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Adjudication Order in the matter of Apte Amalgamations Ltd.

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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. ASK/AO-93-96/2014-15]
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
Sr. No. Name of the Entit PAN Order No.
1 Mr. Vaman Madhav Apte Not Available ASK/AO-93/2014-15
2 Mrs. Devaki Laxman Apte Not Available ASK/AO-94/2014-15
3 Mr. Vikram Vaman Apte Not Available ASK/AO-95/2014-15
4 Mrs. Mithila Vaman Apte Not Available ASK/AO-96/2014-15
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
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Company at a price of ` 10/- per share payable in cash. The shares of the
AAL are listed at BSE.

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 during the year 2009 Mr. Vaman
Madhav Apte, Mrs. Devaki Laxman Apte, Mr. Vikram Vaman Apte and
Mrs. Mithila Vaman Apte (hereinafter individually referred to by their name
and collectively referred to as "Noticees"), who were promoters of AAL
during the relevant period, had made certain transactions and thereby
acquired shares of AAL. The details of the transactions made by the
Noticees is given below in the tabular form:
Name of the
noticee
Noticee's
pre-
holding
(%)
Qty of
shares
acquired
Date and
mode of
transaction
Noticee's
post-
holding
(%)
Pre-
transaction
Promoter's
shareholding
(%)
Post-
transaction
Promoter's
shareholding
(%)
Vaman M Apte 8.09 30 13/01/09
(Off-market)
8.09 59.13 59.13
Vaman M Apte 8.09 28270 14/01/09
(Off-market)
9.54 59.13 60.76
Devaki L Apte 0.51 3590 0.70
Vaman M Apte 9.54 5,000 24/02/09
(Off-market)
9.79 60.76 61.17
Devaki L Apte 0.70 1,500 0.77
Mithila V Apte 0.14 1,500 0.22
Vaman M Apte 8.96 7,250 03/07/09
(Off-market)
9.33 61.17 61.54
Vikram V Apte 0.50 30 25/09/09
(Off-market)
0.50 61.49 61.49
Vikram V Apte 0.50 1,500 02/12/09
(Off-market)
0.57 61.49 61.57

3. It was observed that at the time of the afore-mentioned acquisitions by the
respective Noticees, the shareholding of the promoter group was more than
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the threshold limit of 55% as prescribed under regulation 11(2) of the SAST
Regulations 1997 and as such for acquisition of any additional shares by the
noticees entitling them to exercise voting rights, the respective noticees were
required to make public announcement as stipulated in the afore-mentioned
regulation. However, it was observed that no such public announcement was
made by the Noticees.

APPOINTMENT OF ADJUDICATING OFFICER

4. 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 regulation 11(2) of
SAST Regulations, 1997 read with Regulation 35 of SAST Regulations,
2011 by the Noticees.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

5. Show Cause Notice dated May 06, 2014 (hereinafter referred to as SCN)
was issued to the Noticees 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 Noticees have violated the provisions of regulations
11(2) 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 Noticees along with the SCN.

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6. Vide separate similarly worded letters dated July 28, 2014 noticees filed
their reply to the SCN. The main submissions of the noticees with respect to
specific charges alleged in the SCN are as follows:
The charges in the notice pertain to alleged violation of Regulation
11(2) of Takeover Regulations consequent to acquisition of shares
on 13.1.09, 14.1,09, 24.2.09, 3.7.09, 25.9.09 and 2.12.09 by
promoters of the target company, wherein as a result of the
impugned acquisitions the total shareholding of the promoter group
increased from 59.13% (as on 13.1.09) to 61.57% shares (as on
2.12.09). The charges are thus based on increase in shareholding of
the promoter group by 2.44% in the target company.
We respectfully submit that the proceedings suffer from the vice of
laches and same ought to be dropped on this ground alone. 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. Continuation of proceedings at this distance of time,
is therefore totally unwarranted and unjustified. Definitely after
more than 5 years from the date of alleged violation the proceedings
cannot be initiated.
In this regard, reference was also made to the order passed by
Hon'ble SAT in the matter of Ashok K Chaudhary vs. SEBI and
Libord Finance Ltd. vs SEBI.
Mrs. Mithila Vaman Apte, Mrs. Sheela Madhav Apte, Mr. Vaman
Madhav Apte, Madhav Laxman Apte and Mrs. Jhanvi Apte were the
promoters of the target company and were in control of the same.
Further all the promoters were also persons acting in concert with
one another. Sometime in May 2010, we and other promoters had
sold their shareholding in the target company to Mehta group and
exited from the target company. Post May 2010, we do not hold any
share in the target company. In 2010, Mehta group had made
public offer to the shareholders of the target company.
The target company was in financial shambles and had stopped its
business activities since 2002. As a result of the financially weak
and unviable position of the target company, many employees of the
company had left. In fact the trading in the scrip of the target
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company had remained suspended for almost 9 years (from
September 10, 2001 to May 25, 2010).
During 2008-09, we along with other promoters and persons acting
in concert were holding 59.13% shares of the target company.
During this period, various investors/employees/shareholders had
approached the promoters for selling their shares, since they were
in need of funds. The copies of some of the letters sent by these
investors/employees/shareholders in this regard are enclosed. It was
in this backdrop wherein the scrip of the target company was
suspended, and the investors/employees had approached the
promoters, the promoters had under peculiar circumstances
acquired the shares totaling around 2.44% in off-market on different
dates from the sellers.
It may be noted that under second proviso to Regulation 11(2) of
Takeover Regulations, an acquirer alongwith persons acting in
concert holding above 55% shares in the Target company, could
acquire upto 5% , without making a public announcement under
certain circumstances. From the reading of the proviso it is clear
that acquisition of 5% shares, inter alia, through open market
purchases in the normal market segment of the stock exchange, by
the acquirers holding more than 55% shares in the target company
would not attract the requirement of making public announcement.
In the matter under reference, it may be appreciated that the scrip of
the target company was suspended since 2001; therefore purchase
of shares in the market was not legally possible. The target company
was running through a financially bad patch and therefore when
certain investors/employees approached the promoters, the
promoters had bought the shares. It may be noted that the impugned
acquisition was only to the extent of 2.44% i.e. within the
permissible limit of 5%, based on the bonafide belief that under the
circumstances, acquisition in off market will not attract making of
public announcement. In the aforesaid premises, it is submitted that
the impugned acquisition are covered by second proviso to
Regulation 11(2), therefore, we alongwith other promoters were not
required to make any public announcement.
Without prejudice to the aforesaid, if it is construed that the
impugned acquisition was in breach of Regulation 11(2) of Takeover
Regulations, it is submitted that the same was inadvertent and based
on understanding that since shares of the company were suspended
therefore off market purchases would be covered within the sweep of
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second proviso of Regulation 11(2). It may be noted that the alleged
acquisition involved mere 2.44% shares, which is exceedingly
insignificant and inconsequential. Further, it may be appreciated
that by virtue of the impugned acquisitions there was nothing to be
gained either by me or the other promoters since we alongwith
persons acting in concert were already holding majority shares and
were also in control of the Target company. There was nothing to be
gained by us by acquiring insignificant 2.44% shares of the target
company.
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 acquisition of insignificant
2.44% shares only by us. It is not as if by virtue of said
acquisition we acquired substantial shares vis a vis our pre-
acquisition shareholding or acquired control. Admittedly we
were already holding around 59% shares and were in control of
the target company.
iv. 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.
v. Currently our financial condition is very weak, I do not trade in
securities market due to lack of funds.
vi. That there are no shareholder/investor complaints in this
regard.
vii. As a result of the alleged violations, we have not made any gain
or any unfair advantage.
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.

7. 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
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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. ARs
submitted that they would be submitting the PAN of the noticees within a
week's time, however, the same was never submitted.

CONSIDERATION OF ISSUES AND FINDINGS

8. 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 Noticees had violated the provisions of regulation 11(2) 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?

9. 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

Consolidation of holdings.
11. (1) ...................
(2) No acquirer, who together with persons acting in concert with him holds,
fifty-five per cent (55%) or more but less than seventy-five per cent (75%) of
the shares or voting rights in a target company, shall acquire either by
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himself or through
1
[or with] persons acting in concert with him any
additional shares entitling him to exercise voting rights or voting rights
therein, unless he makes a public announcement to acquire shares in
accordance with these Regulations:

Provided that in a case where the target company had obtained listing of its
shares by making an offer of at least ten per cent (10%) of issue size to the
public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities
Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted
from strict enforcement of the said rule, this sub-regulation shall apply as if
for the words and figures seventy-five per cent (75%), the words and
figures ninety per cent (90%) were substituted.

Provided further that such acquirer may,
2
[notwithstanding the acquisition
made under regulation 10 or sub-regulation (1) of regulation 11,] without
making a public announcement under these Regulations, acquire, either by
himself or through or with persons acting in concert with him, additional
shares or voting rights entitling him upto five per cent. (5%) voting rights in
the target company subject to the following:- (i) the acquisition is made
through open market purchase in normal segment on the stock exchange but
not through bulk deal /block deal/ negotiated deal/ preferential allotment; or
the increase in the shareholding or voting rights of the acquirer is pursuant
to a buy back of shares by the target company; (ii) the post acquisition
shareholding of the acquirer together with persons acting in concert with
him shall not increase beyond seventy five per cent.(75%).

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
11(2) of SAST Regulations, 1997?

10. Upon perusal of submissions and documents available on record, I note
that admittedly the noticees were promoters of AAL and they were acting in
concert when respective noticees acquired the shares of AAL on various dates

1
Inserted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment)
Regulations, 2009, w.e.f. 6-11-2009.
2
Inserted, ibid
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as mentioned in the table at page 2. Further it is also not in dispute that at the
time of such acquisitions the shareholding of the promoter group was more than
the threshold limit of 55% as prescribed under regulation 11(2) of the SAST
Regulations 1997. It is also an admitted position that for such acquisition no
public announcement has been made by the noticees as stipulated in the afore-
mentioned regulation.

11. However, the noticees have contended that under second proviso to
Regulation 11(2) of Takeover Regulations, an acquirer alongwith persons
acting in concert holding above 55% shares in the Target company, could
acquire upto 5%, without making a public announcement under certain
circumstances and the impugned acquisition of 2.44% shares of AAL by the
noticees are covered by this proviso and, therefore, the noticees were not
required to make any public announcement. They further submitted that the
scrip of AAL was suspended since 2001 and, therefore, purchase of shares in
the market was not legally possible and when certain investors/employees, who
were in need of funds, approached them noticees bought their shares.

12. I note that regulation 11(2) mandates that an acquirer, holding 55% or
more but less than 75% shares or voting rights in target company could acquire
any additional shares or voting rights therein only by way of an open offer by
making a public announcement in accordance with the Takeover Regulations,
1997. However, the second proviso to the afore-mentioned regulation provides
that an acquirer holding 55% or more but less than 75% of shares or voting
right in a target company could acquire additional shares or voting rights upto
5% without making a public announcement. However, this acquisition is
allowed subject to the two conditions that - (a) the acquisition should be made
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through open market purchase in normal segment on the stock exchange but not
through bulk deal /block deal/ negotiated deal/ preferential allotment; or it is
pursuant to buy back of shares by the target company; and (b) the post
acquisition shareholding of the acquirer should not increase beyond 75%.

13. In the present case, there is no dispute that the acquisitions have been
made by the respective noticees in off market and not through open market
purchase in normal segment on the stock exchange as mandated under second
proviso to Regulation 11(2) of SAST 1997. Noticees have submitted that the
trading in the scrip of AAL had remained suspended from September 10, 2001
to May 25, 2010. Here, I note from the letter of offer that BSE had suspended the
trading in the shares of the company with effect from 10th September, 2001 on
account of non-compliance of the listing agreement and non payment of the
listing fees. It is evident that lack of trading in the shares of the company is
directly attributable to the non-compliances by the Noticees who were
admittedly in control of the company during the relevant period. The Noticees,
therefore, cannot claim relief on this count. Since the mandatory conditions of
acquisition of shares through open market purchase in normal segment on the
stock exchange was not met by the noticees, the exemption from making public
announcement is not available to them.

14. In view of the above, I hold that the Noticees have violated regulation
11(2) of SAST Regulations, 1997 when they failed to make public
announcement for the acquisition of shares of AAL made by them on 13.1.09,
14.1,09, 24.2.09, 3.7.09, 25.9.09 and 2.12.09.

Issue - (II) - Does the violation, if any, attract monetary penalty under
section 15H(ii) of SEBI Act?
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15. By not making the public announcement on time, the Noticees failed to
comply with their statutory obligation. The Honble 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............

16. Noticees have submitted these violations pertain to year 2009 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 them and has also resulted in gross violation of
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 11(2) by the noticees has been clearly established in the
preceding paragraphs, the noticees cannot escape liability simply because it
relates the period of 2009. 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.

17. As the violation of the statutory obligation under regulation 11(2) of
SAST Regulations, 1997 has been established, I hold that the Noticees are
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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)..
he shall be liable to a penalty of twenty-five crore rupees or three times the amount
of profits made out of such failure, whichever is higher.
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?

18. 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.

19. From the material available on record, it is difficult, to quantify exactly
the disproportionate gains or unfair advantage enjoyed by the Noticees and the
consequent losses suffered to the investors, due to not making public
announcement of offer. I find that in the instant case noticees, while admittedly
acting in concert, have committed the default on nine occasions which indicates
repetitive nature of the default. I note that the noticees acquired 28,300 shares on
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January 13 / 14, 2009 whereby they triggered the Takeover code and ought to have
made open offer giving exit opportunity to other public shareholders. They failed
to do so. On the other hand, they continued to acquire shares on 7 other occasions
which on each occasions triggered the code. Noticees have submitted that the
shares were acquired by them from certain investors/employees who wanted to exit
but could not exit because the trading in the scrip was suspended. This, in my view,
tantamount to providing exit opportunity to only selective investors depriving other
public shareholders of their statutory right to exit. I also note at the relevant point
of time the public shareholders were holding more than 35 % of the total capital of
the company who were deprived of the benefit of the exit opportunity and to this
extent, there was loss to the shareholders. The matter, therefore, deserves to be
viewed seriously.

ORDER

20. 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 ` 25,00,000/- (Rupees Twenty Five Lakh only) on all the
Noticees i.e. Mr. Vaman Madhav Apte, Mrs. Devaki Laxman Apte, Mr. Vikram
Vaman Apte and Mrs. Mithila Vaman Apte under Section 15H(ii) of SEBI Act
for the violation of regulation 11(2) of SAST Regulations, 1997 read with
Regulation 35 of SAST Regulations, 2011. I am of the view that the said
penalty is commensurate with the violation committed by the Noticees. The
Noticees shall be jointly and severally liable to pay the said monetary penalty.

21. The penalty shall be paid by the Noticees 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
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be forwarded to The Division Chief (CFD-DCR), Securities and Exchange
Board of India, SEBI Bhavan, Plot No. C4 A, G Block, Bandra Kurla
Complex, Bandra (E), Mumbai 400 051.

22. In terms of rule 6 of the Rules, copies of this order are sent to the
Noticees and also to the Securities and Exchange Board of India.


Date: October 31, 2014 A. Sunil Kumar
Place: Mumbai Adjudicating Officer
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