In the matter of Satyadeva Prakash Sinha

SAT30 Apr 2003

Case brief

AI extract

What is this about?

This bench examined whether promoters acquiring shares through a preferential allotment and subsequent conversion of OCDs were exempt from reporting obligations under SEBI Takeover Regulations. The Tribunal held that exemption from public offer requirements did not waive reporting duties, but reduced penalties for technical defaults and incorrect calculation periods.

What did the court decide?

Appellate Tribunal modified the impugned order, reducing total penalty to Rs. 1,02,000 on the ground that failure under regulation 3(3) is not a continuing offence.

What the court decided

AI extract

Outcome

Appellate Tribunal modified the impugned order, reducing total penalty to Rs. 1,02,000 on the ground that failure under regulation 3(3) is not a continuing offence.

Issue for consideration

Whether promoters acquiring shares via preferential allotment are required to notify stock exchanges under regulation 3(3) and file reports under regulation 3(4) under Takeover Regulations. +2 more

A compact analysis

This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.

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BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

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Appeal No. 73/2002

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In the matter of:
1. Mr.Satyadeva Prakash Sinha
2. Ms. Renuka Sinha
3. Mr. Anant P. Sinha
4. Mr. Aditya P. Sinha
5. Ms. Mukta Sinha
6. Mr. Siddharth P. Sinha
7. Mr. Tanuj P. Sinha
8. Maurya Management Pvt. Ltd.
9. Banjari Holdings (P) Ltd.
10. Koilwar Holdings (P) Ltd.
11. Rammadan Holdings (P) Ltd.
12. Eureka Transporters & Traders Pvt. Ltd.
13. Aphar Investments (P) Ltd.
14. Punpun Investments (P) Ltd.
15. Bengal Bihar Investments Co. (P) Ltd.
16. Eastern Share Resources (P) Ltd.
17. Bihar Hotels Ltd. Appellants
Vs.
Securities & Exchange Board of India Respondent
Appearance:
Shri Bharat Merchant
Sr. Advocate,
Shri Utpal Joshi
Advocate for Appellants
Shri Santosh Shukla,
Asstt. Legal Adviser, SEBI
Shri Vinay Chauhan,
Legal Officer, SEBI for Respondent

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ORDER

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The Respondent vide its order dated 31.5.2002 appointed an adjudicating officer for holding an enquiry into the alleged violation of the provisions of regulation 3(3) and 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997 (the Takeover Regulations) read with section 15A (a) and 15A(b) of the Securities and Exchange Board of India Act, 1992 (the Act) with reference to acquisition of shares of Jenson & Nicholson India Ltd. (the company) by the Appellants. On 31.5.2000 The company issued Optionally Convertible Debentures (OCDs) on preferential allotment basis to the promoters. The terms of issue of OCDs provided that 50% of the OCDs were compulsorily convertible into equity shares at the end of 18 months and the balance 50% at the end of 18 months at the exercise of the option by the investors. The OCDs allotted to the Appellants were converted into equity shares on 15.2.2001. As a result of the conversion the Appellants acquired 71,56,345 equity shares of Rs.2/- each in the company. Consequently the shareholding of the Appellants - i.e. the promoter group - in the company’s paid up capital increased from 34.99% to 44.84%. The said acquisition, being by way of preferential allotment made in terms of section 81(1A) of the Companies Act, 1956, enjoyed exemption from complying with the requirements under Chapter III of the Takeover Regulations by virtue of the provisions of regulation 3(1) ( c ). However, according to the Respondent, the Appellants failed to report the details of the acquisition to the concerned stock exchange and the Respondent as required in terms of sub regulation (3) and (4) of regulation 3, respectively. It was in the said context the Respondent decided to adjudicate the matter and for the purpose appointed an adjudicating officer.

In the matter of Satyadeva Prakash Sinha — Securities and Capital Markets | SAT (2003)

In the matter of Satyadeva Prakash Sinha

SAT30 Apr 2003

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Case brief

AI extract

What is this about?

What did the court decide?

Appellate Tribunal modified the impugned order, reducing total penalty to Rs. 1,02,000 on the ground that failure under regulation 3(3) is not a continuing offence.

What the court decided

AI extract

Outcome

Appellate Tribunal modified the impugned order, reducing total penalty to Rs. 1,02,000 on the ground that failure under regulation 3(3) is not a continuing offence.

Issue for consideration

Whether promoters acquiring shares via preferential allotment are required to notify stock exchanges under regulation 3(3) and file reports under regulation 3(4) under Takeover Regulations. +2 more

A compact analysis

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

¶2

Appeal No. 73/2002

¶3

In the matter of:
1. Mr.Satyadeva Prakash Sinha
2. Ms. Renuka Sinha
3. Mr. Anant P. Sinha
4. Mr. Aditya P. Sinha
5. Ms. Mukta Sinha
6. Mr. Siddharth P. Sinha
7. Mr. Tanuj P. Sinha
8. Maurya Management Pvt. Ltd.
9. Banjari Holdings (P) Ltd.
10. Koilwar Holdings (P) Ltd.
11. Rammadan Holdings (P) Ltd.
12. Eureka Transporters & Traders Pvt. Ltd.
13. Aphar Investments (P) Ltd.
14. Punpun Investments (P) Ltd.
15. Bengal Bihar Investments Co. (P) Ltd.
16. Eastern Share Resources (P) Ltd.
17. Bihar Hotels Ltd. Appellants
Vs.
Securities & Exchange Board of India Respondent
Appearance:
Shri Bharat Merchant
Sr. Advocate,
Shri Utpal Joshi
Advocate for Appellants
Shri Santosh Shukla,
Asstt. Legal Adviser, SEBI
Shri Vinay Chauhan,
Legal Officer, SEBI for Respondent

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ORDER

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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”.

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share allotment comes to picture only when the holder of OCDs exercise their option to convert OCDs to equity shares. The resolution puts only an outer limit of the number of OCDs, which the Board is empowers to issue. The exact number is not mentioned either in the Board resolution or in the general body meeting resolution. The resolution is also not specific as to the exact quantum of the shares likely to be allotted. According to the general body resolution “50% of the face value of each OCD would be compulsorily converted into Ordinary Shares of Rs. 10/- each, at a price of Rs. 47/- per ordinary shares, which has been determined on the basis of SEBI pricing formula, at the end of 18 months from the date of allotment of the debentures and the balance 50% plus cumulative interest thereon, if any, on the entire investment would, at the option of the investors, also be convertible into ordinary shares of Rs.10/- at the end of 18 months, at the same price as indicated above. In case the option to convert the balance amount of the OCD into ordinary shares is not exercised by any of the investors, the same shall be redeemed at par or at premium, if any, to be decided by the Board …….”. It is noted that the OCDs were allotted on 29..5.2000 and the entire contribution of the promoters was converted into equity shares at an early date on 15.2.2001 and by reason of such conversion the Appellants” acquired 71,56,345 shares of Rs.2/- each”. Thus it is clear that factual position stated in the resolutions/notice was not specific and the subsequent developments have shown the developments at variance with certain disclosures made in the resolutions. It is to be noted that the reporting under regulation 3(3) and 3(4) is with reference to the actual acquisition of shares and not with reference to acquisition of Optionally Convertible Debentures. It is also noted that the Respondent has already devised separate formats for furnishing information by the acquirers in terms of regulation 3(3) and 3(4) and the information as available in the board resolution and the notice of general meeting does not fully cover the information required to be so furnished. In my view, in the light of the facts and circumstances of the case, I am not inclined to agree with Appellants’ view that in view of the compliance of the requirements under regulation 3(1)( c) (i) & (ii)the concerned stock exchanges were not required to be notified under regulation 3(3).

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Learned Counsel had submitted that regulation 3(3) has appliciation only in case where the proposed acquisition exceeds 5% of the voting shares capital as the concept of acquirer and person acting in concert is not included in the said regulation. It is clear from the provisions of regulation 3(3) that obligation to notify the acquisition is on the acquirer. In this context the opening part of regulation 3(1) is the pointer. Regulation 3(1) provides “Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to acquisition referred under the sub clauses. The obligation under regulation 10,11, and 12 is on the acquirer. As a result of the exemption the acquirers are not obliged to comply with the requirements of the said regulations 10,11 and 12. The acquisition is relatable to the acquirer. As per regulation 3(3) the details of acquisitions including the one falling under 3(1) ( c ) are to be notified to the stock exchanges. In this context it is also to be noted that the proposed transaction (acquisition) is required to be notified 4 days in advance of the proposed acquisition. Except an acquirer who else can authoritatively notify the proposed transaction in advance of the proposed acquisition. In this context it is to be noted that according to regulation 2(1)(b) “acquirer means any person, who directly or indirectly, acquirers or agrees to acquirer 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”. According to regulation 2(1)(e) “persons acting in concert comprises persons who for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target, 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.” It is evident from the facts on record that the Appellants are promoters of the

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target company. Before he can be said to be acting in concert with the acquirer, it must be shown that he shares with the acquirer a common objective or purpose for substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding and directly or indirectly co-operates with the acquirer or agrees with him to acquire shares or voting rights in the target company or control over the target company. It is significant that the definition of acquirer does not include a promoter, but includes persons acting in concert with an acquirer. The question as to whether a person is acting in concert with the acquirer, is essentially a question of fact. A promoter may not act in concert with the acquirer., whereas a stranger might. As the Appellate Tribunal has rightly pointed out, there is no hard and fast rule that promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a promoter shares the common objective or purpose of substantial acquisition of shares with the acquirer. It may well be that he may not share the said common objective or purpose. If he does, he shall be deemed to be a person acting in concert with the acquirer, but if he does not, he cannot be deemed to be an acquirer merely because he happens to be a promoter. Regulation 2(1)(e)(2) also makes this clear. The persons named therein are deemed to be persons acting in concert with other persons in the same category, unless the contrary is established. It, therefore, follows that even though there is a presumption that the persons described therein may be deemed to be persons acting in concert with the acquirer, the presumption is rebuttable, and, therefore, in each case, the facts have to be examined to reach a conclusion as to whether a person is or is not acting in concert with the acquirer for the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. He may do so by an express agreement or understanding, and the agreement or understanding may be proved by evidence on record. Similarly, he may co-operate with the acquirer directly or indirectly or indirectly. What is important is that it must be shown that he is acting in concert with the acquirer. A company may have several promoters, but only one of them may decide to increase his shareholding in the company by substantial acquisition of shares or voting rights in the company. The mere fact that one of the promoters of the company wishes to do so, is no reason to hold that the other promoters also necessarily share his objective or purpose. The other promoters may, in fact, be opposed to the acquirer acquiring further shares in the target company, and if they fail to prevent the acquirer from doing so, they may be inclined to dispose of the shares held by them. If such a situation, it cannot be said that the other promoters share the common objective or purpose of the acquirer.”

In the matter of Satyadeva Prakash Sinha

Case brief

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What did the court decide?

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A compact analysis

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In the matter of Satyadeva Prakash Sinha

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

Statutes considered