TMI Blog2007 (11) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1975. Appellant No. 2 Jost's Engineering Company Limited (for short, Jost) is a public limited-listed company. Mr. Burjor H. Reporter is its chairman and untogether with other members of his family hold majority stake in it. Admittedly, Jost is under the management of the Reporter family. Appellant Nos. 3 and 4 are the aforesaid Mr. Burjor H. Reporter and Mrs. Aloo Reporter. 3. Kerry Jost Engineering Limited (for short, KJEL) the target company, was incorporated in 1962. Its paid up capital of ₹ 20 lakhs comprises of 2 lakh fully paid up equity shares of ₹ 10 each. KJEL is listed on the Bombay Stock Exchange (for short, BSE) for the last several years. KJEL stopped its business of manufacturing of machine tools, dryers etc. from the year 1999 and incurred losses thereafter. Shares of KJEL were thinly traded. Admittedly Jost, Mr. B.H. Reporter. Mrs. Aloo Reporter. Mrs. Parviz Batliwala and her two children with the other promoters were holding 1,33,440 shares for the last several years. Mrs. Batliwala and her two children (for short, Batliwalas) owned 16,000 shares of KJEL. They were in need of funds. Mrs. Batlivala approached her parents to buy the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; [Emphasis Supplied] 5. These definitions have been examined by this Tribunal in the case of Modipon Ltd. v. SEBI [2001] 33 SCL 85. The relevant discussion of the judgment is reproduced hereunder: 31. Shri Doctor had stated that since the provisions of Regulation 2(1)(e)(2) defining person acting in concert being a deeming provision, must be read in conjunction of Regulation 2(1)(e)(i) which states that persons acting in concert comprises of persons was 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 company or control over the target company. A fortiori, persons who are deemed to be acting in concert mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoter. Regulation 2(1)(e)(2) also make 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 cooperate with the acquirer directly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch read as under: 53. Swedish Match Singapore agreed to acquire majority shareholding in Haravon and Seed subsequent to 17-12-1997 wherefor the public offer was made. SMS comprising of Haravon and Seed had 28.28 per cent and 10.33 per cent whereas Jatia Group comprising of AVP and Plash had 5 per cent and 15 per cent respectively whereas public/others had 41.39 per cent shares. In concert with each other the two Groups acquired shares from public. On or about 25-8-1999 by acquiring preferential shares the Swedish Match Group obtained 52.11 per cent and Jatia Group obtained 24.11 per cent as a result whereof in Wimco the shares held by public/others came down to 23.78 per cent. Both Swedish Group and Jatia Group were exercising the joint control. By reason of Jatia Group obtaining out of the joint control by transfer of shares in favour of Swedish Match Singapore, a subsidiary of Swedish Match AB (a part of Swedish Match Group) obtained 74 per cent of shares whereas shares i.e., Haravon - 46.18 per cent. Seed - 5.93 per cent and SMS - 21.89 per cent. Thus, the extent of shares of Jatia Group came down to 2.22 per cent. Jatia Group sold their shares to public as a result where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o acquire such additional shares or voting rights which would allow him to exercise more than 5 per cent of the voting rights within a period of 12 months, public announcement is required to be made therefore; (iv) such acquisition of additional shares contemplates three different situations, i.e., the acquisition may be by acquirer himself or through or with the person acting in concert with the person whom they had acquired shares earlier in concert with each other. [Emphasis Supplied] (p. 571) 8. It is clear from a perusal of Regulation 11(1) and the above judgment of the Supreme Court in the case of Swedish Match a case supra that for this clause to be triggered: (a) the acquirer should have made acquisition of shares or voting rights in the target company during earlier financial years to the extent of more than 15 per cent but less than 75 per cent; (b) the acquisition of additional shares or voting rights that triggers Regulation 11(1) during the relevant financial year should provide the acquirer more than 5 per cent of voting rights; (c) the same acquirer should be involved, in the acquisitions of both the initial shares as well as additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-12-2002. From the facts on record, it appears that you along with the persons acting in concert had acquired 16.000 shares, representing 8 per cent of the paid up capital of KJEL on December 12, 2002; thereafter, your collective shareholding went up from 1,17,440 shares representing 58.72 per cent to 1,33,440 shares representing 66.72 per cent of the equity capital of KJEL Le., thereby an increase of 8 per cent of the equity capital of KJEL which is more than the creeping acquiring limit of 5 per cent as prescribed under Regulation 11(1) of the Takeover Regulations. Consequently, the aforesaid acquisition which is violative of the provisions of Regulation 11(1) read with Regulation 14(1) of the Takeover Regulations, makes you liable under Section 15H(ii) of SEBI Act, 1992. In view of the above, you are advised to show cause as to why an inquiry should not be held against you in terms of Rule 4 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 and why penalty should not be imposed on you under Sections 15H(ii) of the SEBI Act, 1992. Your reply, if any, should reach the undersigned to the address mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the purchase of 16,000 shares from Batliwalas was not an acquisition of 'additional shares' as contemplated by the Regulation. It was the first and the only purchase by PSPL of KJE shares. It was stated that the Batliwalas were in need of money and, therefore, sold the shares to the family company-PSPL, keeping the shareholdings of the promoters at the same level of 1,33,440 shares. It was argued that there was no consolidation of their holdings which alone could trigger the provisions of Regulation 11(1) in this case. The simple objective of PSPL for purchasing 16,000 shares was to provide funds to Batliwalas and that these shares were not acquired in concert with any other person. Consequently, the requisite element of the common objective or purpose of acquisition of shares by the persons acting in concert in terms of Regulation 2(1)(e)(1) is missing in this case. 12. The adjudicating officer did not agree with the arguments of the appellants. She rejected their claim and levied a penalty of ₹ 84,54.595 under Section 15H(ii) of the Act by her order dated 20-7-2005. The appellants held an appeal against the penalty order before this Tribunal. During the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d earlier as also the definition of the term 'acquirer' under Regulation 2(1)(b) of the said Regulations. It is established that PSPL is the acquirer of 8 per cent of the share capital of KJEL. Considering that the intent and action of the person decides as to whether that particular person is acting in concert with the acquirer, as also the relationship amongst these parties, it can be safely concluded that Jost, Mr. B.H. Reporter and his wife Mrs. Aloo Reporter i.e., the entities forming part of the same group, acted in concert with PSPL with a common objective of acquiring the shares of KJEL. That is to say, PSPL directly and Jost, Mr. B.H. Reporter, his wife; Mrs. Aloo Reporter indirectly, acquired the shares of KILL with a common objective. 13. To summarise, the adjudicating officer has treated PSPL as 'acquirer' because it acquired the said 16,000 shares on 12-12-2002. Her decision in treating Jost, Mr. Reporter find Mrs. Reporter (appellant Nos. 2 to 4) as persons acting in concert with the PSPL (Appellant No. 1) is based on the ground that: (i) they are deemed to be acting in concert with PSPL in view of the provisions of Regulation 2(1)(e)(2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of 16,000 shares on 12-12-2002 and, therefore, there was no acquisition of additional shares as contemplated, by Regulation 11(1). As seen above, the Supreme Court in the case of Swedish Match's case (supra) has laid down the four pre-conditions attracting Regulation 11. The first condition is that 'an acquirer had acquired shares in concert with another'. As PSPL had not acquired any share of KJEL earlier, the very first precondition, laid down by the Supreme Court is not satisfied in this case. The fourth pre-condition as per the judgment of the Supreme Court is that the additional shares should be acquired by the acquirer himself or through or with the persons with whom they had acquired shares ether in concert with each other. There is no discussion in the impugned order about the 'earlier' acquisition of shares by the appellants. It cannot be assumed that the earlier acquisitions of KJEL shares by the appellant Nos. 2 to 4 were in concert with PSPL. It is already on record that PSPL had not acquired any share of KJEL prior to 12-12-2002. Facts of this case interestingly show that some of the sixteen persons, who were provided with a copy of the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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