Case Law Details
CASE LAWS DETAILS
DECIDED BY: SECURITIES APPELLATE TRIBUNAL MUMBAI,
IN THE CASE OF: Triumph International Finance India Ltd. Vs SEBI, Appeal No: Appeal No. 183 of 2009, DECIDED ON: February 9, 2010
RELEVANT PARAGRAPH
6. We have carefully perused the show cause notice which was common to all the six entities including the appellant who were alleged to have acted in concert with each other in the acquisition of the shares of the target company. Apart from making a bald assertion in para S of that notice that all the notices were acting in concert, there is nothing else in the show cause notice to suggest that the appellant was acting in concert with the other notices. As already observed, the notice was issued to Panther Invest Trade Ltd., Classic Share and Stock Brooking Services Ltd., Panther Fin cap & Management Services Ltd., Classic Credit Ltd. and Triumph Securities Ltd. besides the appellant and they all have been found to be companies associated with and controlled by Ketan Parekh. The appellant seriously challenges the finding that it is controlled by Ketan Parekh or by any of his entities. Since none of the notices other than the appellant has come up in appeal, we shall proceed to dispose off this appeal on the basis that the other entities were Ketan Parekh controlled entities. This apart, this Tribunal while disposing off Ketan Parekh’s case (supra) has already upheld the findings that some of the noticees other than the appellant were Ketan Parekh controlled companies. The appellant was not involved in Ketan Parekh’s case nor in any other appeal decided along with that case. A reading of the show cause notice makes it clear that the adjudicating officer is throughout referring to all the notices as close associates of Ketan Parekh. However, in the impugned order he has referred to several facts in para 19 to hold that the appellant was connected/ affiliated to Ketan Parekh atleast from the year 1999 on wards and that its plea that it was not acting in conceit with other notices could not be accepted. Since the shares of the target company had been acquired with a common objective of the Ketan Parekh group, it is necessary to refer to the facts noticed in para 19 of the impugned order and the same reads as under:-
“19. However, it was observed from the records made available even to the noticee that:
i. 15.84% (7.92% each) of the equity share capital of the Company were held by Mrs. Mamta Parekh (wife of Mr. Ketan) and Mrs. Ami Parekh (wife of Mr. Kartik), where Mr. Ketan and Mr. Kartik were cousins.
ii. The notices held 49% in TSL, which was under the management and control of Mr. Ketan and Mr. Kartik. An Option agreement dated March 18,1999, was executed by and between the noticee and Mr. Ketan. The noticee paid consideration to Mr. Ketan to acquire 51% equity share capital of TSL on 21/03/1999. TSL was to become a 100% subsidiary of the noticee by June 2001. The noticee had earlier admitted to have nominated 2 directors on the Board of TSL.
iii. The noticee did not have membership of the Bombay Stock Exchange Limited and TSL did not have membership of the National Stock Exchange of India Limited. Bom the entities complemented each other in executing trades in the other stock exchanges as admitted by the notice on earlier occasions. Both, the noticee and TSL, shared a common address and employee.
iv. For the promoters of Aftek, the Company belonged to Mr. Ketan.
v. Kopran had advanced an Inter Corporate deposit of Rs. 78 crores to Classic Credit Ltd. – controlled by Mr. Ketan. It was stated by Kopran mat Classic Credit Ltd. was represented by Mr. Ketan, Mr. Dharmesh Ooshi and Ms. Aditi. Mr. Dharmesh Doshi was die Managing Director of the Company and he was neither a director nor an employee of Classic Credit Ltd.
vi. During October 1999, Mr. Ketan had approached the promoters of Lupin Laboratories and dealt on behalf of me noticee for the transaction of 60,000 shares of Lupin Laboratories between Zyma Laboratories and Almel Investments which were executed by the noticee. This shows that Mr. Ketan was working for the noticee even in 1999, when he was neither an employee nor a director of the noticee, during that period.
vii. The noticee and TSL were enjoying a joint over draft facility of Rs. 50 crores each from Global Trust Bank Ltd. against a common security to be provided by either of them.
viii. It was also noticed that on 08.03.2001, the noticee had pledged 75,50,000 shares of Global Ecomm. to Global Trust Bank Ltd. for the loan taken by it Prior to this pledge. Panther Fincap & Management Services Ltd. (which had Mr. Ketan as director) had transferred these shares to the noticee.
ix. Also Classic Share and Stock Broking Services Lid., Panther Investrade Ltd., Classic Credit Ltd. and TSL, all had the same address, i.e. Radha Bhavan, 121, Nagindas Master Road, Fort, Mumbai- 400023.
x. All the entities, Classic Share and Stock Broking Services Ltd., Panther Invest Trade Ltd., Classic Credit Ltd., Panther Fin cap & Management Services Ltd., TSL and the noticee, had either Mr. Ketan or Mr. Kartik or both as Directors. Kirti Parekh was also a Director in 4 of the above entities.”
Having noticed the aforesaid facts, the adjudicating officer records his findings in para 20 which is also reproduced here under for facility of reference.
“20. Hence all the above point out to die fact that the noticee was connected / affiliated to Mr. Ketan at least from (he year 1999 on wards. Thus, the noticce’s plea that it was not affiliated to or managed by Mr. Ketan Parekh or Mr. Kartik Parekh does not hold ground. Neither does the plea that the noticee was not acting in concert with the other entities as mentioned in the above paragraphs hold ground, since the shares had been acquired with a common objective of the Ketan Parekh group, of which the noticee also forms a part. Also the noticee’s claim that Classic Credit Ltd. and Panther Fin cap & Management Services Ltd. had been its clients and the noticee had no relationship with them other then that as clients cannot be accepted in view of die facts discussed in the previous paragraphs.”
Let us now examine whether all the facts referred to in para 19 taken collectively or individually establish the allegation that the appellant was acting in concert with the other noticees. “Person acting in concert” has been defined in the takeover code to mean persons who for a common objective or purpose of substantial acquisition of shares or voting rights pursuant to an agreement or understanding (formal or informal) directly or indirectly cooperate by acquiring or agreeing to acquire shares or voting rights in the target company. It is, thus, clear that before two or more persons can be said to be acting in concert with each other they must have a common objective and that common objective should be substantial acquisition of shares. The shares then should be acquired pursuant to an agreement or an understanding which could be formal or informal. Sub section (2) of clause (2X1 )(e) of the takeover code then gives us the list of persons who shall be deemed to be acting in concert with each other. Before a charge of acting in concert is levied, it has to be alleged that the delinquent had a common objective pursuant to an agreement or understanding with another person for substantial acquisition of shares of the target company. This element is missing in the show cause notice that was issued to the appellant though a bald assertion had been made in para 5 of the show cause notice that all the noticees were acting in concert This apart, the facts referred to in para 19 of the impugned order and reproduced herein above taken collectively or individually do not, in our opinion establish the fact that the appellant was acting in concert with other entities including Triumph Securities Ltd. Association between persons is one thing but their acting in concert with a common objective to acquire substantial number of shares in a company in pursuance to an understanding or an agreement between them is altogether different. Merely because the appellant acted as a broker of some of the companies owned / controlled by another broker does not make it a ‘person acting in concert’ with those companies! This could, if at all, mean association with those companies. Close business association between two or more persons does not by itself make them persons acting in concert The facts noticed herein above were considered by this Tribunal in Triumph International Finance Ltd. vs Securities and Exchange Board of India Appeal no. 35 of 2002 decided on May 4,2007 which had been filed by the appellant herein. Its certificate of registration as a stock broker had been cancelled. One of the questions that arose for the consideration of the Tribunal was whether the appellant was controlled and managed by Ketan Parekh and / or his entities. The facts now referred to in para 19 of the impugned order had been made the basis of holding the appellant to be a company controlled by Ketan Parekh and that finding was reversed in the appeal holding that the appellant was not under the control of Ketan Parekh though it was a close associate of his investment / brooking companies. This is what the Tribunal has observed in its order dated May 14,2007.
We have heard the learned counsel for the parties who have taken us through the voluminous record of mis case. The first argument of the learned counsel for the appellant is mat the Board has grossly erred in recording a finding that the appellant was being controlled by Ketan Parekh and that it was difficult to believe that it was an independent body run absolutely with no control of Ketan Parekh. We have perused paragraphs 10.4.1 to 10.4.9 of the impugned order and agree with the learned counsel for the appellant mat the findings of the Board in this regard cannot be upheld. It is not in dispute that Mrs. Mamta Parekh wife of Ketan Parekh holds 7.92% of the share capital of the appellant and an equal percentage of shares are held by Mrs. Ami Parekh wife of Kartik Parekh who is a cousin brother of Ketan Parekh from the paternal side (father’s brother’s son). The two ladies, thus, hold 15.84% of the total share capital in the appellant company. This by itself does not give Ketan Parekh a controlling stake in the company. It is also true that Ketan Parekh was a director of the appellant from 16.12.2000 up to 31.3.2001 but did not attend any board meeting during mis period. This, again, is not indicative of any control over the company. Merely because a person is on the board of directors of a company does not lead to the conclusion that he is in control of that company. The appellant holds 49% shares in Triumph Securities Pvt. Ltd. (TSL) which is admittedly a Ketan Parckh entity and the former (appellant) had entered into an agreement with TSL to acquire 51% shares of Ketan Parekh. The reason for this agreement is that the appellant is a member of the NSE whereas TSL was operating on the Bombay Stock Exchange (BSE) and with a view to expand its business so as to operate on both die exchanges, the appellant decided to takeover TSL. This fact also does not lead us to the conclusion that Ketan Parekh was controlling the appellant The Board has relied upon the statements of some persons who had dealt with Ketan Parekh and/or his investment companies and/ or the appellant prior to April, 2001 who stated that they regarded the appellant as one of the entities of Ketan Parekh which was under his control like any of his investment/ brooking companies. We were also taken through those statements but that is only the perception of those persons. What appears to us is that because of the close business relations between the appellant and Ketan Parekh and his other entities, the persons dealing with mem generally believed that it was Ketan Parekh who was controlling the appellant as well but we do not find any such material on the record. The perception of some of those who dealt with the appellant and Ketan Parekh is not enough for us to record such a finding.
The learned counsel for the appellant, however, conceded before us during the course of the hearing that the appellant which was a stock broker had close business relations with Ketan Parekh and his investment companies for which it had acted as a broker. The business which Ketan Parekh gave to the appellant was substantial and, therefore, the appellant regarded Ketan Parekh and his investment companies as its valued and important clients. This is what appears to be so. There is ample material on the record to show that Ketan Parekh and his investment companies which had subsequently been debarred from accessing the capital market had been operating through the appellant as their broker. It is not necessary for us to discuss that material in view of the admission made by the learned counsel for the appellant These business dealings howsoever close they may have been also do not lead us to conclude that Ketan Parekh was controlling the appellant company. The fact that the appellant and TSL (Ketan Parekh entity) had close business association is further clear from the fact that they were enjoying a joint over draft facility from Global Trust Bank Ltd. against common security to be provided by either of them. We agree with the learned counsel for the appellant that this again is no proof of Ketan Parekh having control over the appellant. We have examined the facts noticed by the Board in paragraphs 10.4.1 to 10.4.9 of the impugned order and find mat none of mem independently or collectively conclusively establish the fact mat the appellant was under the actual control of Ketan Parekh. We are also of the view that the finding whether the appellant was being controlled by Ketan Parekh or not is not material for deciding the issues that have been raised in this appeal. We have examined this aspect of the matter in detail only because great emphasis was laid by die appellant in challenging the finding recorded by the Board that the appellant being a Ketan Parekh entity was actually controlled by him. In view of the above discussion we have no hesitation to hold that the appellant was not under the actual control of Ketan Parekh though it was a close associate of his and his investment/ brooking companies with which it had substantial business dealings. This apart, Ketan Parekh has financial interest in the appellant.”
In view of our findings recorded earlier in Appeal no. 35 of 2002, we are satisfied that none of the factors referred to in para 19 in the impugned order either collectively or taken individually would establish the fact that the appellant was acting in concert with Ketan Parekh or his entities. As already noticed, the learned counsel for die appellant admitted before us that the investment companies of Ketan Parekh were valued clients of the appellant which was a broker and they had close business relations. This is precisely what this Tribunal had held in the earlier appeal filed by the appellant Close business relations between persons/ parties cannot by themselves lead us to conclude that they were acting in concert with each other for the purpose of acquiring the shares under the takeover code.
