Case Details: ZOOM LENS of SAT order in the matter of Nikhil Mansukhani (MAN Industries (India) Limited)
Prepared by: Ms. Ruchi Hans
Target Company: MAN Industries (India) Limited
Acquirers: Mr. Nikhil Mansukhani
Industry: Steel –Tubes and Pipes
Merchant Banker: N.A
Target Company: MAN Industries (India) Limited (MIIL) was incorporated on May 19, 1988 with a project to manufacture Aluminum Extrusions. The main business line of the Company includes manufacturing & coating of Large Diameter Carbon steel pipes, Infrastructure, Realty & Trading. The Company is listed on National Stock Exchange of India.(NSE)
Triggering event: Appeal is filed before the Hon’ble SAT by Nikhil Mansukhani (Appellant) against the order passed by the Adjudicating Officer on September 30, 2011 imposing a penalty of Rs.10 crores on the appellant and other entity namely Mrs. Anita Mansukhani and M/s JPA Holdings Ltd. (Appellants) for violating the provisions of Regulation 11(1) read with second proviso to Regulation 11(2) of SEBI (SAST) Regulations, 1997 in respect of acquisition of shares of MAN Industries (India) Limited (Target Company).
2. In appeal, the appellant has contended that:
2.1. The Target Company was promoted by Mr. J. L. Mansukhani and his two sons Mr. R. C. Mansukhani (RCM) and Mr. J. C. Mansukhani (JCM).
2.2. Mr. Nikhil Mansukhani (Appellant) belongs to RCM group whereas Mrs. Anita Mansukhani and M/s JPA Holdings Ltd. belong to the JCM group.
2.3. Acquisition of shares from market by Mr. J. C. Mansukhani during the quarter ended September 2010.
2.4. On June 15, 2010- Allotment of 2,50,000 equity shares to Mr. Nikhil Mansukhani, promoter of Company upon conversion of 2,50,000 warrants
2.5. On June 19, 2010-Allotment of 10 lacs equity shares to Mr. Nikhil Mansukhani, Mrs. Anita Mansukhani and M/s JPA Holdings Ltd. upon conversion of 10 lacs warrants.
2.6. Pursuant to the conversion of aforesaid warrants and acquisition from market, the shareholding of promoter group increased from 53.36% to 55.18%, which has resulted into triggering Regulation 11(1) read with second proviso to Regulation 11(2) of SEBI (SAST) Regulations, 1997. However no Public Announcement was made by appellants.
2.7. On being show cause notice issued, the appellants denied that they were ‘persons acting in concert’ within the meaning of regulation 11(1) read with second proviso to regulation 11(2) of SEBI (SAST) Regulations, 1997.
3.1. There was a serious rift between RCM and JCM, two of the promoters of the company since October 2009.
3.2. Mr. J. C. Mansukhani, did not disclose the acquisition of shares of Target Company by him and his associate company from the market a few days earlier to the conversion of warrants into shares as stated above. The total shareholding of the promoter group, consequent to the allotment against conversion of warrants, increased to 54.93% only of the total capital of the company which was well within the permissible limits. Since the three entities i.e. Mr. Nikhil Mansukhani, Mrs. Anita Mansukhani and M/s JPA Holdings Ltd. were not acting in concert, they have not violated the provisions of SEBI (SAST) Regulations, 1997.
4. The adjudicating officer did not accept the explanation given by the appellant and imposed a penalty of Rs. 10 crores on all the three entities.
While interpreting the definition of Person acting in concert as given under Regulation 2(1) (e) of SEBI (SAST) Regulations, 1997, Hon’ble SAT relied on the judgment of Supreme Court in the case of Daiichi Sankyo Co. Ltd. wherein it was observed that:
“The idea of “person acting in concert” is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition or substantial acquisition of shares, etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares, etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares, etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of “person acting in concert” to come into being.”
Further the Bombay High Court in the case of K. K. Modi vs. Securities Appellate Tribunal had observed that:
“a co-promoter of the target company, by reason of his being a co-promoter cannot be said to be a person acting in concert with the acquirer who also happens to be one of the promoters of the target company, unless the evidence on record clearly establishes that the promoters share the common objective or purpose of substantial acquisition of shares or voting rights for gaining control over the target company with the acquirer.”
Therefore after considering the submissions, Hon’ble SAT held that the adjudicating officer, while passing the impugned order has not considered the principles of law laid down in the above noted two judgments. There was sufficient material available on record to show that the dispute between the two promoter groups is continuing since 2009. Thus it was for the Board to bring sufficient material on record to show that inspite of conflict among the promoters, the members of the two groups were acting in concert while acquiring the shares.
Accordingly the Hon’ble SAT set aside the impugned order and remand the matter to the Board for passing a fresh order dealing with the submissions made by the appellants in their reply dated June 20, 2011 and more particularly, the law laid down in the two judgments referred to above.
Offer Details: N.A
Hon’ble SAT set aside the impugned order imposed by the Adjudicating Officer and remand the matter to the Board for passing a fresh order and held that simply by being a co-promoter, a person cannot be said to be PACs unless there is meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition or substantial acquisition of shares, etc. of the Target Company.
Queries for Discussion:
1. Whether the contention of the Appellants that there was a serious rift between RCM and JCM, two of the promoters of the company since October 2009 is justifiable/acceptable?
2. Whether a co-promoter of Target Company, merely by reason of his being a co-promoter, can be presumed as person acting in concert with the acquirer who also happens to be one of promoters of Target Company even if they does not have any common objective or purpose for acquisition of shares or voting rights?
3. Considering the order in the matter of Daiichi Sankyo Co. Ltd and K. K. Modi, whether the decision of AO is justified?
Now, it is to be seen what is the final decision of the Board considering the contention of the appellant and decision of Hon’ble SAT.
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Ms. Divya Vijay