1. Appeals nos. 308 and 400 of 2006 arise out of the same set of facts and are being disposed of by this common order. Facts giving rise to these appeals lie in a narrow compass and these may first be stated.
2. Trident Infotech Corporation Ltd., ANG Securities Ltd, Abhishek Industries Ltd., Trident AICO-Chem Ltd. and Mayadevi Polycot Ltd are group companies within the meaning of Clause (e f) of Section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (for short the MRTP). Mr. Varinder Gupta is one of the promoters of Trident AICO-Chem Ltd which is the target company. The dispute in these appeals arises from the interse transfer of shares between the group companies. On 8th June, 2002 these companies transferred shares of the target company interse as indicated in the chart below:Name of No. of shares Name of the No. of shares Total ShareholdingTransferor Transferred Transferee already held by of the Transferee (%)Trident 22,92,500 Mayadevi 0 38,38,800Infotech Corpn.
Polycot Ltd. (47.69%)Abhishek 11,16,300 Mayadevi 0 38,38,800Industries Ltd. Polycot Ltd. (47.69%)ANG 4,30,000 Mayadevi 0 38,38,800Securities Ltd. Polycot Ltd. (47.69%)ANG 11,50,000 Varinder Gupta 4510(0.06%) 11,54,510Securities Ltd. (14.28%) Immediately before and after the transfer of shares, the shareholding in the target company was as under:Promoter No. of shares % of holding No. of shares % of holdingGroup before interse- of total capital after interse- of total transfer transfer companyTrident 22,92,500 28.48 ---- ----InfotechANG 15,80,000 19.63 ---- ----SecuritiesAbhishek 11,16,300 13.87 ---- ----IndustriesMayadevi --- ---- 38,38,800 47.69Polycot Ltd.Sh.
2,010 0.02 2,010 0.02RajinderSh.
4,510 0.06 11,54,510 14.34Varinder 3. It is clear from the aforesaid charts that Mayadevi Polycot Ltd. and Varinder Gupta (herein after collectively described as the acquirers) had acquired 47.69% and 14.34% shares in the target company. It is also clear that Mayadevi Polycot Ltd. did not hold any shares in the target company prior to 08.06.2002.
4. The short question that arises for our consideration in these appeals is whether the acquirers were entitled to claim exemption in terms of Regulation 3(1)(e) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the Regulations) from complying with the provisions of Regulations 10, 11 & 12. Since the question is purely legal and depends on the interpretation of the relevant regulations as they stood in the year 2002 prior to their amendment with effect from 9.9.2002 it is necessary to refer to them and they read as under: 3.(1) Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to: (i) group companies, coming within the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); 6.(1) Any person, who holds more than five per cent shares or voting rights in any company, shall within two months of notification of these regulations disclose his aggregate shareholding in that company, to the company.
(3) A promoter or any person having control over a company shall within two months of notification of these regulations disclose the number and percentage of shares or voting rights held by him and by person(s) acting in concert with him in that company, to the company.
Acquisition of 5 per cent and more shares or voting rights of a company.
7.(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent shares or voting rights in a company in any manner whatsoever, shall disclose the aggregate of his shareholdings or voting rights in that company, to the company.
8. (1) Every person, including a person mentioned in Regulation 6 who holds more than [fifteen] per cent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March.
(2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purpose of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company.
5. A reading of Regulation 3(1)(e) would make it clear that when interse transfer of shares takes place amongst a group as defined in MRTP then such interse transfers are exempt from the provisions of Regulations 10, 11 and 12. Regulation 6(1) is a transitional provision and required every person who held more than 5% shares in any company at the time of coming into force of the Regulations to disclose his aggregate shareholding in that company to the company. Regulation 7(1) then requires that if the shareholding of any person who acquires shares together with the shares already held by him exceed 5% in a company then he shall disclose the aggregate of his shareholding in the company to that company. Regulation 8(1) casts an obligation on persons who hold shares more than 15% in any company to make annual disclosures at the end of each financial year ending March 31 in respect of their holdings. In the case before us the acquirers acquired shares in the target company by interse transfer on 8.6.2002 and, as noticed above, Mayadevi Polycot Ltd. acquired 47.69% shares on that date where as Varinder Gupta acquired 14.28% (14.34 - .06). Admittedly, Mayadevi Polycot Ltd did not hold any shares in the target company prior to 8.6.2002 and, therefore, in terms of Regulation 6(1) quoted herein above it was not required to make any disclosure to the target company as it did not hold any shares on the date when the Regulations came into force. It is relevant to mention here that the Regulations came into force on 20.02.1997. Since Mayadevi Polycot Ltd. acquired the shares through interse transfer amonst the group companies, it was exempt from complying with Regulations 10 to 12.
6. Now we shall deal with the case of Mr. Varinder Gupta. He acquired 14.28% shares of the target company on 8.6.2002. He is admittedly a promoter of that company. Being a promoter, he is a part of the group as defined in Section 2(ef) of the MRTP according to which group means two or more individuals, associations of individuals, firms, trusts, trustees or bodies corporate or any combination thereof which exercises control directly or indirectly over any body corporate, firm or trust.
It is, thus, clear that Varinder Gupta was a part of the group within the meaning of MRTP and any interse transfer of shares to him of the target company would be covered by Clause 1(e)(i) of Regulation 3 of the Regulations. In this view of the matter, acquisition of shares by him of the target company would be exempt from the provisions of Regulations 10, 11 and 12. The Adjudicating Officer in the impugned order has however found that the acquirers had violated the provisions of Regulations 6 and 8 of the Regulations in as much as neither they nor the transferors had made the necessary disclosures to the target company. This finding cannot be sustained as we have already found earlier that Mayadevi Polycot Ltd. did not hold any shares on the date of the coming into force of the Regulations and therefore Regulation 6 was not attracted. As regards Regulation 8, it is a common case of the parties that after acquiring shares on 8.6.2002 Mayadevi Polycot Ltd has been making regular disclosures to the target company. Since Virendra Gupta was a part of the group as held by us, he, too, was exempt under Regulation 3(1)(e) of the Regulations and was not required to comply with Regulations 10 to 12 of the Regulations. The learned Counsel for the respondent then drew our attention to Regulation 6(3) of the Regulations to contend that Mayadevi Polycot Ltd was a promoter of the target company and having control over it, it ought to have made disclosures to the company and not having done so, it had violated this provision. We are unable to accept this contention. Mayadevi Polycot Ltd did not hold any shares in the company prior to 8.6.2002 and therefore the question of this company being a promoter of the target company could not arise. The word promoter has been defined in Clause (h) of the Regulation 2 of the Regulations and no doubt it has been given a very wide meaning but the question still remains whether it had any control over the target company. The word control too has been defined in Clause (c) of Regulation 2 and when we read these provisions together we have no doubt in our mind that Mayadevi Polycot Ltd could not be described a promoter and in any case there is nothing on the record that it was controlling in any manner the affairs of the target company. Merely because Mayadevi Polycot Ltd. and the target company were group companies did not mean that the former was controlling the later within the meaning of the Regulations. The Adjudicating Officer has not found that the target company was being controlled by Mayadevi Polycot Ltd. We have, therefore, no hesitation in rejecting this contention. For the same reason we are also of the view that Regulation 8(2) of the Regulations would not apply. In this view of the matter the order dated 16.9.2004 impugned in Appeal No. 308 of 2004 cannot be sustained.
7. In Appeal No. 400 of 2004 Mayadevi Polycot Ltd is the appellant before us and by a separate order dated 16.9.2004 a penalty of Rs. 50,000/- had been imposed on it for not disclosing its holdings in terms of Regulations 6 and 8 of the Regulations. Since we have held that Maydevi Polycot Ltd was not required to make any disclosure and that Regulations 6 and 8 were not applicable in its case, the impugned order in this case too can also not be sustained.
8. For the reasons recorded above the appeals are allowed and the orders dated 16.9.2004 impugned therein are set aside with no orders as to costs. The penalty if deposited by the appellant shall be refunded to them.