Adjudication Order against M Apte Kantilal Pvt. Ltd. in the matter of Apte Amalgamations Ltd

Adjudication Order in respect of M Apte Kantilal Pvt. Ltd.Page 1 of 13 BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. ASK/AO-92/2014-15] 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 M. Apte Kantilal Pvt. Ltd. (PAN:AAGCM2514G) In the matter of Apte Amalgamations Limited FACTS OF THE CASE IN BRIEF 1. An open offer was made by Mr. Jaydeep Vinod Mehta, Mr. Nikhil Vinod Mehta, Mr. Jashwant Bhaichand Mehta and Mr. Chetan Jashwant Mehta in terms of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "SAST Regulations, 1997") to the shareholders of Apte Amalgamations Limited (hereinafter referred to as "AAL/Company"), Target Company, through a public announcement dated May 19, 2010 for acquisition of 3,90,620 equity shares of the face value of ` 10 each, representing 20% of the total issued, subscribed and paid up equity share capital and 20% of the voting rights of the Target Company at a price of ` 10/- per share payable in cash. The shares of the AAL are listed at BSE. Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 2 of 13 2. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) examined the draft Letter of Offer filed pursuant to the afore-mentioned public announcement and observed that M Apte Kantilal Pvt. Ltd. (hereinafter referred to as "Noticee") acquired 3,19,110 (16.34%) shares of AAL on March 01, 2000 from Mr. Vaman Madhav Apte resulting into increase in the shareholding of the noticee in AAL from 0.00% to 16.34%. As this acquisition entitled the Noticee to exercise 15% or more of the voting rights of AAL, it was required to make a public announcement as stipulated under regulation 10 of the SAST Regulations, 1997. However, no public announcement as stipulated under the aforesaid regulations was made by the Noticee. It was further observed that the afore-mentioned transaction dated March 01, 2000 also resulted in the Noticee acquiring control over AAL along with other promoters of AAL and as a consequence the Noticee was required to make public announcement as stipulated under regulation 12 of the SAST Regulations, 1997. However, no public announcement as stipulated under the aforesaid regulation was made by the Noticee. APPOINTMENT OF ADJUDICATING OFFICER 3. The undersigned was appointed as Adjudicating Officer under section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “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 15H(ii) of the SEBI Act, the alleged violations of provisions of regulations 10 and 12 of SAST Regulations, 1997 read with Regulation 35 of SAST Regulations, 2011 by the Noticee. Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 3 of 13 SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING 4. Show Cause Notice no. EAD-5/ADJ/ASK/AA/OW/12841/2014 dated May 06, 2014 (hereinafter referred to as “SCN”) was issued to the Noticee under rule 4 of the Rules to show cause as to why an inquiry should not be initiated and penalty be not imposed under section 15H(ii) of the SEBI Act for the alleged violation specified in the SCN. It was alleged in the SCN the Noticee has violated the provisions of regulations 10 and 12 of the SAST Regulations, 1997 read with Regulation 35 of the SAST Regulations, 2011. The copies of the documents relied upon in the SCN were provided to the Noticee along with the SCN. 5. Vide letter dated July 28, 2014 noticee filed its reply to the SCN. The main submissions of the noticee with respect to specific charges alleged in the SCN are as follows:  The charges in the notice pertain to alleged violation of Regulation 10 & 12 of Takeover Regulations consequent to transfer of 16.34% shares by Mr. Vaman Madhav Apte to us on March 01, 2000. We respectfully submit that the proceedings suffer from the vice of laches and same ought to be dropped on this ground alone. Definitely after more than 14 years from the date of alleged violation the proceedings cannot be initiated.  We were in financial shambles and as a result of the financially weak and unviable position, many employees of the company had left. There are no records pertaining to the alleged violation with us and we are severely handicapped and incapacitated to offer explanation for the alleged contravention of Takeover Regulations 1997.  Further, despite SEBI being aware of the alleged violations in the year 2010, there is nothing on record to indicate the reason for the unexplained and unnatural delay in initiating the proceedings, which has caused prejudice to us. The inordinate delay in commencing the proceedings has also resulted in gross violation of principles of natural justice. In this regard, reference was also made Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 4 of 13 to the order passed by Hon'ble SAT in the matter of Ashok K Chaudhary vs. SEBI and Libord Finance Ltd. vs SEBI.  We are closely held private company incorporated in the year 1948 and our promoters since inception have been Apte and Himatlal Kantilal family who together hold 100% shareholding of the company. We belong to Apte Group consisting of Mr. Vaman Madhav Apte, Mrs. Shetta Madhav Apte, Mr. Arvind Laxman Apte and Mr. Madhav Laxman Apte.  At the relevant time (i.e. March 2000) Mr. Vaman Madhav Apte, Mrs. Shetta Madhav Apte, Mr. Arvind Laxman Apte and Mr. Madhav Laxman Apte were the promoters of AAL and the promoter group was holding 59.10% shares in the Target Company.  In so far as we are concerned during March 2000, Mr. Vaman Madhav Apte along with family members were our promoters and were together holding 70% shares. Even today Mr. Vaman Madhav Apte along with family members continues to be our promoters.  In March 2000, Mr. Vaman Madhav Apte (One of the promoters of AAL who was holding in his individual name around 24.43% shares of AAL), had by way of inter se transfer of shares, transferred 16.34% shares to us for operational convenience. Post the said transfer, total shareholding of the Promoter group continued to remain 59.10% i.e. there was no disturbance in the promoter shareholding of AAL. There was no increase or decrease in the shareholding or control of Mr. Vaman Madhav Apte as a result of the aforesaid inter se transfer. Only consequence of the inter se transfer was that part of the shareholding which Mr. Vaman Madhav Apte was holding in his individual name which he had transferred to his corporate name (i.e. us). The transfer was thus within the same group and nothing but transfer from left hand to right hand. It is not as if, consequent to said transfer a rank outsider, who had no connection with the promoters of AAL had entered the promoter group. Admittedly, the shareholders of our company were none other than the promoters of AAL. Our promoters and AAL's promoters are common. Thus the transfer was inter se transfer amongst the promoters of AAL.  In fact the said acquisition was exempt was from the provisions of Regulation 10 & 12, under regulation 3(1)(e) of the erstwhile Takeover Regulations, since it being in the nature of inter se transfer amongst promoters/group. It may be noted that we have been Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 5 of 13 disclosed as promoters of AAL by AAL in its various filings including Clause 35 of the Listing Agreement and Annual Report.  All along our status as a promoter of AAL and our shareholding in AAL was in public domain. Further post the said inter se transfer of 16.34% shares to us, our shareholding has remained static over the years. On May 14, 2010 we had sold the said 16.34% shares to Mehta Group, who had also made public offer to all the shareholders of AAL.  Without prejudice to the aforesaid, it is submitted that the alleged violation of provisions of Regulations 10 & 12 was inadvertent and not actuated by any sinister intent or oblique motives  It is submitted that in the facts of this case no penalty be imposed and a lenient view be taken. While considering our submissions, following factors be also taken into consideration: i. The alleged violations are at the highest a technical, procedural and venial breach. ii. The alleged violations are not deliberate and intentional and in contumacious disregard of provisions of law. iii. The alleged violations pertain to very old period and the same have not caused any loss to any investor and have also not adversely affected the shareholders of the company or the securities market in any manner. Further, it may be noted that there are no shareholder/investor complaints in this regard. iv. As a result of the alleged violations, we have not made any gain or any unfair advantage. v. That our promoters were already the major shareholders/ promoters of AAL and also in control i.e. our promoters and AAL's promoters are common, therefore, there was nothing to be gained by us as a result of inter se transfer of shares within the promoter group. vi. That at the relevant time, when the impugned inter se transfer took place, AAL was in bad shape. vii. Currently the company's financial position is very weak and is in the process of slow recovery. viii. We have a clean track record in terms of compliance  In the facts and circumstances, any imposition of penalty on us would be unjustified and unwarranted. In view of the foregoing submissions, it is humbly prayed that the notice be discharged and no penalty be imposed. Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 6 of 13 6. In the interest of natural justice and in order to conduct an inquiry in terms of rule 4(3) of the Rules, Noticee was granted an opportunity of personal hearing on August 06, 2014 vide Notice of Inquiry dated July 17, 2014. On the scheduled date of hearing, Mr. Vinay Chauhan, Advocate and Mr. K. C. Jacob, Advocate, appeared as Authorized Representatives on behalf of the noticee and reiterated the submissions made in their reply to SCN. CONSIDERATION OF ISSUES AND FINDINGS 7. I have carefully perused the written submissions of the Noticee and the documents available on record. The issues that arise for consideration in the present case are : a. Whether the Noticee had violated the provisions of regulation 10 and 12 of SAST Regulations, 1997? b. Does the violation, if any, attract monetary penalty under section 15H(ii) of SEBI Act? c. If so, what would be the monetary penalty that can be imposed taking into consideration the factors mentioned in section 15J of SEBI Act? 8. Before moving forward, it is pertinent to refer to the relevant provisions of SAST Regulations, 1997 which at the time of the alleged violations read as under:- SAST 1997 "Acquisition of fifteen per cent or more of the shares or voting rights of any company. 10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 7 of 13 announcement to acquire shares of such company in accordance with the regulations." "Acquisition of control over a company. 12. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations: Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a resolution passed by the shareholders in a general meeting : Explanation.— i) For the purposes of this Regulation where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management. Provided however that if the transfer of joint control to sole control is through sale at less than the market value of the shares, a shareholders meeting of the target company shall be convened to determine mode of disposal of the shares of the outgoing shareholder, by a letter of offer or by block-transfer to the existing shareholders in control in accordance with the decision passed by a special resolution. Market value in such cases shall be determined in accordance with Regulation 20. (ii) where any person or persons are given joint control, such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the company." Finding The issues for examination in this case and the findings thereon are as follows: Issue - (I) - Whether the Noticee had violated the provisions of regulation 10 and 12 of SAST Regulations, 1997? Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 8 of 13 9. Upon perusal of submissions and documents available on record, I note that it is not in dispute that the noticee acquired 3,19,110 (16.34%) shares of AAL on March 01, 2000 from Mr. Vaman Madhav Apte resulting into increase in the shareholding of the noticee in AAL from 0.00% to 16.34% and no public announcement as stipulated under regulations 10 and 12 of SAST Regulations, 1997 was made by the Noticee for such acquisition of shares or control in AAL. 10. However, the noticee has contended that Mr. Vaman Madhav Apte along with family members were its promoters and were together holding 70% shares in the noticee at the relevant time. Further, Mr. Vaman Madhav Apte and his family members were also promoters of AAL and the promoter group was holding 59.10% shares of AAL at the relevant time. The transfer of 16.34% shares of AAL by Mr. Vaman Madhav Apte was by way of inter se transfer and there was no increase or decrease in the shareholding or control of Mr. Vaman Madhav Apte as a result of the aforesaid inter se transfer and the same qualified for exemption under Regulation 3(1)(e) of SAST Regulations, 1997. Further, the said transaction did not result into the disturbance in the shareholding of the promoter group in AAL which continued to remain 59.10%. 11. I note from the submissions made by the noticee that it was part of the promoter group of AAL as its promoter were also promoters of AAL and acquisition of 16.34% shares of AAL on March 01, 2000 from Mr. Vaman Madhav Apte was an inter se transfer between the promoters. However, in this context, it is pertinent to mention here that regulation 3 of SAST Regulations, 1997 exempts certain acquisitions from the obligation to make open offer under regulations 10, 11 and 12 of SAST Regulations, 1997 subject to fulfillment of Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 9 of 13 conditions stipulated therefor. I note that, at the relevant time, the aforesaid acquisition being inter se transfer of shares amongst promoters falls under exempted category under regulation 3(1)(e) of SAST Regulations, 1997, but subject to fulfillment of certain conditions and one among them is the promoters filing statements concerning group and individual shareholding as required under regulations 6,7 and 8. This view has also been upheld by the Hon'ble Securities Appellate Tribunal (SAT) in the case of Mr. Ranjan Verghese vs. SEBI (Appeal no. 177 of 2009 decided on April 08, 2010). Further, there is another condition that the transferor as well as transferee should have been holding individually or collectively not less than 5 per cent shares in the target company for a period of at least three years prior to the proposed acquisition. I note that the noticee has not placed any documents/record showing that these conditions have been complied with by them. Hence, the submission of the noticee that the acquisition of shares under question falls under the exempted category cannot be accepted as the exemption under regulation 3(1)(e) of SAST Regulations, 1997 is not automatic. Since the acquisition of 3,19,110 shares of AAL on March 01, 2000 by the noticee resulted into increase in the shareholding of the noticee in AAL from 0.00% to 16.34% and no public announcement as stipulated under regulations 10 of SAST Regulations, 1997 was made by the Noticee for such acquisition of shares, therefore, I hold that the Noticee violated regulation 10 of the SAST Regulations, 1997. 12. As regards the violation of Regulation 12 of the SAST Regulations, 1997, I am of the view that, as submitted by the noticee, since Mr. Vaman Madhav Apte along with family members were its promoters and holding 70% shares in the noticee at the relevant time and they were also promoters of AAL Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 10 of 13 and the promoter group was holding 59.10% shares of AAL at the relevant time, transfer of 16.34% shares of AAL by Mr. Vaman Madhav Apte to the noticee did not result into change in control of AAL. Therefore, the allegation of violation of regulation 12 of the SAST Regulations, 1997 by the noticee does not stand established. Issue - (II) - Does the violation, if any, attract monetary penalty under section 15H(ii) of SEBI Act? 13. By not making the public announcement on time, the Noticee failed to comply with its statutory obligation. The Hon’ble Supreme Court of India in the matter of Chairman, SEBI v.. Shriram Mutual Fund {[2006] 5 SCC 361} held that "In our view, the penalty is attracted as soon as contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. ………. Hence, we are of the view that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary...........…”. 14. As the violation of the statutory obligation under regulation 10 of SAST Regulations, 1997 has been established, I hold that the Noticee is liable for monetary penalty under section 15H(ii) of SEBI Act, 1992 which at the time of violation read as follows: “Penalty for non-disclosure of acquisition of shares and takeovers. 15H. If any person, who is required under this Act or any rules or regulations made thereunder, fails to,— (i) ………………………… (ii) make a public announcement to acquire shares at a minimum price; or (iii)…………………………. (iv)……………………………….. Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 11 of 13 he shall be liable to a penalty not exceeding five lakh rupees.” Issue - (III) - If so, what would be the monetary penalty that can be imposed taking into consideration the factors mentioned in section 15J of SEBI Act? 15. While determining the quantum of penalty under section 15H(ii) of SEBI Act, it is important to consider the factors stipulated in section 15J of SEBI Act, which reads as under:- “15J - Factors to be taken into account by the adjudicating officer While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default.” 16. From the material available on record, it is difficult, to quantify exactly the disproportionate gains or unfair advantage enjoyed by the Noticee and the consequent losses suffered to the investors, due to the delay in making public announcement of offer. Also, there is no material on record to indicate that such default was repetitive in nature. However, the fact remains that the Noticee by their failure to make open offer, deprived the shareholders of their statutory rights to exit from the company and to this extent, there was loss to the shareholders. 17. Noticee has further submitted these violations pertain to year 2000 and therefore suffer from vice of laches and despite SEBI being aware of the alleged violations in the year 2010, there is nothing on record to indicate the reason for the unexplained and unnatural delay in initiating the proceedings, which has caused prejudice to us and has also resulted in gross violation of Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 12 of 13 principles of natural justice. I note that in the instant matter the default under the Act being a continuing one, a fresh cause of action arises under the said provisions for each day during which the failure continued. Since the violation of Regulation 10 by the noticee has been clearly established in the preceding paragraphs, the noticee cannot escape liability simply because it relates the period of 2000. In any case delay in initiating the proceedings itself cannot be a ground for exonerating the Noticee, it can at best be treated as a mitigating factor in the facts and circumstances of the case. I have considered the aforesaid submission of Noticee as mitigating factor while deciding the quantum of penalty. ORDER 18. Therefore, in exercise of the powers conferred upon me under Section 15I of the SEBI Act read with Rule 5 of the Adjudication Rules, I hereby impose a penalty of ` 2,00,000/- (Rupees Two Lakh only) under Section 15H(ii) of SEBI Act for the violation of regulation 10 of SAST Regulations, 1997 read with Regulation 35 of SAST Regulations, 2011 on the Noticee i.e. M Apte Kantilal Pvt. Ltd. I am of the view that the said penalty is commensurate with the violation committed by the Noticee. 19. The penalty shall be paid by Noticee shall 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 should be forwarded to The Division Chief (CFD-DCR), Securities and Exchange Board of India, SEBI Bhavan, Plot No. C–4 A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051. Brought to you by http://StockViz.biz Adjudication Order in respect of M Apte Kantilal Pvt. Ltd. Page 13 of 13 20. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and also to the Securities and Exchange Board of India. Date: October 31 , 2014 A. Sunil Kumar Place: Mumbai Adjudicating Officer Brought to you by http://StockViz.biz