Janak Dwarkadas, learned senior counsel and learned counsel Shri Kumar Desai, Shri Vinay Chauhan and Shri Joby Mathew. 17. Shri Dada, learned senior counsel for SEBI contended that the only ground on which the appellant is holding that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame thing as persons who come together in a Company Petition under Section 397/ 398 of the Companies Act alleging mismanagement or oppression of minority shareholders. If that is taken as a criteria then all the signatories of such a Petition are to be treated as acting together which is not the case here even according to the appellant. Conversely, if such a view is taken, then all the parties who support the promoter group entity/ entities would automatically become PACs supporting the promoters thereby necessitating an enquiry as to whether there is any violation of Takeover Regulations committed by the promoters and such PACs. Therefore, PACs as under Takeover Regulations, 1997 and shareholders coming together for filing a Company Petition are different. Beyond that the appellant has not provided any evidence of acting in concert nor SEBI could find any evidence by its investigation to link all the respondents, other than the two identified sub-groups of PACs. Therefore, there is nothing on record to show that all the ten Respondents were indeed PACs as defined under Regulation 2(1) e (1) of the Takeover Regulations, 1997. Regarding the submission of the appellant that they wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he principle of providing hearing is not always required. Further, citing the order of this Tribunal in the matter of Alliance Capital Mutual Fund and Ors. V/s Securities and Exchange Board of India (Appeal No. 132 of 2004 decided on 01.11.2007), Daiichi Sankyo Company Limited V/s Jayaram Chigurupati and Ors. (2010) 7 SCC 449 (Civil Appeals No. 7148 of 2009 with 7314 of 2009, decided on July 8, 2010) submitted that to decide on PACs those who cooperate with each other should have a common objective of acquiring substantial number of shares in a target company while interpreting Regulation 2(1) e(1) of Takeover Regulations, 1997. Even in the case of co-promoters said to be acting in concert it is held in the matter of K.K. Modi V/s Securities Appellate Tribunal and Ors. 2001 SCC OnLine Bom 969 (SEBI Appeal No. 9 of 2001 with Notice of Motion No. 2033 of 2001 decided on November 5, 2001) that there is a need for proving a common objective for acquiring shares. "The mere fact that one of the promoters of the company wishes to acquire more shares of the company is not a reason to hold the other promoters also necessarily share the same objective or purpose". 22. Learned counsel for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere not persons acting in concert with Respondent Nos. 2 to 7 or with Respondent No. 11. Their investment in the appellant company was only like any other investment which they periodically sold and made a profit out of it. 25. Learned counsel Shri Mathew appearing for Respondent No. 11 submitted that it is a stock broker who trades in shares on proprietary account as well as on behalf of its clients. It is contended that the investment in the shares of the appellant company was made because the book value of the share was greater than its market value in 2008. They were not acting in concert with any other respondent. Its borrowing from Birla Global Finance Co. ("BGFC") has nothing to do with any common interest in the appellant company. It was borrowing which is like they borrowed from other entities such as Religare Finvest Pvt. Ltd. and whatever was borrowed from BGFC or Religare Finvest Pvt. Ltd. was repaid with interest. Total acquisition of the shares of the company of this respondent was only 14,22,500 shares (1.85%) and as such no violation of disclosure requirement under Regulation 7 of Takeover Regulations, 1997 has been committed. 26. We have perused the documents....