TaxTMI 
TaxTMI 
2019 (12) TMI 1656
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.... Private Limited (hereinafter referred to as "SNPL" / "Noticee no.5"), Anurodh Merchandise Private Limited (hereinafter referred to as "AMPL" / "Noticee no.6"), Nandlal Vypaar Private Limited (hereinafter referred to as "NVPL" / "Noticee no.7"), Radhasoami Securities Private Limited (hereinafter referred to as "RSPL"/"Noticee no.8"), BPJ Holding Private Limited (hereinafter referred to as "BPJHPL"/"Noticee no.9") and Onesource Ideas Private Limited (hereinafter referred to as "OIPL"/"Noticee no.10") (hereinafter Collectively referred to as "Noticees") had acted in the concert to acquire shares of FFSL which is alleged to have been in violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "SAST Regulations, 1997"). SHOW CAUSE NOTICE 3. Upon completion of investigation, a Common Show Cause Notice (hereinafter referred to as 'SCN') dated April 19, 2018 was issued to all the Noticees (10 entities) in the matter of FFSL to show cause as to why suitable directions under sections 11(1), 11(4) and 11B of SEBI Act, 1992 should not be issued against them for the alleged violations of provisions of regulations 10 & 12 of SAST Re....
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.... 2017 to SEBI has stated that pursuant to the MoU, he had given a power of attorney to the representative of Mr B.P. Jhunjhunwala (acquirer) and the transfer deeds were signed and given to them. Further, he has also stated that he is not aware when the shares under MoU were finally transferred. 4.5. Mr. B.P.Jhunjhunwala (acquirer) vide letter dated December 06, 2016 has stated that Noticee nos. 1 and 3 to 10 acquired only 13,78,719 shares (36.78%) instead of 21,76,650 equity shares (58.08%) from Mr P. Natrajan & other entities, as mentioned in the MoU. Vide said letter Mr. B.P.Jhunjhunwala has stated that as mentioned in the MoU, the tranche-1 shares were transferred on July 02, 2010, the details are as under: TABLE-1 (Tranche-1) Name of the Transferor Name of the transferee No of shares acquired N Nithya BP Jhunjhunwala 1,500 N Neeraja Ruhi Jhunjhunwala 37,500 First Financial Holdings Ltd Mala Jhunjhunwala 1,30,000 First Financial Holdings Ltd Skyed Network Pvt Ltd 1,00,000 First Financial Holdings Ltd *R Rathinamala 1,40,000 First Financial Holdings Ltd *B Satya Prakash 1,70,000 First Financial Holdings....
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....Shikha Bagaria 46,842 TOTAL 1,61,242 The share capital of FFSL as on 27/04/2012 was 58,24,760 shares. 4.10. Further, no disclosures are available on BSE website with respect to any transfers made during the investigation period in terms of SEBI (PIT) Regulations, 1992 and SEBI (SAST) Regulations, 1997. Further, no confirmation has been given by Mr P Natrajan and Mr B.P. Jhunjhunwala with respect to any disclosures which were made by them. 4.11. Vide letter dated October 27, 2015, FFSL submitted that during the period July 01, 2011-March 31, 2014, only disclosures received from Mr P Natrajan and family for the FYs ending March 31, 2012 and March 31, 2013 were in terms of Regulations 30(1) and 30(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, which have been disclosed on BSE website. 5. From the above, it is alleged in the SCN that Mr. B.P. Jhunjhunwala entered into an MoU dated May 27, 2010 with an intention to acquire 58.08% shares in FFSL from then existing promoters/others and also to nominate directors on the Board of FFSL leaving one promoter director, Mr. B.P. Jhunjhunwala along with Noticee No. 3 to ....
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....unts to 23.16% belongs to Ms. N. Nithya, Ms. N. Neeraja & First Financial Holding Ltd. 7.4. Subsequently on May 27, 2010 a Memorandum of Understanding (hereinafter referred to as "MOU") was executed between BPJ and Mr. Natrajan to give effect to the negotiations. The main terms and conditions of the MOU were as follows: 7.4.1. That Mr. Natrajan had represented that he along with all the other promoters being Ms. N. Jayanthi & Ms. N. Nithya and non-promoter group being Ms. N. Nithya, Ms. N. Neeraja & First Financial Holding Ltd., had expressed interest in selling their shares of FFSL. That the promoter group along with nonpromoter group by virtue of Power of Attorney had duly authorized Mr. Natrajan to negotiate and finalize the commercial terms for the sale of the shares. That the promoter group along with Mr. Natrajan and non-promoter group together (herein after referred to as the "Seller" group) held a total of 21,76,650 equity shares of FFSL which amounts to 58.08% of the paid up share capital of FFSL. 7.4.2. That BPJ (acquirer) had expressed interest to acquire the shares held by both the promoter and non-promoter group totaling to 58.08% of the paid....
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....the third trench, balance amount of Rs. 13,08,650/- was to be paid through postdated cheques (dated November 27, 2010) to the promoter group of FFSL upon signing of the MOU and further upon obtaining prior approval from SEBI against which the promoter group shall ensure that 13,08,650 promoter shares amounting to 34.92% of the paid up share capital of FFSL would be delivered to the acquirer and nominees of the acquirer. The details are as under: Trench No. 3 Sr. No. Date of Cheques Value of Cheque Cheque in Favour of Cheque Issued by 1 27.11.2010 33,600 N. Nithya Onesource Ideas Pvt. Ltd. 2 27.11.2010 4,74,119 N. Jayanthi Onesource Ideas Pvt. Ltd. 3 27.11.2010 8,00,931 P. Natarajan Radhasoami Securities Pvt. Ltd. 13,08,650 Total 7.4.3.5. That Mr. Natrajan had represented and admitted that there were no liability or any outstanding which the acquirer or nominees of the acquirer would be exposed to on account of any other outstanding or dues or encumbrances in any manner whatsoever on the shares/FFSL on the date of signing the MOU. 7.4.3.6. That Mr. Natrajan represented the he would indem....
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....g to Rs. 3,10,000/- at the time of signing the MOU i.e. on May 27, 2010, sought their refund. In view of their decision to back out, the amounts invested by Anurodh Merchandise Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd., were made good by two other independent persons being Mrs. R Rathinamala and Mr. B Sathya Prakash respectively, to whom the shares proposed for Anurodh Merchandise Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd. were ought to have been transferred. 7.9. That Mrs. R Rathinamala and Mr. B Sathya Prakash were acting independently and were not BPJ nominees and/or associates. Neither are they part of the instant SCN and hence not arrayed as PAC or his nominees. 7.10. That when Mr. Natrajan learnt about BPJ decision to terminate the MOU, Mr. Natarajan assured BPJ that the issues with respect to contingent liability will be resolved soon. Based on the assurances of the Mr. Natrajan, BPJ let the transaction in the first and second trench of MOU take effect i.e. the transfer of funds and subsequent transfer of shares. Upon realization of the Cheque amounts in the bank accounts of the non-promoters (viz. Ms. N. Nithya, Ms. N. Neeraja & First Financial Holding Ltd.) th....
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.... by Mr. Natrajan but also the true and actual holding of the promoter group of FFSL was not disclosed to BPJ. 7.15. That BPJ after getting to know the actual intent of Mr. Natrajan to defraud him, decided to rescind the MOU by not acquiring any further shares of FFSL and hence BPJ did not appoint a merchant banker for the takeover of FFSL. Thereafter BPJ instructed ICICI Bank Ltd for "stop payment" of Cheque Nos '050638' & '050637' issued by Onesource Idea Pvt. Ltd. and HDFC Bank Ltd for "stop payment" of Cheque No '056497' issued by Radhasoami Securities Pvt. Ltd. However, BPJ was informed that the cheques issued by Onesource Idea Pvt. Ltd. were already honoured, but the cheque issued by Radhosoami Securities Ltd. was not honoured. 7.16. That, in pursuance of the honour of the cheques amounting to Rs.5,07,710/-, 5,07,710 shares of FFSL were to be transferred by the promoters of FFSL to BPJ. In view of the decision to rescind the MOU, BPJ requested Mr. Natrajan to return a sum of Rs. 5,07,710/- to Onesource Idea Pvt. Ltd and also asked Mr. Natrajan to take back the shares transferred on July 02, 2010 and accordingly also refund the amount of Rs.5,58,000/- to BPJ n....
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....22 Skyed Network Pvt. Ltd. 10,000 0.17 Radhasoami Securities Pvt. Ltd. 10,000 0.17 BPJ Holding Pvt. Ltd. 15,000 0.26 Onesource Ideas Pvt. Ltd. 3,900 0.07 Total 55,800 0.96 7.22. That around April 2012, to BPJ surprise, Mr. Natrajan sent the share transfer deeds (for around 44,500 shares) duly signed by the promoters of FFSL, which were admittedly towards the payment of Rs. 5,07,710/- on November 27, 2010. However, the promoter group of FSSL send the share transfer deeds to the tune of only 44,500 shares amounting to only 0.76% of shares of FFSL as against 50,771 shares (post reduction) which were to be received. On receipt of these share transfer deeds BPJ had once again requested Mr. Natrajan to return the payment towards these shares, but in vain. 7.23. That subsequent after receipt of the share transfer deeds from Mr. Natrajan for transfer of 44,500 shares in the month of April, 2012, the nominees namely SNPL, OIPL and RSPL had requested BJP that they wished to exit from the said investment as they were holding shares since 2010. BPJ with a simple aim to have de facto control over his nominees, had caused to effect t....
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....s or the management of FFSL as per the terms of MOU. Thus, Mr. Natrajan was the promoter and was controlling the management and daily affairs of FFSL from the date of signing of MOU atleast till April 15, 2013. Mr. Natrajan during the relevant period had made declaration/ disclosures before the relevant authorities that he is a promoter/ director of FFSL. The same can be verified from the disclosures submitted by Mr. Natrajan and family under regulation 30(1) and 30(2) of SEBI (SAST) Regulations, 2011 as a promoter to BSE for March 31, 2012 and March 31, 2013.Therefore, BPJ was not required to make a public announcement as per the relevant provisions of SEBI SAST Regulations. 7.27. That it is beyond doubt that Mr. Natrajan was the promoter and controller of FFSL since the very beginning and also that BPJ had withdrawn himself from the obligations of the MOU in the Month of June, 2010 and further rescinded the MOU completely in the month of November, 2010 as BPJ had no intention to takeover the company post discovery of the contingent liability and dubious intentions of Mr. Natrajan. Hence, there was no requirement on BPJ part to comply with Regulation 10 & 12 of SEBI (SAST....
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.... 14.89% of shares of FFSL, which is below the required percentage for any acquirer to make public announcement. 7.32. That BPJ had no intention to continue with the MOU, and therefore BPJ tried for stop payment of the post-dated cheques. But however inspite of his efforts, BPJ was informed that the cheques duly amounting to Rs. 5,07,710/- were honoured. Inspite of BPJ best efforts, Mr. Natrajan did not refund the amount, and therefore under the given circumstances, BPJ nominee was forced to acquire the shares of FSSL. However, it is pertinent to note that instead of transferring 50,771 shares (Post reduction of share capital by FFSL),the promoter group of FFSL transferred only 44,500 shares on in the month of April, 2012. Thus, the acquirer group on the actual date of transfer of the promoter shares i.e. on April 27, 2012 had cumulatively acquired only 2.25% of shares of FFSL which were subsequently reduced to 1.63% of shares of FFSL post preferential allotment of shares. 7.33. That as per the terms and conditions of the MOU, the seller group were to deliver the shares to the acquirer group post June 27, 2010 (for non-promoter group) & post November 27, 2010 (for ....
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....ich itself were contingent in nature. Breaches by Mr. Natrajan made BPJ decide against acquiring the shares/voting rights and control of FFSL. 7.34.2. Therefore having subjected BPJ to the alleged violations is not only harsh but also devoid of merits. Even if the MOU is assumed between BPJ and Mr. Natrajan, the fact remains that it never transpired in to a definitive agreement between them for the reason being breach of MOU by the said Mr. Natrajan. 7.34.3. That regulation 14 of the SAST refers to making an public announcement after 4 days of entering into an "agreement" for acquisition of shares / voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein. In the instant matter, there was no agreement entered/ executed between BPJ and Mr. Natrajan to acquire shares / voting rights of FFSL, nor it was definitely decided by BPJ to acquire the shares since it was contingent upon the conditions to be fulfilled by Mr. Natrajan, for BPJ to decide about acquiring shares/voting rights of FFSL. It is pertinent to note that on June 03, 2010, after receiving the due diligence report from BPJ advocate, BPJ had no inten....
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....res i.e. 58.08% of the paid up share capital of FFSL in three trenches. Since the proposed purchasers Anurodh Merchandise Pvt. Ltd. and Nandlal Vyapaar Pvt. Ltd., decided to back out from the investments and their shares were subsequently transferred to Mr. Rathimala & Mr. Satya Prakash (who are independent individuals who are not the part of the acquirer group). Therefore, the acquirer group in the first and the second tranche of transaction had acquired only 5,58,000 equity shares amounting to 14.89% of the paid up share capital of FFSL instead of 8,68,000 equity shares amounting to 23.16% of the paid up share capital of FFSL on July 02, 2010. Also during the third tranche of transaction, BPJ clearly had no intentions to abide by the terms and conditions of MOU and therefore BPJ had tried for stop payment of the post dated cheques issued for acquiring 13,08,650 shares of promoter group. BPJ had even requested Mr. Natrajan to return the a sum of Rs. 5,07,710/- to his nominee and also to take back the shares transferred during the first and-second trench on July 02, 2010 and in turn return an amount of Rs. 5,58,000 against the shares previously transferred, however Mr. Natrajan did....
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....d fancies. As per the clauses of MOU, the nominee's of BJP were to be appointed as the Board of directors in place of the existing ones post June 27, 2010 only, however, Mr. Natrajan reconstituted the Board on June 05, 2010 for the sole reason to have control on the management of FFSL. 7.35.7. That BPJ nominees were never part of the board or management of FFSL coupled with the fact that Mr. Natrajan had made disclosures under 30(1) and 30(2) of SEBI SAST 2011 proves beyond doubt that neither BPJ nor his nominees were never ever part of the board of FFSL or controlling FFSL. Hence BPJ was not required to make a public announcement as per regulation 12 of SEBI (SAST) Regulations, 1997 as alleged against me and my nominees in the Show Cause Notice. 7.35.8. That BPJ along with his nominees had acquired only 14.89 % of shares in the first and second trench of Transaction. Even on April 27, 2012 upon transfer of 44,500 shares of FFSL, the total share acquisition of BPJ and his nominees amounted only to 1.63% of the total share capital of FFSL, which is below the threshold limit to make any public announcement for acquiring shares or voting rights. Therefore, in view of....
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....they had already expressed their intention of backing out of the said investment to Mr. B P Jhunjhunwala. 8.7. That post transferring of the shares of FFSL to the family member of Mr. B P Jhunjhunwala till the date of the receipt of this SCN, SNPL neither had any knowledge about any transaction between Mr. B P Jhunjhunwala and Mr. Natrajan nor had any knowledge whatsoever about the transaction in the script of FFSL 9. Apart from the submissions made at paragraph 7 above, Radhasoami Resources Limited (RRL) on behalf RSPL and OIPL made following additional submission, which are as under: 9.1. That the National Company Law Tribunal (NCLT), Chennai vide order dated August 10, 2017 have sanctioned the amalgamation of M/s. Radhosoami Securities Pvt. Ltd., M/s. Onesource Idea Pvt. Ltd, Nochi Industries Pvt. Ltd, Carewell Consultants Pvt. Ltd and Subh Labh Share Brokers Pvt. Ltd. with Radhasoami Resources Ltd with effect from September 19, 2017. Thus from September 19, 2017 M/s. Radhosoami Securities Pvt. Ltd. and M/s. Onesource Idea Pvt. Ltd stood dissolved. 9.2. That RSPL and OIPL along with other proposed buyers form a part of the acquirer group for Mr. B P....
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....Jhunjhunwala itself had rescinded the MOU. Hence, RSPL and OIPL were not obliged to make any public announcement under the regulation 10 and 12 of SEBI (SAST) Regulations, 1997. 10. BPJ-HUF vide letter dated October 16, 2018 submitted its reply in the matter which in brief are as under: 10.1. We deny that we have violated Section 10 & 12 of the SEBI (SAST) Regulation, 1997 and Section 12A(f) of SEBI Act, 1992 or any other law/provisions as alleged in the Show Cause Notice. 10.2. That we were never a part of the MOU dated May 27, 2010 entered in to between Mr. B.P Jhunjhunwala and Mr. Natrajan for acquisition of shares of FFSL. Pursuant to the MOU, certain cheques were to be issued to the promoter group of FFSL for acquisition of shares of FFSL, we were not amongst the persons who had issued cheque/s to Mr. Natrajan or promoter group of FFSL. The same can be verified from the MOU and from the letter/s dated May 27, 2010 addressed to Mr. Natrajan. 10.3. That we neither acquired any shares nor did we hold any shares of FFSL in Financial year 2010-2011, the year in which the MOU was executed and therefore we cannot be termed as person acting in concert. Th....
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....L, thus in total comprising of 58.08% of the paid up share capital of FFSL. 11.3. Mr. B P Jhunjhunwala suggested that he shall enter into a Memorandum of Understanding (hereinafter referred to as "MOU") with Mr. Natrajan, wherein the terms and conditions of acquisition of the promoter and non - promoters shares as well as the mode of consideration against the shares of FFSL shall be listed out. The consideration for the shares of FFSL had worked out to be at Rs. 1/- per share. Based on the representations of Mr. B P Jhunjhunwala and also upon the credentials of FFSL, AMPL decided to invest in FFSL by acquiring a certain percentage of shares of FFSL, as Mr. B P Jhunjhunwala was to become the new promoter of FFSL. 11.4. AMPL along with other proposed buyers shall form a part of the acquirer group for Mr. B P Jhunjhunwala and shall issue a post-dated cheques ('PDC') towards consideration for the acquisition of the shares of FFSL. Accordingly, a post-dated cheque no. 274131 dated June 27, 2010 for Rs. 1,40,000/- against 1,40,000 shares of FFSL was issued by AMPL and the same was incorporated in the MOU dated May 27, 2010 executed between Mr. B P Jhunjhunwala & Mr. Nat....
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...., AMPL received a credit of Rs, 1,40,000/- in its bank account on behest of Mrs. Rathinamala. It was informed by Mr, B P Jhunjhunwala and Mrs. Rathinamala that the said credit is towards the cheque issued by AMPL for acquisition of 1,40,000 equity shares of FFSL and that AMPL don't need to acquire those shares anymore. That once AMPL payment against the PDC was made by Mrs. R Rathinamala, AMPL had no contact with Mr. B P Jhunjhunwala or Mrs. Rathinamala and were neither aware nor concerned about the said FFSL or the acquisition of shares of FFSL by Mr. B P Jhunjhuwala or any one else, until the receipt of the present Show Cause Notice. 11.8. That AMPL have been arrayed as a notice for violations of Regulations 10 & 12 of SEBI (SAST) Regulations 1997 and Section 12A(f) of SEBI Act, 1992, merely on the basis of a MOU executed between Mr. B P Jhunjhunwala and Mr. Natrajan, The allegations against AMPL border upon our "intention" to acquire shares of FFSL which is based on the surmises of the purported MOU dated May 27, 2010 of which AMPL opted out and never acquired any shares of FFSL at any point of time as envisaged in the MOU. Although AMPL being a part of the purporte....
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.... thereafter. The Show Cause Notice is entirely based on allegations of persons acting in concert only due to the existence of a purported MOU dated May 27, 2010 of which AMPL opted out immediately upon learning the liability. Therefore AMPL being arrayed as a noticee in the same breath of the other noticees in the Show Cause Notice who apparently are shown to be part of the purported MOU, is totally misconceived to say the least and hence liable to be withdrawn qua us. 11.13. That regulation 14 of SEBI (SAST) Regulations, 1997 refers to making an public announcement after 4 days of entering into an "agreement" for acquisition of shares / voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein. In the instant matter, there was no agreement entered/executed between AMPL and Mr. B P Juhunjhunwala or even between AMPL and Mr. Natrajan to acquire shares/voting rights of FFSL as AMPL had already decided to backed out from its investments and not to acquire any shares/ voting rights of FFSL. Further, the MOU executed between Mr. B P Jhunjhunwala and Mr. Natrajan at best an indicative intent in order to list out arrangemen....
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....of shares of FFSL does not included NVPL. Since, as mentioned in Para 4 of the show cause notice, Mr. Jhunjhunwala has included the name of NVPL also as one of his nominees, it could only be the then Directors and Shareholders of NVPL as benamis and associates of B.P. Jhunjhunwala, who are responsible for the alleged violations relating to the scrip of FFSL. 12.5. The names Directors and Shareholders of NVPL prior to the present Directors and Shareholders being put in charge of the Company are as follows: Sl. No. Name of the person No. of Shares NVPL 1 S. Krishna Rao 2,000 2 S G K Melkha Singh 2,000 3 B. Venodhini 2,000 4 Onesurce Techmedia Ltd 2,000 5 BPJ Holdings P Ltd 5,500 6 Matrix Systems P Ltd 12,500 7 Onesource Idea P LTd 1,250 8 Forsee Financial Services Ltd 7,500 9 Warner Multimedia Ltd 8,000 10 Anchor Constructions P Ltd 15,000 11 Jhunjhuwala Marketing & Services 1,500 12 Texchem Enterprises 12,500 13 Gopikar Supply P Ltd 5,000 14 Neha Cassettes P Ltd 4,500 Total 81,250 12.6. Director prior to transfer: ....
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....jan, erstwhile promoter of FFSL dated May 27, 2010 to acquire 21,76,650 shares (58.08%) of FFSL in various tranches and issued postdated cheques. In 1st tranche 39,000 shares to be acquired, in 2nd tranche 8,29,000 shares to be acquired and in 3rd tranche 13,08,650 shares to be acquired. The 8.68 lakhs shares (23.16%) of FFSL in two tranches has been transferred to BPJ and his nominees. The acquisition of 23.16% cross the threshold limit of 15%. But out to these 8.68 lakhs shares 3.1 lakhs shares were not acquired by two nominees of BPJ (AMPL and Nandlal Vyapaar Pvt. Ltd.), because these two nominees have backed out from the MOU upon knowing that some contingent liability which were in existence at the time of signing of MOU were not disclosed to them by Mr. P. Natarajan. These 3.1 lakhs shares were allotted to two people namely R Rathinamala and B Satya Prakash who are not the nominees of BPJ. Hence, BPJ and his nominees have acquire only 5.58 lakh shares (14.88%) which is less than the threshold limit of 15%. Therefore, BPJ and his nominees have not violated the provision of SEBI (SAST) Regulations 1997 as alleged in the show cause notice dated April 19, 2018 (SCN). 15.4....
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....referred to as "AR") on behalf of NVPL had appeared for hearing and made oral submissions in line of reply available on record, which are as under: "........ 18.1. AR reiterate the submission made by NVPL dated May 25, 2018 and submitted the letter dated April 03, 2019. 18.2. NVPL was connected to Mr. B P Jhunjhunwala (BPJ), but since September 13, 2012 the current directors/shareholders of NVPL are not connected or associated with BPJ. 18.3. AR accepted that NVPL was signatory to the MOU dated May 27, 2010, that NVPL has an intent to acquire the shares of FFSL and NVPL had failed to make public announcement. ARs have not contested the violation of SAST Regulations as alleged in the show cause notice dated April 19, 2018. ARs stated that the current directors/shareholders were not present at the time of transactions/violations, so consider the same as the mitigating factor. 18.4. When current directors / shareholders came in September 13, 2012, NVPL were not holding any shares in FFSL, NVPL was holding only the shares in Ravikumar Distilleries Limited 18.5. AR is advised to submit the evidence that NVPL does not hold any shares ....
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....15, 2013. ThusBPJ did not violate even Regulation 12. 19.6. That it is beyond doubt that Mr. Natrajan was the promoter and controller of FFSL since the very beginning and also that BPJ had withdrawn myself from the obligations of the MOU in the Month of June, 2010 and further rescinded the MOU completely in the month of November, 2010 as BPJ had no intention to takeover the company post discovery of the contingent liability and dubious intentions of Mr. Natrajan. Hence, there was no requirement on BPJ part to comply with Regulation 10 & 12 of SEBI (SAST) Regulations, 1997, as BPJ neither crossed the threshold as specified in the regulations nor did take control of the management of FFSL. 19.7. That the MOU was a probable intention without the requisite stamp duty paid on it and neither was it a registered document. Therefore the MOU cannot be termed as a legal document or a definitive document of intent. At most it could be a probable intent to be crystallized into a definite intent only upon complying to certain terms and conditions which was not done so by the Sellers. Further, there was to be a definitive and detailed agreement to have been executed by the part....
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....en submissions which are similar to the earlier reply dated November 02, 2018 and the same is not reproduced here to avoid repetition. Apart from the earlier reply, Mala made following additional submission, which are as under: 21.1. Mala was never a part of MOU dated May 27, 2010 entered in to between BPJ and Mr. Natrajan. Neither did Mala execute the said MOU as a party or as a witness. Mala was only nominated by BPJ in the MOU as his nominee. 21.2. The SCN is entirely based on allegation of persons acting in concert only due to the existence of a purported MOU dated May 27, 2010 executed between Mr. Natrajan and BPJ. The allegations against Mala border upon "intention" of BPJ to acquire shares of FFSL which is based on the surmises of the purported MOU dated May 27, 2010 of which Mala shown as a nominee of BPJ. Mala have not acquired 15% or more shares of FFSL through herself or even through any person acting in concert with her if to be assumed. Even by far stretch of imagination, the share acquired in the year 2010-11 cumulatively (including the purported nominees) is 5.58 lakhs shares amounting to 14.89 % and only 2.25% in the year 2012. Mala never been a pa....
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....e earlier reply, RSL on behalf of RSPL and OIPL made following additional submission, which are as under 23.1. That RSPL and OIPL has been arrayed as Noticees for violations of Regulations 10 & 12 of SEBI (SAST) Regulations, 1997, merely on the basis of a MOU executed between Mr. B P Jhunjhunwala and Mr. Natrajan. The allegations against them border upon their "intention" to acquire shares of FFSL and hence to have been liable for the provisions of SEBI (SAST) Regulations, 1997 and SEBI Act, 1992, though in actual fact and sequence of events, they do not fall under the Regulation 10 & 12 SEBI (SAST) Regulations, 1997 and Section 12A(f) of SEBI Act, 1992 and much less merely on the basis of a non-complied MOU executed between Mr. B P Jhunjhunwala and Mr. Natrajan. The said Noticees were never executors or witnesses to the said MOU. Therefore even for sake of assumptions could not be arrayed as Noticees based on the said MOU. Without prejudice to all that is stated that a MOU is just a document or a proposed arrangement which may neither be definitive nor decisive, to arrive at terms of further arrangement between two or more parties. Thus, MOU by any means cannot be regarde....
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....d repetition. 25. BPJ-HUF vide letter dated January 30, 2019 had submitted written submissions which are similar to the earlier reply dated October 16, 2018 and the same is not reproduced here to avoid repetition. 26. NVPL vide letter dated April 23, 2019 had submitted the NVPL did not hold any shares in FFSL at the time when the present shareholder and directors took charge of NVPL. In support of this claim, NVPL submitted the audited balance sheet of the NVPL for the year ended March 31, 2012 which show that NVPL did not hold any share in FFSL even as on March 31, 2011 i.e. before the present shareholders and directors took charge of NVPL. FINDINGS & CONSIDERATIONS 27. I have perused the SCN, replies, written submissions and other materials available on record. On perusal of the same, the following issues arise for consideration. Each issue is dealt with separately under different headings. Issues (i) Whether agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively? (ii) If issue no. 1 is determined in ....
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....or control over the target company. Acquisition of fifteen per cent or more of the shares or voting rights of any company. Regulation 10: No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations. Acquisition of control over a company. Regulation 12: Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations. Timing of the public announcement of offer. Regulation 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 t....
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....over the target company, either by himself or with any person acting in concert with the acquirer. 32. From the above, it is noted that the "acquirer" is a person who (i) acquires shares/voting rights/control by himself (ii) agrees to acquire shares/voting rights/control by himself (iii) acquires shares with any person acting in concert with the acquirer (iv) agrees to acquire shares/voting rights/control with any person acting in concert with him. Therefore, it is to be noted that the test is not the actual acquisition alone. If a person agrees to acquire shares/voting rights/control by himself or with persons acting in concert with him that would bring him within the ambit of the definition "acquirer" and also within the requirement of Regulations 10, 12, 14(1) and 14(3) of SAST Regulation. 33. Hon'ble SAT vide order dated April 27, 2001 in Appeal No. 11/2001 in the matter of B.P. Amoco Plc and Castrol Limited Vs. SEBI had observed that: "......... I have already stated the requirements of regulation 12, in the brief survey of the applicable statutory provisions to the case, in the preceding paras. It could be seen therefrom that there is a prohibition on ....
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....taken for such changes, as would result in the acquisition of control of the target company. The word "would" used in regulation 14 (3) conveys that what the said regulation is concerned with is the likely acquisition of control and not the actually effected acquisition of control. The word 'would' in the context need be understood in its literary sense as "expressing probability". Thus when Appellant No.1 announced its intention to acquire the shares of Burmah Castrol on 14.3.2000, the announcement constituted an intention to acquire, albeit, indirectly the control over all its subsidiary companies including the Indian subsidiary viz. Castrol (India) Ltd on the same day itself i.e. 14.3.2000........" 34. Hon'ble Supreme Court vide order dated November 26, 2015 in AR Dahiya vs SEBI [MANU/SC/1350/2015] in respect of the acquisition which was taken place in the year 1999, when SAST Regulation, 1997 was applicable, observed that: "........In our view, the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the po....
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....the Target Company above the limits prescribed; (ii) agreeing to acquire control of a target company. Therefore, agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively. ISSUE No. 2: If issue no. 1 is determined in the affirmative, then whether the Noticees had the agreement / decision / intention to acquire the shares of FFSL and to take control of the management of FFSL? 38. With respect to the agreement / decision / intention to acquire shares and control of FSSL, following was alleged in the SCN dated April 19, 2018 that: 38.1. Noticees have acted in concert to acquire the shares of FFSL. 38.2. Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, BPJHPL and OIPL were the nominees of BPJ. 38.3. BPJ entered into an Memorandum of Understanding (MOU) dated May 27, 2010 with Mr. P. Natarajan representing promoters and certain shareholders of FFSL, with an intention to acquire 58.08% shares in FFSL from then existing promoters/others and also to nominate directors on the Board of FFSL leaving one promoter director. ....
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.... of the SAST Regulations, 1997 refers to making an public announcement after 4 days of entering into an "agreement" for acquisition of shares / voting rights or 'deciding' to acquire shares or voting rights exceeding the respective percentage specified therein. In the instant matter, there was no agreement entered/ executed between BPJ and Mr. Natrajan to acquire shares / voting rights of FFSL, nor it was definitely decided by BPJ to acquire the shares since it was contingent upon the conditions to be fulfilled by Mr. Natrajan, for BPJ to decide about acquiring shares/voting rights of FFSL. 39.9. That on June 03, 2010, after receiving the due diligence report from BPJ advocate, BPJ had no intention to continue with terms of MOU or at a later stage to acquire the shares or voting rights of FFSL. Therefore, considering the above factors, BPJ was not required to make any disclosures/ public notice as per the relevant provisions of SAST Regulations, 1997. 39.10. That, there was no agreement to acquire the shares of FFSL and to take control over management of the Company. 39.11. That BPJ, Ruhi, Mala, SNPL, RSPL and OIPL have not violated regulations 10 & 12 of....
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....quire shares and control over FFSL are not only farfetched but also not maintainable. 43. BPJHPL did not submit any reply in the matter. 44. It is pertinent to refer the salient features / terms and condition of MOU dated May 27, 2010 between Mr. P. Natrajan and Mr. B.P. Jhunjhunwala, which are as under: 44.1. That Mr. P. Natrajan was the seller. The seller representing all the promoters and other desirous shareholders of FFSL. 44.2. That Mr. B.P. Jhunjhunwala was the acquirer. The Acquirer includes his successors, nominees, representatives or as the case may be, the heirs, executors and administrators of the Acquirer. 44.3. That the Acquirer has expressed interest to acquire the shares held by both the promoters (34.92% equal to 13,08,650 equity shares) and also the Non- Promoter (23.16% equal to 8,68,000 equity shares) totaling 58.08% of the present Paid-up Capital of FFSL. 44.4. Both the parties have agreed: 44.4.1. That Seller to be paid Rs.8,68,000 (Rupees Eight lacs Sixty eight thousand only) by Cheque upon signing of this MOU against which the Seller shall ensure that 8,68,000 Non Promoter shares (23.16%) shall be delivered ....
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.... delving into the issue further, it is worth quoting the decision of Hon'ble High court of Delhi in KSL Industries Ltd. vs. National Textiles Corporation Ltd. in its decision dated 14.08.2012. "........... 63. The petitioner has placed reliance on various decisions to support the submission that the MOU constitutes a binding contract between the parties. The Hon'ble Supreme Court in Kollipara Sriramulu (supra) observed that a mere reference to a future formal contract will not prevent a binding bargain between the parties. There are cases where the reference to a future contract is made in such term as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the circumstances of each case. 64. The Hon'ble Supreme Court referred to the decision in one Von HatzfeldtWildenburg vs. Alexender, [1912] 1 Ch. 284, wherein it had been held that if the documents or letters relied on, as constituting a contract, contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of further contract is a condition or ter....
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....he party executing it. The intention has to be gathered from the recitals and the terms in the entire document and from the surrounding circumstances. How the parties or even their representatives in interest treated the deed in question may also be relevant. It is also well settled that the nomenclature given to a document by the scribe or even by the parties is not always conclusive.....". 48. The Hon'ble Supreme Court further in Namburi Basava Subrahmanyam vs. Alapati Hymavathi & Ors. [(1996) 9 SCC 388] observed that "....The nomenclature of the document is not conclusive. The recitals in the document as a whole and the intention of the executant and acknowledgment thereof by the parties are conclusive....." 49. Therefore, what needs to be seen is the intention of the parties as reflected in the document and the conduct of the parties whether they intended the instrument to be "agreement" or mere MOU. The nomenclature of the Deed is not conclusive in this regard. 50. As per the Indian Contract Act, 1872, when a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; Every promis....
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....(58.08%) of FFSL together with the management control, BPJ and his nominees had acted upon by enclosing cheques / post-dated cheques vide two separate letters both dated May 27, 2010 addressed to Mr. P Natrajan aggregating Rs. 21,76,650/-. The said two letters dated May 27, 2010 were attached with MOU dated May 27, 2010 forming the part of MOU. As per the MOU dated May 27, 2010 and letters dated May 27, 2010 attached thereto, the nominees of BPJ are Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, BPJHPL and OIPL. 51.4. The details of cheques / post-dated cheques are as under: Sl. No. Date Issuer Favouring Cheque No. Bank Amount in Rs. 1 27.05.2010 B P Jhunjhunwala N. Nithya 419773 HDFC Bank 1,500 2 27.05.2010 Ruhi Jhunjhunwala N. Neeraja 531510 HDFC Bank 37,500 3 27.06.2010 Mala Jhunjhunwala First Financial Holdings Limited 328852 HDFC Bank 1,30,000 4 27.06.2010 Skyed Network Pvt. LTd. First Financial Holdings Limited 602197 ICICI Bank 1,00,000 5 27.06.2010 Anurodh Merchandise Pvt. Ltd. First Financial Holdings Limited 274131 ICICI Bank 1,40,000 6 27.06.2....
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....UF that they were neither the part of MOU dated May 27, 2010, nor had any intention to acquire the shares of FFSL and control over FFSL. 54. With regard to the control over the management of FFSL by the acquirer, I note that as per regulations 2(1)(c) of the SAST Regulations, 1997 "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. From the MOU dated May 27, 2010, I note that the nominees of BPJ were to be appointed on the Board of FFSL leaving one promoter director. Thus, MOU clearly empowered BPJ and his nominees, the right to appoint the majority of directors on the Board on FFSL i.e. to have control over the management of FFSL. 55. Considering the "MOU" dated May 27, 2010 and letters attached thereto, I note that the Noticees except BPJ HUF had agreed to acquire the 21,76,650 equity shares (58.08%) of FFSL from Mr. Natrajan and other promoters through Mr. Natarajan for a considera....
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....at stage, their shares were subsequently transferred to Mr. R Rathinmala and Mr. B Satya Prakash respectively showing further that the argument of rescission of "MOU" is only an afterthought. 57. It is further noted the basis of the trigger of respective provisions of the SAST Regulations, 1997 in the instant matter is on the basis of "agreement to acquire" shares and control. Therefore, the consideration of arguments which goes to establish that the actual acquisition of threshold limits of shares or actual acquisition of control did not happen as advanced by the Noticees, does not require consideration. Accordingly, those arguments are not considered. 58. In summary, as per the MOU dated May 27, 2010, Noticees (except) BPJHUF had an agreement / decision / intention to acquire 58.08% of the shares of FFSL for a consideration of Rs. 21,76,650 /- (by issuing cheques / post-dated cheques) and control of management of FFSL by appointing majority of directors on the Board on FFSL. ISSUE No. 3: If issue no. 2 is determined in the affirmative, then whether the Noticees are acquirers/Persons Acting in Concert? 59. It is pertinent to refer to the definitions of Acquirer and Per....
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....is nominated by BPJ to acquire the non promoter shares. SNPL had not acquired the requisite percentage of shares to trigger the takeover code. SNPL had also not acquired any control over the target company FFSL or its management. 61.4. RSL on behalf of RSPL and OIPL stated that they along with other proposed buyers formed a part of the acquirer group for BPJ and issued a post-dated cheques towards consideration for the acquisition of the shares of FFSL. RSPL and OIPL arrayed as one of the proposed buyer/ acquirer who is nominated by Mr. B P Jhunjhunwala to acquire the non-promoter shares. RSPL and OIPL were never executors or witnesses to the said MOU. 61.5. AMPL stated that as per the purported MOU, AMPL were only one of the nominated entity or proposed purchaser/ buyer who were supposed to receive shares/ voting rights of FFSL. The proposed shares as envisaged in the purported MOU were never transferred to AMPL but were transferred to Mrs. R Rathinamala. Therefore, AMPL cannot be termed a part of the acquirer group or persons acting in concert as AMPL did not receive any shares/ voting rights of FFSL. 61.6. During the course of hearing NVPL stated that ....
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...., OIPL and BPJHPL. Thus, in the instant matter, I find the all requisite 4 element of PACs as mentioned under regulation 2(1)(e)(1) of SAST Regulations, 1997 are present. Hence, I am of the view that BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, OIPL and BPJHPL are Acquirers and Persons Acting in Concerts. 65. In view of finding mentioned at paragraph 62, 63 and 64 above: 65.1. I find that BPJ was the acquirer by virtue of signing the MOU. 65.2. I am of the view that Ruhi and Mala by way of issuing cheques / post dated cheques in the name of sellers for the acquisition of shares of FFSL, which were attached to MOU, are the part of MOU dated May 27, 2010. Thus, I do not find any merit in the contention of Ruhi and Mala that they were never the part of MOU dated May 27, 2010. 65.3. I find that SNPL along with other acquirers namely BPJ, Ruhi, Mala, AMPL, NVPL, RSPL, OIPL and BPJHPL are Persons Acting in Concerts and had agreed to acquire 58.08% shares of FFSL. Hence, I do not find any merit in the contention of SNPL that it had not acquired the requisite percentage of shares to trigger the SAST Regulations, 1997 as it has already agreed to acquire as per the ....
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....d not submit any reply in the matter. I also find that BPJHPL had issued post-dated cheque in the name of sellers for the acquisition of shares of FFSL, which were attached to MOU dated May 27, 2010. Thus, I am of view that BPJHPL by issuing post-dated cheque becomes the part of MOU dated May 27, 2010 and is the nominee of BPJ. Therefore, in view of the facts and circumstance of the case, I find that BPJHPL along with other acquirers namely BPJ, Ruhi, Mala, SNPL, NVPL, AMPL RSPL and OIPL are Persons Acting in Concerts and had agreed to acquire 58.08% shares of FFSL. 67. BPJ-HUF contented that they were never a part of the MOU dated May 27, 2010 entered into between Mr. B.P Jhunjhunwala and Mr. Natrajan for acquisition of shares of FFSL. They did not issue any cheques to Mr. Natrajan or promoter group of FFSL. In Financial year 2010-2011, they had neither acquired any shares of FFSL nor were they holding any shares of FFSL. Therefore, they can neither be termed as person acting in concert nor as acquirer. As they were never a part of the MOU dated May 27, 2010, the allegations of their having intention to acquire shares and control over FFSL are not only farfetched but also not m....
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....ovisions of regulation 10 read with regulation 14(1) of SAST Regulations, 1997. 71. Further, as per regulation 12 read with regulation 14(3) of SAST Regulations, 1997 an acquirer, can acquire control over any listed company, only if such acquirer makes a public announcement of offer to acquire shares and acquires such shares of such company in accordance with the relevant provisions of the SAST Regulations. Such Public announcement would have to be made by the merchant banker appointed by the acquirer after four working days of any such change / changes are decided to be made would result in the acquisition of control over the target company. With regard to the control over the management of FFSL by the acquirer, I note that as per regulations 2(1)(c) of the SAST Regulations, 1997 "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. 72. In the instant matter, it is noted that Noticees ....
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.... Appellate Tribunal (SAT) vide order dated September 8, 2011 in M/s Nirvana Holdings Private Limited vs. SEBI stated that: "........It must be remembered that whenever an acquirer violates Regulation 10, 11 or 12 of the takeover code by not making a public announcement, he should be directed to comply with the provision by making a public offer. The words "unless such acquirer makes a public announcement" appearing in Regulations 10 and 11(1) make these provisions mandatory and a public announcement has to be made. Similar words appear in Regulation 12 as well. These provisions make the acquisition conditional upon a public announcement being made. The primary object of the takeover code is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a takeover. This right to exit is an invaluable right and the shareholders cannot be deprived of this right lightly. It is only when larger interest of investor protection or that of the securities market demands that this right could be taken away. Therefore, as a normal rule, a direction to make a public announcement to acquire shares of the target company should issue to an acquirer....
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....he force of law or on equitable considerations. Interest cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefor, for which a written demand is mandatory....... ......Directions by the Board are required to be issued for the purpose of protecting the interest of the investors which would imply that such protection be extended to the persons who are entitled thereto and not any other shareholder who would get the same by windfall. The shareholders contemplated under clause (i) of Regulation 44 must be those shareholders whose shares have been accepted upon public announcement of offer and who have suffered loss owing to blockage of amount by not being able to sell the shares held by them. The object of the said provision is to protect the interest of such shareholders who had suffered a loss for delay in making the public announcement and, thus, may have to be compensated. The very fact that the bench-mark as regard the rate of interest has been fixed is also a pointer to the fact that the interest is to be paid to such investors who had suffered some loss. While compensating a person, the ....
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....ubmission that Radhasoami Securites Pvt. Ltd. and Onesource Ideas Pvt. Ltd had merged/amalgamated with "Radhasoami Resources Limited" vide National Company Law Tribunal, Chennai order dated August 10, 2017. Therefore "Radhasoami Resources Limited" submitted before SEBI that any communication /allegation /reference made by SEBI to Radhasoami Securites Pvt. Ltd. and Onesource Ideas Pvt. Ltd shall be construed to be made/served to Radhasoami Resources Limited and shall be replied by Radhasoami Resources Limited (Radhasoami). Though "Radhasoami Resources Limited" is not a party before the proceedings, but pursuant to the merger of the Radhasoami Securites Pvt. Ltd. and Onesource Ideas Pvt. Ltd, the statutory liability to make open offer passes to the new entity "Radhasoami Resources Limited". As the SCN has been defended by "Radhasoami Resources Limited" for and on behalf of Radhasoami Securites Pvt. Ltd. and Onesource Ideas Pvt., I observe that the liability to make open offer incurred by Radhasoami Securites Pvt. Ltd. and Onesource Ideas Pvt., shall be discharged by "Radhasoami Resources Limited" ORDER 82. Considering the above, I, in exercise of powers conferred upon me under ....