order in respect of the representation made by mr. amit bhagbatprasad barot in the matter of open...

8/10/2019 Order in respect of the representation made by Mr. Amit Bhagbatprasad Barot in the matter of open offer made b

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WTM/PS/46 /CFD/NOV/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM : PRASHANT SARAN, WHOLE TIME MEMBER

DECISION

On !" R"#$"%"n&'(n )&") *&n+&$ 16, 2012 -'.") M$ A' B!&3$&%&) B&$(

P$("")'n% 'n (#.'&n" 5'! !" )'$"'(n% (- !" H(n." S"+$''"% A##"..&"

T$'+n&. &)" 3')" O$)"$ )&") S"#""$ 07, 2017 'n !" &"$ (- A' B!&3$&%&)

B&$( 3% S"+$''"% &n) E8!&n" B(&$) (- In)'& 9A##"&. N( 1; (- 2012 a2or areas of operations.

-.#.3 Identit% of the promoters and or persons having control over such companies and the group if an% to 'hich

such companies 4elong to.-.#.$ *onfirm and disclose as to 'hether the applica4le provisions of chapter II of SEBI ,a&eover 5egulations

has 4een complied 'ith 4% acuirer 1A*s 'ithin the time specified in the 5egulations. =ela% or non+compliance

'ith these provisions if an% ma% 4e disclosed in the letter of offer. )urther the extent of compliance 4% the

acuirers 1A*s 'ith the applica4le provisions of chapter II should 4e furnished under a separate annexure to

SEBI along 'ith the draft letter of offer as per the format at Annexure III of the standard letter of offer.

-.#. :ames and residential addresses of Board of directors of acuirer/s0.

*onfirm 'hether an% of such director/s0 is alread% on the Board of =irectors of ,arget *ompan%. If so disclosures

in terms of 5egulation !!/D0.-.#.8 =etails of the experience ualifications date of appointment of the Board of =irectors.

.."

-n the 5?# the details regarding ,ac6ground of the Ac2uirer in this case was presented as item

3 from page no& onwards& The following were the disclosures .

"70 BACGROUND OF THE ACUIRER M/%0 In)'&STAR 9M&+$''+%< L'1'")

9A>+'$"$


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gro'th companies 'ith significant interest in the Indian su4continent. ,he Acuirer acts as an investment holding

compan% for indiaS,A5 )und 9.1. for all investments underta&en 4% indiaS,A5 )und 9.1.

c0 ,he Acuirer is an India+focused investment compan% that primaril% provides gro'th capital to mid+mar&et

companies in India. ,o date the Acuirer has consummated investments in /i0 5adha adhav *orporation

9imited /ii0 Surana Industries 9imited /iii0 I79 *hemicals and 1harmaceuticals 9imited and /iv0 MEWIndustries 9imited in addition to its existing investment in the ,arget. ,he a4ove+mentioned investments excepted

the Acuirer has no other existing 4usiness in India. )urther the Acuirer has not promoted an% compan% in

India. 7utside of India the Acuirer has esta4lished S6 India I 9td a 'holl% o'ned su4sidiar% in auritius

/the NSu4sidiar%O0. ,he Su4sidiar% is onl% intended to 4e an investment holding compan% and as on date of the

1A the Su4sidiar% has not made an% investments and has not conducted an% 4usiness.

d0 ,he Acuirer confirms that it has complied 'ith the provisions of *hapter II of the SEBI /SAS,0

5egulations 'ithin the time specified in the SEBI /SAS,0 5egulations.

e0 Shareholding pattern of the Acuirer as on the date of the 1A is as underS.0 N(0 S!&$"!(.)"$% &"2($ N(0 &n) #"$"n&2" (- %!&$"% !".)

#. 1romoters $8$3# ordinar% Shares of face value HS= # #(

!. IIutual )unds)IsBan&s :il

C. 1u4lic :il

,otal paid up capital $8$3# ordinar% Shares of face value HS= # #(

h0 ,he Acuirer is a privatel% held limited lia4ilit% compan% and is not listed on an% stoc& exchange. ,heAcuirer is a 'holl% o'ned su4sidiar% of indiaS,A5 )und 9.1. a limited partnership.i0 ,he Acuirer has a total of full% paid up $8$3# ordinar% shares of face value HS= # each amounting toa paid up share capital of HS= $8$3#.."

The applicant has alleged that the Ac2uirer did not ma6e complete disclosures as according to

him# 'Scamore )entures' controlling and continuing to control the Ac2uirer was not disclosed

b the Ac2uirer in the 5?& According to the applicant# the trademar6 "indiaStar" was owned

and registered b Scamore @anagement 7orporation ("S@7" and that -ndiaStar ?und is one of

the funds of Scamore )entures& -n the supplementar representation (applicantFs letter dated

Septem4er #! !#C sent through his counsel# the applicant has mentioned of new disclosures which

were made b the Ac2uirer in his affida!it filed before the Hon'ble SAT& According to applicant#

the facts such as .

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a

-S5P which owns 100: of the Ac2uirer# is itself a 'pooling !ehicle' and the Ac2uirer is a

'special purpose !ehicle' G

b

Actual owners of the funds for the purchase of the shares of the Target 7ompan were

other in!estors of -S5P from !arious countries and such in!estors are 'limited partners'

of -S5P Gc

The funds contributed b the 'limited partners' ha!e been in!ested b the 'general

partners' for the purchase of shares of the Target 7ompan G

d -S5P is administered# managed and super!ised b S@7 pursuant to an agreement G

indicate that the Ac2uirer is part of the Scamore group and this fact was not disclosed in the

5?& The applicant has stated that e!en now the true identit of the beneficial owners of the

Ac2uirer and the in!estment in the Target 7ompan has not been disclosed as re2uired under

7lause 9&1& of S*,- 7ircular dated @arch 0# $009&

- ha!e considered the submissions made b the applicant and also the disclosures made in the

5? b the Ac2uirer& -n terms of the S*,- 7ircular# the details (if the ac2uirer is a compan

such as name# address (registered and corporate office# phone number# brief histor# maEor areas

of operation# identit of the promoters andBor persons ha!ing control o!er such companies and

the group# if an# to which such companies belong to# needs to be furnished b the Ac2uirer in

the 5?&

The Ac2uirer has stated that it is a pri!atel held limited liabilit compan incorporated in the

>epublic of @auritius& -ts address and telephone number were gi!en in the 5?& The Ac2uirer

has also stated that it is a wholl owned subsidiar of -S5P# a limited partnership established b a

5imited Partnership Agreement dated


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As regards the re2uirement to state that "persons ha!ing control o!er such companies and the

group# if an# to which such companies belong to" as also re2uired in terms of clause 9&1& of the

S*,- 7ircular# - note the following .

The @erchant ,an6er and the Ac2uirer ha!e stated that authorit and responsibilit o!er -S5P

was b -ndiaStar Partners 5P# a general partner& ?urther# S@7 was a sole general partner of-ndiaStar Partners 5P& The @erchant ,an6er has also stated that ",he %(." 2"n"$&. #&$n"$ (-

In)'&%&$ #&$n"$% LP92"n"$&. #&$n"$ (- 'n)'&STAR L0P0< '% S&1($" M&n&2"1"n

C($#($&'(n 8-3 Alexander 5oad 1rinceton :J 83- HSA a highl% reputa4le professional investment

management firm /NS*O0. )urthermore S* has formed and authoriGed an Investment *ommittee comprised

of three mem4ers to manage all of the investment activities and 4usiness matters of the )und.O

The statements made b the Ac2uirer and the @erchant ,an6er with respect to the manner of

holding the Ac2uirer can be pictoriall represented as follows .

Scamore @anagement 7orporation

(sole general partner of -ndiastar partners 5P

-ndiastar Partners 5P

(general partner of indiaSTA> 5&P&

-ndiaSTA> ?und# 5&P& (Parent compan of

-ndia STA> (@auritius 5td

-ndiaSTA> (@auritius 5td (Ac2uirer

The abo!e manner of control b S@7# as represented b the Ac2uirer and the @erchant ,an6er#

on the Ac2uirer has not been disclosed in the 5?& -nstead# the Ac2uirer and the @erchant

,an6er hurried their wa to terminate the disclosures at the first possible stop& Therefore# the

disclosure made in the 5? does not present a true and a fair representation of the persons

ha!ing control o!er the Ac2uirer&

The Ac2uirer has a responsibilit to disclose all rele!ant disclosures in satisfaction of the S*,-

guidelines made in this regard& ?urther# the @erchant ,an6er is also e+pected to ha!e done its

S@7 and -ndiaStar

Partners 5P are two

entities which ha!e not

been disclosed in the

5?&

These two entities

ha!e been disclosed in

the 5?



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due diligence regarding the facts# statements and disclosures made in the 5?& -t is for this !er

purpose that merchant ban6er# who are S*,- registered intermediaries# are gi!en the

responsibilit to ensure that proper and ade2uate disclosures are made b an ac2uirer in a letter

of offer& The !eracit and ade2uac of such statementsBdisclosures should ha!e been e+amined

b the @erchant ,an6er and in case an disclosure is not properl or ade2uatel presented# it ishis responsibilit to probe into the same so that in!estors who are the target in an open offer do

get all details which will enable them to ma6e a reasoned decision on whether to off=load or hold

on to the shares whene!er there is a substantial ac2uisition of shares or !oting rights# or change

in control in a target compan&

-n this regard# - refer to the following obser!ations made b the Hon'ble SAT in the matter of

Eider+E+*ommerce 9td. vs. SEBI (rder dated Danuar 01# $001 on the importance of S*,-

mandating disclosures in offer documents& Though the obser!ations are made in respect of the

disclosures under the S*,- (egulations also .

".......,he Issuer *ompan% is reuired to maintain certain standards of disclosure relating to various matters

having a 4earing on the investment decision of the investors. ,he 5espondent has alread% prescri4ed the disclosure

reuirements and an issuer compan% in its o'n interest is reuired to fulfil those reuirements lest the pu4lic issue

'ill not 4e through. ,he lead manager is also reuired to ensure that the information furnished in the offer

document is not in an% 'a% exaggerated or deficient and that the material facts are not suppressed to the

disadvantage of the su4scri4ers."

n a consideration of the abo!e obser!ations and ta6ing into account the importance of such

proper and ade2uate disclosures in offer documents# it could be concluded that the Ac2uirer and

the @erchant ,an6er ha!e failed to reach the standards of disclosures e+pected b S*,-& ?or the

same# the Ac2uirer and the @erchant ,an6er are reprimanded and are ad!ised to compl with

disclosure re2uirements mandated b S*,- in its regulations and circulars# in letter and spirit&

A.."&'(n 5'! $"%#" ( !" )'%.(%+$"% (- )"&'.% (- M$ R&3' P$& S'n!

As mentioned abo!e# the S*,- 7ircular !ide 7lause 9&1& and 9&1 mandates that details such as

(1

%ames and residential addresses of ,oard of directors of Ac2uirer G and

($


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-n the 5?# the following details are gi!en with respect to @r& >a!i Singh .

"

f0 ,he =irectors of indiaS,A5 /auritius0 9imited and their addresses are as listed 4elo'

(onl that of @r& >a!i Singh is mentioned

N&1"9A2"


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pending litigation matters of the Ac2uirer ha!e to be disclosed in instances where the Ac2uirer is

a listed compan&

-n this regard# - note that 7lause 9 of the S*,- 7ircular does not mandate disclosures of

litigations against directors of the Ac2uirer& ?urther# the Ac2uirer is not a listed compan in

order to compel it to disclose litigation matters&

- also note that the aforesaid S*,- 7ircular does not also mandate the disclosure of information

with respect to in!estigationsBproceedings against emploees of the Ac2uirer& Therefore# the

allegation with respect to references being made of Scamore )entures and @r& 7hong

(emploee of S@7 ma also not stand&

-n !iew of the abo!e# the allegations made b the applicant in this regard does not ha!e an

merit&

12

- also note that the complainant has been using the name "Scamore )enturesM in his

representation& The same# as clarified b the Ac2uirerB@erchant ,an6er# is a brand name used

b S@7 and there is no entit in e+istence with the name LScamore )enturesM& Accordingl#

there can be no 2uestion of disclosing an alleged L7ontrolM b LScamore )enturesM of the

Ac2uirer&

17

R".'"- %(+! !" C(#.&'n&n : The 7omplainant in his complaint has re2uestedS*,- to direct the Ac2uirer to ma6e another open offer and pro!ide an opportunit to the

shareholders to ta6e an informed decision whether to tender or not to tender their e2uit shares&

He has also re2uested that such offer be directed at the same price paid to the shareholders in the

impugned pen ffer plus interest from the due date of pament in the impugned offer to the

date of pament at the rate decided b S*,-&

- ha!e considered the re2uest& The 7omplainant needs to appreciate that the open offer in this

matter had closed on April 0# $00& Shares which were tendered ha!e been purchased and

consideration had mo!ed from the Ac2uirer to those shareholders who had tendered shares in

the open offer in terms of the completion of the acti!it schedule of such open offer& The

7omplainant has made his complaint on Danuar 1# $01$# which is almost after 9 ears of

completion of the open offer made b the Ac2uirer& Though there is no limitation period for



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such complaints or representations to be made to S*,-# in terms of the Ta6eo!er >egulations# a

period of $1 das is a!ailable for the shareholders to peruse the 5? and forward their

grie!ancesBcomplaints# if an# in connection with the open offer to S*,-B@erchant

,an6erBAc2uirer& *!en if a complaint is recei!ed after one da of closure and completion of

open offer formalities# the same would create a huge difficult in undoing the process that arealread completed& ?urther# it could also be possible that third part rights are created in the

meantime& -f representations and complaints are made after a considerable lapse of time see6ing

for another fresh offer# the same could create uncertain ground for ac2uirers who ha!e ac2uired

!oting rights or gained control and also for the target companies&

The disclosures made under the Ta6eo!er >egulations to be made in the 5? is almost similar to

that of a notice# gi!ing details of a proposed compromise or arrangement under sections 381B383

of the 7ompanies Act# 18 (now repealed# to a creditor or member of a compan& The same is

done so that the concerned creditor or member ma consider the proposal and file his obEections

to such proposal& -f such obEections are not sufficient# the court ma proceed and appro!e such

scheme& -n this regard# the following obser!ations made in the matter of Musum 1roducts 9imited

P#DDD D8 *omp*as # *alQ# b the Hon'ble 7alcutta High 7ourt are worth noting .

"......$3. It is 'ell settled that if the statutor% formalities have 4een complied 'ith and the scheme is fair and

reasona4le there is no fraud involved then the court 'ould proceed to give effect to the ma2orit% decision of the

shareholders of the compan%. In other 'ords onl% if the court finds that the scheme is fraudulent or unreasona4le

the court 'ould proceed not to sanction the scheme. 5eference ma% 4e made in this connection to 1almerFs *ompan%9a' !-th edition para. .#-. If the court is satisfied that all the statutor% formalities have 4een complied 'ith

and the scheme is fair and reasona4le and there is no fraud involved in propounding the scheme the petitioners are

ta&en to have discharged their onus and the scheme ought to 4e sanctioned 4% the court.

.......$$. ,he onus lies heavil% on those 'ho oppose the sanction of the scheme to sho' that the scheme is unfair

unreasona4le or fraudulent. In this connection the follo'ing decisions ma% also 4e ta&en note of /i0 @industan


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unreasona4leness or unfairness a4out the scheme or of 'ant of good faith is on those 'ho o42ect to the sanction of

the scheme. ,his onus is not discharged 4% vague and general assertions devoid of an% particulars."

$. In the aforesaid decision :o. /ii0 it 'as held that although it might 4e possi4le to find faults in a scheme that

'ould not 4e sufficient ground to re2ect it. It 'as further held that a scheme must 4e o4viousl% unfair patentl%

unfair unfair to the meanest intelligence. It cannot 4e said that no scheme can 4e effective to 4ind a dissentingshareholder unless it complies to the extent of # per cent. It is the consistent vie' of the courts that no scheme can

4e said to 4e fool+proof and it is possi4le to find faults in a particular scheme 4ut that 4% itself is not enough to

'arrant a dismissal of the petition for sanction of the scheme. ,he courts have gone further to sa% that a scheme

must 4e held to 4e unfair to the meanest intelligence 4efore it can 4e re2ected. It must 4e affirmativel% proved to the

satisfaction of the court that the scheme is unfair 4efore the scheme can 4e re2ected 4% the court.......... "

-n the present case# - note the allegation that ade2uate disclosures with respect to the persons in

control of the Ac2uirer was not made& Howe!er# it has not been shown that the shortfall in

disclosure would ha!e changed the decision of the shareholders who had tendered shares in theopen offer& ?urther# for the inade2uate disclosures# as discussed abo!e# the Ac2uirer and the

@erchant ,an6er ha!e been reprimanded& >epeated !iolations b either of them would be

!iewed !er seriousl b S*,-&

There is another reason wh - would not be agreeable to granting the relief as sought for b the

7omplainant& The complainant has stated that he owned 1#0 e2uit shares in the target

7ompan "4efore# during# and after" the open offer& As per submissions made to S*,-# it has been

obser!ed that claim of the complainant is not true& At the time of PA# the complainant held 9$00

shares of Target 7ompan& He sold $90 e2uit shares of Target 7ompan after the PA was

made on %o!ember 0# $00& *!en subse2uent to the open offer# the 7omplainant periodicall

traded in shares of Target 7ompan on the stoc6 e+change# and his holding at a certain point

went down to as low as $ e2uit shares& Subse2uentl# before filing the complaint# he bought

shares of Target 7ompan and as on the date of complaint he was holding 3#9 shares of the

Target 7ompan& @oreo!er# the complainant has also purchased 00 shares during April $013#

which is much after his complaint& -t is surprising to note as to how the 7omplainant had

purchased shares when he has made such allegations in his complaints and has re2uested S*,- to

direct the Ac2uirer to ma6e another open offer to the shareholders& -n this regard# the Hon'ble

Supreme 7ourt has held that a person approaching court for an e2uitable relief should come with

clean hands& An suppression or concealment of rele!ant facts would ma6e him ineligible for

such relief& -n this regard# - note the following .



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(1

The Hon'ble Supreme 7ourt inohammadia *o+op. Building Societ% 9td. v. 9a&shmi Srinivasa

*o+op. Building Societ% 9td.N($00 S77 310 had obser!ed that "#.


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D"'%'(n:

16 -n !iew of the abo!e reasons and obser!ations# - hereb dispose of the application dated

Danuar 1# $01$ and the supplementar representation dated September 1$# $013 filed b @r&

Amit ,hag!atprasad ,arot# without granting an relief&

1;

- reprimand the Ac2uirer and the @erchant ,an6er for failing to reach the standards of

disclosures e+pected under the S*,- 7ircular dated @arch 0# $009&

PRASHANT SARAN

WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

D&" : N(3""$ 21%, 2014

P.&" : M+&'

order in respect of the representation made by mr. amit bhagbatprasad barot in the matter of open...

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