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TMI Blog2019 (12) TMI 1656X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 Regulations, 1997 and section 12A(f) of SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hunwala (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 Ltd Radhasoami Securities Pvt Ltd 1,00,000 First Financial Holdings Ltd BPJ Holding Pvt Ltd 1,50,000 First Financial Holdings Ltd Onesource Ideas Pvt Ltd 39,000 Tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation 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 10 were required to make a public announcement to acquire further shares of FFSL in terms of then existing provisions of regulations 10 & 12 of the SAST Regulations, 1997, which they failed to do so. Thus, Mr. B. P. Jhunjhunwala and persons acting in concert (PACs) with him at the time of MoU i.e. BP Jhunjhunwala (HUF), Ms Ruhi Jhunjhunwala, Ms Mala Jhunjhunwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 up share capital of FFSL. The total agreed consideration for the sale of shares @ Rs. 1/- per share worked out to Rs..21,76,650 to be paid by the acquirer to the Seller or any other person authorized or nominated by the seller therein. 7.4.3. That the said transaction was to be completed in three trenches as under:- 7.4.3.1. In the first trench an amount of Rs. 39,000/- was to be paid as advance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 indemnify or make good the losses, if any, incurred by the acquirer in future towards any un-disclosed liability or claims against FFSL not disclosed in the books of accounts of the FFSL. 7.4.3.7. That it was mutually agreed that a formal Share Purchase Agreement would be executed between the Acquirer and Seller as required by the Merchant Banker for the Takeover of FFSL. 7.5. That BPJ upon signing of the MOU had appointed an Advocate to conduct Due Diligence of FFSL and took an expert legal opinion on the same. BPJ was keen on completing the due diligence before executing the MOU but however on the assurances and insistence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees. 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.) the shares were duly transferred by the non-promoter group of FFSL on July 02, 2010 in the name of the respective entities as under: Sr. No. Date Name of the Transferor Name of the Transferee No. of Shares 1 02.07.2010 N. Nithya B P Jhunjhunwala 1,500 2 02.07.2010 N. Neeraja Ruhi Jhunjhunwala 37,500 3 02.07.2010 First Financial Holdings Limited Mala Jhunjhunwala 1,30,000 4 02.07.2010 First Financial Holdings Limited Skyed Network Pvt. Ltd. 1,00,000 5 02.07.2010 First Financial Holdings Limited Radhasoami Securities Pvt. Ltd. 1,00,000 6 02.07.2010 First Financial Holdings Limited BPJ Holding Pvt. Ltd. 1,50,000 7 02.07.2010 First Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heques 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 nominees (excluding the amount of Rs. 3,10,000/- as the said shares were being held by Mrs. R Rathinamala and Mr. B Sathya Prakash, who were independent individuals, not BPJ nominees and not a part of the MOU). However Mr. Natrajan neither refunded the above stated amount nor did he agree to take back the transferred shares. 7.17. That in the given circumstances, BPJ had no other option but to accept the purchase and/or transfer of 5,07,710 shares to BPJ nominees which were to be transferred by promoters of FFSL viz. Ms. N. Nithya & Ms. N Jayanthi. 7.18. That Mr. Natrajan even after receiving amount of Rs. 5,07,710 on November 27, 2010 did not handover the physical share certificates to BPJ nominee. The physical shares certificates were transferred in the name of BPJ nominee only in the month o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer 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 the shares held in the names of his nominees to be transfer in his family members name as the nominees were least interested to own the shares of FFSL. Therefore, on April 27, 2012, the transfer of the shares as sent by the promoter and certain inter se nominee took place i.e. shares were transfer in the name of BPJ family members. There was no change of any voting rights on the shares duly transferred to BPJ and his nominees in the year 2012. Therefore as on April 27, 2012, BPJ holding including his nominees amounted to 1,31,300 shares of FFSL constituting 2.25% of the paid up share capital of FFSL. The details w.r.t BPJ and his nominees holding as on April 27, 2012 are as under: Name No. of Shares % of Shares B P Jhunjhunwala 4,050 0.07 Ruhi Jhunjhunwala 31,110 0.53 Mala Jhunjhunwala 33,000 0.57 BPJ Holding Pvt. Ltd. 27,000 0.46 Reha Jhunjhunwala 15,000 0.26 B P Jhunjhunwala & O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overy 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 BPJ take control of the management of FFSL. 7.28. That Mr. Natrajan had not disclosed about the contingent liability to the tune of Rs. 1 Crore. When the matter of contingent liability remained unsettled, BPJ had decided not to acquire shares of FFSL, and therefore in BPJ considered opinion it was not incumbent upon them to make any public announcement under obligations of SEBI (SAST) Regulations, 1997. 7.29. That prior to signing of the MOU as well as at the time of signing the MOU, Mr. Natrajan had always assured BPJ that the total promoter holding in FFSL was only 34.92%, whereas the actual promoter holding in FFSL was 69.13% which was later discovered by BPJ only after the MOU was signed by BPJ. This itself shows that Mr. Natrajan defrauded BPJ and therefore, BPJ had no intentions to acquire FFSL. 7.30. That as per the terms and conditions of MOU, Mr. Natrajan was obliged to disclose the correct and true facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to deliver the shares to the acquirer group post June 27, 2010 (for non-promoter group) & post November 27, 2010 (for promoter group). However, the acquirer group had received the promoter shares in the month of April, 2012, after almost two years after the execution of MOU i.e. on May 27, 2010. Therefore, the MOU was ipso facto replaced with renewed intent with this change in the quantity of acquisition of shares. Also in the meanwhile FFSL issued preferential shares due to which the total no. of shares of FFSL increased to 80,74,760 shares and the acquirer group on the actual date of transfer of the promoter shares had acquired only 1.63% of shares of FFSL. Therefore, BPJ was not required to make any public notice as the persons nominated by BPJ along with BPJ had actually acquired only 1.63% of shares of FFSL, which is below the required percentage for any acquirer or acquirer group to make a public announcement. 7.34. Preliminary Submission: 7.34.1. The allegations against BPJ border upon "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 even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 SEBI (SAST) Regulations, 1997. 7.34.4. That the MOU executed between Mr. Natrajan and BPJ was at best an indicative proposed arrangement in order to list out contingent conditions for converting the MOU into a definitive agreement failing which, the MOU stands rescinded. The breaches by Mr. Natrajan had made BPJ not only rescind the MOU but also curbed any intent BPJ may have had to acquire shares of FFSL. 7.35. Reply to the Show Cause Notice: 7.35.1. That except for B P Jhunjhunwala and Others HUF, all the other Noticees under the para 2 of the Show Cause Notice were nominated by BPJ to acquire the shares of FFSL, upon execution of MOU on May 27, 2010. That B P Jhunjhunwala and Others HUF was never a part of the MOU and neither did it issue any cheques to the Seller Group and thus cannot be termed as a part of the acquirer group. That upon learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the shares previously transferred, however Mr. Natrajan did not pay attention to the same and subsequently 44,500 shares (against these cheques post reduction of share capital) were dumped upon BPJ nominees as against 50,771 shares. Therefore, BPJ nominee acquired only 44,500 shares of the promoter group as against 13,08,650 shares of FFSL as mentioned in the MOU. That BPJ nominees along with BPJ cumulatively over the years, had acquired only 1,31,300 (1.63%) shares of FFSL as on April 28, 2012. 7.35.4. That BPJ deny that his nominees including BPJ had acquired 13,08,650 (post reduction 1,30,865) shares of FFSL as per the terms and conditions of MOU. It is only 44,500 shares as against 50,771 shares (post reduction of shares) that were transferred on April 27, 2012 by the promoter group of FFSL which amounts to only 0.76% of paid up share capital of FFSL. Remaining 66,900 equity shares amounting to 1.20% of paid up share capital of FFSL were inter-se transfers between BPJ and his nominees. Such transfer was undertaken with a simple aim to have de facto control over BPJ nominees, which BPJ had caused to effect to transfer the shares in his family members name as even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts. Therefore, in view of the above facts, on any occasion, BPJ was not required to make any disclosures/ public notice as per regulation 10 of SEBI (SAST) Regulations, 1997. 7.35.9. The second tranche was in April 2012 wherein the old regulations having been repealed could not have been applicable to the alleged violations. However under the new regulations of 2011, BPJ could not have been held liable since the tranche clearly is for 44,500 shares which amounts to 1.63% and hence do not fall there under. This is without prejudice to the fact that even otherwise irrespective of the regulations, BPJ could not have been held liable for the alleged violations. 7.35.10. That BPJ and his nominees deny the allegations of the said SCN that his acts were violative of the Regulation 10 & 12 SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992. 8. Apart from the submissions made at paragraph 7 above, SNPL made following additional submission, which are as under: 8.1. That SNPL along with other proposed buyers form a part of the acquirer group for Mr. B P Jhunjhunwala and issue a post-dated cheques towards consideration for the acquisition of the shares of FFSL. 8.2. That ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for the acquisition of the shares of FFSL. 9.3. That negotiations were held between Mr. Natrajan and Mr. B P Jhunjhunwala and to give effect to these negotiations an MOU executed between Mr. B P Jhunjhunwala and Mr. Natrajan wherein 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. 9.4. That RSPL and OIPL were neither aware nor concerned of any such Power of Attorney given by Mr. Natrajan to any such individual mentioned at paragraph 6 of the SCN. 9.5. That RSPL and OIPL had decided to exit from the investment and informed Mr. B P Jhunjhunwala to try to make some arrangements for them to exit from the said investment. Mr. B P Jhunjhunwala respecting their decision to back out from investment, offered to buy the shares of FFSL. Thus both RSPL and OIPL accepted his offer and the payment was made good by Mr. B P Jhunjhunwala himself & family member of Mr. B P Jhunjhunwala and both RSPL and OIPL executed their respective Share Transfer Forms and handed the same to Mr. B P Jhunjhunwala. Mr. B P Jhunjhunwala purchased not only the shares which were transferred to RSPL and OIPL in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol over the target company "FFSL" or its management. Therefore we have not even violated Regulation 12 of SAST Regulations. 10.5. That we have been arrayed as a Noticee for violations of the Section 10 & 12 of the SEBI (SAST) Regulation, 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 us 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 we were never a part. As we were never a part of the purported MOU and hence the allegations of even our intention to acquire shares are not only farfetched but also not maintainable. 10.6. That even though a common SCN is issued to us along with other persons/entities, no role, involvement or participation of any nature have been spelled out in the SCN nor any documents have been furnished or relied upon by SEBI to justify initiation of present proceedings against us and therefore the proceedings have been erroneously initiated against us and we have been wrongly roped in the current proceedings. Thus the present proceedings as initiated against us deserve to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail listed out in the MOU and accordingly in the second trench the proposed acquirers/buyers were supposed to receive the non - promoters shares post June 27, 2010. 11.5. Immediately few days after execution of the MOU Mr. B P Jhunjhunwala informed AMPL that he has received a report dated June 03, 2010 from his advocate based on publically available documents, wherein the reports stated that an arbitration proceedings have been commenced in the matter of M/s. M.S Shoes East Ltd. v/s FFSL and other defendants vide order dated March 14, 2007 issued by Hon'ble High Curt of Delhi in Civil Suit (OS) Nos. 1299A of 1997. The arbitration proceedings were in context to the Underwriting Commitments given by FFSL and many other defendants in the year 1997 vide their underwriting agreements dated January 10, 1995 for the public issue of M/s. Shoes East Ltd, of 1,75,84,800 Zero Interest Unsecured Fully Convertible Debentures of 199/- each for cash at par aggregating to Rs. 3,49,93,75,200, which devolved. FFSL was one amongst the Underwriters to the Public Issue and had an obligation of Rs. 99,99,000/-. The claim of M/s. M.S. Shoes East Limited against FFSL (excluding the other defendants) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notice for acquisition of shares and control of FFSL are not only farfetched but also not maintainable. 11.9. Without prejudice to whatever stated above, AMPL humbly submit 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. It is matter of fact that the proposed shares as envisaged in the purported MOU were never transferred to AMPL but were transferred to Mrs. R Rathinamala. Therefore the shares which were agreed to be transferred to AMPL were subsequently transferred to some third person, for reasons stated hereinabove and therefore AMPL cannot be termed a part of the acquirer group or persons acting in concert as in fact AMPL did not receive any shares/ voting rights of FFSL. Therefore, considering the same, AMPL were not required to make any public notice, as AMPL cannot under the aforesaid circumstances be termed as person acting in concert to make public announcement under obligations of Regulation 10 and Regulation 12 of SEBI (SAST) Regulations, 1997. 11.10. AMPL draw attention towards the para 7 of the Show Cause Notice, wherein it is stated that Mr. B P Jhu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the executing parties. This ratio has also been upheld time and again by various courts including the Hon'ble Apex court. Therefore, considering the above factors, AMPL were not required to make public announcement under obligations of Regulation 10 and Regulation 12 of SEBI (SAST) Regulations, 1997. 11.14. That even though a common Show Cause Notice is issued to AMPL along with other persons/entities, our role, involvement or participation of any nature was only to the extent of AMPL "intention" based on purported MOU to acquire a certain percentage of shares of FFSL, for which backed out immediately and did not even acquire any shares at any point of time. Needless to say that AMPL did not even acquire any voting rights too. Therefore in the proceedings have been erroneously initiated against AMPL and AMPL have been wrongly roped in the current proceedings. Thus, the present proceedings as initiated against AMPL deserve to be dropped at the threshold itself. 12. NVPL vide letter dated May 28, 2018 submitted its reply in the matter which in brief are as under: 12.1. The present shareholders of NVPL are as follows: Sl. No. Name Shareholder Since No. of Shares held 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FFSL. 13. It is noted that BPJ Holdings Private Limited had not submitted any reply to the SCN April 19, 2018. HEARING: 14. In the interest of natural justice, vide notice of hearing dated December 05, 2018 to BPJ, BPJ-HUF, Ruhi, Mala, SNPL, NVPL, RSPL, BPJHPL, OIPL and dated December 06, 2018 to AMPL an opportunity of personal hearing was granted to all 10 Noticees before SEBI on January 17, 2019 at SEBI, Head Office, Mumbai. The same was delivered to BPJ, BPJ-HUF, Ruhi, SNPL, NVPL, RSPL, through speed post and to Mala, BPJHPL, OIPL, AMPL was delivered through affixture. The proof of delivery is available on record. 15. On January 17, 2019 Mr. Rajesh Khandelwal, Advocate, Juris Link and Mr. Nikunj Kanodia Chartered Accountant, Authorized Representatives (hereinafter referred to as "ARs") on behalf of BPJ, BPJ-HUF, Ruhi, Mala, SNPL, AMPL, RSPL and OIPL (8 Noticees) had appeared for hearing and made oral submissions in line of replies available on record, which are as under: "....... 15.1. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd his nominees. There was no intention of BPJ and his nominees to take control over management of the Company. 15.5. In respect of BPJHUF, HUF should not be considered as a separate entity because except for income tax purpose, nowhere HUF is considered as a separate entity. Even if there is an intent in MOU that intent is of the person and not HUF i.e. intent is of BPJ and not BPJHUF. 15.6. In respect of other nominees, the intent cannot be drawn from MOU because these nominees are not the party of the MOU. It is not the case that they are not the nominees. They are the nominees represented by BPJ to acquire the shares of FFSL. 15.7. ARs are advised to submit the list of events in chronological order in a tabular form. ......" 16. BPJHPL neither appeared for hearing nor requested for adjournment. 17. The authorized representative (AR) of NVPL vide letter dated January 11, 2019 requested for the adjournment of hearing schedule on January 17, 2019. In the interest of natural justice, vide email communication dated February 05, 2019 to the AR of NVPL, an opportunity of personal hearing was granted to NVPL before SEBI on February 14, 2019 at SEBI, Head Office, Mumbai. AR of N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on representations and assurances of Mr. Natrajan which was to take shape of a final agreement once the terms of MOU were complied with. Therefore the MOU was merely a probable intention which was to take a definitive intentive shape subject to the compliance of terms and conditions therein. 19.2. That for BPJ it was Rs 5.58 lakhs which got credited to Mr. Natrajan. Thereafter in June, 2010, Mr. Natrajan issued physical shares for the cheques which were cleared. Thus for BPJ and his nominees, it was 5.58 lakhs shares which were acquired in the financial year 2010-2011. This forms 14.89% of the share capital of FFSL and hence BPJ and his nominees did not trigger the takeover code. Therefore they have not violated Regulation 10. 19.3. That BPJ had also not acquired any control over the target company FFSL or its management. Therefore BPJ have not even violated Regulation 12. 19.4. That Mr. Natrajan was all along having control over FFSL and its target company. This can be clearly seen from the various compliances done by Mr. Natrajan qua FFSL including the submission made to BSE under Regulation 8 of SEBI (SAST), 1997 & shareholding pattern, and the submission made to MCA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad submitted written 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, Ruhi made following additional submission, which are as under: 20.1. Ruhi was never a part of MOU dated May 27, 2010 entered in to between BPJ and Mr. Natrajan. Neither did Ruhi execute the said MOU as a party or as a witness. Ruhi was only nominated by BPJ in the MOU as his nominee. 20.2. 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 Ruhi 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 Ruhi shown as a nominee of BPJ. Ruhi 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. Ruhi never been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier reply, SNPL made following additional submission, which are as under: 22.1. That SNPL deny that they have violated Regulations 10 & 12 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997 and Section 12A(f) of SEBI Act, 1992 or any other law/provisions as alleged in the Show Cause Notice. 22.2. That SNPL had not acquired the requisite percentage of shares to trigger the takeover code. Therefore, SNPL have not violated Regulation 10. 22.3. That SNPL had also not acquired any control over the target company FFSL or its management. Therefore, SNPL have not even violated Regulation 12. 22.4. 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 Mr. B P Jhunjhunwala and Mr. Natrajan to acquire shares/voting rights of FFSL who were the formal parties of the MOU. It is pertinent to note that after receiving the due diligence report SNPL had no intention to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore at best an indicative intent in order to list out arrangement for further definitive agreement between them which itself were contingent in nature. Knowledge of breaches by Mr. Natrajan made RSPL and OIPL to decide against acquiring the shares/voting rights and control of FFSL. Also it is pertinent to note that Mr. B P Jhunjhunwala, who was the torch bearer of the entire acquisition of FFSL itself had opted out of the MOU. Further the said Noticees were neither a part of any management of FFSL nor had taken control of FFSL at any time. Neither the SCN alleges that qua the said Noticees. 23.3. That all in all the MOU was a probable intention without payment of 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 parties on compliance of terms and conditions of the MOU. The Sellers i.e. Mr Natrajan (and others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control Section 12A: No person shall directly or indirectly (f) acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act. SAST Regulations, 1997 Definitions: Regulation 2(1)(b): "Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer; Regulations 2(1)(c)"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. Regulation 2(1)(e)(1): "perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can acquire shares of any listed company which taken together with shares or voting rights, if any, held by them previously, would entitle them to exercise voting rights in excess of 15%, only if such acquirer makes a public announcement of offer to acquire 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 within four working days of entering into an agreement for acquisition of / deciding to acquire shares or voting rights exceeding the 15 percent threshold limit. 30. Further, as per regulation 12 read with regulations 2(1) (b) and 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. 31. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted above the expression "acquirer" has been defined in the regulation to mean any person who, directly or indirectly acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. Thus in terms of the said definition, not only a person directly or indirectly acquiring the shares or voting rights in the target company or acquiring control over the target company is an acquirer, but one agreeing to acquire shares/voting rights or control is also an acquirer. It is not necessary that one should actually acquire shares/voting rights or control to consider him as an acquirer. It would suffice if a person agrees to acquire shares or voting rights or control over, the Target Company. ........... On a perusal of regulation 14 it is clear that a public announcement is required to be made not later than four working days after any change or changes decided to be made, as would result in any acquisition of control over the target company. On a plain reading of regulation 14 (3) it is difficult to agree with the view that regulation 14 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the actual transfer need not be contemporaneous with the intended transfer and can be in futuro...." 35. Thus, it is clear that any person either by himself or along with the persons acting in concert who "agrees to acquire shares or voting rights" or "agrees to acquire control over the target company" would come within the definition of 'acquirer' irrespective of the time when actual acquisition of shares happened. 36. I note that the purpose of making a public announcement, in the situation where an agreement to acquire shares or control is entered into, is for giving an opportunity to the shareholders other than the sellers, for tendering their shares of the Target Company. Therefore, the acquirer has to make a public announcement as per regulation 14 of SAST Regulations, 1997 and making of public announcement is a requirement that has to be fulfilled within four working days of agreement to acquire control/acquisition of shares or voting rights beyond the prescribed limit. 37. Thus, I am of the view that as per Regulation 2(1)(b) i.e. definition of "acquirer"; Regulation 10 relating to acquisition of 15% or more shares or voting rights; Regulation 12 relating to acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 39.5. That the MOU executed between Mr. Natrajan and BPJ was at best an indicative intent / proposed arrangement in order to list out contingent conditions for converting the MOU into a definitive agreement failing which, the MOU stands rescinded. The breaches by Mr. Natrajan had made BPJ not only rescind the MOU but also curbed any intent BPJ may have had to acquire shares of FFSL. Further, breaches by Mr. Natrajan had made BPJ to decide against acquiring the shares/voting rights and control of FFSL 39.6. That, 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 Mr. Natrajan. 39.7. That, 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. 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 (Substantial Acquisition of Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backed out from its investments and not to acquire any shares/ voting rights of FFSL. 40.4. That the MOU executed between BPJ and Mr. Natrajan at best an indicative intent in order to list out arrangement for further definitive agreement which itself were contingent in nature. 40.5. That MOU by any means cannot be regarded as an agreement or a decision obligatory between the executing parties. 41. During the course of hearing NVPL submitted that it was connected to BPJ, but since September 13, 2012 the current directors/shareholders of NVPL are not connected or associated with BPJ. NVPL accepted that it was signatory to the MOU dated May 27, 2010 and had an intent to acquire the shares of FFSL and NVPL had failed to make public announcement. 42. BPJ-HUF submitted 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. The allegations against them border upon their "intention" to acquire shares of FFSL which is based on the surmises of the purported MOU dated May 27, 2010 of which they were never a part. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, incurred by the Acquirer in future towards any un-disclosed liability or claims against the Company not disclosed in the Balance Sheet and Accounts. 44.4.5. That the MOU is irrevocable in nature and time is the essence. The Acquirer undertakes to pay the amount on due dates irrespective of the permission from SEBI/BSE and Seller undertakes to co-operate with the Acquirer in future at any time without any further demand of consideration / services charges till the SEBI Takeover Code is completed. 45. Noticees namely BPJ, Ruhi, Mala, SNPL, AMPL, RSPL and OIPL contented that an 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; MOU by any means cannot be regarded as an agreement or a decision obligatory between the executing parties. Thus, there was no agreement to acquire the shares of FFSL and to take control over management of the Company. 46. Therefore, the question that needs to be decided in this instant issue is whether the MOU is only in the nature of mere understanding or has taken the character of agreement which records the rights and obligations agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue had been discussed at some length in paragraphs 48 to 50 & 53. From a reading of the terms of the MOU, particularly clause 4.1 (ii) and the fact that the forms of the definitive agreements formed a part of the MOU, as also the conduct of the parties post the signing of the MOU that they did not indulge in any significant negotiations with regard to the settlement of any further terms and conditions, I am, prima facie, of the view that the intention of the parties was that the MOU should serve as the binding agreement, and the execution of the definitive agreements was not a condition that without which the MOU cannot be enforced. Keeping in view the above clauses of the MOU and the case law above referred to, I am of the prima facie view that the MOU in question constitutes a binding contract between the parties........." 47. It is also established principle of interpretation of deeds that the nomenclature of the document is immaterial. As observed by the Hon'ble Supreme Court vide order dated September 22, 1976 in Puzhakkal Kuttappu vs C. Bhargavi and Others that "....In construing a document like the one before us it is always necessary to find the intention of the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 8,68,000 Non Promoter shares (23.16%) shall be delivered to the Acquirer in physical form duly transferred in favour of the nominees of the Acquires together with all records, papers, documents and files of the FFSL. The nominees of the Acquirer shall be appointed on the Board leaving one Promoter Director. 51.2.3. The Seller to be paid another Rs. 13,08,650 (Rupees Thirteen lacs Eight thousand Six hundred and fifty only) at Rs. l /- per share for 13,08,650 Promoter Shares on SEBI Approval against which the Promoter shares shall be transferred to the acquirer. However the time limit for the same shall be 4(Four) months to be extended up to six months in case of delay in SEBI approval from the date of signing the MOU and the said shares shall be delivered with Transfer deeds duty executed to the Acquirer against the postdated cheques in favour of the Seller. 51.3. The Annexure to MOU records, who all will issue the cheques, details of the cheques and amount for which the cheque will be drawn. In terms of agreement / MOU dated May 27, 2010 with regard to the payment of consideration for sale of 21,76,650 equity shares (58.08%) of FFSL together with the management control, BPJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this documents titled as "MOU" as a binding agreement/contract. Especially in view of the fact that necessary terms of the transfer of shares, payment of consideration, time of transfer of shares and consideration has been already agreed and crystalised in the document titled as "MOU". Therefore, the said MOU dated May 27, 2010 though titled as MOU is an agreement and is irrevocable and binding between the parties. Hence, I do not find any merit in the contention of the Noticees namely BPJ, Ruhi, Mala, SNPL, AMPL, RSPL and OIPL that the MOU dated May 27, 2010 cannot be considered as agreement or a decision obligatory between the executing parties. 53. Upon perusal of MOU dated May 27, 2010 and letters attached thereto, I note that BPJHUF was neither the part of MOU dated May 27, 2010 nor issued any cheques to Mr. Natarajan or promoter of FFSL for acquisition of shares of FFSL. Hence, I find merit in the contention of BPJ-HUF 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 SAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack out from their investments in purchasing the shares of FFSL. The Noticees also argued that the "MOU" was rescinded in November 2010. Thus, it was argued that the transaction as per the MOU stood not only rescinded but also amended if at all to be considered as subsisting. In this regard, I observe that no proof of communication of rescission of "MOU" was given by the Noticees. Instead, even as per their case, some tranches of physical share certificates were continued to be transferred in the name of BPJ nominees in the month of April, 2012. If the MOU has been rescinded in November 2010, there was no occasion for acceptance of physical share certificates later in April 2012 which only go to show the Noticees were acting still pursuant to the MOU. Further, BPJ vide letter dated January 30, 2019 has stated that AMPL and NVPL had backed out in the month of June 2010. However, instead of rescinding the MOU even at that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uant to a formal or informal agreement or understanding. 61. In this regard, the submission of Ruhi, Mala, SNPL, RSPL, OIPL, AMPL and NVPL as under: 61.1. Ruhi stated that she was never a part of MOU dated May 27, 2010 entered into between BPJ and Mr. Natrajan. Neither did Ruhi execute the said MOU as a party or as a witness. Ruhi was only nominated by BPJ in the MOU as his nominee. 61.2. Mala stated that she was never a part of MOU dated May 27, 2010 entered into 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. 61.3. SNPL stated that it along with other proposed buyers formed a part of the acquirer group for BPJ and issued a post-dated cheque towards consideration for the acquisition of the shares of FFSL. SNPL arrayed as one of the proposed buyer/ acquirer who 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 buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U dated May 27, 2010 alongwith letters dated May 27, 2010 and cheques / postdated cheques attached thereto, I find that MOU dated May 27, 2010 and letters dated May 27, 2010 clearly establishes that BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, OIPL and BPJHPL shared common objective / intention for substantial acquisition of 21,76,650 equity shares (58.08%) of FFSL and control over management of FFSL. I also find that the post-dated cheques issued by BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, OIPL and BPJHPL reflect their direct cooperation to acquire / agree to acquire shares and control of FFSL. Further, MOU dated May 27, 2010, letters dated May 27, 2010 and post-dated cheques handed over to the sellers through BPJ via letters dated May 27, 2010 clearly reflect / establishes an understanding / agreement between BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement does not have effect on the statutory liability such as liability to make open offer/public announcement, which is to be discharged by NVPL / the Company in its legal capacity as separate entity. Hence, I find that NVPL along with other acquirers namely BPJ, Ruhi, Mala, SNPL, AMPL, RSPL, OIPL and BPJHPL are Persons Acting in Concerts and had agreed to acquire 58.08% shares of FFSL. 65.6. I find that RSPL and OIPL along with other acquirers namely BPJ, Ruhi, Mala, SNPL, NVPL, AMPL and BPJHPL are Persons Acting in Concerts and had agreed to acquire 58.08% shares of FFSL. I also find that RSPL and OIPL were the part of MOU, hence I do not find any merit in contention of RSPL and OIPL that they were never executors or witnesses to the said MOU as the same is not material. 66. I find the BPJHPL did 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant provisions of the SAST Regulations. Such Public announcement would have to be made by the merchant banker appointed by the acquirer within four working days of entering into an agreement for acquisition of / deciding to acquire shares or voting rights exceeding the 15 percent threshold limit. In the instant matter, Noticees (except BPJ-HUF), who had agreed / decided to acquire more that 15% shares of FFSL (i.e. agreed to acquire 58.08% shareholding of FFSL) on May 27, 2010 were required to make public announcement of offer within 4 working days from deciding to acquire shares. However, it is noted that Noticees (except BPJ-HUF) did not made any public announcement of offer within 4 working days from May 27, 2010. Hence, I am of the view that Noticees (except BPJ-HUF) had violated the provisions 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 SAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992 against BPJ-HUF does not stand established. ISSUE No. 5: If issue No. 4 is determined in the affirmative, then what directions should be issued against the Noticees? 75. I note that Regulations 10 and 12 of the SAST Regulations, 1997 whose violation has been alleged in the SCN itself spells out the consequences of the trigger of the said provision, that is, the liability to make public announcement to acquire shares and control of Target Company in accordance of SAST Regulations, 1997. Thus, the specific measure intended to be adopted by SEBI against the Noticees is envisaged under the Regulations 10 and 12 of the SAST Regulations, 1997, itself. 76. Hon'ble Securities 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" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST Regulation, 1997. Therefore, the fact that the scrip is under suspension further strengthens the case that in the interest of shareholders / investors, it is fit case to direct the Noticees (except BPJ-HUF) to make a public announcement of open offer. 78. Further, with regard to the interest on delayed open offer, Hon'ble Supreme Court in the case of Clariant International Limited and another vs. SEBI [Appeal (Civil) No. 3183/2003] dated August 25, 2004 has affirmed the legal sanctity of SEBI's directions imposing interest on delayed open offer. In the said case, the Hon'ble Supreme Court had held inter alia as follows: "....Interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded by reason of usage or trade having the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to make the public announcement within a period of 4 working days from date of MOU dated May 27, 2010 in accordance with the SAST Regulations, 1997 and are required to complete all related activities and formalities with respect to the public announcement and open offer, within the timelines specified therein. Therefore, I am of the view that since the public announcement now would provide a delayed exit opportunity to the shareholders of the target company (FFSL), the Noticees (except BPJ-HUF), should pay interest on the consideration amount to the eligible shareholders as per the ratio laid down in Clariant International Limited and another vs. SEBI [Appeal (Civil) No. 3183/2003] dated August 25, 2004. . 81. I also note from the submission 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 Li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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