Adjudication Order in the matter of M/s SITI Cables Network Limited [Formerly Known as "M/s Wire and...

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Adjudication order in the matter of M/s SITI Cable Network Limited

of 25 December 29, 2014

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO.: JJ/AO/AK/160-173/2014]

UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA

ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING

INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,

1995

In respect of

Name of the Noticees Permanent Account No. Order Number

1. Mr. Ashok Mathai Kurien AADPK4942J JJ/AO/AK/160/2014

2. Mr. Laxmi Narain Goel AAEPG2531Q JJ/AO/AK/161/2014

3. Ms. Sushila Goel AATPD5221B JJ/AO/AK/162/2014

4. Ambience Business Services Private

Limited

AAACA9528L JJ/AO/AK/163/2014

5. Briggs Trading Company Private

Limited

AAACB4674J JJ/AO/AK/164/2014

6. Ganjam Trading Company Private

Limited

AAACG3975H JJ/AO/AK/165/2014

7. Essel Infraprojects Limited AAACP6095M JJ/AO/AK/166/2014

8. Veena Investment Private Limited AAACV6436A JJ/AO/AK/167/2014

9. Delgrada Limited (Now known as "EsselMedia Venture Limited)

AABCD7273Q JJ/AO/AK/168/2014

10. Lazarus Investments Limited (Now

known as "Essel International Limited")

AABCL2192A JJ/AO/AK/169/2014

11. Jayneer Capital Private Limited AAACJ1688G JJ/AO/AK/170/2014

12. Churu Trading Company Private

Limited (Merged with "Spirit Textiles

Private Limited") (Being merged with

"Spirit Textiles Private

Limited")

AALCS5905J

JJ/AO/AK/171/2014

13. Prajatma Trading Company Private

Limited (Merged with "Spirit Textiles

Private Limited")

JJ/AO/AK/172/2014

14. Premier Finance and Trading Company

Limited Merged with "Spirit Textiles

Private Limited")

JJ/AO/AK/173/2014

In the Matter of M/s SITI Cables Network L imi ted

[Formerly Known as "M/s Wire and Wireless (India) Limited" ]

Brought to you by http://StockViz.biz





FACTS OF THE CASE IN BRIEF

1. A letter of offer of the Rights Issue dated September 22, 2009 was made to the

equity shareholders of M/s SITI Cable Network Limited [Formerly known as "M/s

Wire and Wireless (India) Limited] (hereinafter referred to as

"SCNL"/"Company" ), listed at Bombay Stock Exchange Limited (BSE) and

National Stock Exchange of India Limited (NSE), for issue of 23,67,67,351 equity

shares of face value of ` 1 each for cash at a price of ` 19 per equity share

including a premium of ` 18 per equity share aggregating approximately ` 44,985

Lakhs to the equity shareholders on rights basis in the ration of 109 equity shares

for every 100 equity shares held on the start of the book closure period i.e.

August 15, 2009. The issue price is 19 times of the face value of the equity

share. The issue price for the equity shares will be paid in two installments i.e. `

9 per equity shared will be payable on application and the balance ` 10 per

equity share will become payable after six months at the option of the company

but within 12 months from the date of allotment.

2. Securities and Exchange Board of India (hereinafter referred to as “ SEBI” ) uponexamining the letter of offer pertaining to the aforesaid rights issue &

shareholding pattern of the company, alleged that the promoters of SCNL,

namely Mr. Ashok Mathai Kurien (hereinafter referred to as "Ashok"/"Noticee

No. 1" ), Mr. Laxmi Narain Goel (hereinafter referred to as "Laxmi"/"Noticee

No. 2" ), Ms. Sushila Goel (hereinafter referred to as "Sushila"/"Noticee No.

3" ), Ambience Business Services Private Limited (hereinafter referred to as

"Ambience"/"Noticee No. 4" ), Briggs Trading Company Private Limited

(hereinafter referred to as "Briggs"/"Noticee No. 5" ), Ganjam Trading

Company Private Limited (hereinafter referred to as "Ganjam"/"Noticee No.

6" ), Essel Infraprojects Limited (hereinafter referred to as "Essel"/"Noticee

No. 7" ), Veena Investment Private Limited (hereinafter referred to as

"Veena"/"Noticee No. 8" ), Delgrada Limited (hereinafter referred to as






"Delgrada"/"Noticee No. 9" ), Lazarus Investments Limited (hereinafter

referred to as "Lazarus"/"Noticee No. 10" ), Jayneer Capital Private Limited

(hereinafter referred to as "Jayneer"/"Noticee No. 11" ), Churu Trading

Company Private Limited (hereinafter referred to as "Churu"/"Noticee No.

12"), Prajatma Trading Company Private Limited (hereinafter referred to as

"Prajatma"/"Noticee No. 13" ) and Premier Finance and Trading Company

Limited (hereinafter referred to as "Premier"/"Noticee No. 14" ) [Collectively

referred to as "Promoter Group"] had violated the provisions of regulation 3(4)

of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

(hereinafter referred to as "SAST Regulations, 1997") read with regulation 35 of

SEBI (Substantial Acquisition of Shares & Takeover) Regulations 2011

(hereinafter referred to as “ SAST Regulations, 2011” ) and therefore

consequently, liable for monetary penalty under section 15A(b) of the SEBI Act.

APPOINTMENT OF ADJUDICATING OFFICER

3. The undersigned was appointed as Adjudicating Officer, vide order dated

February 20, 2014, under section 15-I of the SEBI Act read with rule 3 of SEBI

(Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer)

Rules, 1995 (hereinafter referred to as the ‘Rules’) to inquire into and adjudge

under section 15A(b) of the SEBI Act the alleged violation of the provisions of

regulations 3(4) SAST Regulations, 1997 committed by the Noticee 1 to 14.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

4. Show Cause Notices dated August 22, 2014 (hereinafter referred to as “SCNs”)

were issued to the Noticee No. 1 to 14 under rule 4 of the Rules to show cause

as to why an inquiry should not be initiated against them and penalty be not

imposed under section 15A(b) of SEBI Act for the alleged violation of regulations

3(4) of SAST Regulations, 1997. The aforesaid SCNs were delivered to the

Noticee 1 to 14 via hand delivery, as per the acknowledgement card received.






5. It was alleged in the SCN that in terms of regulation 3(4) of the SAST

Regulations, 1997, Noticee No. 1 to 14 were required to submit a report along

with supporting documents to SEBI giving all details in respect of acquisition

made under regulation 3(1)(b) which (taken together with shares or voting rights,

if any, held by him or by persons acting in concert with him) would entitle such

person to exercise 15 per cent or more of the voting rights in a company within

21 days from the date of allotment of acquisition (rights issue), which Noticee No.

1 to 14 have failed to do.

6. In the interest of natural justice and in order to conduct an inquiry in terms of rule

4(3) of the Rules, the Noticee No. 1 to 14 were granted an opportunity of

personal hearing on September 26, 2014 at SEBI, Head Office, Mumbai, vide

Notices dated September 16, 2014. The said notices of hearing were delivered to

the Noticee No. 1 to 14 via hand delivery, as per the acknowledgement card

received.

7. Noticee No. 11 and Sprit Textiles Private Limited (hereinafter referred to as

"Sprit") on behalf of Noticee No. 12, Noticee No. 13 & Noticee No. 14 vide

separate but identical letters dated September 18, 2014 submitted the reply to

the abovementioned SCN, which inter alia stated as under:

"............

• Wire and Wireless (India) Ltd (now known as Siti Cable Network Limited) had, in

accordance with applicable laws, issued a Letter of Offer for proposed Rights Issue of

23,67,67,351 Equity Shares of Re. 1 each at an Issue price of Rs. 19 per Equity Share

(including premium of Rs. 18 Per share) in the ratio of 109 Equity Share for every

100 Equity Shares of the Company held as on the start of Book Closure Period i.e.

August 15, 2009, with a view to fund its business requirements as detailed in Letter of

Offer dated September 22, 2009. The Issue price of Rs. 19 per share was payable in 2

installments viz. Rs. 9 per share payable on application and balance Rs. 10 willbecome payable after 6 months at the option of the Company but within 12 months

from the date of Allotment.

• As detailed in Para 16 in page 59 of the Letter of Offer, the Promoters had confirmed

that in the event of under-subscription they intend to apply for additional shares so

that at least 90% of the issue is subscribed, leading to possible increase in their

shareholding in the Company.






• The said Rights Issue was undersubscribed and consequently as per the undertaking

provided in the Letter of offer, 2 Promoters of the Company viz. Prajatma Trading

Company Pvt Ltd and Premier Finance & Trading Company Ltd (since merged with

Spirit Textiles Private Limited vide above submissions) had applied for unsubscribed

portion to the extent of 4,50,00,000 and 2,10,00,000 Equity Shares of Siti.

• Consequently Siti had vide Board resolution passed on October 29, 2009, allotted

23,62,22,285 Equity Shares in pursuance to Rights Issue. Requisite disclosures

including those relating to pre and post shareholding, under-subscription / additional

shares subscription details, particulars of allottees etc was filed by the Company with

the Stock Exchanges and Depositories to facilitate execution of Corporate Action by

the Depositories and Listing of Rights Shares on the Stock Exchanges.

• Relevant details of Pre and Post allotment shareholding of the promoters were as

detailed herein:

Promoters Name Pre rights issueshareholding

No. of sharesallotted on

rights issue

Post rights issue shareholding

No. of Shares % No. of Shares % % of votin

rights

Ashok Mathai Kurien 1021000 0.47 0 1021000 0.23 0.3

Ambience Business Services Pvt. Ltd 1137500 0.52 0 1137500 0.25 0.3

Ganjam Trading Co Pvt Ltd 3283250 1.51 0 3283250 0.72 0.9

Churu Trading Co Pvt Ltd 2025500 0.93 35256049 37281549 8.22 5.8

Essel Infraprojects Ltd 3200000 1.47 0 3200000 0.71 0.9

Laxmi N Goel 875000 0.40 0 875000 0.19 0.2

Briggs Trading Co. Pvt Ltd 2696750 1.24 0 2696750 0.59 0.8

Prajatma Trading Co. Pvt Ltd 4162250 1.92 53978602 58140852 12.82 9.2

Premier Finance & Trading Co Ltd 3088000 1.42 25107665 28195665 6.22 4.6

Veena Investments Pvt. Ltd 680500 0.31 0 680500 0.15 0.2 Delgrada Ltd. 16431000 7.56 0 16431000 3.62 4.9

Lazarus Investments Ltd. 5750000 2.65 0 5750000 1.27 1.7

Jayneer Capital Pvt. Ltd 61313448 28.23 66831658 128154106 28.26 28.2

Total Promoter Holding 105664198 48.64 181173974 286838172 63.26 58.5

• We wish to state and submit, in connection with the violations alleged in the Show

Cause Notice, that:

a) the entire acquisition, including subscription to unsubscribed portion under the

Rights Issue of Siti was made by the Promoters in accordance with applicable law

and the undertakings provided as part of letter of offer;b) requisite information in connection with such acquisition (including subscription

to additional shares and consequent resultant increase in promoter share holding

to 63.26%) was made available and disclosed to the Stock Exchanges for

information of Investors by Siti;

c) subscription and acquisition of additional equity shares by the Promoters did not

result in change of control of Siti; and

d) details of subscription / under-subscription / additional subscription etc were






provided by Siti to SEBI in December 2011 when such details were sought

• The promoters had, however, in-advertently and un-intentionally missed out on

compliance with the requirements of Clause 3(4) necessitating filing of Report with

SEBI.....

• The Equity Shares issued in pursuance to Rights were partly paid-up at the time ofallotment and therefore the increase in voting rights of the promoters was only to the

extent of 9.88% (from 48.64% pre-allotment to 58.52% post allotment), since the

partly paid-up shares were eligible for voting only to the extent of amount paid up.

• Since only 4 promoter entities out of 14 Noticees. viz. M/s. Churu Trading Company

Pvt Ltd. M/s. Prajatma Trading Company Pvt Ltd, M/s. Premier Finance & Trading

Co Ltd and M/s Jayneer Capital Pvt Ltd, had actually subscribed to the Equity Shares

(including rights renounced by other promoters) under the Rights Issue and out of

these only 2 entities had acquired additional under-subscribed portion under the

Rights Issue, the report under Rules 3(4) of SAST Regulations. 1997 would have been

required to be filed by these 4 entities only as acquirers and not by other Noticees as

promoters.• The Noticees have been regular in complying with all regulatory requirements

including filing of disclosures under various SEBI regulations and that the

unintentional technical error on account of non-filing of the Report, has neither

impacted general investor fraternity (as the information was publically made

available) nor resulted in any unwarranted gain and/or benefit to the Promoters. This

is a mere technical lapse and this has not created any prejudice to any investor/ s and

there has been no complaints from any investor on this count.

• There has been many instances wherein SEBI has taken a lenient view in respect of

technical lapses and disposed off the cases with caution/ warnings.

• In view of the above, considering the fact that the technical violation has neither

resulted in any loss to the investors nor benefited the promoters, we request you tokindly condone the alleged violation. We further request you to provide us an

opportunity for personal hearing at a date convenient to you, to represent our case.

• It may also be appreciated that even though the technical lapse had occurred, this

information had been in the public domain by appropriate disclosures with stock

exchanges and depositories and to that extent it may be taken into consideration that

the referred technical lapse was merely inadvertent and ought to be condoned.

• We would also like to invite your kind attention to the orders passed by SAT in Cabot

International Capital Corporation v. Adjudicating Officer, Securities and Exchange

Board of India [Appeal No. 24 of 2000-2001] 29 SCL 399 (SAT -Mum.), wherein a

penalty was imposed on the company for violation of Regulation 3(4) of the Takeover

Code i.e., failure to submit the post-acquisition report to SEBI. The companycontended that they were under bona fide belief that the 1997 Regulations did not

apply to preferential allotment. They had further contended that even if it was held

that there was a failure to report under Regulation 3(4), such failure was absolutely

unintentional because similar reports had been furnished by them to the Stock

Exchange and to the Registrar of Companies and that they had nothing to gain from

not reporting the matter to SEBI, under Regulation 3(4). SAT had accepted the said

argument basing its findings on the principles established in the rulings of the






Hon'ble Supreme Court in cases such as Hindustan Steel Ltd. v. State of Orissa AIR

1970 SC 253, Akbar Badruddin Jiwani v. Collector of Customs, : 1990 (47) ELT 161

(SC); Extrusion v. Collector of Customs 1994 (70) ELT 52 (Cal.); Superintendent and

Remembrancer of Legal Affairs to Government of West Bengal v. Abani Maity [1979]

(4) SCC 85, Gujarat Travancore Agency v. CIT: AIR 1989 SC 1671, Addl. CIT v. I.M.

Patel & Co. AIR 1992 SC 1762 and SRG Infotec Ltd. v. SEBI [1999] 22 SCL 422(SAT -Mum.). The matter was taken up in appeal by SEBI before the High Court of

Bombay and the Hon'ble High Court (2005]123CompCas841(Bom)) had been

pleased to observe as follows in the concluding paragraphs of their judgment:

" Thus, the following extracted principles are summarized.

(A) Mens rea is an essential or sine qua non for criminal offence.

(B) Strait-jacket formula of mens rea cannot be blindly followed in each and every

case. Scheme of particular statute may be diluted in a given case.

(C) If, from the scheme, object and words used in the statute, it appears that the

proceedings for imposition of the penalty are adjudicatory in nature, in

contradistinction to criminal or quasi-criminal proceedings, the determination is

of the breach of the civil obligation by the offender. The word "penalty" by itself

will not be determinative to conclude the nature of proceedings being criminal or

quasi-criminal. The relevant considerations being the nature of the functions

being discharged by the authority and the determination of the liability of the

contravenor and the delinquency.

(D) Mens rea is not essential element for imposing penalty for breach of civil

obligations or liabilities.

(E) There can be two distinct liabilities, civil and criminal, under same act.

(F) Even the administrative authority empowered by the Act to 'adjudicate' have to

act judicially and follow the principles of natural justice, to the extent applicable.

(G) Though looking to the provisions of the statute, the delinquency of the defaulter

may itself expose him to the penalty provision yet despite, that in the statute

minimum penalty is prescribed, the authority may refuse to impose penalty for

justifiable reasons like the default occurred due to bona fide belief that he was not

liable to act in the manner prescribed by the statute or there was too technical orvenial breach etc."

• We submit that on an unbiased view of the above facts and circumstances, by any

stretch of imagination, the technical lapse cannot be termed as a deliberate act on the

part of Noticee/s. The non-reporting to SEBI within the time frame, at best, be held to

be a technical lapse. In such circumstances, the esteemed regulator (SEBI) may be

pleased to condone the technical lapse, as the information sought to be covered by






the report to SEBI was already brought out in the public domain by filing the

disclosures with stock exchanges and depositaries. The Jurisdictional High Court in

Cabot's case has pronounced that if a breach was merely technical and unintentional,

it does not merit penal consequence. In this case, the breach was bona fide and the

concerned noticees were under the impression since the disclosure was already made

to stock exchanges and depositories, they had inadvertently omitted the other procedural aspect of filing a report the SEBI.

• We have filed the report in terms of Regulation 3(4) of SAST Regulations 1997, along

with the applicable fees. Copy of the acknowledgement for having filed the report

with SEBI is enclosed.... In view of the foregoing facts and circumstances and the fact

that the disclosure was already made by Siti with stock exchanges and depositories in

due time and was available in the public domain, the report filed by the Acquirers

may be taken on record, condoning the delay.

.................."

8. A. Janakiraman, Partner of Guru & Ram Chartered Accountant, Authorized

Representative (AR) of the Noticee No.1 to 14 vide letter dated September 19,

2014 have requested for the postponement of hearing.

9. The AR on behalf of Noticee No. 1 to 10 vide letter dated September 19, 2014

have submitted the reply to the abovementioned SCN, which inter alia stated as

under:

".............

• At the outset, it is submitted that the main charge in the SCN, is that the acquirers

(among the promoters) of additional shares, had failed to file the report to be

submitted to SEBI in terms of Regulation 3(4) of SAST Regulations 1997. It is an

admitted position on record that none of the above 10 noticees had acquired any

additional shares, and therefore there was no requirement cast on them to file such a

report with SEBI. Even a look at the format of the Report to be filed with SEBI in

terms of the extant regulations, would disclose that only the acquirer, is obliged to

file the report with SEBI. In view of this, it is submitted that the 10 noticees may be

discharged from the proceedings in respect of the subject SCN.

• Without prejudice to the above submissions, we would like to rely on the contents of

the reply filed by the 4 acquirer of shares, with SEBI, in defense of the charges raised

in the subject SCN. It is submitted that even though the aforementioned 10 noticees

have not acquired any additional shares and were not obliged to file any report with

SEBI, the contravention pointed out in the SCN is only a technical lapse, occurred

due to inadvertence and a bonafide mistake and it is our submission that it does not






merit any penal consequence, especially taking into account the detailed factual and

legal submissions filed by the 4 promoters who acquired additional shares. It is also

understood that the said 4 promoters have also filed the report with SEBI, even

though belatedly.

................"

10. In the interest of natural justice and in order to conduct an inquiry in terms of rule

4(3) of the Rules, the Noticee No. 1 to 14 were granted a final opportunity of

personal hearing on October 09, 2014 at SEBI, Head Office, Mumbai, vide

Notices dated September 24, 2014. The said notices of hearing were delivered to

the Noticee No. 1 to 14 as well as to the AR of the Noticee No. 1 to 14 via hand

delivery, as per the acknowledgement card received. The AR appeared on behalf

of the Noticee No. 1 to 14. During the course of hearing, AR reiterated the

submissions made by the Noticee No.1 to 10 vide letter dated September 19,

2014, by the Noticee No. 11 vide letter dated September 18, 2014 and by the

Noticee No. 12 to 14 vide letter dated September 18, 2014. Further, AR vide

letter dated October 09, 2014 on behalf of Noticee No. 1 to 14, submitted the

additional written submissions in the matter, which inter alia stated as under:

"............

• It is submitted that that Show Cause Notice issued to 10 promoter entities are legally

not tenable as they were not obliged to file any report with SEBI, as these entities didnot acquire any shares to make them liable to submit a report in terms of Regulation

3(4) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations 1997

("SAST Regulations"). Even a cursory look at the format of the Report under Reg.

3(4) would disclose that only the actual acquirer is obliged to file the report with

SEBI. Hence, the 10 promoter entities are not obliged to file the report under Reg.

3(4) of the SAST Regulations. Hence, it is submitted that issue of SCN to such 10

entities is without application of mind and hence proceedings initiated by way of

issue of SCN to 10 entities, is liable to be dropped

• As far as the remaining four promoter entities are concerned, viz Churu Trading

Company Private Limited, Prajatma Trading Company Pvt Ltd, Premier Finance &Trading Co Limited and Jayneeer Capital Private Limited (hereinafter collectively

referred to as 'Acquirers'), it has been clearly explained in the reply that failure to file

the report with SEBI is a mere bonafide/inadvertent technical lapse. It is an admitted

position that (even as per the Show Cause Notice itself) it was clearly disclosed in the

letter of offer of Wire and Wireless (India) Limited (now known as Siti Cable Network

Limited) (hereinafter referred to as 'Siti') that if the issue is under-subscribed, the

promoters intend to acquire additional shares beyond their entitlement. (see para 5 of






SCN). In view of the said acquisition, the shareholding of the Acquirers in Siti

increased from 32.50% to 55.52% and overall promoter shareholding in Siti

increased from 48.64% to 63.26% . But it is also an admitted position that exemption

is available in respect of open offer requirements (under regulation 11 (1) SAST

1997) pursuant to rights issue (even in case of increase in the shareholding by

promoter by more than 5%). (see para 4 of SCN)

• It is submitted that even though the report was not filed within the stipulated time

with SEBI by the Acquirer(s) (this report was filed belatedly on 17/9/2014 along with

the necessary filing fees), the necessary disclosures were made by Siti regarding the

very same acquisition by the promoters (on which report was to be filed with SEBI as

per 3(4) SAST Regulations 1997) with Stock Exchanges before and immediately after

the allotment. Copies of relevant filings made by Siti with the Stock Exchanges are

submitted along with this submission. This establishes that the information what was

sought to be filed with SEBI, even though not filed within the requisite time by the

Acquirer(s), was in public domain, with all other concerned public forums where the

investors normally look for such information. It may be noticed that the informationhas been disclosed to BSE and NSE much before the date of acquisition (this is the

date when acquirer comes to know of the allotment). The information was furnished

to BSE and NSE on 30/10/2009 whereas the acquirer would have received credit of

Shares allotted later than that date.

• It is our respectful submission that the purpose of filing the report with SEBI was in

fact fulfilled by filing of disclosures with BSE and NSE. Regulations require filing of

report with SEBI within 21 days, from date of acquisition whereas the information

was filed with BSE and NSE within a day of allotment and before even the acquirer

has been officially intimated. Public Notice, detailing Basis of Allotment was also

published within 4 days of allotment, giving the gist of information regardingallotment of shares (including particulars of additional subscription by the

promoters) in two newspapers Financial Express and Navshakthi on 4/11/2009.

(copies of Public Notice enclosed)

This is submitted to high light the factual position that the facts were already in the

public domain even before the due date of filing the report with SEBI and there

cannot be any doubt that there was any malafide intent in not filing the report with

SEBI.

• It is submitted that the default can at best be considered as technical or venial breach

of the provisions. The fundamental principle of law in this matter has been explainedby supreme Court in the below cited case The Supreme Court held in its decision in

Hindustan Steel Ltd. v. State of Orissa : (1970) 25 STC 211 (SC) as follows (page 214

in 25 STC):

Penalty will not also be imposed merely because it is lawful to do so. Whether penalty

should be imposed for failure to perform a statutory obligation is a matter of

discretion of the authority to be exercised judicially and on a consideration of all the






relevant circumstances. Even if a minimum penalty is prescribed, the authority

competent to impose the penalty will be justified in refusing to impose penalty, when

there is a technical or venial breach of the provisions of the Act.

• It is a clear factual and legal position that the violation was technical, procedural

and a venial breach which did not cause any adverse consequences. Admittedly it didnot cause any disproportionate gain nor did the acquisition cause any loss to anyone

including the public shareholders of the company.

• Even the Regulator (SEBI) would appreciate that, by any stretch of imagination, the

non-filing of the report with SEBI within the due time under Regulation 3(4) of SAST

Regulations 1997 can be termed as a deliberate act on the part of the concerned

Acquirers. Nor it is the case that the Acquirers had deliberately suppressed the

information with ulterior motive. Acquirers can, at best, be held to have made a

technical1apse. In such circumstances, it is our submission that the role of a

regulator is to rehabilitate and bring to an end litigation, which may not cast a

stigma on the appellant, who otherwise, admittedly, has maintained a good trackrecord.

• The High Court in Cabot's case has pronounced that if a breach was merely technical

and unintentional, it does not merit penal consequence.. This, at best can only be an

error of judgment and, at best, an error of understanding the law. Ignorance of law is

no excuse but an erroneous interpretation is a mitigating factor especially if such

interpretation is honest and bona fide to the knowledge of the Noticee. Following the

judgment in Cabot International and for the reasons stated hereinabove, we submit

that the breach cannot be called as deliberate and the case does not merit any

imposition of any penalty.

• Both SEBI and SAT have, in similar circumstances in other cases, not levied penalties

on noticing that the breach was a technical/venial breach and at best such cases were

disposed with a caution For example we place reliance on a case decided by WTM

SEBI on 2/12/2009 in the case of Shraddha Stock Broking Pvt. Ltd. In this case the

party was acting as sub broker under the broker of stock Exchange without obtaining

Registration from SEBI in violation of Section 12 of SEBI Act and the enquiry officer

recommended suspension of licence for some period and in this case, the party was

let off with a caution taking into account the bonafide error by the party and taking

that it was a technical/venial breach

•

We also reiterate the ratio held by Bombay High Court in the case of Cabbot International {[2005]123CompCas841(Bom)} which has been explained in detail on

our reply filed with SEBI. Accordingly following the ratio, the case does not merit any

penal consequence.

..............."






CONSIDERATION OF ISSUES AND FINDINGS

11. I have carefully perused the submissions of the Noticee No. 1 to 14 and the

documents available on record. The issues that arise for consideration in the

present case are :

(i) Whether the Noticee No. 1 to 14 have violated the provisions of

regulation 3(4) of SAST Regulations, 1997?

(ii) Whether the Noticee No. 1 to 14 are liable for monetary penalty under

section 15A(b) of the SEBI Act?

(iii) What quantum of monetary penalty should be imposed on the Noticee

No. 1 to 14 taking into consideration the factors mentioned in Section

15J of the SEBI Act?

FINDINGS

12. On perusal of the material available on record and giving regard to the facts and

circumstances of the case, I record my findings hereunder.

13. The relevant provisions of SAST Regulations, 1997 which reads as under:-

SAST Regulations, 1997

Regulation 11

(1) No acquirer who, together with persons acting in concert with him, has acquired, in

accordance with the provisions of law, 15 per cent or more but less than fifty five per

cent (55%) of the shares or voting rights in a company, shall acquire, either by

himself or through or with persons acting in concert with him, additional shares or

voting rights entitling him to exercise more than 5% of the voting rights, with postacquisition shareholding or voting rights not exceeding fifty five per cent, in any

financial year ending on 31st March unless such acquirer makes a public

announcement to acquire shares in accordance with the regulations.

Regulation 3

(1) Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to:

(a)..............






(b) allotment pursuant to an application made by the shareholder for rights issue,

(i) to the extent of his entitlement; and

(ii) up to the percentage specified in regulation 11:

Provided that the limit mentioned in sub-clause (ii) will not apply to the

acquisition by any person, presently in control of the company and who has inthe rights letter of offer made disclosures that they intend to acquire

additional shares beyond their entitlement, if the issue is undersubscribed:

Provided further that this exemption shall not be available in case the

acquisition of securities results in the change of control of management;”

(2)....................

(3).......................

(4) In respect of acquisitions under clauses (a), (b), (e) and (i) of sub-regulation (1), the

acquirer shall, within 21 days of the date of acquisition, submit a report along with

supporting documents to the Board giving all details in respect of acquisitions which

(taken together with shares or voting rights, if any, held by him or by persons actingin concert with him) would entitle such person to exercise 15 per cent or more of the

voting rights in a company.”

14. The provisions of regulation 35 of SAST Regulations, 2011 are reproduced

hereunder:

Repeal and Savings.

Regulation 35

(1) The Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 1997, stand repealed from the date on which these

regulations come into force.

(2) Notwithstanding such repeal,—

(a) anything done or any action taken or purported to have been done or taken

including comments on any letter of offer, exemption granted by the Board, fees

collected, any adjudication, enquiry or investigation commenced or show-cause

notice issued under the repealed regulations, prior to such repeal, shall be

deemed to have been done or taken under the corresponding provisions of these

regulations;

(b) the previous operation of the repealed regulations or anything duly done or

suffered thereunder, any right, privilege, obligation or liability acquired, accruedor incurred under the repealed regulations, any penalty, forfeiture or punishment

incurred in respect of any offence committed against the repealed regulations, or

any investigation, legal proceeding or remedy in respect of any such right,

privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid,

shall remain unaffected as if the repealed regulations has never been repealed;






(c) any open offer for which a public announcement has been made under the

repealed regulations shall be required to be continued and completed under the

repealed regulations.

(3) After the repeal of Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 1997, any reference thereto in any otherregulations made, guidelines or circulars issued thereunder by the Board shall be

deemed to be a reference to the corresponding provisions of these regulations.

15. Upon perusal of letter of offer of the rights issue, it was observed that the

shareholding of the promoter group in the company as on quarter ending

September 2009 was 48.64%. It was mentioned on page 57 of the letter of offer

of the rights issue that, ".....in the event of under-subscription, our Promoters intend to

apply for additional Equity Shares, subject to obtaining necessary approval under the

applicable laws, if any, such that at least 90% of the Issue is subscribed. As a result of

this subscription and consequent allotment, the Promoters may acquire Equity Shares

over and above their rights entitlement, which may result in an increase of their

shareholding. This subscription and acquisition of additional equity shares by the

promoter, if any, will not result in change of control of the management of our company

and shall be exempt in terms of provision to Regulation 3(1)(b)(ii) of the Takeover

code........."

16. It was noted that, pursuant to the rights issue, the shareholding of the Noticee

No. 1 to 14 / promoter group in the company had increased from 48.64% to

63.26% as on quarter ending December 2009. The increase in the shareholding

of the Noticee No. 1 to 14 / promoter group was by more than 5% limit, hence,

Noticee No. 1 to 14 / promoter group were required to make an open offer as per

regulation 11(1) of SAST Regulations, 1997. However, the increase in

shareholding of the Noticee No. 1 to 14 / promoter group was pursuant to the

Rights Issue, which is exempted from open offer requirements as per regulation

3(1)(b) of SAST Regulations, 1997.

17. As per regulation 3(1)(b) of SAST Regulations, 1997, the acquisition made

pursuant to Rights Issue was exempt from open offer obligations subject to the






condition that in case the acquirers are presently in control of the company and

they have disclosed in the rights letter of offer that they intend to acquire

additional shares beyond their entitlement, if the issue is undersubscribed. It was

observed that, the necessary disclosures have been made by the promoter group

in the rights letter of offer, thereby complying with regulation 3(1)(b) of SAST

Regulations, 1997

18. As per regulation 3(4) of SAST Regulations, 1997 in respect of any acquisition

made under clauses (a), (b), (e) and (i) of regulation 3(1), the acquirer shall,

within 21 days of the date of acquisition, submit a report along with supporting

documents to SEBI giving all details in respect of acquisitions which (taken

together with shares or voting rights, if any, held by him or by persons acting in

concert with him) would entitle such person to exercise 15 per cent or more of

the voting rights in a company.

19. It was alleged in the SCN that in terms of regulation 3(4) of the SAST

Regulations, 1997 Noticee No. 1 to 14 were required to submit a report to SEBI

within 21 days from the date of allotment of rights issue, which Noticee No. 1 to

14 have failed to do. Further, SCNL vide letters dated January 06, 2012 and

January 15, 2014 informed that the Noticee No. 1 to 14 / promoter group had not

submitted the report in accordance with the provisions of regulation 3(4) of SAST

Regulations, 1997 to SEBI.

20. Upon perusal of the replies of the Noticee No.1 to 14, and documents available

on record I find that Noticee No. 1 to 14 have not disputed the fact that their

collective shareholding, subsequent to the rights issue had increased from

48.64% to 63.26% as on quarter ending December 2009.

21. Noticee No. 1 to 14 have submitted that, pursuant to the rights issue, the shares

of the company were allotted to only Noticee No. 11 to 14 i.e. 6,68,31,658 shares

were allotted to Jayneer, 3,52,56,049 shares were allotted to Churu, 5,39,78,602






shares were allotted to Prajatma & 2,51,07,665 shares were allotted to Premier

and Noticee No. 1 to 10 were not allotted/acquired any shares. From the

documents available on record and from the shareholding pattern of the

Promoter Group of SCNL for quarters ending September 2009 and December

2009, I find that pursuant to right issue, the shares were allotted to four Noticees

(Noticee No. 11 to 14) i.e. Jayneer, Churu, Prajatma and Premier.

22. Noticee No. 1 to 14 contented that the report under regulation 3(4) of SAST

Regulations, 1997 were required to be filed to SEBI by the acquirers only, which

in the present case are Noticee No. 11 to 14 (i.e. Jayneer, Churu, Prajatma and

Premier) and not by the Noticee No. 1 to 10. Upon perusal of the regulation 3(4)

of SAST Regulations, 1997 and the format of the report to be submitted to SEBI

in terms of regulation 3(4) of SAST Regulations, 1997, I find that the acquirer

along with persons acting in concert have to submit the report along with

supporting documents to the SEBI within 21 days from the date of acquisition.

23. It is relevant to refer to the definition of acquirer and persons acting in concert as

specified under regulation 2(1)(b) and regulation 2(1)(e) of the SAST

Regulations, 1997, respectively which read as under:

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.

Regulation 2(1)(e)

“person acting in concert” comprises,—

(1) persons who, 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

target company or control over the target company,






(2) without prejudice to the generality of this definition, the following persons will

be deemed to be persons acting in concert with other persons in the same

category, unless the contrary is established :

(i). a company, its holding company, or subsidiary or such company or

company 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;

(iv). mutual fund with sponsor or trustee or asset management company;

(v). foreign institutional investors with sub-account(s);

(vi). merchant bankers with their client(s) as acquirer;

(vii). portfolio managers with their client(s) as acquirer;

(viii). venture capital funds with sponsors;

(ix). banks with financial advisers, stock brokers of the acquirer, or any companywhich is a holding company, subsidiary or relative of the acquirer :

Provided that sub-clause (ix) shall not apply to a bank whose sole

relationship with the acquirer or with any company, which is a holding

company or a subsidiary of the acquirer or with a relative of the acquirer, is

by way of providing normal commercial banking services or such activities

in connection with the offer such as confirming availability of funds,

handling acceptances and other registration work;

(x). any investment company with any person who has an interest as director,

fund manager, trustee, or as a shareholder having not less than 2 per cent of

the paid-up capital of that company or with any other investment company

in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company.

24. Whether or not, two or more persons are acting in concert (PACs) with the

acquirer, is a question of fact, and is to be answered on the facts and

circumstances of each case. In the present case Noticee No. 11 to 14 have

admitted that, they are the acquirers. The point of discussion which arises in the

present case is whether the Noticee No. 1 to 14 together are PACs or not as per

regulation 2(1)(e)(1) of SAST Regulations, 1997.

25. Two or more persons may act in concert with each other under regulation

2(1)(e)(1) of SAST Regulations, 1997 even though they may be wholly unrelated,

whereas in the present case Noticee No. 1 to 14 are related to each other and






are promoters. For PACs, the four elements as specified under regulation

2(1)(e)(1) of SAST Regulations, 1997 has to be established i.e. (i) the persons

must possess a common objective or purpose, (ii) that common objective or

purpose must be for the substantial acquisition of shares or voting rights or

gaining control over a listed company, (iii) the persons must directly or indirectly

co-operate with each other by acquiring or agreeing to acquire shares or voting

rights or control in the listed company and (iv) the co-operation must be pursuant

to a formal or informal agreement or understanding.

26. The essential elements of PAC as per regulation 2(1)(e)(1) of SAST Regulations,

1997 are discussed here under:

• The commonality of objective is the cornerstone to decide whether two

persons have acted in concert and is essential for a finding of concert.

Therefore, for a person to be a PAC, he must possess common objective.

• Second essential element of regulation 2(1)(e)(1) of SAST Regulations, 1997

is that common objective must be to acquire substantial shares or voting

rights or gaining control over the target company.

•

Third essential element of regulation 2(1)(e)(1) of SAST Regulations, 1997 isthat the persons must directly or indirectly co-operate with each other by

acquiring or agreeing to acquire shares or voting rights or control in the listed

company. Justice PN Bhagwati Committee report on SAST Regulations, 1997

indicated that the cooperation which is implicit in the idea of concert ‘could be

extended in several ways, directly or indirectly, or through an agreement –

formal or informal’.

• Fourth essential element of regulation 2(1)(e)(1) of SAST Regulations, 1997

is that the co-operation must be pursuant to a formal or informal agreement or

understanding. Further, as it is very difficult to prove concert by direct

evidence, therefore circumstantial evidence have to be taken into

consideration while proving the concert. Circumstance from which concert

can be inferred include common addresses, preferential allotment of






securities on favorable terms, a common chairman, common shareholding,

identical responses to show cause notices signed by the same person, joint

demat account, similar trading patterns etc.

27. From the documents available on records I find that in the present case, it is

mentioned on para 16, page 57 of the letter of offer of the Rights Issue dated

September 22, 2009 that "....The promoters have confirmed that they along with the

relatives and the companies controlled by the Promoters intend to subscribe to the full

extent of their Rights Entitlements. The promoters reserves the right to subscribe to their

Rights Entitlement either by themselves, their relatives or a combination of entities

controlled by them, including by subscribing for renunciation if any made within the

Promoter Group to another person forming part of the Promoter Group. In the event of

under-subscription, our Promoters intend to apply for additional Equity Shares, subject

to obtaining necessary approval under the applicable laws, if any, such that at least 90%

of the Issue is subscribed. As a result of this subscription and consequent allotment, the

Promoters may acquire Equity Shares over and above their rights entitlement, which may

result in an increase of their shareholding. This subscription and acquisition of

additional equity shares by the promoter, if any, will not result in change of control of the

management of our company and shall be exempt in terms of provision to Regulation

3(1)(b)(ii) of the Takeover code.......". Thus, it can be seen from the letter of offer of

the Rights Issue that the Noticee No. 1 to 14 have the understanding and

common intention / meeting of mind for the substantial acquisition of shares in

the event of under subscription. Further, subsequent to the rights issue the

collective shareholding of the Noticee No. 1 to 14 had increased from 48.64% to

63.26% as on quarter ending December 2009.

28. In appeal No. 139 of 2011 - Rajesh Toshniwal v. Securities and Exchange Board

of India, Order dated June 01, 2012, Hon’ble Securities Appellate Tribunal (SAT)

in held that, “…The next issue to be considered is whether the entire promoter group

has to be considered as a homogenous unit and, therefore, acting in concert in the

acquisition of shares. It is the basic principle of corporate law that promoter group is a






homogenous class. It is the normal practice to club the entire promoter group into one

class unless otherwise proved by the acquirer. The acquirers have always filed their

shareholding as belonging to the promoter group. In the disclosures made to the stock

exchanges and the Board, the promoters’ shareholding consisted of the group as a whole.

Even though there is a mention in the offer document that the acquirers by themselves are

responsible to the offer to the exclusion of other promoter group the conduct of the

promoters as a whole suggests that their behaviour was always united......The promoters,

as a rule, belong to a homogenous group unless otherwise proved by attendant

circumstances to be otherwise. In the present case, except the statement contained in the

public announcement no circumstance is pointed out which would prove that a set of

promoters are a class apart. It is a matter of record that the shareholding of the entire

promoter group was always disclosed as a group holding to the regulators. In the public

announcement document also the shareholding of the entire promoters group is

specifically grouped together.......The decision of the Supreme Court in Daiichi case

relied on by the appellant may not be of any assistance to him since it deals with a

different set of facts relating to common object underlying the acquisition of shares. In

the case of K.K. Modi, again relied upon by the appellant, the shareholders were

admittedly a divided house. In the present case the various statements furnished by the

promoter group and the conduct of the parties show that they acted together...... We

cannot appreciate the stand taken by the appellant in this regard...."

29. From the above I am of the view that promoter Group/ Noticee No. 1 to 14 are a

homogenous group and are persons acting in concert. Although subsequent to

the right issue no shares were allotted to Noticee No. 1 to 10 but they were

persons acting in concert. The obligation to submit the report to SEBI in terms of

regulation 3(4) of SAST Regulations, 1997 are on the acquirers along with the

PACs i.e. which in the present case are Noticee No. 1 to 14. Thus, I do not find

any merit in the submissions of the Noticee No. 1 to 14.

30. Thus I am of the view that, in order to claim an exemption from regulation 11 of

SAST Regulations, 1997 Noticee No. 1 to 14 together were required to submit a






35. Thus, in the light of above, I am of the view that, as the Noticee No.1 to 11 and

Sprit have failed to submit any documentary evidence in relation to the

submission of report to SEBI under regulation 3(4) of SAST Regulations, 1997,

within the stipulated time frame. Therefore, the allegation of violation of

regulation 3(4) of SAST Regulations, 1997 by the Noticee No.1 to 11 and Sprit

(for the Noticee No. 12 to 14 i.e., the entities which got merged into Sprit) stand

established.

36. The provisions of section 15A(b) of SEBI Act is reproduced hereunder :

15A. Penalty for failure to furnish information, return, etc. - If any person, who is

required under this Act or any rules or regulations made there under, -

a)… … …

b) to file any return or furnish any information, books or other documents within the time

specified therefor in the regulations, fails to file return or furnish the same within the

time specified therefor in the regulations, he shall be liable to a penalty of one lakh

rupees for each day during which such failure continues or one crore rupees, whichever

is less;

c)………..

37. The object of the SAST Regulations, 1997 mandating disclosure of acquisitions

beyond certain quantity is to give equal treatment and opportunity to all

shareholders and protect their interests. To translate this objective into reality,

measures have been taken by SEBI to bring about transparency in the

transactions and it is for this purpose that dissemination of such information is

required. In this regard I would like to rely upon the findings of Hon’ble SAT in the

matter of Milan Mahendra Securities Pvt. Ltd Vs. SEBI (Appeal No. 66 of 2003

and Order dated November 15, 2006) regarding the importance of disclosure in

which SAT has observed that, “the purpose of these disclosures is to bring about

transparency in the transactions and assist Regulator to effectively monitor the

transactions in the market”. Further the Hon’ble High Court of Judicature at

Bombay in The Securities and Exchange Board of India V/s. Cabot International

Capital Corporation, Appeal No. 7 of 2001 in SEBI Appeal No. 24 of 2000 has

held, “The SEBI Act and the Regulations, are intended to regulate the Security Market






investor from equal treatment and opportunity with respect to the aforesaid

information. Correct and timely disclosures & submission of reports to SEBI are

an essential part of the proper functioning of the securities market.

41. It is noted that no quantifiable figures are available to assess the

disproportionate gain or unfair advantage made as a result of such default by the

Noticee No. 1 to 11 & Sprit. Further from the material available on record, it may

not be possible to ascertain the exact monetary loss to the investors on account

of default by the Noticee No. 1 to 11 & Sprit. I find from the records available

before me that the default of the Noticee No. 1 to 11 & Sprit is not repetitive in

nature.

42. In view of the above and considering the facts and circumstances of the case

and factors under Section 15J of the SEBI Act, I find that imposing a penalty of `

20,00,000/- (Rupees twenty lakhs only) on Mr. Ashok Mathai Kurien, Mr. Laxmi

Narain Goel, Ms. Sushila Goel, Ambience Business Services Private Limited,

Briggs Trading Company Private Limited, Ganjam Trading Company Private

Limited, Essel Infraprojects, Veena Investment Private Limited, Delgrada Limited,

Lazarus Investments Limited, Jayneer Capital Private Limited and M/s Sprit

Textiles Private Limited (for Churu, Prajatma and Premier i.e., the entities which

got merged into Sprit) under section 15A(b) of the SEBI Act for the violation of

regulation 3(4) of SAST Regulations, 1997 which was committed by them.

ORDER

43. In exercise of the powers conferred under Section 15-I of the SEBI Act and Rule

5 of the Rules, I hereby impose a total penalty of ` 20,00,000/- (Rupees twenty

lakhs only) on the Mr. Ashok Mathai Kurien, Mr. Laxmi Narain Goel, Ms. Sushila

Goel, Ambience Business Services Private Limited, Briggs Trading Company

Private Limited, Ganjam Trading Company Private Limited, Essel Infraprojects,

Veena Investment Private Limited, Delgrada Limited, Lazarus Investments




Limited, Jayneer Capital Private Limited and M/s Sprit Textiles Private Limited

(for Churu, Prajatma and Premier i.e., the entities which got merged into Sprit) in

terms of the provisions of section 15A(b) of SEBI Act for the violations of

provisions of regulation 3(4) of SAST Regulations, 1997. In the facts and

circumstances of the case, I am of the view that the said penalty is

commensurate with the violations committed by Noticee No. 1 to 11 & Sprit (for

the Noticee No. 12 to 14, i.e., the entities which got merged into Sprit). Noticee

No. 1 to 11 & Sprit shall be jointly and severally liable to pay the said monetary

penalty.

44. They shall pay the said amount of penalty by way of demand draft in favour of

“SEBI - Penalties Remittable to Government of India”, payable at Mumbai, within

45 days of receipt of this order. The said demand draft shall be forwarded to

Deputy General Manager, Corporation Finance Department, Division of

Corporate Restructuring, Securities and Exchange Board of India, SEBI Bhavan,

Plot No. C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai–400

051.

45. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee No. 1

to 11 & Sprit (for the Noticee No. 12 to 14, i.e., the entities which got merged into

Sprit) and also to the Securities and Exchange Board of India.

Date: December 29, 2014 Jayanta Jash

Place: Mumbai Adjudicating Officer

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