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C. Achuthan, Presiding Officer

1. The Respondent vide its order dated 31.5.2002 appointed an adjudicating officer for holding an enquiry into the alleged violation of the provisions of regulation 3(3) and 3(4) of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997 (the Takeover Regulations) read with section 15A (a) and 15A(b) of the Securities and Exchange Board of India Act, 1992 (the Act) with reference to acquisition of shares of Jenson & Nicholson India Ltd. (the company) by the Appellants. On 31.5.2000 The company issued Optionally Convertible Debentures (OCDs) on preferential allotment basis to the promoters. The terms of issue of OCDs provided that 50% of the OCDs were compulsorily convertible into equity shares at the end of 18 months and the balance 50% at the end of 18 months at the exercise of the option by the investors. The OCDs allotted to the Appellants were converted into equity shares on 15.2.2001. As a result of the conversion the Appellants acquired 71,56,345 equity shares of Rs.2/- each in the company. Consequently the shareholding of the Appellants - i.e. the promoter group - in the company's paid up capital increased from 34.99% to 44.84%. The said acquisition, being by way of preferential allotment made in terms of section 81(1A) of the Companies Act, 1956, enjoyed exemption from complying with the requirements under Chapter III of the Takeover Regulations by virtue of the provisions of regulation 3(1) ( c ). However, according to the Respondent, the Appellants failed to report the details of the acquisition to the concerned stock exchange and the Respondent as required in terms of sub regulation (3) and (4) of regulation 3, respectively. It was in the said context the Respondent decided to adjudicate the matter and for the purpose appointed an adjudicating officer.

3. Shri Bharat Merchant, learned Counsel appearing for the Appellants submitted that the Appellants are the promoters of the company and they are also managing it. He submitted that they were holding about 35% of the paid up capital of the company even before they converted the OCDs, that on acquiring shares after conversion of the OCDs their holding in the company's capital increased to 44.84%. Shri Merchant submitted that as per regulation 3(1) ( c ) preferential allotment made in terms of section 81(1A) of the Companies Act is an exempted acquisition from the purview of regulation 10, 11 and 12, that the instant acquisition being by way of preferential allotment made by the company, the same enjoyed exemption in terms of regulation 3(1) ( c ), from complying with the requirements of regulation 10, 11 and 12. He referred to regulation 3(1) ( c ) and submitted that as required by the said regulation the Board of Directors of the company in their meeting held on 28.1.2000, passed a resolution for issue of the OCDs on preferential basis, that the shareholders in their extra ordinary general meeting held on 1/3/2000 approved the proposal for issue of the OCDs, on 29.5.2000 the OCDs were allotted, on 15.2.2001 the Appellants opted for full conversion of the OCDs allotted to them, they were allotted 71,56,345 shares of Rs.2 each. Consequently the Appellants' holding in the company's paid up capital increased from 34.99% to 44.84%. He submitted that the requisite report with details under regulation 3(4) was submitted to the Respondent on 11.12.2001.

44. The core portion of the special resolution to be passed in the Extra ordinary general meeting held on 1.3.2000, as disclosed in the notice dated 28.1.2000 is as follows:

"consent of the Company be and is hereby accorded to the Board of Directors of the Company (hereinafter referred to as "the Board" which term shall be deemed to include any Committee constituted by the Board or any Committee which the Board may hereafter constitute, to exercise one or more powers including the powers conferred by this Resolution), to issue, offer and allot, not exceeding 40,00,000 (Forty lakhs only) Optionally Convertible Debentures (OCDs) of the face value of Rs.100/- each at par aggregating to Rs.40 Crores on Private Placement basis to the Promoters, Non Residents Indians (NRIs), Overseas Corporate Bodies (OCBs), Financial Institutions, Mutual Funds etc. as the Board may in its absolute discretion deem fit. 50% of the face value of each OCD would be compulsorily converted into ordinary shares of Rs.10 each, at the end of 18 months from the date of allotment of the OCDs at a price of Rs.47/- per ordinary share which has been determined based on SEBI pricing formula (treating January 30, 2000 as the relevant date) and the balance 50% plus cumulative interest thereon, if any, on the entire investment would, at the option of the investor, also be convertible into ordinary shares of Rs.10/- each at the end of 18 months from the date of allotment of the OCDs at the same price as indicated above. In case the option to convert the balance amount of the OCD into ordinary shares is not exercised by any of the investors, the same shall be redeemed at par or at a premium, if any, to be decided by the Board in consultation with such Investors in three equal annual instalments at the end of 4th, 5th and 6th year from the date of allotment of the OCDs. The interest accrued on the OCDs shall be paid forthwith upon receipt of investors' decision for non-conversion of the balance amount. The promoters and NRI/OCB Investors have expressed their inclination to convert into ordinary shares their entire investment alongwith accrued interest on the investment. The coupon rate on the OCDs would be decided by the Board in consultation with the investors, which shall not exceed 16% p.a. payable at half-yearly intervals".
"Promoters, Non Residents Indians (NRIs), Overseas Corporate Bodies (OCBs), Financial Institutions, Mutual Funds etc. The special resolution passed in the extra ordinary general meeting held on 1.3.2000 also refers to issue of OCDs not exceeding forty lakhs on private placement basis to the "Promoters, Non Residents Indians (NRIs), Overseas Corporate Bodies (OCBs), Financial Institutions, Mutual Funds etc." The explanatory statement to the notices referred to earlier is with reference to the said resolution. It is also noted that the resolutions passed by the board of directors and in the extra ordinary general meeting is for issue of OCDs and it is not for allotment of shares on preferential basis as such. The equity share allotment comes to picture only when the holder of OCDs exercise their option to convert OCDs to equity shares. The resolution puts only an outer limit of the number of OCDs, which the Board is empowers to issue. The exact number is not mentioned either in the Board resolution or in the general body meeting resolution. The resolution is also not specific as to the exact quantum of the shares likely to be allotted. According to the general body resolution "50% of the face value of each OCD would be compulsorily converted into Ordinary Shares of Rs. 10/- each, at a price of Rs. 47/- per ordinary shares, which has been determined on the basis of SEBI pricing formula, at the end of 18 months from the date of allotment of the debentures and the balance 50% plus cumulative interest thereon, if any, on the entire investment would, at the option of the investors, also be convertible into ordinary shares of Rs.10/- at the end of 18 months, at the same price as indicated above. In case the option to convert the balance amount of the OCD into ordinary shares is not exercised by any of the investors, the same shall be redeemed at par or at premium, if any, to be decided by the Board .......". It is noted that the OCDs were allotted on 29..5.2000 and the entire contribution of the promoters was converted into equity shares at an early date on 15.2.2001 and by reason of such conversion the Appellants" acquired 71,56,345 shares of Rs.2/- each". Thus it is clear that factual position stated in the resolutions/notice was not specific and the subsequent developments have shown the developments at variance with certain disclosures made in the resolutions. It is to be noted that the reporting under regulation 3(3) and 3(4) is with reference to the actual acquisition of shares and not with reference to acquisition of Optionally Convertible Debentures. It is also noted that the Respondent has already devised separate formats for furnishing information by the acquirers in terms of regulation 3(3) and 3(4) and the information as available in the board resolution and the notice of general meeting does not fully cover the information required to be so furnished. In my view, in the light of the facts and circumstances of the case, I am not inclined to agree with Appellants' view that in view of the compliance of the requirements under regulation 3(1)( c) (i) & (ii)the concerned stock exchanges were not required to be notified under regulation 3(3).