Adjudication order in respect of Madhusudan Securities Limited

8/9/2019 Adjudication order in respect of Madhusudan Securities Limited

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ ADJUDICATION ORDER NO. EAD-2/DSR/VVK/405/2015 ]

______________________________________________________________________

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 AND UNDER

SECTION 23-I OF SECURITIES CONTRACTS ( REGULATION ) ACT,1956 READ

WITH RULE 5 OF SECURITIES CONTRACTS REGULATION ( PROCEDURE FOR

HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER )

RULES, 2005.

In respect of

MADHUSUDAN SECURITIES LIMITED [ PAN: AACCM7638R ]

_______________________________________________________________________

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) observed

that Madhusudan Securities Limited (hereinafter referred to as "MSL /

Noticee/Target Company " ) have not complied with the

a) provisions of Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 1997 (hereinafter referred to as "SAST Regulations,

1997") during the years from 1998 to 2005, 2008 and 2010 ,

b) provisions of Section 21 of the Securities Contracts ( Regulation ) Act, 1956

[ hereinafter referred to as "SCR Act,1956" ] read with Rule 19A of the Securities

Contracts ( Regulation) Rules,1957 [ hereinafter referred to as "SCR Rules,1957"]

and Clause 35 & 40 of the Listing Agreement (LA);

c) provisions of regulation 23(6)of the SAST Regulations,1997; and,

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d) provisions of regulation 73(1)(c) of the SEBI ( Issue of Capital and Disclosure

Requirements ) Regulations, 2009 ( hereinafter referred to as "ICDR Regulations,

2009 " ).

2. (a) Alleged violation of regulation 8(3) of the SAST Regulations,1997 :

The details of the delayed disclosures made by the noticee are given as below :-

Regulation Due Date of

compliance

Actual date

of filing*

Delay in

no. of days

8(3) 30.04.1998 03.05.2005 2,560

8(3) 30.04.1999 03.05.2005 2,195

8(3) 30.04.2000 03.05.2005 1,829

8(3) 30.04.2001 03.05.2005 1,464

8(3) 30.04.2002 03.05.2005 1,0998 (3) 30.04.2003 03.05.2005 734

8 (3) 30.04.2004 03.05.2005 368

8 (3) 30.04.2005 03.05.2005 3

8 (3) 30.04.2008 05.05.2008 5

8 (3) 30.04.2010 12.05.2010 12

* The actual dates of fi l ing o f disclo sures are as per the mail received from th e BSE on

March 21, 2014.

(b) Alleged violation of Section 21 of the SCR Act,1956; Rule 19A of the SCR

Rules, 1957 read with Clause 35 & 40A of the LA.:

It is observed that the noticee made a preferential allotment to Primus Retail

Private Limited (PRPL) on May 18, 2011, pursuant to a Business Transfer

Agreement (BTA) entered on February 4, 2011. The shares of the noticee are

listed at The Bombay Stock Exchange Ltd. ( hereinafter referred to as "BSE" ). It

was further observed that PRPL held 80.37% of the post preferential issue share

capital of the noticee. In the explanatory statement to the EGM, it was mentioned

that pursuant to the preferential allotment, there would be change in control of thenoticee. Therefore, PRPL should have been included as a promoter of the noticee.

However, it was observed that the explanatory statement depicted the

shareholding pattern of the noticee before and after the issue, without including

PRPL in the promoter category. It was alleged that the noticee had wrongly

classified PRPL and its PACs under the `public' category after the preferential



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allotment. Thus, it was alleged that the noticee has violated Clause 35 of the LA

which requires the noticee to provide the correct shareholding details on a quarterly

basis.

Further it was also observed that pursuant to the preferential allotment, the

promoter shareholding in the noticee company increased to 88.38% ( i.e. the

shareholding of PRPL along with PACs). Thus, the noticee in terms of Rule 19A of

the SCR Rules,1957 was required to maintain 25% public shareholding within 12

months of the date of preferential allotment. Further, it was also observed that on

October 31, 2011, the noticee made another preferential allotment of 10,52,630

shares to three entities ( one promoter group entity and two public entities ).

Pursuant to the same, the shareholding of the promoter group reduced to 82.22% (i.e. the shareholding of PRPL along with PACs ). Thus, it was observed that the

public shareholding was not brought to the level of 25% within one year from the

date of preferential allotment i.e. by May 18, 2012. Thus, it was, alleged that the

noticee has circumvented the minimum public shareholding requirements by

wrongly classifying the promoter entities as `public' and, thus, allegedly violated

Section 21 of the SCR Act,1956 read with Rule 19A of the SCR Rules, 1957 read

with Clause 40A of the LA.

(c) Alleged violation of regulation 23(6) of the SAST Regulations,1997 :

It was observed that the noticee authorized the transfer of 48% shares from the

seller Madhusudan Leasing and Finance Limited (MLFL) ( now known as " Joy

Reality Limited (JRL) ") to the acquirer Sree Sanjeeva Raghu Agencies Private

Limited (hereinafter referred to as " SSRAPL" ) during the quarter ended December,

2001 without confirming whether all the obligations have been fulfilled by the

acquirer under the SAST Regulations,1997. Thus, SSRAPL was under the

obligation to make an open offer under regulation 10 but did not make it. It was,

therefore, alleged that the noticee had failed to comply with regulation 23(6) of the

SAST Regulations,1997.



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(d) Alleged violation of regulation 73(1)(c) of the SAST Regulations,1997 :

It was observed that the noticee has not complied with Regulation 73(1)(c) of the

ICDR Regulations, 2009 in respect of preferential allotment dated May 18, 2011 in

the scrip of MSL.

In this regard, it was observed that the noticee made a preferential allotment to

Primus Retail Private Limited (PRPL / Acquirer ) on May 18, 2011, pursuant to a

Business Transfer Agreement (BTA) entered on February 4, 2011. PRPL held

80.37% of the post preferential issue share capital of the noticee. In the explanatory

statement to the EGM, it was mentioned that pursuant to the preferential allotment,

there would be change in control of the noticee. Thus, PRPL should have been

included as a promoter of the noticee. However, the explanatory statement depicted

the shareholding pattern of the noticee, before and after the issue, without including

PRPL in the promoter category. Thus, it was alleged that the noticee has violated

regulation 73(1)(c) of the ICDR Regulations, 2009 by disclosing the shareholding of

PRPL in 'non-promoter' category in the post-preferential shareholding of the noticee.

Appointment of Adjudicating Officer

3. I have been appointed as the Adjudicating Officer vide separate orders all dated

16th July, 2014 under Section 15-I of the Securities and Exchange Board of India

Act,1992 (hereinafter referred to as the `SEBI Act,1992') read with Rule 3 of the

Securities and Exchange Board of India (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules,1995 ( hereinafter referred to

as " the Rules") to inquire into and adjudge the alleged violation of

provisions of law by the noticee.

Show Cause Notices, Replies and Personal Hearing

4. Four Separate Show Cause Notices ( hereinafter referred to as "SCN") were

issued to the noticee under Rule 4(1) of the said Rules to show cause as to why

an inquiry should not be held and penalty ,if any ,should not be imposed under



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respective provisions of law viz. Section 15A(b) & 15HB of the SEBI Act, 1992

and Section 23A, 23E & Section 23H of the SCR Act,1956 for the alleged

violation of the said provisions of law.

Replies of the Noticee:

5. As regards the violation of 2 (a) above, the noticee filed its reply vide letter

dated 27th December, 2014 and the common additional written submissions

dated the 27th February,2015 to both the SCNs ( Nos.EAD-2/DSR/VVK/25730

& 25733 /2014) dated the 1st September, 2014, the contents whereof are

reproduced as below :-

Reply dated 27th December,2014 :

" - We deny all the allegations made against us in the said SCN.

- There was no change in the shareholding of promoters and/or persons in control

of the company in the Financial Years 2002-2003 to 2009-2009 and, therefore, no

prejudice was caused to the shareholders of the company or to the investors at

large by the said alleged non-disclosure by the Company for the aforesaid years.

- Furthermore, the scrip of the Company was suspended from trading on the

BSE from 30/4/2003 to 06/10/2009.

- Due to financial crisis, many of the office staff left the company and hence, some

of the disclosures to the BSE were made late.

- The BSE suspended the scrip from trading, inter alia, on account of this delay inmaking disclosures imposed a penalty of Rs.2,50,000/- on the Company to revoke

the suspension and penalty for delay in submission of all the documents of

compliances.



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- Since we have been penalised by the BSE for the same delay in making

disclosures, we may not be penalised once again by SEBI for the same delay.

- We request that we may given the benefit of the doubt and discharged from

the present SCN."

6) As regards the violation of 2 (b) above, the noticee filed its reply vide

letter dated 29th December, 2014, the contents whereof are reproduced as

below:-

" - We deny all the allegations made against us in the SCN.

- We submit that the Business Transfer Agreement (BTA) dated February 4,2011

was entered into with Primus Retail Private Limited for the latter to acquire

61,42,857 shares of our company by way of Preferential Allotment and for our

Company to acquire certain businesses carried on by Primus. Although the

Preferential Allotment was in fact done on May 18,2011 and a Public

Announcement and Open Offer done to the shareholders of our Company in terms

of the SEBI Takeover Regulations,1997, the BTA could not be given full effect to

because vide order dated October 8,2012, the Hon'ble High Court of Karnataka

ordered Primus to be wound up. Consequently, there was no change in the

management of our company.

- Primus would have become a promoter of the Company and described as such

only on completion of the Open Offer and not prior thereto. The Open Offer has

not been completed till date and hence, it would not have been correct or proper

for Primus to be described as a promoter of the Company in the Explanatory

Statement to the Notice for EGM to obtain approval for the Preferential Allotment.

- Primus was wound up in terms of the Karnataka High Court's order dated

October 8,2012 and, therefore, they were not able to perform their obligations

under the aforesaid BTA; furthermore, due to the said order, Primus was also

unable to comply with the requirements of the Open Offer made to the



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shareholders of our company. Consequently, the preferential allotment of shares

made to Primus was forfeited in the Board of Directors meeting held on 17th

October, 2014 subject to Statutory Approval.

- It may be noted that even prior to the said cancellation, there was no change in

the management of the Company in favour of Primus pursuant to the aforesaid

BTA and Preferential Allotment of shares. Primus could not have and in fact, did

not act as promoters of the company.

- We submit that the public shareholding after 12 months of the Preferential

Allotment was above 25% and that we have not circumvented the minimum

shareholding requirement by wrongly classifying the promoter entities as "public"as alleged or otherwise and, that we have not violated Rule 19A of the SCR Rules

read with clause 40A of the LA. Therefore, we may be given the benefit of doubt

and discharged from the present SCN."

Additional Written Submissions vide letter dated the 27th February,2015

" - Our client repeats, reiterates and submits that PRPL was wound up under theOrder dated October 8,2012 passed by the Karnataka High Court and for that

reason also, they were not able to comply with the provisions of the BTA dated

February 4,2011. Furthermore, in its order dated February 20,2014, SEBI

exempted PRPL from being an acquirer in an open offer made by them on

February 10,2011. Consequently, the 61,42,847 shares allotted to PRPL by way

of the Preferential Allotment dated May 18,2011 were forfeited in the Board of

Director's meeting held on October 17,2014.

Two other entities, Indus Age Advisors Ltd (IAL) and Growsafe Securities Pvt. Ltd.

(GSPL) acquired a total of 2,31,000 shares of our client from the open market and

promoters of our client on February 04, 2011. Furthermore, on October 31, 2011,

our client allotted 5,39,286 shares to Foresight Holdings Pvt. Ltd. (on behalf of



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Foresight Enterprises). In respect of the said acquisition, a Letter of Offer dated

February 18, 2015 was sent to the shareholders of our client by IAL and GSPL (the

acquirers) along with Mr. Salim Govani, Foresight Holdings Pvt. Ltd and Foresight

Enterprises (collectively referred to as Person Acting in Concert or PACs) for

acquiring upto 13,47,594 shares from them. The said Letter of Offer was issued

after approval of SEBI was obtained vide letter dated February 13, 2015. The said

offer opened on February 28, 2015 and closed on March 19, 2015" .

7) As regards the violation of 2(c) above, the noticee filed its reply vide letter

dated 27th December,2014, the contents whereof are reproduced as below :-

" - We deny all the allegations made against us in the said SCN.

MLFL was part of the promoter group of our Company, the Acquirer was promoted

by Late K Sanjeeva Reddy in August 1999 and therefore, the Acquirer is a part of

the group of companies promoted by Late K Sanjeeva Reddy. MLFL and our

Company were also promoted by Mr. K Sanjeeva Reddy and therefore, part of the

same group.

- MLFL was a part of the promoter group of our Company. In and around

December,2001, MLFL transferred 48% shareholding held by them in our

company to the SSRAPL, consequently reduced the promoter shareholding

in our company to 47.73%.

- MLFL was constrained to transfer the said 48% shares to the acquirer and not to

a third party or on the stock exchange because of poor market conditions and lack

of liquidity in the scrip on the BSE. Furthermore, the said transfer was done in

despair since MLFL desperately required funds to meet its obligations and could

not find other sources of funds."



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From the above, it is clear that the aforesaid transfer of 48% shares by MLFL to

the Acquirere was an inter se transfer of shares among members of the same

group and therefore, in terms of Regulation 3(1) (e) (i), the Acquirere was exempt

from the requirements of Regulation 10 of the Takeover Regulations. In this

regard, it may be noted that Regulation 3(1)(e) (i) provided that Nothing contained

in regulations 10, 11 and 12 of the Takeover Regulations shall apply to inter se

transfer of shares amongst group coming within the definition of group as defined

in the Monopolies and Restrictive Trade Practices Act, 1969 where persons

constituting such group have been shown as group in the last published Annual

Report of the target Company i.e. Our Company.

Since MLFL and the Acquirer were controlled by the same person at the relevanttime. i.e. Late K Sanjeeva Reddy, they formed part of the same group and hence

the Acquirer was eligible for the exemption under Regulation 391) (e) (i) of the

Takeover Regulations from making a Public Announcement and / or Open offer.

In view of the above, we were advised that the Acquirer had complied with all its

obligations under the Takeover Regulations and hence we approved / authorised

the transfer of shares from MLFL to the Acquirer. Hence, we submit that we had

complied with the requirements of Regulation 23(6) of the Takeover Regulations."

Additional Written Submissions dated the 27th February,2015.

" - Our client had complied with Regulations 6,7 & 8 of the said SAST

Regulations,1997. Under regulation 3(2) of the said Regulations, only the

transferor and transferee are required to comply with Regulations 6,7 & 8 of the

said Regulations for the purpose of seeking exemption. Furthermore, it is not

SEBI's allegation that either the transferor or transferee had not complied with the

provisions of regulation 6,7 & 8 of the said Regulations. Therefore, the exemption

under Regulation 3(1)(e)(i) was available to the transferee and they were not

required to make a Public Announcement or Open Offer under Regulation 10 of

the said Regulations. Hence, our client had correctly confirmed that all the



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requirements under the said regulations had been complied with by the Transferor

and therefore, our client had complied with Regulation 23(6) of the said

Regulations."

8) As regards the violation of 2 (d) above, the noticee filed its reply vide

dated 29th December,2014 the contents whereof are reproduced as below :-

" - We deny all the allegations made against us in the aforesaid SCN.

- We submit that the Business Transfer Agreement (BTA) dated February 4,2011

was entered into with Primus Retail Private Ltd.(Primus) for the latter to acquire

61,42,857 shares of our company by way of Preferential Allotment and for our

company to acquire certain businesses carried on by Primus. Although the

Preferential Allotment was in fact done on May 18,2011 and a Public

Announcement and Open Offer were made to the shareholders of our Company in

terms of the SEBI Takeover Regulations,1997 on February 10,2011, the BTA could

not be given full effect to because vide order dated the October 8,2012, the

Hon'ble High Court of Karnataka ordered Primus to be wound up. Consequently,

there was no change in the management of our Company.

- We submit that Primus would have become a promoter of the Company and

described as such only on completion of the Open offer and not prior thereto. The

Open Offer has not been completed till date and hence, it would not have been

correct or proper for Primus to be described as a promoter of the Company in the

Explanatory Statement to the Notice for EGM to obtain approval for the Preferential

Allotment.

- Primus was would up in terms of the Karnataka High Court's order dated October

8,2012 and therefore, they were not able to perform their obligations under the

aforesaid BTA; furthermore, due to the said order, Primus was also unable to

comply with the requirements of the Open Offer made to the shareholders of our



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company. Thus, in fact, there was no change in the management of the Company

in favour of Primus pursuant to the aforesaid BTA and Preferential Allotment of

shares.

- We submit that the inclusion of the post allotment shareholding of Primus in the

non-promoter category in the Explanatory Statement to the Notice for EGM dated

March 18,2011 did not amount to the violation of Regulation 73(1)(c) of the ICDR

Regulations,2009.

- The requirement of regulation 73(1)(c) of the ICDR Regulations,2009 is to

disclose the shareholding patter prior to and after the Preferential Allotment of

Shares in the Explanatory Statement to the Notice for the General Meeting inwhich the special resolution ( for allotment of shares ) was proposed to be passed.

We humbly submit that shareholders were not misled regarding the post allotment

shareholding. Therefore, we may be given the benefit of doubt and discharged

from the present SCN."

Additional Written Submissions dated the 27th February,2015

" - Our client repeats, reiterates and submits that PRPL was wound up under the

Order dated October 8,2012 passed by the Karnataka High Court and for that

reason also, they were not able to comply with the provisions of the BTA dated

February 4,2011. Furthermore, in its order dated February 20,2014, SEBI

exempted PRPL from being an acquirer in an open offer made by them on

February 10,2011. Consequently, the 61,42,847 shares allotted to PRPL by way

of the Preferential Allotment dated May 18,2011 were forfeited in the Board of

Director's meeting held on October 17,2014."

9. Thereafter, in the interest of natural justice and in order to conduct inquiry in

terms of Rule 4(3) of the said Rules, the noticee was granted an opportunity of

personal hearing on 25th February, 2014 .The Authorized Representative



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appeared on behalf of the noticee and reiterated their submissions mentioned in

their respective replies. Further, the noticee sought a week's time to make

additional submissions which was granted upto 5th of March,2015. The noticee

vide its letter dated the 27th February,2015 filed its additional written submissions

in the matter.

Consideration of Issues, Evidence and Findings

10. I have carefully perused the charges leveled against the Noticee in the SCN and

the reply of the noticee, the oral submissions, additional submissions and the

documents available on record. In the instant case, the following issues arise for

consideration and determination :-

a. Whether the Noticee has violated the provisions of Regulation 8(3) and

23(6)of the SAST Regulations,1997 , Section 21 of the SCR Act,1956 read

with Rule 19A of the SCR Rules,1957 and Clause 35 & 40 of the LA, and

regulation 73(1)(c) of the ICDR Regulations, 2009.

b. Whether the Noticee is liable for monetary penalty prescribed under

Section 15A(b), 15HB of the SEBI Act,1992 and Section 23A, 23E and 23H of

the SCR Act,1956 for the respective aforesaid violations.

c. If so, what should be the quantum of monetary penalty for such

violations that can be imposed taking into consideration the factors

mentioned in Section 15-J of the SEBI Act,1992 and Section 23-J of the

SCR Act, 1956?

11. Before proceeding further, it is pertinent to refer to the relevant provisions of the

law which read as under :-

Provisions of SCR Act,1956 :



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" Sec. 21. Conditions for listing - Where securities are listed on the application

of any person in any recognised stock exchange, such person shall comply with

the conditions of the listing agreement with that stock exchange."

Provisions of SCR Rules,1957 :

" 19A - Continuous Listing Requirement -

(1) Every listed company other than public sector company shall maintain public

shareholding of at least twenty five per cent :

Provided that any listed company which has public shareholding below twenty

five per cent, on the commencement of the Securities Contracts (Regulation)(Amendment) Rules, 2010, shall increase its public shareholding to at least twenty

five per cent, within a period of three years from the date of such commencement,

in the manner specified by the Securities and Exchange Board of India.

Explanat ion : For the purposes of this sub-rule, a company whose securities has

been listed pursuant to an offer and allotment made to public in terms of sub-

clause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty

five per cent, public shareholding from the date on which the public shareholding

in the company reaches the level of twenty five percent in terms of said sub-

clause.

(2) Where the public shareholding in a listed company falls below twenty five per

cent. at any time, such company shall bring the public shareholding to twenty five

per cent. within a maximum period of twelve months from the date of such fall in

the manner specified by the Securities and Exchange Board of India. "

Provis ions of ICDR Regulation s, 2009 :

Disclosures :

"73(1) : The issuer shall, in addition to the disclosures required under section 173

of the Companies Act, 1956 or any other applicable law, disclose the following in



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the explanatory statement to the notice for the general meeting proposed for

passing special resolution :-

(a)…

(b)…

(c) the shareho lding p attern of the issuer before and after the preferential

issue;"

Provisions of SAST Regulations,1997 :

Reg. 8 - Continual Disclosures :-

" 8(3) Every company whose shares are listed on a stock exchange, shall within

30 days from the financial year ending March 31, as well as the record date of thecompany for the purposes of declaration of dividend, make yearly disclosures to

all the stock exchanges on which the shares of the company are listed, the

changes, if any, in respect of the holdings of the persons referred to under sub-

regulation (1) and also holdings of promoters or person(s) having control over the

company as on 31st March."

Provisions of Listing Agreement :

Clause 35 of the LA reads as under :

" The issuer company agrees to file with the exchange the following

details, separately for each class of equity shares / security in the formats

specified in this clause, in compliance with the following timelines, namely :-

a) One day prior to listing of its securities on the stock exchanges.

b) On a quarterly basis, within 21 days from the end of each quarter.

c) Within 10 days of any capital restructuring of the company resulting in a

change exceeding +/-2% of the total paid-up share capital. ”

Clause 40A of the LA reads as under : -

" Minimum level of public shareholding



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(i) The issuer company agrees to comply with the requirements specified in Rule

19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.

(ii) ....... "

Findings:

12) Allegation of violation of Regulation 8(3) of SAST Regulations,1997:

It was alleged in the SCN that the Noticee was under an obligation to disclose the

aggregate shareholdings to the stock exchanges i.e. BSE for the year 1998 to

2005, 2008 and 2010 under regulation 8(3) of the SAST Regulations, 1997.

However, the said disclosures were admittedly made by the Noticee belatedly. I

note that as regards the said Regulation 8(3), the noticee was under an

obligation to file disclosures pertaining to its shareholding to the stock exchanges

within 30 days from the financial year ending March 31. However, I note that the

noticee has made the disclosures belatedly and the details thereof are as follows.

Regulation Due Date of

compliance

Actual date

of filing*

Delay in

no. of days

8(3) 30.04.1998 03.05.2005 2,560

8(3) 30.04.1999 03.05.2005 2,195

8(3) 30.04.2000 03.05.2005 1,8298(3) 30.04.2001 03.05.2005 1,464

8(3) 30.04.2002 03.05.2005 1,099

8 (3) 30.04.2003 03.05.2005 734

8 (3) 30.04.2004 03.05.2005 368

8 (3) 30.04.2005 03.05.2005 3

8 (3) 30.04.2008 05.05.2008 5

8 (3) 30.04.2010 12.05.2010 12

13. I note from the submission of the noticee that BSE had penalised the noticee for

the belated disclosures and levied a penalty of ` 2,50,000 on the noticee. The

noticee had sought for a lenient view in the matter. I note that the noticee

submitted that there was no change in their shareholding of promoters and / or

persons in control of the company during the years to which the delayed

disclosures relate. I further note that the noticee in its said reply has submitted that



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no prejudice was caused to the shareholders of the company or to the investors

at large by the said alleged non disclosure by the company for the aforesaid

years. I further observe that the argument of the noticee that there was no change

in the shareholdings of promoters and /or persons in control of the Company

during the years and, therefore, no prejudice was caused to the shareholders of

the company or to the investors at large by the said alleged delayed disclosure by

the noticee and therefore penalty ought not to have been imposed is without any

merit and the same is untenable.

14. I observe that the disclosures made by the Noticee under Regulation 8(3) of the

SAST Regulations, 1997 are made public only through Stock Exchange. It is with

this end in view that the Regulations require the making of timely disclosures sothat investing public is not deprived of vital information. The disclosures made by

companies listed on the stock exchanges are the means to attain such end and,

therefore, the dissemination of complete information is required. However,

the Noticee in this case has neglected the duty of making timely disclosures in

compliance with Regulation 8(3) of the SAST Regulations,1997. It is pertinent to

note that delayed disclosure would serve no purpose at all. Thus, I find that

the noticee has admittedly failed to comply with regulation 8(3) of the SAST

Regulations,1997 for the year 1998 to 2005, 2008 and 2010. Therefore, the

Noticee is liable for monetary penalty under section 15A(b) of SEBI Act,1992

which reads as under :-

15A. Penalty for fai lure to furn ish in form ation, return, etc. - If any person,

who is required under this Act or any rules or regulations made thereunder,-

(a) …..

(b) to file any return or furnish any information, books or other documents within

the time specified therefor in the regulations, fails to file return or furnish the

same within the time specified therefor in the regulations, he shall be liable to a

penalty of one lakh rupees for each day during which such failure continues or

one crore rupees, whichever is less;



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15) Allegation of violation of provisions of Section 21 of the SCR Act,1956

read with Rule 19A of the SCR Rules,1957 and Clause 35 & 40 of the LA.

From the material available on record, I observe that the noticee made a

preferential allotment to PRPL on May 18, 2011 pursuant to BTA entered on

February 4, 2011 and that PRPL held 80.37% of the post preferential issue share

capital of the noticee. Further, pursuant to the preferential allotment, the

promoter shareholding in the noticee company increased to 88.38% ( i.e. the

shareholding of PRPL along with PACs ). It is further observed that on October

31, 2011, the noticee made another preferential allotment of 10,52,630 shares to

three entities ( one promoter group entity and two public entities ) and due to thisthe shareholding of the promoter group reduced to 82.22% ( i.e. the shareholding

of PRPL along with PACs). Thus, it is observed that the public shareholding was

not brought to the level of 25% within one year from the date of preferential

allotment i.e by May 18,2012.

17. I observe that in terms of Rule 19A of the SCR Rules,1957, the noticee was required

to maintain 25% public shareholding within 12 months of the date of preferential

allotment. In the explanatory statement to the EGM, it was mentioned that pursuant

to the preferential allotment, there would be change in control of the noticee.

Therefore, PRPL should have been included as a promoter of the noticee. However,

it was observed that the explanatory statement depicted the shareholding pattern of

the noticee before and after the issue, without including PRPL in the promoter

category. It was alleged that the noticee had wrongly classified PRPL and its PACs

under the `public' category after the preferential allotment and the 25% public

shareholding was not maintained within 12 months of the date of preferentialallotment of the first tranche of preferential allotment dated May 18,2011 by the

noticee.

18. I find that the noticee in its reply dated 29th December, 2014 has denied all the

allegations made against it and submitted that PRPL would have become promoter of



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the Company and described as such only on completion of the Open Offer and not

prior thereto. It was further submitted by PRPL that the open offer has not been

completed till date and, hence, it would not have been correct or proper for PRPL to

be described as a promoter of the company in the Explanatory Statement to the

Notice for EGM. The noticee has submitted that PRPL was wound up in terms of the

Karnataka High Court's order dated October 8,2012 and, therefore, they were not

able to perform their obligations under the said BTA inasmuch the PRPL went into

liquidation pursuant to the said High Court order and was, therefore, incapacitated

from participating in the proposed open offer as PRPL became non-existent,

therefore, the open offer could not be completed / fructified. Further, the shares

allotted to PRPL were forfeited in the Board of Directors meeting held on October

17,2014. I also note that the acquirers viz. Indus Age Advisors Limited, GrowsafeSecurities Pvt.Ltd., Foresight Holdings Pvt.Ltd. along with Mr.Salim Govani made

open offer for acquiring 15.50% of the total voting paid up equity share capital of the

noticee company and the offer opened on February 28,2015 and closed on March

19,2015. Pursuant to the same there would be a change in control of the noticee

company in favour of the acquirers and PACs by way of change in constitution of the

Board of Directors of the noticee / target company. I find merit in the submissions of

the notice ,therefore, it cannot be held that the noticee had failed to maintain 25%

public shareholding within 12 months of the date of preferential allotment. Thus, I

conclude that the allegation of violation of provisions of Section 21 of SCR Act

read with Clause 35 & 40A of the LA read with Rule 19A of the SCR Rules,1957 does

not stand established.

(19) Allegation of violation of provisions of regulation 23(6) of the SAST

Regulations,1997

It was alleged in the SCN that the Noticee had authorised transfer of 48% shares

from the seller ML &FL ( now known as JRL ) to buyer - acquirer SSRA Pvt. Ltd

(SSRAPL) during the quarter ended December, 2001 without confirming whether

all the obligations have been fulfilled bySSRAPL in terms of the provisions of

SAST Regulations 1997. The noticee in its reply dated the 27th December, 2014,



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inter alia, stated that MLFL was part of the promoter group. The acquirer was

promoted by Late K.Sanjeeva Reddy in August,1999 and therefore, the acquirer is

a part of the group of companies promoted by Late K.Sanjeeva Reddy. MLFL and

the Noticee company were also promoted by Mr.K.Sanjeeva Reddy and,

therefore, part of the same group. In and around December,2001, MLFL

transferred 48% shareholding held by them in the Noticee company to the

SSRAPL consequently, reduced the promoter shareholding to 47.73%. The

Noticee was constrained to transfer the said 48% shares to the acquirer and not to

a third party or on the stock exchange because of poor market conditions and lack

of liquidity in the scrip on the BSE. Furthermore, the said transfer was done in

despair since MLFL desperately required funds to meet its obligations and

could not find other sources of funds. From the above, it is clear that the aforesaidtransfer of 48% shares by the Noticee to the acquirer was an inter se transfer of

shares among members of the same group and, therefore, in terms of

regulation 3(1)(e)(i) of Takeover Regulations 1997, the acquirer was exempt from

the requirements of regulation 10 of the Takeover Regulations. Since MLFL

and the acquirer were controlled by the same person at the relevant time i.e.

Late K Sanjeeva Reddy, they formed part of the same group and hence the

acquirer was eligible for the exemption under Regulation 3(1)(e)(i) of the

Takeover Regulations from making a Public Announcement and / or Open offer.

In view of the above, the Noticee submitted that they were advised by the

Merchant Banker that the acquirer had complied with all its obligations under the

Takeover Regulations and hence hence they approved / authorized the transfer of

shares from MSL to the acquirer. The Noticee submitted that they had complied

with the requirements of Regulation 23(6) of the Takeover Regulations. Further,

the noticee in its additional written submissions dated the 27th February,

2015has, inter alia, stated that the exemption under regulation 3(1)(e)(i) of

the SAST Regulations,1997 was available to the transferee and they were not

required to make a Public Announcement or Open Offer under Regulation 10 of

the said Regulations and the Noticee had correctly confirmed that all the

requirements under the said regulations had been complied with by the

transferor. I note that the noticee permitted the transfer of 48% shares of the



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company from MLFL to Shree Sanjeevan Raghu Agencies Private Limited during

the quarter ended December,2001. I further note that the acquirer was allegedly

required under Regulation 23(6) of the Takeover Regulations to confirm that

all obligations had been fulfilled by the acquirer prior to authorization of the said

transfer. I find merit in the submission of the noticee that the target company and

the MLFL and SSRAPL are part of the same group i.e. inter se group and fall

under the exempted category under regulation 3(1)(e)(i) of the SAST

Regulations,1997. I also note that the transfer is inter se transfer of shares

amongst group (coming within the definition of group) as defined in the

Monopolies and Restrictive Trade Practices Act,1969 where persons constituting

such group under Section 2(ef) (i),(ii) and (I),(II) and (III) have been shown as

group in the last published Annual Report of the target company i.e. MSL. Sincethe SSRAPL (the acquirer) is exempt under regulation 3(1)(e)(i) of the SAST

Regulations,1997 ,therefore,is deemed to have fulfilled all obligations under the

regulations. Therefore, I find merit in the submissions of the noticee and I

conclude that the allegation of violation of regulation 23(6) of the SAST

Regulations,1997 does not stand established.

(20) Allegation of violation of provisions of regulation 73(1)(c) of the ICDR

Regulations,2009

I observe from the SCN that the noticee made a preferential allotment to PRPL

(Acquirer) on May 18,2011 pursuant to BTA entered on February 4,2011. PRPL held

80.37% of the post preferential issue share capital of the noticee. In the Explanatory

Statement (ES) to the notice of EGM, it was mentioned that pursuant to the

preferential allotment, there would be change in control of the noticee. I also

observe from the SCN that PRPL should have been included as a promoter of the

noticee. However, I observe that the said ES depicted the shareholding pattern of the

noticee, before and after the issue, without including PRPL in the promoter category.

Therefore, it was alleged that the noticee has violated requlation 73(1)(c) of the ICDR

Regulations, 2009 by disclosing the shareholding of PRPL in `non-promoter' category in

the post-preferential shareholding of the noticee. I observe from the noticee's reply

dated the 29th December, 2014 which, inter alia, stated that the inclusion of the post



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allotment shareholding of PRPL in the non- promoter category in the ES to the notice

for EGM dated March 18,2011 did not amount to violation of regulation 73(1)(c) of the

ICDR Regulations,2009. I note that regulation 73(1)(c) of the ICDR Regulations,2009

reads as under:

The issuer shall, in addition to the disclosures required under section 173 of the

Companies Act, 1956 or any other applicable law, disclose the following in the

explanatory statement to the notice for the general meeting proposed for passing

special resolution :-

(a)…

(b)…

(c) the shareholding pattern of the issuer before and after the preferential issue;"

I observe that the noticee made oral submissions during the hearing on 25th

February,2015 and submitted a copy of the Explanatory Statement to the Notice

for the EGM. The relevant information pertaining to the shareholding pattern of

the noticee is given as below :-

Shareholding pattern before and after the Preferential Issue

Pre-Preferential issue

Shareholding (as of 12th

March, 2011)

Post- Preferential issue

Shareholding (after allotment of

equity shares)

Category NO. % NO. %

A Promoter's Holding

I. Indian Promotersa) Individual b) Bodies Corporatec) Others

63,500

--134,800

4.23

--8.99

63,500

---134,800

0.83

--1.76

(ii )Foreign

Promoters

- Bodies Corporate

-- -- -- --

Sub Total (i) + (ii) 198,300 13.22 198,300 2.59

B Non PromotersHolding

-- -- -- --



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Primus RetailPvt Ltd

-- -- 6,142,857 80.37

Identity of the Proposed allottee and the percentage of pest preferential issue capital

SrNO

Name of allottees No of Equity shares tobe allotted`

% of Post issue equitycapital

1 Primus Retail Private Limited 6,142,857 80.37

Total 6,142,857 80.37

The noticee during the hearing submitted that the requirement of regulation

73(1)(c) had been complied by them as the noticee had declared the shareholding

pattern before and after the preferential issue. I find merit in the submission of the

noticee inasmuch as regulation 73(1)(c) of the ICDR Regulations,2009 mandatesonly the disclosure of the shareholding pattern of the issuer before and after the

preferential issue which the Noticee had complied with as evident from the ES

mentioned above. Therefore I conclude that the alleged violation of regulation

73(1)(c) of the ICDR Regulations,2009 does not stand established.

21. While imposing monetary penalty, it is important to consider the factors stipulated

in Section 15-J of the SEBI Act,1992 which read as under :-

Section 15-J o f SEBI Ac t, 1992:

“ 15- J - Factors to be taken into accoun t by the adjudicat ing off icer :

While adjudging the 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.”



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22. I observe from the material available on record that any quantifiable gain or unfair

advantage accrued to the Noticee or the extent of loss suffered by the investors

as a result of the default cannot be computed. It is observed that the violation of

Regulation 8(3) of the SAST Regulations,1997 by the noticee during the years

1998 to 2005, 2008 and 2010 is repetitive in nature.

ORDER

23. In view of the above, after considering all the facts and circumstances of the case

and in exercise of the powers conferred upon me under Section 15-I(2) of the

SEBI Act, 1992 read with Rule 5 of the said Rules, I hereby impose a penalty of

`.3,00,000/- (Rupees three lakh only ) on Madhusudan Securities Limited under

Section 15A(b) of the SEBI Act,1992 for the violation of Regulation 8(3) of the

SAST Regulations, 1997. In my view, the aforesaid monetary penalty is

commensurate with the defaults committed by the Noticee.

24. The above penalty amount shall be paid by the Noticee by way of Demand Draft

(DD) drawn in favour of “ SEBI – Penalties Remittable to Government of India” and

payable at Mumbai within 45 (forty five) days of receipt of this order. The said

DD shall be forwarded to the Division Chief, Corporate Finance Department

DCR-II, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4- A, „G‟

Block, Bandra-Kurla Complex, Bandra (E), Mumbai – 400 051.

25. In terms of Rule 6 of the said Rules, a copy of this order is sent to the Noticee

and also to Securities and Exchange Board of India.

Date: April 17, 2015 D. SURA REDDYPlace: Mumbai GENERAL MANAGER &

ADJUDICATING OFFICER

Documents

Adjudication order in respect of Madhusudan Securities Limited