BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 8 of 2012
Date of decision: 11.05.2012 Nikhil Mansukhani
101, MAN House,
SV Road,
Vile Parle (West),
Mumbai – 400 056.
……Appellant Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051. …… Respondent
Mr. J. J. Bhatt, Senior Advo cate with Dr. S. D. Israni, Mr . Satyam S. Israni,
Ms. Isha Gada, Advocates for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody,
Mr. Mobin Shaikh, Advocates for the Respondent.
CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S. S. N. Moorthy, Member
Per : P. K. Malhotra
This order will dispose of two appeals no. 8 of 2012 and 196 of 2011
which arise out of a common order dated September 30, 2011 passed by the
adjudicating officer of the Securities and Exchange Board of India (for short the
Board) holding the appellants in these tw o appeals, alongwith one other entity,
guilty of violating regulation 11(1) read with second proviso to regulation 11(2)
of the Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 (for short takeover code) and imposing a
penalty of ` 10 crores on them under Section 15H of the Securities and Exchange
Board of India Act, 1992 (the Act). C ounsel for the parties agree that since a
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common show cause notice was issued and a common order was passed by the
Board, the appeals can also be disposed of by a common order.
- The facts of the case, in brief, ar e that on receipt of a complaint dated
October 1, 2010 from the Company Secret ary of M/s MAN Industries (India)
Limited (the company) regarding certain irregularities committed by Mr. J. C.
Mansukhani, Vice Chairman and Managing Director of the company and by JPA
Holdings Pvt. Ltd. (appellant in Ap peal no. 196 of 2011), the Board conducted
investigations into the transactions in shares of the company for the period June
2010 to September 2010. It was noted that on June 16, 2010 the company
informed the Bombay Stock Exchange Limited (BSE), where its shares are listed,
that the board of directors of the company, in the meeting held on June 15, 2010
had considered and approved allotment of 2,50,000 equity shares of5/- each at a premium of30/- per share to Mr. Nikhil Mansukhani, a promoter
(appellant in appeal no. 8 of 2012) upon conversion of 2,50,000 warrants by way
of prefrential allotment. Again, on June 21, 2010 the company informed BSE
outcome of the board meeting held on June 19, 2010 regarding allotment of 10
lacs shares of5/- each at a premium of30/- per share to Nitin Mansukhani,
Anita Mansukhani and JPA Holdings Ltd. upon conversion of 10 lacs warrants. It
was further observed during the course of investigations that as per shareholding
pattern of the promoters of the comp any for the quarters ending March 2010,
June 2010 and September 2010, the aggregate prom oter holding as on
June 30, 2010 was 53.36 per cent which, in th e subsequent quarter i.e. quarter
ending September 30, 2010, went up to 55.18 per cent. The increase in the total
promoter shareholding was due to conversio n of warrants into shares as stated
above and acquisition of shares from the market by J. C. Mansukhani. When the
total promoter shareholding increased to 55.18 per cent, it crossed the threshold
limit of 55 per cent and the acquirers were required to make a public
announcement in accordance wi th the provisions of re gulation 11(1) read with
second proviso to regulation 11(2) of th e takeover code. Since no such public 3
announcement was made, the acquirers allege dly violated provisions of the said
code. - A common show cause notice dated May 11, 2011 was issued to all the
three entities asking them to show cause as to why an enquiry should not be held
against them and penalty imposed under re levant provisions of the Act for the
aforesaid violation. The two appellants before us filed their replies and denied the
charge. They denied that they were ‘persons acting in concert’ within the
meaning of regulation 11(1) read with s econd proviso to regulation 11(2) of the
takeover code. It was also submitted by them that Mr. J. C. Mansukhani, another
entity against whom the impugned order is passed, did not disclose the acquisition
of shares by him and his associate company from the market purchases a few days
earlier to the conversion of warrants into shares as stated above. The total
shareholding of the promoter group, c onsequent to the allotment against
conversion of warrants, increased to 54.93 per cent only of the total capital of the
company which was well within the permissible limits. Mr. J. C. Mansukhani did
not disclose the acquisition of shares made by him and his associate company
from the market and, therefore, the Board approved the conversion of the warrants
without being aware of the market acqui sition made by Mr. J. C Mansukhani just
two days before the board meeting. It was also submitted by them that there was
a serious rift between R. C. Mansukhani and J. C. Mansukhani, two of the
promoters of the company since October 2009 when R. C. Mansukhani attempted
to interfere with and curtail powers of Mr . J. C. Mansukhani. Since the three
entities were not acting in concert, they have not violated the provisions of the
takeover code. The adjudicating officer did not accept the explanation given by
the appellant and, by the impugned order, held all the three entities, including the
two appellants before us, guilty of viola ting regulation 11(1) read with second
proviso to regulation 11(2) of the takeover code and imposed a penalty of ` 10
crores on them under Sectio n 15H of the Act on the ba sis of joint and several
liability. The main finding holding the appellant guilty reads as under:- 4
“18. I find from the material available on record that, on June
21, 2010 the Company informed BSE the outcome of Board
Meeting held on June 19, 2010 rega rding allotment of 10 lakh
shares to the Noticees upon conversion of 10 lakh warrants. I find
that aggregate promoter holdings as on June 30, 2010 went up to
55.18% due to conversion of warrants by the Noticees on June 19, - Therefore, since the total promoters’ shareholding increased
to 55.18%, the same crossed the th reshold limit of 55% stipulated
under SAST Regulations requiring the Noticees to make public
announcement to acquire the shares. Further, as the allotment of
shares to the Noticees occurred upon conversion of warrants issued
on preferential allotment basis, the same doesn’t fall under proviso
to Regulation 11(2) of the SAST Regulations, thus requiring the
Noticees to make public announcement on exceeding 55%
threshold limit laid down in SAST Regulations. - The Noticees have not denied that pursuant to allotment of
shares on conversion of warra nts, the total promoter group
shareholding has exceeded 55% of paid up capital of the company.
They have also not denied that increase in promoter shareholding
over 55% through preferential allotm ent does result in triggering
the obligation for making public announcement for acquiring
further shares from public. However, no announcement has been
made till date. If the Noticees had no intention of acquiring more
than 55% of the share capital, on becoming aware of the violation
they could have taken appropriate corrective action as per law.
There is no document/statement on record to signify such an
intention. This indicates that they wish to continue to hold these
shares which have resulted in the promoters’ holding exceeding
55% of the paid up share capital. - The main contention of AM & JPA is that the RCM group
is in control of the company and is systematically trying to
marginalize the JCM group including them. This contention is not
acceptable as the same seems to be an internal conflict among two
promoter groups of the company and it is only vide letter dated
April 22, 2011 that the stock exchanges were informed by the
company about the formation of two different promoter groups and
their constitution, before which the company is deemed to have
only one promoter group. However, the liability of the acquirers
does not change due to the aboveme ntioned state of affairs in the
company. - NM has contended that Mr. J. C. Mansukhani did not
disclose the acquisition of shares made by him and his associate
company a few days earlier to the Company due to which the
conversion of the warrants was approved by the Board and shares
were allotted. In my view, it is inappropriate for NM to state in his
reply that had the company known about the acquisition by J C
Mansukhani, it would have allotted lesser number of shares. As
submitted by him, he had applied for conversion of warrants and
the company had done so. There is no liability on the company to
ensure/monitor the promoters’ holdings. The liability pursuant to
acquisition is that of the acquirer.”
Mr. J. J. Bhatt learned senior counsel for the appellant in Appeal no. 8 of 2012
seriously disputed the findings arrived at by the adjudicating officer of the Board. 5
It was argued by him that promoters and directors of the company had long
standing dispute since 2009 and, therefore, it is incorrect to think that they had
common objective or purpose of interalia gaining control on the company or were
persons acting in concert. Referring to the facts, as pointed out in the reply dated
June 20, 2011 in response to the show cause notice, it was submitted by him that
the company was promoted by members of Mansukhani family i.e. Mr. J. L.
Mansukhani and his two sons Mr. R. C. Mansukhani and Mr. J. C. Mansukhani.
Mr. R. C. Mansukhani is the Chairman of the company and Mr. J. C. Mansukhani
was Vice Chairman and Managing Direct or of the company till May 19, 2011.
Although Mr. R. C. Mansukhani and Mr. J. C. Mansukhani are brothers and were
disclosed as a part of the promoter group of the company at the relevant time,
various differences cropped up between them sometime in the year 2009. In view
of the full scale dispute between Mr. R. C. Mansukhani and Mr. J. C Mansukhani,
the Mansukhani family had split into two promoter groups and it was disclosed to
the stock exchange vide letter dated April 22, 2011 as under:-
Sr.
No. RCM Group
JCM Group
1 Mr. Rameshchandra Mansukhani Mr. Jagdishchandra Mansukhani
2 Mrs. Deepa Mansukhani Mrs. Anita Mansukhani
3 Mr. Nikhil Mansukhani Mr. Priyal Mansukhani
4 Rameshchandra Mansukhani HUF Jagdish Mansukhani HUF
5 Mr. Jhamaklal M. Mansukhani JPA Holdings Pvt. Ltd.
6 Mrs. Kematdevi J. Mansukhani
7 J. Mansukhani HUF
8 MAN Global Ltd.
Extensively referring to the judgment of the Hon’ble Supreme Court in the case of
Daiichi Sankyo Co. Ltd. vs. Jayaram Chigurupati & Ors. [(2010) 7 SCC 449],
it was pointed out by him that the concep t of ‘persons acting in concert’ under
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regulation 2(1)(e)(1) of the regulations is based on a target company on the one
side and on the other side two or more persons coming together with a common
objective for purpose of substa ntial acquisition of shares of the target company.
According to him, there can be no pers ons acting in concert unless they share
common objective or purpose of substantia l acquisition of shares of the target
company. The element of sharing a comm on objective or purpose is the sine qua
non in the relationship of persons acting in concert. Although this argument was
advanced before the adjudicating officer and the judgment of the Supreme Court
was also referred, the adjudicating officer has failed to deal with the same and has
arrived at a conclusion wh ich is contrary to the principles laid down by the
Supreme Court in the aforesaid judgement. It was further submitted by him that
there being a dispute in th e Mansukhani family and the promoter group having
split into two way back in 2009, it was not possible fo r them to act in concert for
the purpose of acquisition of shares of the company. J. C. Mansukhani had
acquired shares independent of the other shareholders and he had not intimated
this acquisition to the company or the stock exchange. Since he was not a person
acting in concert and if his acquisition was taken out, the remaining shareholding
of the promoter group works out to only 54.93 per cent i.e. below 55 per cent.
Hence, there was no requirement of making a public announcement as
comtemplated by regulation 11(1) read with second proviso to regulation 11(2) of
the takeover code. Mr. Zal Andhyarujina, learned counsel for the appellant in
Appeal No. 196 of 2011 also made his submissions almost on the same lines.
- Mr. Shiraz Rustomjee, learned senior counsel for the respondent Board
supported the order passed by the adjudica ting officer and submitted that as per
appellant’s own admission, intimation to the stock exchange about internal
conflict among the two promoter groups was conveyed only on April 22, 2011 i.e.
much after acquisition of shares by the pr omoter group entities. The Board as a
regulator is not concerned about the in ternal conflict betw een the promoter 7
entities and such conflict cannot be a ground for not complying with the
requirements under the regulations. - We have considered the rival subm issions and have also perused the
material available on record. It is not in dispute that pursuant to the allotment of
shares on conversion of warrants and purchase of shares from the market by J. C.
Mansukhani, the total promoter group shareholding exceeded 55 per cent of the
paid up capital of the company. In view of the factual position on record, we have
to see whether the three entities found guilty by the adjudicating officer for
violating the regulato ry provisions were ‘person ac ting in concert’ within the
meaning of regulation 2(1)(e) so as to attract the provisions of regulation 11 of the
regulations. Relevant portion of regulation 2(1)(e) reads as under:-
“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 targ et company, pursuant to an
agreement or understanding (formal or informal), directly
or indirectly co-operate by acquiring or agreeing to
acquire shares or voting right s 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 person 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 indivi dually or together with
each other;
(ii) ……………………………………………….
(iii) directors of companies referred to in sub-clause (i)
of clause (2) and their associates;
Note : For the purposes of this clause “associate” means, –
(a) any relative of that person within the meaning of section 6
of the Companies Act, 1956 (1 of 1956); and
(b) ……………………………………………………………”
While interpreting the aforesaid provisi on the Supreme Court in the case of
Daiichi Sankyo Co. Ltd. (supra) had observed as under:-
“48. To begin with, the concept of “person acting in concert”
under Regulation 2(1)(e)(1) is ba sed on a target company on the
one side, and on the other side two or more persons coming
together with the shared common objective or purpose of 8
substantial acquisition of shares, etc. of the target company.
Unless there is a target company, substantial acquisition of whose
shares, etc. is the common objectiv e or purpose of two or more
persons coming together there can be no “persons acting in
concert”. For, dehors the target company the idea of “persons
acting in concert” is as irrelevant as a cheat with no one as victim
of his deception. Two or more pe rsons may join hands together
with the shared common objectiv e or purpose of any kind but so
long as the common object and purpsoe is not of substantial
acquisition of shares of a target company they would not comprise
“persons acting in concert”. - The other limb of the concept requires two or more persons
joining together with the shared common objective and purpose of
substantial acquisition of shares, etc. of a certain target company.
There can be no “persons acting in concert” unless there is a shared
common objective or purpose betw een two or more persons of
substantial acquisition of shares, et c. of the target company. For,
dehors the element of the shared common objective or purpose the
idea of “person acting in concert” is as meaningless as a criminal
conspiracy without any agreement to commit a criminal offence.
The idea of “person acting in conc ert” is not about a fortuitous
relationship coming into existenc e by accident or chance. The
relationship can come into being only by design, by meeting of
minds between two or more persons leading to the shared common
objective or purpose of acquisition or substantial acquisition of
shares, etc. of the target compa ny. It is another matter that the
common objective or purpose ma y be in pursuance of an
agreement or an understanding, formal or informal; the acquisition
of shares, etc. may be direct or indirect or the persons acting in
concert may cooperate in actual acqui sition of shares, etc. or they
may agree to cooperate in such acquisition. N onetheless, the
element of the shared common objective or purpose is the sine qua
non for the relationship of “person ac ting in concert” to come into
being.
50 to 54 ……………………………………………………………. - Regulation 2(1)(e)(2) defines “person acting in concert”. It
is a deeming provision. It has to be read in conjuction with
Regulation 2(1)(e)(1) which states that person acting in concert
comprises of persons who in furtherance of 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 inform al), directly or indirectly
cooperate by acquiring or agreei ng to acquire shares or voting
rights in the target company or to acquire control over the target
company.
56 …………………………………………………………….. - Whether a person is or is not acting in concert with the
acquirer would depend upon the facts of each case. In order to
hold that a person is acting in co ncert with the acquirer or with
another person it must be established that the two share the
common intention of acquisition of shares of some target company.
For example, there is no hard-and-fast rule that every foreign
institutional investor (FII) would share with the sub-accounts(s) the
common objective of acquiring substa ntial stakes or control in
some target company. Whether in a given case an FII and its sub- 9
accounts(s) have a common objectiv e of making investment in
India to earn profits in unit holders or whether they have a
common objective of acquiring substa ntial stakes or control in
some target company would depend on the facts of each case. In
the former case Regulation 2(1)(e )(2)(v) would not apply whereas
in the latter case the said sub-re gulation would apply. The above
illustration brings out the true purport of the expression “unless the
contrary is established” which expression finds place in Regulation
2(1)(e)(2).”
Learned counsel for the appellants have also referred to the judgement of the
Bombay High Court in the case of K. K. Modi vs. Securities Appellate
Tribunal [(2003) 113 Com. Cases 148 Bom.] wherein the Court had observed
that a co-promoter of the target company, by reason of his being a co-promoter
cannot be said to be a person acting in concert with the acquirer who also happens
to be one of the promoters of the targ et company, unless the evidence on record
clearly establishes that the promoters sh are the common objective or purpose of
substantial acquisition of shares or voting rights for gaining control over the target
company with the acquirer. The question whether promoter is acting in concert
with the acquirer, is a question of fact and the answer, therefore, must depend on
the facts of each case. - Having considered the rival submissi ons and material placed on record,
we are of the view that the adjudi cating officer, while passing the impugned
order, has not dealt with or considered the principles of law laid down in the
above noted two judgements. No doubt, the appellant informed about the split in
the promoter group to the stock excha nges only in April 22, 2011, the fact
remains that there was sufficient material available on record to show that the
dispute between the two promoter groups is continuing since 2009. In view of
this fact, it was for the Board to bring suffi cient material on record to show that
inspite of conflict among the promoters, the members of the two groups were
acting in concert while acquiring the shares for the purpose of increasing their
voting rights for gaining control over the company or they had common objective
or purpose for substantial acquisition of sh ares. The appellants, vide their reply 10
dated June 20, 2011 in response to the show cause notice have specifically taken
this ground and referred to the above noted two judgements. However, the
adjudicating officer while passing the order has not dealt with the same. Neither
he has made any reference to the two judgements noted above nor he has recorded
any finding as to how the three acquire rs of the shares, against whom the
impugned order has been passed, are ‘per son acting in concert’ within the
meaning of the takeover code. We are, ther efore, of the considered view that the
impugned order has been passed without ta king into consideration the material
available on record and the legal position set out above. - We, therefore, set aside the impugned order and remand the matter to the
Board for passing a fresh order deali ng with the submissions made by the
appellants in their reply dated June 20, 2011 and other documents submitted by
them, more particularly, the law laid down in the two judgments referred to
above. The Board may call for further inform ation from the appellant, if it is felt
necessary for passing a fresh order in accordance with law.
The appeals stand disposed of accordingly with no order as to costs.
Sd/-
P. K. Malhotra
Member &
Presiding Officer (Offg.) Sd/-
S. S. N. Moorthy
Member
11.05.2012
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